Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Hood podcast,
Speaker 1: and I'm Annereira, senior editor for Bloomberg News. It's Friday,
Speaker 1: March eleventh. Welcome to the wacky and wild world of
Speaker 1: crypto legal battles, tough regulators, and a troubled bank. It's
Speaker 1: all happening in the crypto markets this week, another major
Speaker 1: crypto player is down because of FTX Silvergate, the troubled
Speaker 1: crypto friendly bank plans to wind down operations and liquidate
Speaker 1: itself after a long struggle with US regulators. But that's
Speaker 1: not all. The court gavels are knocking loud and clear
Speaker 1: as Gray Skille fights the SEC over the bitcoiny tf
Speaker 1: and ftx's Alameda over redemptions. Meanwhile, Voyager also one court
Speaker 1: approval to sell itself to Finance US. Joining me in
Speaker 1: the studio to help me make sense of this week's
Speaker 1: news are Bloomberg reporters Emily Nicole and Justina Lee. Another week,
Speaker 1: another crypto failure. Now, actually it's reached traditional finance in
Speaker 1: a way, right, So Silvergate, which is like a crypto
Speaker 1: friendly bank based in California, has decided to sort of
Speaker 1: liquidate its bank. What's what's going on there? Just you
Speaker 1: know what happened. Yeah, I mean, there was a last
Speaker 1: dish effort to try to find investors to shore up Silvergate,
Speaker 1: but it appears that all of those efforts have fallen through,
Speaker 1: and so Silvergate has decided to wind down operations and
Speaker 1: liquidate the bank. And it's kind of it's kind of
Speaker 1: interesting because Silvergate is entangled in the FTX collapse. You know,
Speaker 1: it famously was the bank for FTX slash Alameda, and
Speaker 1: I think early on they kind of identified avoid in
Speaker 1: the market, which is that a lot of big banks
Speaker 1: were simply too risk averse to bank for cryptoclients, and
Speaker 1: so by expanding aggressively into this space they could capture
Speaker 1: a lot of that business. But things kind of turned
Speaker 1: last year with the cryptowinter because obviously, with crypto prices falling,
Speaker 1: a lot of their cryptoclients started to withdraw. But at
Speaker 1: the same time, it was a double whammy because they
Speaker 1: had invested a lot of that money into you know,
Speaker 1: fixed income securities, which were also depreciating because of US
Speaker 1: interest rate increases. I guess we can say those two
Speaker 1: things in a way are tightly correlated. Given that US
Speaker 1: rate increases we're also hitting crypto prices, and so in
Speaker 1: the end it kind of became a bit of a
Speaker 1: classic bank run and a mismatch between assets and liabilities.
Speaker 1: So it was like a crypto collapse, but not really.
Speaker 1: I guess the reason why it was a crypto collapse
Speaker 1: was because they started losing deposits because of what was
Speaker 1: going on in crypto naming the other failures. But it
Speaker 1: wasn't you know, like, in the end, it just did
Speaker 1: what banks do, but it didn't do it very well.
Speaker 1: So one of the things that Silvergate had was a
Speaker 1: network called sen which was a network which allowed crypto
Speaker 1: companies to settle payments between each other as fast as
Speaker 1: like crypto trades, because obviously there's a mispatch between how
Speaker 1: fast trades settle on a blockchain or like how fast
Speaker 1: crypto trades can sort of be executed and how traditional
Speaker 1: payments work, especially in the US where they're very slow.
Speaker 1: So that not running anywhere could potentially pose a problem
Speaker 1: for crypto firms because like, how are they going to
Speaker 1: do payments? Do they go back to sort of the
Speaker 1: dark ages of before. But then there's also like an
Speaker 1: ongoing question about you know, what happens to crypto firms
Speaker 1: looking for a bank because one of the reasons silver
Speaker 1: Gate exploded, it was also because it wasn't very easy
Speaker 1: for crypto firms to find other other people or other
Speaker 1: firms to give to give them a bank account. So
Speaker 1: what are how is this banking sort of a problem
Speaker 1: for crypto in general. Well, suer Gate is gone now
Speaker 1: and the other alternative used to be a signature bank,
Speaker 1: you know, another American bank, but they've recently announced a
Speaker 1: decision to retreat from the crypto business, and we already
Speaker 1: seeing ramifications across the market. By Bit, a pretty major
Speaker 1: derivatives exchange recently announced that they're stopping dollar transfers. I mean,
Speaker 1: Finance has done the same, and so I mean this
Speaker 1: has really left the industry searching for you know, banking partners,
Speaker 1: especially for dollars, and I don't think there's an obvious
Speaker 1: solution at all. I mean, one solution is just to
Speaker 1: kind of focus more on crypto transactions, you know, using
Speaker 1: stable coin. Some people have talked about turning more to europairs,
Speaker 1: but I think ultimately, you know, it's still the same issue,
Speaker 1: which is that you know, for a lot of retail
Speaker 1: investors having a FIAT on and off ramp has been
Speaker 1: very convenient, and that is now severely lacking. But another
Speaker 1: long standing crypto issue which is even more sort of
Speaker 1: or not let's say, it's not not as as long
Speaker 1: as the banking problem, but also, like along saga has
Speaker 1: been will the US ever get a bitcoin ETF? And
Speaker 1: we've had some developments this week with one of the
Speaker 1: biggest proponents of it, which is gray Scale, which is
Speaker 1: one of the companies which is part of DCG Group,
Speaker 1: who also on Genesis, who's which lending armament bankrupt. So
Speaker 1: they've been in the news a lot. But what's going
Speaker 1: on with Grayscale and the SEC. Well, there's currently a lawsuit,
Speaker 1: you know, with Grayscale kind of suing the SEC about
Speaker 1: their rejection to convert the Bitcoin Trust into an ETF.
Speaker 1: And the basic the basis of their argument is that
Speaker 1: since the SEC did approve, you know, the Bitcoin future
Speaker 1: is ATF, there's no good reason for it not to
Speaker 1: do the same for a spot bitcoin ETF because essentially
Speaker 1: the two kind of move in the same direction. The
Speaker 1: other lawsuit, very much in focus today relates to Grayscale
Speaker 1: versus the SEC and oral arguments perhaps wearing more toward
Speaker 1: the gray scale under the spectrum then maybe was previously anticipated.
Speaker 1: Traders are now betting on a higher probability of Grayscale
Speaker 1: actually winning going into the case Bloomberg Intelligence. And the
Speaker 1: reason does this is significant issue is because the Grayscale
Speaker 1: Bitcoin trust has been the bane of many crypto players
Speaker 1: existence and arguably kind of contributed to the downfall of
Speaker 1: the crypto Hutch Fund Three Arrows Capital. And the reason
Speaker 1: that is is because you know, in the early days,
Speaker 1: when it was pretty hard for retail traders to access
Speaker 1: bitcoin in a regulated product, it was a pretty popular
Speaker 1: product that got to charge i would say higher than
Speaker 1: market management fees for kind of holding bitcoin and being
Speaker 1: a liquid will not do liquid investment product. But kind
Speaker 1: of as the Bitcoin Futures etf came to be and
Speaker 1: then there were more retail products to buy bitcoin, that
Speaker 1: product kind of became increasingly unpopular and started trading at
Speaker 1: a discount to the bitcoin and actually held. And at
Speaker 1: the same time, the other issue is that once you
Speaker 1: buy into that trust, you can't just redeem it whatever
Speaker 1: you want. And the reason why it kind of entrapped
Speaker 1: a lot of crypto players is because they had bard
Speaker 1: shares of this etf to kind of conduct this rather
Speaker 1: complicated arbitrat trade and they couldn't get their money out
Speaker 1: when they wanted to, which segues perfectly into another news
Speaker 1: of the week, which is someone who seems to be
Speaker 1: coming back from the dead. Right. I read the headline
Speaker 1: and it took me a minute to realize. But Alameda,
Speaker 1: which was sam Bank when Freed's hedge fund, is issuing Grayscale. Now,
Speaker 1: so's what's going on. Yeah, so Alameda was FTX is
Speaker 1: trading outfit. We all used to say they were separate
Speaker 1: back in the day, and now we firmly know that not.
Speaker 1: Alameda is now trying to recover assets wherever it can. Right,
Speaker 1: it's supposedly the one part of the FTX and buy
Speaker 1: that probably lost the most money of the creditor assets
Speaker 1: it still owes, and one of those is in gray Scale.
Speaker 1: Alamida says it has about two hundred and ninety million
Speaker 1: dollars worth of shares in the various crypto trust that
Speaker 1: gray Scale offered, and you know, depending on whether or
Speaker 1: not gray Scale was to honor those shares at the
Speaker 1: current price of the cryptocurrency, because, as Justina said, it's
Speaker 1: at a discount at the minute, that could actually be
Speaker 1: about five hundred and forty million dollars worth of stuff
Speaker 1: to come back to Alameter if they won the case.
Speaker 1: It's an argument that has been made by quite a
Speaker 1: few people who own gray Scale trust, Like a lot
Speaker 1: of the crypto community used to love gray Scale because
Speaker 1: it offered this liquid route to bitcoin owning, and now
Speaker 1: everybody is it's a little bit on the other side
Speaker 1: of the coin because they can't get their money out
Speaker 1: while bitcoin's down, and Alameter is one of those basically
Speaker 1: piping up in a courtroom saying like, this is the
Speaker 1: argument that we're putting forward. This is the argument that
Speaker 1: everybody else also says, which is that it's not fair
Speaker 1: to be able to be withholding this amount when Bitcoin
Speaker 1: is trading so much higher than what the price of
Speaker 1: gray Scale shares are. And just because there's difficulties going
Speaker 1: on elsewhere doesn't mean we should be able to shouldn't
Speaker 1: be able to cash out those shares as well. But
Speaker 1: while this spot ECF decision is going on, it also
Speaker 1: makes everything extremely complicated for gray Scale. Yeah, I mean,
Speaker 1: it just feel like in the ballmarket days, the high
Speaker 1: crypto prices were covering a lot of the underlying issues.
Speaker 1: I mean, we're talking about these gray Scale lawsuits and
Speaker 1: there are actually two more from as A managers that
Speaker 1: say that you know, you know, one of them said
Speaker 1: gray Scale misled them about the chances of an ETF conversion.
Speaker 1: And now that you know, we're in a bit of
Speaker 1: a crypto winter, we're definitely kind of starting to see
Speaker 1: these lawsuits coming up. One thing I do think was
Speaker 1: interesting this week is we saw the regulators get the
Speaker 1: brunt of the legal fight. So we had three cases
Speaker 1: going on this week. We had gray Scale against the
Speaker 1: SEC for the spot at TWENTYTF. We had Ripple versus
Speaker 1: the SEC to its first arguments for that case which
Speaker 1: has been ongoing for ages. And we also had a
Speaker 1: judge approve the sale of Voyage's assets to Binance Us.
Speaker 1: Those are three cases where regulators have come out and said,
Speaker 1: you know, like we disagree with this, whether it's like
Speaker 1: grace Gus shouldn't have a spot bitcoinetia for you know,
Speaker 1: in the case of Ripple, that they think that x
Speaker 1: XRP should be considered security. And so far, actually it
Speaker 1: hasn't really all been going the regulators way. Obviously, we're
Speaker 1: still at the early stages of these cases, and we're
Speaker 1: still yet to hear some other arguments as well, but
Speaker 1: Ripple was very confident talking about it. It's hearing yesterday
Speaker 1: that it had quite a bit of a strong argument
Speaker 1: against the SEC who had two of the experts they
Speaker 1: were speaking they were using in the case struck from
Speaker 1: the record. And then like a lot of regulators all
Speaker 1: over the US, protested about Binance buying Voyager and that's
Speaker 1: when I returned too, it's going to it's going to
Speaker 1: get to be able to do that. So, yeah, not
Speaker 1: been a good week for them in court. Emily, do
Speaker 1: you want to maybe explain a bit more what's going
Speaker 1: on with Voyager and on what's happened there maybe like
Speaker 1: taken a little step back, like who's going to buy
Speaker 1: Voyager when it collapse? And then why didn't they? Yeah,
Speaker 1: So Voyager is one of the crypto unders the collapse
Speaker 1: last year. There were quite a few of them, but
Speaker 1: the Voyager was one of them, and it was one
Speaker 1: of the ones that was more high profile, I think
Speaker 1: because they had previously kind of given the the indication
Speaker 1: that maybe some of their customer assets would have had insurance,
Speaker 1: and so when it went when it went bankrupt. That
Speaker 1: everybody was pretty shocked to find out that actually nothing
Speaker 1: was covered. And originally the company that was going to
Speaker 1: buy Voyager out last summer was FDx. They had already
Speaker 1: extended quite a lot of credit to Voyager in the
Speaker 1: form of loans. Alameda had given it something like close
Speaker 1: to five hundred million in dollar five hundred million dollars,
Speaker 1: and so FDx was all set to buy Voyager. Then
Speaker 1: FDx went bus so that deal went and put Voyager
Speaker 1: then also, you know, was owed quite a lot of
Speaker 1: money that they may or may not have to go
Speaker 1: back to the FCX estate because of those loans that
Speaker 1: accepted before, and so it had to go through the
Speaker 1: auction process again. And Binance US, the US exchange that
Speaker 1: is separate from the big Binance International entity UM put
Speaker 1: its hand up said oh, we want to buy Voye
Speaker 1: and it won that bid with about I think it
Speaker 1: was about a billion was the bid for Voyager, compared
Speaker 1: to one point four billion that FTX of previously bids,
Speaker 1: so a bit of a discount in those few months.
Speaker 1: But a lot of regulators put their hands up and said,
Speaker 1: we don't think this is a good idea. We can't
Speaker 1: see you know everything about Finance and its financials. They're
Speaker 1: all pretty obscure. We don't fully understand the separation between
Speaker 1: Binance and Binance US. Can we really trust this company
Speaker 1: to be owning another US entity like Voyager, which has
Speaker 1: a very large amount of assets under management that needs
Speaker 1: to go back to creditors or be remanaged as under
Speaker 1: in terms of this deal. So that was the issues
Speaker 1: at stake. We'll be right back with more from Bloomberg
Speaker 1: as Justina Lee and Emily Nicole. So just just to
Speaker 1: get a bit of context on Binance, because Binance has
Speaker 1: also been in the news. There was a story recently
Speaker 1: which wasn't our story, but the Journal did a story
Speaker 1: about sort of finances history, specifically in the US and
Speaker 1: the separation between the two entities that Emily mentioned. She
Speaker 1: mentioned US and Binance dot Com, So can you discuss that.
Speaker 1: So in twenty nineteen, Finance started a US arm that
Speaker 1: they call Binance dot US. And the reason they did
Speaker 1: that is because with a US entity that is more
Speaker 1: compliant with US law, they were trying to insulate the
Speaker 1: global cash cow, which is their international website, Binance dot Com,
Speaker 1: from potential US regulatory actions and US lawsuits. But the
Speaker 1: problem with this is that obviously it depends a lot
Speaker 1: on the two entities actually being separate, and this has
Speaker 1: always been something that has divided a lot of people.
Speaker 1: And this week we had a story from the Wall
Speaker 1: Street Journal kind of detailing the contact between the two
Speaker 1: exchanges and it used some text messages among the key
Speaker 1: executives to show that all along the Binance dot Com
Speaker 1: executives were quite heavily involved with the running of dot us.
Speaker 1: You know, for instance, the dot Us teams would report
Speaker 1: a lot of their work to the dot Com executives.
Speaker 1: Or for instance, when dot Us started trading, it was
Speaker 1: actually triggered by an engineer in Shanghai. And that is because,
Speaker 1: you know, according to the Journal article, the software code
Speaker 1: that operates Finance dot us is actually done out of Shanghai.
Speaker 1: And now Finance's defense for all of this has always
Speaker 1: been that, you know, dot Us does have a licensing
Speaker 1: agreement with the Global Exchange. But I think putting all
Speaker 1: of this together, it does kind of raise questions over
Speaker 1: exactly how separate they are, because you know, after all,
Speaker 1: the same person CZ is the largest shareholder in both
Speaker 1: dot Com and dot us, and I think you know,
Speaker 1: especially with the rising regulatory scrutiny into finance dot com.
Speaker 1: I mean, I think there is even more attention on
Speaker 1: this question now and if the two entities are actually
Speaker 1: not that separate, and that it kind of raises a
Speaker 1: question of what US regulators might do with dot com.
Speaker 1: We should be clear though, that the text the Wall
Speaker 1: Street Journal said they had seen were from twenty eighteen
Speaker 1: to twenty twenties, so they're not like recent ones. Moving on,
Speaker 1: you mentioned Emily that you know, it's not been a
Speaker 1: great week for regulators, but the global regulatory cracktone on
Speaker 1: crypto has continued. We had some action in India, of
Speaker 1: all places, which was already pretty tough on crypto. These
Speaker 1: sort of like the markets kind of semi dead there now.
Speaker 1: And then also the UK. Do you want to like
Speaker 1: quickly run down what's happened in India and then we
Speaker 1: could talk about the UK, which is mine And maybe
Speaker 1: I wasn't being fat I should say the US regulators
Speaker 1: of a bit of a tough week. But in India
Speaker 1: they announced some changes to anti money laundering laws to
Speaker 1: bring crypto companies under that. So they had already made
Speaker 1: it pretty tough for crypto exchanges to operate in the
Speaker 1: country last year with changes they made there then some
Speaker 1: you know, some punitive tax measures and things like that
Speaker 1: for users, and now it's like officially under that umbrella
Speaker 1: that if cryptocompanies see fraud on their platform, if they
Speaker 1: see something that doesn't look quite right, they have to
Speaker 1: report that to the authorities. Previously it was a bit
Speaker 1: of a like if you want to find but I mean,
Speaker 1: really it's up to you. And now it's like, you know,
Speaker 1: like any other financial company, you're going to have to
Speaker 1: submit those kinds of reports. And then in the UK
Speaker 1: the Financial Conduct Authority made some changes last year that
Speaker 1: meant that bitcoin ATMs is like calling like cash points
Speaker 1: where you can withdraw bitcoin rather than cash, need just
Speaker 1: be register registered with the regulator. And since then there
Speaker 1: are still ATMs operating all across the country, but none
Speaker 1: of them are registered with the regulator. Nobody has yet
Speaker 1: come forward to register their cash machines or bitcoin cash
Speaker 1: regiser to say. And in East London this week a
Speaker 1: bunch of bitcoin ATMs were found in the back of
Speaker 1: some shops by the Metropolitan Police and the FSA went
Speaker 1: along to do a little bit of an investigation. Inspection,
Speaker 1: see what's going on, and mostly, you know, just re
Speaker 1: up the warning to everybody. The bitcoin ATMs are currently
Speaker 1: not regulated unless they're registered, and none of them have
Speaker 1: been registered yet. So if you're hanging around in shortage
Speaker 1: and the SWAT team arrived and took down then ATM,
Speaker 1: that that's what was going on. If you think it
Speaker 1: was funny, I wonder if they arrived all masked. But
Speaker 1: it did make it seem as it was like in
Speaker 1: my head it was like an Essex thing. I don't know,
Speaker 1: you know it's shortage bitcoin ATMs or maybe you know Hackney,
Speaker 1: this is too niche for this podcast. Yes, but I
Speaker 1: just imagine them arriving like throwing down the door, kicking
Speaker 1: down the you're under arrest. The suits follow behind with
Speaker 1: the little clipboard exactly. Yeah. It'd be curious because we've
Speaker 1: done stories before about how volumes had dropped on bitcoin ATMs,
Speaker 1: so I wonder if there's actually any money flowing through them.
Speaker 1: The final blows basically we had India give the final
Speaker 1: blow to crypto there and then they here the ATMs
Speaker 1: are finally knocked out. I guess, yeah, but they're still
Speaker 1: very popular in developing countries like El Salvador and in
Speaker 1: Latin America. They are one of the ways that the
Speaker 1: government in El Salvadore has been trying to get people
Speaker 1: to use more bitcoin, so they do still exist. Cool.
Speaker 1: So on this great positive note about bit quinn ATMs
Speaker 1: in developing countries, I think we can wrap it up.
Speaker 1: Thank you so much for joining me. Thanks, thank you.
Speaker 1: That was Bloomberg reporters Emil Nicole and Justina Lee. You
Speaker 1: can find more of their work on the Bloomberg terminal
Speaker 1: on Bloomberg dot com. For more, be sure to check
Speaker 1: out our twice weekly newsletter, Bloomberg Crypto. This is Bloomberg Crypto,
Speaker 1: a daily podcast from Bloomberg and iHeartRadio. For more shows
Speaker 1: from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever
Speaker 1: you get your podcasts. Send us your comments, questions or
Speaker 1: suggestions for the show to Crypto at Bloomberg dot net.
Speaker 1: The supervising producer of Bloomberg Crypto is Vicky Vergelina. Our
Speaker 1: senior producer is Janet Babin. Our producers are Mohammed Faroup
Speaker 1: and Sharon Barrero. Our associate producers are Ty Butler and
Speaker 1: Moses on Desto wanderad is our engineer. Original music by
Speaker 1: Leo sid I'm Stacy, Marie Ishmael. Have a great weekend.