What Goes UpThe collapse of Sam Bankman-Fried’s FTX cryptocurrency empire was accelerated when the head of a rival exchange announced he was planning to dump holdings of something called FTT—a token created by FTX that afforded some perks to investors who owned it. At one point, the token was one of the 10 biggest coins in the market, which would have made it eligible for the Bitwise 10 Crypto Index Fund.
However, Bitwise never added FTT to the fund. Matt Hougan, chief investment officer of Bitwise Asset Management, joined the What Goes Up podcast to discuss the damage caused by the implosion of FTX and explained why the fund snubbed its coin. “We look at assets that are at undue risk of being found in violation of federal securities laws,” he said. “FTT fell into that framework because we thought it was likely, or possible, to be deemed a security by regulators. And it was largely internally controlled, in our view.”
Hello, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Reagan. I'm a senior editor at Bloomberg. I'm Moldona hi across asset reporter with Bloomberg, And this week on the show, well, they've been calling this year's bear market and cryptocurrencies a crypto winter, but it's starting to look more like a crypto ie age. Hat tip to Voldana for that turn of phrase. But the implosion of the ft X exchanges and the rest of Sam bankman Fried's digital asset empire is reverberating throughout the industry. Many many billions of dollars have been evaporated, jobs have been lost, and institutions and retail investors of well, they've been left holding the bag. So where's all this heading. We'll get into it with the chief investment officer of a crypto focused set manager, But first the I've I got to ask you. Do you happen to own a pair of birken Stocks? No? I think Okay, this is an unpopular opinion. I think they're so ugly. Really yeah, all my friends have them. I think they're absolutely heinous. I'm sorry to all my friends. Really yeah, why you have. I've got a pair. I prefer to wear them with socks, which is that also an unpopular opinion? Which is a very unpopular opinion. Yeah, my wife gives me a lot of grief over that. But this is kind of a tease for my craziest thing of the week, And in fact, I feel like a lot of our crazy things end up revolving around footwear for some reason. I don't know. I'm just picturing you with socks and beat up birken stocks going to like a soccer game or something. Yeah, I'm not going to ask our guests how he feels about birkin stocks, but I do want to introduce him. I heard I'm snickering at at this little conversation here, Matt Hogan. He's the ce io at bit Wise. Thank you so much for joining us in, for coming into the studio, thanks for having me. And I'm short birkenstocks as well. Thank god, I have a feeling. I had a feeling, but I didn't want to venture this. Okay, tell us just to start out, tell us about bit wise and how you guys have been affected over the last couple of weeks in what honestly has felt like ten years of my lifetime. It does feel like ten years. So bit Wise is a specialist crypto asset manager. Crypto is all that we do. We serve primarily professional investors, financial advisors, family offices, and institutions. We've been in the market since so this is not our first bear marketing crypto, and we are best known for creating the world's first crypto index fund, the bit Wise ten, which holds the ten largest crypto assets waited by market cap. People have referred to it as the SMP five hundred of crypto. In the scale of crypto asset managers were on the very conservative side long term investors uh in in diversified index funds, and that's what we've been doing. And about the last couple of weeks and how that's affected your funds and your operations and everything that's been going on has been just Yeah, the last couple of weeks have been exhausting. I think everyone in the crypto industry would agree with that. As an asset manager, we did not trade on ft X. We actually never or almost never trade on exchanges. We did not custody assets with ft X, so we have no losses associated with that. But of course we're part of this broader crypto industry and it's had huge effects on that market. But I wanted to get into that idea of custody a little bit because it's so such an important topic. Now. You know, everyone's talking about not your keys, not your coins. You know, if you don't actually have the crypto blockchain pass keys, everyone's pointing the finger looking at everyone else, wondering, you know, sort of where the next domino is going to fall, and if you know, whoever actually has the custody of their coins will be next. From my understanding, you guys custody with coin base, right, and that. Yeah, we custody different funds with different custodians. So our flagship fund is custoded with coin based Institutional, our Bitcoin fund is custodyed with Fidelity. We have another fund that's custodied with Anchorage, which is a federally chartered digital bank. The thing that connects all three of them, and the way I think about this custody landscape is that they're all US domiciled, regulated institutions with insurance in place on their custody. If you think about the various ways that crypto investors can custody assets. It's kind of like a barbell. At one end of the barbell is what you mentioned, where you hold your crypto keys directly, individually in a safety deposit box on a Ledger or whatever. On the other end of the spectrum is what bit wise does working with some of the largest institutions in the crypto space, firms like Fidelity, firms like coin Base, that have been in the market, you know, for ten years, it's publicly traded entity, and then there's this fuzzy middle, and the fuzzy middle is where all the bad things have been. What the fuzzy middle looks like is centralized institutions that are not regulated and often offshore, and that is not a place you should custody crypto assets. Either go toward regulated, US domiciled established institutions or yes, if you have great security hygiene, do it yourself. I would argue that the regulated side of the spectrum is safer for the vast majority of investors. But you can be on either end of the barbel. You just can't be in this fuzzy middle. It's where good crypto ideas go to die, right, you know, and Matt, I know in you know, when it comes to equity index funds. A lot of times, the way they sort of keep costs down and bringing a little electure revenue is to allow the securities they hold to be loaned out to short sellers, basically through through various prickleges. I wonder is that it play at all with the custody of your crypto, Is anyone sort of lending it out? So we never lend out our our crypto assets that are under custody for investors. We're one of the most conservative crypto asset managers in the world, which is frustrating during bowl markets but feels pretty good right now. There are other asset managers that engage in what you describe what amounts to securities lending lending out customer assets, but we consider that too risky and also not what investors want. If you think about what investors who are allocating to crypto want, they're betting that bitcoin is worth half a million or a million dollars. They're looking for asymmetric upside. We don't understand why someone would try to earn an extra one or two or three percent yield by lending out their bitcoin en route to that. Given the risks that are associated with it. So we don't trade on exchanges, we don't lend out our assets. We buy assets and put them in custody immediately and let them sit there. And I want to ask you just a bit more on this idea of cold charge, because so many people have been coming to me over the last two weeks saying like, this is what people have should have been doing all along to safeguard their assets, etcetera, etcetera. But does that not if everybody has their assets in cold storage? Does it not sort of suck away some of the fun from crypto, suck away some of the fun because it's so boring. Yeah, you use the word boring. It wasn't doesn't suck away some of the fun. I don't know if the past few weeks have been any fun build on. I think most investor would say no. What it does is recognize what crypto is as an investment, which is this is an early stage, disruptive nasset technology that exists in a gray regulatory framework, and people who are allocating to it, in my view, should be making five or ten year bets. And if you want to make a five or ten year bet, you do want to put this crypto in a vault and not look at it. And that's what cold storage is all about. You know. Keeping it on exchange where you can day trade and eight evolve asset is maybe fun for some people, but I think it's a recipe for high risk, right you know, Man, I kind of fell down the rabbit hole on this topic just aut of curiosity. And one of my weird hobbies is I love reading the risk factors of various public companies. Tells you a little bit about what a nerd I am. But you know, I'm reading coin bases risk factors about custody and their whole thing is we're doing. I I can actually read them right right for you. Here we we placed great importance on safeguard and crypto assets we custody and keeping them quote bankruptcy remote from our our general creditors. The problem though, is that and they say this here, we believe that a court would not treat custodied crypto assets as part of our general estate, meaning you know, they're talking about a hypothetical bankruptcy here. And again this is risk factors where you you have to disclose the works possible scenario. You know, no no one's you know, saying coin bases is not big of trouble. But they say, however, due to the novelty of crypto assets, courts have not yet considered this type of treatment for custody crypto assets. But I guess the hope really here is that these courts would decide, uh, you know, creditors cannot get their hands on custody assets. I mean, it seems to me like that's a pretty good reasonable thing to assume. But how are you thinking about that idea? Yeah, well, first I should say, I'm never going to shake the image of you and birkenstocks and fleece stocks reading risk factors late at night. That's now every time I hear your voice, that's what I'm going to see. Yeah, that's it. Yeah, that's me. It's a great question and one that we think about a lot. You know. I do think it points to something in crypto that's really important, which is that we need greater clarity from a regulatory perspective so that the best actors in the space can build on a strong foundation. We agree with coin bases interpretation of that that it's highly unlikely in the event of a corporate bankruptcy that they would reach across to customer deposit assets. We need regulatory clarity that makes this exquisitely clear for all the regulated custodians in the space. We think if you look at trust charter law and you look at national bank account charter law, we view coin based as a very sound, very solid institution in place to custody crypto. It's also a publicly traded company with audited financials, which you can see in a strong balance sheet. But you point out that there is a need in crypto for greater regulatory clarity. I think we're going to get that on an accelerated freight train basis as a result of FTX, and I actually think that's going to be great for crypto. I think that is going to sew the seeds for the next bull marketing crypto. But you're absolutely right, you're taking on lots of risk in crypto. There's no free lunch in investing. Crypto is the best performing asset class in the world over the last three years, five years, and ten years. It's up over a hundred thousand percent. Even with the current draw down. You don't get those kind of returns without risk. There is still risk in this market, which to my mind mean there is still the opportunity for great returns, but you will need to work with glow gold plated providers that are very conservative the space to to tap into those. Yeah, and you know, Matt, the reason why I bring this up and was thinking about it is I look at the you know, you look at the bit Wise ten crypto index fund. UH, you know about million in assets. It holds the ten biggest cryptos, basically a passive index fund UH in the crypto world. The net asset value is like fifteen bucks and change per share. Uh. The share prices less than seven bucks, So we're talking about sort of a fifty five discount to the actual assets that you're holding in that fund. Why is that? Do you think? Is it? Is it the exact things we've just been talking about, basically that people are just worried about where the next domino is gonna gonna hit? Well, I should start by saying we have three different ways that investors could gain access to the bit Wise ten, depending on whether they're credited, whether they work with advisors, or whether they're buying retail. One way is through a private placement for credited investors that's available Bowle with with access you know, on a weekly basis at NAV, so no premium and discount. Another way is a separately managed account that a financial advisor can set up that holds the assets directly held at NAV. And the third way is the one that you mentioned, which is b I t W, which is a publicly traded over the counter O t c q X traded security. Those securities operate given the regulatory limitations in the crypto space like closed end funds, which means they can trade at premiums and discounts, and given the volatility of the crypto market, not surprisingly they traded larger premiums and discounts than you would say, see in a MUNI bond closed end e t F. So what that discount reflects is, you know, more more sellers than buyers over a period of time. What we've stated publicly to investors and what I hope the long term outcome is is once we're allowed to, we will convert this fund to an e t F, which is likely to you know, largely, if not entirely, eliminate that discount. The sec is not allowed there to be a crypto et F. I think that's another good example of regulators not helping investors by pushing forward regulatory clarity. Investors want to gain access to bitcoin, they want to gain access to other crypto assets. If they could do it in an e t F, there wouldn't be this question of premiums and discounts. Asset managers like bit wise are trying to help investors gain exposure to the space within the regulatory limitations we face, and so we have these O t c q X traded securities that can trade at premiums and discounts. I don't know, it's a complex answer. I hope it helped, but that's what's going on there. So you sent some notes before the podcast and it says it holds the largest and digital assets, but it's screened out f t T even when that token, which is the doomed f t X utility token, um when it would have classified for inclusion. So can you tell us about that process, because it sounds like you purposefully and cognizantly. Yeah, I I really appreciate that question, and I do think in a frontier market like crypto, you can't have a simple index fund. You need to have lots of rules that screen out assets. If you went to coin market cap dot com and looked at their list of crypto assets by market cap, you'd have to get to asset about twenty one or twenty two before you found the tenth asset in our funds. So we're screening out a large number of assets. We screened out ft T, We screened out Luna. We've never held dose coin, we don't hold tron. There are a variety of screens that protect us from those examples. We look at the fundamental token omics of an asset. That's what protected us from Luna. We saw the potential for the death spiral that claimed that quote unquote stable coin. We look at assets that are at undue risk of being found in violation of federal securities laws. F t T fell into that framework because we thought it was likely or possible to be deemed a security by regulators. It was it was largely internally control old. In our view, it could potentially meet the Howie test, and so we won't hold it in our fund. There are other screens as well that that are really important screens around liquidity. I'll put on my index geek hat I used to edit the Journal of Indexes which is the world's most boring publication probably with absolutely absolutely. I used to check check Bogol and I I interviewed him a few times and and he was a big He could quote chapter and verse of that from Yes he was he was. He was a big fan and and and wrote some articles for us, which was amazing. We free flow adjust crypto assets, which means we don't count in the market cap of an asset the assets that are held by insiders. And that's important because you're hearing things around FTX about Serum about these other assets that they were counting the full market cap of the maps. Those would never enter our index because we will only hold the publicly traded assets, which means they're publicly traded. Market cap up it was like eighty eight millions. So yeah, we were fortunate to have these screens in place. We've been doing it for five years. We've we've avoided a number of blow ups. That doesn't mean we'll avoid all of them in the future, but we do try our best. No doge coin, what a buzz kill, Matt, Come on, that was your your no dog meme screen? I take it, or although that that was that was a case where the float was sort of half held in in some burn wallet too, right, or the total market cap it would half held in a burn wallet. It also piggybacks on other assets proof of work, which introduces some security risks into it. You know, we have a ten person research team. It takes that much effort to screen all these assets and maintain what from the outside looks like just the top ten ten assets. We put a lot of work into it. And yeah, so no doge coin. We think it had a fundamental security flaw. It also had that that internal control and I'm not sure it was engaged in true price discovery. There were so many outstanding coins in such a limited trading volume that I think it had that risk too. You know, man, I wanted to ask you about a lot of the pain in the industry right now is centered on these sort of high yield deposit accounts where you know, you give the Winklevoss twins your coins and you you collect out on a seven eight percent and they loaded out to uh someone else where. Do you see that whole sort of both centralized and decentralized high yield component of crypto going Because I feel like it really is, really, really helped bring a lot of assets, a lot of attention into the market, a lot of interest. And now it seems like the whole notion of that concept of getting a really high yield and crypto seems to be questionable whether that business model can continue to exist. How are you looking at that? Yeah, I think that business model is going to go very quiet and then emerge as a much smaller, much more regulated, much more institutional model. I would actually argue that the yields weren't high enough to reflect the underlying risks. Um. You know, there is no free lunch. If you were looking at doing what amounts to securities lending of a bitcoin asset or an ethereum asset and expecting to get, you know, a yield on those working with unregulated counterparties with an E D E voll asset, the yield should have been very, very high because you were taking on a huge amount of risk. What turned out in those examples is, uh, those were bad loans. The collateral didn't match up. I think some of it's gonna migrate to D five platforms. It's worth noting D five platforms work perfectly through this, which is really remarkable. There were no losses on things like A A and other D five platforms, and then there's going to be, of course an institutional prime brokerage, but people will only work with regulated entities. I don't think retail investors should be leaning out their crypto trying to get five percent yields anyway. I really don't think that's the bet most people want to make. People thought it was a free lunch, they thought it was riskless. It turned out they were wrong. Um, and so I think that that retail focused lending is just going to go away. And what about the DEFY space, because this is the other thing that I keep hearing that Defy is going to benefit amidst all this because when we think of f t X and coin Base, etcetera, those are more centralized places versus Defy maybe coming out possibly stronger from it, or what is your view? Definitely true, It's definitely true. I go back to that Barbell image. Regulated centralized institutions that are trustworthy will benefit. Coin Base will pick up share. I think it's the most important exchange in the world. And defy exchanges, lending platforms, etcetera. Where you can trust the code and don't have to trust you know Sam Bankman freed with his crazy hair, wearing shorts and berken stocks. Almost certainly now he now he wears he wears grungey old new balances. Don't you are right? You are right? There's a funny, funny meme about that. No. I think Defy will benefit tremendously. There's there is a argument to make that's uncomfortable to make right now, that the flaw of f t X was that it wasn't crypto enough. That rings hollow in the current market because the market is crashing and people are unable to disambiguate between good crypto and bad crypto. But it's subjectively true if investors did hold their own keys, if those loans were really collateralized and overcollateralized in a way people could see, you wouldn't have these blow ups. I think if you look a year from now, you're going to see many investors who favor doing it internally migrate to DEFY, and other investors the kind of investors that bit wise serves migrating to well regulated centralized institutions. I think the question I have though, is that this notion of defied decentralized exchanges and finances it's a great concept, but in practice it often seems like, well, there is some sort of central party that is a very big player in it. And I think Tera Lune is a good example of that. You know, technically a defied project, but do quan and and Terraform Labs were basically in control of it. Um so when it blew up up, you know, there was no halting of withdrawals there were there was no bankruptcy. But you know, you you you've got your coins out at sort of pennies on the dollar of what you they were a week ago. Um, So how do you think about that? You know, is it are we really at the point where these things are everything is truly defy or is there still sort of that big player risk in a lot of these projects. I think if you look at the better projects, there is relatively low big player risk, but not zero. I think you're right to point out that in most projects there is still an obvious big player that has significant control or a worry that that is true. Even even the best projects need to continue to migrate down that platform. But if you look at something like unit Swap, you know, I think Hayden Adams could go on vacation in in UH for for a year, and the team at UNI Swap Labs could go away and un swap would still be processing almost the same volume of transactions as coin base, which is a really remarkable thing. When you think about an and T with no employees, no offices, no no centralized entity that's matching coin based on a volume perspective, I think that's pretty incredible. Um. But absolutely the DeFi space needs to get more decentralized. I think there is a centrifugal force from the fallout of FTX that is going to push that people are going to insist on that happening. In the case of Luna, that was just an up, a failed design from the start. If you've been in crypto, you've seen algorithmic stable coins come and they always go. They just don't work, They will never work, and so I think that one was one where you could you could have trusted the code and if you thought about the code long enough, you knew it was going to end up at zero. But but you're right, DEFY needs to get more Defy it needs to be truly decentralized so that we don't have these issues of trust. And you mentioned your clients, and I'm wondering, like, who is buying crypto products right now? Are people buying or is it mostly so absolutely people are buying at least from the institutions we serve. So again, we serve prime early financial advisors, family offices, and institutions. Most financial advisors today have zero exposure to crypto, and they have clients who want exposure in a trustworthy format. Some of these clients were doing it on their own right. Coin Base has more customers than e Trade, Charles Schwab, tdum merit Trade, and interactive brokers combined, and so advisors are now helping those those customers move into a more sound format. We've had very low outflows and continued significant inflows into the space. One of the reasons for that the reason that it may seem counterintuitive, but I think it makes sense if you think about it. If you're a professional investor, if you're a financial advisor or family office, and you're allocating to crypto, two things are true. One, you're doing it appropriately, which means you have a small percentage of your portfolio, and crypto one to five of your portfolio. If you have one percent of your portfolio and it goes to zero, you're down one percent. Well, the SPID goes down one or two percent on a normal day. Portfolio sizing means they don't have to panic and sell. The other reason is that those investors have to have very high conviction to allocate in the first place. It's not like choosing to allocate to the S and P five hundred, where you may be convicted. You have to be confident that this is a good long term bet. And so what we've experienced in this bear market, and what we experienced in is net inflows from these professional investors. Uh. You know, one fund stat the number of clients that bit wise serves has doubled in the past year. Uh. And that's that's a it's a big number. And I want to ask you about the crypto E, T, F ETP space in general, because we've seen some liquidations recently as well. I'm wondering if you think the space was oversaturated with products. Launches have dwindled. I think we saw I mean a bunch in the first half of the year, actually, but since the third quarter, I think they've only been for teen or fifteen or so. So are you expecting more liquidations in the space in general, and and did we have too much do you mean on on bitcoin futures et fs, on crypto equity e t f yes, all of them, yeah, across the space, and sorry not just in New US, I mean yeah. Uh you know, look there there was a giant bowl marketing crypto in one and that attracted a lot of tourist companies to the space. That we're launching products, trying to seize on that momentum, and they're now being filtered out. I suspect there'll be more crypto et fs in five years than there are today. But yes, during this bear market, you'll see a winnowing, as you would in any other asset class. I think that's completely normal. Um. But you know, long term, e t f s are going to be one of the primary ways that investors gain access to crypto, and I suspect long term you'll see significant flows into the into the space, you know, Matt. I think one of the issues that really maybe is not being talked about enough from the ft X blow up is this notion that in crypto, you actually your balance is held by the exchange itself, whereas you know inequities, Uh, you know, it's in a brokerage account. The n y SC or NASDAC never actually holds your assets. They just match up the buyers and sellers. Or whether you're talking about a dark pool or electronic market maker whatever. Is that something you know that needs to be changed in crypto The notion that these exchanges are also basically your broker and that they have control of your assets. Yes, yes, yes, is the answer. There should be a separation of custody and exchange. Finance has existed for hundreds of years. We've built up many norms for very good reasons, and you only disrupt those norms, you know, very carefully and significant peril. The reason we've had a separation of exchange and custody is exactly the reason that we saw on FTX. You don't want to commingle those pools. That's the reason why bit wise doesn't keep assets on exchanges, settles direct to our custodian and just leaves them there. I think that's an example of the kind of UH regulatory clarity that we will get in the next twelve months, and that will create a stronger foundation for crypto to grow in the future. But there are many, many examples in the space where we need that kind of push forward, and I think we'll get there. But it's a great point. Another thing that it's not gone unnoticed, but it just hasn't gotten as much attention recently, just because the news flow has been so heavy, is that bitcoin did sell off. But I keep seeing all these notes where people are saying, I expect a bitcoin to be at like ten thousand or like thirteen thousand at this point versus it being around sixteen or just like slightly below seventeen thousands. Why do you think that is? It's incredible. It's like the honey Badger of risk assets. It doesn't care about what's going on out there in an asset class that's a trillion dollars and the flagship asset is down. You know, it's absolutely incredible. One reason for that is that all the people who would sell have have have not all of them, many of them have already left. This is not the first bad piece of news this year. Remember we were in a risk off regime that took crypto down significantly, and then we had Luna and three a C and Celsius and block Fi and Voyager, and it took crypto down more. And now we have ft X, there's a lot of bad news, there's a lot of uncertainty and doubt. If you look on chain at data, the percentage of investors who are holding bitcoin at a loss is at or near it's all time high. So there's max pain in the crypto market. And it may be that, at least in the short term, we've run out of sellers. That doesn't mean it can't go lower. Of course, it can go lower longer term. Investors get tired of the market. People who are watching, you know, inflation continue to print it eight percent, may not want to hold a non yielding asset. All of those things, but it is really remarkable. Um. And you know, it's worth noting crypto has had blow ups before and it's gone on to be the best performing asset class in the world. It's worth noting there's more venture capital money in crypto. It raised more money in the last eighteen months than it's in first twelve years. They're more engineers working in crypto today than at any point in the past. Um. You know, this too shall pass. This isn't the end of crypto by any means. Uh. It's a disruption, it will It's a hangover. It will take time to reset. But I think the resiliency you're seeing in bitcoin, not just Bitcoin, in Ethereum, in Maker, in many other leading assets, points to the resiliency of the space and the fact that it will be back. Matt. The other day, someone in the newsroom asked me a good question, uh that I did not have the exact answer too, so I pulled out the you know, the Irish blarney, trying to trying to figure out a good answer. You're admittedly to them, but you know, the question was, basically, bitcoin miners are under a lot of stress these days. What happens to bitcoin if that issue worsens? If miners just start unplugging their rigs and there are just you know, the economics of mining don't make as much sense for as many people as many uh mining companies. UM. And my guess was, you know, while transactions slowed down, that sort of thing, what what what do you think what would happen if that if that mining stress gets worse and worse to the point of crisis. Yeah, well, first they're going to be bitcoin miners that go out of business. There's no question about that. If you look at the marginal cost of bitcoin production by miners. It ranges from a low of around ten thousand, which means they're still extremely profitable, to things like which means it doesn't make sense to be in business. Many of them are highly levered, but not all of them. Some of them will go out of out of bankruptcy. For the Bitcoin network, it won't mean much. You know, the the difficulty adjustment happens every two weeks in bitcoin, So if a lot of miners come off over the next two weeks, it will become easier to mind bitcoin. The cost of mining will go down for the remaining miners that are in the space, So it's set up to adjust to this kind of volatility. I don't think we're anywhere close to not having enough hash power in the Bitcoin network to it not being secure. We're way over that burden. It's the most secure database in the world. So even if you know half or two thirds or three quarters of miners went out of business, there's still be enough mining power in the space to maintain the network. I don't even think you'd see transactions slow down for more than a couple of week period, but I do think there's stress in that market. I think the companies that survive will be well positioned to thrive, but you'll you'll see companies, including possibly publicly traded companies, go bankrupt under that stress in the coming days. And you mentioned recovery a couple of times, So what does recovery even look like at this point, Like, how does scripto start to recover and what does it look like? I think you mentioned six months. Yeah, I think there are three milestones the crypto investors should look for in the recovery. So first we have to get past the hangover, right, crypto investors are going to be uncomfortable jumping in until they know they're no more shoes to drop, and I think that period could take four months, six months, eight months, a year something in that zone before we're like, Okay, the credit crisis has really abated, there are no more genesis. Is there are no more block fives? Um, we've we've we've hit that bottom. The next milestone we need regulatory progress. So we need to see regulatory progress around CBD, around stable coins, around crypto exchanges. I suspect that will happen in the next year as well. We'll start to see legislation move forward that I think will be very positive for the crypto market. And then ultimately what always sparks the next bowl marketing crypto is products that people like to use. I know that sound goofy, but if you think about crypto, it's had three big Bowl markets. One was fourteen That was when bitcoin emerged. Coin based launched in twenty eleven. All of a sudden, you could buy bitcoin, big product product market fit. It went up a lot. The next one was Etherorium was created in product market fit. We found I c O s went up a lot. Regulators reset us by saying I c A s were illegal. The most recent one was DeFi n F T s and stable coins. Those words didn't exist. Now they're in the pages of the New York Times, of the Wall Street Journal, of every major media outlet. So the next real Bowl market is when we see crypto develop useful apps. I actually think the next Bowl market will be marked by apps that people use in their everyday lives that are mainstream, and for that reason, I think it will be the biggest Bowl market in crypto from a market cap perspective. But that will be the third milestone when we see new applications emerged that people are using talking about sharing with their friends and colleagues. So six months, twelve months, and then twenty four months from now, I think it'll be pretty exciting. So what what kind of apps are you thinking? You know? Is this uh metaverse stuff? Do I need to do? I need to get the goggles. I think there's so many potential applications. I don't think you need to get the goggles yet and put them on. They are fun. Yeah, you probably should get the goggles yet. The metaverse is one kind of application, you know. I think n f t s have a huge place to play in society and culture uh and and n f t s as digital property rights have an even bigger place to play. UM. I think defy could be substantially bigger. I think stable coins could be substantially bigger. I think one of the breakthroughs that will see in the next round of applications UH is individual identity on chain uh and and zero knowledge proves the ability to prove something on chain without revealing that information. A good example for investors of how that might matter. If you run I don't know, institutional funds, you have to do you have to prove that you're invest stars are accredited. In order to do that, today everyone has to disclose their brokerage statements or have their advisor a test that they are accredited. No one wants to do that with twenty different firms that they're trying to invest in, because it reveals their public information twenty different times. Well what if that could be stored on chain and you could use cryptographic functions to prove that you're accredited without revealing that underlying data. I think those are the kind of applications we're going to see in the next round. That's what I mean by real world examples. This technology of public blockchains, of cryptographic proofs has significant real world utility, and we're just at the earliest phase of unlocking it. I think you're going to see I don't know, dozens, maybe more of those applications in the next bull market. Oh good stuff, Matt, really really appreciate your time, but we can't let you go just yet. Unfortunately, I know you probably want to dodge this next thing, but it's time, Bill Donna for the craziest things we saw in markets this week. The markets have blessed us with a lot of crazy things. They really have, They really have. What do you got for us. Okay, this is from Matt Levine, So I'm quoting one of his columns from earlier this week, and it was so good. It went through the entire FTX balance sheet and everything that was going on in there. But then at the end he said, quote cryp, cryp. This is separate from ft X. Crypto dot com said it recovered almost four million in crypto acid ether from Asian exchange gate dot io after it accidentally transferred the funds to the wrong account. Not now crypto dot com. That's that's funny. So even even something like that almost want unnoticed because the rest of the newsful has been So how did the owner that wrong account? They must have They must have been living large from hot minute, they not crypto dot com. How about you, Matt? You see anything crazy this week? Pretty boring week? Had nothing going on, Pretty boring week. Uh, nothing to talk about? Yeah to two bar bells are crazy. When we talked about the world imploded in crypto and bitcoin shrugged trading at sixteen thousand, I think that's pretty crazy. Uh. The other thing, just so I'm not seen as a Pollyanna for crypto, f t T token is still trading for half a billion dollars UH in emotional market cap, and that is just nuts. I wonder why, what do you what do you think? Is there any possible reason for that? Is it, uh, some kind of squeeze or something. I don't know, I don't I don't know why did game stop trade to a million? I think it's a little bit of that and a little bit of limited supply, and people maybe can't access most of it because it's held on ft X exchange can't. It's all locked up. It's a zombie coin, right, um. But still, if you look there, it is half a billion dollars of worthless money. That's pretty good. I think that might that might take it. But I'll give you mine here this courtesy of our own Drake Bennett at Bloomberg. I'm just gonna read the first two paragraphs paragraph story, yes, because because he really wrote this pretty well. On Sunday, the auction house Julian's Auctions, which is a specialist in memorabilia, closed a bidding for a pair of used suede birknsock standals barkensock sandals not scandals that the two strap Arizona model. I didn't know there were there was more than one model. I think I have the Arizona model. The sandals don't appear to be in great shape. The best the auctioneers could say is that they quote appear intact. However, the cork and the jute footbeds also retained the imprint of their one time owner's feet. That owner was Steve Jobs, the founder of Apple Computers. So it's time to play our favorite game show, The Prices Precise built prices, right, this is not the prices, the prices percise. I'll give you one extra point of price discovery for this item that that may or may not help your answer. Six years ago, these sandals sold for two thousand dollars. So what do you suppose winning anonymous bidder paid for Steve Jobs is broken down, falling apart pair of Birkenstocks. Oh my gosh. Okay, I'm gonna go with one hundred fifty nine thousand, one fifty thousand U S. Dollars token. Alright, Matt, how about you all? I was hoping I get to play. I'm going with five hundred and thirty two. Okay, but if you're way over, you lose. I'm willing to take that risk. Okay, all right, let's see for for once the donna has taken the w on this one. Two eighteen thousand, seven hundred fifty dollars for Steve Jobs is old Birkenstocks. I have a feeling that Julian's Auctions is going to be reaching out to Matt for the next Berken sock auction, though after after they heard what he's willing a bit on these things. But think about what this is. You're buying another person's old shoes. And y' all thought pictures of monkeys selling for hundreds of thousands of dollars was silly. I mean, that's it, right, that's it. It's you know what's it worth? Well? Hey, what are you willing to pay for it? There you go. That's where all we live in. Matt Hogan, real pleasure to talk to you and tap your brain on all these developments. Wish you the best of luck and hopefully we can get you back on the show again someday. Thanks for having me. This is fun. Thank you, Matt. What goes up, we'll be back next week and so then you can find us on the Bloomberg Terminal website and app or wherever you get your podcast. We love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter. Follow me at Rea Anonymous. Bildonna Hierrich is at Bldonna high Rich. You can also follow Bloomberg Podcasts at podcasts. What Goes Up is produced by Stacy Won. Thanks for listening. To see you next time.
