WEBVTT - Former SEC Chair Gary Gensler Talks Crypto, CME Outage

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. We've been watching bitcoin

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<v Speaker 1>almost as much as stocks lately because it's been so

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<v Speaker 1>intrinsically tied to the markets. Remember when it was supposed

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<v Speaker 1>to be its own universe. That was the whole point

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<v Speaker 1>the decentralized cryptocurrency. It is bouncing back today, up fifty

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<v Speaker 1>four hundred dollars in approaching ninety two thousand dollars a coin.

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<v Speaker 1>So maybe it bottomed unclear as we've had multiple folks

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<v Speaker 1>including Mike mcglohe at Bloomberg Intelligence predict another crypto winter.

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<v Speaker 1>Michael Sailor also preparing for one at Strategy. Despite the love,

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<v Speaker 1>this administration has shown the embrace of the crypto industry

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<v Speaker 1>as we remember the ways with Donald Trump since he

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<v Speaker 1>took office.

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<v Speaker 2>Listen last year, I promised to make America the bitcoin

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<v Speaker 2>superpower of the world and the crypto capital of the planet.

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<v Speaker 2>With the right legal framework, institutions large and swow liberated

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<v Speaker 2>to invest, innovate, and take part in one of the

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<v Speaker 2>most exciting technological revolutions in modern history. For years, you

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<v Speaker 2>were mocked and dismissed and counted out. You accounted out

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<v Speaker 2>as little as a year and a half ago, But

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<v Speaker 2>this signing is a massive validation.

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<v Speaker 1>A massive validation as we watch the gyrations in the

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<v Speaker 1>crypto market. Pleasure to spend some time with Gary Gensler

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<v Speaker 1>as we consider the crypto space regulations and the plumbing

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<v Speaker 1>in the market. He's with us live now, former Chair

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<v Speaker 1>of Course of the Securities and Exchange Commission, Professor of

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<v Speaker 1>the practice at MIT Sloan School of Management. Mister Gensler,

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<v Speaker 1>Welcome back to Bloomberg TV and radio. Is that you

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<v Speaker 1>buying the dip in bitcoin?

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<v Speaker 3>Joe? It's good to be back and good to be

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<v Speaker 3>with all of your viewers. But now I'm not participating

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<v Speaker 3>in that market.

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<v Speaker 1>Well, what do you think of this? We've spent a

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<v Speaker 1>lot of time talking about this when you were in

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<v Speaker 1>the job at the SEC and the many warnings that

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<v Speaker 1>you made about this potentially risky asset, and we're witnessing

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<v Speaker 1>a reckoning in the marketplace right now. What do you

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<v Speaker 1>think is behind it?

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<v Speaker 3>Look, I think it's a risk asset. In the American

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<v Speaker 3>public and the worldwide public has been fascinated with cryptocurrencies,

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<v Speaker 3>but it's a highly speculative, volatile asset. And putting aside

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<v Speaker 3>bitcoin for a minute, all the thousands of other tokens,

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<v Speaker 3>not the stable coins that are backed by US dollars,

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<v Speaker 3>but all the thousands of their tokens. You have to

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<v Speaker 3>ask yourself, what's the fundamentals, what's underlying it. You don't

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<v Speaker 3>get a dividend, you don't get usual returns, and so

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<v Speaker 3>the investing public just needs to be aware of those

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<v Speaker 3>risks in this highly volatile space.

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<v Speaker 1>What do you make of the politicization of crypto? The

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<v Speaker 1>fact that the Trump administration has become involved to this

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<v Speaker 1>extent has reportedly turned off some investors as they watched

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<v Speaker 1>the Trump family enriched themselves with gains, like this, is

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<v Speaker 1>this a democrat versus Republican thing?

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<v Speaker 2>Now?

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<v Speaker 3>No, I don't think so. I mean it's about our

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<v Speaker 3>capital markets. The US have the greatest capital markets and

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<v Speaker 3>they benefit from common sense rules of the road. And

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<v Speaker 3>when you buy and sell a stock or a bond,

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<v Speaker 3>you want to get, you know, various information, and you

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<v Speaker 3>want to know that you're getting the same treatment as

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<v Speaker 3>you know, the big investors. That's the fairness in these

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<v Speaker 3>capital markets that are so important.

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<v Speaker 1>For a lot about the impact of ETFs on this space,

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<v Speaker 1>that's something you know a lot about the initial ETFs

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<v Speaker 1>that were greenlit to start buying crypto. Did that just

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<v Speaker 1>change the plumbing in the crypto market here by tying

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<v Speaker 1>it directly to the stock market.

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<v Speaker 3>Well, ever, since antiquity, finance goes towards centralization, So it's

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<v Speaker 3>not surprised that that which was started as a decentralized

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<v Speaker 3>ecosystem and that was the vision, has become more integrated

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<v Speaker 3>and more centralized. Investors can express themselves in gold and

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<v Speaker 3>silver through exchange traded funds, and as of a couple

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<v Speaker 3>of years ago, actually all the way back to my

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<v Speaker 3>first year in the job, they were exchange traded funds

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<v Speaker 3>on bitcoin futures, just as there is for gold and silver.

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<v Speaker 2>Yeah.

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<v Speaker 1>Well, mister chairman, I want to ask you about, speaking

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<v Speaker 1>of plumbing in the markets, what happened at the CME

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<v Speaker 1>last week and whether you think the CFTC should be

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<v Speaker 1>investigating this outage. Should the CME be facing additional scrutiny.

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<v Speaker 3>Look, it's something really well understood that our major stock

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<v Speaker 3>exchanges and futures markets, the Chicago Mercantile Exchange trades very

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<v Speaker 3>consequential parts of our US Treasury market, interst rates markets

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<v Speaker 3>their critical infrastructure and Thanksgiving evening, they had an outage

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<v Speaker 3>at a data center. Importantly, it wasn't actually their computers.

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<v Speaker 3>It was the chillers, as I understand it, the cooling

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<v Speaker 3>system in this data center, and they had an outage

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<v Speaker 3>for about ten hours, and so markets planned for that.

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<v Speaker 3>The Chicago Mercantile Exchange considered they didn't go to their

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<v Speaker 3>backup data center. They stayed partly because it was Thanksgiving evening.

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<v Speaker 3>As I understand it, I'm sure that they at the

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<v Speaker 3>Chicago Mercantile Exchange and the various regulators will keep looking

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<v Speaker 3>at it and look for lessons learned. You always look

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<v Speaker 3>for lessons learn and how can we do things better

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<v Speaker 3>in the future.

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<v Speaker 1>Well, we've experienced an incredible number of inquiries about this

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<v Speaker 1>at Bloomberg. Our readers are asking, our viewers and listeners

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<v Speaker 1>are asking about this. It put a real chill in

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<v Speaker 1>the markets. To use a terrible pun in this case,

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<v Speaker 1>mister chairman, you don't sound that worried about this being systemic.

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<v Speaker 3>Look, I think that the New York Stock Exchange, CME,

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<v Speaker 3>the clearing houses are systemically important, no doubt about it,

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<v Speaker 3>systemically important. But what happened here at this specific moment

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<v Speaker 3>is the cooling system as I understand how to glitch.

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<v Speaker 3>By the way, this data center is operated by a

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<v Speaker 3>third party. It's not operated by CME, so they have

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<v Speaker 3>a contract for a certain performance levels, and they didn't

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<v Speaker 3>go to their backup data center, which is I think

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<v Speaker 3>located elsewhere in New Jersey. If this would happen at

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<v Speaker 3>ten am on a Monday, I think the management team

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<v Speaker 3>would make a different decision and probably would switch over

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<v Speaker 3>to the backup data center more quickly. The markets probably

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<v Speaker 3>would have a little less liquidity. Not every high frequency

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<v Speaker 3>trading shop or principal trading firm has the same connectivity

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<v Speaker 3>to the backup data center, so that's an interesting business choice.

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<v Speaker 3>And for your institutional listeners, if that happened, they'd probably

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<v Speaker 3>see a little less liquidity until they get back to

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<v Speaker 3>that primary data center.

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<v Speaker 1>Always fascinating to look onto the hood with Gary Gensler,

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<v Speaker 1>former chair of the SEC, Professor of the Practice MIT

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<v Speaker 1>Sloan School of Management. Thank you, mister Chairman, for the

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<v Speaker 1>time