Bloomberg Crypto Full Show (05/09/2023)
Live from Lou's world headquarters in New York City on Matt Miller and from our studios in Washington, D.C., I'm Kelly Lyons. Welcome to Bloomberg Crypto, a look at the people, transactions and technology shaping the world of decentralized finance. Coming up, congestion, headache. Bitcoin is under pressure as transactions involving coins and adoptees clog its network and cost issues for finance. Artificial intelligence has been the buzz word so far. This year, we'll talk a ISE potential and the perils with Sergei NASDAQ, the co-founder of Chain Link.
And another House hearing on digital assets is on the docket this week. Democratic congressman and crypto skeptic Brad Sherman will join us to talk regulation and the debt ceiling drama. So all of that is ahead. But first, let's get a snapshot of the market. The best way to do that. On your Bloomberg terminal, C are Y P go. And what you will find is that is a relatively muted day, though mostly a positive one for digital assets. The two major tokens, not too much
change. Bitcoin up just about six tenths of one percent. Trading south of twenty eight thousand dollars at twenty seven seven thirty six. At the moment, aether is up by about eight tenths of one percent. Some of the alt coins that were outperforming on this particular session mat like coin is up three point six percent.
And then I'm trying to find a reason for this. We know it always isn't easy to track an actual fundamental reason why some tokens are moving the way that they are. But Bitcoin cash on a real outperformance, Tara, at the moment up about 10 percent on the day. All right. Well, the hottest story in crypto this
week have been has been the challenges that finance is facing. Bloomberg Sonali Basak has more on what's fueling the latest anxiety about the world's biggest crypto exchange. Gnarly right there. A few issues at play here and one is mounting regulatory concerns. And the other is that finance had to halt bitcoin withdrawals twice in a twelve hour period. Now, the exchange said that this is
partly due to network congestion and that this congestion had contributed to a surge in transaction fees on the Bitcoin block chain. But for finance, CEO Chunk brings out the surge in these transaction fees. It's also called gas prices is part of doing business. The CEO said in a tweet on Monday that gas prices, they do fluctuate and that rising fees mean Bitcoin is in a bull market. Now, what's behind the surge in volumes and fees mean coins. One of the most popular of these is called Paper, a frog themed coin that has risen about 3000 percent since its launch in April.
The value, though, is still less than a penny per token. Previously, most meme point activity had happened on the theory and block change. And that's all changing. Tokens like paper are built on a framework called BRC 20. BRC 20 is only a few months old, but the rising transaction fees and network congestion are a testament to the popularity of these new tokens. Now check out just how much transaction
fees have surged. By the end of Monday. They rose to almost thirty one dollars on May 8, up from one dollar and 81 cents just a year ago. And against this backdrop, finance has been facing major regulatory challenges and its customers, rivals and global watchdogs are watching its activities closely. The most recent regulatory development is a U.S.
Justice Department probe into whether finance or company officials might have run afoul of sanctions requirements relating to Russia's invasion of Ukraine. All right. Now, thanks very much for that. By the way, finance isn't the only exchange embroiled in a fight with U.S. regulators.
Coinbase CEO Brian Armstrong has been vocal about the lack of clarity in current U.S. regulation. And he spoke with Bloomberg yesterday. Look, we don't relish the opportunity to be in litigation with one of our primary regulators, we've sought out regulation all over the world and tried to be proactive when there wasn't clarity. But if there's no clear rulebook in the US, we created our own best practices to evaluate, you know, over a thousand assets and we rejected 80 percent of them. Two hundred and twenty percent that we list that we believe are commodities. There's been no clear rulebook.
And so if we receive a wells notice, I feel like we have a duty to push back and go see it case law that will help bring this clarity to the US. All right. Well, joining us now for more on this is Congressman Brad Sherman, a Democrat from California and a member of the House Financial Services Subcommittee on Digital Assets. Congressman, great to talk to you again. Thank you so much for joining us. I think followers of this show by now are probably well acquainted with your views on crypto. To call you a skeptic perhaps is a delicate way of phrasing it. You have said in the past that you would
like to see crypto investment banned in the U.S., but we are hearing more and more of that due to the uncertainty in the regulatory environment here at the speed of enforcement actions. We have seen from U.S. regulators that a lot of this activity, a lot of the players in the industry are moving offshore. Doesn't that make it harder to protect U.S. consumers? Why not foster an environment in the U.S.
and for this activity to take place so that you can exercise regulatory control over it? You know, there's this fear of missing out that we've got to keep up with other countries. You know, Peru is way ahead of us in cocaine production. China's way ahead of us in organ harvesting.
We don't need to keep up on those things and we don't need to keep up on crypto. And as for protecting U.S. investors, investors know and they certainly know now that when you send your money to the Bahamas or Cayman Islands, you do not have protection. You could lose it all.
And the idea that we should tell investors that something's licensed in the United States where it's not only is dangerous for the investors, is crypto is, but it's harmful to our country. Yes, crypto tries to be. I don't I don't see a reason to do that. OK. But there still is within the subcommittee that you sit on an effort to set some kind of guardrails, regulatory boundaries here, I know that there will be a hearing tomorrow with the digital assets subcommittees of both the Financial Services Committee as well as the Agriculture Committee in the House. Really what that comes down to as S.E.C.
versus CFTC jurisdiction. I know where you come down on that. You'd like to see more control with the S.E.C.. But I thought we were all agreed that Bitcoin isn't a security. No one is convinced of that. And I think the vast majority has said that Gary is said that the vast majority of tokens are securities.
And if the industry wants on a Shery Ahn, they want to know what the rules are. Fine. All they have to do is come to Congress and say, please make us a security and we will do that. Instead, Sam Bateman, Freed was here on doing a host of illegal things for one purpose, and that was to keep the S.E.C.
out of crypto. We should not trash Sam bagman freed on the one hand and then pass his bill on the other hand. You say that they should come to Congress to set the rules here, but that has proven quite difficult to do. Congressman, are you optimistic that we will actually see legislation make its way through your committee and then through its counterpart in the Senate as well? What would that be? We hear often that stable points that are the lowest hanging fruit. I'm optimistic that if this industry wants real regulation, they can get it, but they don't.
And they will do everything possible, including everything Sam and Reid was doing to stop us from having real regulation of crypto and to prevent the know your customer and your time. Money laundering statutes were being effectively applied to the entire ecosystem. So they are here not because they want clarity, but because they want only a patina of regulation. And they're here to fight the clarity that we would have if we simply passed a law saying all crypto is security. Well, we could have that kind of clarity immediately.
But the industry does a lot of money and power and there's no money and power on the other side. There's no PAC or lobbyist fighting for know your customer while fighting against drug dealers or there's no lobbyist in town devoted to making sure that we have effective tax law enforcement. All the money and power is in the hands of people who have literally created money out of thin air, over a trillion dollars worth. And they're using that to try to prevent us from having effective regulation. You know, I just circle back Congressman NIKKEI original question and your answer.
I mean, you mentioned the South American country that apparently produces a lot of cocaine. I can't remember which one, but I'll trust you on that. I would guess that rich Americans, though, consume the vast majority of that product. Right. And it's difficult for us to regulate it
if we're not if we're not involved in the industry. Why wouldn't you want to create the regulation here? Because regardless of what you do, consider Bitcoin security or not. Americans are going to be buying it and trading it.
A lot more Americans will buy it and treat it if they do it here than if they know that there is a system designed to protect investors and there are beating that by sending their money to the Cayman Islands. So we want to minimize the amount of American investment. And you do that by having effective regulation that, as you say, will push this industry offshore because they don't want clarity. They don't want effective regulation. They want a patina of regulation. The image of regulation. And that's why they're fighting the
clarity that they could get by simply identifying the crypto currencies as the security and having the much larger and more effective regulatory agency be the regulator. No, we're not going to have the same level of investment in crypto if group whether crypto is traded in the United States versus whether it's a something that investors are warned every minute that they deal with it, that this is something their country doesn't want them to do. Let me finish here and ask you about a completely different issue, Congressman, and that is the debt ceiling. What is your take on the way it works and how it could be changed? It doesn't make sense. At my home, I wouldn't do a lot of
spending and then borrow to pay it later. Right. I would consider the spending I'm doing before I figure out how much money I need to borrow.
How should the U.S. change our course of action? Frankly, we shouldn't have a debt limit. A debt limit is will you pay your bills? And the answer should always be yes. Not take the country hostage. The United States is able to run a bigger deficit than other countries because of the role the U.S. dollar plays internationally.
And it is the announced purpose of the bitcoin promoters, of the crypto promoters to take that away from us. And that would mean. A tremendous loss for every American family. But what we should do is negotiate about how much we're going to spend and how much we're going to tax. And keep in mind that effective October
1, not a single dollar will be spent that. Kevin McCarthy, the House speaker, doesn't vote. So he's got all the control when he is instead taking hostages now.
Well, Congressman, as we know, Speaker McCarthy will be joining me now. Minority Leader Mitch McConnell. Chuck Schumer, Hocking Jeffries with President Biden at the White House this afternoon for your party. What is the optimal outcome of that meeting? Is it better at this point if the president budgets or if he does it? We need a clean increase in the debt ceiling and then we need to begin negotiations on what our expenditure should be for fiscal 1 2024. That starts this October. And it will take months for us to reach
an agreement on that. We should start those negotiations. All right, Congressman Sherman, thanks very much for your time, really appreciate it. Congressman Brad Sherman there talking to us about crypto as well as the debt ceiling.
Coming up, can the block chain industry help prevent the misuse of artificial intelligence? We'll speak with Sergei Nasr of co-founder of Chain Link. And the crypto exodus from the U.S. continues to pick up steam, as we were just discussing. Mike Novogratz says Galaxy is moving more operations offshore and access all the latest data and news on crypto. Check out S.R. why he go on the terminal. This is Bloomberg. We are in the middle of an incredible revolution in A.I.. If you're a company today and you're not embracing the changes that are taking place with A.I., you're gonna be behind. It is an existential crisis for every
business to understand how this technology, how this breakthrough is going to change the way that they work when new technology brings big changes. Sometimes it's be responsible, you know. Think about both the pluses and minuses. Let's take actions to help form it safely. I think it's too early to regulate the A.I.. We don't know enough about it. I think the companies that are building
this recognize that regulation is needed. A slew of Bloomberg TV guests discussing the rapid rise of artificial intelligence, including Ashton Kusher. Joining us now with his take is Sergei NASDAQ Nasr off. He is the co-founder of Chain Link. It's the Web 3 services platform. And Sergei recently penned a piece about how the block chain industry could help defend against the misuse or misalignment of artificial intelligence. Great to have you here on set with us. Thanks so much for coming to join us. What's your take on the on the use of
A.I. in in conjunction with block chain? Does it pose too many dangers? Thanks for having me. So I think that block chains are generally built to be very secure and they're built to resist adversaries hacking them and taking money and value out of them and manipulating them. And so far, the adversaries have been people and even nation states trying to gain access to various block chains and steal from them and manipulate them. So block chains have had to meet a very high standard for security. And this is the sense in which I feel they are more A.I. resistant.
And so all this talk about making a pause or making has slowed down, I think is unlikely. I think what we should be thinking about is countermeasures and how can systems be made A.I. resistant so that if people do use A.I. or if any AI becomes adversarial, how do you limit what it's able to do by building systems that are resistant and secure against that adversary? Do you make a distinction between proof of work and proof of stake? Sure.
Enjoy in terms of how well they can defend against adversaries. In that sense, no, I don't see a huge distinction. I think the real core security property that block change and smart contracts have is decentralization. So it's basically how many systems do you need to compromise? And so if you wanted to compromise a single server in a single bank, that's one system.
But to compromise something like Bitcoin or a theorem, you need to compromise thousands of servers. The the method they use to generate consensus, I think, is in both cases pretty secure. I think it's a matter of how many individual systems run by individual entities would individual different security practices would need to be compromised. And so there is arguably without, you know, thousands of thousands of times more security, which is why you've never seen these systems get hacked and money stolen from them, even though many people have tried. And so presumably, if I were to try to hack a single bank server versus bitcoin, it would be much harder for it to hack Bitcoin. And in that sense, those systems would be a resistant.
Can you give us some specific examples or use cases of a tie in block chain technology? I mean, what does the future look like? Do you think? So block chains have different relationships with risk management and block chains make a lot of data available about various risks in relation to the financial products that run on those chains. That data can be easily analyzed by more easily than bank data, which is closed and unavailable. So one way that A.I. and blockages can interact is the openness and transparency of block chain systems can allow A.I. to actually prove that block chain financial products are more secure and reliable. Otherwise, we're looking at using an A.I. for risk management in relation to
bridges, moving tokens across different environments and also just risk management in general, because block chains fundamentally do have a big role to play in how risk is managed in both highly technical and financial systems. Well, Sergei, we were just having a conversation around regulation with Congressman Brad Sherman, we know that there is heavy regulatory scrutiny on the wider crypto block chain landscape. They're also increasingly is a regulatory eye being pointed at a guy as this technology really has become so buzzy lately. Doesn't that just double down on the regulatory headache if you put these two things together? I think they're both very complex systems. I'm not sure that regulation of one relates to the regulation of the other.
I think they both have their unique risks and their own unique problems. I think generally speaking, that block chains are very positive from a societal point of view. They might have been misused to a certain degree by some, but in the early days of various technologies, they're often misunderstood. So, for example, cars.
When cars came about, you had laws where people had to wave two red flags about a car entering the town limits because it was considered an explosive device. And then people learned a lot more about cars. And now we all drive around in cars and we'll use the Internet. So I think there's a lot of value that block chains provide to society. And at the end of the day, that's what regulation and society will realize. So tell us about chain link and the
projects that you've got going. Hundreds over 1000 projects and the Oracle network. What is that? Sure, absolutely. So the chain link network has processed
over seven trillion dollars worth of transaction value and it's powering the vast majority of defy by providing it various key inputs such as data automation, random numbers. Basically, it's an infrastructure that makes more advanced smart contracts possible. And so far it's been very successful. It's the market leader in what it does and it's been responsible for enabling D5 to grow to where it is. And various other sectors of the block chain economy like gaming and others have also rapidly grown grown because of chain links ability to provide key services. Finally, Sergei, this is another question colored by the fact that I'm here in Washington, where all we are talking about today is the debt ceiling ahead of a meeting taking place between Biden and congressional leaders this week.
Do you see the kind of questions around the full faith and credit of the United States? The question of whether we're going to get too close to the edge or perhaps go over it is actually something that is fundamentally positive for crypto. I think the world right now is run by a number of brands. The U.S. dollar is one of those brands. Various banks are brands. Insurance companies are brands. And those brands make promises which are only backed by the decisions of people. And in many cases, those decisions will not result in what the consumer believes, what they will result in.
So, for example, recent bank failures have gotten people to question whether banks controlled by people are right for them. I think at the end of the day will arrive at a world where everything is crypto, graphically guaranteed, including currencies, banks, insurance companies, everything. Because if you ask a person whether they want to put their faith in another person who can control the outcome of their financial life, or if they would rather put their faith in a system that can't deviate and can only act in very specific ways, then I think that second option is the far superior option. And I think that all of these issues with the U.S. dollar and banks and everything will
just highlight this alternative. And it is a superior alternative. And once people realize that, I think they will switch in mass. All right, so did risk diversify and really decentralize is the advantage of crypto networks that crypto networks offer? I think it's brilliant. Great to have you in the studio. Thanks so much for joining us. Sergei NASDAQ there of Chain Link.
Coming up, a new block chain network is attempting to connect applications across the industry. We'll give you more details on that. And be sure to check out our Bloomberg crypto podcast every weekday, wherever you get your podcasts. This is Bloomberg. Madison prep those stories that caught our attention this week, a group of firms, including Goldman Sachs and Microsoft, are joining a new block chain system with the goal of encouraging broader adoption of the technology.
The Cartoon Network is trying to connect different block chain systems built by various organizations while still allowing them to keep required controls and privacy. It starts testing in July. Galaxy Dow Jones Digital. Sorry, I. Well, it has turned profitable. I was going to say alongside the rebound
in crypto markets, the crypto firm founded by Mike Novogratz reported net income of one hundred thirty four million dollars in the first quarter. That compares to a loss of one hundred eleven million a year earlier. And this one's me. Shaquille O'Neal is calling foul on lawyers who attempted to serve a lawsuit, accusing him of duping investors into a Ponzi scheme by promoting RTX crypto exchange. They had tried for months to serve him at multiple residences and even via social media. Lawyers for O'Neal claimed the plaintiffs missed their deadline since tossing the documents at his car falls short of legal requirements. I love that story and I love that image.
Yeah, that takes a lot of components, I think, to throw something at Shaq. In any case, great show. This is Bloomberg.