Speaker 1: Bloomberg Audio Studios, Podcasts, radio news anyway. Hello, and welcome
Speaker 1: to the Money Stuff Podcast.
Speaker 2: Your weekly podcast.
Speaker 1: Okay, all right, we're gonna.
Speaker 2: Get through this. Hello, and welcome to the Money Stuff Podcast,
Speaker 2: your weekly podcast where we talk about stuff related to money.
Speaker 2: I'm Matt Levine and I write the Money Stuff column
Speaker 2: for Bloomberg Opinion.
Speaker 1: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 1: an anchor for Bloomberg Television. It's good on, Katie, great question.
Speaker 1: We're going to talk about Meme stocks and the week
Speaker 1: that has been. We're going to talk about biddle it's
Speaker 1: a tokenized money market fund, essentially stable coin, whatever you
Speaker 1: want to call it. And then we are going to
Speaker 1: talk about election contracts and how much the CFTC does
Speaker 1: not like them.
Speaker 2: But I feel like I've said that on these signpostings before.
Speaker 1: Yeah, certain amount is usually the answer. So Meme sucks.
Speaker 1: This started on Sunday one, right right, This episode ended
Speaker 1: in two, and we started and ended twenty twenty one.
Speaker 1: Redormant for a while, Roaring Kitty. He came back, question Mark,
Speaker 1: did he for real come back his account?
Speaker 2: Did I just took it for granted? That he came back.
Speaker 2: I'm not so sure anymore.
Speaker 1: I also took it for granted that, oh, the account
Speaker 1: posted it must be him. There is some speculation that
Speaker 1: it's not actually Raring Kitty. We haven't he said.
Speaker 2: Who Ryan Kitty is? Did we say who Ryan Kiddy?
Speaker 1: Okay? His name is Keith Gill. He's a real man.
Speaker 1: He had a starring role in the twenty twenty one
Speaker 1: episode of Memes sock Mania.
Speaker 2: You did tell Congress I am not a cat, which
Speaker 2: is like.
Speaker 1: A great it was. It was perfect. He also said
Speaker 1: what was he likes the suck.
Speaker 2: He really liked GameStop. Yeah, and he made a lot
Speaker 2: of money really liking GameStop into the early twenty twenty
Speaker 2: one rally and GameStop where he made tens of millions
Speaker 2: of dollars.
Speaker 1: I do think his origin story is really interesting though,
Speaker 1: because in addition to being Roaring Kitty, he's also known
Speaker 1: as d Yeah deep Value exactly. Yeah, like this truly
Speaker 1: started because he actually did like the stop.
Speaker 2: Yeah, he's become this MEMI character. But he's like a
Speaker 2: guy who did fundamental research on GameStop and thought it
Speaker 2: was undervalued and did like multi hour YouTube tutorials and
Speaker 2: why GameStop was a good company. Like, he's pretty serious
Speaker 2: about it exactly.
Speaker 1: So he started from, you know, a place of fundamental analysis.
Speaker 1: He tweeted again on Sunday after not tweeting since June
Speaker 1: twenty twenty one. The pace of his tweets have been breathless.
Speaker 1: He has been posting so much.
Speaker 2: How many of them have been about game Stop?
Speaker 1: Ah, that's the thing, Like it's zero surely, yeah, I
Speaker 1: mean he did or the account posted a clip of
Speaker 1: CNBC talking about game Stop, right, so that blurs the lines.
Speaker 1: But you're right that the thing that kicked it all
Speaker 1: off on Sunday was just a cartoon man leaning forward
Speaker 1: in a chair. He didn't mention game Stop, but GameStop Skyrocket.
Speaker 2: Yeah, I mean it's the cartoon man was represented him
Speaker 2: and the leaning forward in the chair represented he was
Speaker 2: coming back to lead the masses to victory and GameStop
Speaker 2: to the moon. That's how people interpreted it. He is
Speaker 2: not commented.
Speaker 1: We haven't seen his face, he hasn't posted any YouTube videos.
Speaker 2: Hasn't posted on Reddit, I believe. Yeah, so it's really
Speaker 2: really magical that this Twitter account can move, you know.
Speaker 2: It added to like three or four billion dollars to
Speaker 2: the market cap of Game Stop on like Monday. Yeah,
Speaker 2: just like forgetting the band back together, like for the rolls.
Speaker 2: Nothing happened. Neither Game Stop nor allegedly Roaring Kitty said
Speaker 2: anything about Game Stop. There's no news. There's just like, Oh,
Speaker 2: that guy's back, that'll be fun.
Speaker 1: So the question I have for you, and you pose
Speaker 1: this in one of your columns in the context of
Speaker 1: if you were designing an exam, could this count as
Speaker 1: market manipulation given that he didn't mention Game Stop? But
Speaker 1: what if he had bought a whole bunch of calls
Speaker 1: on Game Stop and then he posted what I.
Speaker 2: Learned about market manipulation? Though these many years ago, people
Speaker 2: talked about materiality and like the reasonable investor information was
Speaker 2: material to the reasonable investor, you know, if it was
Speaker 2: useful and the reasonable investors investment decisions, and you know,
Speaker 2: if you lie about material stuff, that's fraud. The materiality
Speaker 2: is the sort of standard for all of the securities
Speaker 2: last stuff. And one thing that has happened in recent
Speaker 2: years is you're like, what does the reasonable investor have
Speaker 2: to do with anything? Right? Because if he would gone
Speaker 2: back to me in law school and said, is it
Speaker 2: material to the price of game stop stock that a
Speaker 2: guy treated a picture of a guy leaning forward in
Speaker 2: a chair? I wouldy sapt that has nothing to do
Speaker 2: with the reasonable investor or anything else or game Stop.
Speaker 2: Like he's never mentioned, you know, he didn't mention GameStop
Speaker 2: in the tweet, so he couldn't possibly have been like
Speaker 2: tricking anyone about anything material. So it seems hard to
Speaker 2: argue that there's any sort of market manipulation, even if,
Speaker 2: by the way, like even if he was like doing
Speaker 2: it as nefariously as possible, even if he like bought
Speaker 2: a bunch of call options and like tweeted the thing
Speaker 2: and then sold the call option. If you butt coll
Speaker 2: options and tweeted like GameStop discovered the cure for cancer
Speaker 2: and then told his co options, like, that's obviously market manipulation.
Speaker 2: But like if you just replaced tweeting something about games
Speaker 2: Stop with tweeting a picture of him leaning forward in
Speaker 2: the chair, which has way more of an effect, right,
Speaker 2: I think it becomes not anything that the SEC can
Speaker 2: do anything about because he's not saying anything, he's not
Speaker 2: lying misrepresenting anything. He's just you know, tweeting a picture
Speaker 2: of a guy in a chair. Now, I will say
Speaker 2: there's an amazing case about bed bath and beyond, where
Speaker 2: like Ryan Cohen, the actually Game Stop CEO now was
Speaker 2: also dabbling in that stock and he tweeted you can
Speaker 2: reply to someone. He tweeted like a moon or a
Speaker 2: rocket munamagi, which doesn't it looks like a smiley face,
Speaker 2: but it's allegedly a munomagic and someone sued saying that
Speaker 2: was a fraud, and judge we wrote a long opinion
Speaker 2: being like, well, the moon emoji represents his views on
Speaker 2: the fundamentals and basically decided the fox switch could go hard,
Speaker 2: So like, there is some ambiguity here, but I do
Speaker 2: think that even if he was like trading on these tweets,
Speaker 2: he's still clean. Now, the really interesting question is, you know,
Speaker 2: as you say, no one seems really sure that he's back.
Speaker 2: If you hacked his Twitter and still his account, or
Speaker 2: if you bought his Twitter from him and you were
Speaker 2: just tweeting these things which have nothing to do with
Speaker 2: Game Stop, but which have caused the price of game
Speaker 2: slop to go up by billions of dollars, is that
Speaker 2: market manipulation If you're trading on that, and again, you're
Speaker 2: not saying to make games stop, so it's really hard
Speaker 2: to argue that it is. But it also feels like
Speaker 2: it is.
Speaker 1: Yeah, yeah, I love it. And what if he just
Speaker 1: sold his account.
Speaker 2: I mean, if he just sold his account, he's out
Speaker 2: of it. But who I was using the account is like,
Speaker 2: if he sold his account to anyone other than someone
Speaker 2: planning to manipulate the price of game stop, he got
Speaker 2: a bad deal, right, because it's a valuable account. Yeah,
Speaker 2: and Twitter or an ex Patrick McKenzie tweeted, you shouldn't
Speaker 2: be able to increase the market capitalization of a company
Speaker 2: by billions of dollars by pointedly not mentioning in a tweet,
Speaker 2: But at least two people can. One is nearly the
Speaker 2: richest person on Earth and the other's labor is deeply mispriced. Right,
Speaker 2: so one is like Elon Musk when he tweets about something.
Speaker 2: You know, he famously tweeted you Signal about the encorected
Speaker 2: messaging app, and like the price of this unrelated company
Speaker 2: called Signal went up. So when he like doesn't tweet
Speaker 2: it out companies, he can still cause their price to
Speaker 2: go up. He's made some use of that skill and
Speaker 2: also happens to be extremely wealthy. But then Keith Gills
Speaker 2: has done pretty well for himself. Keith Gill's labor is
Speaker 2: not that underpriced. He's made a lot of money. But
Speaker 2: even game still.
Speaker 1: If you or I were only to become Keith Gill,
Speaker 1: how do you capitalize on this power in a legal way?
Speaker 2: I don't want to give legal it. More to the point,
Speaker 2: if I just like acquired Keith Gill's Twitter account, right,
Speaker 2: I think I would have tweated exactly what was tweeated here.
Speaker 2: I don't know what people were trading. But what I
Speaker 2: would have done is I would have bought a lot
Speaker 2: of call options on game stop. I would have tweeted
Speaker 2: something like I'm back there you go, no reference the
Speaker 2: game stuff, and then I would have sold all the
Speaker 2: call options. Yeah, and then let you do you get
Speaker 2: diminishing returns, But.
Speaker 1: I think we're there.
Speaker 2: Yeah, yeah, well, I think you're probably right. But like,
Speaker 2: if you do this once, you got to do it
Speaker 2: for a lot of money, and you got to do
Speaker 2: it as levered as possible, like call options.
Speaker 1: I'm just piecing together the price action with how often
Speaker 1: he has been tweeting on May fifteenth, he tweeted at
Speaker 1: least twenty times, sorry.
Speaker 2: You diminishing returns, going away and coming back right since
Speaker 2: his first tweet from his Sunday comeback like heat. Nothing
Speaker 2: after that unless you start tweeting about game stuff, which
Speaker 2: seems riskier.
Speaker 1: No one is really succinctly defined to me what him
Speaker 1: being back means, Well, he's just.
Speaker 2: Going to see it, but coming from his account about movies,
Speaker 2: like movie clips are being tweeted from his account.
Speaker 1: Yeah, but he hasn't posted anything substantial.
Speaker 2: I don't know.
Speaker 1: Why does it matter that he's back? Why does it
Speaker 1: matter that he's tweeting?
Speaker 2: I'm asking almost like the deepest questions of financial markets.
Speaker 1: Yeah, doesn't matter that is.
Speaker 2: Tweeting movie clips. Maybe it doesn't. Maybe we're wasting our
Speaker 2: time here, but like, get know. I mean it caused
Speaker 2: the price of game stops to go up by three
Speaker 2: or four billion dollars, and like why because GameStop was
Speaker 2: like the quintessential meme stock. And what a memestock is
Speaker 2: like something whose trading action is entertaining and gives people
Speaker 2: a sense of community. And it's like fun to be
Speaker 2: a part of this online message board community where you
Speaker 2: like trade jokes and share memes and then also by
Speaker 2: call options on game Stop.
Speaker 1: Right.
Speaker 2: That died down for a number of reasons, one of
Speaker 2: which is that the price of game Stop, after going
Speaker 2: up a lot in twenty twenty one, came down. But
Speaker 2: other are other ones, like the pandemic ended, and so
Speaker 2: people who were like shut at home got to go
Speaker 2: out or you know, entertainment moves on, right, and people
Speaker 2: like found other things that were fun, and so the
Speaker 2: community fun meme sensibility that grew around game Stop ended
Speaker 2: and when he comes back by tweeting memes like there's
Speaker 2: nothing to do with the fundamentals of game Stop business,
Speaker 2: but it's oh great, this fun thing is back. Like
Speaker 2: our online friends are back, Like we can go have
Speaker 2: fun together online. And when they go have fun together online,
Speaker 2: one thing that means is by call options on game Stop,
Speaker 2: and so the price goes up.
Speaker 1: Yeah. I think I'm searching too hard here. Yeah, I
Speaker 1: just haven't.
Speaker 2: None of it makes sense. Well, but it sort of does, right,
Speaker 2: I mean, like it is a fun thing to do online,
Speaker 2: and like part of the fund is like you do
Speaker 2: trade the stock, and so like the entertainment franchise is back,
Speaker 2: like we're in season two of Game Stop. And so
Speaker 2: that does make sense on its own terms, it just
Speaker 2: doesn't make sense on like financial terms.
Speaker 1: The thing that I do find fun and that I
Speaker 1: do find interesting is that when what you're describing this
Speaker 1: sense of community, we're in it for the loles, when
Speaker 1: it actually does translate into the fundamentals of the business.
Speaker 1: And I'm talking about AMC and what AMC did this week.
Speaker 2: Yeah, this has kind of always been how it's worked,
Speaker 2: going back to twenty twenty one. Game Stop has always
Speaker 2: been like, we don't understand what being a meme stop
Speaker 2: meme stock is, and you know, like they are a
Speaker 2: meme stock. They're run by a meme stock guy, and
Speaker 2: like they like the memes, but they don't do anything
Speaker 2: corporate financy with it. Whereas AMC, at every moment when
Speaker 2: their price has rallied irrationally, they've been like, we are
Speaker 2: selling stock, we are raising money. We are going to
Speaker 2: get through like our tough financial times by selling stock
Speaker 2: to people at the best possible time. And so AMC
Speaker 2: actually didn't quite hit the best possible time.
Speaker 1: They got really lucky, though.
Speaker 2: So they were selling stock for the last six weeks. Yeah,
Speaker 2: and so they almost entirely missed this rally. They got
Speaker 2: some of it, but like they ended their stock sell
Speaker 2: plan basically on that first day when AMC rallied and
Speaker 2: sympathy with game Stop and everything else and all the
Speaker 2: other being stocks. But then they did turn around like
Speaker 2: the next day and sell a bunch of stock, not
Speaker 2: in the open market, but they like exchanged a bunch
Speaker 2: of their debt for stock. Yeah, So basically AMC's always
Speaker 2: this is always been AMC's strategy. They're like a very indebted,
Speaker 2: somewhat struggling movie theater chain, and every time their stock rallies,
Speaker 2: they're like, we're gonna get rid of some of our
Speaker 2: debt by like exchanging it for this like incredibly over
Speaker 2: valued stock.
Speaker 1: Yeah, in terms of why they always seek to capitalize
Speaker 1: and maybe game Stop doesn't. If you take a look
Speaker 1: at the debt profiles, a still has four and a
Speaker 1: half billion dollars in tent on.
Speaker 2: Answers they need to. But you also think there's like
Speaker 2: a personality issue. Really Yeah, AMC, like their CEO at
Speaker 2: and Aaron, it's like I'm going to lean into being
Speaker 2: the leader of the Apes as they call themselves, and
Speaker 2: as he calls them, like the retail meme traders who
Speaker 2: love AMC, like, yeah, all in on King an online personality.
Speaker 1: It is wild to me that in the Year of
Speaker 1: Our Lord twenty twenty four, like I get amc ape
Speaker 1: or some variation of that trending on x for me
Speaker 1: all the time. And I made the mistake of tweeting
Speaker 1: that I fell asleep during Doune two. I went to
Speaker 1: like midnight showing and I shouldn't have and I fell asleep,
Speaker 1: and I tweeted that, and I thought it was pretty innocent,
Speaker 1: and my mentions and my inbox were destroyed from people
Speaker 1: who just love AMC and are in the cult of AMC.
Speaker 2: They're not like Dune two was a great note and
Speaker 2: we're offended by you not liking it. There like movie
Speaker 2: theaters are.
Speaker 1: Great and we're yeah sleeping exactly, yeah, because it was
Speaker 1: like exclusive to AMC or or something that I didn't
Speaker 1: realize before I said it. They weren't upset that I
Speaker 1: didn't like the content of the movie.
Speaker 2: It was really typically in the pay of AMC short sellers.
Speaker 1: That's exactly what they thought. Let me clear the record
Speaker 1: right now, I am not but anyway gave stop. I
Speaker 1: thought this was interesting. It has long term debt of
Speaker 1: seventeen point seven million dollars and it remains limited to
Speaker 1: a low interest, unsecured term loan associated with the French
Speaker 1: government's response to COVID nineteen.
Speaker 2: Yeah, yeah, that's good debt. AMC's that was like, I
Speaker 2: figure out exactly what it's called, but it's ten slast
Speaker 2: twelve percent pic toggle secondly and supported. It's all the
Speaker 2: words that you were like, oh, that's bad debt.
Speaker 1: Yeah, my heart started racing. That's a lot of words. Yeah,
Speaker 1: did get a little bit into the fundamentals. I would
Speaker 1: also add that the movie business is really tough right
Speaker 1: now to be a movie theater.
Speaker 2: Chain, even keep Kenny Raff all the.
Speaker 1: Week, No no, and you think about the lagged effects
Speaker 1: of the writers and actors strike. There was some forecast
Speaker 1: out there that there won't be a single summer blockbuster
Speaker 1: to break a billion dollars, which is pretty terrible. And
Speaker 1: then you take a look at GameStop and it's trading
Speaker 1: at more than twelve hundred times it's expected twelve months
Speaker 1: forward earnings. So a lot of movement on the charts
Speaker 1: and a lot of silly valuations right now, right.
Speaker 2: Right, If any of this were being discussed on Keeth
Speaker 2: gils Twitter accat.
Speaker 1: Yeah, different, it would be different.
Speaker 2: The summer Blockbuster, the summer Entertainment is Keith giels Twitter account.
Speaker 1: I'm just searching. I'm searching too hard for meaning, but
Speaker 1: I need something to ground me in this life. Are
Speaker 1: you done talking about this?
Speaker 2: No, I'm going to talk about this more on the
Speaker 2: Bloomberg Big Take podcast about memes thoughts.
Speaker 1: Sounds like a riot. It's something you can listen to
Speaker 1: it on Apple podcasts, Spotify or wherever you get your podcasts.
Speaker 2: Wait, are there lots of sirens in.
Speaker 1: This podcast going on? Should I call my mom? Should
Speaker 1: we go to section two? I think I would feel
Speaker 1: a lot better grounded, more in touch with reality if
Speaker 1: we started talking about the blockchain and tokenized whatever this is.
Speaker 2: Memeslas are so twenty twenty one. Another back. I feel
Speaker 2: like I tried to walk away from the blockchain a
Speaker 2: little bit in recent months, but now like really back.
Speaker 1: You're really bad? You are you saying that officially? You
Speaker 1: are really back?
Speaker 2: Like youth Gil, No, I would say that like I
Speaker 2: happened to write a lot about crypto this week.
Speaker 1: Yeah, there's that there is.
Speaker 2: Not like looking forward to doing it again next week.
Speaker 1: But you did talk.
Speaker 2: I was hoping not to.
Speaker 1: You wrote about it in a very sedate, grown up
Speaker 1: way because you wrote about blackrock involved crypto.
Speaker 2: Yes, is that true? I always wonder like if you
Speaker 2: walk into the black crypto floor like wearing shorts, and.
Speaker 1: I somehow doubt that.
Speaker 2: Yeah, it's still pretty blackrocks.
Speaker 1: I don't think you're seeing any knees there, notions. I
Speaker 1: think they're all wearing pants. But let's talk about biddle, biddle,
Speaker 1: take it away.
Speaker 2: That's spelled like build but wrong like b U, I
Speaker 2: D like hoddle, like hoddle, right, hoddle, which is crypto
Speaker 2: for hold and uh crypto for build, but actually it
Speaker 2: stands or something right, it's an acronym and it is
Speaker 2: the black.
Speaker 1: Rock USD Institutional Digital Liquidity Funds.
Speaker 2: Yeah, biddle, I have I love like crypto does a
Speaker 2: lot of fun stuff with names, but like traditional finance,
Speaker 2: you know, I grew up in a derivative structuring desk
Speaker 2: and that job is forty percent coming up with acronyms
Speaker 2: for things, and so like I respect that black Rock
Speaker 2: is like we're gonna just very casually slip this acronym
Speaker 2: name into it.
Speaker 1: Yeah, I grew up in New Jersey, so a little
Speaker 1: bit different.
Speaker 2: You can come at it from trad file, you can
Speaker 2: come at it from like crypto, the traditional answers, like
Speaker 2: this is a money market musual. It's a short term
Speaker 2: treasury bill liquidity fund. So it's just the money market fund.
Speaker 2: But you can trade it on the blockchain, right, It's
Speaker 2: on the Ethereum blockchain, and you can send your units
Speaker 2: of Biddle from your Ethereum wallet to someone else's and
Speaker 2: so you can use it on the blockchain for crypto trades.
Speaker 2: If you're doing a cryptoderivative trade and you need collateral,
Speaker 2: you can post Biddle as collateral, or you can use
Speaker 2: it as money and pay people with Biddle. I guess
Speaker 2: if you come in fro another way from the crypto,
Speaker 2: it's a stable coin, right, Yeah, it's like a thing
Speaker 2: that is worth a dollar, that is, you know, stably
Speaker 2: worth a dollar, that is underpinned by like short term
Speaker 2: money good US dollar debt obligations, and that was on
Speaker 2: the blockchain. So it's a stable coin that is in
Speaker 2: competition with the circle ustc coin or tether, but unlike those,
Speaker 2: it pays interest like natively.
Speaker 1: In a world where fed funds is like five percent,
Speaker 1: that's pretty attractive.
Speaker 2: Right. Crypto is in many ways a low interest rate phenomenon, right,
Speaker 2: because it's like, oh, all these projects that have no
Speaker 2: cash flows but like weird, grandiose promises, that's a better
Speaker 2: pitch in a world of low discount It's but like
Speaker 2: stable coins in particular are a low interest rate phenomenon
Speaker 2: because when teather is like, we'll take your money and
Speaker 2: do something weird with it, but we'll give you back
Speaker 2: the dollar whenever you ask for it, that's a better trade.
Speaker 2: If like you can't get five percent interest on your
Speaker 2: dollar elsewhere, but now you get five percent on your
Speaker 2: dollar elsewhere. Tether is not a particularly attractive pure investment opportunity.
Speaker 2: Now there are ways to use teather in crypto to
Speaker 2: make money, but the proposition at tether is like you
Speaker 2: give them your dollar and they invest it and probably
Speaker 2: charger is or something.
Speaker 1: And that's what they would say.
Speaker 2: That's what they say, But and then they are in,
Speaker 2: you know, five percent interest and they keep it and
Speaker 2: they don't give it to you, whereas like biddle is
Speaker 2: like kind of the same thing, but we will give
Speaker 2: you the interest.
Speaker 1: So thinking about it in the framing of who is
Speaker 1: this for and it's for people in crypto helped me
Speaker 1: understand this a lot more because when you're talking about
Speaker 1: it as a money market fund that's on the blockchain
Speaker 1: in tokenized my first reaction is that is a long
Speaker 1: walk for a short drink of water. But then you
Speaker 1: think about it from the perspective of this is for
Speaker 1: crypto people. It's not necessarily like a gateway to bring
Speaker 1: institutional suppliers into cryptos. For people who are already in crypto,
Speaker 1: who actually want to earn interest on basically their cash management,
Speaker 1: it makes a lot more sense.
Speaker 2: I think that the fact that Blackrock has a cryptodivision
Speaker 2: is a bet on some notions of crypto will become
Speaker 2: more accepted in broader institutional finance, right Yeah, And so
Speaker 2: one thing that means is that if traditional institutions are
Speaker 2: going to get more into crypto, stable coins are kind
Speaker 2: of like an important part of crypto trading, of collateralizing trades,
Speaker 2: of payment for trades, and you know, at some level
Speaker 2: institutions are going to say I'm not going to keep
Speaker 2: my money in a stable coin that is one possibly
Speaker 2: issued by someone who's in more regulatory hot water than Blackrock,
Speaker 2: and two that doesn't pay interest, right, and so Blackroy's like, well,
Speaker 2: we have this alternative product where you can get paid
Speaker 2: interest and you can have your money with Blackrock, and
Speaker 2: like not just Blackrock, but a Blackrock money market fund,
Speaker 2: which is like a thing that people understand, right, Like
Speaker 2: it's easy to understand what a money market fund is
Speaker 2: because it's like exists and it's like well known technology.
Speaker 2: And so if you're a sort of long term bets,
Speaker 2: like more traditional institutions are going to get into crypto
Speaker 2: than like having this traditionally appealing product helps with your
Speaker 2: offering and crypto. But yeah, I also think, right, it's
Speaker 2: like you're a crypto trader and like you need to
Speaker 2: hold stable coins and like we'll give you interest, right.
Speaker 1: I mean, maybe that is BlackRock's long term vision. I'm
Speaker 1: thinking about the position of the securitized CEO. Blackrock of
Speaker 1: course partnered with Securitize for this thing. His name is
Speaker 1: Carlos Domingo, and his perspective on who this is for
Speaker 1: is that this particular product, so specifically this one, it's
Speaker 1: geared towards crypto institutions that want to have a cash
Speaker 1: management product for treasury management on the blockchain. So it's
Speaker 1: more for the cryptation.
Speaker 2: Yeah. Right, If you're a traditional institution, you're just not
Speaker 2: need to be on a blockchain r exactly.
Speaker 1: You would just buy a money market fund.
Speaker 2: I will say, though, the Financial Times article about this
Speaker 2: mentions two plus one settlement.
Speaker 1: Yeah, this is where it lost me.
Speaker 2: It loses me as well. Yeah, but I'm going to
Speaker 2: put it out there. This is more of a twenty
Speaker 2: seventeen thing. But like people used to think that having
Speaker 2: a blockchain would somehow speed up trading and settlement in
Speaker 2: financial markets. That like, right now, things exist on computers
Speaker 2: and in databases that are too slow, and if you
Speaker 2: put them on the blockchain, and they'll be faster and
Speaker 2: you can settle trades instantly rather than having to wait
Speaker 2: for P plus one or two post two settlement. And
Speaker 2: so the idea here, supposedly this is not decided to
Speaker 2: black rock or securitize. This is just an idea that
Speaker 2: is floating out there, is that tokenizing things like you know,
Speaker 2: money cash management will allow for like faster settlement of transactions,
Speaker 2: and ultimately the traditional finance system will move to a
Speaker 2: blockchain based system and you'll need this for that to work. Now,
Speaker 2: in twenty seventeen, people really did go around saying the
Speaker 2: traditional finance system will move to a blockchain bysed system
Speaker 2: in twenty twenty four. That's like a little embarrassing to say.
Speaker 1: Because the Erry Think is still into it.
Speaker 2: Well, then that's there, you go, Larry I Think is
Speaker 2: the CEO of Blackrock.
Speaker 1: Case you know, still in twenty twenty four expressing support.
Speaker 2: For a long time, there's been a competitive tension between
Speaker 2: money market funds and checking accounts.
Speaker 1: Yeah, bank accounts, right, yes.
Speaker 2: Because money market funds have advertised themselves as like, we
Speaker 2: are a place that pays high interest rates and you
Speaker 2: can use it as cash, you can use it as
Speaker 2: for checking and you know, money market funds are interested
Speaker 2: in being a cash substitute for companies and individuals and institutions.
Speaker 2: And if you think the future of payments, for the
Speaker 2: future of security settlement is on the blockchain, who controls
Speaker 2: cash on the blockchain, Well, the answer is like tether, right,
Speaker 2: the answer is like the big stable coin issures. But
Speaker 2: like arguably, if Blackrock can build a better product for
Speaker 2: offering cash on the blockchain, then not only does that
Speaker 2: mean that they're you know, they have a good crypto product,
Speaker 2: or like they're offering a good product to people who
Speaker 2: are currently in crypto. But it's like, if you think
Speaker 2: the future involves the blockchain, then this product can insert
Speaker 2: you into the heart of the payments infrastructure.
Speaker 1: So and that's that's I.
Speaker 2: Think that's all far fetched, but I think it's an
Speaker 2: interesting bet.
Speaker 1: Well. I mean, I feel like that's the future that
Speaker 1: the SEC would certainly that it's Blackrock.
Speaker 2: Oh yeah, absolutely. I don't think the SEC is going
Speaker 2: around hoping for a chain basedto future of payments, but like,
Speaker 2: if they're going to have a crypto based future of payments,
Speaker 2: I think they would prefer that it be Blackrock then
Speaker 2: tether right.
Speaker 1: Four dimensional chess by Blackrock. Are you ready?
Speaker 2: I'm ready.
Speaker 1: Time to bring it home. It's our third act and
Speaker 1: we're going to talk about events contracts. Oh yeah yeah.
Speaker 2: Elections.
Speaker 1: Let the people trade, let them trade events contracts. You
Speaker 1: have places like Kelsey you have predicted the pretty popular.
Speaker 2: They're very popular despite being like people want to know
Speaker 2: who's going to win the election, right, and like the
Speaker 2: sort of standard model of looking at polls feels unreliable
Speaker 2: and someone out dated, and the prediction market feels like
Speaker 2: it should tell you the answer. It should be like, oh,
Speaker 2: the smart money thinks that the odds of you know, Trump.
Speaker 1: Winning, you can say it.
Speaker 2: Or whatever, fifty five percent or whatever, and so therefore
Speaker 2: that's like the correct dodds. Right, there's like the Nate
Speaker 2: Silver model of translating polling results into probabilities. But there's
Speaker 2: like the simple model of like markets providing the probabilities
Speaker 2: and like people like that. But like those markets are
Speaker 2: thin in part because they're illegal. Right. The US Commodity
Speaker 2: Future Trading Commission has just never really been a fan
Speaker 2: of election prediction markets. You know. The way it works
Speaker 2: is you to list the prediction event contract, you go
Speaker 2: to the CFTC and ask for permission, and if it's
Speaker 2: an election contract, they just say no. And so CALSHI
Speaker 2: has been told now and other exchanges like that have
Speaker 2: been told no. And last week the CFTZ proposed a
Speaker 2: rule I would just say it's always no, right, Like,
Speaker 2: instead of asking us, we'll just categorically exclude certain kinds
Speaker 2: of event contracts. Yeah, and the kinds are for the
Speaker 2: most part, sports, the oscars and elections, those all count
Speaker 2: as gambling and so they're not allowed to be listed
Speaker 2: on US commodities exchanges.
Speaker 1: Yeah. CFDC commissioners voted three to two to release the
Speaker 1: proposed regulation for public review agencies. Three Democratic commissioners voted
Speaker 1: in favor, you had two Republicans dissenting. I don't know
Speaker 1: so I, as a journalist like prediction markets just because
Speaker 1: it's nice to see what people are thinking.
Speaker 2: As a consumer, I really want there to be a
Speaker 2: deep liquid prediction market that could tell me what election
Speaker 2: ods are.
Speaker 1: Well, we were on the way there because did you
Speaker 1: see the news from April that Susquehanna is starting a
Speaker 1: trading desk focused on events contract in partnership with Calshi,
Speaker 1: plan to act as a market maker for transactions with CALSHI,
Speaker 1: which is obviously trying to expand. Obviously this would they
Speaker 1: weren't able to do elections in gaming. I think the
Speaker 1: reasons for why the CFTC doesn't want to do this
Speaker 1: are interesting. Tell me what, I forget his name, but
Speaker 1: the election cop guy.
Speaker 2: The election cop guy. Yeah, that's Ross and Bedham is
Speaker 2: the chair of the CFTC. Gaylor really interesting statement when
Speaker 2: proposing these rules, saying basically he doesn't want the CFTC
Speaker 2: to be election cops. So like the way it works
Speaker 2: is that the CFTC mostly regulates the commodity's futures markets,
Speaker 2: and so if you like spoof and putting in orders
Speaker 2: for whak futures, then you get in trouble with the CFTC.
Speaker 2: But also they regulate the underlying commodities to make sure
Speaker 2: that futures markets are fair. So if you go burn
Speaker 2: a cornfield, you'll get in trouble with the CFTC probably
Speaker 2: other people too, because you've manipulated the market for corn features.
Speaker 2: The theory here is that if they're election futures, the
Speaker 2: CFTC will regulate them, and if you then throw away
Speaker 2: a bunch of ballots or whatever, then the CFTC will
Speaker 2: have to come in and decide whether you've committed an
Speaker 2: election fraud that affects a CFTC regulated contract. And the
Speaker 2: CFTC is like, we don't want that responsibility.
Speaker 1: I mean, maybe I'm being naive, but it just seems
Speaker 1: unlikely that would ever be their responsibility. I get that
Speaker 1: they have to regulate the underlying market, but even still,
Speaker 1: I hear you.
Speaker 2: But like, one thing that I've been writing about for
Speaker 2: a long time is that the sec the securities regulator
Speaker 2: has a surprising amount of responsibility for regulating all sorts
Speaker 2: of stuff that doesn't sound like securities law because of
Speaker 2: how it affects the securities of public companies. And so
Speaker 2: the SEC is very interested in greenhouse gas emissions, regulating
Speaker 2: how companies account for and disclose and also do like
Speaker 2: their carbon emissions, because this SEC says, well, yeah, that's
Speaker 2: relevant to investors, and so like, all this environmental stuff
Speaker 2: gets wrapped up into stock prices and so we regulate it.
Speaker 2: The SEC has rules about conflict diamonds. They did an
Speaker 2: enforcement action against SeaWorld for its mistreatment of killer whales.
Speaker 2: Like all this stuff where if it affects securities markets,
Speaker 2: the SEC is like, oh, well we'll ti put her
Speaker 2: hand in that. Well'll be interested in that. And I
Speaker 2: write about this a lot. I say everything is security
Speaker 2: is frud right, It's some combination of the SEC is
Speaker 2: interested in expanding its power as much as possible, and
Speaker 2: so they're like, ooh, we'll be an environmental regulator. But
Speaker 2: it's also like us politics are not necessarily good at
Speaker 2: writing substance of regulations, and so like people are like,
Speaker 2: I want to fix this problem, and the way I'm
Speaker 2: going to fix it is by suing for securities fraud.
Speaker 2: It's a thing that courts and the sec are just
Speaker 2: more responsive to than to a lot of other complaints.
Speaker 2: You get a sympathetic hearing in court, and so like
Speaker 2: all of this stuff in the world gets smuggled into
Speaker 2: securities law. And the CFTC is looking at that and saying,
Speaker 2: the election gets smuggled into commodities future's law. That's going
Speaker 2: to be really controversial. We're going to get in trouble
Speaker 2: for trying to regulate that. So I think they want
Speaker 2: to stay away from it. And I agree with you
Speaker 2: that it sounds far fetched to everyone except me because
Speaker 2: it's the thing I've been thinking about for a decade.
Speaker 2: So and I'm like, oh, yeah, I see where you're
Speaker 2: coming from, CFTC.
Speaker 1: So I mean decade, I'll be there as well. By
Speaker 1: the same token this podcast for that one. Yeah, so
Speaker 1: we'll revisit this before the four yeah, five hundred maybe
Speaker 1: by the same token. You think about some of the
Speaker 1: proponents of course betting on or sorry, predicting, prediction.
Speaker 2: Marketing, betting on.
Speaker 1: You think about some of the proponents for these political
Speaker 1: events contracts. They argue that they could be a valuable
Speaker 1: source of data for forecasting election outcomes. This is from
Speaker 1: the Wall Street Journal. Kind of agree with that as
Speaker 1: a journalist, it's true, but then that they would also
Speaker 1: allow companies to hedge risk associated with either Democrats or
Speaker 1: Republicans coming to power. I don't super know what that.
Speaker 2: Yeah, I don't really believe that. I think that people
Speaker 2: are pretty bad about predicting the directional impact of elections
Speaker 2: on like financial quantities. So if you're like, oh, the
Speaker 2: price of oil will go up if a Democrat is elected,
Speaker 2: so I have to head that you just buy oil futures,
Speaker 2: Like you shouldn't like if you think, oh, it'll be
Speaker 2: bad for my business since some unspecified way if a
Speaker 2: Democrat is elected, that's probably wrong, and like you should
Speaker 2: probably think about how it will be bad for your
Speaker 2: business and hedging like those financial markets, rather than hedge
Speaker 2: by like betting on Democrats winning an election.
Speaker 1: On Calshie on Calshie. Yeah, that's pretty funny.
Speaker 2: To the extent you're hedging, you are undermining the predictive impact, right, Yeah,
Speaker 2: it's like you're not like betting, You're you're like, I
Speaker 2: don't know who's going to win, but if they win,
Speaker 2: that's bad for me someone.
Speaker 1: That's something I think about a lot with these prediction markets.
Speaker 1: I don't know much about betting. I'm not a better
Speaker 1: But the way I understand it, if like they're super
Speaker 1: long odds on something and I wanted to bet on
Speaker 1: something outlandish but that has a high potential payout, I
Speaker 1: would take that bet. And that's not necessarily what I
Speaker 1: think is going to happen.
Speaker 2: You're implicitly saying the probability that happening is higher than
Speaker 2: the probability reflected in the market. That's true, implicitly, like
Speaker 2: you're not really Probably a lot of people are taking
Speaker 2: one percent bets, not because I think the odds are
Speaker 2: two percent, but because you.
Speaker 1: Know, I just think that. Yeah, I get I did
Speaker 1: like two party elections. Yeah. True, But it's not like
Speaker 1: a survey where I'm one hundred percent always going to
Speaker 1: say what I think is going to happen. I'm betting,
Speaker 1: and there's some strategy to that.
Speaker 2: Yeah. But the counterpoint is, like surveys doesn't affect you, Right,
Speaker 2: there's real money online betting. You know, if you had
Speaker 2: a big liquid prediction market for elections, that would incentivize big,
Speaker 2: smart financial institutions to invest time and resources into figuring
Speaker 2: out who's going to win, so they could bet on
Speaker 2: the winning side, and then they would probably be.
Speaker 1: Accurate and they could hedge themselves.
Speaker 2: They could hedge themselves. Sure, I don't think it's something.
Speaker 1: I'm curious to see how this actually turns out. So
Speaker 1: they're opening it to public review. I mean, there's a
Speaker 1: chance that nothing changes before the election itself.
Speaker 2: Big chance, right, and then like after that, you know,
Speaker 2: like a'll butts are up. I will say that one
Speaker 2: of the Republicans City Center was like, this is a
Speaker 2: weird thing here where there's like two ways to bet
Speaker 2: on sports. There's like event contracts regulated by the CFTC,
Speaker 2: and then there's like regular sports coupling, which is regulated
Speaker 2: by the states. And it used to be that the
Speaker 2: way it worked is that gambling was kind of illegal
Speaker 2: almost everywhere, and so like the CFTC was like, you
Speaker 2: can't have betting on sports on CFTC exchanges, and I
Speaker 2: was like, oh, of course. And all the states were
Speaker 2: like you kindt of betting on sports here, and I
Speaker 2: was like, okay, fine, we'll do it illegally. Most states
Speaker 2: now have like legalized sports campling, and so there's a
Speaker 2: lot of sports campling. O. It's very easy to gamble
Speaker 2: on sports. It's very easy to gamble on sports on
Speaker 2: your computer. Right. And then also there are these people
Speaker 2: who are like, we're going to run a national futures exchange,
Speaker 2: We're have events contracts, and the CFTC is like, no,
Speaker 2: you can't do that. There's like a really kind of
Speaker 2: like fuzzy distinction between like what is a futures exchange
Speaker 2: that allows events contracts and is ready to by the
Speaker 2: CFTC and what is a sports book that is on
Speaker 2: the internet and that allows sports betting. Right, one of
Speaker 2: the commissioners who dissented was like, we are stepping on
Speaker 2: state jurisdiction by saying, you know, you can't have sports gambling,
Speaker 2: and I actually don't know how it works, Like I'm
Speaker 2: very puzzled if any sports book is going to get
Speaker 2: in trouble with the CFTC saying actually, you're running a
Speaker 2: futures exchange with events contract and you're not allowed to
Speaker 2: do that.
Speaker 1: We've talked about for us who've talked about the election,
Speaker 1: Are we going to talk about the oscars or oh yeah.
Speaker 2: The oscars. The CFTC like doesn't want to promote gambling,
Speaker 2: and so they're like, you can't bet on the oscars.
Speaker 2: But Ray, why the heck not? It seems fun.
Speaker 1: It does seem fun.
Speaker 2: And I wrote this, but like, the CFTC doesn't want
Speaker 2: to be an election cop, and I think that is
Speaker 2: wise of them. But they aren't have fun to be
Speaker 2: like the oscars cop. Right, they have the CFTC auditor
Speaker 2: in the room.
Speaker 1: So I'm sure it's rigged already, so they'd find that
Speaker 1: they'd get to get the CFTC in there to finally.
Speaker 2: Get it right. Wouldn't if you were a CFTC enforcement layer,
Speaker 2: wouldn't you want to be the one cracking whether the
Speaker 2: oscar I would be salivating. There's a case this week
Speaker 2: about someone running a cattle ponzi scheme.
Speaker 1: No, that's also good of it, But how on earth
Speaker 1: does that? Do the cattles not exist? I figured it out.
Speaker 2: And that was the Money Stuff Podcast.
Speaker 1: I'm Matt Living and I'm Katie Krayfield.
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