What's The Deal With Bitcoin Going Up?

did a lot better than that. Even and speaking of risk taking, Wall Street is still keen on crypto despite all of last year's calamities, and a failed crypto lender known for its risk appetite, Celsius, just got some pretty harsh words from its bankruptcy examiner. Here to help me break down the news, it's Bloomberg Senior editor Anna Airera. These firms have very long horizons and it takes them very,

very long to do things. So you know, they might have made announcements a couple of months ago during the rally, but they probably started working on things a few years ago. And Bloomberg reporter Emmilin Nicole, we don't even know if there may be more collapses to come, but FTX was one of the biggest tests I think that Crypto could have faced on that front. And so this week we had the Celsius bankruptcy examiner's report and it was pretty scathing.

I guess we can say, Emily, you covered that story, what was the gist of it? So this was the final report that the court pointed examiner was doing into Celsius throughout its bankruptcy case, and unlike probably even some of the things that we've seen come from other bankruptcy cases so far, this one was pretty damning. I guess you could say. What the examiner found was that a lot of what Celsis was doing to track its assets

and my abilities was insufficient. It made misrepresentations to customers quite regularly about its financial health and then tried to

cover up the tracks after it lied about it. Um There was also a pretty evident picture of how for most of the time that Celtis was operasing from about twenty one onwards, it was essentially insolvent because most of how it was propping itself up was through its own token, cel Cell, and even with Cell, some of its top executives like Alex Muszynski, the former CEO, had been selling off really large amounts of self for their own personal gain,

which was similarly then hitting the customers and balance sheet at the same time. And this was even as they spent I think it was north of five hundred million dollars on buying the cell token from the company account. The examiner report found that at least five million dollars was spent buying its token, and Sealsis was covering up from customers that much, like you know, how much it was spending on that and even out of that figure. While that was happening between twenty and the time that

sells his father bankruptcy. Last year, mission Ski made about sixty eight million on selling this token for himself, while another count co founder made at least almost ten million. So there was a lot to be made. There a lot of stuff going on. Is there anything in this report that you either you Emily or Anna c as you know, speaking to the actual business model? Um? Is it?

Is it another testament that the business model of crypto lending and the investing or that the sort of risk taking that underpinned crypto lending as we knew it at least until two two was out of whack. What's interesting here? And I'm not sure how new this this is, but obviously, and it's quite common for the lenders, was that they were attracting the part it's by offering very high yields um.

But what's interesting is that they were saying that the investments they were making or the loans, were not high risk. And obviously, if you have any experience investing, you know that generally you get high yields when there risk is higher. And so the examiner noted that obviously that wasn't the case, and that as they were trying to attract more deposits the investors, the investments got riskier and riskier. And Emily noted in her story how for a certain period in

time the loans were completely uncollateralized. And just to take a step back, basically, if if anyone who's listening is unfamiliar, what happens is, you know, you deposit like just like a bank, you would deposit your tokens with a with a crypto lender, and they would give you yield by lending it out to someone else. Um. And what happened in crypto was that it's not wasn't actually a bank.

Your deposits were insured and in many cases, they didn't have any risk management to make sure that they weren't just handing off your tokens to someone who would make very questionable bets on not great tokens. UM and the report also noted this lack of risk management. I think they said until they did not have anyone in risk management, no written risk management procedures, and then they hired four

people who had some stop gap measures. I think UM were meant to cover holes until they would come up with more serious risk management procedures. Then they hired some more people. One person came up with some policies, but

they were never implemented. I don't know the business model itself, but just in general sort of how it was being portrayed clients that it was that was supposedly safe and that you were depositing your money and something that was like a bank, and that it was going to be there, when in fact it was being lent out to people who took risky bets. UM didn't have to post any collateral, so that when when those risky bests started backfiring, lenders like Celsius lost a lot of money and it wasn't

their own money, it was their client's money. And I noticed that you spoke about the kind of risk reward of equation and the concept of that there isn't really any free free lunch. I yes, um in finance. And you know, it's a segue over to a sector that actually does, probably at least most of the time, understand risk reward, and that's Wall Street. And you did a story together with some of our colleagues about Wall Streets sort of crypto ambitions as they stand now. And what

did you guys find out. So anyone who's listening would imagine that with everything that's gone down in crypto, Wall Street would want to take a rain check or say we don't want to have anything to do with it. In reality, some of the firms that had stepped in during the sort of crypto rally by saying they would start launching crypto custody or start offering crypto to some of their clients have said that they're they'll continue with

these plans. Uh. And in many cases, some of these banks see crypto not just as crypto in itself, as what we see now. So so you know, Bitcoin and ether and these assets that are existing, but as an opportunity to tokenize existing assets, so stuff that they already trade, like bonds, are other forms of securities. So it's a mix of firms trying to get into into actual you know cryptos, so bitcoin, and also to lay the foundation for a future which they believe will have you know,

normal asset tokenized UM. And I think what's really interesting here is that you know, many of them flagged. How actually what's gone on in crypto gives them an opportunity to step in because with cases like FTX or you know, other other instances in which customer assets were mixed with assets of the firm and you know sort of there was no risk management and customer assets are now gone.

It just shows that for investors it's sort of probably better to work with a regulated firm who has to follow certain rules, and one of which, which is very basic, is not mixing assets and keeping assets safe and custody by a third party. There's a lot going on, and I guess, you know, another thing to point out is that these firms have very long horizons and it takes

them very very long to do things. So you know, they might have made announcements a couple of months ago during the rally, but they probably are working on things a few years ago, and so in some cases they might not really be swayed by the crypto prices now and they might be actually generally looking at doing things in the long term so that if another rally comes, they might actually make some money and fees from from

the trading. And what happens that being said, a big caveat is you know a lot of these firms say they do things because of client demand and that's what's driving them to launch new products. And now with crypto prices down like and so many investors haven't been hurt, you have to wonder is this demand still there at the same time. I mean, if you look at the banks, at least to a certain extent, they're at least being

held back by the regulations on them right now. I mean, for instance, they cannot hold crypto directly on their balance sheet. How do you think that is playing into the time horizons here and what impact wall Stree you can actually have on crypto. That's definitely a big role. A lot of them have been wary because there weren't clear enough regulations and as you mentioned, the balance issue, it's it's sort of a risk issue. So you know, post crisis

rules have made banks a lot safer. They've imposed that banks hold a lot more collateral for risky assets, and in many cases banks believe or in many countries that assets that crypto would be classified as the riskiest assets, and so they'd have to hold a lot of collateral to hold bitcoin on their balance sheet, which would make it sort of not really worth it, which is the reason why they've held back. So, you know, now we've we're seeing a big regulatory push globally from regulators in

all major jurisdictions to regulate crypto more. That would bring more clarity and we can maybe I think that it would help banks step in, but at the same time, you know, they might just think it's not really worth the headache at the moment. We'll be right back with more of the week's top crypto stories with Anna and Emily. And Emily, you've sort of come at this from a

slightly more I guess crypto side, do you. Is it your impression that firms that are crypto native are in any way, shape or form concerned about you know, the trad fire as they call them, moving in on their turf right now, or is it's sort of like, no, they're too big, they're too slow, they're too hampered by regulation. How would you read the mood on that. I mean, there's always the idea that more competition is better for innovation, but also it means that you have to work harder

as a company to draw in users. I think probably at the minute though, volumes are so low in crypto that it's difficult for any one to get users trad fire crypto native. It doesn't matter who you are. Um. There's obviously the elements that were mentioned about how if you're in the crypto companies don't have the best reputation right now, and so maybe Wall Street has an edge there.

But Wall Street also can't offer what crypto offers. I mean, if we look at Fidelity as a as a case example, they can only really offer bitcoin ethereum at the minute, and they're not able to even offer you know, the top old coins in the sector like Toolana or Cardano, because those aren't things that we really have regulatory cliracy on.

We're still not sure, for example, in the US, whether um something is a security or a commodity, and that makes things very difficult for Wall Street firms to really think about, so crypto natives can can continue to keep that edge and when volumes are this though, it's really in those smaller tokens actually where there's there's potentially money

to be made for traders. It's where they can get probably the best arbitrage opportunities, and that's not something that big banks or Wall Street are anywhere close to offering at the minute. Okay, let's pivot to regulation then, because the UK just came out with a proposal. I guess you can say, from a regulatory standpoint, at least bring crypto and tried fy sort of under the same roof, and when you did that story, what can tell us about that and how significant does it look at this point?

So the UK announced a consultation this week that will basically form the cornerstone of what will be the country's broadest set of crypto regulations. It's announced a couple of proposals last year and too, like specific areas like stable coins or how we can promote crypto assets in general advertising.

But this is this is the big one um and most of what it goes through things like how crypto exchanges should be regulated, transitioning away from a bit of a registration regime that the UK has a minute that just looks at anti money laundering standards and how crypto companies on masks can just be treated like regular financial services companies. Um. There's some bits in there about how crypto exchanges should put in place requirements for tokens issuers

when they want to listen a new token. UM. There's also things like there should be stricter rules on custody, on crypto lenders, on into ned areas. Basically everything that you could think of as an issue that's been thrown up in two with all the bankruptcies and collapses and scandals we've had, the UK has tried to address in

this one document. It's interesting that you mentioned that, Emily, because as I read this story, it's sort of like it was kind of check check, check point by point, kummingling things like the stuff that came up again and again and again over two It almost reads like either they anticipated this or they have been working very hard in the last couple of weeks and months to get this ready. Hum. I mean, it's it's definitely the latter, right.

So they started announcing these kinds of things back in between January and April two, and it was all in the kind of slight aftermath of coming off of bitcoin's peak, but crypto was still almost in its ballmarket to bear market transition mode. We hadn't yet had terror collapse or anything like that, and the UK wanted to be a global crypto hub. So these were all the kinds of like stepping stones paving the way for a big crypto framework that would make the UK this like haven for

crypto companies. Um then terror happened, and also the UK had its own kind of government chaos with multiple prime ministers and and all the rest we won't name. But what that did is it gave the country time to kind of step back, watch all this chaos unfold and really know how to get that framework in place properly so that it did address all those concerns. They obviously picked now is the time to come out with that, and we don't even know if there may be more

collapses to come. But FTX was one of the biggest tests I think that crypto could have faced on that front, and so making sure that exchanges is in here was a really big thing. Well, it certainly feels like two served as a kind of blueprint for exactly how different

things can go wrong in an industry. I mean, there might be more to come in a way, but part of me feels like we've seen so many things go wrong in so many different ways that, as you said, Emily, it would be somewhat surprising if regulators hadn't picked up on some of those. I want to finish today's episode with a little bit more of a sort of crypto only and maybe more lighthearted topic, and that's n f T s are coming to the Bitcoin blockchain, which is

not being received and equivocally happily. I guess you could say, Emily looked into that. What's happening there? Yes, so, my lovely colleague David pan He wrote out the story on Monday. What we're looking at here is potentially a very big deal for bitcoin because Ethereum as a blockchain has been much faster and much more adaptable than it's older counterpart um Bitcoin. For for all it's good and worth while still being one of the more valuable tokens, the blockchain

itself hasn't been that useful. And if they're and meanwhile has had n f T s and smart contracts and all the old coins you could dream of. And so in the more recent years, Bitcoin has been undergoing some changes to try and make it so that the blockchain itself can be a little bit more adaptable in similar ways, and one big upgrade called tap root did actually make it possible so that you could store images directly on the network itself. That's something that even ethereum can't do

at the minute. An n f T on Ethereum, let's you put in a link that will then point you to a web page where your images, but the actual picture itself isn't on the chain. And with this change, a company called Ordinals said that they could put the actual picture on the blob chain. The reason why people aren't happy about that though, is that it takes up a lot of space, and that's something that Bitcoin really can't afford at the minute, given how slow it is

already compared to the rest. And if you're adding in massive transactions for n f t s where you're storing the whole picture on there and it takes up a ton of block space, that's just a massive, massive turn off, and it created a bit of a debate. Let's say, problems, problems, problems, all right, thank you, Anna and Emily. This was Bloomberg Senior editor for Crypto Anna Arera and Bloomberg reporter Emily Nicole. You can find more of their reporting on the Bloomberg Terminal,

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