This Week In Crypto

really stop talking speaking of lawyers. As the bankruptcy winds its way through the courts, thirty year old Sam Bankman freed has in fact hired a new person to represent him, Mark Cohen. Cohen's name, if it sounds familiar, is probably because he's known as one of the lawyers who represented

convicted sex offender Lane Maxwell. Today we're also going to discuss whether that big Ethereum moved to proof of steak, which happened earlier this year, although it feels a million years ago, really had a meaningful effect on energy consumption. A new academic people writing about the merge, asks the question, what if all those computers are no longer working on proof of work duty for Ethereum have just been reassigned, and they're mining other equally energy intensive tokens. Finally, why

is Senator Elizabeth Warren asking questions about silver Gate? For all this and more, we're joined this week by Bloomberg Report to any Massa. To have Sam Bankman Freed come in with his kind of reputation for being this real mover and shaker in crypto was exciting to people at the time, and senior editor Dave Liqua, there's worry whether there'll be another wave of sailing or panic selling, but in the meantime, the market's actually been fairly flat. So Annie,

you are on the road at the moment. What's going on? That's right. So I'm in Chicago today. I've been um back and forth here for a couple of conferences and industry events, the goal being to just talk to as many crypto people as I possibly can, as as this industry kind of absorbed absorbs. The shock waves of f t X is massive implosion, and what's a large number of shock waves. There have been so a couple of

things that have been happening just this week. You know, We've had Sam Bankman Freed pop up on three Twitter spaces, several other media appearances, just a lot of him explaining what he thinks happened, or what he doesn't know happened. One thing that's been interesting to watch, at least from my perspective, is there was this big lead up to AM's appearance at the New York Times Steel Book conference, where people were shocked that he would talk to the

media after all that's transpired. But what's happened since then has been has I think up ended people's expectations. Instead of it being hard to get an interview with him, he'll almost speak to anyone. He's on this on Twitter spaces all the time. Like you mentioned, He's talking to every single outlet, sometimes for hours at a time. And it's become this parlor game in the crypto industry to guess what on earth he's trying to do? What on earth?

The goal is here? And this is despite and I have to say this, this is despite the advice of counsel, whether his counsel or other people's counsel, or just like any lawyer in the street. The vibe from the lawyers seems to be Mr Bankman, Freed, please stop talking. Are they suggesting this is a good idea for you to be speaking? Uh? You know, they're very much not um and I mean, you know, the classic advice rate don't say anything. Uh, you know, recede into a hole. Uh?

And is that who I am? I mean one of the headlines that our colleagues on the legal team were able to confirm this week is that Sam Bankman Freed has actually hired new counsel who may or may not be telling him to stop talking to everyone. Yes. Um, with his apology toward there's been a lot of questions where he's going with his legal strategy, and by hiring Gillane Maxwell's lawyer tied to the infamous child sex scandal with Jeffrey Epstein, there's a real question on what he's

trying to do. And Annie, from the perspective of you know, just this very very complicated set of companies. You have multiple lawyers not just representing Bankman Freed himself, but you know, personal counsel for a lot of the folks involved. You have multiple different domains and jurisdiction. How are you approaching this in terms of your reporting, you know, like and what's in terms of the crypto folks that you're talking to in Chicago and elsewhere. What are the feeling about

the reverberations for the industry. I think you're exactly right. It's really a sprawling bankruptcy that has impact all over the world. I mean FTX operated all over the place of course, in the Bahamas, in the US, but you also have Europe, Japan, Vietnam, um areas all over the world. It's not a typical bankruptcy, right, Like, there are so many entities involved, and as John Ray said, there's really

unreliable perhaps financial information that it's all based on. It leaves a lot of questions open about how we're going to proceed from here. And I think that a lot of the players involved have been lowering up themselves. But then you also have these entities that are going through bankruptcy and there is some confusion right now about how

exactly as well it will all play out. Now. When we talk about the the unusual nous of the bankruptcy and the multiple jurisdictions, one of the things that is also kind of unusual is like the contagion effect, right that this has had on other entities in crypto, Dave, As you've mentioned, you've covered crypto for a long time, You've covered finance for even longer. People are throwing around

words like Enron made off Lehman Brothers. You know, the difference here being that unlike with made Off Sam Bank and Freed has not been charged with any kind of crime or wrongdoing, he's not been accused formally of any

kind of crime or wrongdoing. Um with Enron, we have the benefit of hindsight, as we do with Lehman, to say, well, here are the things that exactly went wrong, But at least in terms of that feeling of contagion, what are some of the kinds of things that have been happening in the past few days and weeks that are giving a sense of how the market is reacting to this. Well,

it's a real curious time in the market. There's still some unknowns in regards to contagion, so there's there's worry whether there'll be another wave of selling or panic selling. But in the meantime, the market has actually been fairly flat um since the the actual bankruptcy of f t X. In that time, Bitcoin has maintained its market share, which is also disconcerning to some folks because they see it as a example that there's no real safe haven demand

in the market. Typically in the past, what has happened is that as markets fresh like this, the percentage goes up.

Then the market turns around, the percentage goes down. But everything went down and you just in this time and it's just staying there right that idea of you would almost expect, or at least various analysts have been predicting, especially the bearish ones, that crypto prices across the board would actually be lower than where they are right now, but it's been it's been this like weirdly range bound

trading situation instead. Um addie. One of the companies that has been kind of caught in this ft X contagion both directly and indirectly is robin Hood, and you have covered robin Hood very extensively. Could you just share a little bit about what is the relationship and what's the complexity between this robin Hood shares f t X situation

right now. So back when Sam Bankmnfried was doing his kind of buying binge over the spring, he bought this big steak in robin Hood, which is a trading platform that's really popular among young and kind of inexperienced traders.

And you know, we all recognize it from the game Stop meme stock saga of So Sam bought this huge steak in robin Hood and became one of its largest shareholders in May, and at the time people were kind of buzzing because robin Hood's share price was like really tanking, and uh, you know, to have Sam Bankman Freed come in with his kind of reputation for being this real mover and shaker in crypto was exciting to people at the time, and there was a question out there like

would he ever want to buy it? Out right? Like what does he want with it? Is he going to broker some order flow deal? Like what does he want with this this steak in robin Hood? And you know, fast forward to now we've kind of had a complete one eighty and it's one of the last easily sellable liquid things that any entity related to Sam at all has in in the ft X empire. So now the

big question is what will happen to that steak. I mean, it will be sold almost certainly, but when and how and who will get the proceeds from that remains an open question. For example, block Thigh has laid claim to the proceeds from that in its own bankruptcy that it's now going through. But again, like It speaks to the unusual nous of this is situation that you have this steak and some uncertainty over where it will actually where

the proceeds from selling it will actually go. We'll be right back with more of the week's top crypto stories from Annie Massa and Dave Lita. One of the other things that's been, I suppose a little bit surprising about the past year is the like the back and forth of the regulatory environment that we've been in right where at intervals it has looked like there's going to be kind of a lot of momentum in terms of regulation,

and then there was a pause. But what we have seen over the past couple of days is folks like Senator Elizabeth Warren, you know, sending letters, which is something that she has done to several different crypto companies, but most recently to Silvergate, asking hey, what's going on with your relationship to f t X and Alaman and you can you just briefly outline what we're seeing on the

bank side as it relates to this crypto complexity. Yeah, I mean to the point about regulation, there's been this dance happening with the SEC and and regulators more broadly about. And I think part of the broader issue with f t X is that it fell through some cracks, Like the SEC has said various things like they want exchanges to come in and register and they don't want crypto et s like that's been a whole um rigamarole for

many years. But what really happened is, big picture, f t X and it's all its activities all over the world kind of fell into a regulatory void almost where no one was truly minding all of the farm from

a regulatory perspective. So now the pressure is on for all these regulators all over the world to crack down figure out what went wrong, and um and and perhaps uh, you know, takes take some action, uh and not the least of which is political pressure, because now you have all of the attention of politicians, some some politicians who are personally embarrassed because they may have accepted donations from SPF. So the banking relationships is going to be a key

element of that story to watch. You know, if you were a crypto company in the past several years, you couldn't just go in through the front door at JP Morgan and set up an account. So the banks that did work with crypto companies, including f t X. So we're looking at, like you mentioned, banks like silver Gate.

There are real big open questions about the contours of those relationships and how much oversight they had, you know, how much they were doing to really enforce uh, the rules there, and I think that will be an area that we need to keep an eye on. Dave, Are there any big things going into three that we're encountering, you know, reporting that we expect might set the tone for what happens next. Yes, and there's a few things

look at. Um. One is the world of mining. We've seen, uh that's a been area that's been decimated on three fronts to from higher energy prices earlier in the year and now with the lending relationships falling apart. As this downturn lasts on it, it's gonna be a a bankruptcy watch in that sector. To so several of these firms have said we're on the edge and unless this market

picks up, they're likely going to be there. So they've kind of exhausted the reserves in the in the upmarket, it was unusual thing that they were hoarding the bitcoin that they're mining because they wanted to play the appreciation game so that they were both investors and producers at

the same time. On the way down, they've been selling the fun operations and the senses that they've run out of that or they've run through those reserves now and unless the market picks up, it's going to be bankruptcy probably for the case of them, a lot of them, and um that's going to have repercussions u as the

as it has with the lenders. To stay on the miners for a second, our colleagues on you know what we call the Green Team, so who cover like energy in the environment sustainability wrote up a really interesting documents, a kind of an academic paper that was questioning whether the supposed environmental and energy saving benefits of the merge in which you know, the Ethereum blockchain moved from proof of work to proof of steak was really all that

good for the world. And the central question of that was, well, have all of these former Ethereum proof of work miners have they really switched over to becoming like validators and a proof of state context or are they just repurposing

their machines elsewhere? And I know you and David pant who is like, are one of our reporters who covers crypto mining A lot have talked about the fact that you know, these machines aren't necessarily easily transferable between causes, But do you think this like these kinds of questions

around what is this core constituency doing? Is that something you see that's going to continue into There is strange dynamic going on right now in this market where they basically just pull these plugs on these computer setups on it and if you can repurpose them where you can make money and say the supporting some of the other blockchains, what you don't have the volume that you did with Bitcoin or the or the rewards for that stake on it.

David would just telling me the other day about a great story about the literally um people who own the miners going to hosting facilities and storming the offices demanding that they get their deposits back and being told you can't have your deposits back, but you can go in the back in the factory area and take your minors. So people are literally coming in with trucks taking a computer equipment away and stockpile on it or wherever that's a wild visual, and we've had a lot of wild

visuals this week. Um, you know, the the idea of somebody's just like seek unplugging computers and seizing them is certainly one of them. But we also had a story from some of our colleagues in Miami about trash bags full of F t X swag right that there was h there were another set of crypto kind of parties

and events that were happening in Miami recently. And one of the bits of swag that you kind of get if you were a v I P was just you know, an F t X Miami like legacy swag T shirts which people are collecting like if they're you know, Lehman Brothers backpacks. Oh, I'm sure they'll be turning up on

eBay very soon. In terms of get your nostalgic ear, it's great analogy in there that the and you do have a boom bust and a party like this, there's always the clean up afterword and maybe this time of them beatings, you see, we will have to be stuck with that. Thank you Annie, and thank you Dave. You can find more of their work on the Bloomberg Terminal and on Bloomberg dot com. 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 podcast. Send us your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net. The supervising producer of Bloomberg Crypto is Vicky very Galina. 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

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