TX Empire Goes Bankrupt in Sudden Fall

Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg clovel News. Obviously, the breaking news today is that Crypto Exchange f t X filing for Chapter eleven bankruptcy. This story has moved incredibly fast. Let's bring in Crypto reporter for Bloomberg News, Olga Career if she joins us over zoom right now, Olga, I want to go back

in time to last Friday. This How shocking would it be if I told you that fast forward one week f t X the Empire, It's in bankruptcy protection. Completely shocking.

Last week was very quiet overall, so people worried about low volatility in the markets, and how are they changes gonna you know, make hands meet until you know something happened, And people generally said, well, nothing is going to happen now until they economy improved, so not much to expect in the next year or so, and then here we go,

here we go, um olga. The latest headline here is that the f t X withdraws derivatives clearing plan from us C f TC I mean shocker coin desk is also reporting that f t x u s stop processing withdrawals midday Friday. What do you think the headlines are going to be over the next forty eight hours. Well, I think everybody's waiting to see what Sam Bankman Freed says,

either on Twitter or in upcoming sort of bankruptcy fightings. Uh. It's gonna be uh interesting to see the financials as well as maybe get some commentary on what happened, what went rowing in a In a series of tweets earlier today, Sam promised sort of to describe exactly what happened. So I think a lot of people are waiting for that. It is amazing SPF just tweeting through it. I don't know, I'm thinking like wouldn't someone tell them to be like

shut it down? Yeah, I would. I would log out so rarely what I log out, but probably in this situation. But Olga, let's talk a little bit about the fallout here, because we've heard a lot about contagion. I want to know where to look next. We've already seen block five for example, halting withdrawals, the shutdown of Alameda, of course, SPFS trading arm where else should we be looking? So a lot of funds uh in companies kept their funds

on fds, so they will obviously be affected. A lot of companies over tweeted out or put out statement and saying we don't have much exposure, but some do and and so we'll see the ripple effects of that in the coming days. Also f t X and Alameda another company that uh SBF owned uh they had their tentacles and pretty much throughout crypto, they were investors in a lot of projects and some of these projects kept their treasuries on f t X. So but we'll see some

ripple effects from that as well. So of course uh SAM was a big supporter of projects like Salona, and obviously the token is getting crushed partially because of people are still trying to figure out what they impact on Salona might be. Are there any other tokens out there that have the same kind of intricate relationship with its parent company or an exchange that could be in the same kind of spot where it was used as a loan or as called lateral, etcetera. Are there other worry

spots like this? So, of course f t t the token connected to the extra ft X exchange, crashed and burned. As a result of this, it's probably going to be in the center of investigations into sort of what happened here, why and where did the money from ft X go? Um so, so that that token sort of plummeted over the last week. Um and there can be other tokens

that are impacted. But you know, honestly, f t X was such a huge presence in the entire ecosystem, I think it's probably easier to name, you know, major tokens where f t X did not have much influence than the ones where where it did. Yeah, No, definitely. I mean his empire was so far reaching, and I mean one of the places that it did reach was the Salona blockchain, and it's probably not surprising that after f t T we've seen a lot of pain in the

Salona token. What's the bowl case left for the Salona token, the Salona blockchain, because I mean I think Salana, I think Alameda, I think SPF Sure, that's a good question. So a Salona was built for as a competitor for ethereum, you know, as a as a block chain to handle uh financial transactions, and of course it was handling some financial transactions for a SBFS businesses. So I guess what we'll see in the coming weeks is just how much

adoption has it had outside of SBFS empire. Uh. You know, a lot of people say this is a good technology, it's it has it's a big ecosystem, it's bigger than a spf um, and b'll see how it plays out in the coming gays. Yeah exactly. I really think a lot of people probably wish that bit quindon trade over

the weekend. Now at this point, thank you so much, Oga curryve joining us on f t X. That latest headline Katie that f t X with draws rid is clearing plan from us C f t C. I mean, like, yeah, I would think so, but nonetheless it is now official that that is happening. Probably would have been bigger news if they hadn't at this point. But I mean, I'm sure we're going to get more and more headlines like

that over the cooming. It's like a drip feed, right because since no, It's like, if there is no regulation, then how do you sort of go after someone when there was no regulation. It's a great question. I wish I had the answer. This is Bloomberg. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. It's time now for our Business

Week segment. This is when we dive deep in when Business Week stories of the day, and this time we're talking about gaming has a hated CEO who's now crushing and crashing into the meta verse. I didn't know who the CEO was. I didn't know anything about him, but apparently his reputation is not so great. So joining us now to break this all down for us is Bloomberg News Technology and Venture capital reporter Priya Ann and Bloomberg

Business Week editor Joel Weber. Joel, let's start. First of all, Hey, it's been a while haven't talked to you in a bit. Hello, it's good just to chat with you. First of all, talk me through the headline of the story and what was behind the article. So the story is written by Austin car Jason Tryer and and Priya. And this is

a really interesting guy. You you you're right, not exactly a household name, except once you um here where he's been, um, you might be familiar with sort of some of his legacy. And so we're talking about John Rick Rick Tellio, who is the CEO of a company called Unity UM. And Unity is a really interesting company because not probably not a household name, but in the gaming world, UM, they are known for basically, uh, doing a platform that allows

a lot of very nimble games and advertising. UM. But before he was there, he was at e a UM where he was definitely um, not loved. But one of my most favorite anecdotes from the story was, actually, you know, he's like one of these executives that can go from industry to industry. He was actually Sarah Lee Bakery. This get this the pound cake. He took it from sixty announces to twelve no longer a pound That's that's kind

of one of the legacies that we ran across. But but Pria talked to us about what his legacy has been like in gaming and and sort of what his vision for the metaverse is looking like, because that's really where we tried to center this narrative. Yeah, so, actually writing the story, the metaverse conjures everything and nothing. These days, it's a hot it's a hot hot hot news space.

Mark Duckerberg is very interested right naming his company meta and John Dractello is known for, uh jumping into the next big shiny thing. I mean, and he's a he's a marketing guy through and through people we spoke would phrase his marketing skills. When he was at Hagen Daz. At one point he recruited director of Magic Um to make their shops into unforgettable tasting events that celebrate the experience of being alive. So this is someone who really

jumps into things when he's interested. And um at Unity he has been talking up the metaverse as well and all the applications in and outside of gaming that his company can help different sorts of clients with UM. We did finding reporting out this story that there were plenty of examples that he shared with our reporting team that later on when we went to the customers, they said they were exaggerated, you know, they were like, we don't

actually use Unity for these things. So that was a bit interesting in terms of the strategy there to share those kinds of examples with us. But Unity is is best known as the company that you might not have heard of that put all those ads into the mobile games that you play that some people might consider a

little bit spammy. So one question is like, if we do get to this world where we're all in the metaverse, it does seem like if Unity is a part of that future, we can probably say with at least some degree of likelihood that ads are going to be part of that world too. If you if you thought you couldn't have more ads in your world, just wait for

this digital world to take over your life. Oh, many would say that this whole metaverse employ is just a cash grab, but we think about Mark Zuckerberg going big on the metaverse. Uh, it isn't too far a stretch to say that shareholders haven't loved that, if you could just look at the stock price for that. But how is it going over at Unity? What is the response been like from investors? From employees or they on board. Well for Unity, you know, they're a bad projects that

have started. They've had projects that have stopped the company and CEO addressed to staff in an internal memo before our story published saying, you know, UM, projects start and stop. UM, they don't always complete themselves. UM. You know this is something that's at early stages. So it definitely is early days to the Metaverse, and we don't quite know yet

what is going to happen there. UM. But the question this week is, you know, with all the layoffs at Meta, what's going to happen with other companies that are also operating in the metaverse space or trying to writ I mean, what's going to come of all these heavy, heavy investments. Um, when we're already starting to see that many companies, perhaps over higher got too excited. Okay, so there's the challenges of actually building the metaverse and and what that looks

like and what those applications are could look like. I'd like to come back to that. But the other thing that UM was was pretty juicy in the story was you know, there's there's also the what what Ricky Tellio is like in real life? So would you guys learn on that front. You Yeah, John Riccotello is UM controversial for for several reasons, one being that he is not known. He has known for for sometimes really catching people in

unexpected ways during meetings. And you know, if you get his attention and you hold his attention, great, If you don't, you're gonna hear about it in ways that some people can find unpleasant. Um. You know, sometimes they're shouting, sometimes there's some really brushed talk going on. And then notably, John held a meeting a couple of years ago in his office where he shared with staff in the a dream of their office that he had been dating the

head of HR at the company. And that made that made a number of employees we spoke with uncomfortable because you know, who do you report any personnel issues too? If the head of DHR is dating the CEO UM the company said that he had reported his relationship to the board, that it was above water. Um that out of HR lets just Brown eventually less the company and they've since married. Um. But it did strike a lot of folks as something unconventional and less not great taste

in some employees. Now, okay, well it's interesting, right, So Okay, back to the metaverse. UM, when you know, what could this look like? To give him just a little bit of credit for like what you know, this is the future future getting to the future sometimes a little bumpy, but best case scenario, what is Unity potentially look like? Best cass scenario for them would be UNIT is involved in creating these these digital worlds already right, um and

helping the creators monetize them. And UM, in the best case world, they'll be involved that and what John calls uh sort of like the three D digital world, which which is the metaverse as we've been saying, UM. And so you know, they see themselves as if this thing really take soft, they'll be front and center in helping to build those spaces and help people monetize them. Um. And and as we know on the Internet, ads are a huge portion of you know, how people make money UM,

and they see themselves as really capitalizing on that. At the same time, they're looking at, you know, applications that and they've touted applications to our reporting team that aren't necessarily even related to things like games. For example, they said an architecture firm was using their help to design a stadium alright, guys, we've gotta leave it there. Thank you to Joel Webber and prey on on on one

of gaming's most heated executives, crashing the metaverse. You can find that in the latest issue of Bloomberg Business Week. And this is Bloomberg Business Week on Bloomberg Radio. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Let's get back to crypto. It's my favorite topic. It's the story of the day f t X filing for Chapter eleven bankruptcy. We're going to dive into that with Timothy Totally. He

is chief executive officer at zell Core Technologies. That's a multi asset ecosystem that helps investors navigate all major exchanges and blockchains. Timothy joins us on zoom from Boston. And when we think about the events of this week, I've heard it described as a Lehman event in n Ron moment. I've heard some describe it as an extinction event. Timothy, how would you describe it? Well, thanks for having me on.

I think I would. I would probably describe it as a lot of short term pain, but long term it's it's going to get blockchain back to where it was supposed to be right, which is a really high level of transparency, and to eliminate a lot of this counterparty dealings that were behind you know, closed room arrangements, and that's this isn't yet another example of that happening. Um. I think the other big issues are relates to FTX

and and Alameda Research. They participated in somewhere in the neighborhood of three companies invested in three D companies either directly or they held their treasuries. So there's gonna be a lot of impact here both in these projects. And the other thing is there's a lot of counterparty. Uh, the biggest counterparties to most of these exchanges are other exchanges. So wouldn't surprise me next week to see another shoe to drop. What would that shoe look like? Like? How

do we know where the contagion actually might end? I mean you might say, oh, well, people should have known the risks, but even Scaramucci was like, I feel duped, I feel betrayed. Yeah, I don't. I wouldn't even want to speculate to guess where other exchanges but I'll just give you example. And by the way, I don't think either one of these are exchanges are in trouble binance and coin based, but the biggest counterparties of each one of those is each other. So uh, there's more transactions

between each other than anybody else. So I would probably look at other places, other exchanges that have in the past had a lot of historical transaction has been big counterparties of FTX, and so, I mean, one of the pushbacks that I've seen is that you know, this is what happens when you trust a centralized exchange. This is supposed to be decentralized finance. There's not supposed to be this level of interconnection centrality. I mean, where do you

fall on that I don't know. Is this is this sort of revealing the promise of defy as a myth or would you probably not go that far? I would say it's reviewed. I think this is probably the biggest misnomer. These centralized exchanges are traditional finance with a crypto mask. Um they're the same old thing where they have their own proprietary database where they track what they owe you and what they owe other parties. Um, that's not what

blockchain and defy was intended to be. It's that the blockchain technology is for the first time at scale to have the technology for you to have a one on one relationship directly to your assets. So I think this is very good for DEFY and crypto and the long run. You know, our company believes strongly in non custodian self custody, and so this is another validation as to why I believe it's the right way to go and that on

chain processing is is the way to go. Most of the problems with FTX have been as a result of off chain processing. So at the end of the day, do these kind of exchanges become thanks do they compend brokerage firms? Like? Is that what it's eventually going to have to in some ways look like? I think it's gonna be a hybrid environment where you have both defied decentralized organization and some kind of centralized but they're gonna

have to be regulated. And the reality is, you know, uh, these central efed changes in crypto today are very there anomalous to the exchanges that we all think of today, Fidelity, Schwab or whoever. It's just that the ladder are very regulated by you know, US entities and international entities. That's not the case with crypto. So we're gonna have to move to more more regulations. But uh, defy and self custody is going to be a big part of the future.

Let's talk about institutions and whether this really scares away sort of the trad five players, because again, if I go back to a year ago, I've found myself wanting to go back in time often this week. But let's go back to a year ago. We were close to a record high on bitcoin, and if I think about the rallying cry of the bulls at that time, it

was sort of this institutional embrace. You know, we saw the launch of the first US Bitcoin futures e t F that was supposed to usher in a whole class of investors who had never really been able to get access to the crypto industry before. But I mean, after the events of the past week, the past few months, the summer, you know, you think back to what we saw with three Hours Capital even I mean, is it have you seen any indication that institutions are rattled here

and they're not coming back? Um? I don't think so. If you look at what's happened in the last ninety days. In particular, I think institutions committed to being all in UM. I think we just get we get hung up on these um UH the volatility of this asset class, in particular about the it's the technology that's gonna win the day at the end of the day, and crypto often refer to it as we're in the first inning of the uh, the first batter of the first inning of

the game. You wouldn't pick finance as a use case if you had choice, right, we are right. There's plenty of other use cases and that's why I think traditional finance will move here. UM. It's a much more economical solution for them UM. And and they're showing that over the last ninety days in particular, you know, whether it's Fidelity offering direct trading to their customers, etcetera. I don't think they're going away. I think we've gotta live with there.

Timothy Telly, CEO of zel Core joining us there and the collapse of f t X, what it means where they broader industry kind of women get our feet out from under us of this crisis. This is Bloomberg, this is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio less than fifteen minutes to the closer. Trading on an insanely wild week here in the United States. You have the SMP continuing it's rally up by about full one percentage point, the NASTACK

up two percentage points. We had the biggest rally in stocks yesterday that we've seen in two years. We were able to build on that. You had you mish you know see Michigan Sentiment Index lower than estimated, inflation expectations a little bit higher, yet stocks were able to continue. Uh their rally also significant as you had the Bloomberg Dollar Index being able to drop again. Um, euro was stronger, every G ten currency was stronger, the dollar really taking

it on the chin. Is this a real reversal that we're finally seeing in the markets. Yes, I know we have crypto crashing, I know we have f t X, and that's one huge story. But the other is are we finally going to see a FED that's going to pair back those rate hikes or is the market in a bit of a fake out. So let's get more on this with Ryan Dietrich, the chief market strategist over at the Carson Group. Ryan, what do you think the market is pricing in right now with the kind of

moves that we've seen over the last forty eight hours. Yeah, guys, First of all, things are having in happy veterans date everybody, So listen, listen this historic move. I mean, here's something to think about, guys. Assuming the SUPs up one percent today and I know we're close, there's could be four straight Friday's the SMP gained that's never happened in history. Okay, we've got a lot of these never happened in history

type of deal, just yesterday's five bounce. But here's what we think right Sure, short term overbought after this rally, but we are optimistic. We made another major market low in October. Six of the last seventeen bear markets ended in October. This could be another one. And again, expectations are so low that any good news like we saw yesterday can continue to kind of push this beach ball higher,

push this speech ball higher. Could do like that. It's a bit more cheerful than some of the phrases we normally here, like dead cat bounce, that's one of my least favorite bear market rally. A lot of animals. Nice, get a beach ball in there, But I mean, talk to us about that. Is it one of those horrible phrases. Are we just pushing this speech ball higher temporarily or they're still loads to be plumbed in the remainder of two Now, Yeah, we're optimistic that the lowds been made.

Like I said, you know, you think about it. November the month where now is the best month last ten years, the best month in nineteen fifty. We know December historically strong. Those are just seasonality things. But let's take a second here and think about this. This is a mid term year. Mid term years tend to bottom late in the year. This one probably bottom in October twelfth, in our opinion, one year off those lows. The SMP going back to World War Two is higher thirty percent on average, a

year off the mid two year lows. So we're about ten percent off the lows right now. Ballpark. Um. You know, I think it's just important for investors to know if we made a new load like we think we did, there could be some decent, real, real decent opportunities the rest of this year and into next year. So here's I'm trying to understand where no one is saying that the Fed is done with their hiking cycle. But we feel that if they go to five percent in the

terminal rate, they just get there slower. That that justifies the kind of move that we're seeing. Yeah. Different, that's a difficult question. But here's how we see it. Fifteen months ago, the Fed saw like one rate hike this year. All right, we know what's happened. I'm not saying the other Fed's perfect. I'm just saying the Fed is not perfect. They're not infallible. The Fed got awfully hawk ish. The

Fed isn't always right on these things. We think the markets priced in so much hawky ignish all these cuts, I'm sorry, all these hikes. And yesterday's inflation data with car use cars down ten percent, the largest monthly drop ever in rents. These are things that are saying, listen, inflation is gonna start likely coming back sooner or more than people think. That could give the Fed, the Fed,

you know, leeway not to be so wildly aggressive. And again, maybe one more hike com you know, this year, maybe fifty basis points, and they take a look around and realize, you know, maybe things are okay. We gave the patient a lot of medicine, and inflation is indeed coming back down. Okay, let's say things really are okay, Ryan, and inflation really has crusted. The FED maybe can take its foot off the pedal, maybe sooner rather than layer later. What is

the biggest beneficiary of that when you look cross asset? Yeah, well, I mean, I think easy to answer stocks. I mean, you really you think about it. I mean, we had a twenty five per cent bear market, right you look at let's look at D two for a second. Eighty two, there was a twenty seven percent bear market in twenty months as soon as inflation started the roll over back in late eighty two. Within three and a half months,

the SMP made new highs. Now, we're not saying we're gonna make new highs in three and a half months this time, but we are saying, you know that that things are really beaten down and in the economy, we don't do a recession, right the consumers so strong, earnings

aren't great, but they're still saying, not a recession. You know, the market has priced in a recession in a lot of places and housing is in a recession, but the rest of the economy is not in our view, and we think again the consumers strong says, hey, your average bear market without a recession pulled back. We just pulled back.

It didn't feel average at all. Unaware, but if you look at history, maybe it was if the rally like we had off COVID lows and just catching our breath now and again there's those strong seasonals with the Fed's gonna be more dublish with an economy better than expected. Maybe you know, stocks are still the place to be going up all month. That's our that's our cakes. So where so what's over price the risk esson that you

want to buy. Yeah, well, we still don't like the large cap tech names that come on with you guys for a while, saying that those are the biggest ones that are bouncing. We need stick with some of those cyclicals, your industrial holes, right, your healthcare, your energy names, some of the some of the names that kind of brought you to the to the dance, so to speak. And also small caps, just small caps did not violate their

June lows in October. There's some relative strength. They're they're really cheap relative to large and there's a lot more of them, right, there's a lot more stocks going up now than there were over the summer, which is good. So cyclical value and small caps are two areas we've liked and continue to like into next year. Okay, that's what you like. What don't you like? What's ugly here? Yeah? Well,

always stick with bonds. I mean how bonds by bounce a little bit here, but I mean we still think this this this inflation that's here, rates a little higher, potentially could stick around a little longer. So we still say maybe avoid you know, kind of avoid bonds here, and you know, things like gold and some of those areas we're not. We don't like some of those more pure defensive plays. Again, we think really equities are the best.

You don't want to pick up a little bit of yield on the tenure for ten years over pretty juicy. I mean yeah, well, now you're right. And again we're not saying outright avoid bonds or just at the money that we run for our advisors here we at Carson Group, we are we're just still underweight fixed income relative two stocks. We think stocks do a lot better than four percent

The next in years. It's the best way to put it. Well, what about if we do get that FED pause, maybe even a FED pivot over the coming year, then would you buy bonds? What would what would change your attitude? Yeah, well, the way we have our bond structure right now, we've shortened up duration right now. Maybe if we did get a FED pivot, you could short you can expand your

duration a little bit. Maybe don't quite go to twenty of your treasuries, but ten your treasuries are kind of you know, kind of how we would how we do it. But but still I think we just still think the opportunity lies in inequities the next twelve months. Here, what do you do with energy? Right now? It's had such an amazing run. It doesn't seem to want to go anywhere anytime soon. What do you do? Yeah, maybe you can finally catch its breath right after the huge rally

that it's had. But I'll put it like this, we still like energy. Any pullbacks, we'd buy it. Here's what I like about it. It It makes up about five if the SMP five It was over ten of the SMP five hundred back in two thousand eight. This trend only for two years now energies, maybe less than two years. Energy has been going up relative to tech. You tend to get these trends that last years. And I know that sounds odd to a lot of people, but the truth is these trends can last. So again, energy, it's

had a heck of a run. The least think gets longer term next couple of years. It could still be a group that could do quite well. You know. I gotta say, it's interesting to hear that you're bullish on energy when you marry that with your inflation view, that maybe we have seen the crest, because usually I think of energy as an inflation hedge. But maybe that's too simplistic. Maybe I'm revealing myself here. No, you're right, I mean

there's there's a little bit of that there. And you guys talked about the dollar a minute ago, right, I mean we've all seen it, right, the dollar has had a huge pullback. You know if the dollar pulls back, well, what tends to benefit from those areas well? It is your more materials and your potential energy. And honestly, of gold, I said, we're not crazy about gold, but historically that could do a little better. But a weaker dollar could

help material and energy for sure. Um, talk to me a little bit about how you're understanding the next two months. I heard that you said November tends to be good, et cetera. How much of the price action that we're going to see over the next eight weeks is going to be the end of year book squaring. I mean sort of rather than fundamental, we're just building on any momentum because people got to sell the stuff by the stuff, show their investors that they all this stuff. Yeah, well

it could be a good deal of that. That's a great point because again, you know, in earlier in the middle of October, you know, when the market was down, nobody on dequities in right, we saw to put the call ratio something like twenty year highs and puts the call ratio as you look at how people are positioned. Nobody was expecting an interview rally. Now we're getting some of it, and they're absolutely could be that chase kind of to the finish line. And you honestly kind of

see that a lot of times. And then then with the FED that likely its pivoting with some better inflation data. All of it kind of adds up to uh, potentially you stock you know, a good deal higher than they are right now by the time you know the New Year's ball drops, Ryan, we haven't had a minute or so left. I cannot let you go without asking about crypto and some shape or form. I'm not gonna ask for your bitcoin price target. But when you think about the events of the past week, do you see any

spillover effects into traditional markets? Well, I'll tell you we did two days ago, or guess to the election day on Tuesday. We saw some of that. But I'll tell you what you know. If you'd have told me that socks are having their best week since June with the disaster that we've seen with crypto this week, I don't know if I would have believed you. But that's what's happening right that's telling us the risk risk assets, specifically equities are doing well and they're shaking off this extreme

negativity in crypto, and that's uh. I think it's one more positive sign for investors to think that the lows indeed like their introrequities. Real quick, what are you watching next week? What's gonna be a catalyst here for you? Oh? Gee, it's kind of We're heading into the end of earning season and you know, I guess we're gonna start thinking about eating some turkey. So it's hopefully we just catch our breath. Honestly, after this big rally, we're gonna see

is how much of the rally we give back? Right, we just kind of hang tough and catch our breath. And historically the ladder half of Novembers when things are historically stronger. So let's just catch our breath. Next week, are ready some turkey and within to your rally will continue. That sounds like a great plan. I'm going to take you up on that. Thanks for listening to Bloomberg Business Week.

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