Speaker 1: This is Bloomberg Crypto at Daily Bloomberghart Podcast and I'm
Speaker 1: Philip Logger Crowns there in today for Staty Marie Ishmael.
Speaker 1: It's Friday, November eleven. Okay. Today on the show, we
Speaker 1: were going to discuss Bitcoin's performance over the past year,
Speaker 1: from its high point of about sixty nine dollars to
Speaker 1: its lows falling below seventeen thousand. Earlier this week, after
Speaker 1: the equivalent of an earthquake jolted the world of digital assets, Finance,
Speaker 1: the world's largest cryptocurrency exchange, had announced plans to buy
Speaker 1: out its big rival f t X, which was reportedly
Speaker 1: facing liquidity crisis and appeared to be on the verge
Speaker 1: of collapse. But now that deal is apparently off and
Speaker 1: that's caused a lot more mayhem and turmol in already
Speaker 1: battered the cryptocurrency markets. I've called up senior editor An Era,
Speaker 1: so that we can go over just what happened here.
Speaker 1: So what's happening now? U S regulators are looking into
Speaker 1: this um the deal is dead because Bina has pulled out,
Speaker 1: and now Sam bank Man Freed has sent a major
Speaker 1: warning out to two investors. Could you talk us through
Speaker 1: this little bit. Anna, Let's start with the authorities in
Speaker 1: the US probing FTX. We had a scoop on Thursday
Speaker 1: revealing that US authorities, including the Securities and Exchange Commission,
Speaker 1: we're looking at ft X potentially because essentially there's um
Speaker 1: they could have been using customer funds in ways that
Speaker 1: they shouldn't. And then on top of it all, basically
Speaker 1: we heard that bank man Freed told his investors that
Speaker 1: he had messed up. So you know, it's kind of
Speaker 1: all up in the air. Now there's gonna be no
Speaker 1: bail out. And here we're talking about one of the
Speaker 1: biggest crypto firms crypto exchanges, So the potential for contagion
Speaker 1: is massive, and if it's anything like Tara Tera Luna,
Speaker 1: it could like we could see those effects rippling through
Speaker 1: the crypto industry for quite a while because it takes
Speaker 1: a bit for positions to unwind and and so forth. Um,
Speaker 1: so we're gonna start seeing, you know, which firms were exposed.
Speaker 1: And you know, Sam mcminfried kind of ominously said to
Speaker 1: his investors, according to our story, that you know, if
Speaker 1: he doesn't get help, they might have to file for bankruptcy. Yeah,
Speaker 1: and I think it bears sort of recapping for the listeners.
Speaker 1: The one of the biggest crypto exchanges in the world. Um,
Speaker 1: a name that up until just this week was a
Speaker 1: blue chip name in crypto might now have to file
Speaker 1: for bankruptcy and they have a shortfall of as much
Speaker 1: as eight billion US dollars. That's sort of it's it's
Speaker 1: hard to overstate the gravity of of that situation. Huh yeah.
Speaker 1: I mean, you know, if you're if you're one of
Speaker 1: our listeners, you will have heard this name so many
Speaker 1: times on this podcast before. Matt also interviewed Sam Bankman
Speaker 1: Freed SPF as he's known Dam Bankman Free, Sam Bankman Freed,
Speaker 1: and probably in this context it might be quite chucking.
Speaker 1: Maybe you can have your money on FTX right um,
Speaker 1: and withdrawals have been frozen, and you know, if there's
Speaker 1: no bailout, who knows who will get their money back
Speaker 1: and how much of that money will will be given back.
Speaker 1: So even in other bigger firms are in the same position,
Speaker 1: which is why I was talking about potential contagion, because
Speaker 1: if you can't get your money back, what if you
Speaker 1: have someone else money and so forth, And you know,
Speaker 1: it's kind of infinite. So Sam Bankman Freed told his
Speaker 1: investors he'd missed up and he was asking for for rescue.
Speaker 1: He said he would be incredibly grateful if investors could
Speaker 1: help him, and so if they can't, then you know,
Speaker 1: his firm might not make it and the consequences could
Speaker 1: be quite dire for everybody who has money on them
Speaker 1: and the firms that are connected. So it is very serious.
Speaker 1: It's you know, the latest in implosions in the scripto Winter,
Speaker 1: but I think it's sort of overshadows all the other
Speaker 1: ones we've had so far. And as Phil you were saying,
Speaker 1: it's partly because we've seen this person over the summer
Speaker 1: appearing as the the White Night saving everyone else, so
Speaker 1: that while that was happening, he might have also been
Speaker 1: in trouble is quite um. It's quite interesting, and and
Speaker 1: it shows again the extent to which this industry, while
Speaker 1: it says it is all about transparency, it's quite still opaque.
Speaker 1: There's lack of regulation because in many cases it is
Speaker 1: it is regulation and finance that brings transparency, right because
Speaker 1: it says you have to tell us what you own
Speaker 1: and where and where it's dis custody. Then like what
Speaker 1: your reserves are. You know, we always talk about these
Speaker 1: firms as exchanges, and I've had you know, sources and
Speaker 1: market structure people tell me you shouldn't all these exchanges
Speaker 1: because they're just trading platforms. Exchanges are regulated, they have
Speaker 1: rules that says say how many reserves you must have
Speaker 1: when and how customer funds should be segregated. So, you know,
Speaker 1: I guess it's all coming to the forefront now, the
Speaker 1: lack of regulation and so forth. And now as you said,
Speaker 1: you don't know, I mean, you know they call and exchange,
Speaker 1: they're not really in exchange. A blue chip name has
Speaker 1: just sort of said that, you know, very realistically, we
Speaker 1: might not make it. Um. Who can you trust in this?
Speaker 1: In this environment, there must be just this pervasive sense
Speaker 1: of mistrust throughout the entire cryptosphere right now for sure.
Speaker 1: I mean, you know, in our line of work, we've
Speaker 1: we've been speaking to many of these players often, you know,
Speaker 1: our reporters, ourselves, so already in that sense, it's come
Speaker 1: quite as a shock. But imagine if they were your
Speaker 1: counterparty and you were speaking to them two days ago
Speaker 1: and doing a trade with them, and all of a
Speaker 1: sudden you figure out that maybe they were insolvent um.
Speaker 1: You know that that that that will probably be shocking,
Speaker 1: and again it calls into question risk management practices, and
Speaker 1: I think we'll see who you know, who survives will
Speaker 1: kind of probably I mean, some of it might be
Speaker 1: luck if you didn't have exposure in that moment, but
Speaker 1: maybe you were just being a bit more cautious. And
Speaker 1: one thing havn't sort of covered Crypto for a while
Speaker 1: is that these exchange collapses are quite cyclical. It happens,
Speaker 1: It's happened before um. But you know, I guess Crypto
Speaker 1: at the beginning was a bit more like edgy and
Speaker 1: like people are like, oh, it's all dodgy, So it
Speaker 1: was it was in a way a bit more expected.
Speaker 1: But now that you know it's come to the mainstream,
Speaker 1: you have big banks and and people being taken seriously.
Speaker 1: SPF was a you know, a big player in Washington,
Speaker 1: big donor and campaigns. He had like a conference where
Speaker 1: he had Bill Clinton on stage. Sam bankman Fried was
Speaker 1: very much in the public eye. He has a big
Speaker 1: um influence in Washington. He was donating massively to campaigns
Speaker 1: and you know, he had the Clinton on stage at
Speaker 1: his conference in a conference where he was sitting next
Speaker 1: to Bill Clinton, so you know, he's kind of a
Speaker 1: public figure. So we've gone from like dodgy crypto anarchists collapsing,
Speaker 1: which is like, oh, that's their problem, to like someone
Speaker 1: in the you know, public eye. So it is very
Speaker 1: much more impactful. I think more on the buyans fd
Speaker 1: X drama with Anna Rrera coming up right after the break.
Speaker 1: I want to go back to buying us for a while.
Speaker 1: So if we recap this week for buying us, Basically
Speaker 1: what's happened is here sees it on Sunday, goes out
Speaker 1: and tweets I'm going to sell our ft T tokens
Speaker 1: because of recent revelations, and then you know, steps back,
Speaker 1: chaos unfolds. F t X gets swept away, they get
Speaker 1: an offer from SPF um by us. Basically they get
Speaker 1: a full look at SPF presumably, they get a look
Speaker 1: at FTX books, and then they take a close look
Speaker 1: and they see something they don't like. They turn around,
Speaker 1: walk away, and they now are left with basically full
Speaker 1: insight into the workings of a competitor, presumably, and that
Speaker 1: competitor might no longer be around. It's that it's a
Speaker 1: sort of a fair summary of event. Where does this
Speaker 1: lead Binance? Of course, if Bitcoin crashes, and that's not
Speaker 1: great for anyone, But as I said, there's been exchange
Speaker 1: collapses for years, and what we've seen is like some
Speaker 1: players have emerged in a more stronger position. And Binance
Speaker 1: has been around for quite some time now and they're
Speaker 1: quite aggressive. So I'm thinking they might be taking advantage
Speaker 1: of the situation and they might see no influence go
Speaker 1: up UM and you know, it leaves them in a
Speaker 1: potentially stronger position, although of course it depends to on
Speaker 1: what sort of happens to crypto in general. I don't
Speaker 1: think they had big dealings with UM, you know, like
Speaker 1: Wall Street. So if Wall Street gets a bit scared
Speaker 1: by what's happened, I don't know if that impacts them.
Speaker 1: But for sure, you know, now one of the biggest
Speaker 1: retail trading platforms is gone, and so people have to
Speaker 1: go somewhere else, right, I mean, I can't imagine many
Speaker 1: crypto traders or people that have traded for a while
Speaker 1: deciding all of a sudden to sell all of it
Speaker 1: at a low. That would be I mean, it would
Speaker 1: be surprising. It might happen, but you know, they'll have
Speaker 1: to move their crypto somewhere. Some of it might go
Speaker 1: in cold storage, but if they want to continue to
Speaker 1: trading and operate, they'll have to move on another platform.
Speaker 1: And is it reasonable to to think in this sort
Speaker 1: of with this chapter not behind us, we're very much
Speaker 1: still in the midst of it. But with what's played
Speaker 1: out over this week, is it reasonable to think that
Speaker 1: institutional investors who were thinking about getting into crypto might
Speaker 1: just take a look at this and go, wait a minute, Um,
Speaker 1: I'm not so sure anymore. I mean, because that was
Speaker 1: always going to be the sort of what crypto needed
Speaker 1: after the scandals we've had this year, like more retail
Speaker 1: or in the institutional participation. So I think there's two
Speaker 1: interesting things going on. We've seen cryptocurrency firms saying they're
Speaker 1: having more institutional interests, so institutions going on those platforms.
Speaker 1: So we've also seen institutions building their own infrastructure and platforms.
Speaker 1: So the issue is here is perhaps not whether the
Speaker 1: asset class is valuable, it's whether the people that are
Speaker 1: running the asset class are valuable. Right, do we trust
Speaker 1: the centralized crypto exchanges? Do we trust the big players
Speaker 1: in crypto? Is a different question, perhaps do we think
Speaker 1: that bitcoin has any value as an asset, because you
Speaker 1: could separate the two and say, well, we do still
Speaker 1: think that there's potential. We'll just set up our own
Speaker 1: exchanges well, and we'll do our own thing. We have
Speaker 1: our own You know, there are many banks that are
Speaker 1: have their own custody arms, and that will probably make
Speaker 1: them feel a bit safer because imagine if a crypto
Speaker 1: custodian collapses, you know that that's really bad, but you know,
Speaker 1: now you have someone like Bank of New York Melon
Speaker 1: who's been custodying assets, um many other types of assets
Speaker 1: for a while. That might make people feel safer. It
Speaker 1: doesn't necessarily mean that banks haven't had their own issues
Speaker 1: in the past, but you know, if you know, maybe
Speaker 1: if they think we're going to build our own infrastructure,
Speaker 1: what we might still be doing things. But it will
Speaker 1: definitely be really interesting to see what they do. I'm
Speaker 1: thinking FDx. You know, they were also backed by a
Speaker 1: pension fund um and Celsius too, so you know, like
Speaker 1: I don't know how many other pension funds will take
Speaker 1: steakes in crypto firms going forward, like imminently, Like there's
Speaker 1: got to be tougher questions being asked by the people
Speaker 1: behind those funds, right are the stakeholders? It's I think
Speaker 1: it was a teacher's pension fund from Canada. Again, as
Speaker 1: we've said before, what what strikes in this crisis is
Speaker 1: the impact it is having on like all sorts of people.
Speaker 1: It's no longer just oh, like crypto fanatics losing their money.
Speaker 1: It's it's but ventially teachers losing their pensions. I'm not
Speaker 1: saying this is what's going to happen here because I
Speaker 1: don't think they invested all of it in FDx, but
Speaker 1: you know there were institutions that had come in for sure,
Speaker 1: and you know what if some of them got burned?
Speaker 1: All right? Thank you, Anna. You can follow this story
Speaker 1: and all of Anna's reporting on the Bloomberg terminal on
Speaker 1: Bloomberg dot com and on Twitter. Anna is at Ana
Speaker 1: arera or A N N A I R R E
Speaker 1: R A on the next episode of Bloomberg Crypto. There
Speaker 1: are a lot of ways that the crypto industry seems
Speaker 1: to be unlike any other. One of the big ones
Speaker 1: is its tolerance for losing spectacular amounts of money, two hacks,
Speaker 1: scams and exploits we'll be talking about the latest attacks
Speaker 1: and defy and how they're affecting trust in the overall ecosystem.
Speaker 1: This is Bloomberg Crypto, a daily podcast from Bloomberg and
Speaker 1: I Heart Radio. For more shows from I Heart Radio,
Speaker 1: visit the I Heart Radio app, Apple Podcasts, or wherever
Speaker 1: you get your podcasts. Send us your comments, questions, or
Speaker 1: suggestions for the show to Crypto at Bloomberg dot net
Speaker 1: or find us on Twitter. We're at Crypto. The supervising
Speaker 1: producer of Bloomberg Crypto is Vicky very Galina. Our senior
Speaker 1: producer is Janet Babin. Our producers are Mohammed Faruk and
Speaker 1: Sharon Barriro. Our associate producers are Ty Butler and Moses
Speaker 1: on Them. Desta wonder At is our engineer. Original music
Speaker 1: by Leo Sidron. I'm Stacy Marie Shmal. We'll be back
Speaker 1: tomorrow