WEBVTT - Is There Value In Crypto’s Volatility?

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

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<v Speaker 1>and this is Bloomberg Crypto, a daily Bloomberg I Heart podcast.

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<v Speaker 1>It's Tuesday, July twelve. Depending on who you ask, cryptos

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<v Speaker 1>volatility is either a bug or a feature. Wild, unexpected

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<v Speaker 1>or aggressive price swings make this an asset class that

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<v Speaker 1>is ill suited to anyone less experienced or less comfortable

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<v Speaker 1>at managing risk. It's clear that these swings can be challenging,

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<v Speaker 1>but is there a world in which some people perceive

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<v Speaker 1>them as a benefit, and if so, what's that upside?

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<v Speaker 1>Today I'm joined by Bloomberg Opinion columnist Leonel Laurent to

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<v Speaker 1>discuss whether there's any value to cryptos volatility. Leonard, thank

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<v Speaker 1>you so much for joining us. Where are you joining

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<v Speaker 1>us from today? I'm joining you from Paris, which is yeah,

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<v Speaker 1>trying to be a crypto hub along with many other cities.

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<v Speaker 1>Lots of cities might currently be rethinking their desire to

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<v Speaker 1>be crypto hubs, given given the state of the markets.

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<v Speaker 1>You know, one of the things our colleague and your

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<v Speaker 1>direct colleague in Bloomberg Opinion, Tyler Cohen has written about

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<v Speaker 1>is this idea that if you can't think of any

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<v Speaker 1>other good reasons for crypto to exist, the fact that

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<v Speaker 1>it's so volatile is potentially interesting. You have written a

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<v Speaker 1>lot about many different elements of crypto, often with an

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<v Speaker 1>extremely skeptical perspective. I'd love to hear what you think

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<v Speaker 1>about the idea of volatility as usability. Yeah. I think

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<v Speaker 1>I think it's pretty accurate to say that if you're

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<v Speaker 1>promoting an asset as being volatile, that means it's failed

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<v Speaker 1>on a lot of other fronts. It's not usual that

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<v Speaker 1>we spend a time saying I love the price of

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<v Speaker 1>electricity when it's volatile. I love it when I go

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<v Speaker 1>to the store and my purchasing power is very volatile. Therefore,

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<v Speaker 1>I don't know if I'm going to pay a lot

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<v Speaker 1>or pay a little to my groceries zero point zero

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<v Speaker 1>one bitcoin please. So I think the point here is

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<v Speaker 1>to say that volatility is great for some types of actors,

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<v Speaker 1>and it's kind of interesting because I think those are

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<v Speaker 1>the actors that do like crypto today. Financial traders who

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<v Speaker 1>know how to model risk and volatility, speculators who I guess,

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<v Speaker 1>okay with the prospect of stomach churning falls if it

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<v Speaker 1>means that in the future they can still dream of

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<v Speaker 1>a hundred percent or even more. And even journalists and

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<v Speaker 1>people chit chatting and intellectuals like this kind of volatile

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<v Speaker 1>thing because it means they can think about all the

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<v Speaker 1>different ways in which crypto can develop in future. But

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<v Speaker 1>the bottom line is, if it's volatile, then it's failed

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<v Speaker 1>at being I think it's failed at being a medium

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<v Speaker 1>of payment and medium of exchange, because that's as we

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<v Speaker 1>see it around us in these times of energy volatility.

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<v Speaker 1>Most people do not want their method of payment to

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<v Speaker 1>be volatile. Most people can't even afford to have their

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<v Speaker 1>say evings or their investments and in something this volatile.

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<v Speaker 1>So I think that even if you can argue that volatility,

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<v Speaker 1>you can say, you can even say I think a

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<v Speaker 1>lot of people do. The volunteers coming down in crypto.

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<v Speaker 1>I think recently it's shot back up, and I think

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<v Speaker 1>it shows you that this is not for the masses. Yet,

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<v Speaker 1>it's not for the faint hearted. It's for a certain

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<v Speaker 1>type of investor. To that point, Malton Dumire's the chief

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<v Speaker 1>strategy officer at coin Shares, previously had this to say

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<v Speaker 1>on Bloomberg Markets and again, what we need to remember

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<v Speaker 1>is in crypto, volatility is the price of the opportunity.

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<v Speaker 1>We are going to see dramatic swings and corrections. That

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<v Speaker 1>is part of being allocated to the asset class. I

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<v Speaker 1>want to focus on something you said about folks who

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<v Speaker 1>had perceived crypto potentially being a store of value or

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<v Speaker 1>a mechanism for payment or a medium of exchange. This

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<v Speaker 1>isn't something you seem particularly sold on as a prospect. Well, no,

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<v Speaker 1>I mean it's I think let's focus on bitcoin, because

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<v Speaker 1>I think there's many flavors of crypto, but Bitcoin is

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<v Speaker 1>the fascinating story to me because I mean I've been

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<v Speaker 1>following it for almost a decade now, and the narratives

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<v Speaker 1>have always changed. In the beginning, it was supposed to

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<v Speaker 1>be proof that you could have a payment system outside

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<v Speaker 1>of the banking system. Then it was discovered that past

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<v Speaker 1>a certain point there were all sorts of inefficiencies and

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<v Speaker 1>stresses in the system that meant it couldn't scale properly.

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<v Speaker 1>And then it became sold as digital gold and the

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<v Speaker 1>sort of scarcity value of these twenty one million bitcoin

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<v Speaker 1>and you would never go beyond that, and we we

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<v Speaker 1>see what happens Basically, when you do have a fixed supply,

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<v Speaker 1>it's a bit like a like a commodity. It all

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<v Speaker 1>becomes about demand selling bitcoin, getting more people involved, getting

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<v Speaker 1>new money coming in, and also on top of the

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<v Speaker 1>new money, having to pay the electricity cost to mind it.

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<v Speaker 1>These are all reasons why bitcoin is what it is today,

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<v Speaker 1>which is it still exists and it's still here. You

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<v Speaker 1>could always point to that and say that's victory. But

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<v Speaker 1>I don't think you could point out what's happening and say,

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<v Speaker 1>we we know what this is, we know what this

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<v Speaker 1>is for, we know how it works. It works as

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<v Speaker 1>a supposedly the stable store of value because it isn't

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<v Speaker 1>a store of value. And now the final narrative to

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<v Speaker 1>fall away is the inflation hedge. Inflation is back in

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<v Speaker 1>a big way and bitcoin is through the floor. So

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<v Speaker 1>another narrative that's been knocked down. One thing that you've noted,

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<v Speaker 1>you know again to use your word about narratives, is

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<v Speaker 1>this idea of crypto fomo that had affected not all

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<v Speaker 1>of Wall streets. Certainly some of them have still violently

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<v Speaker 1>anti crypto, but at least some of them. And the

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<v Speaker 1>fact that and you tweeted this, and I said you

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<v Speaker 1>should make this a column. But the people on Wall

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<v Speaker 1>Street who seemed to be continuing to make money on

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<v Speaker 1>crypto are the ones who are making distressed bets, right

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<v Speaker 1>so there bankruptcy advisory or you know, they're collecting fees

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<v Speaker 1>on different types of trades. Do you think that even

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<v Speaker 1>Wall Street, which is home to lots of people who

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<v Speaker 1>understand risk, is finding that that crypto fomo should have

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<v Speaker 1>been crypto like joy of missing out instead? That's a

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<v Speaker 1>good question. I think it's it's it's slightly different. I

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<v Speaker 1>guess at firm level versus individual bank or a trader level.

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<v Speaker 1>I think institutionally, we have seen a lot of pressure

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<v Speaker 1>on banks and institutions to to dip their toes. It's

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<v Speaker 1>resulted in a in a lot of different things. As

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<v Speaker 1>you point out JP Morgan, investment banks have been lending

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<v Speaker 1>to institutions that are in crypto. They've not really touched

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<v Speaker 1>the cryptocurrency themselves, but made money on the ecosystem around it. Basically,

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<v Speaker 1>I think that for anyone to point at what's happening

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<v Speaker 1>today and say, Okay, this system is surviving and there

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<v Speaker 1>are individuals and institutions out there to backstop it, you

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<v Speaker 1>would have to see a lot more than what's happening today,

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<v Speaker 1>which is basically some big shot crypto billionaires who run

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<v Speaker 1>exchanges like sand bankman Freed sort of throwing a few

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<v Speaker 1>pennies and distressed platforms and hoping to pick up the crumbs.

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<v Speaker 1>So fd X signing agreement with block by today. The

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<v Speaker 1>deal includes an option to purchase the crypto lender for

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<v Speaker 1>as much as two hundred and forty million dollars. Sam

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<v Speaker 1>Bank and Freed, co founder of fd X, I think

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<v Speaker 1>you would need an actual Wall Street institution that to

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<v Speaker 1>come in and say we are making a meaningful acquisition

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<v Speaker 1>or a meaningful merger here for it to look like

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<v Speaker 1>this space has a future today within a regulated entity.

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<v Speaker 1>I think what's happening now shows you that we are

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<v Speaker 1>a fair way off, even if there has been a

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<v Speaker 1>bit of I guess unhealthy pomo from some institutions. It's

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<v Speaker 1>interesting that you say that about you know, e many

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<v Speaker 1>We we are in such a distressed environment that that's

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<v Speaker 1>absolutely something that folks are not just expecting but actively

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<v Speaker 1>talking up right, Like various crypto companies have come out

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<v Speaker 1>and said we have a responsibility to ensure what's the

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<v Speaker 1>phrase healthy consolidation in the industry. UM, the CEO of

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<v Speaker 1>Finance and the folks at Nexto have both said that,

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<v Speaker 1>you know, they want they want to be there for

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<v Speaker 1>the people, for the people who need them. You mentioned

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<v Speaker 1>Sam Bank Man Freed and FTX attempting to sort of

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<v Speaker 1>ride to the rescue, as it were. But to your point,

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<v Speaker 1>it doesn't look as if anyone on Wall Street has

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<v Speaker 1>yet owned anyone operating at a value that is attractive

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<v Speaker 1>enough to make that risk worth their while. What do

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<v Speaker 1>you think about the opposite where there's various kinds of

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<v Speaker 1>speculation that a crypto native firm could make, you know,

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<v Speaker 1>a tradify a traditional finance acquisition. People got very excited

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<v Speaker 1>when Sam bankmun Freed disclosed that he had acquired a

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<v Speaker 1>stake in robin Hood, for instance. Yes, and that that

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<v Speaker 1>kind of makes me have a different vision of the

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<v Speaker 1>future of of what he might try and attempt, because

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<v Speaker 1>I can totally see a universe where he comes out

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<v Speaker 1>as the as the winner in this situation by creating

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<v Speaker 1>essentially a kind of great big casino in the sky,

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<v Speaker 1>a sort of virtual seven marketplace where you can trade

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<v Speaker 1>stocks and crypto and everything. It's like all of this

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<v Speaker 1>stuff that the meme stock staff and crypto that's where

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<v Speaker 1>you go. He's sort of clean house, so that that

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<v Speaker 1>might be his plan. I don't know today if if

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<v Speaker 1>that's really possible, If this is this is the question,

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<v Speaker 1>if crypto keeps falling, If if the coin keeps falling,

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<v Speaker 1>I don't see how these exchanges today, whether it's ft

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<v Speaker 1>X or Finance, I just don't see even if they're

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<v Speaker 1>making a lot of actual dollars out of this, I

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<v Speaker 1>just don't see how they can they can withstand that.

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<v Speaker 1>We'll be right back with more of Leonel Laurent's take

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<v Speaker 1>on the volatility of crypto and its implications for the

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<v Speaker 1>current market. In another one of your columns, us explicitly

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<v Speaker 1>used the analogy of crypto not being too big to fail,

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<v Speaker 1>right contra what happened in two thousands and thees and onward,

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<v Speaker 1>where various governments decided like, actually, it would seem that

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<v Speaker 1>having our commercial banking system fall into pieces would not

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<v Speaker 1>be ideal from a consumer perspective. It doesn't seem as

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<v Speaker 1>if crypto has sort of risen to that level for

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<v Speaker 1>regulators and governments. Is there anything that you're observing perhaps

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<v Speaker 1>in Paris perhaps and Europe, perhaps elsewhere. That suggests that

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<v Speaker 1>regulators are looking more or less positively on what's happening

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<v Speaker 1>in crypto right now. Again, we have to separate out

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<v Speaker 1>a few things. I think regulators have always had the

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<v Speaker 1>same view of suddenly like bitcoin. I think they are

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<v Speaker 1>as long as you focused on the exchanges and the

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<v Speaker 1>off ramps from regular currencies. I think they don't mind

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<v Speaker 1>it and behaving the way it does. I think size

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<v Speaker 1>not being too big to fail. I think we've obviously

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<v Speaker 1>seen today there aren't that many connections to the real economy,

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<v Speaker 1>and when I ask regulators, what if this one shouldn't

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<v Speaker 1>got a market disappeared tomorrow, they don't seem that fast

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<v Speaker 1>about about the consequences. I do think that they are

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<v Speaker 1>far more concerned about stable coins, as the Facebook experiment

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<v Speaker 1>put them put them on alert. I do think that

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<v Speaker 1>they are concerned about what happens next. I mean, if

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<v Speaker 1>if if de fi becomes the hot thing eventually once

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<v Speaker 1>once again, and if if links increase to the to

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<v Speaker 1>the real economy, then they are very concerned and sort

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<v Speaker 1>of watching it that. I would say that today they

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<v Speaker 1>haven't really changed their minds much. But I think they

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<v Speaker 1>are going to be looking much closer at all the

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<v Speaker 1>different offshoots of crypto to make sure it doesn't accome

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<v Speaker 1>too big to fall. One day, Well, you mentioned stable coins,

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<v Speaker 1>and you mentioned the Facebook experiment, which is you know

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<v Speaker 1>back I think it was in two thousand and eighteen

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<v Speaker 1>was the first time that this news came out that

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<v Speaker 1>Facebook was looking to develop a crypto that would allow

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<v Speaker 1>cross border transfers with WhatsApp as as the vehicle um

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<v Speaker 1>and a lot of people had concerns about that, certainly

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<v Speaker 1>the moneygrams of the world, who felt their entire business

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<v Speaker 1>model quick in fear, but also governments who have an

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<v Speaker 1>interest in making sure that it's relatively difficult to transfer

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<v Speaker 1>currencies across borders. As it relates to the regulators that

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<v Speaker 1>you mentioned, a big concern they have with stable coins

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<v Speaker 1>is that it reintroduces systemic risks in a way that

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<v Speaker 1>we also saw in the financial crisis, where things that

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<v Speaker 1>didn't look correlated suddenly become so because they're all exposed

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<v Speaker 1>to the same thing. Given what you've said about too

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<v Speaker 1>big to feel, do you think if stable coins were

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<v Speaker 1>a bigger part of this ecosystem, you would have a

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<v Speaker 1>different analysis. I think the problem with with stable coins.

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<v Speaker 1>As I see it is we're getting into bank like

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<v Speaker 1>activities without bank like regulation. I think that's the problem.

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<v Speaker 1>And I think that's what I'm seeing a lot in

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<v Speaker 1>defied too. You have lending going on, you have borrowing

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<v Speaker 1>going on, you have leverage, you have interest rates, you

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<v Speaker 1>have the sort of I guess it's like a meme

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<v Speaker 1>or or a kind of caricature of what banking is,

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<v Speaker 1>but without none of the oversights or the or the

0:12:46.320 --> 0:12:51.880
<v Speaker 1>protections that regular banking has to provide. Right the if

0:12:51.880 --> 0:12:53.640
<v Speaker 1>it looks like a bank, walks like a bank, talks

0:12:53.679 --> 0:12:58.000
<v Speaker 1>like a bank, should regulated like a bank situated exactly. Yeah,

0:12:58.040 --> 0:13:01.480
<v Speaker 1>And I think Frankly Later has been behind the curve

0:13:01.640 --> 0:13:03.640
<v Speaker 1>a lot of this stuff. I mean, I don't know

0:13:03.720 --> 0:13:06.680
<v Speaker 1>today what regulators think is beyond the pale. Fundamentally, yes,

0:13:06.679 --> 0:13:10.000
<v Speaker 1>they say they're tough on fraud and scams, But what

0:13:10.120 --> 0:13:12.640
<v Speaker 1>is the activity that they think would be beyond the

0:13:12.640 --> 0:13:15.120
<v Speaker 1>pale for a stable coin or or a non bank

0:13:15.360 --> 0:13:17.920
<v Speaker 1>entity to provide on de fight through crypto, I don't know.

0:13:18.080 --> 0:13:20.960
<v Speaker 1>I think we need to know what should be genuinely banned,

0:13:21.080 --> 0:13:23.600
<v Speaker 1>right and and I'm sure there is stuff that should

0:13:23.600 --> 0:13:26.559
<v Speaker 1>be banned that isn't even though it's sort of parading

0:13:26.559 --> 0:13:28.960
<v Speaker 1>itself as defile stable coin, and I just feel like

0:13:28.960 --> 0:13:31.040
<v Speaker 1>it's not clear, so regulators are always kind of running

0:13:31.040 --> 0:13:34.000
<v Speaker 1>after it, a clarity that many, many people on multiple

0:13:34.040 --> 0:13:36.840
<v Speaker 1>sides of this equation are all seeking. Well, thank you

0:13:36.880 --> 0:13:39.679
<v Speaker 1>so much, Leonard for joining us from the Paris studio

0:13:39.840 --> 0:13:42.360
<v Speaker 1>of of this podcast. Appreciate you taking the time to

0:13:42.360 --> 0:13:46.480
<v Speaker 1>come on today. Thank you very much. You can find

0:13:46.480 --> 0:13:49.560
<v Speaker 1>more of Leonell's opinion columns on the Bloomberg Terminal, on

0:13:49.559 --> 0:13:54.400
<v Speaker 1>Bloomberg dot com and on Twitter. He's Leonel r A

0:13:54.520 --> 0:14:00.880
<v Speaker 1>laur That's l a u r e n T. On

0:14:00.960 --> 0:14:04.520
<v Speaker 1>the next episode of Bloomberg Crypto, some investors are still

0:14:04.559 --> 0:14:08.120
<v Speaker 1>buying the token known as Luna Classic, which has flatline

0:14:08.160 --> 0:14:11.160
<v Speaker 1>towards zero in the aftermath of the collapse of the

0:14:11.280 --> 0:14:14.640
<v Speaker 1>Terra USD stable coin. Why are people willing to bet

0:14:14.679 --> 0:14:18.199
<v Speaker 1>on so called zombie coins? You'll hear from Bloomberg Senior

0:14:18.280 --> 0:14:21.720
<v Speaker 1>editor Mike Reagan and Bloomberg Reports Mr Lena IGLFA Polo

0:14:22.000 --> 0:14:24.880
<v Speaker 1>for more on the motivations of these treasure hunters of

0:14:24.880 --> 0:14:32.640
<v Speaker 1>the token deeps. I'm Stacy, Marie Ishmael and This is

0:14:32.680 --> 0:14:36.360
<v Speaker 1>Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio.

0:14:36.960 --> 0:14:39.040
<v Speaker 1>For more shows from I Heart Radio, visit the I

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<v Speaker 1>Heart Radio app, Apple Podcasts, or wherever you get your podcasts.

0:14:43.320 --> 0:14:46.160
<v Speaker 1>Email your questions, comments, or suggestions for the show to

0:14:46.280 --> 0:14:48.960
<v Speaker 1>Crypto at Bloomberg dot net, and you'll find us on

0:14:49.000 --> 0:14:55.240
<v Speaker 1>Twitter at Crypto. The supervising producer of this episode is

0:14:55.320 --> 0:14:59.800
<v Speaker 1>Vicky very Galina. Our producer is Mohammed Farouk, Associate producer

0:15:00.120 --> 0:15:04.400
<v Speaker 1>Moses and Desta wonder At is our engineer. Original music

0:15:04.480 --> 0:15:25.800
<v Speaker 1>by Leo Sedrin m