Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I heard podcast
Speaker 1: and I'm Stacy Marie Ishmel, managing editor of Crypto for
Speaker 1: Bloomberg News. It's Wednesday, September one. This crypto winter is
Speaker 1: still blowing cold and it's not clear when, or even if,
Speaker 1: a so called spring will arrive and stick around. It's
Speaker 1: also evident that crypto has been hit very hard. Another
Speaker 1: bad week for Bitcoin. The cryptocurrency has continued to slump,
Speaker 1: and it could be a precursor of more pain to come,
Speaker 1: according to some strategists watching the sell off. And it's
Speaker 1: a really interesting gauge because when you put it alongside
Speaker 1: the Bloomberg Gaxy Crypto Index, you can see that kind
Speaker 1: of symmetry in the way they've moved. Where do we
Speaker 1: go from here? These losses have affected the entire CRYPTO ECOSYSTEM,
Speaker 1: from hedge funds to lenders to countless individual crypto investors.
Speaker 1: By most calculations, two trillion dollars worth of value, that's
Speaker 1: trillion with it he has been wiped off of this market.
Speaker 1: It's estimated that before the winter, the total market value
Speaker 1: of crypto assets worldwide stood around three trillion dollars. That's
Speaker 1: a sizeable chunk. But how is this figure market value
Speaker 1: calculated and how representative, if at all, is it, of
Speaker 1: Crypto's actual economic value? On today's show I'll talk to
Speaker 1: Bloomberg reporter of Aldana Harrick. If you were going by
Speaker 1: the market cap figure, it was three chillion back in
Speaker 1: the fall of about this increasingly disputed metric. Lanna, you've
Speaker 1: been writing, along with all the other markets that you cover,
Speaker 1: a little bit about crypto and specifically around the ways
Speaker 1: in which people try to assess CRYPTO's value. Yeah, this
Speaker 1: this is an interesting rabbit hole that we went very
Speaker 1: deep into thanks to one of my editors at Bloomberg
Speaker 1: Business Week who had been thinking. He loves to think
Speaker 1: about these big, Grand Meta ideas, and he had been
Speaker 1: wondering about cryptocurrency market cap because it's something that we
Speaker 1: quote so very frequently. So if you remember back last year,
Speaker 1: when crypto prices were at, hovering around their all time highs,
Speaker 1: what a lot of people were saying at the time
Speaker 1: is that the crypto market value was around three chillion dollars. However,
Speaker 1: we wanted to know if that actually was a very
Speaker 1: good representation for, you know, what the crypto market is
Speaker 1: actually worth. And if you think about what market cap is,
Speaker 1: market cap is just the number of coins that are
Speaker 1: out there, multiple by the last price. And but there's
Speaker 1: a lot of coins and there's a lot of very
Speaker 1: fraudulent projects out there and lots of coins that maybe
Speaker 1: have gone so called dormant, where they haven't moved or
Speaker 1: haven't been used in five or more years sometimes. And
Speaker 1: so do you want to be including that in your
Speaker 1: calculation or not? There's just there were a lot of
Speaker 1: little factors at play and so we really wanted to see, okay,
Speaker 1: if is it three chillion, and if it's not three chillion,
Speaker 1: what might it be? So what is it? Well, the
Speaker 1: first thing I did was I wanted to get a
Speaker 1: sense of how many people actually use cryptocurrencies. I looked
Speaker 1: at the US, because it's very, very difficult to get
Speaker 1: global data for something like this, but they were actually
Speaker 1: two very useful surveys out. One was from the Fed
Speaker 1: that said something like twelve of US adults use or
Speaker 1: interact or trade cryptocurrencies and another bipus at six percent,
Speaker 1: and so that's something like fifty three million people, which
Speaker 1: really isn't insignificant. And so that was the very first
Speaker 1: step I took, just in trying to figure out, okay,
Speaker 1: how many people actually were interacting or knowing about Crypto,
Speaker 1: especially in the US, especially at the highest last year,
Speaker 1: and from there, where did the rabbit hole take you?
Speaker 1: Then I talked to a crypto skeptic and I knew
Speaker 1: he was a crypto skeptic. It was David Gerard he
Speaker 1: he tweets a lot about Crypto, he has his own
Speaker 1: blog and he writes a lot about crypto and I
Speaker 1: just wanted to pose to him the question is market
Speaker 1: cap actually a good way of measuring crypto market value?
Speaker 1: And immediately he said No. He used a curse word
Speaker 1: which we won't repeat, but he said it's basically just
Speaker 1: all made up numbers and he cited some of the
Speaker 1: things we were just talking about, including that there's just
Speaker 1: a lot of projects out there are coins that are
Speaker 1: floating around out there that you might not want to
Speaker 1: be including in your calculation. What did he suggested? Stud
Speaker 1: he actually suggested that I look at flows into and
Speaker 1: out of exchanges, which is very difficult to do because
Speaker 1: the exchanges have to share information with the changes love
Speaker 1: to share information with journalists. Yeah, they love it no. So.
Speaker 1: So basically, he after he told me that, I call
Speaker 1: a bunch of other researchers, some actually at the Cleveland Fed,
Speaker 1: and one of them was like no, this will be impossible.
Speaker 1: So it was not. It was not a good start
Speaker 1: at first, just finding out that okay, crypto market CAPP
Speaker 1: maybe is not a good way to be measuring the market,
Speaker 1: and then also to just sort of hit this dead end.
Speaker 1: But I continue talking to people. So, before we go
Speaker 1: into the ways in which you avoided the Dead End,
Speaker 1: are there folks out there you know? Because like, skeptics
Speaker 1: going to skeptic and booster is going to boost. So
Speaker 1: who are the folks in the middle who are like, well,
Speaker 1: here are other ways, you know, not just the data
Speaker 1: from exchanges. What were some of the other ways that
Speaker 1: folks might have suggested made sense in this assessment that
Speaker 1: you were trying to do? So this is why I
Speaker 1: wanted to talk specifically with crypto researchers or even there's
Speaker 1: crypto economists. So I wanted to talk to companies that
Speaker 1: I knew sift through data. Our track data really well.
Speaker 1: I talked to somebody at Genesis and she had told
Speaker 1: me to look at something called free float, which is
Speaker 1: the number of coins in circulation, but you actually subtract
Speaker 1: out like foundations and nonprofit groups, and that sort of
Speaker 1: gives you you know, she said market cap actually isn't
Speaker 1: such a bad way of looking at things because it
Speaker 1: helps you account for speculation and speculative froth. But that reading,
Speaker 1: this free float reading, gave us a reading of seven
Speaker 1: and eighties seven billion, so very different from three trillion.
Speaker 1: And I mean, of course, at the time that you
Speaker 1: started doing this. So when you know the story published
Speaker 1: the markets itself by that market cap value declined a
Speaker 1: lot because the prices were falling. It's all so evident
Speaker 1: that crypto has been hit very hard since its peak
Speaker 1: in November. It has lost forty of its value, wiping
Speaker 1: out more than five hundred seventy billion dollars. Overall. The
Speaker 1: crypto market has lost nearly two trillion dollars in market
Speaker 1: value since last November. So were you comparing the sort
Speaker 1: of closer to one trillion value to that, you know,
Speaker 1: just under eight hundred billion, like what were the what
Speaker 1: were the apples and apples comparisons? The market did decline
Speaker 1: quite a bit from those highs that we reached back
Speaker 1: in November. So if you were going by the market
Speaker 1: cap figure, it was three trillion back in the fall
Speaker 1: of much closer to one trillion now. So we were
Speaker 1: really trying to compare to numbers that you would have
Speaker 1: seen at the peak. That number, that free float number,
Speaker 1: was actually compared to that three trillion. So it was
Speaker 1: like this was the free float at the time when
Speaker 1: Bitcoin was hitting. Yeah, and for the most part, because
Speaker 1: I ended up talking to a bunch of other people
Speaker 1: who have been Gav me other readings to look at,
Speaker 1: they also were giving me numbers of their specific readings
Speaker 1: for the peak back in and maybe what those numbers
Speaker 1: look like now. And actually some of these readings, the
Speaker 1: free float and some some of these other ones that
Speaker 1: I'm sure we'll go into next, they all were hovering
Speaker 1: around eight hundred billion or so, and so the readings themselves,
Speaker 1: the free float or realized value, is another one that
Speaker 1: I looked at. They don't fall as dramatically as prices
Speaker 1: or the market cap figure because they're already discounting the
Speaker 1: froth or the speculation. Interesting. So just to recap what
Speaker 1: you're saying, there's this kind of big headline number that
Speaker 1: a lot of folks including US here. A bluemerket paid
Speaker 1: attention to, which is, you know, the bitcoin's peak, at
Speaker 1: Crypto's peak. You're looking at a three trillion dollar market.
Speaker 1: What you're saying is that various other metrics are somewhere
Speaker 1: closer to an eight hundred billion ish number in that
Speaker 1: same period when everything was, you know, maximum froth, as
Speaker 1: it were. What explains the difference between those metrics and
Speaker 1: that three trillion? Is it mostly that speculative activity, or
Speaker 1: are there other factors involved? I think for the most
Speaker 1: part we were just trying to account for the speculative
Speaker 1: activity or the froth or the number of loans or
Speaker 1: the leverage that was out in the system. So they
Speaker 1: realized value figure. That's another one we looked at. That
Speaker 1: one actually came up the most out of all the
Speaker 1: people I spoke with. It just kept coming back again
Speaker 1: and again. Vildana, what is the realized value? Okay, so
Speaker 1: realized value it's the prices the coins actually fetch in
Speaker 1: their most recent transaction versus market value, which is the
Speaker 1: sum of the value of stuff that's out there, and
Speaker 1: so I suppose it's just a better way to be
Speaker 1: thinking about. Okay, what price a coin might fetch, so
Speaker 1: to say. So it's the last bid exactly effectively, exactly
Speaker 1: for realized value. I spoke with somebody at glass node
Speaker 1: and glass node is pretty well known in the Crypto
Speaker 1: community because they track so much data on this ratio
Speaker 1: that they have, is called M v R V. It's
Speaker 1: market value versus realized value. That ratio in November of
Speaker 1: at the peak of crypto prices, hit three point two,
Speaker 1: which means that the market value was three times the
Speaker 1: realized value exactly. So you take the three trillion, you're
Speaker 1: divided by three point two and you get a reading
Speaker 1: around eight hundred seventy five. Obviously it's gonna these numbers
Speaker 1: are going to to vary, but you get a reading
Speaker 1: around eight hundred seventy eight hundred eighty billion, and that
Speaker 1: number also just doesn't change as much as the market
Speaker 1: cap figure would, where you're including all the price that
Speaker 1: clients for their different coins. I want to make a
Speaker 1: Qui note when we when we talk about market cap,
Speaker 1: because I have had some o g markets editors and also,
Speaker 1: you know, people on the Internet, points out that capitalization
Speaker 1: is a concept that historically really works best when you're
Speaker 1: talking about companies with, you know, shares and like floats
Speaker 1: and is a little bit less robust when analogized to
Speaker 1: something like token prices. Do you think it's like a
Speaker 1: big deal? I mean when folks get you know, we're
Speaker 1: in an industry in which there's a lot of jargon,
Speaker 1: there's a lot of nomenclature, there's a lot of obsession
Speaker 1: about this is the one true metric. Is there really
Speaker 1: a one true metric or one true way of describing
Speaker 1: everything that's happening on do folks need to just get
Speaker 1: comfortable with nuance? I think we were trying to break
Speaker 1: the idea that there is this one true metric, because
Speaker 1: the market cap figure really is something that you just
Speaker 1: kept seeing over and over. I remember making news when
Speaker 1: the overall crypto market cap reached to trilling. Well, first
Speaker 1: one trillion and to trill and then neared three trillion
Speaker 1: at the end of last year, and so I think
Speaker 1: we really wanted to just dispel the notion that you
Speaker 1: should just be using this one measure when really there's
Speaker 1: a couple of as we point out in the story,
Speaker 1: different ways to try to show the true the so
Speaker 1: called true value of Crypto. We'll be right back with
Speaker 1: more from Villa Donna about the methodology for calculating crypto
Speaker 1: market value, even if crypto does have a ton of potential.
Speaker 1: You know, what are those folks, the most optimistic among them, like,
Speaker 1: what are they expecting it to get to? That, I think,
Speaker 1: depends largely on how the market is moving. So last
Speaker 1: year one, and also in two, one, prices for skyrocketing.
Speaker 1: You had a lot of price targets for big one
Speaker 1: in particular, that we're genormous. I think that's the best
Speaker 1: or or higher. I think there were some that were
Speaker 1: two hundred fifty thou so. So when when prices are
Speaker 1: rising and you have people just really excited and they're
Speaker 1: in this mindset of okay, things are just going to continue,
Speaker 1: like look at what we've done over the last two
Speaker 1: years alone, it's going to continue going this way, I
Speaker 1: think that's when you have people obviously most bullish and
Speaker 1: they're expecting the market to just grow and grow and grow.
Speaker 1: It's very different this year. Prices aren't doing as well,
Speaker 1: so people have been sort of more restrained. More restrained,
Speaker 1: you don't really hear so many price targets, but or
Speaker 1: you don't hear about as you don't have as many
Speaker 1: people coming out with notes or research saying okay, this
Speaker 1: is a good price target for a bitcoin to reach,
Speaker 1: but it's it's it's hard. I think a lot of
Speaker 1: people make the comparison to the gold market, where gold
Speaker 1: has been around for I don't even know how long,
Speaker 1: forever maybe, and that market, its Cryptos, is sometimes thought
Speaker 1: of as digital, digital gold. Yes, exactly. So you're having
Speaker 1: these comparisons between the two where you have people saying, okay,
Speaker 1: it might overtake that market at some point, but really
Speaker 1: it's I think it just depends on how the market
Speaker 1: ebbs in Waynes, which is to your earlier point, kind
Speaker 1: of the challenge with a metric like market value, right,
Speaker 1: and that it so much sentiment is wrapped up in
Speaker 1: what that number is and what it means to people. Uh,
Speaker 1: you know, there's a phrase that various folks, including sometimes
Speaker 1: reports is, like to use about like well, what's an
Speaker 1: objective measure, as if there is some source of emagic
Speaker 1: number that is removed from any kind of prejudice or
Speaker 1: bias Um that exists. But it does sound to me
Speaker 1: like what you're saying is there is fairly broad spread consensus,
Speaker 1: at least among certain types of academics, researches, etcetera, that
Speaker 1: this idea of realized value is a helpful if if
Speaker 1: folks wanted to get really attached to an Tkato, that's
Speaker 1: the one they would recommend. Yeah, it really did keep
Speaker 1: coming up again and again. I talked to a researcher
Speaker 1: at UBS, I talked to glass node, I talked to
Speaker 1: chain analysis, which is sort of like forensic crypto company,
Speaker 1: and all of these companies they're tracking data, they're looking
Speaker 1: at all these different charts. So the people I spoke with,
Speaker 1: they all kept bringing up realized value. You do hear
Speaker 1: it a lot in the crypto space. You do hear
Speaker 1: about this measure. It's just it's not something that's as
Speaker 1: mainstream as mark, as crypto market cap, but I do
Speaker 1: think that it's a solid way to be looking at things.
Speaker 1: I mean there's a literal website called coin market cap
Speaker 1: dot COM, yeah, which is quote it quite a bit
Speaker 1: from it and that's, you know, that's often the place
Speaker 1: that people anchor around. So you know, if I, if
Speaker 1: I fire up a web browser right now and I
Speaker 1: go to there, it's it's like very it's it's the name.
Speaker 1: It also says, Hey, here's like today's market Cap, twenty
Speaker 1: four volume, today's cryptocurrency prices by market cap. What would
Speaker 1: take for realized value? Dot Com, should we started? Well,
Speaker 1: I think the if you're into crypto and your crypto
Speaker 1: investor and you do have this belief that prices will
Speaker 1: recover from from what's been going on this year and
Speaker 1: you know for alternative they'll keep going higher and they'll
Speaker 1: replace the dollar or whatever, or the goal, the gold
Speaker 1: market or whatever else, then I think the idea of
Speaker 1: being able to say three trillion is just much more
Speaker 1: allerting than saying the realized value is billion. It's just
Speaker 1: it's obviously a much bigger figure. It grabs people's attention.
Speaker 1: So maybe realized value won't become a commonplace, mainstream thing,
Speaker 1: only because I think people want to use the bigger number,
Speaker 1: the one that includes all the froth, the one with
Speaker 1: the TA, the one with the T. Yeah, even if
Speaker 1: it's not yet quadrillion. Yeah, it may never be. We'll see,
Speaker 1: but I can easily spend it. On that note, thank
Speaker 1: you for Don always a pleasure to have you. Thanks
Speaker 1: for having me. You can find more of Bill Donna's
Speaker 1: reporting on the Bloomberg terminal on Bloomberg Dot Com or
Speaker 1: follow her on twitter. She's at Vil Donna Harrick. That
Speaker 1: is v I L D A N E H A
Speaker 1: J R. I C on the next episode of Bloomberg Crypto,
Speaker 1: the merge. It's finally over, it's done, it happened, so
Speaker 1: now we're gonna ask what's next, and you'll hear words
Speaker 1: like splurge, purge, purge, all things that rhyme with emerge
Speaker 1: and that will soon follow. This is Bloomberg Crypto, a
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Speaker 1: at Bloomberg Dot net or find us on twitter. We're
Speaker 1: at CRYPTO. The supervising producer of Bloomberg Crypto is Vicky Verklina.
Speaker 1: Our senior producer is Janet Babin. Our producers are Mohammed
Speaker 1: Farup and Sharon Barriro. Our associate producers are ty Butler
Speaker 1: and Moses on them. Desta wonder at is our engineer.
Speaker 1: Original Music by Leo Sidran. I'm Stacy Marie Schmall we'll
Speaker 1: be back tomorrow.