Bloomberg: The crypto exodus continues| Bloomberg Crypto 05/02/2023

“Bloomberg Crypto” covers the people, transactions, and technology shaping the world of decentralized finance. Meltem Demirors, Chief Strategy Officer of digital-asset investment firm CoinShares, says there is a robust crypto ecosystem in the US, and the biggest challenge is where growth will come from. David Brickell, Director of Sales at Paradigm, an institutional liquidity network for trading crypto derivatives, says his biggest concern as we approach the debt ceiling deadline is the short-term liquidity impact on markets.
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Transcript

We are live from Boomers world headquarters in Midtown Manhattan I’m Matt Miller and from our studios in Washington DC I’m Kaylee Lyons welcome to Bloomberg crypto a look at the people transactions and Technologies shaping the world of decentralized Finance coming up Bitcoin is on the way back up and has gained for

Four months in a row amid broader Market Jitters about Banks and the fed’s decision tomorrow meanwhile the crypto Exodus from the U.S is picking up steam as Regulators crack down the latest move coinbase is launching an International Exchange in Bermuda that move will be one of the focal points when coinbase releases its

Quarterly results on Thursday we’ll have more on what to expect from that report 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-r-y-p-go and what you will see is as I said the broader Market is

Lower Bank stocks really taking it on the chin today and yet digital assets are outperforming this is the idea that digital assets actually benefit when the banking system is not so secure Bitcoin right now up about 2.9 percent trading just shy of 28 500 ether at 1855 up

About 2.6 percent on the day and ask for some of those individual stock stories tied to this space micro strategy which of course is a massive holder of Bitcoin reported after the Bell yesterday its first profit in nine quarters so that along with the gains we are seeing for

The currencies themselves uh taking that stock up four and a half percent of coinbase is up 3.2 percent as I said Matt we’re gonna have more on that story in just a little bit Yeah so it seems like as you mentioned the banking turmoil and also what looked like at one

Point an endless endless string of rate hikes from the Fed was pushing Bitcoin higher we’ve seen indeed four months in a row of gains for the original cryptocurrency that’s the longest streak of monthly gains we’ve seen since back in 2020 2021 and you thought yesterday that the banking turmoil was over at

Least that was the sentiment in the market you may have thought as well that Wednesday marked the peak of the Fed rate hike cycle but that’s also being put into the question slightly so the question is can we repeat with another gain for bitcoin price price during the

Month of May joining us to talk more about this is Melton dimir’s Chief strategy officer of digital asset investment firm coin shares so Melton let me first get your take on the thesis that problems with you know Regional banks in the U.S have put some impetus behind Bitcoin or under Bitcoin and

Driven the price higher do you buy that I don’t think it’s the banking crisis or the lack of confidence in the banking sector necessarily I really think a big driver is the decoration of Bitcoin with other asset prices bitcoin’s correlation with global equities is down to its

Lowest in some time hovering at around 12 I think what we are seeing is across all markets is investors despite the macro environment and concerns outright hikes are still fairly comfortable buying risk and I think we are going into a new crypto cycle we have a Bitcoin having coming up we’re seeing a

Lot of exposure via the derivative side of the market so I think it’s not just the the banking crisis in particular in Focus here but it’s really a broader appetite for risk and investors perhaps getting comfortable reallocating and continuing to be exposed to crypto how much does the fed’s rate hike path

Matter Malcolm I mean uh we’re expecting another increase in rates tomorrow putting the top up at 525 and obviously Bitcoin is an asset that doesn’t yield anything with all of this competition you know you can get more than four percent from two-year treasuries is that a problem for Bitcoin a headwind

I don’t think it’s a problem for Bitcoin specifically I think where we’re seeing more of a Slowdown is in the decentralized finance or defy landscape where people are historically accustomed to seeing yields on lending out stable coins or on-chain dollar equivalents and what we’ve seen there is yields on

Stable coins in different D5 applications are down quite a bit you’re getting about two to three percent whereas you know in a treasury fairly low risk to risk-free asset is yielding four to five percent it just makes it much more challenging and we’ve seen that reflected in the numbers on chain

Activity for Bitcoin and ethereum in particular down around 15 in the month of April stable coin activity and volumes down closer to 40 percent on both the Bitcoin Network and ethereum network that’s predominant trade pair for most crypto derivatives so we are seeing a decline in on-chain activity

But I think again the investment thesis for Bitcoin particularly for long-term convicted investors such as the microstrategy and others is still very much there well as we’re talking about the investment thesis though there’s the question on regulation and how that may hamper the investment case and on the regulatory Point Bloomberg spoke earlier

Charlie Morris the co-founder of the VC fund cmcc Global who said that the U.S crypto Crackdown is opening up opportunities elsewhere specifically for Hong Kong listen to what he said the U.S is being quite negative from the regulatory perspective and it really kind of seems to us that the US is

Really you know shooting themselves in the foot with a machine gun um and and that gives kind of a golden opportunity to other regions of the world shooting themselves in the foot with a machine gun melt them it’s quite strong language but is that also kind of your

Sense of what really is going on here it’s really important to differentiate who is actually the the in the market and what Market participants were talking about when it comes to derivatives as we saw this week with both coinbase and Gemini two very U.S Centric U.S focused exchanges launching offshore derivatives focused platforms

Certainly the derivatives part of the market has shifted overseas and continues to be overseas I think we do have a fairly healthy and robust crypto ecosystem here in the US there are many regulated on-ramps whether it’s crypto native companies or fintechs and other more traditional Financial players but I

Think the biggest challenge is where is growth going to come from and by and large the derivative side of this ecosystem is still the largest and drives the majority of interchange and that certainly has shifted overseas and continues to trade overseas speaking of where growth is going to

Come from what’s next for coin share specifically Milton we will be reporting our q1 earnings fairly soon so be on the lookout for that and in those earnings we’ll share more on our strategy but given that we’re publicly listed I’m not going to say anything that we wouldn’t put in our

In our financials and our quarterly update can I ask you about stable coins melt them because this is an area where you know Kaylee talks to Regulators all day long on the hill this is an area where people on both sides of the aisle are confident that we could get some kind of

Regulation and we’ve seen uh tether come back to a market cap of you know 80 billion dollars almost a year after the collapse of Terra Luna do you think stable coins are um you know the way forward when it comes to a U.S foot in the door I think stable coins are certainly

Seeing a lot of traction and what’s really been exciting over the last three weeks is three major U.S payments companies PayPal visa and MasterCard have all announced initiatives to expand their utilization of public blockchain networks not necessarily with the underlying native crypto assets but with these stable coin assets and if you

Think about the challenges just in the U.S payment system the FED is launching fed now their faster payment service in July is going to be slow phase rollout though low transaction limits but we have all of these frictions particularly moving money across border as well and

This is an area where I think public blockchain networks and this idea of a currency for the internet really shines and so I think we’re going to continue to see integration of stable coins not only into the payment system but also very importantly with the shutdown of silvergate and signature both of whom

Had 24 7 365 cash settlement networks we’re going to be seeing the utilization of stable coins in interbank settlements as well Melton how much does fed now which is supposed to launch this summer disrupt that I honestly am curious to see that as well I think I’m not as optimistic about

Said now as I mentioned before the limits on fed now initially I believe will be about a hundred thousand dollars per transaction if we look at crypto crypto really is this big hot ball of money it moves in high volume and high velocity high speed all around the world

And so the challenge is how is something like that now gonna interact with this big hot ball of money I just don’t think initially it will have the size to scale the capacity to handle that and then more importantly the question is what are those key to corridors where we’re

Seeing trading happening if we see the crypto derivatives Market continue to move offshore and if U.S trading platforms like Gemini coinbase and others continue to focus their growth and expansion efforts offshore then I think uh the impact will be fairly minimal all right it definitely be something we’re going to be following of

Course and talking about more and more as we get closer to that date Melton great having it on the program thank you so much for joining us Melton dimirs there of coin shares now coming up more on bitcoin’s winning streak and more on the bank Jitters David Brickell a paradigm joins us next

And coinbase is launching an International Exchange of intentions with U.S Regulators we’ve got those details ahead too by the way to access all the latest data and news on crypto on your terminal go ahead and type c r y p go this is Bloomberg foreign We have seen a decrease in volume and Market depth and liquidity translating into higher volatility that for now is an indication that even though there is a positive you know sentiment around the price of those assets markets are not back to their kind of pre-2022 Crisis amounts in terms

Of volume and Market depth most importantly was the CEO of crypto data provider Keiko speaking on Bloomberg crypto last week on the liquidity landscape joining us now for more of that discussion is David Brickell he spent 18 years on macro trading desks now he’s the director of sales at Paradigm which is

An Institutional liquidity Network for trading crypto derivatives so David welcome so great to talk to you thank you for being here so as I said you operate a liquidity Network given that what is your read on the liquidity situation currently and what is your role in it

Yeah well so as you say um Paradigm is is the sort of primary uh crypto derivatives options trading platform uh for institutions um and and actually from our point of view you know we’ve seen an explosion of volumes um so far in in 2023 um q1 was a blowout record quarter for

Us and I think that speaks to the fact that um I mean there’s a number of reasons why that is but I think primarily it speaks to the fact that institutions and institutional involvement involvement in crypto is becoming sort of more dominant um you’ve actually seen uh sort of crypto

Options block trading which is effectively what we do at Paradigm um you’ve seen that sort of take like a 40 share of of sort of crypto options trading um and subsequently our paradigms volumes of the market um a sort of around 40 as well so I I think compared to the spot markets

Actually what you’re seeing um certainly in in the sort of crypto derivatives and option markets you’re actually seeing um sort of Greater participation from the sort of big institutions who are really kind of stepping into the market and and it’s it’s interesting um if you

Look at sort of the posts sort of FTX um scenario we had like a one month slump and then we sort of came into January and we really we really sort of started firing um and obviously we’ve had this nice kind of macro thematic to sort of play

Um you know and with Bitcoin kind of reasserting this sort of digital gold type narrative um we’ve actually seen sort of really decent volumes and and so liquidity improving as a result of that on the option side how much of that do you think is tied to the growing expectation that we have

Seen building in 2023 the idea that the Federal Reserve is going to turn around and start cutting rates by the end of this year how do how do you think those two stories are tied together yeah I I think um I think the one thing we’ve all Now sort of became accustomed

To is is the idea that crypto is trading these these sort of uh macro Cycles I mean there’s a lot of talk around the harmony but actually the sort of macro Cycles are super important for that and if we look at what happened sort of throughout last year we had perhaps you

Know the sharpest fed tightening cycle in in recorded history um you know alongside sort of double-digit inflation and as we’ve now transitioned to this sort of peak rates uh Peak inflation uh Peak fed sort of uh world where we’re likely to approach this pause um that’s that’s now creating this kind

Of constructive macro environment um for for Bitcoin and the sort of broader crypto sector to start sort of trading more positively on and I think as we as we’re starting to see that that’s then drawing in uh the institutions to start playing that that thematic David when I first heard about

Paradigm it was a liquidity Network I thought oh is it maker no it is not a market maker what you do is Network big institutions that want to pool I guess crypto assets right but you don’t hold them in a centralized location explain to us what it is and tell us how much

Institutions have been part of this most recent run up to 30 000. yeah so it’s we’re like a pure Tech layer that sits on top of exchanges so you can think of as like um an OTC trading platform where the settlement layer happens at at the um at the exchange level

So so we’re we’re just trying to provide you know you shouldn’t have to sacrifice on liquidity for your choice of settlement venue so the idea of Paradigm is that you know you find that wholesale liquidity um and and then and then we sort of settle and clear um at the exchange

Level so what it’s doing is allowing because we’re not impacting exchange order books um it’s allowing for for trading larger size and getting sort of tighter prices and a greater depth of liquidity so it’s really allowing the big institutions to to find that that depth of liquidity

That they need to trade the sort of size that they need to trade uh to sort of play in this market super interesting stuff David I know that you are sitting there in London but I’m sitting here in Washington where all of our conversations are dominated by

The looming X date and questions around the debt ceiling in theory the U.S could default on its debt as soon as early June is that something that would actually be positive for crypto assets because it would undermine the strength of the dollar I mean how do you see this

Filtering through into this world yeah I I think there’s there’s two two big drivers for crypto are rates and liquidity um my my one big concern around when that sort of X date arrives and the debt scene gets lifted is actually short term you’re going to have this kind of

Liquidity draining event whereby um the treasury are going to gonna be able to issue bonds again and drain liquidity out the system but but ultimately it kind of feeds into the big picture narrative around this idea that you know this kind of Fiat these Fiat economies can only really survive on

More and more debt and the consequence of that is your your over time debasing fiat currency and and obviously that kind of store a value argument then for Bitcoin and the whole reason that emerged just grows stronger and stronger so I think what we see is that you know

The debt scene will get lifted it always does um and aside from the short-term liquidity impacts and markets which I think will be a challenge um all things equal and what you’ll you’ll see is again just the the this kind of currency debasement theme sort of gain more attraction and ultimately

Over the sort of medium term this again will be supportive and bullish for Bitcoin all right David great having you on the program really appreciate your Insight there David Brickell of Paradigm talking to us about the system and how it works uh and also how from the crypto

Point of view maybe it won’t work forever coming up coinbase launches in exchange for Traders outside the U.S more on their tensions with U.S Regulators next check out our Bloomberg crypto podcast every weekday wherever you get your podcasts this is Bloomberg This is Bloomberg crypto I’m Matt Miller in New York with Kaylee Lyons in Washington let’s get to some crypto stories that caught our attention this week the co-founders of failed crypto hedge fund 3 arrows Capital have found themselves in trouble in Dubai authorities are reprimanding them for operating and promoting their new

Digital asset exchange opnx without the required local license Dubai has been taking a stricter approach toward crypto even as it tries to position itself as a hub for the industry and microstrategy has posted its first profit in nine quarters that’s after registering a tax benefit related to its

Horde of Bitcoin shares of the enterprise software maker which is the largest public holder of Bitcoin are up almost 120 percent more than that now actually so far this year coinbase is launching an international derivatives exchange for institutional crypto Traders outside of the United States of America the new platform will

List Bitcoin and ether Perpetual Futures starting this week in a blog post coinbase wrote the company is committed to the U.S but countries around the world are increasingly moving forward with responsible crypto4 regulatory Frameworks to strategically position themselves as crypto hubs we would like to see the U.S take a similar approach

Instead of Regulation by enforcement like Bermuda for example joining us now for more is Bloomberg’s Katie greifeld so it’s an exodus is it I wouldn’t say it’s an exodus necessarily but it is a diversification you could say buy coinbase of course we know that they’ve

Gotten in a few Tangles with the SEC the wells notice that landed in March is just the latest so again moving to Bermuda offering this in Bermuda the plan is it’s going to list Bitcoin and ether Perpetual Futures and I think this is very important they took care to say

That this initial International Exchange is going to be in Bermuda and only for non-us institutional clients so not for us players probably targeting some of that language that the SEC trying to be very careful about what it messages here and I mean we have to consider that this is a

Regulatory question that is an overhang on the stock you had City downgrading coinbase to neutral yesterday because of regulatory uncertainty so this could in theory matter financially for this company we’re going to get a better read on the financials though on Thursday Katie what should we expect from these

Earnings well of course any commentary any sort of executive commentary around those regulatory concerns is going to be front and center but to your point on the stock I was just looking at this it’s really interesting of course coinbase has had a fantastic start to

2023 the stock is up 44 not too bad when you think about what this S P 500 is doing but then you look at Bitcoin itself Bitcoin is up to the tune of 71 in 2023 so this absolutely has been a weight on the stock we know that volume

In terms of what Bitcoin is actually doing how it’s being traded has gone down even though we have seen this big Rebound in the coins themselves so any sort of insight on what the regulatory temperature is and how perhaps they’re trying to make up for that lost volume

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