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

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

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Speaker 1: It's Friday, March third. It's Friday, which, as always means

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Speaker 1: it's time for another episode of This Week in Crypto.

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Speaker 1: Happy as always, to be joined by Bloomberg Senior editor

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Speaker 1: Dave Litka and by Emmeline Nicole. Dave is based with

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Speaker 1: me here in New York and Emily is in London.

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Speaker 1: On this episode, we're going to talk a little bit

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Speaker 1: about a pretty somber anniversary, the one year anniversary of

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Speaker 1: Russia's invasion of Ukraine, and what, in addition to all

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Speaker 1: of the devastation that that has meant for Ukraine's economy,

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Speaker 1: people and landmarks, has to do with crypto. We'll talk

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Speaker 1: about Nashad Singh, an FTX lieutenant who pleaded guilty to

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Speaker 1: various crimes in court in New York this week, and

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Speaker 1: we'll talk a little bit about what's happening with Marathon,

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Speaker 1: a bitcoin miner, and what if anything, accounting and the

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Speaker 1: rising price of bitcoin have to do with the prospects

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Speaker 1: for the sector. Emily, Dave, welcome back. To the podcast.

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Speaker 1: Great to be here. Before we go into what's been

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Speaker 1: happening in Ukraine's Emily's point, Dave, I want to ask

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Speaker 1: you about what has become one of our favorite topics

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Speaker 1: on this podcast, which is the state of bitcoin mining. Yes,

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Speaker 1: which varies from like very precarious to precarious. I think

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Speaker 1: very precarious right now. This week we had a bit

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Speaker 1: of news. Marathon Digital, one of the biggest miners out there,

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Speaker 1: was supposed to report earnings this week and at the

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Speaker 1: last minute they said, we're not. We have to restate

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Speaker 1: a bunch of our financials from prior quarters. Now that

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Speaker 1: seems unusual and or bad, it could be on it.

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Speaker 1: So it's the whole bitcoin industry, including the better known

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Speaker 1: micro Strategy, have had an issue with how gains and

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Speaker 1: losses are accounted for on their financials, and basically, the

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Speaker 1: way the rules are set up, they can't account for

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Speaker 1: any gains, but they have to write down losses their holdings.

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Speaker 1: So it brings a lot of volatility to their numbers.

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Speaker 1: And there are proposals out there to make this a

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Speaker 1: little more workable, but until then it kind of distorts

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Speaker 1: the numbers a bit in terms of gains and losses

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Speaker 1: that they have to report. But in the case of Marathon,

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Speaker 1: it's how they recognized these adjustments and also revenue in

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Speaker 1: regard to a mining pool. Even just as interesting in

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Speaker 1: one aspect of this market is the stocks have taken

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Speaker 1: off this year. They've been some of the best performers

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Speaker 1: out there, which has helped the distressed ones to buy

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Speaker 1: or time for themselves, right because they're kind of the

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Speaker 1: perception is that they're going to be able to get

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Speaker 1: out of this particular crypto winter and survive that. And

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Speaker 1: they have huge obligations they the lenders. For a while

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Speaker 1: there they were giving back machines and if nobody wants

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Speaker 1: to buy or mine or buy bitcoin, why do you

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Speaker 1: want to mind it? But in this case they're able

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Speaker 1: to now have negotiating point with the equity steaks. So

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Speaker 1: if we can give you a steak when the stocks rising,

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Speaker 1: then you feel a little better about it. And so

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Speaker 1: Dave to that point, you know you've had this appreciation

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Speaker 1: in the share price. How much of that has to

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Speaker 1: do with the fact that crypto prices themselves have been

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Speaker 1: rallying a lot, and that does make there is the

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Speaker 1: inner relationship there where if the price of bitcoin is

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Speaker 1: going up, you're going to feel better about a minor.

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Speaker 1: But some people have also characterized these companies as narrative

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Speaker 1: stocks on it. So if you're selling that narrative of

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Speaker 1: that bitcoin is back, then you're gonna buy them. But

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Speaker 1: in the end, these guys have to pay their bills

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Speaker 1: in their public companies, and it's a little more complicated

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Speaker 1: than just riding the highs and lows of bitcoin. At

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Speaker 1: this point, I just want to share one of my

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Speaker 1: favorite random facts about bitcoin miners, which is that there's

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Speaker 1: a company called taro Wolf which has four reasons that

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Speaker 1: would never entirely clear to me. Two celebrities among its baccas,

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Speaker 1: and they are Gwyneth Paltrow and Mindy Kaling. That is

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Speaker 1: your random fact of the crypto day. Anybody know who's

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Speaker 1: if Gwyneth Paltrow and Minnie Healing have buyos, remorse about

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Speaker 1: taro Wolf, Like crypto at Bloomberg dot net's very interested

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Speaker 1: in in that follow up. Now, we just talked about

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Speaker 1: two celebrities, But for a lot of people who are

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Speaker 1: paying close attention to crypto, and even people who aren't

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Speaker 1: paying that close attention to crypto, there are a few

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Speaker 1: more names that now come to the four when we

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Speaker 1: talk about the events of twenty twenty two, And obviously

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Speaker 1: Sam Bankman, Freed and FTX were among the biggest. But

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Speaker 1: certainly one of the developments we've been paying close attention

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Speaker 1: to is what's been happening to the other members of

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Speaker 1: the so called FTX inner circle. And one of the

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Speaker 1: folks on that list is Nishad Singh. He was the

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Speaker 1: director of engineering at FTX. He was one of the

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Speaker 1: folks who lived in the famous, infamous, depending on your perspective,

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Speaker 1: Bahamas compound. And what happened this week is that he

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Speaker 1: in a New York court, agreed to plead guilty to

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Speaker 1: various allegations against him. And that's a criminal court. And

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Speaker 1: at the same time he was hit by, you know,

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Speaker 1: effectively like lawsuits from the Securities and Exchange Commission and

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Speaker 1: the sec Emily. What are the numbers that we're talking

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Speaker 1: about here when it relates to Nishad Singh. So to

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Speaker 1: put this into perspective, you've got like FTX owing its

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Speaker 1: customers roughly eight billion dollars in total, and we're not

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Speaker 1: too sure you know how much SPF Funny made away with,

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Speaker 1: but his bail, for example, was two hundred and fifty

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Speaker 1: million dollars. That's what that was set up. Nis Sings

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Speaker 1: bail is said at one one thousandth of that amount,

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Speaker 1: closer to you know, the tens of thousands rather than

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Speaker 1: the millions of dollars. And the lawsuits against him accused

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Speaker 1: saying of taking about six million dollars for personal use

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Speaker 1: from FTX, and that's to pay for things like houses,

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Speaker 1: to do things like donate to charity, and his top

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Speaker 1: donations to charity actually went to a charity run by

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Speaker 1: Sam Backmanfried's mum. And also there was a little bit

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Speaker 1: of insight into exactly where he was spending some of

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Speaker 1: the money that was coming from FTX as well. For example,

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Speaker 1: he donated about nine point three million dollars to Democratic

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Speaker 1: candidates and committees since twenty twenty eight million of that

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Speaker 1: was just in the last election cycle. And so you know,

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Speaker 1: he knew about these things going on at Alameda and

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Speaker 1: FTX for months. Supposedly, that's what he said in his

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Speaker 1: own statements. He says he was aware of everything that

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Speaker 1: was happening and just turned a blind eye, willfully misstated

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Speaker 1: revenue figures to auditors and all because that was the

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Speaker 1: only way they could see FTX continuing to stay afloat.

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Speaker 1: And to your point about the willfulness statement, he also

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Speaker 1: said he apologized right. He quote said, I'm unbelievably sorry

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Speaker 1: for my rule in this and the harm it caused,

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Speaker 1: and giving some specifics and then you know, saying I

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Speaker 1: knew my conduct was wrong, which is of course a

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Speaker 1: clear you know, he's admissing guilty, he's pleading guilty. Sam

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Speaker 1: bankmun Freed has denied all of the charges and the

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Speaker 1: accusations against him and has not pleaded guilty and is

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Speaker 1: currently out on bail. This marks the third member of

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Speaker 1: the FTX SPF in a circle to plead guilty in

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Speaker 1: an apparent cooperation agreement with prosecutors, the first two being

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Speaker 1: Caroline Ellison, who was first the co CEO and then

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Speaker 1: the CEO of Alimta Trading, and Gary Wang, who was,

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Speaker 1: in addition to being a childhood friend of Sam bankmun Freed,

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Speaker 1: was the chief technology officer at FTX. Yeah, it's pretty

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Speaker 1: obvious that the reason why US authorities are agreeing to

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Speaker 1: do these plea deals with the likes of Nischad Singh

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Speaker 1: and Gary Wang and Kyla Allison. It's because not only

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Speaker 1: did FTX not really keep track of anything, so you

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Speaker 1: really do only have the words of people to go

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Speaker 1: on when trying to figure out what happened here. There's

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Speaker 1: no paper trail to look at. With SPF pleading not

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Speaker 1: guilty and denying everything that's been thrown against him, it's

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Speaker 1: going to take a very strong case to be able

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Speaker 1: to carry out some of the lawsuits that have been

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Speaker 1: put against Sam and put against the criminal charges that

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Speaker 1: he's facing, and so basically getting all of his friends

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Speaker 1: and closest employees to flip on him is the strongest

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Speaker 1: tool in the SEC's wheelhouse at the minute. After Russia

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Speaker 1: invaded Ukraine, you had two conversations about crypto happening simultaneously.

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Speaker 1: This idea that the philanthropic community in crypto could be

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Speaker 1: rallied to donate funds not just too ordinary people in Ukraine,

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Speaker 1: but also to the government, and the fear from various

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Speaker 1: regulators and central banks that crypto could be used as

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Speaker 1: a means for Russians who were facing sanctions to avoid

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Speaker 1: those sanctions. At the same time, so it's now twelve

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Speaker 1: months on, we can do a little bit of a

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Speaker 1: retrospective about how the year went. You know, how successful

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Speaker 1: were crypto exchanges that limiting the access of sanctioned Russian

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Speaker 1: individuals to trade on their exchanges. How successful were the

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Speaker 1: attempts to help support the effort in Ukraine by crypto

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Speaker 1: companies wanting to be on the other side of the equation,

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Speaker 1: And some of the data that's comeback hasn't necessarily been

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Speaker 1: all that positive for the overall impact. But at the

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Speaker 1: same time, efforts to stop Russian exchanges from being able

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Speaker 1: to trade with international exchanges, to stop Russian individuals from

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Speaker 1: being able to trade on international exchange, those weren't as successful.

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Speaker 1: There was some data coming out at the end of

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Speaker 1: February from the US based research group TRM Labs which

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Speaker 1: said that Russian based exchange Grand Texts more than doubled

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Speaker 1: its volumes between February twenty twenty two and February twenty

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Speaker 1: twenty three. And that's with it being sanctioned by the

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Speaker 1: US in April, so, you know, ten out of the

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Speaker 1: twelve months it was a sanctioned entity, and yet it's

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Speaker 1: still more than doubled its volumes. While other crypto exchanges,

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Speaker 1: as we know, have based a pretty dour environment over

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Speaker 1: the last year. A lot of demand has fallen off

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Speaker 1: a cliff, so it's a pretty different picture. And overall

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Speaker 1: as well, the amount of crypto that was going towards

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Speaker 1: elicit activity in the last year, according to chain Analysis,

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Speaker 1: another analytics company, rose for the first time since twenty nineteen,

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Speaker 1: so it's more than doubled in the last year to

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Speaker 1: zero point two four percent. Obviously, that's still a tiny

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Speaker 1: percentage if we think about the entire crypto market, but

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Speaker 1: the fact that it's going up shows that Russia definitely

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Speaker 1: still had access to what it needed to access in

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Speaker 1: crypto when being cut off from the rest of the

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Speaker 1: international payment system. And there was even another report. Crypto

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Speaker 1: companies love reports, but there was another report that also

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Speaker 1: came out in February from an analytics room called Inca Digital,

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Speaker 1: alleging that non Russian exchanges allowed people who had debit

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Speaker 1: cards issued by sanctioned Russian banks to still participate in

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Speaker 1: transactions on those exchanges. Yeah, it's worth noting that some

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Speaker 1: of those exchanges, like Quobe, like Coucoin, like Finance, most

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Speaker 1: of them have denied those reports. If not, they didn't respond,

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Speaker 1: but most of them said, you know, this isn't true.

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Speaker 1: We don't accept users from Russia. We don't accept users

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Speaker 1: with bank cards from those sanctioned banks. That reports are reports,

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Speaker 1: and they usually based on data, And if it is

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Speaker 1: true that these things have been going on, then it

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Speaker 1: obviously provides more insight to just how much it is

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Speaker 1: really a difficult job for regulators to be able to

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Speaker 1: see what's going on at crypto exchanges. That they are

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Speaker 1: already concerns even before the war, that crypto exchanges can

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Speaker 1: often be like a black box the regulators just don't

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Speaker 1: get to see into. And so if this is still

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Speaker 1: going on even with most of the world is shrink

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Speaker 1: sanctions against Russia, it definitely proves their point. We'll be

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Speaker 1: right back with more from Bloomberg's Dave Litka and Emmeline Nicole. Dave,

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Speaker 1: there's something I want your perspective on. As you know,

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Speaker 1: a person who has been paying close attention to this

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Speaker 1: asset class for such a long time, it still blows

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Speaker 1: my mind how this industry is trying to simultaneously argue

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Speaker 1: it is against government control, it is for freedom, it

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Speaker 1: is for the ability of people to do their thing individually.

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Speaker 1: But also they're like, but also we definitely don't allow

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Speaker 1: people on government lists to participate in this ecosystem whatsoever, Like,

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Speaker 1: how are folks trying to walk that line between not

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Speaker 1: getting completely shut down by the US government while appearing

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Speaker 1: to espouse the libertarian ideals of bitcoin and the blockchain.

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Speaker 1: That's the fine line that these exchanges and companies have

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Speaker 1: been walking since roll at the beginning of this industry

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Speaker 1: on it. I think you're seeing the consequences of that

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Speaker 1: now in the broader crackdown, whether it's sanctions here or

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Speaker 1: just the regulation of products that people should or shouldn't

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Speaker 1: be offered according to the government, which is basically there

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Speaker 1: to serve the people. Yeah, and the point about, you know,

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Speaker 1: the difficulty of knowing who someone is. For some people,

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Speaker 1: that's a feature, right, Like they don't want you to

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Speaker 1: know who they are because they don't trust their governments,

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Speaker 1: or they don't trust those banks, or they don't trust

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Speaker 1: that exchange necessarily. But of course, if you are a

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Speaker 1: government or a regulator, you're just going to look at

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Speaker 1: that and say, well, exchange, then you're not being compliant

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Speaker 1: with know your Customer rules. I mean it's literally in

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Speaker 1: the name know your customer. You're not being compliance with

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Speaker 1: anti money launder and you know, for some folks, that's

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Speaker 1: the argument for them for why they're like, well, okay,

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Speaker 1: like let's do let's go to defy, Let's go to

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Speaker 1: the really decentralized places where I don't have to tell

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Speaker 1: somebody what my name is or provide my passport or

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Speaker 1: my county dantity or whatever those things are. Emily, are

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Speaker 1: you seeing real evidence that's like a sustainable proposition for

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Speaker 1: people to move to something that's much more technically complicated

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Speaker 1: if they want to avoid more onerous data provision requirements.

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Speaker 1: It's been a difficult thing to monitor over the last

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Speaker 1: year because with crypto being down everywhere, it's hard to

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Speaker 1: know whether decentralized exchanges are getting hit better or worse

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Speaker 1: than those that are centralized exchanges. And ultimately a lot

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Speaker 1: of people do move their funds between lots of different

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Speaker 1: exchanges at once, so you can't even necessarily say, Okay,

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Speaker 1: you prefer this or you prefer that, because traders who

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Speaker 1: are native to crypto will use multiple exchanges for one journey.

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Speaker 1: What we do know, however, those that decentralized is becoming

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Speaker 1: a much harder ideal for firms to achieve, and in

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Speaker 1: some ways it does look like companies are starting to think, well,

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Speaker 1: maybe perhaps it's not possible to true decentralization, and perhaps

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Speaker 1: there's like a level that we can be comfortable with. So,

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Speaker 1: for example, in the end of February, we saw a

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Speaker 1: decentralized lending protocol called Oasis comply with a court order

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Speaker 1: to use a backdoor in its code that would allow

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Speaker 1: it to seize some funds that were stolen from a

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Speaker 1: platform last year called Wormhole, and Oasis was very clear

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Speaker 1: in the way that it spoke about it, because it

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Speaker 1: wanted to make sure that users didn't think that it

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Speaker 1: already knew about that backdoor and its code that would

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Speaker 1: allow to do that, because that's the opposite of decentralization, right,

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Speaker 1: let alone complying with a court order. But there's an

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Speaker 1: element now of like, well, surely it's a good thing,

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Speaker 1: right that you were able to get funds back from

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Speaker 1: a hacker, and surely it's a good thing that we

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Speaker 1: were able to comply with regulations where we're able to.

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Speaker 1: And so now is more of a debate about, you know,

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Speaker 1: what level are we comfortable with, how much decentralization is

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Speaker 1: truly possible, and what will that look like going forward.

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Speaker 1: Dave just as a kind of a closing thought, because

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Speaker 1: you know, it's this week in crypto. As we look

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Speaker 1: forward into the last month of the first quarter of

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Speaker 1: the year, are there any big top line numbers kind

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Speaker 1: of metrics that people are looking at to try to

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Speaker 1: see if they should be happy or sad about where

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Speaker 1: we are sure it's it's an interesting time for the market.

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Speaker 1: You had the January rally which crypto bounced almost forty

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Speaker 1: percent and got everybody saying or enough people saying, Crypto's back,

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Speaker 1: and that kind of stalled in February. As going to

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Speaker 1: the March period, now it's the big question is where

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Speaker 1: we go. And we're looking at actually some of the

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Speaker 1: positioning in the open interest options market on it, and

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Speaker 1: the big number that stood out was thirty thousand, which

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Speaker 1: this market loves around numbers. It's a good target. It's

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Speaker 1: an easy target to put up there when you're trading

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Speaker 1: blow around twenty five thousand. But interesting we saw also

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Speaker 1: that the to get technical, something called applied volatilities down

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Speaker 1: for these options, which means that people are kind of

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Speaker 1: losing interest on it. And what that means for the

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Speaker 1: people who actually bought those call options is that the

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Speaker 1: value of the options have dropped since they purchased it. It. Well,

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Speaker 1: it's kind of looking as the negative sign, but that's

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Speaker 1: kind of been the sentiment for past eight months really,

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Speaker 1: So if I were to summarize that for somebody who

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Speaker 1: is either not a financial reports so it does not

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Speaker 1: know what options are, it would be if things go

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Speaker 1: above thirty thousand dollars, a lot of people will be happy.

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Speaker 1: The problem is fewer and fewer people are actually buying

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Speaker 1: and selling right now. Exactly Well, on that extremely mixed note,

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Speaker 1: thank you both for being here. I appreciate it as

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Speaker 1: always pleasure, Thanks for having us. That was Bloomberg Senior

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Speaker 1: Editor DA and Bloomberg reporta Emelina Cole. You can find

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Speaker 1: more of their work on the Bloomberg Terminal and on

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Speaker 1: Bloomberg dot com, and of course, check out our twice

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Speaker 1: weekly newslesso, Bloomberg Crypto. This is Bloomberg Crypto, a daily

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

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Speaker 1: the show to Crypto at Bloomberg dot net. The supervising

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

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Speaker 1: Our associate producers are Ty Butler and Moses on m.

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Speaker 1: Desto wonder At is our engineer. Original music by Leo Sidron.

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Speaker 1: I'm Stacy Mariechmal We'll be back Tomorrow, mbop We hated

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Speaker 1: and felt in every