Celsius Casts a Chill

Bloomberg Reports is Muya Shan and Matt Turner are joining me today to discuss what's been happening to crypto tokens and to crypto related stocks, and to share their reporting on why sentiments in these markets feel so negative right now. It is my pleasure to be joined in studio by not one, but two Bloomberg Reports is today, which is always a real thrill. I have muyao Chen, who is a crypto reporter here at Bloomberg, and Matt Turner, who's

coming at this from the equities perspective. The reason they're both here is because, well, there's a lot of going on to markets, and we wanna just make sure that we're addressing that and understand how this plays into so many of the other themes that are happening in crypto right now. Matt, I'll start with you. What's going on. Yeah, that's a great question, and thank you for having me. I think, first of all, the market, clearly in terms

from the equity perspective, is very down right now. The SMP to bear market this week, um you know, so stock and the bear market is like down more than down from its peak. Um So stocks are way down. Obviously that's a different story compared to how far crypto is down. But I'll stick with the stock side of things. You know, it's it's all coming mostly from worries about the U. S. Economy. I mean, the FED has been

raising rates recently. You know, they're trying to cap inflation, which as of this month I believe hit eight point six percent, which was the highest and something like forty years um so in the US in the US correct. Yeah, So inflation has been a big concern and the FED has been trying to cool that off by raising rates. And there are a lot of worries that that's going to sink the U. S. Economy into a recession this year, maybe next year, but at some point. And that is

really weighing on the sentiment for stocks right now. So the whole market is down at this point. So the whole market is down, But why are crypto stocks down in particular? Sure, yeah, so crypto stocks obviously are very correlated to bitcoin and the broader crypto market. And you know, with Bitcoin down maybe in half maybe more this year, you know, the stocks are sort of following that along.

A lot of the stocks that are crypto related are bitcoin miners, and so obviously they make less money from crypto when bitcoin is trading at twenty dollars versus when it was trading at so investors are pricing that into the stocks and that is resulting in them being way way down this year. But what about you know, we've seen coin based this week announced that they were going to do layoffs. That follows them saying that they were doing a hiring freeze resending job offers. But they haven't

only had a bad week though. Yeah, yeah, coin base is especially bad. They're down, you know, more than sevent this year. They their direct listing last year, and it has basically been a straight down line to the right, uh since they listed, which is which is not No, it's not, it's not the direction you want to see. Up into the right would be better. Down into the right means your money is getting smaller. Coin based has

has had a lot of problems. Um, they've seen declining volumes. Obviously, the price of of bitcoin and other cryptocurrencies going down makes it less attractive for people to trade, gets fewer people into the market. You know, a lot of people want to make money that I want to see the market going downwards. So it's kind of weighing on that. As you said, they went through a hiring freeze, but

prior to that they were hiring like crazy. I believe before this latest round of job cuts they had something like five thousand employees, which was up you know, four times from from a year prior to that. So, um, that's a lot of expenses. Um, they're hiring engineers, they're building out different products, and so you know, investors don't like to see high expenses when you know your profits are not keeping up with that. And another name that's you know you hear a lot in a too context

is micro Strategy. What's micro strategy and why are they considered a crypto equity? Yeah, so micro strategy is a fun one. They are technically a software company, um, but then they like actually make software as and they actually make software. Yeah, I believe it or not, but if you looked at a price chart of micro strategy versus a price chart of bitcoin, you would be pretty convinced that it's just a bitcoin et F or something and an exchange traded fund. Yeah. Yeah, they are just perfectly

correlated to each other. And that's because starting CEO started putting bitcoin on their bounce sheets, so he essentially said that it was a nice hedge against inflation. So instead of holding cash or you know, other securities, he said, you know, bitcoin is the future, and we're just going to start buying bitcoin and holding on our balance sheet. And obviously, when times are good and bitcoin is going up, that's great for the stock. The value of your bitcoin

that he's holding goes up. Obviously there's the downside of that. When bitcoin is following, the value that you have goes way way down. So at different points throughout this year, we've seen, you know, the value that they're holding in bitcoin b less than their actual market cap, which is a little bizarre. Explain what that means. So it's like there's this difference between how much they're actually worth depending

on the metric that you're looking at. Right, Yeah, so there is their market cap, which is basically how investors value them. It's their share price times you know, the number of shares outstanding in the market, and typically speaking, you would not see a company have cash or you know, liquid assets like bitcoin exceed their market cap because it basically means that you're discounting the value of those basically

like the software services like exactly. Yeah, so you're you're essentially saying that their bitcoin is not worth what the entire company is worth, which the numbers don't line up. So it's a very interesting phenomenon that's been going on, and it has gotten worse as the price of bitcoin has declined. Why is the price of bit going going down right now? What are some of the factors that

are at play here? I think outside what Matt just mentioned, there's been a lot of panic just specific in crypto that's spreading across the market. People are spooked away from the space in general, and I think sometimes we forget to mention that how small the cryptal market versus the equity market or the commodity markets A trillion dollars at

the moment. Yeah, unfortunately, Um, yeah, So I think any sort of capital going away from the market can cause much bigger problems in this market specifically versus you know, the equity or whatsoever. I think in general what we're seeing is that, for example, in May, we had a specific event that's just in crypto, with the collapses the

Terror blockchain. I think that definitely costs even more panic, even among a lot of crypto native investors, because those are the people who in general kind of set up the bottom of the market. But they're been hurt by either their exposure in Terror blockchain, or their investment inter related funds or the tokens directly, all tolken directly, they are not able at the moment to save the market or kind of build up the bottom for this market. So in general, or just being even much more parish

in this space versus the rest of the word. We'll be right back with more from Bloomberg reporters Muya Shan and Matt Turner. So there's this idea in crypto of you know, like in equities, you'll hear about the plunge

Protection Team. This idea that there are these entities that come in and they're like, Okay, it's too low, time to buy some stuff, and that props prices up and there are various players, very large players generally in crypto, who have, whether they might appreciate that description or not, you know, engaged in very similar kinds of practices. What has been one of the things that happened in the past week or so that really spooked those folks and people are now saying like this kind of a terror

two point oh. Obviously, the big thing that happened in the past a week or so is the needs that came out from Celsius, which is one of the biggest crypto lenders in this space. They all of sudden told everyone on Sunday, Sunday night, Sunday night that they're gonna pause all the with strongs, swaps and other activities on the platform. And what that means in practices like their crypto lender, so they're they're kind of a bank for crypto.

You can borrow crypto from them, you can like give them your cryptos a lend to other people and you get a yield. So then posing withdrawals would be like if I walked up to my back branch and I was like, I would like my money please, and they were just like no, yeah, Well, Celsius has definitely be

very careful and not being called a bank. If you go to their website, they say they're Celsius is not a bank, you know, even though your park your crypto asis without saying guinea eiels from us that it's not protected by any sort of gold federal insurance. Ye. So I'm let's say I had been one of those people who had, you know, put money in or will put crypto into Celsius or one of its products. What is

my life like right now? Very sad? I think, you know, as you see prices going down in general, I think the first stopful lot of traders or investors in crypto is kind of rushing to park their assets in stable coins, which are a specific type of cryptocurrency that are supposed to trade as a very stable value, such as you know, they usually packed to the US dollars for example, when

you have like whilst wins in crypto in general. But right now, these people they're just stuck with this fact that they cannot get their crypo assets out of Celsius. They cannot get the cash they wanted because all these are basically throw freeze at the moment. So they're watching prices go down and they're not even able to sell right now? Correct at sounds not fun for anyone involved.

But why is like why is Celsius? Why is them freezing withdrawals and as you say, swaps and other activities, Like why do people perceive that is such a big deal? Like what is their sort of systemic indicata in this ecosystem? I think right now we're still observing in general houses event is going to affect the broader market in general.

But they have been weeks since speculations around how Celsius might be having problems with their business in general, all of which they've you know, consistently denied up to and including the points where they froze withdrawals. Yes, um I, from my understanding, the big problem they're facing is this liquidit crunch. As we talked earlier, crypto markets in general is much smaller than any of the other as a market,

and so it's it's highly sensitive to liquidity issues. So, um, my understanding, we cannot say that specific that Celsius are having issues in terms fully return funds to their clients. It's more of a problem of liquid They don't have enough equality to pay back the massive amount of request

from people trying to leave. So, in other words, if we had been dealing with normal market conditions and you know, kind of like a consistent number of people, a predictable number were like trying to get their money in or out at any point in time, that would be completely fine.

The problem arises, and this is, you know, even though they're not a bank, a fairly classic bank run, when you have a lot of people, an unusually high number of people, all requesting all of their stuff back at once, in which case you're like, okay, this is a problem because you don't necessarily have that on hand in the moment that folks want those withdrawals. Have they given a timeline for when they think they would be able to

unfreeze transactions? I think it's hard to tell. Based on all the interviews that have done, and you know, talking to a lot of people who are familiar with Salsius business, it's optimistic to say that it's gonna be weeks and how do you possible it's going to be monsters before they can restart, and who knows what crypto will look like in some months. Well, actually, I want to turn back to you because analysts love to make predictions about this what are you know? You have been rising about

some interesting and sometimes counterintuitive analyst commentary. What's the vibe among these like market prognosticatas, What are they seeing? What are they expecting? Yeah, so from an equity market standpoint, it's very uncertain. I would say at this point. There's definitely the crowd that says that a US OR session is coming, which is gonna weigh on stocks more. Obviously that would lead to further downside, which is not good

for both stocks broadly and crypto stocks especially especially. Yeah, they I think most people would consider them some of the riskiest stocks that you could get into. So there's a large group of analysts that that kind of believes that. And then there's the flip side of that, which you know, there's people that say, you know, the feed is going to get inflation under control, it's gonna help stabilize the market,

and stocks are gonna go up. You know. I think if you look at price targets for the SMP five hundred, there's something like thirty or foorty percent above where it's trading right now, which means that people expected to go higher in the future. Yeah, and a return over over a year's is pretty amazing. You know. The average that I think when I was growing up that everybody always quoted was, you know, if you get an eight percent return over your entire lifetime, that's pretty great. So in

a year is tremendous. Even with where we are right now. Well, you know, to your point about risk, one of the things, and we've we've covered it on this podcast is the direction in which stocks move in the direction in which bitcoin moves is increasingly looking like the same direction. And so part of what crypto folks are saying is this challenging macro economic environment is weighing on them in the

same way that's weighing on other people. You know. Brian Armstrong and the CEO of coin Base, in his blog post in which he revealed that he was cutting nearly twenty percent of the team, did site, you know, a recession, of the possibility of a recession as a factor that they were they were considering. So we're really in an

environment in which kind of everything is everything all at once? Yeah, Yeah, And I think you know, obviously, you know, the economy weighs on everybody, and crypto stocks are not exempt from that. Um And I think the job cuts definitely reflect not only the outlook for the economy, but also you know, the outlook for crypto in general. He also mentioned, you know, a crypto winter coming, which some would say we've been

in it. Yes, yeah, I would agree. And you know, one of the things that you know, I talked with with a few people um at Bloomberg today was, you know, the the idea of a crypto winter actually implies that you know, a spring is coming afterwards. And you know, I don't know how your guys thoughts on on that are, but I don't know if that's a certainty at this point, given you know how how young and small the crypto space isn't in general, right, so going to be a

deep freeze? What what's the what's the groundhold day for a crypto Well, thank you, thank you Matt, and thank you Muo. Really appreciate you taking the time, in this particularly busy moment for both your asset classes to share your thoughts with us. Thanks for having You can find more of their reporting on the Bloomberg terminal on Bloomberg dot com and they're both on Twitter. Muaw is at Muyao Chen and Matt is at Matt underscore turner with

two rs. That's t U R N E r R. On the next episode of Bloomberg Crypto, we take another look at what's happening with US regulation. The bipartisan due of Democratic Senator Kristen Gillibrand of New York and Republican Senator Cynthia Lumis of Wyoming just released their own version of proposed crypto legislation. Their bill aims to clarify the rules of how two very different government oversight agencies, the CFTC and the SEC, would divvy up the crypto landscape.

It also contains a proposal for regulating crypto mining, which is an increasingly hot button issue as it relates to the environmental impact of bitcoin. But Candice bill pass and how would it work? I'll talk with Bloomberg reporter Alison ver Sprilled for the latest. I'm Stacy Marie Ishmael and this is Bloomberg Crypto, a daily podcast from bloom Burg and I Heart Radio. For more shows from I heart Radio, visit the i heart Radio app, Apple Podcasts, or wherever

you get your podcasts. Email your questions, comments or suggestions for the show to Crypto at Bloomberg dot Net and you'll find us on Twitter at Crypto. The producer and editor of this episode is Vicky Vergalina. Associate producer is Ty Butler. Desta wonder At is our engineer. Original music by Leo Sidron. Bloomberg's head of Podcasts is Francesca Levi