From Marhart where Innovation, Money and Power Collie in Silicon Valley, NBN. This is Bloomberg Technology with Caroline Hyde and.
Ed Love Love.
I'm Caroline Heide of Bloomberg's World headquarters in New York and Lovelow. He's on assignment. This is Bloomberg Technology. Coming up the trial of Sam Magman Freed. He kicks off in Manhattan as he faces charges of swindling millions of dollars from his crypto platform FTX. We of course will
have full coverage ahead. And as micro Versus is a cybersecurity probe by the Chinese government, a bipartisan group of US senators where they're looking to visit China to address this very issue, we'll have more on the US China relations, plus and artificial intelligence. Can it help hedge funds outperform? The answer, well, that's not so so straightforward. For breakdown the results in our Bloomberg Big Take later this hour,
But first let us check on these markets. We're looking at strength in the US dollar as we anticipate maybe a FED having to remain hawkish.
We're up some three tens a percent.
Look, this is the strongest the Dollar index has been in about ten months.
Moving on, what does that mean? Well, for another key asset.
That we look at versus the US dollar, Bitcoin currently on the lower side world by one point eight percent on the day, and this is after we'd seen a little bit of buying yesterday. So once again, is it profit taking or is it also a look towards the trial of Sam bagmuin freed what does the industry make of it?
As it starts today? We know that he's.
Facing charges that he's sort of billions of dollars from his crypto platform FTX. Let's go out to Kaylee Lines for more, who is on the ground in front of the U. S. District Courthouse and just tell us exactly the state of play what we're anticipating today.
Kaylee, Well, today, Carolina, it really is all about jury selection. This is just one step in what could be a trial that plays out over the course of the next six weeks at a maximum. Today they are looking at potential jurors, vetting them as we see they have dismissed a number already, and we understand the judge is hoping to finish today, if not be finished by tomorrow morning, and then once the jury has said it really will
get into the argument phase of this case. As you mentioned, he is facing a number of charges related to fraud and money laundering.
Seven in total.
If convicted of the maximum sentence, he could spend the rest of his life in prison. We could be looking at a sentence here of over one hundred years if convicted. He of course has pleaded not guilty. But really, over the course of this trial is when we're going to see a lot of the facts of the case born out, both from the prosecution and then of course the defense. Sam bankman Fried has frequently said it was never his intent to commit fraud on anyone, and.
Of course this has ramifications for those who are watching exposure with FTX, but more broadly crypto as a whole.
Of course, on the shining like.
Within our crypto show that's playing out later, Kaylee, What does the industry make of all of this?
Are they waiting with beta breath? Yeah?
In many ways, Caroline, the industry already has been grappling with the after effects of FTX and alimeter researches, enclosure and the allegations that were made against Sam bankman Free. Because we have to keep in mind this individual, we are referring to this thirty one year old was not just the CEO of FTX, he was also a leading voice for the crypto industry as a whole. He frequently appeared on Capitol Hill lobby before lawmakers for the industry.
He was seen as one of the most credible voices in the business, and so when all of that imploded, the credibility of the wider industry really did take a hit. Now, this could be somewhat of a cathartic moment for the industry once this trial is wrapped up and they can kind of put the issue to bed.
But I think in a lot of.
Ways, the industry is still dealing with the after effects, still trying to recover, re establish some of the credibility as there's a lot of regulatory and legislative effort underway in Washington, and the Sam Bankman free aftertaste may still be lingering in some ways, and this trial could really revive a lot of that dirty laundry a well.
Put kayleie lyones, thank you. We appreciate the coverage throughout the day, and we want to now bring you some expertise him in terms of what this does mean for the industry regulation written Lard also central bank adoption. Ishua prasadam pleased to say, Cornell University professor of Trade Policy is with us.
And of course, most.
Notably you have worked for the IMM the International Monetary Fund.
But also you're the author of the.
Future of money, how the digital revolution is trans forming currencies and finance. What does this particular lawsuit, this particular moment in history mean for the adoption more broadly of crypto do you think.
So, Caroline.
As Katie correctly pointed out, the industry is hoping that this will be a cathartic moment in the sense of cleaning out some of the Charlattans and perhaps also providing some regulatory clarity if regulators do move forward.
But the reality is.
That Sambangmenfield again was seen as a messiah in some of these circles, and he was seen as delivering on some of the promises of decentralized finance.
Now, what the FTX collapse.
Really shows is how far the no of bitcoin and decentralized finance, which was supposed to turn away from traditional financial institutions, how far it has strayed from that promise.
In effect, what we are seeing is that many of the.
Problems of traditional finance are being imported into the cryptocurrency world, in particular centralization in the form of exchanges like ftx, which becomes single points of failure, and the notion that we can actually have decentralized trust, which is the whole underpinning of bitcoin, doesn't quite seem to be bearing out, because we are seeing that people seem to want to hold their crypto assets in centralized exchanges like ftx, where
they also undertake trading activities. So right now we seem to be seeing a lot more centralization rather than decentralization.
That's interesting.
Where could we see an optimization of decentralized exchanges they do exist, there's unis what for example, how are we seeing a movement towards that future of crypto at all.
I think we are beginning to see a bit of a bifurcation. There are many people who view bitcoin and other cryptocurrencies as financial assets really, and those are the people, including many somewhat nie retail investors, who seem to be taking the speculative approach to cryptocurrencies and they're holding onto these assets. But at the same time there is actually a rather vibrant market of decentralized finance, which so far has not really delivered and its promise of democratizing finance.
It's created a lot of financial engineering, speculation and so forth. But I think there is real promise there that with blockchain technology we might be able to move to a world where we no longer rely on traditional institutions, where blockchain based finance through smart contracts and so on, can make financial systems a lot more efficient.
What is necessary to get there?
Is it clear regulation, not just in the US, but more globally.
Regulation is certainly going to be needed, Carol, And I think regulation that creates guard rails, so that first of all, you have some of the basic elements of financial stability, institution specific stability as well as systemic stability taken care of, investor protection considerations taken care of, and most importantly, guardrails to make sure that we don't have excessive concentration in the space or decentralized finance being used purely for speculation
or for illicit transactions of various sorts.
And I think the.
Notion of the industry policing itself through technology, I think it's not going to work. We are going to need some guardrails, and the question is how best do we
set up those guardrails without stifling the innovation together. I think there are steps being taken in many jurisdictions, including the US, but we are still a long way away from the right sort of regulatory environment so that we can get this ecosystem to foster and thrive without necessarily creating illegal and illicit activities.
Sure give us your therefore birds eye perspective, your global expertise here, because are there areas where you think leading the charge in terms of a best fit regulatory environment.
Now, Europe, the United Kingdom, and Japan have move forward in terms of at least trying to define various categories of cryptocurrencies and crypto assets more broadly, and that's certainly helpful as a start, but I think a Caroline, there is really still a sort of conceptual struggle going on in terms of trying to decide whether one can take existing regulatory frameworks and fit these new products into them, or if these are new technologies that require completely different
regulatory frameworks. One thing that is becoming clear is that these are not the traditional sorts of products. They do have spilloversts into traditional financial systems, and they're going to need a coordinator approach at the global level rather than fragmented approaches at the national level. So we're making progress, but very slowly.
What does the role of the central banks have here, Ishue, I know this is something you've looked in more broadly because of the digital revolution, as you call it in your book, how it's impacting currencies more broadly.
I think the biggest legacy of cryptocurrencies really is going to be that they have shown a pretty harsh light into the inefficiencies of traditional financial systems, especially international payments.
Now central banks are responding.
To this, partly through regulat reactions, but partly also by fostering better forms of digital payments that are much more inclusive. In many parts of the world, payments are largely digital already, with physical currency or cash not playing a big role. So many central banks are moving towards central bank digital currencies that can be.
Used for retailed payments.
In the US, it is catalyzed action by the effect to move towards a suite of better wholesale and retail.
Payments in the form of FED now.
So I think a lot of nice changes are brewing in financial systems, including in domestic international payments thanks to crypto currencies. But whether crypto currencies themselves will play a very important role in this I think remains.
To be seen.
There is therefore this sort of tension between generally a centralized version of what the utopia is of purity centralization and then and of course there's the need for regulation. Well broadly, when you've written a book about this, when we've seen the highs and the lows of exuberance around crypto die off, how many people are still asking you for your guidance?
How many years do you think this wi ultimately take.
I think there is a fundamental shift in terms of digitization of payments as I mentioned, but also you know, the ability for financial institutions to conduct existing forms of business in more efficient ways, but also to foster more competition among financial systems. And certainly, as we see cross boarder finance become much more friction free thanks to these new technologies which are being adopted even by traditional financial institutions, I think we will see significant efficiency gains.
The real concern is whether.
Like in the cryptocurrency EQUL system, we end up seeing even more concentration in traditional finance because existing incumbents could end up using these technologies to their advantage. And I think this is where regulators will play a very important role to make sure that regulations don't just become a barrier to entry for new financial firms, but just create new guard rails for this innovation to thrive.
Asuan really great to get your expertise as an author and of course as a professor a trade policy over at Cornell University issue process there, we thank you. Meanwhile, coming up, look, we're going to talk about the future of regulations slightly differently. Here US senators hoping to meet the Treasure and present changing paying in China next week, and that's just talks about Micron are clearly on the agenda. We're going to unpack what the congressional leaders hope to
accomplish on their visit. Meanwhile, let's head over to Asia. When we're looking at one particular stock, we have seen the trading of it here in the United States, of course, American depository receipts of TSMC now notable that this stock has eraised seventy seven million dollars of its market cap since the June high. It's basically well lost more value
than any other Asia traded stock. We're bracing for their earnings October the nineteenth, but also for the prolonged weakness in the chip sector.
We're currently under pressure once again. Today. This is Bluebog technology time. Now for talking tech.
First up, several Taiwan based tech firms. We're actually helping Huawei build a secret network of chip plants across southern China. Now it's unclear whether the company's potential involvement violates American sanctions because of just how complex the curbs against Huawei are, but Huawei did not respond to a request for comment on Bloomberg story. Meanwhile, Japan is approving as much as one point three billion dollars in subsidies for Micron's Hiroshim factory.
This will help Micron install ASML that's the European maker of equipment. It's extreme ultra violet lithography equipment used to make advanced chips.
That the approval marks.
A win for Micron as it grapples with uncertainty in China, one of its largest markets. And also on Micron, and let's talk about that Chinese relationship. A bipartisan group of US senators hope to meet President Hujinping in China next week with discussions about Micron being top of Maligne. The delegation, led by Senate Majority Leader Chuck Schumer and Republican Micropo, will raise the issue of Micron's ability to do business in China. It's all according to Bloomberg sources, Micron faces
an ongoing probe by the Chinese government cybersecurity administration. And we want to get more on this entire story with amriy Horden co host a balance of power and I mean, ultimately, how likely is it that these senators will actually meet with Jingping.
Well, we do know from an interview our colleagues had with Senator Mike Crapo that that is one ask, But so far at this moment, Chijingping has not guaranteed that meeting. There's going to be a flurry of meeting when these group of by Parson senators go over to Beijing.
We do know that in twenty.
Fifteen, Shijingping did sit down with a number of congressional leaders on a state visit. But normally these trips, what you would see is that senators or any sort of lawmakers, a cabinet minister. They would meet with other ministers within the Chinese Communist Party government apparatus, but not Sijingping himself. But potentially a she meeting could be on the agenda, and this could also open up the door for that Biden Shijingping also potential meeting that could happen in November at APAK.
So that's the first thing.
Potentially there's a she meeting with these by Parson group.
Of senators, the others.
Of course, what's brought up, So Senator Schumer said, other things will be brought up, like human rights, like fetanyl. But we do know that Micron is really important for both these this vice partisan group, not just where Micron is headquartered, but where they're potentially going to build new factories. One is going to be put in New York. And Micron came out over the summer saying about half of their sales are linked to companies headquartered in China.
This cybersecurity review has been a huge.
Deal on this company, whether or not how much they could do business in China, but also on their revenue.
I mean, what is it about half of its China sales seem to be at risk?
At the moment. So you're reminding us.
At Crapo's course of showing the support of Boise Idaho.
You've got Chuck Schumer of New York.
But why coalesces around this particular company this particular moment, What does it say more broadly about US China tech relations.
Because it's disintegrating sort of across the board. Well, it has disintegrated.
Part of the Chinese government will say that is because of the export controls and the other penalties and sanctions that you're seeing from this administration. This administration, the Biden administration has been very clear they want to take a narrow approach, but they do want to make sure that China is unable to get their hands on critical tech
that potentially China could use to bolster their military. So many see that what China has been doing in terms of the Cybersecurity administration looking at what's going on in micron, they view that as a tit for tat coming back to the United States about what they did, what they're doing when it comes to US technology that companies want
to get their hands on in China. So it does feel like is an all time low, which is why if these Senators were to meet with Shijing Ping, it potentially could help thaw some of that, especially when it.
Comes to Micron.
Why to Micron is still coming full sackle. We thank you so much, Blue Mix Amory Holden with a breakdown.
Then this, in my.
Opinion, is going to be a super huge impact general AI and so on. It can have an enormously beneficial productivity impact.
Ray Dally there with our own David Weston talking about the impact of AI, but sticking with more broadly artificial intelligence, how it's up ending many industries, and we keep talking about on the show.
But when it comes to actually hedge.
Funds like Bridgewater Associates, many money managers just answering the technology actually lead to outperformance. It's a subject of today's Bloomberg Big Take, and one place to say that one of the authors is with us Bloomberg's Justina Lee and fascinating deep dive that you do to show that at the moment, while all these stocks are worring higher on the back of AI bets, actually deploying AI within the stock picking industry is pretty hard to do, right.
Yeah, exactly.
I mean, it really is the irony of this year's stock market. And I think what a lot of investors are discovering is that financial data is very different from a lot of other kinds of data because it's a bit like if you were training Chad GPT and like gibberish, because if you look at you know, what is moving the SMP five hundred every day. I mean, there's so much noise in there that you're just kind of pushing
all that data through the machine. I mean, the machine is picking up a lot of noise which might not be that helpful in helping you predict what happens, you know, to the SMP tomorrow. And I think that is the problem that a lot of hedge funds are running into. But that's definitely not stopping a lot of quantitative investors from trying to like crack that puzzle.
And they've actually been trying to crack the puzzle for long before Chatch GPT became part of our Lexican RT. Justina and talk to us about some of the individuals who spoke to in particularly the co founder of Research Affiliates went off and founded in twenty sixteen, I think was it reliant Global Advisors and AI driven sort of quin fund, and well he was really upended during the COVID crisis, right, because there's just no data for that.
Yeah, I think the COVID crisis is a great illustration of why AI is really hard on finance, because you know, the English language is not that different.
You know, one hundred years.
Ago from now, cats and dogs have looked the same, and that's why our iPhone can kind of recognize animals. But you know, when it comes to financial data, there
are a lot of regime changes. But I think the hope for a lot of people like Jason you know, who's the co founder of Research Affiliates, who is a convert to using machine learning in finance, is that he's hoping if you feed a lot of the data into the machines, they're kind of picking up how the environment is changing as well, and that will make his systems more adaptive. And that is sort of I think the dream of a lot of people that are trying to apply machine learning in finance.
At the moment.
Though with AI, with all the issues with the data garbaging garbage out, are we able to still see that quant funds and indeed, just AI driven ways of stop picking is kind of okay compared to people. Are we already seeing jobs being lost?
Yeah, I think for now, not just yet.
I mean, if we look at the track record of AI hetch funds, you know, there is a hedge fund index. I mean, they're not really doing much better than the hedge fund industry overall, and so it's not obvious that they're necessarily better than humans. But one perspective I've heard from reporting this story is that in a way they don't need to be better than humans. I mean, if you can kind of run a portfolio that does just as better but with far fewer humans, that might already
be more efficient. And I think we kind of, you know, zoom out a little bit and look at kind of the use of AI in terms of productivity hacks. I mean, everywhere on Wall Street we're seeing a lot of uses for you know, using something like chat GPT to summarize research, to like write the code, or there are now a lot of efforts in using kind of these machines to like read the news that we write, or kind of read tweets that we post and to try to kind
of turn those into trading signals. And so I think there are a lot of uses, even if not everyone's kind of using AI to try to beat markets in finance.
You'd be very successful by just being a little bit better than fifty percent.
That's a great quote in your story.
Well, thank you so much, DestinE Eli.
Welcome back to New bag Technology. Let's get back to.
Some of that indiosyncratic news when it comes to SPF Sam by Manfred. He has charged with seven counts of ford and money laundering. We know a case that has been going on for nearly a year now, So how do we get here? Some quick reminder, Katie Lyon's got the breakdown on the series of unfolding events.
Granted.
I thank you guys.
In the span of three years, Sam Bankman Freed became one of crypto's biggest stars. In May twenty nineteen, Bankman, Freed and business partner Gary Wong founded FTX. It's goal to create a safe and responsible platform for traders. By October twenty twenty one, venture capitalists had poured millions into FTX, and a list celebrities like former NBA player Shaquille O'Neill, model Gisel Buncheon, and comedian Larry David had endorsed it.
That same year, the firm was valued at twenty five five billion dollars, and users soared to more than five million globally, at least one point two million of them in the US. The ftx's name became well known, appearing on T shirts, in commercials, and even on an NBA arena. By early twenty twenty two, the Bahamas based company's valuation skyrocketed to thirty two billion dollars. FTX had become one
of the world's biggest crypto exchanges. Big Benfried's net worth climbed to twenty six billion dollars, and he said he wanted to do good with his money, following effective altruism.
I both think it's not what I should do with my money.
I think I should be thinking about how I can help the world with it.
The then thirty year old also became a major political donor. He contributed tens of millions to bipartisan political action committees and frequented Capitol Hill to be a voice for his company and be industry. At the time, he had no plans to slow down.
I'm going to be here for the long term.
I have no plans to leave. You know, that is not something that is on MI drive.
But in November of twenty twenty two, things began to unravel. Coindesk reported that the crypto hedge fund Bankment Freed had also founded, Alometer Research, had a significant portion of its assets made up of FTT, a token that FTX created. In response. On November sixth, CZ, the CEO of rival crypto exchange Finance, posted to social media saying quote, we have decided to liquidate any remaining FTT on our books.
The move triggered a massive wave of withdrawals, sort of like a run on the bank, and FTX didn't have the funds to meet them. In a rescue attempt, FTX reached a deal with Finance to sell itself, but Finance backed out.
We became very quickly.
There was a lot of funds missing, like on to the tunes of double digit billies.
I couldn't trust any of the information in the data room, so by.
November eleventh it was over. FTX filed for bankruptcy and Bankment Freed resigned as CEO That same month. He apologized at a public event.
I made a lot of mistakes.
Are things I would give anything to be able to do over again.
I didn't ever I try to commit fraud on anyone.
But just a few weeks later, Sam Bankminfried was indicted, accused of misappropriating billions of dollars at the cryptocurrency exchange.
It's fair to say that by any anyone's licens is one of the biggest financial frauds in American history.
Great breakdown from Katie lines. What does it meant for institutional adoption for the hope of crypto? More broadly, let's talk about it with Bitwise asset Management CIO Matt Hogan, who joins us now for has taken all of this, and you've got your own news to bring to the table about offerings to institutions. But just focus on the trial and the start today for you. Will this be a cathartic moment for the industry? Is it gonna be more pain before the sun comes again?
Yeah, it's a.
Great question, Caroline. I think of it as mostly old news. You know, we work with primarily institutions and financial advisors, and from about November to April they wanted to talk a lot about FTX and what it meant. But earlier this summer Blackrock announced it was launching or trying to launch a spot bitcoin etf you know, the world's largest asset manager, saying the coast is clear. We're ready to move on. We're ready to move to a new era of crypto. Kind of put a cap on the FTX conversation.
So it honestly hasn't come up in the past few months. I think there'll be some lurid coverage of the FTX trial, but that is crypto of the past. I think a lot of people are thinking, what happens next in crypto, what's exciting, Let's move.
On, okay, And so you're a lot of that excitement.
Some of the catalysts for actually bitcoin itself and the rally that we've seen in some of the digital tokens has been the hope of a spot ETF. You're still offering ETF and ETP products, this time related to eth for the first time. Can you talk us through that and why you're not needing to have a spot one for the time being.
It's more about the futures.
Yeah.
Absolutely, we're very excited to eventually launch spot ETF both on Bitcoin and ethereum once the SEC allows that. But we shouldn't let the perfect be the enemy of the good, and so this week we launched two ethereum.
Tied ETFs a ether and b TOP a eth.
Is one hundred percent ethereum futures, b TOP fifty percent bitcoin fifty percent ethereum futures. Those ETFs are going to be very highly correlated to the underlying price of ethereum in bitcoin, and people have the chance to invest today. You know, if you think about when the first spot bitcoin ETF was filed way back in twenty thirteen, the price a bitcoin was below one hundred dollars a coin. If you've been waiting for that spot bitcoin ETF to come, you've missed.
A lot of appreciation.
I think there are a lot of investors out there that Noah, spot bitcoin ETF is coming, think an ethereum spot ETF is coming, and want to get now ahead of them. And for those investors, Ahan, b TOP are great solutions.
So tar to us, who these investors are, How big are we playing? What sort of institution is it coming to want to get into your product?
Yeah, it's an amazing question.
Because retail grew into this trillion dollar asset class really on the back of retail investors. We haven't seen financial advisors come in a major way. We haven't seen institutions come in a major way. But as you and I know, that's the majority of the market, maybe eighty percent of all the wealth in America.
Hasn't really tapped into.
Crypto yet because they can't invest through an app on their phone. They need regulated ETFs. And so I think this is the start of a game changer for the crypto industry. I think we're going to see significant inflows that eighty percent of the market that's outside is going to come in and a year from now, two years from now, crypto is going to be a mainstream asset that fits in portfolios alongside stocks, bonds, real estate, and other commodities. It's going to be mainstream in a major way.
What gives you that confidence, though, because we had that a couple of years ago and then volumes slowed to a trickle. Institutional adoption just fell off a cliff.
Yeah, I'd point to three things.
One, we now have ETFs right for a long time, people criticize this SEC for being too slow to approve ets, but we had none until twenty twenty one. Now we have close to a dozen and more are coming. So we have ETFs that brings it mainstream. Two, we have large asset managers coming into the space, Blackrock, Fidelity, Franklin, Templeton, the big teams are coming and that means a million
more conversations with professional investors. And then the third most important thing, we're starting to see the real world use cases that people have been asking for. Just today UBS is out with UBS tokenization, talking about tokenizing bonds on the public Ethereum blockchain, the same blockchain you can invest in through AE. And I think we're going to see a blossoming of real world applications and that's what's going to bring the institutions.
I suppose it has everyone been waiting for the killer DApp when it comes to the retail community. But also, you know this ongoing narrative that like, oh, we like the underlying technology, but we don't really like the assets in and of themselves. Why would the adoption of blockchain technology for tokenization of assets private or public really be according cont want to buy into an ether etf.
Oh amazing question.
If you look back a few years ago, there were all these projects on private blockchains. You'll remember JP Morgan had a private blockchain and people are like, yeah, that will.
Be the future.
It's like the intranet in the early days of the Internet. If you look at the pilot projects now, they are all built on ethereum. Paypoint's new stable coin built on ethereum, These bonds being structured by Goldban, Sachs, JP, Morgan ubs.
All built on Ethereum.
Often in technologies, these private controlled environments look attractive at the beginning, like intranets did in the early days of the Internet, but over time it's the public, open, and decentralized platforms that win. And I think if you look at where the major institutions are building now, they're building on things like ethereum, and now investors can invest in that in an etf What are still.
The limiting factors of ethereum in particular, I mean, there is the move to proof of work, to proof of state, the idea that you wouldn't have to have at lease so much energy consumption within that, But.
Still there was a complaint of gas fees.
Still there was a complaint that ultimately this is still pretty cumbersome when you're just trying to use it as a layperson.
Yeah, there's still a lot of there's still a lot of gaps. UX needs to improve the user interface, the gas fees have come way down with the rise of layer two solutions, so that problem is at least fifty percent solved, but it needs to be one hundred percent solved. And then, of course the major unlocked. The thing that's going to cause a step function is regulatory or legislative clarity.
Now I'm optimistic. We've recently seen over the past few months a number of bipartisan bills introduced by partisan letters coming out telling Gary Gensler to prove a spot bitcoin etf there's real political momentum in Washington behind it. That will be the final unlock. But we are already seeing those signs. And again i'd point to those major institutions building today.
That has been a worry that the regulation is evolving slower here though and elsewhere. Do you see some of the talent shifting board Do you see people wanting to build things not in the US.
Yeah, it's really unfortunate. We're seeing a lot of the attention shift to London. We're seeing a lot of it shift Singapore. The crypto environment there is blossoming in a way it's not here in the US. The US always figures out the right thing after exhausts all other possibilities.
I'm confident we'll do that here.
And still there's a lot of capital invested in crypto, but we are behind. I do see progress over the last few months. I'm really seeing a change in Washington. Makes me very optimistic for twenty twenty four and certainly twenty twenty five.
It's an optimism around this scrypto space. Matt Hogan, thanks for coming in and talking to it with about it. Bit Wise asset Management CIO there, Matt Hogan. Meanwhile, coming up, look, we're going to be taking the pulse of the VC industry. Is there any optimism there following the FTX Tobarkle. We've got Steff to partner at the fintech focus firm Portage.
That's next.
Meanwhile, we are continuing to watch individual companies today. Not much enthusiasm around this particular name, Paneteer on the downside by four point six percent. But give you context, this is a company that has run up in recent days because of course they've got that big contract from.
The US government.
This desire by Alex carp to see more AI adoption by key governments, so managing to be selling into the US for the time being, maybe a bit of profit taking on a down day. This is Roomberg Technology on today's VC Spotlight. Pleased to say we're joined by Steph, cho partner at Portage is a global fintech focused platform investing in innovative financial technology companies, very much of the early stage. Steph, and you've deployed what three undred million
are capital in the companies that you're currently analyzing. And we were just having a pretty optimistic conversation, shall we say, around crypto adoption more broadly, even in spite of SVB SBF, What is the industry feeling right now in the world of fintech and indeed putting money into these startups.
Fintech has been, as the entire tech sector has been, I would say.
Fairly slow through the year.
But I will say the story Q two seems to have been a bit of an inflection point. If you look at the data, round sizes for the first time have gone up in Q two twenty three, gone up again in Q three Also, I would say valuations have slowly ticked up. So it might be that Q one could have been the bottom both for fintech but also for early stage startup and investing in general. So I'm definitely seeing signs of optimism in both fintech plus the broader tech ecosystem and environment.
And what do you think was the catalyst for that bottoming if you are starting c valuations creep p Is it that these companies have taken some bitter pills they've rectified how their revenue and their bone rates are or is it more that we're getting more broad ideas of optimism, like exits that we started to see in the IPA market.
I think it's a combination of both.
So one, everybody's looking at the IPO markets very carefully. I think the story of arm and Clavio, the AI story is pretty clear. If you've got an AI story, you're going to trade up both in the public markets, but also you're going to trade at a premium in the private markets early stage and laid stage. I think the second factor is lots of companies actually delayed their raises. Everyone raised a lot of money in twenty twenty one
and they delayed. And I feel like now folks have come back to market in twenty twenty three because you can't wait forever. It's estimated that unicorns will need to raise three hundred billion by the end of this year and funds, And the third factor I would say is funds are really sitting on almost four hundred billion dollars of dry powder which was raised in twenty twenty one and twenty twenty two, so other vcs are itching to really.
Get deals done.
So I think it's a combination of all three of those things that are driving some kind of wider optimism in the market, not only at the seed stage, which if you look at seed valuations they really didn't change all that much from twenty twenty to twenty twenty three, but it's really at Series A and onwards that we're really starting to see more deals get done and valueations start to tick up.
In twenty twenty three, our.
LPs excited for their VC commitments to start to get deployed, are actually we hearing that LP's and putting on a bit of.
Pression to not deploy for the time being.
I think LPs are definitely not putting on pressure to deploy in short time periods. In twenty twenty and twenty twenty one, we saw funds deploying their full capital allocation, which would typically have been three to four years in twelve months, sometimes sometimes less and sometimes closer to eighteen months, and so we haven't seen a push from our institutional LPs to come.
Back to market.
Actually it's been a little bit of the opposite, because if you are an institutional LP, that is a pension, you might be facing what's known as the denominator effect, which is you need to rebalance your portfolio.
And as the public markets went.
Down, we've seen the share of privates be potentially look a little bit misallocated, and so there's been a shifting from some of our LPs, and so I don't think there's been a push for VC funds to necessarily deployed. But we are deal makers at the end of the day, so I think everybody in this job is excited about getting back to doing deals.
Certainly, we'll see how those deals continue to unfold stuff.
It's been great speaking to you.
Thank you for shining a light on the LP study, the equation as well as we're to be deploying stuff to partner at Portage there we thank I.
Mean, well, look, I also managed to catch up with.
Another founder but you'll know her name, Elavest CEO. Sally Krawchek of course, storied career in Wall Street, then pivoted to become a founder herself.
I was over at the NASDAC and we talked about.
How her company uses technology to help women build wealth beyond the financial tools traditionally built by or for men.
Take a listen, Well, we were the first who said we're going to change the underlying product using technology. And to your point, we're the first to build a gender aware investing algorithm, which doesn't matter so much of your guy. But if you're a woman who earns less, your salary peak sooner, you take more career breaks, and you die later. If you assume your average, you really risk running out
of money. On top of that, we use technology and learning and research to change about a zillion things about the product.
For example, yeah, I give us some Yeah.
So we learned, for example, that it's not that women are risk averse, and so when they get to the point of the onboarding where they say what's your risk tolerance? We found that what men will do is say that seems pretty important. I'm going to take an educated guess and continue on, and women say that seems pretty important. Because I was socialized to be perfect and men were real boys are socialized to be brave, as Rushmaster Johnny says, I'm going to leave, I'm going to figure this out,
and I'm going to come back. Do you know what is more interesting than figuring out your risk tolerance everything?
So therefore you don't come back. Same with your Oregon.
I could go on and on.
So they're just not getting past that hurdle in the Q and A when you're first signing onto.
The As it turns out, the onboarding was built for men. And we said, okay, how do we give her the information that she needs or how do we solve the problem of if she doesn't know a risk tolerance, what can we do about that? And rather than just say, oh, it's lost, what we said is we'll do the hard work.
Tell us everything about you, your characteristics, how old you are, what part of the country you're in, how much you're earning, what industry you're in, so we can figure out what you should earn over the course of your life, and what you want to achieve.
A new artificial intelligence startup is challenging more established rivals by solving a vexing problem. Letting anyone create an image of a cat wearing a T shirt with a clever slogan that you can actually read. Now, those humorous lines are actually written by Rachel Metz, who has a great story on Ideogram today.
Why is this so hard for other image generators to do in generative AI? Rachel?
So, usually these types of AI image generators are trained on pairs of images and related corresponding text. Often those images either won't have text in them they or they won't be trained using the wide variety of texts that you would use if you're training a system on, say pictures of apples or pictures of cats, where you would have them from different angles, different lighting, a lot of different kinds of apples or a lot of different kinds
of cats. So this company won't say exactly how they're doing it, but it does sound like they're using quite a bit of text in in their training images, which may have really helped it get a lot better at doing things like giving you pictures of a cat wearing a T shirt that has a slogan on it.
The beautiful pictures go see them on their story.
Ex Googlers founded Ideogram, how are they competing against mid journey or for example.
They've taken a really different approach than mid Journey or Open AI or stable diffusion. There is a little bit more like a social network. At the moment the website is it's free to use. There isn't a paid service at the moment that they're planning to have one. And at the moment everything you generate is open to the public.
They're hoping that that actually helps with behavior a little bit, so perhaps people will be a little bit kinder about what they're generating, not use it as not only as they might if they could do things privately.
Notable as we will worry perhaps ahead of elections and indeed deep fakes.
Rachel Metz Go read. Her story is.
Another brilliant one about the startup world in AI. We thank her so much for it. Meanwhile, now that does it. From this edition of Bloombag Technology, Stay with Bloomberg Television because it's Bloomberg Crypto. Up next, a deep dive into the FTX trial as it starts to unfold. You will not want to miss it. And also once I forget to check out our podcast, find it on the terminal as well as online on Paul Spotify. iHeart from across the world of FTX to fintech and AI.
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