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covering and what's driving markets right now. Anna, Dave, thank you both for being here. Anna, you are in Italy at the moment. I am We're fully embracing that distributed crypto lifestyle. We are. I am a crypto nomad sort of for for the for the month, a cryptote for the month. Um. Stay tuned for more reporting on that

to our listeners. But Dave, one of the stories that we've been really paying attention to, obviously for a long time, but especially this week is coin bases most recent earnings results.

Can you just talk through a little bit about what that was, why people have been paying attention and like what the market reaction has been, like sure coin base for those who do know or do know, it's the biggest US publicly traded exchange and also probably one of the biggest and most influential players in crypto right now. There's over a hundred million people who are signed out for this on it, they are as good as brahmbers

and that you're gonna see. And everybody knew was a bad quarter on it, but they actually had a more than one billion dollars swing in revenue. So a year ago, when everybody was all excited about a crypto, they made over two billion dollars in revenue. This year they were less than a billion on it, which in any industry you never see swings like that, right, So it was

really indicative of what's going on. And of course with all these calls, people want to know what's going on, what's going to happen next on it, and they did flick that it's crypto winner. We're not gonna make any predictions in terms of when it's over, but we think it's going to be slow going forward. So as you say, a billion dollars is a fairly dramatic move by any conceivable metric. What contributed to that weakness specifically, were they

making less money on a particular part of the business. Well, they make their money through fees on it, and I mean that's why Wall Street loves them. There's a model there on it. But when everybody who got into crypto decides not the trade anymore and sits on their hands and then become hobblers as they call um, rather than traders or speculators or the fomo fear tapers out, then

they don't generate feast. That was the biggest impact. So their biggest problem is people were like, I'm just gonna wait and see and not not making any transactions at all. And they need they need that transaction volume to make money, transactions to how they make their business. And the big question is with all these exchanges is when does retail

come back? What did they say about their n f T business Because they recently launched a platform for non fungible tokens and they were like, we're going to compete with the biggest players and we're going to do it through user experience. Like, how's that been going? It was probably one of the worst time launches ever in terms of a product as the market was collapsing. But they did say in the call, Hey, we're in for the long haul on this. What else would you expect them

to say on it? They're not gonna punt on what a lot of people think is kind of the future of this sector. They're holding the course as that we're on their n f T s. They're not pulling back correct and I'm gonna I'm gonna switch to you for a slightly different element of the market. You know, people have been really paying attention to coin base, as you know, to use one of Dave's words, a baromenta of the biggest, most important, most liquid parts of crypto to really under

and retail trader sentiment. But then there's like, shall we describe it as a more esoteric part of crypto markets, that universe of what are called mixers, which you know, services protocols that people use to obscure the origins and the destinations of, you know, certain types of crypto transactions. What's been going on in mixer land. So there was

a big week for mixer lands. The US Treasury Department sanctioned a big mixer called Tornado Cash, which, as you said, is a service lets you hide your transaction, so if you tack someone's bitcoin, no one can follow and see where you're sending them. It's been used to London funds, Tornado cash, have you heard of it. I would put this sort of in the category of the most important crypto related sanctions that ever came out of the U. S.

Treasury Department. So obviously it's a big deal if a crypto service gets sanctioned and blocked, because the idea of crypto is that it's permissionless and you know, on censorship resistance. So so it kind of showed if you want to,

then you can censor crypto. This is the first step, right, because a way that you could go after a crypto services by sort of targeting the providers of the underlying technology and infrastructure, right, which might be companies in the US or companies that do have an incentive to follow US rules. So that was the first step. And then this became somewhat interesting was that the way crypto reacted to the to this was well, you can't censor everything,

even providers of technology. So what we'll do is we'll show you that there's only so far as you can go. Some anonymous users in Crypto started using Tornado cash to send tokens to known wallet addresses. So some of some celebrities and the idea they're being we're showing you that then these celebrities could have potentially been implicated in the sanctuaries or weren't following the US Treasuries advice or ad punishments. Right.

It kind of became this giant question and tension in crypto of you know, is it really censorship resistance or not? You know, do users have a right to privacy don't they? So it became so much more than just you know, the sanctions to one mixer. So it sounds like there's a couple of issues all tied up in there at once that I want to unpack with you a little bit. I want to start with the privacy question, because you know, in when the Treasury came out and said, hey, you're

in trouble, We're going to sanction you. As you say, the very first thing that people said was like, you can't sanction software, and the Treasure was like, watch us, We're totally going to sanction software. But immediately after that was this question of how does that work in practice? And so one of the things that we saw is that Tornado cash is a website, email um, their access to a platform called get hub, which is what you know, developers and people who build software used to share and

store their code. They lost access to all of those things. So it looks like the way that you sanction software in crypto is by going to companies that are in like web two world um, and you kind of undermine that decentralization. But the other element of this privacy question is, Okay, if they can go after something that's used Yes, it's used by North Korean hackers, but it's also just used by ordinary people, what does that mean for your ability

in crypto to actually maintain some degree of anonymity? And

what I'm hearing from you is it's very confusing right now. Yes, And also and also while you might think, well, we do want a society where, you know, some people might want this want of society where people where governments can go after you know, criminals, you know, we could also think about the reverse idea, right where you know, maybe I want to send money to Ukraine, or someone in Russia wants to send money to Ukraine and they don't

want their government to censor that right, there's a legitimate reason why you don't want people to see your transactions.

And it's especially important if we think about crypto maybe growing beyond just crypto, right, if we think about digital assets and government backset central currencies, if crypto does become more of a form of payment, these questions are important because then we're talking about anti money landering at a much bigger scale, right, not just involving you know, transactions that from from hacking of crypto services, right, it becomes everything. It becomes like I bought a sandwich for lunch and

now the government knows about it, exactly. I appreciate the analogy that you're using there about you know, because people have wanted to send money to Ukraine, and if you are a person in Russia, that's definitely not something that you necessarily want the Secret Service knocking on your door about.

But like more prosaically, it's very similar to the conversations and technology around like encrypted messaging, and you know, various government officials will say, well, you can use encrypted messaging for terrorism. I'm like, yeah, but you could also just use encrypted messaging because you want to talk to your friends and you don't want anybody advertising at you. So these this is I think a good example of like issues that affect many parts of tech and many parts

of the world really playing out in crypto. But there's something else that you said around, you know, the day of people using Tornado cash to send crypto two people with known public accounts and like the legal gray area there can you can you just elaborate on that a

little bit more so? The the idea is that if the sanctions are to be applied, then you're not supposed to receive any funds from tornado cash, right, So if someone sending me, even if I don't want it, sending me funds through Tornado Cash, then potentially am I implicated? Am I violating a U S sanction? I mean, just

the absurdity of that is you know interesting. Is it's worth contemplating, right because it just shows that there's a level of thinking that goes into how we regulate this in the future and how we think about money laundering

in a sort of Web point three world. That is kind of something that we really need to think about now before it gets to the stage where we haven't thought about the rules to govern a world like this, and that is possible because of you know, the idea of a public wallet, right, So like one of the people who had ether in this case sent to him through Tornado Cash was Brian Armstrong, see you of coin

based that we just talked about. And that's possible because his his wallet address, which is like your bank account for crypto, is just like available on the internet. You're like, that's Brian Armstrong's wallet address or one of them. Most people in other parts of their lives, like aren't walking

around and advertising their bank accounts. So it's very hard to imagine a scenario in which you know, a person in Iran or Cuba or you know, North Korea could just like send you money or send you something with no ability, with no consent or your ability to even know that that's happening. And there's you know, I think as you say, and like the important thing is there some of these nuances in crypto that will really be forcing regulators to have to think differently and especially lawyers

to have to think differently about these things. One thing I want to note is if it is the case, like if for some reason one of the people who did receive that you know, anonymously sent crypto via Tornado cat were held to be in breach of sanctions. Right, So take a theoretical example, the Treasury is like, ha ha, you person have been interacting with something on the sanctions list.

The consequences for them would be not at all fun because what could happen is that wallet could get frozen, So any you know, not just the amount that they received, but any of their crypto in that while it could get frozen, they could get kicked off of any exchanges or even you know, non exchanges or like banks that they might be a part of. You know, being a sanctioned individual, being a person on a sanctions list is

a pretty stiff and severe penalty. Um, So we will definitely be keeping an eye on if anybody gets pulled into this dragnet unawares. Yeah, it's interesting because it was basically crypto trolling sort of the the U. S. Government, but in a way creating some lines to think about that go beyond the actual events of what happened. We'll be right back with a look at some of the crypto trends were watching this week. You'll keep hearing from

Bloomberg editors Dave Lika and Anna Arera Well. Dave I want to go back to you on that point of who's making money right now. One of those things we saw this week in crypto was kind of like a run up in ether prices. And we've talked on this podcast about, you know, the dynamics of ether and that folks are thinking about what's called the merge, but as it seems to actually be happening now, can you just give us a recap on what we're seeing and why sure?

I mean, all you're here probably the next month is going to be the merge. The merge on it. You have the software upgrade where the Ethereum network goes from very energy intensive processed to validate transactions to where they'll go to something called validators on its and everybody is season on this right now. You mentioned Brian Armstrong. He

actually mentioned um a product that they're offering. It's called staking on coin Base on it, and staking is basically how you make money off this as a as a validator on it, you allow your Ethereum to be used

in the process to complete the transaction on it. And it's in this environment it's actually kind of the perfect thing in the sense that it's like passive income on it, especially with a we're in a bad market like this, so this is almost like clipping coupons in the old days of the bond market on it instead of everybody just looking for a huge appreciation in the in the

price of a various token on it. So you could be hearing more and more of it, and the risk is it happens, it goes smooth, and then it's okay, what next, Well, what is next that is to be seen on it? I guess the big question really beyond that is to see if more people do gravitate towards ethereum. Ethereum was kind of introduced as probably the second most prominent crypto after Bitcoin. I'm on it and it was

basically labeled as bitcoin two point oh. You can actually do a lot more with it, complete transactions over it that include embedded contracts, that type of thing on it. Bitcoin has basically been left as really a store value of these days and hasn't really worked obviously as a currency. But this is being promoted as a utility and whether people will actually start to use it for more things is to be seen. When we talk about the utility

of things like ethereum. The Ethereum the blockchain ether the token. One of the use cases that comes up a lot is like smart contracts and f ts. You know, it's it's you know. One one thing we've said here is that like if somebody has heard of crypto, they've probably heard of either bitcoin or in a n f T, and there are there's a lot of reporting and evidence that for some people, like n f T s were

their gateway into into crypto. If this merge happens, what's going to happen to n f T holders, Like is it clear whether your n f T will continue to be accessible if you know, kind of have two different sorts of blockchains, or though some of the questions that

people are working through, well, it seems to be. We've actually had a lot of news come out recently from people who are basically things like stable coins, which serve as kind of the lifeblood of the industry, saying we're going to work with Ethereum on the upgrade on it will continue to do our transactions there, so you should be fine. Now there's a minority of people who say, we like how things are being done, we're going to

break off from a theoreum and um. Then it becomes a question, and Okay, if if you're on that chain, are you going to be able to interact with other folks? It just rises a whole raises a whole level of complication, right. It's so it's almost like you'll have kind of what happened with Tera and Luna, right this idea, and actually with Ethereum before we there's already an existing chain of Ethereum called Ethereum Classic. So now we'll have Ethereum Classic,

Ethereum Classic too, and then Ethereum. Now there's bitcoin, there's bitcoin cash, there's Bitcoin Classic, There's been various Bitcoin Gold has been other ones talked about over the years. It's it's a little bit like a divorce and I'm one programmers. After the disagreement, um, some succeed and live on, other ones die out. Well, this this is definitely something that is driving the markets and we will continue to be paying attention to so stay tuned for more on that.

Um Anna, Dave, I know we have to get back to work, so we're gonna we're gonna wrap it up. But thank you both for taking the time today, No problem, I thank you. You can find all of our work on the Bloomberg terminal on Bloomberg dot com and on Twitter, you'll find Anna at at anna Arera that's I R R e r A, and Dave is at d Litka that's d l i E d t k A. On the next episode of Bloomberg Crypto. In late spring of after China banned all bitcoin mining, many Chinese miners headed

to the sunny state of Texas. With a unique power grid, relatively attractive energy prices, and a relaxed approach to regulation, Texas seemed like it was the place to be in things are looking a little bit different. A combination of power outages, extreme temperatures, and declining bitcoin prices are making it harder and harder for crypto minors to maintain their profitability. To better understand what all of this means, I'll be joined by Bloomberg Reports of David Pan and by Ethan Vera,

who's the CEO and co founder of Luxer Technology. 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. Send us your comments, questions, or suggestions for the show. To Crypto at Bloomberg dot net or find us on Twitter. We're at Crypto. The supervising producer of Bloomberg Crypto is Vicky ver Galina. Our senior producer

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