Is There Value In Crypto’s Volatility?

at managing risk. It's clear that these swings can be challenging, but is there a world in which some people perceive them as a benefit, and if so, what's that upside? Today I'm joined by Bloomberg Opinion columnist Leonel Laurent to discuss whether there's any value to cryptos volatility. Leonard, thank you so much for joining us. Where are you joining us from today? I'm joining you from Paris, which is yeah, trying to be a crypto hub along with many other cities.

Lots of cities might currently be rethinking their desire to be crypto hubs, given given the state of the markets. You know, one of the things our colleague and your direct colleague in Bloomberg Opinion, Tyler Cohen has written about is this idea that if you can't think of any other good reasons for crypto to exist, the fact that it's so volatile is potentially interesting. You have written a lot about many different elements of crypto, often with an

extremely skeptical perspective. I'd love to hear what you think about the idea of volatility as usability. Yeah. I think I think it's pretty accurate to say that if you're promoting an asset as being volatile, that means it's failed on a lot of other fronts. It's not usual that we spend a time saying I love the price of electricity when it's volatile. I love it when I go

to the store and my purchasing power is very volatile. Therefore, I don't know if I'm going to pay a lot or pay a little to my groceries zero point zero one bitcoin please. So I think the point here is to say that volatility is great for some types of actors, and it's kind of interesting because I think those are

the actors that do like crypto today. Financial traders who know how to model risk and volatility, speculators who I guess, okay with the prospect of stomach churning falls if it means that in the future they can still dream of a hundred percent or even more. And even journalists and people chit chatting and intellectuals like this kind of volatile thing because it means they can think about all the

different ways in which crypto can develop in future. But the bottom line is, if it's volatile, then it's failed at being I think it's failed at being a medium of payment and medium of exchange, because that's as we see it around us in these times of energy volatility. Most people do not want their method of payment to be volatile. Most people can't even afford to have their say evings or their investments and in something this volatile.

So I think that even if you can argue that volatility, you can say, you can even say I think a lot of people do. The volunteers coming down in crypto. I think recently it's shot back up, and I think it shows you that this is not for the masses. Yet, it's not for the faint hearted. It's for a certain

type of investor. To that point, Malton Dumire's the chief strategy officer at coin Shares, previously had this to say on Bloomberg Markets and again, what we need to remember is in crypto, volatility is the price of the opportunity. We are going to see dramatic swings and corrections. That is part of being allocated to the asset class. I want to focus on something you said about folks who had perceived crypto potentially being a store of value or

a mechanism for payment or a medium of exchange. This isn't something you seem particularly sold on as a prospect. Well, no, I mean it's I think let's focus on bitcoin, because I think there's many flavors of crypto, but Bitcoin is the fascinating story to me because I mean I've been following it for almost a decade now, and the narratives have always changed. In the beginning, it was supposed to be proof that you could have a payment system outside

of the banking system. Then it was discovered that past a certain point there were all sorts of inefficiencies and stresses in the system that meant it couldn't scale properly. And then it became sold as digital gold and the sort of scarcity value of these twenty one million bitcoin and you would never go beyond that, and we we see what happens Basically, when you do have a fixed supply,

it's a bit like a like a commodity. It all becomes about demand selling bitcoin, getting more people involved, getting new money coming in, and also on top of the new money, having to pay the electricity cost to mind it. These are all reasons why bitcoin is what it is today, which is it still exists and it's still here. You could always point to that and say that's victory. But I don't think you could point out what's happening and say, we we know what this is, we know what this

is for, we know how it works. It works as a supposedly the stable store of value because it isn't a store of value. And now the final narrative to fall away is the inflation hedge. Inflation is back in a big way and bitcoin is through the floor. So another narrative that's been knocked down. One thing that you've noted, you know again to use your word about narratives, is this idea of crypto fomo that had affected not all of Wall streets. Certainly some of them have still violently

anti crypto, but at least some of them. And the fact that and you tweeted this, and I said you should make this a column. But the people on Wall Street who seemed to be continuing to make money on crypto are the ones who are making distressed bets, right so there bankruptcy advisory or you know, they're collecting fees on different types of trades. Do you think that even Wall Street, which is home to lots of people who understand risk, is finding that that crypto fomo should have

been crypto like joy of missing out instead? That's a good question. I think it's it's it's slightly different. I guess at firm level versus individual bank or a trader level. I think institutionally, we have seen a lot of pressure on banks and institutions to to dip their toes. It's resulted in a in a lot of different things. As you point out JP Morgan, investment banks have been lending to institutions that are in crypto. They've not really touched

the cryptocurrency themselves, but made money on the ecosystem around it. Basically, I think that for anyone to point at what's happening today and say, Okay, this system is surviving and there are individuals and institutions out there to backstop it, you would have to see a lot more than what's happening today, which is basically some big shot crypto billionaires who run exchanges like sand bankman Freed sort of throwing a few pennies and distressed platforms and hoping to pick up the crumbs.

So fd X signing agreement with block by today. The deal includes an option to purchase the crypto lender for as much as two hundred and forty million dollars. Sam Bank and Freed, co founder of fd X, I think you would need an actual Wall Street institution that to come in and say we are making a meaningful acquisition or a meaningful merger here for it to look like this space has a future today within a regulated entity.

I think what's happening now shows you that we are a fair way off, even if there has been a bit of I guess unhealthy pomo from some institutions. It's interesting that you say that about you know, e many We we are in such a distressed environment that that's absolutely something that folks are not just expecting but actively talking up right, Like various crypto companies have come out and said we have a responsibility to ensure what's the

phrase healthy consolidation in the industry. UM, the CEO of Finance and the folks at Nexto have both said that, you know, they want they want to be there for the people, for the people who need them. You mentioned Sam Bank Man Freed and FTX attempting to sort of ride to the rescue, as it were. But to your point, it doesn't look as if anyone on Wall Street has yet owned anyone operating at a value that is attractive

enough to make that risk worth their while. What do you think about the opposite where there's various kinds of speculation that a crypto native firm could make, you know, a tradify a traditional finance acquisition. People got very excited when Sam bankmun Freed disclosed that he had acquired a

stake in robin Hood, for instance. Yes, and that that kind of makes me have a different vision of the future of of what he might try and attempt, because I can totally see a universe where he comes out as the as the winner in this situation by creating essentially a kind of great big casino in the sky, a sort of virtual seven marketplace where you can trade stocks and crypto and everything. It's like all of this stuff that the meme stock staff and crypto that's where

you go. He's sort of clean house, so that that might be his plan. I don't know today if if that's really possible, If this is this is the question, if crypto keeps falling, If if the coin keeps falling, I don't see how these exchanges today, whether it's ft X or Finance, I just don't see even if they're making a lot of actual dollars out of this, I just don't see how they can they can withstand that.

We'll be right back with more of Leonel Laurent's take on the volatility of crypto and its implications for the current market. In another one of your columns, us explicitly used the analogy of crypto not being too big to fail, right contra what happened in two thousands and thees and onward, where various governments decided like, actually, it would seem that having our commercial banking system fall into pieces would not

be ideal from a consumer perspective. It doesn't seem as if crypto has sort of risen to that level for regulators and governments. Is there anything that you're observing perhaps in Paris perhaps and Europe, perhaps elsewhere. That suggests that regulators are looking more or less positively on what's happening in crypto right now. Again, we have to separate out a few things. I think regulators have always had the

same view of suddenly like bitcoin. I think they are as long as you focused on the exchanges and the off ramps from regular currencies. I think they don't mind it and behaving the way it does. I think size not being too big to fail. I think we've obviously seen today there aren't that many connections to the real economy, and when I ask regulators, what if this one shouldn't got a market disappeared tomorrow, they don't seem that fast

about about the consequences. I do think that they are far more concerned about stable coins, as the Facebook experiment put them put them on alert. I do think that they are concerned about what happens next. I mean, if if if de fi becomes the hot thing eventually once once again, and if if links increase to the to the real economy, then they are very concerned and sort of watching it that. I would say that today they

haven't really changed their minds much. But I think they are going to be looking much closer at all the different offshoots of crypto to make sure it doesn't accome

too big to fall. One day, Well, you mentioned stable coins, and you mentioned the Facebook experiment, which is you know back I think it was in two thousand and eighteen was the first time that this news came out that Facebook was looking to develop a crypto that would allow cross border transfers with WhatsApp as as the vehicle um and a lot of people had concerns about that, certainly the moneygrams of the world, who felt their entire business

model quick in fear, but also governments who have an interest in making sure that it's relatively difficult to transfer currencies across borders. As it relates to the regulators that you mentioned, a big concern they have with stable coins is that it reintroduces systemic risks in a way that we also saw in the financial crisis, where things that didn't look correlated suddenly become so because they're all exposed

to the same thing. Given what you've said about too big to feel, do you think if stable coins were a bigger part of this ecosystem, you would have a different analysis. I think the problem with with stable coins. As I see it is we're getting into bank like activities without bank like regulation. I think that's the problem. And I think that's what I'm seeing a lot in

defied too. You have lending going on, you have borrowing going on, you have leverage, you have interest rates, you have the sort of I guess it's like a meme or or a kind of caricature of what banking is, but without none of the oversights or the or the protections that regular banking has to provide. Right the if it looks like a bank, walks like a bank, talks like a bank, should regulated like a bank situated exactly. Yeah, And I think Frankly Later has been behind the curve

a lot of this stuff. I mean, I don't know today what regulators think is beyond the pale. Fundamentally, yes, they say they're tough on fraud and scams, But what is the activity that they think would be beyond the pale for a stable coin or or a non bank entity to provide on de fight through crypto, I don't know.

I think we need to know what should be genuinely banned, right and and I'm sure there is stuff that should be banned that isn't even though it's sort of parading itself as defile stable coin, and I just feel like it's not clear, so regulators are always kind of running after it, a clarity that many, many people on multiple sides of this equation are all seeking. Well, thank you so much, Leonard for joining us from the Paris studio of of this podcast. Appreciate you taking the time to

come on today. Thank you very much. You can find more of Leonell's opinion columns on the Bloomberg Terminal, on Bloomberg dot com and on Twitter. He's Leonel r A laur That's l a u r e n T. On the next episode of Bloomberg Crypto, some investors are still buying the token known as Luna Classic, which has flatline towards zero in the aftermath of the collapse of the Terra USD stable coin. Why are people willing to bet

on so called zombie coins? You'll hear from Bloomberg Senior editor Mike Reagan and Bloomberg Reports Mr Lena IGLFA Polo for more on the motivations of these treasure hunters of the token deeps. I'm Stacy, Marie Ishmael and This is Bloomberg Crypto, a daily podcast from Bloomberg 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 supervising producer of this episode is Vicky very Galina. Our producer is Mohammed Farouk, Associate producer Moses and Desta wonder At is our engineer. Original music by Leo Sedrin m