Eight Days Into FTX's Bankruptcy Blow Up

are moving fast and things are getting pretty serious. And here to help me break down the news is Bloomberg Crypto Senior Editor Philip Blogger Cornso based in Switzerland, almost half of all crypto trading volumes globally. When to the bynance, the runner up is coin based and they're at five percent, so that gives you kind of a sense of just

how big buyinance this. And Bloomberg Crypto Senior Editor Snel Jacksoniani based in Sydney, but with me here in Singapore, I think it's the kind of thing you can only expect to see in crypto. I cannot imagine something like that happening anywhere else. Sanil Welcome to the podcast. Thank you, Stacy Berry. Tell the folks what you do. We've not had you on before. I am the senior crypto editor for Asia for Bloombook. I'm normally based in Sydney, but

today I'm in the tropical island paradise of Singapore. Excellent, and Phil, welcome back to the show. You're an all handed this by now. Yeah, I guess you can call it thank you. I mean that only in the sense of experience. So let's flash back in time too, the weekend, although I'm not sure that we technically have weekends anymore. We just have days that turn into other days. But Neil,

what was going on for you this weekend? Well, we knew that there might be some activity on Saturday, so we were logged in and ready and waiting and lo and behold, and it took a while for us to fully accept this was happening. Lo and behold, we saw that there was an enormous hack perpetrated on the recently

collapsed ft X exchange. And through the course of Saturday, we reported out that story, and we saw the size of the hack gradually escalate from an initial estimate of around two hundred and fifty million to eventually more than six and fifty million dollars. So you had the ignominy of a hack on f d X happening right as the company is falling into bankruptcy. And really, I think it's the kind of thing you can only expect to see in crypto. I cannot imagine something like that happening

anywhere else. That that was our Saturday sounds totally chill, sounds like a normal Saturday in crypto. And we get into Saturday, we get into the weekend, We're still trying to figure out who is behind this hack. You know, theories and speculations are flying around, and over the course of the next couple of days, something interesting happens as it relates to how c Z, who is the CEO of Finance and Finance itself are sort of positioning their

rule in this evolving crisis. Phil, what exactly has been going on there with SPF Crypto kind of lost. I guess what we could call the chief diplomat or the person I suppose what he would like to call himself, cheap diplomats. I'm not sure we would call him that necessarily. Yeah, No, there's a very that's a very good point and and all those things that obviously moved now, but there is a vacuum that somebody needs to step into, and ces is busily casting himself as just a person to step

into this. So if you've seen even other big executives in this industry have been forced on the defensive, cryptot Com CEO has been out talking about how your funds are safe and you don't need to worry. Um, you know we have adequate reserves, etcetera, etcetera. He said, sort of went on the offensive instead and started, you know, making a lot of tweets, a lot of speeches, a lot of comments in the vein of let's all come together, let's rebuild. You know, we need more regulation, we need

better governance. So he started casting himself as as this person who is now the prime representative, I guess of the crypto industry. And obviously in a way it makes sense, uh. I mean, if you look at the data that we used in our story from crypto Compare, in the last week they handled almost fifty is almost half of all crypto trading volumes globally. Went to the Binance. The runner up is coin based and they're at five percent so that gives you kind of a sense of just how

big binance this in today's crypto. Now, one of the interesting tensions, which we've addressed a few times on this podcast and which will will continue to address, is between the idea of the crypto industry presenting itself is like a bastion of decentralization, right, and that there's no one person in charge, there's no cabal of insiders determining the

financial system to the detriment of the ordinary person. And yet what tends to happen in a crisis, particularly a financial crisis, is you do see various kinds of coordination because people are trying to figure out, okay, what do we need to do to stop this from getting worse. And that was very much true in the two thousand and eight financial crisis, that of course, was the root of the creation of bitcoin itself, and it's been true with governments around the world trying to deal with rising

inflation worldwide. And now it's happening in crypto, perhaps unexpectedly, where you know, various crypto CEOs are trying to tell other crypto CEOs, hey, you should be transparent, because your transparency is good for all of US or CZ encouraging other folks in the industry to support this fund, which is explicitly to backstop, you know, people who might have, as the euphemism goes, liquidity challenges in the course of reporting.

And frankly for us, because we're editors, in the course of editing the stories that our reporters are doing, how are we finding that people in the industry are trying to reconcile this tension? Are they trying to reconcile this tension? I think right now the dominant narrative is I mean, if you look at the big place, like C said, for instance, the dominant narrative is sort of one of

salvage mode. So it seems to be like kind of the principles that the industry built itself upon as decentralization seems to be giving way in at least in the telling of some of these executives to the fact that

right now we kind of need to come together. We need to re establish trust with everybody, from regulators to politicians to obviously our actual customers are If you look at this fund that sees it has been tweeting and talking about it very much, has the appearance of a little bit of an off the cuff invention, a you know something that that very much look good in a tweet,

and it's it's a very nice talking point. The thing is, we don't have any details on like how big it's going to be and what exactly it's going to be doing it's going to back, so we know that sees It has said, for instance, okay, well we small. Some projects are small, they're very promising, they're not troubled, they just need a little bit of money. Well that's one thing. Huh. If you want to look into a slightly a smaller

decentralized product or protocol, that's promising. But the big thing here is right now, the big players are the ones that are getting attacked. I mean, you're seeing outflows from major exchanges and so it's unclear really how how that is going to solve that particular problem. So I guess it's a little bit of both, but right now I'm seeing mostly a sort of centralization narrative almost and sinil.

One thing when we talk about crises, which we seem to do a lot in crypto, but one thing when we talk about crisis that we often get into is regulators and at the same time that there's this narrative among crypto CEOs of like, you know, what are the kinds of things that we can do. We disavow bad actors, those people don't represent us. There's also an immediate and slightly confusing, parallel narrative of this is all the regulators fault.

You know, this is an industry that spent years saying, don't regulate us with your stupid Wall Street rules that don't apply to us, then pivoted to if you're going to regulate us, here are some rules that we've written. Few free to refer to them and adopt them wholesale. Two. Okay, fine,

if you're going to regulate us, use those rules. But we would really prefer to have these particular regulators be in charge to now seeming to blaame regulators that they had been fobbing off for a very long time for missing this latest story. Is it possible to be a regulator and win in this kind of environment. I don't

think it's possible to be a winning regulator in any situation. Really, if we're being honest, Regulators take years to frame their policies, and crypto evolved at the speed of light, So it's no surprise that they've been behind in their effort to try and figure out how to regulate and how to manage the growth of the industry. I think what you will find now is that there's a very clear perception

and awareness of what comes from concentration risk. So it links to what you were discussing just now with Phil And while people are hoping that CZ comes out with the fund that can help to study the sector, with Sam Backman, Freed and the collapse of f t X, we've seen what happens if you have too much power concentrated in one particular personal enterprise when that enterprise isn't appropriately regulated. So I think it's a I would say, a delicious tension in the industry right now, and I

don't think anybody really has an appropriate answer. And that, in a nutshell, is the problem of regulating crypto. It's been years and nobody has come up with the answer, and we get repeated crisis and I would suspect that's going to carry on happening for a while longer yet and fury, and there's a point in relation to that as well. Sorry to break in here, but the regulation

has been focused. If you look at what the focus has been, it's k y C know your customer, I don't take sanction money, for instance, and it's a m l anti money laundering, an anti terrorist financing. Sure that was that was fine up until this year, but then the industry itself started breaking down, and the regulation doesn't seem to be have been equipped to deal with the fact that you now have like major failures across the industry among large players, and not only major isolated failures,

but cascading failures. And it's like a the regulation is clearly not in place to deal with that, and be it is entirely clear how such regulation might even look. We'll be right back with more of the week's top crypto stories, featuring Philip Larger Kansa and sa Neil Jagtiani.

This weekend, Singapore, Bloomberg hosted a major conference for financial services professionals and other folks, and I interviewed Anthony Scaramuchi, Yes that Anthony Scaramugie of you know multiple Scaramugi's fame, and he was very candid in talking about his experience with sam bankmun Freed and FTX and noting that earlier this year just weeks ago, weeks before that bankruptcy filing, he'd sold thirty of his company to SBF and to f t X and saying that, you know, he personally

introduced Sam to folks in the Middle East, and that you know, he was sort of using his personal capital on his behalf and just feeling like blindsided almost by by how this can happen. But he also said something interesting. I thought about those personal relationships again and the idea of trust, and his allegation was that you know, Sam and CZ of Finance have had shall we say, interpersonal

animus for some time. They didn't necessar sarely get along, and that some of what happened in the last couple of weeks partly reflected the tension between outsized personalities. And that's something that our colleague Mike Reagan has written about.

You know, we've we've sort of been documenting the egos of mostly men in Crypto and Phil because you you know, you wrote that story about c Z kind of stepping in into this rule and also because you're newer to Crypto, have you observed that kind of sharp elbowed behavior, either in the folks that you're talking to or just like the kinds of stories that you're editing. I mean, before coming to Crypto, I've never seen behavior anything remotely like this.

There's no industry where I've that I've covered over twenty three years in journalism where you can have a Twitter fight break out between two the titans of the industry and that then leading sort of indirectly. I mean, obviously

we should be careful to state that. You know, sooner or later the fter ex Empire would have probably comment down anyway given what But I don't about the balance sheet and about the way that they were, you know, the relationships with Alameda and how they were basically running things or I guess you say, not running things, but you had a situation here. What we do know is that Season made that tweet on a Sunday saying we're dumping five thirty million dollars worth of the FTT token

and panic breaks out. Pandemonium breaks out five billion dollars yang from ft X in one day, according to bank man Freed. So you know, I've never seen anything like this before, and and and frankly, it's hard to see in any way, shape or form how this would be good for an industry that frankly is limping right now. The blow ups this year are too many to even

recount here. We'll be sitting here for hours. This is where Scaramucci's narrative is quite interesting to me, because it's so at all with the narrative that season and by Is are putting out there, which is basically, and I to be honest with you, like, I'm not taking sides here at all. What I am noting is that there

are two very different narratives out there. You have the narrative that Scaramucci was was out pointing out to you, Stacy, which is basically, okay, this was an act of retaliation probably, and then you have the narrative from Finance saying, no, actually, we knew that something was wrong because we read the coin this article as some everybody else, and we knew that we have a very large bag of FTT and we have a basically a duty towards our own customers

and users to to, you know, to deal with this situation. And and you know who knows. What we do know now is that this went down in an extraordinary messy fashion. Sa Neil as somebody who is also a veteran of various types of financial markets and has You've had a really interesting set of places that you've lived and like

different types of places that you've covered. If you were to analogize at all the behavior that you're seeing in crypto, is there anywhere else you've ever seen anything like this any other journalistic context. I'm going to say nuclear weapons, because from nuclear weapons, we know that people understand the doctrine of mutually ustured destruction and we know that, you know,

nuking each other is a bad idea. But if you look at what happened with the cz tweet and the chain of events that followed that, you get the sense that there's a whiff of encrypto people can do things that can take each other down and cause a huge crisis that gets people asking about whether the industry has any future at all, and that I think is different to most other industries, if not all the sectors I've covered.

It's rare that you find yourself in a situation where you're wondering, do these people really understand that they could totally destroy the industry that they work in. So that's pretty unique, and it goes back to your question about trust. You were saying you have this conception of a trust list ecosystem, right, But the truth is there are various layers of trust all the way down. You trust that the underlying blockchain is going to work the way it's

supposed to work. You trust that the individual whisk Kid really has a sound vision and will run his company properly. There are various levels of trust, and at a very high level, one thing you want to trust in is the idea that people in the industry aren't going to blow each other up. And it looks like we can't have any trust in that either, which I would say is not a good thing. On that genuinely apocalyptic notes, I think we shall end there. Thank you both, Thank you,

Thank you. You can find more of Phil and s Neil's reporting and editing on the Bloomberg Terminal and on Bloomberg dot com, or check us out on the Bloomberg Crypto newsletter. And finally, if you have any comments or feedback, you can always find us a crypto at Bloomberg dot net. This is Bloomberg Crypto, a dearly podcast from Bomberg 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. Send us your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net. The supervising producer of Bloomberg Crypto is Vicky Verglina. Our senior producer is Janet Babin. Our producers are Mohammed Faruk and Sharon Barriro. Our associate producers are Ty Butler and Moses on Them. Desta wonder At is our engineer. Original music by Leo Sidrn. I'm Stacy Marie Schmal. We'll be back tomorrow