บทถอดความฉบับเต็มของ Crypto Winter Meets Banking Crisis: A Tale of Three Banks

been an interesting time in markets. Is that a fair assessment of the world depending on what If your baseline is two thousand and eight, maybe it's for a little sleepy but versus practically any other time, I think it's fair to say we're at an inflection point, an interesting time, and some of that interestingness has manifested in institutions that are supposed to be entirely outside of the universe of things. This podcast cares about right there. There were three bank collapses in the past two weeks. As we record this episode, credit suite shares are at not looking like positive levels of what you would want a bank to be at. We have no idea what the next few days are going to look like, and yet we have a Crypto rally. It's so good. I mean, it's sort of everything come full circle and there's a lot to unpack and what you just describe these things. These are financial institutions that five years ago probably no one would have associated with Crypto. Certainly several of them probably wouldn't have existed unless Crypto existed as well. But you're seeing Crypto as sort of at least a purple player in all of the drama. It's definitely interesting in that regard. I feel like the rally to some degree, which is going to be the most ironic the top in the entire time that we've been covering this thing, is maybe a restoration of Crypto to its somewhat peripheral role, the kind of renegade outside a role that it first imagined himself as. Now that to become because it did have its moment in the sun. There was a period where I think people were under pressure to believe the crypto is becoming part of the institutional picture, and what's happened in the last couple of months I think has been a pretty resounding rejection of that idea and crypto being sort of kicked to the sideline, kicked to the curb a little bit, and funnily enough, that seems to be where it's most apt to thrive. And now we're getting a rally because everyone's like, well, good luck with your banking system. Maybe crypto isn't such an awful thing after all. When you use the phrase kick to the side, I mean, it's almost like that metaphor really describes how US regulators in particular have been treating this, Like there's this enormous narrative right now, and I think it's a somewhat misleading one. On the merits that the reason that Silicon Valley Bank silver Gates signature went down, like the immediate proximate cause was crypto. The reality is much more complex than that Silicon Valley Bank in particular didn't actually have a heroic amount of exposure at all to digital assets. But the crypto faithful have really seized upon this idea that you're describing that it's like, well, if you all don't want to bank us, we'll be fine over here. We have defied, we have table coins. We're going to figure this out. Yeah. Again, a million little strands to connect. But one thing you can say is that when big tectonic crises like destruct, your breakout. And that's what it seems like. Certainly

crypto didn't have a role in the huge role in the siability mismatches playing banks. Well, when you have the beginnings emanations of a crisis and I I don't want to push you too far, this is a day worth recording. When it looks particularly grim for the financial system, that God knows how it'll shake out. There are reasons to think that that's overborne as well. But you can feel regulators coming into this and operating in this with a kind of sentiment that crypto is maybe a luxury that a we can afford, and b is kind of part of the problem, and that it's luring you know, it's a bubble phenomenon that was luring a certain amount of kind of crime to the borders of the financial system sort and they've seen some pretty big blow up since our last discussion, and tolerance for the kind of shenanigans that I think regulators view Crypto is representing is pretty much zero at the moment, so consciously or unconsciously seemed to be trying to chase it out of a system that they're worried about, just at it's sort of core. At this point. What I find sort of fascinating is how this is now being seized upon as a victory for and buy people who over the weekend were like freaking out about Circles exposure to one of those traditional banks to an extent that caused circles stable coin to significantly deepeg from the dollar. Like, how would you describe the psychology at play here? I mean, where things start to move very fast, and going from the favorite bank going under to giant Rowley and Kryptberry is extremely fast. I think we can agree with that, but it's as you've lived through these crisis periods before, the speed with which history starts to unfold that is crazy. And Crypto's favorite thesis the whole time has been that when the banking system goes to proof, they'll be there as sort of the inheritors of the dilapidated Kingdom. It probably wasn't that difficult for them to jump from one to the other, even though it was their bank. It was their bank that went under. They maybe I agree that they didn't cause it to go under, but the dCas came past and furious, and look, is that clearly the reason Bitcoin's going up? To be honest, that that may be the reason. That's certainly a suggestion, and a markets journalist, I've never convinced in any one one idea, one explanation is clear way the right one, I would point out. I mean, people thrown a lot of money at things like the ARC Fund in the last week. They've punters have been pouring money into regional bank stocks of all things like Hope Springs Eternal. It may just be the same ethic that's driving that. You know, we had a big fallow in bond rates, not for good reasons, but interest rates to go way down, and there's a pavlon Van reaction and cryptos based to that as well. So while the usurpers of the banking system thesis is definitely the most attractive one to crypto proponents right now, it's not clear that it's exactly that's it's indisputably the reason for the rally we've seen. I'm going to use this phrase only because there's like literally a dozen headlines about it on the Bloomberg terminal right now, which is credit to fold swaps. And in two thousand and eight, there was this idea that you know, people would look at the credit to fold swaps against the United States government, which is essentially an armor get untrade. Right if you think that the United States government is not going to repay its debts, it sort of doesn't matter, like what's your plan be here, Like you're talking, you're doing complete financial armor get on. And so right now we're in this situation in which the bitcoin and the crypto thesis that you're describing is like, well, if all banks go bust, bitcoin is going to persist. But what we've seen is that if all banks go bust, getting in and out of crypto becomes hard, if not untenable. So I think what I find fascinating is the you know, it's almost like that underwear gnomes Self park joke where they're like, we're going to steal some underwear. There's going to be profit, but in between is just a big question mark. I think that that's fair. I mean, I wouldn't want to say that there's absolutely no rail into crypto if the banking system goes under by would agree, it's not the all of the sort of convenient ways in Middle America I access their crypto, their crypto bags would would would presumably be gone. Are very much in the process of being rooted out as it is. Never mind, the banking crisis regulators seemed pretty peld bat. I mean, they've taken down two of the big sort of conduits for that specific task in the last you know, seven days. So I think the crypto the bitcoin faithful would say, oh, we never we never needed those conduits anyway, there's still basically other ways to get into the bitcoin network. And indeed, I think it's true that over this weekend lots of them did. I think that was that sort of one notable fact of the last seven days, that the amount of crypto owning addresses surged over the weekend. So the kind of rhymes with their theory and why why the rally happened. Another theory is that there's a bunch of whales to kind of control everything. It's kind of kind of goes against that that thesis, you had a pretty heterogeneous group of people deciding all at the same time Saturday and Sunday to take a stab atus. So I think you're right. I think that the dream of sort of a seamless well some people sort of track five stream of relatively seems give and take between the two systems, seems like pretty much a pipe dream at this point. I've no doubt that there are bitcoin masks Maximus stall over the world. It would say we never needed that stuff to begin with. We'll be right back with more of the top crypto stories, joined by Bloomberg Senior Executive editor Chris Niji. What about the defied people, Because one of the storylines that I have found personally fascinating is the fact that decentralized finance, this corner that's supposed to be even further away from traditional banking than you

know, Bitcoin and ETHA, turned out to be heavily underpinned by stable coins, which by definition are tied into traditional banking systems. Yeah, they have they have to be feeling a little queezy about that as well. But although that, I mean, let's face it, that's the that's sort of the rarefied realm of the absolute true believers, I'm sure, in spite of the inconvenience that all of this is causing and their general antipathy towards anything kind of new wavy and new fangle that's going on, which you know is going to rewide on de fight already has lar Joy that their public posture is that at some level this is all good and that this is precisely the environment that we expected to thrive in when we're all the banks go out of business. And as all of this is happening, there are some pivotal foundational like pick some kind of overblown metaphor court cases working their way to the system. Right. You have the Securities and Exchange Commission versus Gray Scale on the topic of whether Great Scale's Bitcoin trust will be allowed to convert into an ETF. You have the Security and Exchange Commission versus Ripple on the question of whether Ripple is a security But going back to the trod five thing, like, one of the dynamics that's playing out right now with all of these banks collapsing is which of the so called systemically important banks and institutions will step in to save the day, or be allowed to step into the day. Is there any sense at all that you are getting, or that any of our collegies are getting, that any of these major banks are also looking at crypto as a place that they can be like cleaning up on the cheap right now. If that's happening, it's not. That's not known to me at they have big, bigger problems. I mean, yeah, right, this kind of upheaval frequently does sort of present big opportunities and a kind of leavening of the forest where a sort of new kind of initiatives same place. My sense is that everyone is so worried right now. I mean, yes, the very big systemically important banks are probably not really at risk of any kind of insolvency thing or all at two thousand and who knows, But that doesn't strike me as the issue, except that they are counterparties with a bank that appears to be in legitimate trouble right now, credit suits. So whether or not they're holding conferences about the bitcoin or the crypto opportunity at the moment, it strikes me somewhat unlikely. I think longer term what you're talking about is possibly realistic, although again away from any legal stuff around gray scale, the regulatory response at the moment seems really definitively the last thing we need on our hands now is a bunch of crypto kook's muddying the already pretty pretty murky waters. You know, it gives me a joy to say that bit. That does seem to be the direction of sort of the larger financial institution at the moment. If you believed that FTX was financially solvent and that they were separate from Alameda, or if you believed that the

condition of bitcoin miners would have no bearing on the people who lent them a bunch of uncollateralized money, then you have to have a severe talking to to your like risk people about you know, the risks that were proposed by those things. And now to your points, we're seeing other banks that are currently fine exposed to a bank that has all of the trappings of not being so fine, which is like the classic thing that happened in two thousand and eighths, and the thing that came out in two thousand and eight was supposedly that everybody was going to get better at risk modeling, that the regulators were going to get better at enforcing capital requirements and everything else. And yet here we are again. So how come yeah? Right, Well, the reason is that greed will always find a way. And I think that every all of the best efforts of regulators to stop the last crisis from happening, which is what always happens, are not going to buy definition anticipate the next crisis. Just the fact of nature. The people are just too clever when it comes to greed. And in describing what went on in bitcoin, that is the long and short of everything, people were amazingly clever and how they tried to ring money out of this thing. They there were some actually legitimate innovations in the area of future is trading. The defy itself has really got some interesting stuff going on as far as market making, et cetera. So there was a huge amount of innovation that nobody could possibly have foreseen. On the other hand, there was a bunch of people who were too young to have lived through the real counterparty risk wars that you're describing, and to put it mildly, there was some foolishness going on. There are people who just hadn't heard of all the stuff. It's this ongoing meme in crypto, this idea that everything needs to be re experienced by the new population that clearly was the main thing. There is a big dose of innovation, of legitimate innovation. I mean innovation could also have been used to describe things like CDOs and etc. That's not always the greatest thing in the world for the stability of the financial system. But I would argue, given the much fonted intellectual power that's always touted around crypto and also existed around things like investment, banking and trading in two thousand and eight, it's impossible for anyone to anticipate exactly how to regulate it and keep it from blow wearing up more ors. It's just going to be sort of a cyclical thing that occurs in the world. Thank you, Chris, appreciate you being on the show. Thank you for having me. That was Bloomberg Senior Executive Editor Chris Nig. You can find more of his work on the Bloomberg terminal and on Bloomberg dot com. This is Bloomberg Crypto, a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. A quick programming note for you We're working on something new that expands on how we're covering crypto and the future of finance, and we'll be back soon to tell you more. Follow a subscribe to Bloomberg Cryptos to stay tuned for updates. We'll be bringing you info about what's next right here in this feed. In the meantime, get caught up on all of our Bloomberg iHeart podcasts, The Big Take, Daily Crash Course, and our narrative series in Trust. To stay in touch with Bloomberg Crypto, you can find out coverage as always at Bloomberg dot com slash Crypto. The supervising producer of Bloomberg Crypto is Vicky Vergelina. Our senior producer is Janet Babin. Our producers are Mohammed Faroup and Sharon Barrero. Our associate producers are Ty Butler and Moses on m Desta wonder At is our engineer. Original music by Leo Sidrin. I'm Stacy Marie schml We'll be back tomorrow