Bloomberg Crypto Full Show (06/20/2023)

Bloomberg Crypto Full Show (06/20/2023)

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Live from Lewis World Headquarters in New York City, I'm Matt Miller. And from our studios in Washington, D.C., I'm Kailey Leinz. Welcome to Bloomberg Quicktake. A look at the people, transactions and technology shaping the world of decentralized finance. Coming up at BlackRock throws its large hat into the spot Bitcoin ETF ring. If launched, it would be the first of its kind in the U.S..

Plus, we hear from former RTX U.S. President Brett Harrison. He'll talk about his new firm, architect, as well as involvement with his former firm and the recent crypto pushback from the S.E.C. and from the lack of regulatory clarity to the latest crackdown. We'll dig into a new Bloomberg intelligence survey taking the temperature of the industry. So all of that is ahead. But first, let's take the temperature of these digital asset markets.

The best way to do that on your Bloomberg terminal. Art, why he'd go. And what you will find is it is a bit of a mixed picture when it comes to these digital currencies today. You do have the two largest moving to the upside, bitcoin up two and a half percent. We are trading around twenty seven thousand four hundred dollars. So trying to sustain that boost it got after the filing of BlackRock Spot ETF. We'll see ultimately where that goes and

have more on that in just a second. Ethan, meanwhile, up about 1 percent at seventeen forty eight. But then you have some some of the other digital currencies moving to the downside, including SRP, which, of course, is still mired in a lot of uncertainty regarding the repo versus S.E.C. lawsuit. It's down about two and a half percent. And Cardon is also down about one point one percent on the day, Matt. Let's focus in, though, on the big guy. Bitcoin gets a shot of optimism after BlackRock files for a spot Bitcoin ETF in the US. Of course, the FCC has resisted allowing

such funds in the past. But the question this time is whether it'll be different with a bid from the world's biggest asset manager. Joining us to talk more about this is Bloomberg Sonali Basak.

Matt, first, our huge vote of confidence. When you look at BlackRock and its ability to try to do this after dozens of companies have come forward and tried to create a Bitcoin ETF with no avail from the S.E.C. and an approval for the process. We know grayscale has sued in this regard, trying to get there a conversion of BTC into an ETF. So what's different when it comes to

BlackRock? One thing is a surveillance sharing agreement when it comes to NASDAQ and the ability to really monitor what's going on with this ETF in real time. Another thing that is really interesting is the custodians themselves, because not only do you have Bank of New York Mellon that you're looking at as one of the custodians here when you think about the cash holdings, but Coinbase as well when it comes to the Bitcoin holdings. So you have another vote of confidence, not just in Bitcoin, but in Coinbase. Also, Matt, really just days after he saw the S.E.C. see Coinbase for another matter when it comes to the crypto world and the listing of certain assets. So this would be large for Bitcoin,

given how many people are on the sidelines that would want a spot Bitcoin ETF to gain exposure with the confidence of the likes of the NY Mellon and BlackRock behind it. Will the S.E.C. have more faith in a giant like BlackRock? When you look at what Bloomberg intelligence is estimating, they expect kind of a 50 50 chance of approval by the end of the year and even more so when you think beyond this year alone. And then what would the implications for price prices actually be shown all should we see this happen, which of course, is no guarantee. Yeah, no guarantee at all given the stance the FCC has had so far when it comes to Bitcoin E.T. apps. But again, BlackRock is another game in

town. So do they change the equation here with how many advisor assets are on the sidelines here? You would imagine that it could really encourage a lot more people to get in with a trusted really retirement provider, an ETF provider here like BlackRock. There's a sense that it will encourage more people to come in. But with the uncertainty, you don't see that massive price movement right now. And again, we're still talking about the

coin here. We're not talking about all these other types of crypto assets that are still out there that are drawing more scrutiny from the S.E.C., of course. And I'm sure you'll talk about it a lot. There's ether that there's a large question around as well when the S.E.C.

will handle how they treat either and Bitcoin as assets relative to a lot of the other things we're seeing out there. All right. Ali, thanks very much. Nellie Basic, they're talking to us about the potential for Bitcoin ETF. Joining us to talk more about the business of crypto is Brett Harrison. He is architect, financial technologies founder and CEO. And, of course, he's a former president

of FTSE X. Before we get to anything involving the latter, Brett, I want to talk about architect, because I noticed in your press release from April that you guys are already talking about GDP, T4 and using A.I. in crypto before, you know, we had the big blow up in prices. How would you integrate chat CBT or GP

T4 into or how do you integrate it into your product? It's a part of the goal of architect is to give institutional gray technology not just to trading institutions like hedge fund trading firms. Managers, but also to sophisticated individual investors. And one of the thing that digital assets has allowed for individual investors to be able to do is to be able to access programmatically exchanges a lot more easily. Well, part of that comes with the ability to write sophisticated strategy strategies that can do market making, that can do arbitrage between exchanges. And we think that we can greatly lower

the barrier to entry to writing those kinds of strategies by using natural language prompts. For example, be able to arbitrage the price of this coin between these two exchanges and have to be able to actually create code for you on the fly using our internal API ISE and make it just much easier to be able to be a sophisticated trader in these markets. So even if a guy is a killer app for your exchange for your business, you've still got to get customers to come and use it. Has has has your business been tainted at all by your involvement in FTSE? I mean, when you talk to new customers, do they say, hey, we got to deal with this question and get it out of the way first? No. I mean, long since, you know, talk I'm

talking about RTX, really. I mean, first of all, they look at the, you know, the composition of our team. We have people from X Jain Street, from DCC, from RBC. We've put together a really stellar

group of people who have this long experience in the financial services sector. Secondly, you know, we are a pure software business. We're not taking customer funds. We're not executing trades on our customers behalf. We take a security first approach to building software that works in itself, hosted fashion on people's own hardware. So you can get direct access to

exchanges, not just digital asset exchanges, but also to regulate derivatives exchanges like the CMB. And so we're trying to take a pan acid approach using all of these sort of skills and know how that we've developed over our combined decades of experience in this industry. On the subject of exchanges, Brett, and it's Caylee in Washington, obviously one of them, Coinbase has now been sued by the S.E.C.

and I'm wondering how that lawsuit or the one against finance may ultimately affect your business. So right now, because of all of the regulatory uncertainty, we're seeing a real turning point for exchanges, a bifurcation of liquidity into what I'm going to see call ISE like the heavily regulated space, like derivatives under the CFTC at the CMA, Bitcoin, ether futures and options, as well as the very unregulated space of non U.S. exchanges that combine spot and crypto into one sort of vertical hearing model. And both of these are going to continue to develop and grow over the next coming years. I think it's interesting seeing what's

happened with the S.E.C. in Coinbase. I think if the goal is to create regulatory clarity, this is sort certainly going to be a long, expensive path both in terms of time and money to go through the litigation. I think with all the pushback from the industry trying to get clarity, trying to make it possible for S.E.C.

registrars to be able to operate within the rules, to be able to list and to execute and custodian different digital assets, I think hopefully we'll see a more incremental approach from the S.E.C. and the CFTC over the coming years. So we don't have to wait just for litigation to be able to get that clarity.

In the meantime, though, how optimistic are you on the outlook for crypto in the US specifically, or do you also find yourself needing to look abroad? We are looking globally. I mean, we see firms that are participating in the institutional trading of crypto in the US and of course, in places in Asia and in Europe. In the US, there are still very high institutional confidence. So this is a it's an asset to trade

that's going to continue to grow. Obviously, we saw EDI ex launch today. There's going to be different approaches to the trading of crypto. There is CBO digital. There's NASDAQ entering the game with custody and possibly eventually an exchange as well. So there's going to be this or a traditional approach to crypto where you have separate matching and clearing in ISE or separated clearing for settlement model and then you're going to see exchanges like Coinbase continue to exist and fight and grow in the more integrated approach for people can combine trading with more of the utility aspects of digital assets such as staking and lending and different things like that. Speaking of custody, I noticed ADX is launching, which is an exchange backed by Citadel, Fidelity and Schwab, and they're a non-custodial exchange.

So they just fertility facilitate the transfer, but they don't ever hold the assets. Do you think that's going to be a leading way forward? I do it in a couple of different ways. There is this or a traditional model where you have a separate clearing entity that's facilitating the final clearing and the movements of money and funds between different customers. There's also a number of startup

exchanges that are coming to the fore now that are combining off chain matching similar to the way that ADX is doing the way that NASDAQ would do. But on chain settlement and clearing, where they're combining kind of the best of the centralized and decentralized exchange world. And I think you're going to see those kinds of models appear as well to compete with the more traditional models, the way that EDI acts or attrition looks. Exchange like NASDAQ or CMU might offer you shift your business maybe more towards, you know, taking a. Crypto perspective on a trad fi business model, I mean, can't you use the block chain to help old banks trade assets in a faster and more efficient way? Yes. Our view at Architect is that we're preparing for a world in which the lines between traditional and digital assets continue to blur. Whether that's banks that are using

private block change to settle, you know, tens if not hundreds of millions dollars of repos every day to digital assets being able to wrap real world assets or it's a token ISE securities. We want to make sure that customers can trade seamlessly to every kind of exchange model from the most traditional to the most decentralized, all from one single interface in order management system. And so that's exactly why we started this company in the first place. And Brett, final question, as you pursue that vision, are more fund raising plans in your future? Absolutely. You know, we've raised a really great round back in January from some of our wonderful investors like Coinbase and Circle, S.V. Angel Motivate and the Salt Funds.

But we're all, of course, going to consider opportunities in the future, especially as we look to build out regulated entities underneath the architect umbrella. But it does run to the CFTC or the FCC or both. We're going to look to probably expand our investor set and raise funds in the future. Brett, thanks so much for coming and really appreciate your time. Brett Harrison there from Architect Financial Technologies now. Coming up, former FCC attorney Tom Gorman on the regulatory impact on crypto is Coinbase and finance and others face charges from the S.E.C..

And can digital asset firms find a home in the US? We'll get the latest findings from our Bloomberg Intelligence Survey next. Plus, to access all the latest data and news on crypto. Check out. See our YPF go on the terminal.

This is Bloomberg. This is Bloomberg Crypto, I'm Kailey Leinz in Washington with Matt Miller in New York. Well, from the lack of regulatory clarity to the latest crackdown on major industry players, the crypto space has seen increasing headwinds in recent years. So will the U.S. be able to keep crypto firms on its soil before it gets too late to get the latest? Expectations. Bloomberg Intelligence has conducted a

survey with analysts and traders around the world. And we'll now bring in the author of that, Nathan Dean. For more, he is here with me in Washington. So you talked to fifty three different people from the end of May to the beginning of June. What did they say about the prospects of

the U.S. becoming a friendly place or hospitable one for this industry? So, you know, we asked that question. We had a lovely gentleman from New York told me that you should rename. This is the water wet survey, because 96 percent of our respondents felt the U.S. was not a hospitable place. Top two reasons were being the lack of

regulatory clarity and a heightened aggressive enforcement action to sort of go hand-in-hand. But one of the more interesting things is that when we asked, OK, if the U.S. isn't the place to go, where do you want to go? Well, then the consensus was all over the place. You know, Europe was the number one. But we also had lots of people talking about UAE, Hong Kong, Singapore, pretty much every jurisdiction ranked higher than the United States other than Canada. And that's just recently, because I think some of the Canadian regulatory authorities have started cracking down a little bit more on their licensing as well. And of course, there's the question of whether ultimately the regulatory authorities are going to get a talking to or get told what to do by Congress down the road on Capitol Hill. But it doesn't seem like people are that

optimistic about that prospect either. Yeah, exactly. I mean, 75 percent of our respondents did not think that the United States was going to be able to pass or at least Congress wouldn't be able to pass a regulatory framework before the 2024 elections. Please note that this survey, the McHenry Thompson GOP bill, which is a very comprehensive bill, came out during the middle of the survey. So we could have seen attitudes change a little bit.

But you know, that skepticism is out there amongst the crypto industry. And I think a reason why a lot of people want to go to Europe, I'm still surprised that so many people thought it would be possible. I mean, more than 10 percent of respondents thought there was going to be a comprehensive legislation on crypto passed before the end of this year.

That boggles the mind. In terms of who should oversee crypto, I thought it was very interesting that most of the respondents are the majority of the respondents said the CFTC should take over rather than the S.E.C.. Yeah, well, you know, the CFTC falls what's known as principles based regulation. So currently if I'm seeing me or ISE and I'm under the CFTC, I have to create my own rule books and so forth in order to meet the principal of the regulation. That doesn't exactly happen over at the S.E.C. it's more of crossing the T's and

dotting the I's. You know, we also saw a lot of the advocates say they wanted a new federal regulator devoted to crypto. We haven't really heard that much in the policy space in 2023.

The idea is pretty much never gonna happen. But also, I just wanted to throw out there this idea of a self-regulatory organization only got about eleven point three percent of our respondents. But this idea of an SRO is something like the National Futures Association or FINRA is something that, you know, I think could potentially get traction over the next couple years. But again, this is if Congress is going to do something and we're ascertaining a 40 percent chance that something gets done before the election. All right.

Nathan Dean of Bloomberg Intelligence. Fascinating survey. Thank you so much for joining us to talk about it. And of course, you can find that on your terminal B. I lost L A W ASCO is the function you'll use for that.

Now to continue this regulatory conversation, joining us is Tom Gorman, a partner at Dorsey and Whitney and author of the blog FTSE Actions dot com. He is also a former practicing attorney at the FCC. So, Tom, great to have you to join us and give us your perspective today. We appreciate your time. We obviously have seen a litany of enforcement actions coming from the FCC. Is there any sense that Gary Gensler will slow down on this? And what do you think he could target next? Well, thank you for having me.

No, I think Gary has a very well laid out agenda and people who aren't listening to him are going to probably regret that. The fact of the matter is, Gary said just a couple of days ago that he's had dozens of meetings with people. He lays out that. He lays out the rules for people and then they go out and they basically give lip service to him. They actually said that. And whether there are enforcement complaints about it, we could or against whether the exchanges. And there's no reason to do that. The rules are very clear. Despite what everybody says, the rules have been on the books for ever. Most of them emanate from a 1946 Supreme

Court case. That thing's been in books for years. Everybody knows what it says. Yeah. So you're referring, of course, to the Howey test.

And we're also talking about securities law that is from the 1930s. I mean, these are decades and decades old, to your point. And yet we're talking about digital assets that are relatively more new. So I'm just wondering why you think these cases are winnable for the S.E.C.,

that the definition of securities is going to be found to still apply? Well, I think these cases are very winnable. They're really very cut and dry. The how we rules are very simple. You take them, you take people's money, you pull it someplace, you promise them profits from the pooling process and you give it back. It's the security people who've been working in this space for years know this. And most some of the bigger platforms now are actually just coming out. And they're telling people, yes, we're

really doing that. We're really doing that, except they're not corrupt or wants to be treated differently. I don't know why they should. It's a different kind of a security. But securities laws have been designed for decades to cover whatever variations come out. Every time you every time you do a

variation of all these things, you don't want to press a whole new statute. And that's what they want. They want something that's different for them. And the problem I think the problem that Gensler is addressing, I think he's right, is if you change, if what they want to do is change it so that they give less information, you get less investor protection. And the consumers who are trusting their

money to these people for because they think it's new, because they think it's sexy, because whatever they think they don't necessarily get the full picture of what they're doing. And if they don't, then they're not making good judgments. And that's what the securities laws are about. They're about protecting those kinds of investments. So to me, a lot of these coins seem more like commodities than securities. Certainly that's the case with Bitcoin. Right. And the S.E.C.

continually denies Bitcoin ETF. Why do you think that is what the coins acts of? The coin in and of themselves actually are commodities and they are regulated both mostly for fraud by the CFTC. But once you go beyond just the coin itself and you really create what becomes of security using the tests that I talked about before, you're in a different room. And once you get into that different realm, you've got different obligations. And that's the difference. If if the crypto people want to just stay away from the S.E.C., they can take coins, they can sell the coins as long

as they don't securitize them. And they know the difference between the securitized coin and those securitized coin, which is not that difficult to figure out. All right. But in the case of Bitcoin, even Gensler himself has said it's not a security and it's a commodity. We have a lot of ETF that are made up of commodities. You know, we trade Bitcoin back and forth all day long. It would be nice to have that wrapper on

it. Why do you think they're resistant or do you think that BlackRock will be successful in getting through its application to create a Bitcoin ETF? I think if somebody has a chance and maybe BlackRock, they have a very sophisticated practice. The problem in the past and there are leathers that have been issued by the various divisions of the staff of the S.E.C. is the volatility is such that there that they have a real concern about settling these things at the end of the day, because a lot of them are set up so that they still each day and you've got the Mark Gurman to the market if in fact they're too volatile to do that, then you can't really do that.

But if it's the product that BlackRock is putting out can contain, that volatility is such that you can sell these things up every day, decide what the B is. So the investors know what the value they're there. Coins are. Then they've then they might have a shot through. If they do, they'll be the first one, but they're going to have to solve that problem. Indeed.

Well, we'll all wait and see. Thank you so much for joining us today, Tom Gorman of Dawson and Whitney. We appreciate your time. Now coming up, a new crypto exchange backed by Citadel, Fidelity and Charles Schwab goes live today. We'll have more on that up next. This is Bloomberg. This is Bloomberg Quicktake, I'm Kailey Leinz in Washington with Matt Miller in New York. Now to some crypto stories that caught our attention this week, including ADX Markets, a new crypto exchange backed by firms like Citadel, Fidelity and Charles Schwab.

Is life starting today? Unlike Coinbase and finance, the institutional only exchange offers a non-custodial model, meaning it doesn't hold clients digital assets during trading. Instead, it is working with a third party custodian. According to the CEO, Deutsche Bank has applied for a digital asset license to hold crypto. It's part of the bank's wider strategy to increase profits from fees. The bank has been slowly moving into digital asset custody since 2020, and the EU is delaying its legislation for a digital euro. According to COIN Desk, the move comes after a draft bill was recently leaked to the public.

It was originally planned to be published on July 28. So maybe a pause for now on that digital euro project. And who knows, Matt, if the digital dollar is coming anytime soon? Yeah, well, I don't think a digital dollar is coming anytime soon and certainly not from U.S. authorities. But it's very interesting that Europe has really taken the lead in this already because they have issued bonds, for example, on the block chain. Yeah, it's a really good point. And one we will continue to follow, including coming up next week here on Bloomberg.

Crypto Galaxy's head of research, Alex Thorne, will be joining us next Tuesday, 1:00 p.m. Eastern Time. This is Bloomberg.

2023-06-21 16:05

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