Bitcoin Craze Stems From Institutional Buying, Quaranta Says

just Bitcoin. Cryptocurrencies of all types have been on fire, from ethereum to light coin to z cash. All of these cryptocurrencies has to have soared over more than ninety billion dollars market cap in the past just the past seven days. To understand what this is? Is Is this a bubble? I am very happy to bring in Ron Quaranta. He is the founder and chairman of the Wall Street Blockchain Alliance, and he joins me here in the Bloomberg eleven three oh studios in New York City. Run what is going

on here? Are we experiencing a mass bubble that will end in tears? Good morning, Good to be here again. UM, I would suggest we're actually looking at the emergence and we have this conversation with a lot of our members. Potentially a new class of asset, a new way to gian Alpha. So there's certainly a bit of the hype cycle. I mean last evening Bitcoin of course, Mark, And by way of context, if you purchased around this time in bitcoin, you would have spent eight cents. The total market cap,

as you mentioned, is approaching over you know. Okay, So if you think about a currency, right, there's a lot of controversy over is Bitcoin a currency? Are some of these other cryptocurrencies truly currencies? And typically for something to be considered a currency, it needs to have some level of stability. It needs to be backed by at least the full faith in a nation and a sovereignty to uphold a certain kind of trade agreement or something underneath it.

And when you see this d of volatility, doesn't that challenge the concept of bitcoin as a currency. Yeah, it certainly challenges the concept of um the type of investment that it might represent. But what I can tell you is that again in the conversations with our with our members and the market, Bitcoin and ether and all of these cryptocurrencies are really representing a different type of investment, a different type of asset class. So how industry is

looking at it, how investment manages. Some of our fastest growing demographic are asset managers looking at this different type of tradeable commodity. But but okay, so understood. So in other words, you're saying, it's institutions that are coming in, uh to invest it in it as an asset class. Of course, it's a little confusing to me because currency typically the reason why people will invest in it is a sort of a wager on the health of a country. But it just sort of in its own right, what

is it? If it's not going to be adopted on more platforms, then it's it's really a useless kind of asset. Well, I think what you're looking at is the the wager on the adoption of blockchain, the underlying blockchain technology across different indie street segments. That is really where the value is being derived with a perceived value over time, the digital currencies, the digital assets, these tokens represent what we often say is the the seeping of blockchain technology across

the canvas of financial markets. So it's very interesting. Abby Abigail Johnson, CEO of Fidelity this week, can Mountains not only expressed her deep interest in underlying blockchain technology, but the fact that Fidelity dot com customers will be able to see digital currency information on Fidelity dot Com coming up soon. So, in other words, as blockchain is adopted, these cryptocurrencies will more easily be adaptable to the big institutions as far as a transfer of money, and will

therefore be more useful. One thing that people have speculated is that bitcoin in particular has been an instrument for Chinese wealthy individuals who want to get their money out of the country without having to be slammed down by some of these capital control rules. Do you think that

that's what's going on here? I I don't think it is, and I think there's some of that potentially happening, and I can tell you in the conversations that we have within the w s b A. I don't think that's the main driver of the price appreciation that you're seeing for bitcoin and other digital currencies, even increase just in this past week. Yeah, I really, I truly believe that

that's representative of global financial markets interest. Um So by way of example, again, um recently, the SEC had an opportunity to review an e t F based on bitcoin, which they rejected, but UM did take the opportunity to review that rejection. So there is the possibility in the not too distant future for a bitcoin based et okay. But why now? So? I think the market really is looking for something that is unique and differentiating, and digital

currencies digital assets represent that differentiation. So we can talk about blockchain, the underlying technology that's reinventing how Wall Street and financial markets do what they do. You can look at digital currencies and digital assets as a as a different type of exposure to that different asset class. You can look at really beginning to understand that cutting edge

of financial market investment. So when you look at digital tokens, for example, you're looking at a re evaluation of how investment decisions are made, how asset allocation will happen, how alpha is UH pursued, for example. So in other words, people are investing in cryptocurrencies is a proxy for investing in blockchain technology more broadly, and its adoption across financial

industries correct and some in some deep measure. It's a reflection of that wage of will blockchain reinvent how financial services work? Doesn't really serve as a proxy though, because if you think about it, not all these cryptocurrencies are going to survive. That's absolutely true. When you look at the the universe of digital currencies, there's well over seven hundred of them. Most of them is not going to stay.

That will not say that will not sustain. But those that have the deepest liquidity, the greatest access to multiple market places, those that are representative of the best and deepest innovation. So when you look at ether, for example, ethereum um. Recently there was an Enterprise are Enterprise alliance where global corporate organizations are getting together and we participated in that alliance to understand how Ethereum rewrites how certain

processes across global financial markets operate. Those will be the ones that succeed over time. So going forward, what are you looking for to make sure that this is not a bubble and then it can be sustainable coming out of financial services for for many years, when you see double digit increases on a day by day basis, you begin to be concerned. Um, So there is some and I would I don't think anyone certainly within a W S B A would deny there's some level of hype

in in some measure UM. But this this does seem to be a sustainable rise UM. So we'll see some of the froth come out of the bubble of some of this UM. But the conversations we have asset managers hedge funds deeply interested in the long term viability of digital currency as part of the portfolio fascinating. Thank you so much for joining us. It's definitely a hot topic

and one that we will be talking more about. Run quaranta founder and chairman of the Wall Street Blockchain Alliance, which is based in New York City, and he joins us here in our Bloomberg eleven at three oh Studios in New York City. The indusseries have brought into cries are crawling to a new record highs. Dave Wilson is here in the Bloomberg eleven three oh studios with me right now. He is the stocks editor, columnist and blogger for m Live Go on the Bloomberg that we all

love to hear from every day. Dave, what is driving this melt up? Oh? Really, it's a pretty broad based advance. But if you had to point to one area in particular, you look at the retailers. Mean, John Tucker just mentioned what's going on with Best Buy, with that stock up almost fIF but certainly not the only company that we're seeing rising in response to earnings. Uh. You think about p v H, which is Calvin Klein and Tommy Hilfiger. Their numbers are out and that stocks up four point

eight percent. Uh. You see Alter Beauty, which is everything from beauty supplies to a salon to you name it, one stop shopping, and those shares are higher by three and a half percent. So you know, perhaps some of the latest numbers at least, you know, for that area, I mean, providing some relief. I mean one interesting example of Signet Jeweler's Uh you know, the stock took a hit yesterday in response to results from Tiffany. Its numbers

come out and they're not good. Uh, and the stock takes a hit before the opening bell, and it's made back that loss and moved higher by nine tenths of a per cent. So you know, it goes to show you that even for some of these companies that have been taking a bit of a beating lately, uh, there is at least some uh sense of recovery. So you know, you kind of with things in that perspective, and you see why you're you're seeing some strength in the market here,

you know. And before we dig into retailers, I just want to note you have bond yields in the US headed a touch lower. You had yesterday's meeting minutes which were actually really interesting for the first time in a while, and actually told us something that we did not know, which was details about the fed's plan to unwind its balance sheet, and it showed that, frankly, it was not going to be done at any kind of pace that

would cause any disruption to the markets. So it's sort of this odd goldilocks scenario that's definitely I'm sure helping prop up stocks as well as suppress bond heields and boost bond prices. Were still back in this sort of you know market that's a wash in central bank cash. It's not going away, No, it's not. And let's face it to mean the central bankers are doing everything they can not to surprise the market because they don't want

any real sort of shocks. I mean, we certainly had a shock, you know, in a sense a week ago we saw shares take a it and since then, I mean, you're talking about an S and P five hundred that's headed for six straight games. What's been up every day since that recovery? So it's almost like the by the dip behavior that we've seen emerge in the last couple of years of stocks and rallied is really kind of

carrying forth as we go on here. All right, so let's dig a little bit more into best Buy and some of the retailer results that are propping up some stocks. Best Buy in particular up more than fifteen percent so far today. I want to bring in Joseph Feldman. He's senior managing director and retail analyst at telse Group who

covers best Buy. And you know, is this just a case of a Nintendo console that is boosting everything or is Best by actually doing something different to get customers into the brick and mortar that distinguishes it from some of the online retailers. I think Best by doing something

different and has been doing something different for a while now. Um, you know, they several years ago they embarked on this transformation where they re level set their business model and you know, brought prices down, They figured out how to compete more directly online. They're very good at in terms of um, you know, ship from store, pick up at store, leveraging all sorts of you know, omni channel or multi channel retail, uh, combining digital and physical. And I think

that's been a big difference for them. Uh, you know, they are they go to source at this point. They are the last man standing of sorts and they're making the most of it. They're a very efficient operator. So we can we talk a little bit about how they're combining the brick and mortar in the digital in a way to give them an edge. Sure, So as an example, you know, I think it's over online orders are actually

picked up at the store. You know. Now one would think, well, oh, everybody wants to just buy a TV online and have a trip to their house, but you know what, a lot of people like to go into the store. They may pick up the accessories, they may confirm the order that they bought. They may be sitting at their US right now at the office and and saying, you know what, I need to pick something up on the way home, and they'll purchase it and one it the same day.

So you get the immediate gratification of that. That's one thing another thing is again leveraging their inventory to ship from the store directly. Um. You know they can do that, and they can they so they're combining the best of both worlds, you know. And when a few years ago when they lowered prices on all their products to be everyday same price with Amazon and Walmart and others, it took away that showrooming aspect, because if you're in the store anyway, you may as well buy it and walk out.

You know. It's it's fascinating to me. I'm looking at best Buy shares up more than thirty seven percent now on the year, a massive increase for a retailer that's supposed to be on its deathbed because it's a retailer and it's got breaking border shops. You know, I have to wonder. I do want to ask you. When Dave and I were were here yesterday talking with Sema Shop Bloomberg Intelligence, we were talking about Signet and some of

the other retailers lows which reported disappointing earnings yesterday. UM, and she was talking about how one potential headwind is a deterior deteriorating consumer credit worthiness that we've seen in increasing card charge offs and increasing too linquencies. I'm wondering at a place like best Buy, does that matter? No,

it absolutely doesn't matter. I mean, you know to the extent that the consumer you know, has too much debt already and then you know, can't maybe get more access because you know, with large ticket items like a TV or computer or other things, the consumer often is using credit to to make that purchase. Uh. And and I know that we've seen credit levels have been on the rise, you know, more of it's been driven by home and car uh than than actual you know, instore retail purchases.

But we are seeing that. But that also may be a sign that the the economy is a little bit better employments, better consumers feeling a little bit you know, more more secure in their position. Well, does this mean she you, the fact that best Buy delivered these results, does this mean to you that retail has turned the corner and that there is a balancing out between the online and the brick and mortar, and the sweet spot lies somewhere that some of these retailers can still compete.

I I I agree with your statements, with the exception of I'm not sure that best buys Best Buys emblematic of where retail should be or maybe headed um in terms of, you know, combining the best of physical and digital and leveraging service and and customer you know, information within the stores. But at the same time, you know, I don't. I think it's hard to say. I mean, the department stores have been under a lot of pressure lately. Um, you know, some of the apparel retailers have been under

some pressure. You know, not everybody is Best Buy just further along in in resetting that operating format for themselves, and it may not translate to every other sector. And it's still early days for for a lot of people, and it's still really for best By even Well, you know, one other story that we're watching today one of the

retailer Sears. A lot of people have been writing Sears obituary for a long time, right, I mean, it's like the company that's that just refusing to die but aw to right, and then today it reported earnings that were way better than people expected, and it shares her up more than twenty percent. I mean, I did not think I would be saying that about Sears Holding Corporation. I mean, this is the retailer that Eddie Lampard has basically been pumping with his own personal cash to sort of keep

it hoppling along. And yet here we are, it's pushing out its debt maturities and it's delivering uh sales gains that that are better than than people had ever expected. How is this possible? I mean again, does this sort of speak to that narrative of you know, perhaps not all retailers, as you were saying before, not all retailers are turning the corner and finding that balance, but there are some out there that are finding some edge in there to sort of compete with Amazon and get on

their get on their their feet. Yeah. I think I think that the series issue is more one of an expectations game where the expectations were so low and so bad, and in to your point, yesterday they got a lifeline by extending the debt out to January, with even an option to extend it to July of next year. So effectively, there was a lot of negative sentiment around the name, or the assumption that that Sears was going to have to file for bankruptcy sometimes this year, and now that

does not seem to be the case. And then you compare the expectations for the performance and in terms of their first quarter operating performance, and it did certainly better. But let's not let's mistake the fact that I think the Seares comp was down twelve and Tamart was down ten or eleven percent, you know, like it was not uh strong numbers to say the least, with both businesses down.

You know, this is interesting to me because the fact that people are then piling back in suggests to me that that traders are desperate to get a deal right, and people have been sort of circling the retail industry which has been so beaten up, and they're saying, look, when can we pump our money in here and get in on the bottom right. I mean, I know that I've talked to many distress debt investors and people talk about that. I mean, uh, dave I want to bring

in here? I mean, do you get the sense that there is some sort of bottom fishing and you know the fact that any less disappointing results is going to result in some massive pop because people are just desperate to find a cheap stock. If I put it that way, I mean, the bottom fishing is one of those phrases that you kind of fall back on when you lack a better idea. Here's another one shortcovering the idea buying

back shares that you previously sold. Figure the stocks going down, and you bring that up in the case of Sears because something like six almost of the shares available for trading have been sold short. So there's a lot of speculation that you know, sears Is future is kind of going the way of its past several years. So you know, in that context, you get any piece of positive uh news. And let's face it that I mean, they did sell their Craftsman tool brand to Stanley back Black and Decker

in the quarter. That figured into the numbers, and so that may be explain why the comparisons were off. Nonetheless, you've got all these people betting against the company, and sometimes that gets a little painful, and you see these kinds of reversals and Joe, yeah, alright, fine bottom fishing perhaps wasn't the best uh description of it, but Joe, I wanted to get your take. I mean, we're getting to the end here of the earning season, and a lot of these companies that that you cover from lows

two of Walmart's to home depot of staples. I mean, it's sort of a motley crew as far as the results go. I mean, is there any theme, any new theme that's sort of emerging from this earning season for retailers that you think people will take uh going forward to influence their investing decisions. I think what you saw is that whether delays and tax refunds, there were definitely some exogenous factors so to speak, that that really did

have an impact on retail sales. And I do think that, you know, the the relative to expectations that trends have been a little bit better. Trends have gotten better in April. It seems like they've continued to be better in May. And you know, you can't ignore the fact that the consumers in relatively healthy position. I mean, obviously there's a

lot of pressures. There's healthcare costs, and there's you know, gas prices going up a little bit, but you know, for the most part, you know, employment were at seemingly full employment, and interest rates are still relatively low, and home prices are going up, so the consumer is armed

with the ability to spend. And I think that another theme that we've seen is I do believe, you know, more retail specific You're actually going to start seeing a little more investment in the stores again, because the store experience is still crucial, even you have to combine it with digital. And I think that retailers were so focused on technology for the past few years and fixing up that side of the business that they're now going to be kind of shifting back a little towards the stores.

But this is interesting. This is interesting to me. In other words, you're saying that retailers are going to start putting more money into their physical locations and trying to combine the digital with those. I'm trying to imagine what that would look like. Which company, which retailer would you call? You wander over to Columbus Circle today where Amazon has started its first New York bookstore now open. So you

know that's part of it, no doubt. Uh. And when you figure that, you know Amazon is going in that direct. They have a few of the bookstores they're looking to open at least one more in the city here, and so it's understandable what have you got as a retailer that Amazon doesn't have, at least before these openings. And it's a storefront, it's a way for people to get to you. But but isn't this more than that, Because an investment in a store could mean making it more

of an experience. It could be making making it into an event space in a way where people can even order the merchandise and pick it up there. But it doesn't necessarily have to be uh, the classic brick and mortar experience. Joe, Yeah, I think you're right, And I think that's what retails are trying to get at and and and to your point, I mean the Amazon there, they understand that there's their need to be close to

the to the consumer. I mean, look, I know the rapid growth in retail is all digital or online, whatever you want to call it. It's still only what overall retail sales. It's going to twenty probably in the next decade. But still of the business is still going to be touching a store in some way. Returns touch the store. And oh, by the way, when you bring in a return, oftentimes you buy more or do an add on or do something different in the store. If you're picking up

at the store, you can do add on sales. And to your if you can create kind of an experience in some theater within the store and better service that can help to drive drive sales. Joseph Alban, thank you so much for joining us. Joseph Feldman is Senior Managing Director and retail analyst Telsea Group, talking about best Buy and all things retail, and of course our big thanks to Dave Wilson, Bloomberg SX editor, blogger on M Live, go on the Bloomberg and a columnist here at Bloomberg News.

We want to take a moment to let you know about something new from Bloomberg. Starting right now, you can use our io s app or our new Google Chrome extension to scan any news story on any website, instantly revealing relevant news and market data from Bloomberg and other sources related to companies and people you're reading about. So no matter where you're reading the news, you can bring the power of Bloomberg's news and data with you. It's

pretty amazing. Download our io s app or search for the Bloomberg Extension on the Chrome Store to try it out. Learn more at Bloomberg dot com slash lens. Right now, I want to bring in Kolar Kadani's chief US economist for Bloomberg Intelligence, who's here to break down what we learned yesterday from the meeting minutes that were released from

the f O m c S May second and third meeting. Uh. Usually these minutes are not that instructive people parts specific words as far as growth accelerating, whether you know, there's any kind of uh, just tenuousness as far as the strength, the strength and the economy on the behalf of FED members. But this time these were exciting minutes. Yes, they were relatively exciting. So you know, as you mentioned, normally the minutes kind of fill in some of the gaps of

the relatively short meeting statement. But recently the minutes have been providing clues or additional clues regarding what the FEDS balance sheet unwind will look like in terms of when it will start and how it will be executed. Just to put this into perspective, so, the Federal Reserve has about four and a half trillion dollars of assets on its books, including about two and a half trillion dollars worth of US treasuries. They're one of the biggest holders

of treasuries in the in the US dept market. Uh. And here they are. They've built up this war chest of debt and now they're trying to figure out how to shrink it, uh, for a variety of different reasons. And now they're coming out with a plan that could potentially shake the markets absolutely and so just under two trillion and mortgage backed securities as well. So this does provide some distortion into the markets, which was desirable at the time they were doing it. It was a form

of economic stimulus. But you know, as as with most things, say the party comes to an end and they need to unwind and need to but they want to for a variety of reasons. Well, they do need to, uh basically start removing policy accommodation and so uh you know, whether they're doing that through interest rate increases or balance sheet production, right, you know, you could make the argument

they need to do one versus the other. But they do need to start normalizing policy as the economy normalizes, meaning that the unemployment rate has basically returned to normal, GDP growth is back to normal, inflation is very nearly back to normal, but policy is set at day still very accommodative stance. Assuming they raise rates at the June meeting, which in the minutes they suggested that that was a very strong possibility it's priced in on future is almost right.

So assuming that they raise rates at the June meeting, now they are just back to where rates stood at the low point of the last economic cycle, the low level that actually was part of the reason for the inflation of the housing bubble. So the FED is very sensitive that if you keep rates too low for too long, you create financial and market distortions. Uh, and I think that's a significant motivating factor for them to continue on this very gradual path towards a higher level of interest rates.

And sort of to get to the minutes, what they outlined, which I thought was so fascinating was, uh, the way that they would stop reinvesting the money that they got back from bonds that they hold. In other words, as things paid down, do they put that money back into

the market or not? And they basically said, we will put it, we will, will will not put some of it in the market, and we will tap the amount that we won't put back in the market at a certain level, and then we'll increase that cap every three months, right exactly. So they've continually narrowed down the range of options. One option, which was dismissed a while ago, was actively selling the assets on the balance sheet. They ruled that out.

The next most aggressive scenario was to just end reinvestment, so for mortgages prepaid or a treasury security matures, they would not reinvest that into what new securities now what they're doing. If they had done that, that would to an wild unwind of the balance sheet. I I compare this to a fire hose that you're not holding onto

the end, just whipping back and forth. Some months you'd have as little as about five billion rolling off, and then other months you might have to billion rolling off, and that would be very difficult for the markets to digest. So instead they have this UH cap basically where they'll say, okay, well let x amount run off and the rest will be reinvested, and the cap will start off very small I think probably two billion as a reasonable estimate, UH,

and then that will be that's extremely small. This is tiptoeing in because they don't want the markets to have a tantrum. So you start off at maybe two billion, and then inch that up to what we'll call cruising speed, which I think could reasonably be in the vicinity of ten billion. When are they going to give more details?

They said that more details will be coming soon. They'll continue to the discussions at the June meeting, which again should be a light lift because they're raising rates that's already agreed upon basically by between the markets and the Fed. UH the economic assessment fairly straightforward. That gives him a lot more time to discuss this. I think over the course of the summer, and there's a number of instances.

So we have a June press conference, we have midyear testimony before Congress, and we have the Jackson Hole FED conference in late August. Lots of details to come soon. This was kind of a brilliant move to calm down markets, and markets certainly rallied in response to this because it was not the fire hose situation. Car Ka Donna always wonderful to talk with you. Kadonna's chief US economist for

Bloomberg Intelligence. We are hearing more about what's going to happen with James Comee, the former head of the FBI, and his potential testimony in front of Congress. He had has agreed to testify, but that may not happen due to a number of things. And before we get to that, I just want to uh tell you about a statement that was just released from President Trump issued by the White House, talking about leaks, he said, the alleged leaks

coming out of government agencies are deeply troubling. This comes after the United Kingdom Prime Minister Tresa May raised questions about its relationship, the UK's relationship with the US and its willingness to share information with the US given the degree of leaks and how frequently they seem to be happening with private information getting shared in newspapers. Chris Strom as national security reporter for Bloomberg, and before we get to what's going to happen with James, comey uh, and

we are awaiting. Just to sort of remind you we are waiting. President Trump is going to speak at NATO headquarters in Brussels, and we will bring that to you live when we get there. But Chris, I wanted to get your take on leaks. And you know, we have heard so much about you know, there are too many

leaks coming out of national intelligence agencies. What is your sense of the path forward were the White House with respect to cracking down on these leaks and are these leaks really coming at a much faster pace than ever before? But yeah, I think a lot of people have been expecting the White House to take action against the leaks that have been happening. Uh they kind of it's also important to kind of recognize that they're falling into different categories.

The pressure that Trump is facing right now is coming from you know, the the the UK in terms of leaking the information about the uh, the bombing suspect um,

and that tends has become from law enforcement uh officials. UM. The other leaking that's that's been happening has been uh, you know, on the on the intelligence side of things, and about the Trump Russia investigation, and so you know, for a while now, the administration has been indicating, indicating that they're going to ramp up their their pursuit of leakers,

and that's what we're seeing now. You know. I do want to, uh just reiterate that we are awaiting comments from President Trump and he is walking to the podium uh with NATO leaders, Chris, I know that you will be listening to this as well everybody in the intelligence community, as this has to do with how much potentially he may talk about how much NATO members will contribute to the effort to fight ISIS and this has been a big focus and UH there has been an increased uh

sort of agreement on fighting isis based on what we just saw in Manchester, the tragedy where there was a bombing at an Ariana Grande concert. Real quick, Chris, can you just give me a quick sense what's your under over about whether James Comey is actually going to testify uh in front of US Congress. I would say at this point probably not in the in the near term. I think that what's going to happen is that Jim Comey is going to defer to h to Maller, the

Special Council. They have a long history and I think for for Mulla's point of view, Comy is one of his core core witnesses UH to potential crimes being committed in a lot of knowledge about the investigation, I think Toomey will defer them all. So you think that he's probably not going to end up testifying in front of Congress. Not in the short term. I think like we're gonna have to wait and get through some of the initial

investigative steps that Muller wants to take. He wants to get things kind of nailed down and then see if he can allow Comey to go forward. And what about the White House? Could the White House engage in any

actions to prevent Comey from testifying? Is that even on the table at this point, Yes, we have, we have heard that there's there's consideration being given to the White House exerting executive privilege over over Comey's ability to testify and over Comey's the ability of of lawmakers to get

access to the memos that Comey, that Comey wrote. And um that then that's the whole different that's that's a whole different situation at the White House is in a cert executive Chris, Chris Strom, thank you so much for joining us. Chris Troms, National Security Port for Bloomberg. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to into Views at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm

on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio.