Bloomberg Crypto 04/02/2024

Bloomberg Television
2 Apr 202422:57

Summary

TLDRBloomberg Crypto discusses the decline in Bitcoin and other cryptocurrencies, the 25-year sentence for Sam Bankman-Fried, and the upcoming Bitcoin halving. The program also features an interview with Hut Eight's CEO, who shares insights on the mining industry's challenges and opportunities. Additionally, Binance announces its first-ever board of directors following a settlement for anti-money laundering and sanctions violations.

Takeaways

  • 📉 Crypto markets and Bitcoin-related stocks are experiencing declines at the start of the second quarter, with Bitcoin falling as much as 7.4% in a single session.
  • 💰 The crypto rally seen earlier in 2024 seems to be losing steam as traders reevaluate Federal Reserve interest rate expectations.
  • 🚨 The sentencing of Sam Bankman-Fried to a 25-year prison term signals a strong message to the industry about the consequences of white-collar crime.
  • 🤝 Cooperating witnesses in white-collar cases, such as those involved in the FTX case, may receive leniency but could still face prison time depending on the extent of their cooperation and the profile of the case.
  • 🏭 The Bitcoin halving event, expected in about three weeks, will reduce the mining rewards, potentially impacting miners and the overall Bitcoin market.
  • 🌐 The demand for Bitcoin has increased with the introduction of spot Bitcoin ETFs, which could affect the market dynamics during the upcoming halving event.
  • 💸 The CEO of Hut eight, a Canadian-based Bitcoin miner, emphasizes the importance of being a low-cost operator to succeed in the mining industry.
  • 🌬️ Hut eight's strategy includes utilizing stranded power at renewable energy sites, such as wind farms, to lower mining costs and support energy infrastructure.
  • 📊 The market volatility for Hut eight's stock may be attributed to the recent merger and leadership changes, but the company's strong balance sheet and operations could build investor confidence.
  • 🔄 Binance, the world's largest cryptocurrency exchange, has established its first board of directors following a guilty plea to U.S. charges of anti-money laundering and sanctions violations.

Q & A

  • What is the significance of the Bitcoin halving event mentioned in the transcript?

    -The Bitcoin halving is a significant event that occurs approximately every four years, where the reward for mining new blocks is cut in half. This reduces the rate at which new Bitcoins are created, potentially impacting the supply and demand dynamics within the cryptocurrency market. The halving has historically been associated with changes in Bitcoin's price, although the exact effects can vary.

  • What was the context behind Sam Bankman-Fried's 25-year prison sentence as discussed in the transcript?

    -Sam Bankman-Fried, the former CEO of FTX, received a 25-year prison sentence for stealing billions of dollars from FTX customers. The sentence reflects the severity of his crimes, which included fraud and conspiracy to commit fraud, and sends a strong message to others in the financial and crypto industries about the consequences of such illegal activities.

  • How did the legal and regulatory experts react to Sam Bankman-Fried's sentencing?

    -The legal and regulatory experts noted that no new laws were needed to address Sam Bankman-Fried's crimes, as he was convicted under long-standing laws against fraud. They also highlighted the importance of the sentence in sending a message to Wall Street, the crypto industry, and others that severe punishment awaits those who engage in financial fraud.

  • What are the expectations for the other FTX executives who are on trial, such as Caroline Ellison and Gary Wang?

    -The expectations for the other FTX executives on trial are that they may face significant prison time as well, depending on their levels of involvement and cooperation with prosecutors. While their sentences might be reduced due to cooperation, they could still see a period of imprisonment, sending a message that white-collar criminals cannot escape punishment entirely.

  • What is the current state of the crypto market according to the transcript?

    -The crypto market is experiencing a decline, with Bitcoin and other crypto-related stocks seeing a significant drop in value. This is partly due to traders reevaluating their positions in light of potential changes in Federal Reserve interest rates and a reassessment of the market's rally earlier in the year.

  • What is the role of ETF flows in the context of Bitcoin's price?

    -ETF flows play a crucial role in Bitcoin's price as they reflect investor sentiment and the movement of capital into and out of Bitcoin-related investment products. A significant outflow from Bitcoin ETFs could indicate a shift in investor confidence and potentially contribute to a decline in Bitcoin's price.

  • What is the significance of the new board of directors for Binance?

    -The formation of Binance's first board of directors comes after the company pleaded guilty to U.S. charges of anti-money laundering and sanctions violations. This move signifies an attempt by Binance to increase transparency, improve corporate governance, and address regulatory concerns following the legal issues and investigations it faced.

  • How is Hut 8 Mines addressing the challenges posed by the upcoming Bitcoin halving?

    -Hut 8 Mines is focusing on becoming the lowest cost operator within the industry to manage through the Bitcoin halving. This includes having a strong balance sheet, efficient operations, and strategic positioning in areas with low-cost power, such as stranded energy sites and renewable energy developments.

  • What are the potential implications of the Bitcoin halving for the mining industry?

    -The Bitcoin halving could lead to a consolidation in the mining industry. Smaller operators may struggle to secure the necessary capital to maintain or expand their operations, leading to potential mergers and acquisitions or the exit of some players from the market. Larger scale operators with lower production costs are better positioned to weather the halving and any associated market fluctuations.

  • What is the cost structure for Hut 8 Mines in terms of Bitcoin mining?

    -Hut 8 Mines has reported an average cost of mining Bitcoin, excluding hosting facilities, of around $16,000, and including hosted facilities, the cost is around $18,000. The company aims to reduce costs by utilizing stranded power and renewable energy sources, which can provide cheaper energy options for their mining operations.

  • How does Hut 8 Mines plan to diversify its business beyond Bitcoin mining?

    -Hut 8 Mines is looking to diversify by focusing on the intersection of energy infrastructure and new age technologies. This includes expanding into other energy-intensive technologies and utilizing their existing data centers for purposes beyond Bitcoin mining, such as artificial intelligence and high-performance computing.

Outlines

00:00

📺 Introduction to Bloomberg Crypto and Market Update

The script begins with an introduction to the Bloomberg Crypto show, hosted by Sonali Basak and Tim Novak, broadcasting from Bloomberg's world headquarters in New York. They discuss the current state of the cryptocurrency market, highlighting the decline of Bitcoin and other tokens at the start of the second quarter. The hosts also mention the significant prison sentence of Sam Bankman-fried and the ongoing trials of other executives like Caroline Ellison and Gary Wang. The importance of the upcoming Bitcoin halving event, which is expected to impact miners and the creation of the digital asset, is also discussed. The segment ends with a mention of the show's agenda, which includes an interview with the CEO of Hut eight, a mining company.

05:04

📉 Market Downturn and Legal Developments

This paragraph delves into the market downturn, with Bitcoin experiencing its largest intraday decline since March 19th and other cryptocurrencies like Ethereum also seeing significant drops. The hosts discuss the impact of traders reevaluating Federal Reserve interest rate cuts for the rest of 2024. They also touch on the performance of the so-called 'mean coin' and the B digital assets 100 SML index. The conversation shifts to crypto-related stocks, with specific mention of Coinbase's share performance. The paragraph concludes with a discussion on the outflows from Bitcoin ETFs, indicating a change in market sentiment.

10:09

👨‍⚖️ Legal and Regulatory Reactions to Sam Bankman-fried's Sentencing

The focus of this paragraph is on the legal and regulatory reactions to Sam Bankman-fried's 25-year prison sentence for defrauding FTX customers. Legal and regulatory experts emphasize that no new laws were needed to prosecute Sam, as he was convicted under long-standing laws. The discussion highlights the message being sent to Wall Street and the crypto industry with this stiff sentence. The conversation also looks ahead to the potential sentences for other conspirators like Caroline Ellison, Gary Wang, and Nishad Singh, who have cooperated with prosecutors. The paragraph concludes with a report from Bloomberg's Ava Benny Morrison on the current activities of these individuals.

15:13

💰 Impact of Crypto Crime on Financial Industry and Campaign Finance

This paragraph discusses the broader implications of crypto crime on the financial industry and campaign finance. The CEO of RTX Better Markets, Dennis Kelleher, comments on the sentencing of Sam Bankman-fried and calls for severe punishment for all co-conspirators, while also acknowledging their cooperation with the prosecution. The conversation extends to the campaign finance violations allegedly committed by many in the crypto community, which Kelleher believes should be investigated and prosecuted. He argues that the crypto industry has had a negative impact on the election process and public agenda, and calls for a reevaluation of these practices.

20:14

🌐 Crypto's Role and Future in the Financial Ecosystem

In this paragraph, Dennis Kelleher continues the discussion on the role of crypto in the financial ecosystem, emphasizing his view that there is no legitimate use for crypto and that it serves primarily as a tool for criminal activities. He argues that the industry has failed to produce a socially useful application for its technology after 14 years. Kelleher also discusses the diversion of regulatory and prosecutorial resources towards the lawbreaking crypto industry, suggesting that this focus comes at the expense of oversight in other areas of finance. The paragraph concludes with a brief mention of the upcoming Bitcoin halving and its anticipated effects on the market.

🔄 Bitcoin Halving and Its Implications for Miners

The final paragraph of the script shifts focus to the upcoming Bitcoin halving event and its potential impact on the mining industry. Asher, the CEO of Hut eight, discusses the company's strategy for navigating the halving and the importance of being a low-cost operator. He outlines the company's merger, strong balance sheet, and operational efficiency as key factors in maintaining profitability during market fluctuations. The conversation also touches on the expected industry consolidation following the halving, with smaller operators potentially facing challenges in raising capital. Asher highlights the company's efforts to diversify its energy sources and reduce costs by utilizing stranded power from renewable energy sources.

📉 Hut Eight's Market Performance and Future Outlook

The script concludes with a discussion on Hut Eight's stock performance, which has seen a significant decline in the year leading up to the interview. Asher addresses the market's perception of the company, attributing the stock's performance to the complex story of a recent merger and leadership changes. He emphasizes the company's strong financial position, large-scale operations, and diversified revenue streams as factors that should build investor confidence. The paragraph ends with a mention of the company's focus on energy infrastructure and new age technologies as part of its long-term strategy.

Mindmap

Keywords

💡Decentralized Finance

Decentralized Finance, or DeFi, refers to a financial system built on blockchain technology that aims to remove the need for intermediaries like banks. In the context of the video, DeFi is part of the broader discussion on the technology and transactions shaping the world of digital assets and cryptocurrencies.

💡Bitcoin

Bitcoin is a digital currency that operates without a central authority or single administrator, transacted peer-to-peer through a decentralized network. It is the first and most well-known cryptocurrency. In the video, Bitcoin's price decline and its upcoming halving event are key topics of discussion.

💡Sam Bankman-Fried

Sam Bankman-Fried, often referred to as SBF, is a former cryptocurrency executive who was the CEO of FTX and Alameda Research. He was sentenced to 25 years in prison for fraud after his companies' collapse. His case is a significant event discussed in the video, highlighting the legal and regulatory responses to cryptocurrency exchanges.

💡Cryptocurrency ETFs

Cryptocurrency ETFs are exchange-traded funds that track the performance of cryptocurrencies like Bitcoin or a basket of cryptocurrencies. They allow investors to gain exposure to the crypto market without directly buying and holding the cryptocurrencies. The video mentions the outflows from these ETFs as a market signal.

💡Bitcoin Halving

Bitcoin halving is an event that occurs approximately every four years, where the reward for mining new blocks in the Bitcoin network is cut in half. This reduces the rate at which new Bitcoins are created, effectively slowing down the overall supply growth. The halving is significant as it impacts miners and the value of Bitcoin.

💡Caroline Ellison and Gary Wang

Caroline Ellison and Gary Wang are former executives of FTX and Alameda Research. They were closely associated with Sam Bankman-Fried and are mentioned in the context of their potential legal outcomes following the sentencing of SBF.

💡Hut Eight

Hut Eight is a Canadian-based Bitcoin mining company that operates at a large scale. The company's CEO, Asher, is interviewed in the video, discussing the impact of the Bitcoin halving on mining operations and the industry.

💡Campaign Finance Violations

Campaign finance violations refer to the illegal practices of collecting, spending, or failing to disclose funds used in political campaigns. In the video, the discussion revolves around the dropped charges against Sam Bankman-Fried and the broader implications for the crypto industry's involvement in politics.

💡Crypto Regulation

Crypto regulation refers to the legal frameworks and oversight applied to the cryptocurrency industry to prevent fraud, manipulation, and other illegal activities. The video emphasizes the need for stronger crypto regulation in light of high-profile legal cases like that of FTX.

💡White Collar Crime

White collar crime refers to financially motivated, nonviolent crimes committed by individuals or organizations, typically involving deception for personal or corporate gain. In the context of the video, white collar crime is highlighted by the fraudulent activities of Sam Bankman-Fried and his associates.

Highlights

The decline in Bitcoin and other tokens marks the beginning of the second quarter, following a historic run.

The prison sentence of Sam Bankman-fried, former CEO of FTX, signals a potential precedent for other executives on trial, such as Caroline Ellison and Gary Wang.

Bitcoin's upcoming halving event is set to significantly impact miners and the process of creating the world's largest digital asset.

Bitcoin fell as much as 7.4% in a single session, marking the biggest intraday decline since March 19th.

The crypto market rally that started the year is losing momentum as traders rethink the Federal Reserve's interest rate cuts for the remainder of 2024.

The so-called 'mean coin' is also experiencing a slump, with the digital assets 100 SML Index down more than 6%.

Crypto-related stocks, such as Coinbase shares, are taking a hit, with a current decline of 3.8%.

There was a significant outflow of funds from Bitcoin ETFs, with nearly $90 million worth of net outflows experienced on Monday.

Sam Bankman-fried was sentenced to 25 years in prison for stealing billions of dollars from FTX customers, a punishment that sends a strong message to Wall Street and the crypto industry.

The lack of new laws to prosecute Sam Bankman-fried indicates that existing laws are sufficient to address white-collar crimes.

Caroline Ellison, former CEO of Alameda, may face a reduced sentence due to her cooperation with prosecutors, potentially ranging from 12 months in prison to no prison time at all.

Nishad Singh and Gary Wong, both involved in the wrongdoing at FTX, have managed to find employment in the tech industry after pleading guilty to fraud.

Dennis Kelleher, CEO of Better Markets, emphasizes the need for severe punishment, including jail time, for white-collar criminals in the crypto industry.

Kelleher calls for a review of campaign finance violations related to the crypto industry, highlighting the need for transparency and accountability in political donations.

The Bitcoin halving event, which occurs every 210,000 new blocks, is expected to reduce the supply and potentially impact the price of Bitcoin.

Asher, CEO of Hut eight, discusses the importance of being a low-cost operator in the Bitcoin mining industry and the company's focus on renewable energy sources.

Hut eight's average cost of mining Bitcoin is around $16,000, with the cheapest sites utilizing stranded power from renewable sources.

Asher highlights the potential for diversification in the mining community, moving beyond Bitcoin mining to other energy-intensive technologies.

Despite the challenges faced by the mining industry, Hut eight remains focused on executing its strategy and leveraging its position as the largest operator of Bitcoin mining facilities in North America.

Binance, the world's largest cryptocurrency exchange, has announced its first-ever board of directors following a guilty plea to U.S. charges of anti-money laundering and sanctions violations.

Transcripts

play00:15

Live from Bloomberg's world headquarters in New York.

play00:17

I'm Sonali Basak. And I'm Tim Novak.

play00:19

Welcome to Bloomberg Crypto. A look at the people transactions and

play00:23

technology shaping the world of decentralized finance and Bitcoin and

play00:26

other tokens are on the decline to start the second quarter, and that's after

play00:30

historic run brought on by its aftermath.

play00:33

And Sam Bankman-fried 25 year sentence is potentially just the beginning for

play00:38

others on trial, including other executives like Caroline Ellison and

play00:42

Garry Wong. And we're weeks away from the all

play00:45

important Bitcoin having which will heavily impact miners and the entire

play00:49

process of creating the world's largest digital asset.

play00:51

And we're going to discuss with one of those miners, the CEO of Hut eight.

play00:55

All that and more ahead. First, though, as Shonali mentioned,

play00:58

markets seeing a lot of red today, risk assets sinking Bitcoin and crypto

play01:02

related stocks, well, they're no exception.

play01:04

Bitcoin earlier in the session fell as much as 7.4%.

play01:07

That was the biggest intraday decline going all the way back to March 19th,

play01:11

now down just over 7%. The crypto rally that we've seen so far

play01:14

this year losing a little steam in recent days.

play01:16

This as traders rethink Fed interest rate cuts for the remainder of 2024,

play01:21

ether down now 7.5%, off about 20% off of last month's highs.

play01:28

Now the so called mean coin's perhaps unsurprisingly also slumping today right

play01:32

here the and B digital assets 100 SML IDEX it's an index that follows the 50

play01:38

smallest digital assets in an index that covers this think dog with hat and the

play01:43

like. That's down more than 6% as we speak.

play01:47

And then those crypto related stocks also taking a hit today.

play01:50

Coinbase shares down right now by 3.8%. It was down as much as 6.4 a little

play01:54

earlier in the session, but off those lows.

play01:58

Finally, I also want to talk about another thing closely tied here to the

play02:01

price of Bitcoin, and that is the flows of those ETFs.

play02:05

Remember that the steep rally that we have seen drew the most of those

play02:08

inflows. But now we're actually seeing a moment

play02:10

here that on Monday there were actually 90 million nearly worth of net outflows

play02:15

experienced by that batch of ETFs that were launched earlier this year at

play02:19

January 11th. And since that moment of January 11th,

play02:22

we have seen about $12 billion worth of flows, money, new money attracted to the

play02:28

product here. But remember, even though 90 million of

play02:31

net outflows, Tim sounds small, it does show you a different direction of

play02:35

travel. Yeah, I'll certainly be interested to

play02:37

see what flows end up looking like after today's session if these lows continue

play02:40

to hold. Meanwhile, the big news in the past

play02:43

week, of course, was the 25 year prison sentence for Sam Bankman-fried for

play02:47

stealing billions of dollars from FCX customers.

play02:50

Here's how some legal and regulatory experts reacted right here on Bloomberg

play02:53

Crypto. There were no new laws needed here.

play02:57

I mean, Sam was convicted on laws that have been on the books for a very, very,

play03:00

very long time. And he committed one of the oldest

play03:02

crimes in the book, namely fraud. And then, of course, adding on the

play03:06

perjury, the witness tampering, you know, everything else that that came

play03:08

along with that. And so there wasn't really much that

play03:12

could be done from the standpoint of new regulation that would have prevented

play03:15

this specific in particular behavior. So in the federal system, there is no

play03:19

longer parole. There hasn't been for a long time.

play03:22

And that means that the maximum benefit a defendant can get is 15% off for good

play03:27

time. So if you essentially have good behavior

play03:30

in prison, you'll have a 15% reduction in your sentence.

play03:33

But that's it. What matters in sending a message with a

play03:35

sentence is that this was an $8 billion fraud.

play03:38

This wasn't a mistake that happened to work out in the end.

play03:41

And people are going to get a lot of their money back.

play03:43

He was sending a message sort of to Wall Street, to crypto, to everyone that if

play03:47

you steal money, you will get a stiff sentence.

play03:50

And this is obviously a very stiff sentence for a white collar defendant.

play03:55

Well, now, after helping seal the conviction for their former boss bank

play03:59

Manfred's other conspirators Caroline Ellison, Gary Wang and Nishad Singh

play04:03

await their own fate. Bloomberg's Ava Benny Morrison reported

play04:06

on this and she joins us now. Ava, if you were to pick one of these

play04:10

three individuals to receive sort of the harshest sentence moving forward, which

play04:15

one would it be? It's a sort of a double edged sword

play04:18

here. Caroline Nelson gave the most damning

play04:21

testimony against Sam Bankman-fried, and arguably she was one of the cooperators

play04:26

that was the most involved in some of the wrongdoing.

play04:28

So she could say the largest sentence, even though her testimony was probably

play04:32

the most valuable. Then you've got someone like Nishad

play04:35

Singh, who was the chief of engineering there and learned that FCX was borrowing

play04:40

sorry, Alameda was borrowing FDX customer funds.

play04:42

But then Gary Wong, who was involved in some of the wrongdoing pretty early on.

play04:47

Now, what does it mean for Caroline Ellison in particular?

play04:50

Because you had mentioned she was very closely involved in what was happening

play04:52

here. She was the CEO of Alameda at one point,

play04:55

but she did give a very thorough testimony.

play04:59

How much would her sentence be reduced in light of what she has done for

play05:04

prosecutors here from the federal. Conversations that I've had with former

play05:08

federal prosecutors and legal experts, they say that cooperating witnesses in

play05:12

white collar cases rarely get prison time.

play05:14

But there are exceptions, especially in big high profile cases, that involve

play05:18

multibillion dollar losses. So she could see anywhere from 12 months

play05:22

prison to no prison time at all. Okay.

play05:26

Amy, you reported also on what these folks have been up to for the last

play05:29

roughly 18 months or so. What can you tell us about what they've

play05:32

been doing apart from cooperating with prosecutors?

play05:35

It was one of the big questions we had. These these three witnesses had managed

play05:39

to keep such a low profile, despite how high profile this case was.

play05:44

We've since learned that they've managed to land on their feet.

play05:47

And Shad Singh, for example, is working as a software engineer in Silicon

play05:50

Valley. Gary Wong managed to get some sort of

play05:53

employment, you know, only months after he pleaded guilty to fraud.

play05:56

He's also working in the tech industry. We're not exactly sure what Caroline

play06:00

Ellison is doing, but we know that she's moved back to the US and she was

play06:04

spending some time in Boston where she grew up.

play06:06

Bloomberg's Ava Benny Morrison, we thank you for your time and your reporting.

play06:09

She's been all over this case since the very beginning.

play06:12

Now, sticking with RTX Better Markets, CEO Dennis Kelleher had this to say

play06:16

about the sentencing of SBF. It sends an entire message to the entire

play06:20

industry, especially the crypto kingpins, that the law applies to them

play06:24

as it must, and that even crypto crack crooks will do the hard time for their

play06:28

crimes. And he added that the Justice Department

play06:31

must now prosecute and severely punish SBS immediate co-conspirators, even

play06:36

those who pled guilty and testified against him.

play06:38

Dennis Kelleher joins us now. Dennis, maybe let's expand here for a

play06:42

moment on how you feel about the co-conspirators in what had happened

play06:46

with RTX, even though that many of them had come forward early on testified to a

play06:52

significant degree. Why should they face greater penalties,

play06:56

in your view? Well, I'm not finished.

play07:00

Should face greater penalties. I'm saying that they should be severely

play07:03

punished, but they should also be seriously rewarded for their

play07:07

cooperation. They materially help the prosecution.

play07:10

They testified truthfully and they facilitated the conviction and

play07:15

sentencing of who was the core kingpin here, Sam Bankman-fried.

play07:19

So I'm not in any way suggesting they shouldn't get leniency for what they've

play07:22

done. They definitely should.

play07:24

But they should also see a period of time behind jail bars.

play07:28

White collar criminals have to understand that they can't get a pass.

play07:32

We can't only be throwing crooks, white collar, I mean, blue collar street

play07:37

criminals in prison. The message has to be sent to white

play07:40

collar criminals, not just to kingpins, but their enablers that they need to go

play07:45

to jail for at least some period of time, as well as, by the way, they

play07:49

should be barred from the financial industry for life.

play07:52

Hmm. So, Dennis, are we talking, in your

play07:54

view, months or years here? What, in your opinion, would be fair for

play07:57

these co-conspirators? Well, it's hard to know from the outside

play08:02

because you don't have the probation report.

play08:03

You really don't know what the prosecution knows in terms of how

play08:06

helpful they were relative to others. But I would hope that they would all see

play08:11

at least 12 months inside a prison cell. And that would be, of course, you know,

play08:17

a 90% reduction or some significant reduction from what they would otherwise

play08:21

get if they did not cooperate. So I think there's a balance.

play08:25

But you need more information than the public has as available to the public.

play08:29

But also, let's remember, it's not just their co-conspirators.

play08:32

There were dozens, if not hundreds of others who helped Sam Bankman-fried and

play08:37

his co-conspirators do this crime and these many crimes over a long period of

play08:42

time. And the Southern District of New York

play08:44

should not just take the scalp of the kingpin and take care of the cooperating

play08:49

witnesses and then move on. There are a lot of other people involved

play08:52

here, and the Southern District of New York should also revisit its

play08:56

inexplicable decision to drop the campaign finance violations, the biggest

play09:01

campaign finance scandal since Watergate, and actually may be worse.

play09:05

And they're dropping that investigation and charges it makes sense not to

play09:09

prosecute Sam Bankman-fried at this point.

play09:12

But there were dozens and dozens and dozens of others who wantonly,

play09:16

criminally broke the campaign finance laws in this country to corrupt our

play09:21

election process and hijack the public's agenda here.

play09:24

Dennis, let's speak more about the campaign finance violations because

play09:27

those charges were dropped here. Do you think that it has actually led to

play09:33

more of an influx of money from the crypto community into the federal system

play09:38

here? How do you really pass what is

play09:41

appropriate at this point when it comes to crypto money into politics versus

play09:45

what happened in the sake of Sam Bankman-fried case?

play09:48

Well, the allegations in the reporting on Sam Bankman-fried is massive criminal

play09:53

violations using straw donors funneling money illegally into different places to

play09:59

influence elections. And that is very different than what

play10:03

we're seeing when people normally use the campaign finance system, although,

play10:08

frankly, it is legalized corruption in many respects.

play10:12

That doesn't just apply to crypto. That applies to all the dark money

play10:16

that's now allowed and unleashed by the Supreme Court decisions.

play10:20

But so there's two tiers, two parts there.

play10:22

One is the criminal activities, and that should be investigated, prosecuted just

play10:26

ruthlessly by the Southern District of New York.

play10:29

Separately, we have a campaign finance system that allows the crypto industry

play10:33

and other industries to exercise inordinate influence on our campaigns.

play10:38

And crypto is spending their predatory profits to buy as many politicians as

play10:43

possible to get their special interest legislation passed that will result in

play10:47

them getting the appearance of regulation without the reality of

play10:51

regulation, and that threatens customers, investors and financial

play10:56

stability. Hey, Dennis has you've referred to

play10:59

crypto as a lawless industry, and I'm just wondering, in your opinion, is

play11:04

there any good use for crypto out there right now?

play11:08

Well, you don't have to have my opinion. I mean, it's objectively true.

play11:11

They've had 14 years to come up with a legitimate, socially useful use for

play11:16

crypto, and they have not. Crypto is only useful for wild

play11:19

speculation gambling, and it's the preferred financial product of criminals

play11:24

worldwide from money laundering, tax evasion, ransomware, narco terrorism,

play11:30

sex trafficking. I mean, we see it every day.

play11:33

This is not my opinion. These are the objective facts.

play11:36

There is no legitimate use case for crypto, period.

play11:39

Full stop. It's like all these investors are being

play11:42

sucked into this financial product by having my view, many of them having no

play11:47

idea. You can't do a discounted cash flow.

play11:50

You can't look at revenue. You look at all their other investments.

play11:53

And this particular financial product has nothing similar to them.

play11:58

And that is a big red flag that's going to come home soon at some point when

play12:03

crypto crashes again. Dennis When you think about just how

play12:06

much attention is being paid to crypto, when you think about what is happening

play12:11

among congressmen in Washington, when you think about what's happening at the

play12:14

Justice Department, record breaking fines we've seen here.

play12:18

Do you think that some attention has been taken away from the traditional

play12:22

financial industry to focus more on crypto here?

play12:25

And do you think that attention makes sense?

play12:30

Well, you're right, Sonali, that there has been a diversion of resources, time

play12:34

and attention to crypto because of the widespread high profile lawbreaking

play12:39

going on. Regulators and prosecutors necessarily

play12:42

have to do that. When you have an industry breaking the

play12:45

law as broadly and frequently as crypto is.

play12:49

But you're also right that that's a diversion of resources from all sorts of

play12:53

other regulation and prosecution where there's illegal behavior and criminal

play12:58

behavior. There's finite resources.

play13:00

There's finite time and attention. The prosecutors and regulators have

play13:05

limited budgets. Crypto seems to have almost a limitless

play13:08

budget. And the problem there, of course, is

play13:11

predatory conduct generates enormous profits.

play13:14

But the industry to go back is is a lawless industry.

play13:17

It is taking the position, and it's the only industry that I can think of ever

play13:21

better has taken the position that no laws apply to them.

play13:25

The security laws don't apply, the commodity laws don't apply.

play13:29

And they're basically saying to prosecutors and regulators, catch me if

play13:32

you can. And that's that is just rank

play13:35

lawbreaking. Dennis I know there are certainly many

play13:38

folks we've had on our air who would disagree with you.

play13:40

We got to get you back on and chat with some of those folks.

play13:43

It's the industry, certainly not a monolith, but we appreciate your

play13:46

comments. Dennis Kelleher, the president and CEO

play13:48

of Better Markets, joining us here on Bloomberg Crypto.

play13:50

And coming up next, we're going to talk about that Bitcoin having because it's

play13:53

expected in the coming weeks we'll be talking to CEOs and a number of data

play13:57

miners about the impact on their business.

play13:59

And op ed up next is hot eight CEO Ash or the Newt?

play14:03

Plus, Binance announces it's a first ever board of directors after that

play14:07

anti-money laundering and sanctions violation settlement just last year.

play14:11

And to access all the latest data and news on crypto, check out c r y p go on

play14:17

the terminal. This is Bloomberg.

play14:41

We are less than three weeks away from that long awaited Bitcoin having.

play14:45

Remember, this happens every 210,000 new blocks.

play14:48

New bitcoin supply is slashed with a number of rewards cut in half for

play14:52

miners. And while that happens roughly every

play14:54

four years, the price per Bitcoin has ballooned meaningfully since the first

play14:58

halving back in 2012. Since then, that was back and 2012.

play15:03

I mean, that was less than $15 a piece. And now the rewards are scheduled to

play15:07

drop to 3.125 Bitcoin per block. Remember, Bitcoin now is trading at over

play15:12

60,000 a piece. So each one is more valuable, even

play15:16

though there will be less supply. There's another big difference this time

play15:19

around, and that is how much more demand there is in the market given the new

play15:23

spot Bitcoin ETFs that have come. And remember that new supply and new

play15:28

demand will come together at a time that we've never seen before.

play15:31

Well, for more on this, let's bring in Asher, new CEO of Hut eight.

play15:34

It's a Canadian based Bitcoin miner. He's the first of many crypto mining

play15:38

executives that we're going to have on the show in the coming weeks as we lead

play15:42

up to the having that's expected in about three weeks.

play15:45

Good to have you on with us, Asher. I'm wondering how you're looking at the

play15:48

having and what's priced in right now as we do expect this in the coming weeks.

play15:52

How are you thinking about this having differently than previous halvings?

play15:57

It's at a different scale. And so larger scale operators now have

play16:00

to really think about how to be the lowest cost operator within the

play16:03

industry. So actually now State is us domiciled

play16:07

and based out of Miami. So a part of our A merger that just

play16:10

happened was I started a company and co-founded it called us Bitcoin Corp.

play16:15

We merged with Hot eight Mining Corp and we formed eight Corp based in the US,

play16:20

based in Miami and re domiciled the company.

play16:21

And so for us, a big part of it was bringing on a strong balance sheet.

play16:25

We have over 9100 Bitcoin around $600 million of Bitcoin on the balance sheet,

play16:29

really rigid operations. And really my belief is to be a

play16:33

successful large scale miner in this ecosystem.

play16:36

You just have to be a low cost operator as long as you're a low cost operator.

play16:40

When the markets run, you're able to reap the rewards and be highly

play16:43

profitable and the markets compress like post halving, you're able to manage

play16:47

through the having to consolidate. Yeah, and it's worth talking about just

play16:51

that impact on the industry at large After the last time we've seen really a

play16:57

downturn in bitcoin prices, we did see a washout.

play17:00

We saw some miners even hit bankruptcy and now you're having a moment where the

play17:04

rewards are also going to be lesser, although Bitcoin is worth more.

play17:08

But you also see that derivative effect. How much a price of a miner shares can

play17:13

drop when you see Bitcoin dropping in price as well, do you expect a washout

play17:19

in the industry? Will some not make it?

play17:22

Yeah. So I think the dynamics that exist today

play17:24

are different than what happened in 2022.

play17:27

And so today, for example, prices I think is bailing a lot of folks out were

play17:31

price remained that 30 $40,000 with the halving you'll see a lot more M&A and

play17:36

distressed opportunities out there back in 2022, a big area that led to a lot of

play17:42

bankruptcies in the mining sector and distressed assets was because of the

play17:45

leverage of 2021. A lot of companies grew with that and

play17:49

that debt couldn't be serviced in 2022 when Bitcoin prices went down and energy

play17:53

prices went up. Where we are today is I think, a lot of

play17:56

the growth that we've seen in 23 and even early 24 has been through the

play18:00

equity markets and a lot of folks raising capital through their ATMs and

play18:04

and diluting. And so even though you won't see as many

play18:09

bankruptcies due to the candle under leverage in terms of that ecosystem, I

play18:12

think you'll see M&A activity just due to an inability to get capital.

play18:16

Smaller scale operators won't be able to raise the capital they'll need in order

play18:20

to grow their businesses and to grow their operations, where I think capital

play18:24

will concentrate at the large scale operators who have the lowest marginal

play18:27

cost of production. Hey Ascher, where is the cheapest place

play18:32

for you to mine Bitcoin right now? And how much does it cost per bitcoin?

play18:38

Yeah. So our overall in our fleet we announced

play18:42

that our average cost of my Bitcoin excluding hosting facilities, was around

play18:45

$16,000 and our average cost, including hosted facilities, is around 18,000.

play18:50

Our cheapest sites are really the sites that have stranded power where there's

play18:55

depressed nodes and most of the time that overlaps with a lot of renewable

play18:59

development. So we have sites behind the meter at

play19:01

wind farms, for example, where those wind farms are built.

play19:05

There's a lot of wind that blows when when it's producing power and it's

play19:08

creating congestion at that. And so at times that's cheap power or

play19:12

even negative power based on those environments.

play19:14

And so by creating and building a Bitcoin load at that area, we're able to

play19:19

consume power that's really cheap, but also help those wind and solar

play19:22

generators by increasing the pricing there because we're bringing demand to

play19:26

the point of generation where historically there hasn't been enough

play19:29

transmission to transfer that power out. And that's what's leading to kind of

play19:33

depressed and stranded energy and lower pricing.

play19:36

Asher How much impetus is there when you look at the mining community to see how

play19:40

much power they're using and what the equipment costs look like to start

play19:44

diversifying away from just Bitcoin mining into other areas?

play19:49

Yeah, I think that's a really important point, but I think a lot of folks really

play19:53

don't think about and this is in order to grow, we're pretty CapEx savvy

play19:57

business, right? We have to build infrastructure, i.e.

play20:00

data centers for Bitcoin mining. We also have to buy machines which make

play20:04

up a majority of the CapEx upfront. And so I think what a lot of folks look

play20:07

at the business is how large of these companies have grown and they haven't

play20:10

really thought about how much money that it costs for those companies to grow in

play20:13

that fashion. When we think about how they really the

play20:16

underlying kind of platform layer that connects everything is underlying energy

play20:19

infrastructure. Our directional thesis in the next

play20:22

decade is we believe that the consumption and the demand on energy

play20:26

will place the net new added generation into the ecosystem.

play20:30

And so we would like to be at the intersection of energy, infrastructure

play20:34

and new age technologies. And so new technologies include Bitcoin

play20:38

mining. That's flexible load, that's interesting

play20:40

for a lot of assets, real stranded power and congested nodes.

play20:43

In addition, we have five traditional data centers that we own in Canada right

play20:47

now. We announced our first part of one

play20:49

hundreds from India up A and so continuing to expand use cases outside

play20:54

of just Bitcoin mining that are new technologies and energy intensive.

play20:57

Hey Asha, got to ask about the stock today.

play20:59

It's down about 15%. It's having its worst day going back to

play21:01

January, down about 30% so far this year.

play21:05

What, in your opinion, if anything, is the is the market getting wrong right

play21:08

now this year? Yeah.

play21:10

So I think in general, a lot of mining stocks move with Bitcoin pricing and so

play21:14

Bitcoin pricing as well as having updates.

play21:16

I think for us we have a pretty complex story.

play21:19

We did a merger between a public Canadian company and a U.S.

play21:22

private company emerge together as a US public company.

play21:26

We had a report that came out. We had a change in leadership of the

play21:30

board, decided it was time for a change, and so the last three months have been

play21:33

more volatile. But last Thursday we had our first

play21:35

earnings call. We showed our kind of financial numbers.

play21:38

We showed a lot of metrics and that built confidence amongst the markets.

play21:41

And so for us, it's continued to execute.

play21:43

We have a large balance sheet on Bitcoin that we hold.

play21:46

We have large scale operations. We're the largest operator of Bitcoin

play21:49

mining facilities in North America today and continuing to have a diversified

play21:54

revenue stream with. Where we have in Bitcoin mining itself,

play21:58

mining, hosting and co-location. Then we have our AI and HPC business as

play22:02

well. Hot eight Mining CO assures your new

play22:05

three have to leave it there. Thank you for your time.

play22:07

I had a very long awaited moment for bitcoin.

play22:10

Now coming up, bank finance is winding up its first board of directors.

play22:13

We're going to talk all about it next. This is Bloomberg.

play22:26

Finance, the world's largest cryptocurrency exchange, named a board

play22:29

of directors for the first time just after pleading guilty last year to U.S.

play22:33

charges of anti-money laundering and sanctions violations.

play22:37

And it was certainly an interesting moment, as we know that Binance faced an

play22:40

investigation earlier from the U.S. Justice Department and, of course, is

play22:43

now making changes after a change in CEO.

play22:46

That's all from Bloomberg Crypto for now.

play22:47

But join us again next week, same time, same place.

play22:50

This is Bloomberg.

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