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Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Heard podcast,

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

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Speaker 1: Bloomberg News. It's Friday, December nine. Well, the Sam Bankman

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Speaker 1: apology tour continued this week, despite a number of high

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Speaker 1: profile lawyers, including one who represented Bernie made Off, saying

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Speaker 1: that maybe the former CEO of f t X should

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Speaker 1: really stop talking speaking of lawyers. As the bankruptcy winds

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Speaker 1: its way through the courts, thirty year old Sam Bankman

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Speaker 1: freed has in fact hired a new person to represent him,

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Speaker 1: Mark Cohen. Cohen's name, if it sounds familiar, is probably

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Speaker 1: because he's known as one of the lawyers who represented

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Speaker 1: convicted sex offender Lane Maxwell. Today we're also going to

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Speaker 1: discuss whether that big Ethereum moved to proof of steak,

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Speaker 1: which happened earlier this year, although it feels a million

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Speaker 1: years ago, really had a meaningful effect on energy consumption.

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Speaker 1: A new academic people writing about the merge, asks the question,

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Speaker 1: what if all those computers are no longer working on

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Speaker 1: proof of work duty for Ethereum have just been reassigned,

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Speaker 1: and they're mining other equally energy intensive tokens. Finally, why

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Speaker 1: is Senator Elizabeth Warren asking questions about silver Gate? For

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Speaker 1: all this and more, we're joined this week by Bloomberg

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Speaker 1: Report to any Massa. To have Sam Bankman Freed come

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Speaker 1: in with his kind of reputation for being this real

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Speaker 1: mover and shaker in crypto was exciting to people at

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Speaker 1: the time, and senior editor Dave Liqua, there's worry whether

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Speaker 1: there'll be another wave of sailing or panic selling, but

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Speaker 1: in the meantime, the market's actually been fairly flat. So Annie,

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Speaker 1: you are on the road at the moment. What's going on?

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Speaker 1: That's right. So I'm in Chicago today. I've been um

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Speaker 1: back and forth here for a couple of conferences and

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Speaker 1: industry events, the goal being to just talk to as

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Speaker 1: many crypto people as I possibly can, as as this

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Speaker 1: industry kind of absorbed absorbs. The shock waves of f

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Speaker 1: t X is massive implosion, and what's a large number

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Speaker 1: of shock waves. There have been so a couple of

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Speaker 1: things that have been happening just this week. You know,

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Speaker 1: We've had Sam Bankman Freed pop up on three Twitter spaces,

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Speaker 1: several other media appearances, just a lot of him explaining

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Speaker 1: what he thinks happened, or what he doesn't know happened.

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Speaker 1: One thing that's been interesting to watch, at least from

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Speaker 1: my perspective, is there was this big lead up to

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Speaker 1: AM's appearance at the New York Times Steel Book conference,

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Speaker 1: where people were shocked that he would talk to the

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Speaker 1: media after all that's transpired. But what's happened since then

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Speaker 1: has been has I think up ended people's expectations. Instead

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Speaker 1: of it being hard to get an interview with him,

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Speaker 1: he'll almost speak to anyone. He's on this on Twitter

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Speaker 1: spaces all the time. Like you mentioned, He's talking to

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Speaker 1: every single outlet, sometimes for hours at a time. And

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Speaker 1: it's become this parlor game in the crypto industry to

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Speaker 1: guess what on earth he's trying to do? What on earth?

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Speaker 1: The goal is here? And this is despite and I

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Speaker 1: have to say this, this is despite the advice of counsel,

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Speaker 1: whether his counsel or other people's counsel, or just like

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Speaker 1: any lawyer in the street. The vibe from the lawyers

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Speaker 1: seems to be Mr Bankman, Freed, please stop talking. Are

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Speaker 1: they suggesting this is a good idea for you to

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Speaker 1: be speaking? Uh? You know, they're very much not um

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Speaker 1: and I mean, you know, the classic advice rate don't

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Speaker 1: say anything. Uh, you know, recede into a hole. Uh?

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Speaker 1: And is that who I am? I mean one of

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Speaker 1: the headlines that our colleagues on the legal team were

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Speaker 1: able to confirm this week is that Sam Bankman Freed

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Speaker 1: has actually hired new counsel who may or may not

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Speaker 1: be telling him to stop talking to everyone. Yes. Um,

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Speaker 1: with his apology toward there's been a lot of questions

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Speaker 1: where he's going with his legal strategy, and by hiring

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Speaker 1: Gillane Maxwell's lawyer tied to the infamous child sex scandal

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Speaker 1: with Jeffrey Epstein, there's a real question on what he's

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Speaker 1: trying to do. And Annie, from the perspective of you know,

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Speaker 1: just this very very complicated set of companies. You have

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Speaker 1: multiple lawyers not just representing Bankman Freed himself, but you know,

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Speaker 1: personal counsel for a lot of the folks involved. You

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Speaker 1: have multiple different domains and jurisdiction. How are you approaching

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Speaker 1: this in terms of your reporting, you know, like and

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Speaker 1: what's in terms of the crypto folks that you're talking

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Speaker 1: to in Chicago and elsewhere. What are the feeling about

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Speaker 1: the reverberations for the industry. I think you're exactly right.

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Speaker 1: It's really a sprawling bankruptcy that has impact all over

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Speaker 1: the world. I mean FTX operated all over the place

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Speaker 1: of course, in the Bahamas, in the US, but you

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Speaker 1: also have Europe, Japan, Vietnam, um areas all over the world.

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Speaker 1: It's not a typical bankruptcy, right, Like, there are so

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Speaker 1: many entities involved, and as John Ray said, there's really

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Speaker 1: unreliable perhaps financial information that it's all based on. It

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Speaker 1: leaves a lot of questions open about how we're going

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Speaker 1: to proceed from here. And I think that a lot

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Speaker 1: of the players involved have been lowering up themselves. But

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Speaker 1: then you also have these entities that are going through

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Speaker 1: bankruptcy and there is some confusion right now about how

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Speaker 1: exactly as well it will all play out. Now. When

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Speaker 1: we talk about the the unusual nous of the bankruptcy

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Speaker 1: and the multiple jurisdictions, one of the things that is

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Speaker 1: also kind of unusual is like the contagion effect, right

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Speaker 1: that this has had on other entities in crypto, Dave,

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Speaker 1: As you've mentioned, you've covered crypto for a long time,

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Speaker 1: You've covered finance for even longer. People are throwing around

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Speaker 1: words like Enron made off Lehman Brothers. You know, the

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Speaker 1: difference here being that unlike with made Off Sam Bank

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Speaker 1: and Freed has not been charged with any kind of

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Speaker 1: crime or wrongdoing, he's not been accused formally of any

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Speaker 1: kind of crime or wrongdoing. Um with Enron, we have

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Speaker 1: the benefit of hindsight, as we do with Lehman, to say, well,

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Speaker 1: here are the things that exactly went wrong, But at

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Speaker 1: least in terms of that feeling of contagion, what are

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Speaker 1: some of the kinds of things that have been happening

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Speaker 1: in the past few days and weeks that are giving

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Speaker 1: a sense of how the market is reacting to this. Well,

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Speaker 1: it's a real curious time in the market. There's still

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Speaker 1: some unknowns in regards to contagion, so there's there's worry

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Speaker 1: whether there'll be another wave of selling or panic selling.

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Speaker 1: But in the meantime, the market has actually been fairly

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Speaker 1: flat um since the the actual bankruptcy of f t X.

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Speaker 1: In that time, Bitcoin has maintained its market share, which

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Speaker 1: is also disconcerning to some folks because they see it

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Speaker 1: as a example that there's no real safe haven demand

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Speaker 1: in the market. Typically in the past, what has happened

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Speaker 1: is that as markets fresh like this, the percentage goes up.

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Speaker 1: Then the market turns around, the percentage goes down. But

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Speaker 1: everything went down and you just in this time and

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Speaker 1: it's just staying there right that idea of you would

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Speaker 1: almost expect, or at least various analysts have been predicting,

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Speaker 1: especially the bearish ones, that crypto prices across the board

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Speaker 1: would actually be lower than where they are right now,

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Speaker 1: but it's been it's been this like weirdly range bound

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Speaker 1: trading situation instead. Um addie. One of the companies that

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Speaker 1: has been kind of caught in this ft X contagion

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Speaker 1: both directly and indirectly is robin Hood, and you have

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Speaker 1: covered robin Hood very extensively. Could you just share a

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Speaker 1: little bit about what is the relationship and what's the

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Speaker 1: complexity between this robin Hood shares f t X situation

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Speaker 1: right now. So back when Sam Bankmnfried was doing his

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Speaker 1: kind of buying binge over the spring, he bought this

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Speaker 1: big steak in robin Hood, which is a trading platform

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Speaker 1: that's really popular among young and kind of inexperienced traders.

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Speaker 1: And you know, we all recognize it from the game

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Speaker 1: Stop meme stock saga of So Sam bought this huge

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Speaker 1: steak in robin Hood and became one of its largest

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Speaker 1: shareholders in May, and at the time people were kind

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Speaker 1: of buzzing because robin Hood's share price was like really tanking,

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Speaker 1: and uh, you know, to have Sam Bankman Freed come

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Speaker 1: in with his kind of reputation for being this real

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Speaker 1: mover and shaker in crypto was exciting to people at

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Speaker 1: the time, and there was a question out there like

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Speaker 1: would he ever want to buy it? Out right? Like

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Speaker 1: what does he want with it? Is he going to

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Speaker 1: broker some order flow deal? Like what does he want

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Speaker 1: with this this steak in robin Hood? And you know,

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Speaker 1: fast forward to now we've kind of had a complete

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Speaker 1: one eighty and it's one of the last easily sellable

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Speaker 1: liquid things that any entity related to Sam at all

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Speaker 1: has in in the ft X empire. So now the

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Speaker 1: big question is what will happen to that steak. I mean,

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Speaker 1: it will be sold almost certainly, but when and how

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Speaker 1: and who will get the proceeds from that remains an

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Speaker 1: open question. For example, block Thigh has laid claim to

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Speaker 1: the proceeds from that in its own bankruptcy that it's

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Speaker 1: now going through. But again, like It speaks to the

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Speaker 1: unusual nous of this is situation that you have this

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Speaker 1: steak and some uncertainty over where it will actually where

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Speaker 1: the proceeds from selling it will actually go. We'll be

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Speaker 1: right back with more of the week's top crypto stories

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Speaker 1: from Annie Massa and Dave Lita. One of the other

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Speaker 1: things that's been, I suppose a little bit surprising about

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Speaker 1: the past year is the like the back and forth

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Speaker 1: of the regulatory environment that we've been in right where

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Speaker 1: at intervals it has looked like there's going to be

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Speaker 1: kind of a lot of momentum in terms of regulation,

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Speaker 1: and then there was a pause. But what we have

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Speaker 1: seen over the past couple of days is folks like

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Speaker 1: Senator Elizabeth Warren, you know, sending letters, which is something

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Speaker 1: that she has done to several different crypto companies, but

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Speaker 1: most recently to Silvergate, asking hey, what's going on with

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Speaker 1: your relationship to f t X and Alaman and you

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Speaker 1: can you just briefly outline what we're seeing on the

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Speaker 1: bank side as it relates to this crypto complexity. Yeah,

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Speaker 1: I mean to the point about regulation, there's been this

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Speaker 1: dance happening with the SEC and and regulators more broadly about.

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Speaker 1: And I think part of the broader issue with f

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Speaker 1: t X is that it fell through some cracks, Like

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Speaker 1: the SEC has said various things like they want exchanges

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Speaker 1: to come in and register and they don't want crypto

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Speaker 1: et s like that's been a whole um rigamarole for

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Speaker 1: many years. But what really happened is, big picture, f

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Speaker 1: t X and it's all its activities all over the

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Speaker 1: world kind of fell into a regulatory void almost where

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Speaker 1: no one was truly minding all of the farm from

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Speaker 1: a regulatory perspective. So now the pressure is on for

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Speaker 1: all these regulators all over the world to crack down

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Speaker 1: figure out what went wrong, and um and and perhaps uh,

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Speaker 1: you know, takes take some action, uh and not the

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Speaker 1: least of which is political pressure, because now you have

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Speaker 1: all of the attention of politicians, some some politicians who

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Speaker 1: are personally embarrassed because they may have accepted donations from SPF.

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Speaker 1: So the banking relationships is going to be a key

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Speaker 1: element of that story to watch. You know, if you

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Speaker 1: were a crypto company in the past several years, you

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Speaker 1: couldn't just go in through the front door at JP

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Speaker 1: Morgan and set up an account. So the banks that

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Speaker 1: did work with crypto companies, including f t X. So

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Speaker 1: we're looking at, like you mentioned, banks like silver Gate.

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Speaker 1: There are real big open questions about the contours of

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Speaker 1: those relationships and how much oversight they had, you know,

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Speaker 1: how much they were doing to really enforce uh, the

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Speaker 1: rules there, and I think that will be an area

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Speaker 1: that we need to keep an eye on. Dave, Are

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Speaker 1: there any big things going into three that we're encountering,

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Speaker 1: you know, reporting that we expect might set the tone

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Speaker 1: for what happens next. Yes, and there's a few things

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Speaker 1: look at. Um. One is the world of mining. We've seen,

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Speaker 1: uh that's a been area that's been decimated on three

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Speaker 1: fronts to from higher energy prices earlier in the year

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Speaker 1: and now with the lending relationships falling apart. As this

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Speaker 1: downturn lasts on it, it's gonna be a a bankruptcy

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Speaker 1: watch in that sector. To so several of these firms

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Speaker 1: have said we're on the edge and unless this market

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Speaker 1: picks up, they're likely going to be there. So they've

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Speaker 1: kind of exhausted the reserves in the in the upmarket,

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Speaker 1: it was unusual thing that they were hoarding the bitcoin

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Speaker 1: that they're mining because they wanted to play the appreciation

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Speaker 1: game so that they were both investors and producers at

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Speaker 1: the same time. On the way down, they've been selling

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Speaker 1: the fun operations and the senses that they've run out

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Speaker 1: of that or they've run through those reserves now and

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Speaker 1: unless the market picks up, it's going to be bankruptcy

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Speaker 1: probably for the case of them, a lot of them,

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Speaker 1: and um that's going to have repercussions u as the

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Speaker 1: as it has with the lenders. To stay on the

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Speaker 1: miners for a second, our colleagues on you know what

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Speaker 1: we call the Green Team, so who cover like energy

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Speaker 1: in the environment sustainability wrote up a really interesting documents,

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Speaker 1: a kind of an academic paper that was questioning whether

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Speaker 1: the supposed environmental and energy saving benefits of the merge

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Speaker 1: in which you know, the Ethereum blockchain moved from proof

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Speaker 1: of work to proof of steak was really all that

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Speaker 1: good for the world. And the central question of that was, well,

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Speaker 1: have all of these former Ethereum proof of work miners

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Speaker 1: have they really switched over to becoming like validators and

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Speaker 1: a proof of state context or are they just repurposing

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Speaker 1: their machines elsewhere? And I know you and David pant

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Speaker 1: who is like, are one of our reporters who covers

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Speaker 1: crypto mining A lot have talked about the fact that

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Speaker 1: you know, these machines aren't necessarily easily transferable between causes,

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Speaker 1: But do you think this like these kinds of questions

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Speaker 1: around what is this core constituency doing? Is that something

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Speaker 1: you see that's going to continue into There is strange

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Speaker 1: dynamic going on right now in this market where they

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Speaker 1: basically just pull these plugs on these computer setups on

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Speaker 1: it and if you can repurpose them where you can

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Speaker 1: make money and say the supporting some of the other blockchains,

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Speaker 1: what you don't have the volume that you did with

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Speaker 1: Bitcoin or the or the rewards for that stake on it.

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Speaker 1: David would just telling me the other day about a

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Speaker 1: great story about the literally um people who own the

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Speaker 1: miners going to hosting facilities and storming the offices demanding

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Speaker 1: that they get their deposits back and being told you

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Speaker 1: can't have your deposits back, but you can go in

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Speaker 1: the back in the factory area and take your minors.

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Speaker 1: So people are literally coming in with trucks taking a

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Speaker 1: computer equipment away and stockpile on it or wherever that's

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Speaker 1: a wild visual, and we've had a lot of wild

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Speaker 1: visuals this week. Um, you know, the the idea of

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Speaker 1: somebody's just like seek unplugging computers and seizing them is

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Speaker 1: certainly one of them. But we also had a story

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Speaker 1: from some of our colleagues in Miami about trash bags

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Speaker 1: full of F t X swag right that there was

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Speaker 1: h there were another set of crypto kind of parties

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Speaker 1: and events that were happening in Miami recently. And one

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Speaker 1: of the bits of swag that you kind of get

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Speaker 1: if you were a v I P was just you know,

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Speaker 1: an F t X Miami like legacy swag T shirts

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Speaker 1: which people are collecting like if they're you know, Lehman

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Speaker 1: Brothers backpacks. Oh, I'm sure they'll be turning up on

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Speaker 1: eBay very soon. In terms of get your nostalgic ear,

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Speaker 1: it's great analogy in there that the and you do

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Speaker 1: have a boom bust and a party like this, there's

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Speaker 1: always the clean up afterword and maybe this time of

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Speaker 1: them beatings, you see, we will have to be stuck

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Speaker 1: with that. Thank you Annie, and thank you Dave. You

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Speaker 1: can find more of their work on the Bloomberg Terminal

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Speaker 1: and on Bloomberg dot com. This is Bloomberg Crypto, a

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Speaker 1: daily podcast from Bloomberg and I Heart Radio. For more

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Speaker 1: your comments, questions, or suggestions for the show to Crypto

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Speaker 1: at Bloomberg dot net. The supervising producer of Bloomberg Crypto

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Speaker 1: is Vicky very Galina. Our senior producer is Janet Babin.

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Speaker 1: Our producers are Mohammed Faruk and Sharon Barriro. Our associate

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Speaker 1: producers are Ty Butler and Moses on Them. Desta wonder

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Speaker 1: At is our engineer. Original music by Leo Sidron. I'm Stacy,

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Speaker 1: Marie Ishmael. Have a great weekend. N A the st

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Speaker 1: ASA