WEBVTT - Cathie Wood on Tech, Crypto and the Fed 0:00:01.400 --> 0:00:04.120 From the heart of We're Innovation of Money and Power 0:00:04.280 --> 0:00:09.080 cal in Silicon Valley, NBR. This is Bloomberg Technology with 0:00:09.160 --> 0:00:26.040 Caroline Hyde and Ed Ludlow. I'm Caroline Hyde of Bloomberg's 0:00:26.040 --> 0:00:29.240 world headquarters in New York, and I'med Ludlow in San Francisco. 0:00:29.360 --> 0:00:32.880 This is Bloomberg Technology coming up a conversation with Art 0:00:32.880 --> 0:00:36.360 Invests CEO Kathy Wood from the banking crisis to crypto 0:00:36.400 --> 0:00:39.280 and beyond. Will discuss it all, and we'll take a 0:00:39.280 --> 0:00:41.839 look at the health of startups amid the crisis. We're 0:00:41.920 --> 0:00:45.040 joined by the CEO of Pilots, the tech startup accountant 0:00:45.200 --> 0:00:47.720 doing the books of Silicon Valley, and we'll get the 0:00:47.720 --> 0:00:51.000 outlook for the gaming industry this year. Unity CEO John 0:00:51.159 --> 0:00:54.520 Ricatello joining us for an exclusive conversation on his findings. 0:00:54.920 --> 0:00:57.240 We of course are going getting now to a key 0:00:57.280 --> 0:01:00.600 conversation with Kathy Wood, and at that note, we do 0:01:00.720 --> 0:01:03.560 welcome in our TV as well as our radio audiences 0:01:03.600 --> 0:01:06.399 worldwide for the conversation with the Arc Invests CEO and 0:01:06.560 --> 0:01:10.520 CIO Cathy Wood. We've been discussing, of course, bank failures. Kathy, 0:01:10.520 --> 0:01:13.120 We've been talking about a confidence crisis and you have 0:01:13.280 --> 0:01:16.920 said that FED policy J. Powell was a primary culpit 0:01:17.040 --> 0:01:20.520 the pace really of rate hikes from such a low base. 0:01:20.600 --> 0:01:23.279 But for you, is the risk of a systemic credit 0:01:23.280 --> 0:01:28.199 event still key? Has that been avoided? Well, I think 0:01:28.560 --> 0:01:32.679 they're addressing the liquidity issue, but not really the stallvency 0:01:32.760 --> 0:01:36.760 issue from our point of view. A couple of things 0:01:36.800 --> 0:01:39.920 have happened here that have never happened really in history, 0:01:40.000 --> 0:01:43.560 and so the banks didn't expect it. The first was 0:01:43.959 --> 0:01:47.400 interest rates up nineteenfold in less than a year. Never 0:01:47.480 --> 0:01:51.800 happened under Vulker, which it was twofold ten to twenty percent. 0:01:52.400 --> 0:01:55.720 And the low base does matter. Many people dismissed it, saying, oh, 0:01:55.800 --> 0:01:59.120 just such a low base. No expectations were low base. 0:01:59.520 --> 0:02:03.919 So that the first we've never seen that magnitude of 0:02:04.440 --> 0:02:08.919 an earthquake, I would say. Then the second thing that 0:02:09.120 --> 0:02:12.960 no one expected, again because it hasn't happened in such 0:02:12.960 --> 0:02:18.799 a long time, was deposits leaving the system. For Silicon 0:02:18.880 --> 0:02:23.079 Valley Bank, it was venture capital facing a funding drought, 0:02:23.160 --> 0:02:26.520 and so they had to draw down their deposits. But 0:02:26.680 --> 0:02:30.120 then for others, we've got money market funds attracting paying 0:02:30.200 --> 0:02:37.480 much higher than deposits attracting flows, so that combination was lethal. 0:02:38.480 --> 0:02:42.760 And so now they have the backstop in now what 0:02:42.800 --> 0:02:47.280 do we have. We have them they're going to be 0:02:47.360 --> 0:02:50.040 paying up if they if they're depending on the facility, 0:02:50.520 --> 0:02:54.040 they'll pay roughly four point three seven percent right now? 0:02:54.160 --> 0:03:00.639 Is that rate ois plus ten And that's much higher 0:03:00.680 --> 0:03:03.799 than many of them have been paying for deposits number one, 0:03:04.360 --> 0:03:07.679 while in the case of Silicon Valley Bank, their average 0:03:08.040 --> 0:03:11.120 held to maturity security on the asset side of their 0:03:11.120 --> 0:03:14.120 balance sheet was only one point six. So they're going 0:03:14.120 --> 0:03:19.639 to see net interest losses now. Instead of having marked 0:03:19.760 --> 0:03:27.160 market hit equity, these losses are going to hit earnings. Kathy, 0:03:27.240 --> 0:03:29.760 that's the cause. Let's go to the effect. Since the 0:03:29.800 --> 0:03:33.200 collapse of Silicon Valley Bank, the market has changed its 0:03:33.200 --> 0:03:37.440 FED expectations for a less hawkish or a more dubbish FED. 0:03:37.960 --> 0:03:41.600 You cite the FED as the cause. How nimble arc being, 0:03:42.080 --> 0:03:48.520 how much are you recalculating your view going forward? Well, 0:03:48.920 --> 0:03:53.640 as we said before COVID, as we were descending into that, 0:03:53.760 --> 0:03:58.560 and we are saying, now, innovation solves problems. And you 0:03:58.640 --> 0:04:02.360 showed a few charts at the beginning that suggests that 0:04:02.800 --> 0:04:06.240 some of the innovators out there are solving problems. I mean, 0:04:06.280 --> 0:04:10.200 I think the most dramatic example of it to us 0:04:10.960 --> 0:04:15.920 was the behavior of bitcoin last week. It absolutely took off. 0:04:15.960 --> 0:04:22.040 It was a flight to safety vehicle, and so it 0:04:22.200 --> 0:04:25.880 is really proof of concept that innovation solves problems. There 0:04:25.920 --> 0:04:33.839 are in bitcoin fully decentralized, fully transparent, auditable which is 0:04:34.720 --> 0:04:38.039 addressing all of the banking's problems right now, and so 0:04:38.240 --> 0:04:41.280 a flight to safety a little bit of an insurance policy. 0:04:41.760 --> 0:04:48.279 There's no central point of failure in bitcoin. Caroline Arc 0:04:48.360 --> 0:04:51.520 has twenty thirty calls on bitcoin. The most bullish case 0:04:51.560 --> 0:04:54.480 around one point five million on bitcoin, the most bearish 0:04:54.520 --> 0:04:58.000 around two hundred and fifty thousand on bitcoin. Somewhere in 0:04:58.000 --> 0:05:01.000 the middle we have around six hundred and eighty two thousand, 0:05:01.040 --> 0:05:05.160 two hundred. That is this sort of base case there 0:05:05.200 --> 0:05:07.280 interesting at a time when no one is making that 0:05:07.360 --> 0:05:10.200 kind of long term projection. Yeah, and Kathy, we know 0:05:10.279 --> 0:05:14.359 you're a long term investor with long term calls, But 0:05:14.520 --> 0:05:17.719 what on earth gets us to that bull case of 0:05:17.720 --> 0:05:20.720 almost one and a half million dollars per bitcoin? If 0:05:20.720 --> 0:05:27.480 a bank crisis doesn't oh well, one of the things 0:05:27.520 --> 0:05:30.480 that happens in a crisis is a liquidity drives up, 0:05:30.600 --> 0:05:34.359 so that tends to hurt assets, and the fact that 0:05:34.480 --> 0:05:39.800 bitcoin moved in a very different way from the equity 0:05:39.880 --> 0:05:45.760 markets in particular was quite instructive. You'll find the building 0:05:45.760 --> 0:05:50.280 blocks of those price targets in our Big Ideas twenty 0:05:50.320 --> 0:05:52.880 twenty three. So our Big Ideas twenty twenty three and 0:05:52.920 --> 0:05:57.680 there for the base case, I would suggest quite conservative. 0:05:58.600 --> 0:06:02.000 We've dialed some of them down since last year. I 0:06:02.120 --> 0:06:06.279 know that corporate treasuries pulled away from bitcoin because because 0:06:06.320 --> 0:06:11.120 the regulators were pulling them away from from bitcoin on 0:06:11.160 --> 0:06:14.440 their balance sheet, so we've pulled back there. But we 0:06:14.520 --> 0:06:17.720 do believe that the behavior of the price through this 0:06:17.800 --> 0:06:24.240 crisis is going to attract more institutions. For example, we've 0:06:24.279 --> 0:06:30.520 done a report targeting institutional investors and an the allocation 0:06:31.040 --> 0:06:34.760 that they should make if they if they care about 0:06:34.800 --> 0:06:39.640 this new asset class diversifying their portfolios, and I believe 0:06:39.640 --> 0:06:42.279 it's somewhere between two and a half and six and 0:06:42.279 --> 0:06:46.040 a half percent, so not crazy. These are the sorts 0:06:46.040 --> 0:06:50.320 of allocations they would have made to emerging new categories 0:06:50.360 --> 0:06:54.160 of assets like real estate in the seventies, emerging markets 0:06:55.440 --> 0:06:58.880 and small cap in the eighties and nineties, and Kathy, 0:06:59.120 --> 0:07:01.560 I mean, let's discussed some of the ways that Kathy 0:07:01.600 --> 0:07:04.720 and Ark have invested and got exposure to crypto. Of course, 0:07:04.760 --> 0:07:08.320 there's the companies such as coin Basto. There's also GBTC. 0:07:08.720 --> 0:07:12.680 The gray scale bitcoin trust and regulation is in the 0:07:12.680 --> 0:07:14.520 eye of the storm there as well. Ed. I mean 0:07:14.680 --> 0:07:16.600 to talk us through what the SEC seems from pushing 0:07:16.680 --> 0:07:19.120 us towards. Yeah, and it calculated an interesting point. They're 0:07:19.240 --> 0:07:22.160 right about institution investors, Kathy, if I remember correctly, back 0:07:22.160 --> 0:07:24.400 in twenty twenty one, a big part of your thesis 0:07:24.440 --> 0:07:27.040 on the run up in bitcoin was that more US 0:07:27.120 --> 0:07:29.760 corporates would add it to their balance sheet in place 0:07:29.800 --> 0:07:32.360 of cash. That doesn't appear to have happened to the 0:07:32.440 --> 0:07:35.640 level that you'd hope. Is that because the US is 0:07:35.680 --> 0:07:42.120 just not a regulatory friendly environment for this to happen. Yes, 0:07:43.280 --> 0:07:45.760 you know, in the beginning of the crisis, it seemed 0:07:45.800 --> 0:07:51.880 like regulators wanted to blame crypto instead of the significant 0:07:51.920 --> 0:07:56.800 rise in interest rates and the deposit outflosed. Now we're 0:07:56.880 --> 0:07:59.400 seeing it as a solution to the problem, but the 0:07:59.440 --> 0:08:05.160 regulator are still are still reticent. Something interesting happened today, 0:08:05.760 --> 0:08:12.400 or maybe it was yesterday. Governor DeSantis basically said that 0:08:13.160 --> 0:08:19.360 he was going too. I don't know if you said 0:08:19.360 --> 0:08:23.160 this exactly, but the conclusion of his saying we're going 0:08:23.200 --> 0:08:26.040 to set Florida apart from the rest of the nation 0:08:27.640 --> 0:08:32.800 was this ability to touch companies that touch crypto. After all, 0:08:32.800 --> 0:08:36.360 these are cash deposits there FIA deposits, they're not crypto, 0:08:36.840 --> 0:08:39.720 and this can be done on a state by state basis. 0:08:39.720 --> 0:08:43.400 So I think you'll see Florida, like it has done 0:08:43.400 --> 0:08:46.000 in many other ways, distinguish itself from the rest of 0:08:46.040 --> 0:08:51.599 the pack. Kathy Katie Greifeld, my good friend and a 0:08:51.679 --> 0:08:54.080 just terrific reporter on the ECF beats, has been talking 0:08:54.080 --> 0:08:56.720 about gray scale and the opening arguments in the case 0:08:56.720 --> 0:09:01.800 with the SEC. In that discussion in how much are 0:09:01.800 --> 0:09:05.000 you considering adding to your position around trust? How are 0:09:05.000 --> 0:09:10.439 you reading how that grayscale situation is playing out? So 0:09:10.640 --> 0:09:15.559 it seems as though the judge is having some trouble 0:09:16.160 --> 0:09:22.480 understanding how the SEC could prove a bitcoin futures ETF, 0:09:23.080 --> 0:09:28.400 which is swaps based and therefore has counterparty risk, but 0:09:28.559 --> 0:09:33.160 will not allow a spot bitcoin ETF. It really makes 0:09:33.280 --> 0:09:38.120 no sense so they'll either have to basically shut down 0:09:38.480 --> 0:09:42.280 the Bitcoin futures ETF, it seems to me, or allow 0:09:43.080 --> 0:09:47.080 a bitcoin ETF. So I think Grayscale is doing Bitcoin 0:09:47.240 --> 0:09:50.960 a great service and its arguments have been very sound. 0:09:52.600 --> 0:09:55.599 We all saw our audience, Kathy, what they make of 0:09:55.679 --> 0:09:58.120 the behavior in bitcoin. This was what they had to 0:09:58.200 --> 0:10:01.800 say in the terms of how the set class behaves. 0:10:04.000 --> 0:10:06.080 Is it a must have in a banking crisis? Few 0:10:06.400 --> 0:10:10.040 respondents said yes, No, it's too volatile. As the main response, Caroline, 0:10:10.080 --> 0:10:12.000 interest in your take on that. What this all comes 0:10:12.040 --> 0:10:15.319 down to is how we're playing the interest rate environment, right, 0:10:15.360 --> 0:10:17.800 how we're reading the FED, how we're reading across different 0:10:17.840 --> 0:10:21.400 asset classes. Yeah, and to that point, Kathy, you have said, 0:10:21.440 --> 0:10:23.839 just earlier in the conversation, the rate of change of 0:10:23.880 --> 0:10:28.160 the FED, the nineteenfold increase in interest rates that have 0:10:28.320 --> 0:10:30.760 so upended you say, in many ways what's happening in 0:10:30.760 --> 0:10:34.000 the financial markets and financial conditions. But we did see 0:10:34.040 --> 0:10:36.480 signaling from the Fed. They did tell us they were 0:10:36.520 --> 0:10:39.560 going to be hiking rates and hiking rate fast. Why 0:10:39.640 --> 0:10:45.679 then didn't you move your portfolio around more? Well, the 0:10:46.040 --> 0:10:49.800 premise of the question is that we're an asset allocator. 0:10:49.840 --> 0:10:56.080 We are not. We invest exclusively in disruptive innovation, nothing else. 0:10:56.559 --> 0:11:00.960 What we did do was we concentrated our ship strategy 0:11:01.080 --> 0:11:05.160 so AARKK and and our other strategies AARKQ, a ARK 0:11:05.480 --> 0:11:11.640 WARKF and we moved in the flagships case, from fifty 0:11:11.679 --> 0:11:14.920 eight names in February of twenty one when we peaked 0:11:16.360 --> 0:11:19.920 down to twenty seven twenty eight names. We have a 0:11:19.960 --> 0:11:24.400 scoring system, and the scoring system is based on variables 0:11:24.400 --> 0:11:28.240 we believe are very important to innovation, and so we 0:11:28.480 --> 0:11:35.160 concentrated the portfolio. Many people in the traditional asset management world, 0:11:35.640 --> 0:11:37.880 when they go through a risk off period, they will 0:11:37.920 --> 0:11:42.960 diversify their portfolios by moving closer to their benchmarks. What 0:11:43.040 --> 0:11:48.240 they're doing is typically selling our kinds of names, and 0:11:48.400 --> 0:11:51.800 so that is why they're putting extreme pressure on them. 0:11:52.440 --> 0:11:56.040 Will create losses by selling stocks, and that gives us 0:11:56.040 --> 0:11:59.520 a tax loss asset which we have it's over two 0:11:59.559 --> 0:12:03.080 billion dollars right now against which we can take future 0:12:03.160 --> 0:12:06.880 gains and then concentrate towards our highest conviction names. We 0:12:06.920 --> 0:12:10.160 have a paper on our site which shows the benefits 0:12:10.160 --> 0:12:14.880 of this concentration strategy during risk off and diversification strategy 0:12:15.000 --> 0:12:19.080 during risk one, but of course when it's risk off, 0:12:19.640 --> 0:12:22.400 you've underperformed. And actually even on a five year basis, 0:12:22.400 --> 0:12:25.480 I know people will say, look, you're always looking in 0:12:25.520 --> 0:12:28.400 a long period, five year outlook kind of perspective. But 0:12:28.520 --> 0:12:31.319 look back from here over the last five years, and yes, 0:12:31.360 --> 0:12:33.400 it's been a turbulent time, it's been an interest rate 0:12:33.480 --> 0:12:36.440 hike time, but you've underperformed the S and P five hundred. 0:12:36.840 --> 0:12:39.320 What do you say to those that have a shorter 0:12:39.400 --> 0:12:41.680 time frame in terms of investing, those that are looking 0:12:41.720 --> 0:12:44.400 to retire in the next five to ten years, should 0:12:44.440 --> 0:12:46.120 they be with you or do we have to be 0:12:46.640 --> 0:12:49.240 long term? Equity investors that have a much longer runway 0:12:49.320 --> 0:12:54.080 to get have exposure to our investments. So we're the 0:12:54.120 --> 0:12:57.800 closest thing to a venture a strategy, to a venture 0:12:58.000 --> 0:13:04.040 capital fund in the public equity markets, and a venture 0:13:04.080 --> 0:13:09.040 fund has a long term investment horizon. If an investor 0:13:09.360 --> 0:13:14.360 cannot have that long term an investment horizon, then they 0:13:14.440 --> 0:13:20.320 should allocate perhaps a small amount to our strategy, say 0:13:20.440 --> 0:13:24.920 one or two percent, which, by the way, from what 0:13:24.960 --> 0:13:30.040 we can tell, most advisors have us at that one 0:13:30.160 --> 0:13:34.600 to three percent range. Now, why would you put any 0:13:34.840 --> 0:13:37.560 if the risk was the volatility that you see on 0:13:37.600 --> 0:13:43.319 this chart. It is because our companies are going to 0:13:43.520 --> 0:13:47.760 disrupt the traditional world order. And if we're right, then 0:13:48.080 --> 0:13:52.120 the large cap benchmarks and even some of the mid 0:13:52.400 --> 0:13:57.320 caps MidCap funds are going to be disrupted. We will 0:13:57.400 --> 0:14:01.360 be a hedge. Now, you'll, I will say it submit 0:14:01.440 --> 0:14:05.160 to you that last year was the most unusual year 0:14:05.200 --> 0:14:09.239 of my investment career, and not only mine, but bond investors. 0:14:09.720 --> 0:14:16.040 So bond investors had the worst year in two hundred 0:14:16.080 --> 0:14:20.800 and some odd years. When interest rates go up nineteenfold 0:14:20.880 --> 0:14:24.640 in less than a year, it's going to kill long 0:14:24.720 --> 0:14:29.080 duration assets. Bonds are long duration assets. They've never seen 0:14:29.120 --> 0:14:32.440 a year like that. Arc is a long duration asset. 0:14:33.200 --> 0:14:36.440 But if we're right and these companies are going to 0:14:36.480 --> 0:14:41.480 disrupt the traditional world order, then we want to be 0:14:41.520 --> 0:14:43.880 on the right side of change and the market will 0:14:43.920 --> 0:14:47.080 come our way away from those benchmarks which represent the 0:14:47.120 --> 0:14:52.320 traditional world order, to our strategies for a global TV 0:14:52.480 --> 0:14:55.080 and radio audience was speaking with Kathy Wood, CEO of 0:14:55.680 --> 0:15:00.840 Investment Management. Kathy in June on Stage up summit cited 0:15:01.320 --> 0:15:04.400 retail inventory levels and you told me to if you 0:15:04.480 --> 0:15:11.960 remember that inflation would unravel. Did you get that one wrong? No, 0:15:12.120 --> 0:15:14.920 if you look at if you look at upstream, what's 0:15:14.960 --> 0:15:19.240 going on. Commodity prices are coming down quite dramatically, some 0:15:19.360 --> 0:15:24.400 by seventy eighty percent. And I will also say the 0:15:24.720 --> 0:15:27.480 retail call was very right. I think I think you'll 0:15:27.520 --> 0:15:32.600 agree on that. The discounting, we think is going to 0:15:32.640 --> 0:15:35.520 continue to work its way through the system from the 0:15:35.520 --> 0:15:39.920 commodity price level to downstream nearer the consumer. And you 0:15:39.960 --> 0:15:43.880 can see this Tesla's cutting prices. Many people say, oh, 0:15:43.960 --> 0:15:47.680 it's because of competition. No, it's because their commodity prices 0:15:47.720 --> 0:15:53.160 are coming down. And Elon's even talking about deflation. And 0:15:53.440 --> 0:15:58.840 the cost associated with innovation is coming down because it 0:15:58.880 --> 0:16:01.960 follows a learning curve. So I think the innovation that 0:16:02.120 --> 0:16:08.240 our companies are delivering are going to be one part 0:16:08.240 --> 0:16:12.320 of the deflation commodity prices another. And I will also 0:16:12.440 --> 0:16:16.600 tell you the yield curve it last the week before 0:16:16.680 --> 0:16:20.960 last was down inverted by as much more than one 0:16:21.040 --> 0:16:25.680 hundred basis points. That also is a deflationary signal, as 0:16:25.960 --> 0:16:29.040 is what's now going on in the banking system. I 0:16:29.200 --> 0:16:34.800 think the banking system is fearing deflation. Well, Kathy to 0:16:34.840 --> 0:16:36.560 that note we've been talking about sort of a de 0:16:36.640 --> 0:16:40.240 facto tightening of financial conditions in the wake of Silicon 0:16:40.320 --> 0:16:44.280 Valley Bank. You move last year to give investors exposure 0:16:44.360 --> 0:16:48.520 to venture funds private firms in that partnership with Titan. 0:16:49.040 --> 0:16:52.040 Has that proved to be bad timing? How impacted has 0:16:52.040 --> 0:16:53.840 that been from SVB? And we've only got a couple 0:16:53.840 --> 0:16:59.520 of minutes left. Sure, well we're fledgedling. Still, it takes 0:16:59.520 --> 0:17:03.000 a long time. We have, as you say, with Titan, 0:17:03.080 --> 0:17:06.960 a social distribution strategy. We have other rappers as well. 0:17:07.200 --> 0:17:11.400 I'm much preferred to start a strategy during tough times. 0:17:11.880 --> 0:17:16.240 And actually now we can be a solution if we 0:17:16.320 --> 0:17:20.560 get inflows people looking for venture for they can get 0:17:20.600 --> 0:17:23.760 into our venture fund for only five hundred dollars. So 0:17:24.440 --> 0:17:31.440 again the democratization of investing and this idea public closest 0:17:31.480 --> 0:17:34.679 to a venture capital fund in the public markets to 0:17:34.720 --> 0:17:37.560 be able to actually do a venture fund at a 0:17:37.600 --> 0:17:41.000 time that the venture community needs us. If you look 0:17:41.000 --> 0:17:45.640 at Silicon Valley Bank, that situation has robbed a lot 0:17:45.680 --> 0:17:49.440 of venture capitalists funding. Has it involved in the US 0:17:49.480 --> 0:17:54.719 of innovation, Kathy, which you think I would say that 0:17:54.840 --> 0:17:59.119 regulations threatened to do that and certainly in the crypto space. Absolutely, 0:17:59.480 --> 0:18:02.560 But I also think that seizing up is not just 0:18:02.600 --> 0:18:05.960 a US phenomenon. It looks like it's more of a 0:18:06.000 --> 0:18:10.600 global phenomenon judging what has just happened in Europe. So 0:18:10.640 --> 0:18:14.920 it's not as much that it is regulation the likes 0:18:14.920 --> 0:18:19.680 of which we're seeing our blockchain technology. Okay, retain US's 0:18:19.760 --> 0:18:24.080 position innovation. Kathy very quickly. Did you have any exposures SVB, 0:18:27.160 --> 0:18:33.399 none whatsoever. Well as our business know and our company's 0:18:33.840 --> 0:18:37.119 very limited exposure, I was so surprised. I just wanted 0:18:37.119 --> 0:18:41.080 to see our little although I just wanted to clarify 0:18:41.119 --> 0:18:43.320 that for our audience. Kathy. I'm sorry to jump in, 0:18:43.359 --> 0:18:45.560 but we got to go. Kathy Wood, CEO of our 0:18:45.640 --> 0:18:48.160 invest We're really grateful for your time here across Bloomberg 0:18:48.200 --> 0:18:52.280 Television and Radio. Thank you. Now, coming up, we stick 0:18:52.359 --> 0:18:55.200 with the crypto discussion as Circle picks France for its 0:18:55.200 --> 0:18:58.119 new European headquarters. All of that. Next, this is Bloomberg 0:19:07.720 --> 0:19:09.719 time for a quick Wall Street Beat, where we take 0:19:09.760 --> 0:19:11.399 a deep dive into the world of Wall Street in 0:19:11.400 --> 0:19:15.680 Global Wall Street. In today Caroline Circle choosing France as 0:19:15.720 --> 0:19:18.480 its new European headquarters. Is interesting in that conversation with 0:19:18.560 --> 0:19:21.679 Caffee Wood, the same ideas that the US might not 0:19:21.760 --> 0:19:25.199 be the most friendly regulatory environment if you're trying to 0:19:25.240 --> 0:19:28.760 foster innovation or a change in the system. Yeah, really interesting, 0:19:28.800 --> 0:19:31.880 almost like a competition to Wall Street, shall we say, 0:19:31.920 --> 0:19:34.920 in this particular beat. But what's interesting the circle was 0:19:34.960 --> 0:19:37.639 as exposure to Silicon Valley Bank was the fact that 0:19:37.680 --> 0:19:41.480 we've got a deepeg of its key stable coin USDC 0:19:41.720 --> 0:19:44.199 for a moment because of that sort of connection of 0:19:44.320 --> 0:19:48.320 decentralized finance to centralized finance in that moment, but notable 0:19:48.440 --> 0:19:50.880 that really London's trying to be the place, UK trying 0:19:50.880 --> 0:19:54.040 to be the place for European regulatory space for crypto, 0:19:54.200 --> 0:19:56.080 but France seems to be winning out. They already wooed 0:19:56.080 --> 0:19:59.560 the likes of Binance previously. I remember five years ago 0:19:59.600 --> 0:20:02.640 when cause main function was to move money between borders 0:20:02.640 --> 0:20:13.560 before the crypto pivot. Welcome back to Bloomberg Technology. I 0:20:13.600 --> 0:20:16.200 made lovelow in San Francisco where it is nine thirty am, 0:20:16.240 --> 0:20:19.320 but over in London four thirty pm where European markets 0:20:19.359 --> 0:20:22.080 are closing. Continue momentum in the equity space to six 0:20:22.160 --> 0:20:25.159 hundred Europe at one point four percent, and continuing to 0:20:25.160 --> 0:20:27.359 see the Euro strengthen against the dollar at one o 0:20:27.560 --> 0:20:30.560 eight ish, the highest level for the Euro against the 0:20:30.600 --> 0:20:33.320 dollar since the first week of February. Like in the 0:20:33.400 --> 0:20:36.000 United States, as Caroline was talking about earlier, the action 0:20:36.080 --> 0:20:37.800 is at the short end of the curve when it 0:20:37.840 --> 0:20:41.399 comes to the bond markets, specifically in eurosenominated bonds. You 0:20:41.440 --> 0:20:44.040 look at the German two year up by around twenty 0:20:44.080 --> 0:20:46.879 three basis points as we kind of pull out of 0:20:46.920 --> 0:20:48.879 the more kind of haven assets, or at least at 0:20:48.880 --> 0:20:51.360 the short end of the curve, the more policy sensitive end. 0:20:51.520 --> 0:20:54.439 That's where the actions at more muted in guilt. You 0:20:54.440 --> 0:20:56.760 look at the UK two year yield, Okay, a little higher, 0:20:56.800 --> 0:20:59.320 but three point two seven percent. We're still kind of 0:20:59.359 --> 0:21:02.520 passing over the fallout from not necessarily what's happening with 0:21:02.600 --> 0:21:05.960 credit SUITEE and ubs, but the backstop being provided by 0:21:06.000 --> 0:21:09.560 central banks and liquidity situation, but also what the ECB 0:21:09.720 --> 0:21:12.080 is going to do going forward. To Caroline, all of 0:21:12.119 --> 0:21:15.600 that of course having repercussions for a sentiment across technology. 0:21:15.640 --> 0:21:18.560 But let's get back to some innovation in and of itself. 0:21:18.600 --> 0:21:21.600 Let's talk open AI of course. Well, actually it temporarily 0:21:21.600 --> 0:21:24.440 shut down it's popular chat GPT service just yesterday and 0:21:24.840 --> 0:21:26.879 it was in the morning after receiving reports of a 0:21:26.960 --> 0:21:29.359 bund then allowed some users to see the titles of 0:21:29.400 --> 0:21:32.680 other users chat histories. A spokesperson told Blingberg actually that 0:21:32.720 --> 0:21:36.960 the bug is an unnamed open source software caused that problem. 0:21:37.200 --> 0:21:40.359 An open AI is still investigating the precise cause. But 0:21:40.520 --> 0:21:43.960 right notable when something like this happens. You go to 0:21:44.040 --> 0:21:46.840 Reddit and you go to Twitter, and there's so many 0:21:46.880 --> 0:21:50.200 people that screen grabs and we're like, I've never asked 0:21:50.960 --> 0:21:53.320 chat GBT that you know, some of the images out 0:21:53.320 --> 0:21:56.440 there astonishing. But it shows like with all the euphoria 0:21:56.520 --> 0:21:59.320 comes risk that if the system breaks down, the user 0:21:59.359 --> 0:22:01.840 base is so big now and in many ways we've 0:22:01.880 --> 0:22:05.359 seen big companies, regulated companies, banks in particular, not wanting 0:22:05.400 --> 0:22:07.679 this sort of third party software, not letting people use 0:22:07.720 --> 0:22:10.240 chatsubt when they're in the workplace because of they're worried 0:22:10.280 --> 0:22:13.760 about vulnerabilities. Let's dig into that in this world of 0:22:13.800 --> 0:22:15.920 innovation or what it means in terms of cyber risks. 0:22:15.920 --> 0:22:18.840 Wendy Whittmoss with US Senior vice president for Unit forty 0:22:18.840 --> 0:22:22.040 two over at Palo Alto Networks. Of course, your bread 0:22:22.040 --> 0:22:25.200 and mutter is thinking about security, but particularly you're looking 0:22:25.240 --> 0:22:28.760 at vulnerabilities when it comes to outsources of your workflow, 0:22:28.800 --> 0:22:31.440 the supply chain into your company. You've just been putting 0:22:31.440 --> 0:22:33.680 out some key reports whenning what are the key findings 0:22:33.680 --> 0:22:37.320 at the moment, Yeah, Banks, Caroline, I think it really 0:22:37.359 --> 0:22:39.679 ties into the story that you're talking about here right 0:22:39.720 --> 0:22:42.800 in terms of technology being disruptive and that can be 0:22:42.880 --> 0:22:45.080 used for good, it can also be used for bad, 0:22:45.840 --> 0:22:48.200 and so I think our report really tells a story 0:22:48.960 --> 0:22:54.400 that we live every day, which is that banks, financial institutions, organizations, schools, 0:22:54.480 --> 0:22:58.240 cities throughout the world, they're all being targeted in particular 0:22:58.280 --> 0:23:02.199 by ransomware actors. And we show is that these cybercriminals 0:23:02.240 --> 0:23:05.520 are becoming even more effective at doing their job. They 0:23:05.600 --> 0:23:09.000 do a great job of understanding what's in an environment 0:23:09.080 --> 0:23:12.480 and which data that they can steal. And stealing is 0:23:12.840 --> 0:23:15.760 a very important concept here because what we're not seeing 0:23:15.920 --> 0:23:19.520 is just a traditional ransomware attack where an organization's data 0:23:19.560 --> 0:23:22.560 is encrypted, but we're seeing much like nation state actors 0:23:22.560 --> 0:23:25.560 have done for years, we're seeing data being stolen and 0:23:25.640 --> 0:23:29.720 ex filtrated from environment and used for extortion, and attackers 0:23:29.720 --> 0:23:32.040 are doing that on a daily basis. They're not just 0:23:32.240 --> 0:23:36.680 threatening it. We're actually seeing up four times every four hours. 0:23:36.760 --> 0:23:41.760 We're seeing more organizations data being posted ed with regularity, 0:23:41.880 --> 0:23:46.000 and the stakes well becoming evidently well high. Yeah, and 0:23:46.119 --> 0:23:47.680 there's a point that I wanted to make on chat 0:23:47.680 --> 0:23:51.600 GPT Wendy, which is that it impacted chat GPT and 0:23:51.600 --> 0:23:56.080 also the premium to GPT plus. While you could see 0:23:56.119 --> 0:23:59.000 the such titles of other uses, you could not actually 0:23:59.000 --> 0:24:01.760 get into the conversation. So I want to be clear 0:24:01.800 --> 0:24:05.520 you couldn't actually kind of access data relevant to other users, 0:24:05.880 --> 0:24:09.199 but it was basically deemed as a bug in the 0:24:09.240 --> 0:24:12.440 open source software. My question to you in the context 0:24:12.440 --> 0:24:15.840 of cybersecurity is are they is this kind of issue 0:24:15.840 --> 0:24:18.480 and after thought as people try to rush these products out, 0:24:18.520 --> 0:24:21.760 they don't think about kind of the base security of 0:24:21.760 --> 0:24:26.160 the software that they're writing, you know. So I think 0:24:26.200 --> 0:24:29.720 that software vulnerabilities across the board are challenging for every 0:24:29.840 --> 0:24:33.000 organization to deal with, and they're only going to become 0:24:33.040 --> 0:24:36.080 more of a problem just due to this scale that 0:24:36.240 --> 0:24:38.560 AI brings to the table. Right, So we're going to 0:24:38.680 --> 0:24:42.000 continue to see these type of vulnerabilities. You know, I 0:24:42.040 --> 0:24:45.200 think one thing that's exciting is that, you know, last 0:24:45.200 --> 0:24:49.400 week was released a national Cybersecurity Strategy, and in that 0:24:49.480 --> 0:24:52.760 we talk about in particular the need to protect expand 0:24:52.760 --> 0:24:55.879 the definition of critical infrastructure, so and the role that 0:24:55.960 --> 0:24:59.000 technology vendors and providers play in that. Right. So we 0:24:59.080 --> 0:25:02.119 see that with these my chain attacks becomes a major issue, 0:25:02.280 --> 0:25:05.240 but we're also seeing a lot more rapid information sharing 0:25:05.320 --> 0:25:10.440 that is becoming incredibly positive. I'm reading over the results 0:25:10.520 --> 0:25:13.080 or your findings in this research, and Caroline, what's so 0:25:13.200 --> 0:25:17.120 interesting to me is the types of businesses found most 0:25:17.200 --> 0:25:21.280 vulnerable are those businesses we entrust with our data on 0:25:21.320 --> 0:25:24.280 a daily basis, and I suppose also when we're thinking 0:25:24.320 --> 0:25:27.400 of keeping our own company protected. I don't know about 0:25:27.440 --> 0:25:31.200 you done countless training exercises about knowing fishing, but smishing 0:25:31.280 --> 0:25:33.200 is a new one. One day that you've been talking 0:25:33.240 --> 0:25:35.120 a lot about what are the ways in which companies 0:25:35.520 --> 0:25:39.280 can protect themselves. Yeah, so, you know, we've talked so 0:25:39.359 --> 0:25:42.080 much about AI write now the technology investments. But I 0:25:42.119 --> 0:25:44.520 think Carolyne, what you're getting at are the human side 0:25:44.520 --> 0:25:46.880 of that. I think one of the most compelling findings 0:25:46.880 --> 0:25:50.399 for us is that we've seen these attacks increased in 0:25:50.480 --> 0:25:53.760 now twenty percent of attacks that we deal with include 0:25:53.800 --> 0:25:56.119