This Week in Crypto: BlockFi Bankruptcy

crypto editor Anna Arera. The question is if something happens to Binance, and I'm not saying that we have indications that it will, but who rescues Binance then? And you know, you perhaps need money from outside the industry as well, not just inside. And crypto reporter tens ill act are the current regulation of crypto is partly shaped by misconceptions, the belief that space must be given to innovation all costs.

Crypto contagion is showing very few signs of slowing down. Monday, it was Block vice turn to file for bankruptcy, filing for Chapter eleven bankruptcy protection in New Jersey, and are you help cover that story a little bit? Um, can you tell us a little bit about what happened and how significant this is? Yeah, I mean it's it's a big deal. It was not totally unexpected because they were having trouble earlier in the crypto winter being a lender.

Obviously they suffered from the um falling prices and they were rescued by FTX, and so obviously now we know FDx itself needed rescuing, so clearly, um they had to sort of file for bankruptcy too because the rescuer went down. Um, it wasn't necessarily a massive shock to the sector. We don't know the extent of contagion because, as with fd X, the names of the creditors have been redacted, so we

don't know yet. But people were sort of expecting it more than perhaps obviously for sure, more than they were expecting the FTX collapse. Um. It does obviously leave the door open to more contagient because who knows who their counterparties are, and if perhaps they're also counterparties to ft X. So I think people are sort of expecting perhaps more shoes to drop. Um. But we'll have to follow what's

going on there. Yeah, and to your point about UM, you know, having names redacted for major creditor that creditors that are also appliance. I think we had at least six or seven names with north of ten million dollars or claims on them, So it's fair to even without knowing who the names are, it's fair to assume presumably that several outfits are sitting on rather large losses out

there stemming from this potentially. Yes, yeah, I mean we saw the list of creditors without names had like big big sums next to it, so it will be someone maybe not necessarily a known crypto only firm UM that

has a huge loss because of Block five. Actually, curiously, one of the entities that was mentioned and wasn't redacted was the sec UM and Block fights at thirty million dollars, which is part of a settlement UM that they were paying UM because of an issue they had earlier in the year, which is somewhat funny, but they're not really

that funny UM. But yeah, it's curious. I guess it's like part of the crypto world that someone going bankrupt owns owes the regulator millions of dollars basically, sec get in line. You alluded to the fact this wasn't entirely a bombshell surprise, and we've actually seen crypto markets fairly stable throughout the week. We got bitcoin trading I believe, just below seventeen thousand right now. Um, but there are a wild range of forecasts and predictions out there right now.

Pass What can you tell me about that? What? What? What have we seen in the last week? Um? Yeah, sure, So you know, it's pretty surprising that it's the bitcoins reached seventeen thousands, it's the highest level in two weeks, and other also has climbed up four as well. Um, the predictions out in the market right now. So we're hearing Mark Mobius, who's the co founder of morbius Um cups of Partners. He sees the next target for bitcoin

being ten thousand dollars um. So, although he did say he won't be investing his own cash of client money and digital assets as it's too dangerous, and he also went on to say crypto is he to stay as there are several investors who still have faith in it. So messages from Mobius um. There was also a Wall Street Journal column up by Andique Kessler, who says crypto's final price could be zero, which states that no st lender would extend credit against assets lacking any underlying collateral.

He also went on to compare the technology and debt to red bull and milk, saying that they don't mix, so you're seeing mixed messages. And then ECB also detailed it stands on bitcoin um market in general through a blog post, saying, Um, the current regulation of crypto is partly shaped by misconceptions, the belief that space must be given to innovation at our costs. So, I mean, the post in general was quite negative about crypto. So, I mean, there's not a lot of faith in the market right now.

But who knows? What are the bulls countering with? Anna? One thing that we see quite a lot is, you know, people are still building the block change operating, the de FI protocols are still running. What are we hearing from

the bulls right now? Um? Sort of the crypto proponents and you can separate the Bitcoin maxis from the rest or in general, sort of people that believe in digital assets say and point to the fact that actually f t X isn't bitcoin, it's a centralized entity, and it's sort of the opposite of what you would want UM crypto for UM, and it just again reinforces the idea that you need decentralized money because things like FTX happen UM and so that you know there's still value in

digital assets and in bitcoins specifically, because it's not it's not what collapsed and the networks still running and and you know it wasn't a crash and it wasn't like bitcoin filing for bankruptcy if you will, is fd X. Of course, like one argument you could have to that and is that you know, normal people can't really disting wish between perhaps f t X and UM bitcoin or the protocol they might have bought bitcoing through ft X,

and so maybe not for everyone. The distinction isn't very clear because many of these firms that are centralized entities became the representatives for for the asset class. If you think about it, especially how much money they spent on advertising over the past year. You know, I was watching the World Cup last night, you still see crypto dot Com advertised UM near the players. So it will be clear for people in crypto, but it might be too subtle.

Maybe for for for some you know, tourist investors as they like to like to call them. But we'll see. Like, certainly, you know, it is quite um surprising that bitcoin has held this much. You know, maybe you would have asked someone, even a crypto believer, a few weeks ago, what would happen to bitcoin? Surprised if ft X collapse in the space of a week, and many of them, even bitcoin believers, would have thought that it would have fallen beyond what

we saw it go down to. Yeah, I'm surprised it's not lower, it didn't crush further down to like anyway, that's just my opinion. There is a little bit of unusual resilience here. Maybe um, maybe the hoddlers are finally

standing their ground. I do want to talk about another type of trader that we just covered in a really nice story that Anna you worked on the hedge fund crowd or should I say the crypto hedge fund crowd that are following the ft X debacle kind of losing fate in the notion of the centralized crypto exchanged as it stands today, and I can you tell us a little bit more about that. Yeah, So obviously one of the biggest groups that were hurt during FTX we were

pro traders and hedge funds and market makers. Because FTX was built by a trader and by traders. One of the original slogan was built by traders for traders, I believe, So it was hugely popular with professional investors. It was seeing sort of as the gold standard or like it was, you know, really great for for professional trading. It had got lots of leverage and had all these derivatives. It's

very attractive. So clearly when it collapsed, it caught many people, even like pro um o G you know crypto funds, UM caught them by surprise. And so if some of them have had big losses, I mean obviously they ranged. One fund we heard had to close. There might be more we haven't heard of, but many had a little bit of money on there for sure, because you needed

it to trade UM. And another thing of crypto platforms is that it's it's not like Wall Street where you have a trading platform, then you have a custodian clearinghouse

and UM a prime broker. A lot of that happens on exchange, and so you also need to post your collateral and exchange if you want to margin trade there, and clearly, if then the exchange goes down, you're not only losing your trading capital, you're losing what you're what you're moving on exchange, but you're losing your collateral too, and that's a big leap of faith now right to

go on another exchange. So we're hearing or you know our report, I was hearing about sort of some some funds that are a bit wary now and they don't want to post their collateral anymore. So they're trying to push for separation of powers, which would then make the market look a bit more like Wall Street, which which is of course ironic because the whole point was to make it not look like Wall Street. And this is the theme that's actually been cropping up quite repeatedly in

the last couple of weeks. They're post FTX. Is this idea of the crypto exchange, or that, i should say, the centralized crypto exchange. It's kind of a sort of a weird animal which does multiple Wall Street functions in in in one organization wraps them all together. It's sort of as you're saying, it's it's there's a little bit of an irony in there that the industry that was supposed to be the inverse of Wall Street might actually become more like Wall Street as a result of this.

What are your thoughts around that? Yeah, And I guess it's interesting because perhaps it just shows how it is just following the evolution and some of the mistakes that happened on Wall Street because obviously, like some of the separations of powers on Wall Street and market structure there were in forced after the financial crisis of two thousand and eight where people got hurt and where you know, the rules came and made off as well, like clear

segregation of client assets UM, moving more stuff on you know, murky stuff on transparent platforms UM, and making sure that everything was separate because that reduces conflicts of interest. So in a way, rather than I guess it's repeating, it's replicated Wall Street and also the mistakes of Wall Street, which is really which is really interesting. We'll be right back with more of the week's top crypto stories with

Anna Arera and Tanzille Actor. It wouldn't be a full crypt episode without talking about UM, our favorite crypto exchange finance UM. They were in the New Striking a deal in Japan, tas what happened there. Um, Yes, so binances re entering Japan, which is really interesting. UM. In the early days, Japan was a hope for crypto um as it was home for mark Gox. So I'm not sure

if you know. I'm sure people have heard the Mount Cox and how there was a massive hack which involved four hundred and sixty million at the time going missing. So Japan itself has been very like careful when it comes to UM regulating crypto. So obviously finance re entering Japan I think is a big deal because Japan is super careful when it comes to regulations around crypto UM.

They've also been one of the markets that even that has been one of the older adopters I think in Asia of krypto, and obviously, as Stars was saying they were burned by Mount Cox or early on, they tightened

regulation a bit more. So it's interesting now and that led some players to leave, and I guess now with the regulation that's in place, it's it's leading players to come back, which is I guess some of the point that the point that some crypto firms make, they say, well, the lack of regulation makes This makes it unclear, and

so it's pushing us to go offshore somewhere else. If we had clear regulation, at least we know what rules to play by UM, which is a point, But then I guess the counterpoint is, you know, you could just follow the regulation that exists on it, I would say other assets. That's quite a bullish move on Japan's front when it comes to crypto, like letting Binance one of the biggest exchanges to list out there. I don't know, that's my point of view. They're not. I don't know

if the term is listing you think they are. They are gaining a foothold in Japan, I think we can say. And you know, on the topic of viinance, they are obviously the eight hundred pound guerrilla in the industry right now, especially after FT excess demise, and they have been kind of on the trying to get on the front foot a little bit in the last two weeks UM and one of their initiatives and has been this industry recovery initiative what do you want to call it? A rescue

fund for promising but cash trapped crypto startups CC. You've talked about launching a Crypto Recovery Fund. Where are you on that? You've talked about interest being quite substantial. Who's interested? Um, there's being back and forth on how to structure that. Do we make it at a loose fund or do we make it that actual fund fund. I think we're kind of going with a loose approach where different industry

players will just contribute as they wish. So what have we seen there and what might their motivations be behind these efforts? I guess maybe part of it is also for morale to show that there's still money and um, you know interest in crypt obviously, like a crypto firm would have interesting crypto, but just to show that there's

still some life here. UM. It was interesting that they said they have around a billion, the action fund will be around a billion, and they had other firms like notably some market makers committing money too, but like the Lion's share was from finance um, which you know is curious, but as as well, you know, you're sort of seeing parallels with the early SPF days, the SPF of summer

when he was coming in and having to rescue. So you know, the question is if something happens to Binance and I'm not saying that we have indications that it will, but who rescues Binance then? And you know, you perhaps need money from outside the industry as well, not just inside. But it's definitely an interesting thing to to watch and see what they decided to to invest in. I think we had Ces on TV last week and he was

discussing how they're looking at another Voyager bid. They're going to look at FTX assets as well, see what's what's viable there, and I think they said they were in talks with Genesis too. So basically to conclude the session, watch c Z and Binance and let us see what happens in the next few weeks. Thank you Anna, and thank you tan Sale. You can find more of Anna Arera and Tansale actors reporting on the Bloomberg Terminal and on Bloomberg dot com. For more, be sure to check

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