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Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,

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Speaker 1: and this is Bloomberg Crypto, a daily Bloomberg I Heard podcast.

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Speaker 1: It's Friday, August twelve. Bloomberg Crypto Senior editor is Dave

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Speaker 1: Litka and Anna Arera joined me this week for another

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Speaker 1: edition of what we're calling Friday in the Editor's Room.

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Speaker 1: That's when you'll hear from me and a couple of

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Speaker 1: our other crypto editors on the highs and lows of

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Speaker 1: this week. We'll talk about the biggest stories that we're

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Speaker 1: covering and what's driving markets right now. Anna, Dave, thank

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Speaker 1: you both for being here. Anna, you are in Italy

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Speaker 1: at the moment. I am We're fully embracing that distributed

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Speaker 1: crypto lifestyle. We are. I am a crypto nomad sort

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Speaker 1: of for for the for the month, a cryptote for

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Speaker 1: the month. Um. Stay tuned for more reporting on that

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Speaker 1: to our listeners. But Dave, one of the stories that

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Speaker 1: we've been really paying attention to, obviously for a long time,

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Speaker 1: but especially this week is coin bases most recent earnings results.

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Speaker 1: Can you just talk through a little bit about what

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Speaker 1: that was, why people have been paying attention and like

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Speaker 1: what the market reaction has been, like sure coin base

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Speaker 1: for those who do know or do know, it's the

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Speaker 1: biggest US publicly traded exchange and also probably one of

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Speaker 1: the biggest and most influential players in crypto right now.

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Speaker 1: There's over a hundred million people who are signed out

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Speaker 1: for this on it, they are as good as brahmbers

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Speaker 1: and that you're gonna see. And everybody knew was a

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Speaker 1: bad quarter on it, but they actually had a more

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Speaker 1: than one billion dollars swing in revenue. So a year ago,

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Speaker 1: when everybody was all excited about a crypto, they made

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Speaker 1: over two billion dollars in revenue. This year they were

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Speaker 1: less than a billion on it, which in any industry

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Speaker 1: you never see swings like that, right, So it was

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Speaker 1: really indicative of what's going on. And of course with

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Speaker 1: all these calls, people want to know what's going on,

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Speaker 1: what's going to happen next on it, and they did

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Speaker 1: flick that it's crypto winner. We're not gonna make any

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Speaker 1: predictions in terms of when it's over, but we think

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Speaker 1: it's going to be slow going forward. So as you say,

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Speaker 1: a billion dollars is a fairly dramatic move by any

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Speaker 1: conceivable metric. What contributed to that weakness specifically, were they

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Speaker 1: making less money on a particular part of the business. Well,

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Speaker 1: they make their money through fees on it, and I

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Speaker 1: mean that's why Wall Street loves them. There's a model

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Speaker 1: there on it. But when everybody who got into crypto

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Speaker 1: decides not the trade anymore and sits on their hands

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Speaker 1: and then become hobblers as they call um, rather than

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Speaker 1: traders or speculators or the fomo fear tapers out, then

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Speaker 1: they don't generate feast. That was the biggest impact. So

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Speaker 1: their biggest problem is people were like, I'm just gonna

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Speaker 1: wait and see and not not making any transactions at all.

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Speaker 1: And they need they need that transaction volume to make money,

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Speaker 1: transactions to how they make their business. And the big

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Speaker 1: question is with all these exchanges is when does retail

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Speaker 1: come back? What did they say about their n f

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Speaker 1: T business Because they recently launched a platform for non

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Speaker 1: fungible tokens and they were like, we're going to compete

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Speaker 1: with the biggest players and we're going to do it

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Speaker 1: through user experience. Like, how's that been going? It was

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Speaker 1: probably one of the worst time launches ever in terms

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Speaker 1: of a product as the market was collapsing. But they

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Speaker 1: did say in the call, Hey, we're in for the

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Speaker 1: long haul on this. What else would you expect them

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Speaker 1: to say on it? They're not gonna punt on what

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Speaker 1: a lot of people think is kind of the future

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Speaker 1: of this sector. They're holding the course as that we're

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Speaker 1: on their n f T s. They're not pulling back

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Speaker 1: correct and I'm gonna I'm gonna switch to you for

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Speaker 1: a slightly different element of the market. You know, people

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Speaker 1: have been really paying attention to coin base, as you know,

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Speaker 1: to use one of Dave's words, a baromenta of the biggest,

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Speaker 1: most important, most liquid parts of crypto to really under

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Speaker 1: and retail trader sentiment. But then there's like, shall we

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Speaker 1: describe it as a more esoteric part of crypto markets,

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Speaker 1: that universe of what are called mixers, which you know,

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Speaker 1: services protocols that people use to obscure the origins and

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Speaker 1: the destinations of, you know, certain types of crypto transactions.

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Speaker 1: What's been going on in mixer land. So there was

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Speaker 1: a big week for mixer lands. The US Treasury Department

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Speaker 1: sanctioned a big mixer called Tornado Cash, which, as you said,

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Speaker 1: is a service lets you hide your transaction, so if

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Speaker 1: you tack someone's bitcoin, no one can follow and see

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Speaker 1: where you're sending them. It's been used to London funds,

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Speaker 1: Tornado cash, have you heard of it. I would put

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Speaker 1: this sort of in the category of the most important

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Speaker 1: crypto related sanctions that ever came out of the U. S.

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Speaker 1: Treasury Department. So obviously it's a big deal if a

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Speaker 1: crypto service gets sanctioned and blocked, because the idea of

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Speaker 1: crypto is that it's permissionless and you know, on censorship resistance.

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Speaker 1: So so it kind of showed if you want to,

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Speaker 1: then you can censor crypto. This is the first step, right,

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Speaker 1: because a way that you could go after a crypto

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Speaker 1: services by sort of targeting the providers of the underlying

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Speaker 1: technology and infrastructure, right, which might be companies in the

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Speaker 1: US or companies that do have an incentive to follow

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Speaker 1: US rules. So that was the first step. And then

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Speaker 1: this became somewhat interesting was that the way crypto reacted

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Speaker 1: to the to this was well, you can't censor everything,

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Speaker 1: even providers of technology. So what we'll do is we'll

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Speaker 1: show you that there's only so far as you can go.

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Speaker 1: Some anonymous users in Crypto started using Tornado cash to

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Speaker 1: send tokens to known wallet addresses. So some of some

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Speaker 1: celebrities and the idea they're being we're showing you that

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Speaker 1: then these celebrities could have potentially been implicated in the

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Speaker 1: sanctuaries or weren't following the US Treasuries advice or ad punishments. Right.

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Speaker 1: It kind of became this giant question and tension in

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Speaker 1: crypto of you know, is it really censorship resistance or not?

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Speaker 1: You know, do users have a right to privacy don't they?

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Speaker 1: So it became so much more than just you know,

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Speaker 1: the sanctions to one mixer. So it sounds like there's

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Speaker 1: a couple of issues all tied up in there at

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Speaker 1: once that I want to unpack with you a little bit.

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Speaker 1: I want to start with the privacy question, because you know,

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Speaker 1: in when the Treasury came out and said, hey, you're

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Speaker 1: in trouble, We're going to sanction you. As you say,

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Speaker 1: the very first thing that people said was like, you

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Speaker 1: can't sanction software, and the Treasure was like, watch us,

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Speaker 1: We're totally going to sanction software. But immediately after that

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Speaker 1: was this question of how does that work in practice?

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Speaker 1: And so one of the things that we saw is

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Speaker 1: that Tornado cash is a website, email um, their access

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Speaker 1: to a platform called get hub, which is what you know,

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Speaker 1: developers and people who build software used to share and

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Speaker 1: store their code. They lost access to all of those things.

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Speaker 1: So it looks like the way that you sanction software

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Speaker 1: in crypto is by going to companies that are in

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Speaker 1: like web two world um, and you kind of undermine

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Speaker 1: that decentralization. But the other element of this privacy question is, Okay,

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Speaker 1: if they can go after something that's used Yes, it's

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Speaker 1: used by North Korean hackers, but it's also just used

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Speaker 1: by ordinary people, what does that mean for your ability

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Speaker 1: in crypto to actually maintain some degree of anonymity? And

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Speaker 1: what I'm hearing from you is it's very confusing right now. Yes,

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Speaker 1: And also and also while you might think, well, we

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Speaker 1: do want a society where, you know, some people might

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Speaker 1: want this want of society where people where governments can

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Speaker 1: go after you know, criminals, you know, we could also

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Speaker 1: think about the reverse idea, right where you know, maybe

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Speaker 1: I want to send money to Ukraine, or someone in

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Speaker 1: Russia wants to send money to Ukraine and they don't

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Speaker 1: want their government to censor that right, there's a legitimate

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Speaker 1: reason why you don't want people to see your transactions.

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Speaker 1: And it's especially important if we think about crypto maybe

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Speaker 1: growing beyond just crypto, right, if we think about digital

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Speaker 1: assets and government backset central currencies, if crypto does become

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Speaker 1: more of a form of payment, these questions are important

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Speaker 1: because then we're talking about anti money landering at a

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Speaker 1: much bigger scale, right, not just involving you know, transactions

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Speaker 1: that from from hacking of crypto services, right, it becomes everything.

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Speaker 1: It becomes like I bought a sandwich for lunch and

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Speaker 1: now the government knows about it, exactly. I appreciate the

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Speaker 1: analogy that you're using there about you know, because people

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Speaker 1: have wanted to send money to Ukraine, and if you

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Speaker 1: are a person in Russia, that's definitely not something that

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Speaker 1: you necessarily want the Secret Service knocking on your door about.

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Speaker 1: But like more prosaically, it's very similar to the conversations

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Speaker 1: and technology around like encrypted messaging, and you know, various

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Speaker 1: government officials will say, well, you can use encrypted messaging

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Speaker 1: for terrorism. I'm like, yeah, but you could also just

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Speaker 1: use encrypted messaging because you want to talk to your

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Speaker 1: friends and you don't want anybody advertising at you. So

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Speaker 1: these this is I think a good example of like

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Speaker 1: issues that affect many parts of tech and many parts

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Speaker 1: of the world really playing out in crypto. But there's

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Speaker 1: something else that you said around, you know, the day

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Speaker 1: of people using Tornado cash to send crypto two people

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Speaker 1: with known public accounts and like the legal gray area

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Speaker 1: there can you can you just elaborate on that a

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Speaker 1: little bit more so? The the idea is that if

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Speaker 1: the sanctions are to be applied, then you're not supposed

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Speaker 1: to receive any funds from tornado cash, right, So if

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Speaker 1: someone sending me, even if I don't want it, sending

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Speaker 1: me funds through Tornado Cash, then potentially am I implicated?

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Speaker 1: Am I violating a U S sanction? I mean, just

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Speaker 1: the absurdity of that is you know interesting. Is it's

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Speaker 1: worth contemplating, right because it just shows that there's a

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Speaker 1: level of thinking that goes into how we regulate this

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Speaker 1: in the future and how we think about money laundering

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Speaker 1: in a sort of Web point three world. That is

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Speaker 1: kind of something that we really need to think about

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Speaker 1: now before it gets to the stage where we haven't

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Speaker 1: thought about the rules to govern a world like this,

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Speaker 1: and that is possible because of you know, the idea

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Speaker 1: of a public wallet, right, So like one of the

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Speaker 1: people who had ether in this case sent to him

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Speaker 1: through Tornado Cash was Brian Armstrong, see you of coin

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Speaker 1: based that we just talked about. And that's possible because

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Speaker 1: his his wallet address, which is like your bank account

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Speaker 1: for crypto, is just like available on the internet. You're like,

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Speaker 1: that's Brian Armstrong's wallet address or one of them. Most

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Speaker 1: people in other parts of their lives, like aren't walking

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Speaker 1: around and advertising their bank accounts. So it's very hard

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Speaker 1: to imagine a scenario in which you know, a person

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Speaker 1: in Iran or Cuba or you know, North Korea could

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Speaker 1: just like send you money or send you something with

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Speaker 1: no ability, with no consent or your ability to even

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Speaker 1: know that that's happening. And there's you know, I think

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Speaker 1: as you say, and like the important thing is there

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Speaker 1: some of these nuances in crypto that will really be

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Speaker 1: forcing regulators to have to think differently and especially lawyers

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Speaker 1: to have to think differently about these things. One thing

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Speaker 1: I want to note is if it is the case,

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Speaker 1: like if for some reason one of the people who

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Speaker 1: did receive that you know, anonymously sent crypto via Tornado

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Speaker 1: cat were held to be in breach of sanctions. Right,

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Speaker 1: So take a theoretical example, the Treasury is like, ha ha,

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Speaker 1: you person have been interacting with something on the sanctions list.

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Speaker 1: The consequences for them would be not at all fun

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Speaker 1: because what could happen is that wallet could get frozen,

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Speaker 1: So any you know, not just the amount that they received,

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Speaker 1: but any of their crypto in that while it could

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Speaker 1: get frozen, they could get kicked off of any exchanges

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Speaker 1: or even you know, non exchanges or like banks that

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Speaker 1: they might be a part of. You know, being a

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Speaker 1: sanctioned individual, being a person on a sanctions list is

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Speaker 1: a pretty stiff and severe penalty. Um, So we will

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Speaker 1: definitely be keeping an eye on if anybody gets pulled

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Speaker 1: into this dragnet unawares. Yeah, it's interesting because it was

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Speaker 1: basically crypto trolling sort of the the U. S. Government,

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Speaker 1: but in a way creating some lines to think about

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Speaker 1: that go beyond the actual events of what happened. We'll

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Speaker 1: be right back with a look at some of the

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Speaker 1: crypto trends were watching this week. You'll keep hearing from

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Speaker 1: Bloomberg editors Dave Lika and Anna Arera Well. Dave I

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Speaker 1: want to go back to you on that point of

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Speaker 1: who's making money right now. One of those things we

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Speaker 1: saw this week in crypto was kind of like a

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Speaker 1: run up in ether prices. And we've talked on this

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Speaker 1: podcast about, you know, the dynamics of ether and that

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Speaker 1: folks are thinking about what's called the merge, but as

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Speaker 1: it seems to actually be happening now, can you just

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Speaker 1: give us a recap on what we're seeing and why sure?

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Speaker 1: I mean, all you're here probably the next month is

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Speaker 1: going to be the merge. The merge on it. You

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Speaker 1: have the software upgrade where the Ethereum network goes from

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Speaker 1: very energy intensive processed to validate transactions to where they'll

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Speaker 1: go to something called validators on its and everybody is

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Speaker 1: season on this right now. You mentioned Brian Armstrong. He

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Speaker 1: actually mentioned um a product that they're offering. It's called

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Speaker 1: staking on coin Base on it, and staking is basically

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Speaker 1: how you make money off this as a as a

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Speaker 1: validator on it, you allow your Ethereum to be used

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Speaker 1: in the process to complete the transaction on it. And

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Speaker 1: it's in this environment it's actually kind of the perfect

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Speaker 1: thing in the sense that it's like passive income on it,

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Speaker 1: especially with a we're in a bad market like this,

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Speaker 1: so this is almost like clipping coupons in the old

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Speaker 1: days of the bond market on it instead of everybody

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Speaker 1: just looking for a huge appreciation in the in the

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Speaker 1: price of a various token on it. So you could

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Speaker 1: be hearing more and more of it, and the risk

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Speaker 1: is it happens, it goes smooth, and then it's okay,

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Speaker 1: what next, Well, what is next that is to be

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Speaker 1: seen on it? I guess the big question really beyond

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Speaker 1: that is to see if more people do gravitate towards ethereum.

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Speaker 1: Ethereum was kind of introduced as probably the second most

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Speaker 1: prominent crypto after Bitcoin. I'm on it and it was

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Speaker 1: basically labeled as bitcoin two point oh. You can actually

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Speaker 1: do a lot more with it, complete transactions over it

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Speaker 1: that include embedded contracts, that type of thing on it.

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Speaker 1: Bitcoin has basically been left as really a store value

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Speaker 1: of these days and hasn't really worked obviously as a currency.

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Speaker 1: But this is being promoted as a utility and whether

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Speaker 1: people will actually start to use it for more things

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Speaker 1: is to be seen. When we talk about the utility

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Speaker 1: of things like ethereum. The Ethereum the blockchain ether the token.

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Speaker 1: One of the use cases that comes up a lot

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Speaker 1: is like smart contracts and f ts. You know, it's

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Speaker 1: it's you know. One one thing we've said here is

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Speaker 1: that like if somebody has heard of crypto, they've probably

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Speaker 1: heard of either bitcoin or in a n f T,

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Speaker 1: and there are there's a lot of reporting and evidence

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Speaker 1: that for some people, like n f T s were

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Speaker 1: their gateway into into crypto. If this merge happens, what's

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Speaker 1: going to happen to n f T holders, Like is

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Speaker 1: it clear whether your n f T will continue to

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Speaker 1: be accessible if you know, kind of have two different

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Speaker 1: sorts of blockchains, or though some of the questions that

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Speaker 1: people are working through, well, it seems to be. We've

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Speaker 1: actually had a lot of news come out recently from

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Speaker 1: people who are basically things like stable coins, which serve

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Speaker 1: as kind of the lifeblood of the industry, saying we're

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Speaker 1: going to work with Ethereum on the upgrade on it

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Speaker 1: will continue to do our transactions there, so you should

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Speaker 1: be fine. Now there's a minority of people who say,

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Speaker 1: we like how things are being done, we're going to

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Speaker 1: break off from a theoreum and um. Then it becomes

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Speaker 1: a question, and Okay, if if you're on that chain,

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Speaker 1: are you going to be able to interact with other folks?

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Speaker 1: It just rises a whole raises a whole level of complication, right.

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Speaker 1: It's so it's almost like you'll have kind of what

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Speaker 1: happened with Tera and Luna, right this idea, and actually

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Speaker 1: with Ethereum before we there's already an existing chain of

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Speaker 1: Ethereum called Ethereum Classic. So now we'll have Ethereum Classic,

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Speaker 1: Ethereum Classic too, and then Ethereum. Now there's bitcoin, there's

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Speaker 1: bitcoin cash, there's Bitcoin Classic, There's been various Bitcoin Gold

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Speaker 1: has been other ones talked about over the years. It's

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Speaker 1: it's a little bit like a divorce and I'm one programmers.

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Speaker 1: After the disagreement, um, some succeed and live on, other

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Speaker 1: ones die out. Well, this this is definitely something that

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Speaker 1: is driving the markets and we will continue to be

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Speaker 1: paying attention to so stay tuned for more on that.

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Speaker 1: Um Anna, Dave, I know we have to get back

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Speaker 1: to work, so we're gonna we're gonna wrap it up.

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Speaker 1: But thank you both for taking the time today, No problem,

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Speaker 1: I thank you. You can find all of our work

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Speaker 1: on the Bloomberg terminal on Bloomberg dot com and on Twitter,

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Speaker 1: you'll find Anna at at anna Arera that's I R

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Speaker 1: R e r A, and Dave is at d Litka

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Speaker 1: that's d l i E d t k A. On

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Speaker 1: the next episode of Bloomberg Crypto. In late spring of

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Speaker 1: after China banned all bitcoin mining, many Chinese miners headed

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Speaker 1: to the sunny state of Texas. With a unique power grid,

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Speaker 1: relatively attractive energy prices, and a relaxed approach to regulation,

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Speaker 1: Texas seemed like it was the place to be in

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Speaker 1: things are looking a little bit different. A combination of

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Speaker 1: power outages, extreme temperatures, and declining bitcoin prices are making

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Speaker 1: it harder and harder for crypto minors to maintain their profitability.

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Speaker 1: To better understand what all of this means, I'll be

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Speaker 1: joined by Bloomberg Reports of David Pan and by Ethan Vera,

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Speaker 1: who's the CEO and co founder of Luxer Technology. This

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Speaker 1: is Bloomberg Crypto, a daily podcast from Bloomberg and I

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Speaker 1: Heart Radio. For more shows from I heart Radio, visit

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Speaker 1: the I heart Radio app, Apple Podcasts, or wherever you

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Speaker 1: get your podcasts. Send us your comments, questions, or suggestions

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Speaker 1: for the show. To Crypto at Bloomberg dot net or

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Speaker 1: find us on Twitter. We're at Crypto. The supervising producer

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Speaker 1: of Bloomberg Crypto is Vicky ver Galina. Our senior producer

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Speaker 1: is Janet Babin. Our producer is Sharon Burriro. Associate producer

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Speaker 1: is Thy Butler. Desta wonder At is our engineer. Original

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Speaker 1: music by Leo Sidrin. I'm Stacy, Marie Ishmael. Have a

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Speaker 1: great weekend.