Bloomberg Crypto 06/18/2024

Summary

In this episode of Bloomberg Crypto, Shanali Bassic and Tim Stenc discuss the current slump in Bitcoin and the wider crypto market, influenced by the Federal Reserve's rate hike stance. They explore the impact on speculative investments and outflows from crypto products, with insights from Melum Demir, a Coin Shares adviser. The conversation also covers the state of crypto venture capital with Edith Young from Race Capital, who discusses opportunities and the importance of stablecoins in the ecosystem. Additionally, Tether's launch of a synthetic dollar backed by gold is highlighted, aiming to diversify its business and cater to investors bullish on gold.

Takeaways

• 📉 Bitcoin is experiencing a summer slump, hitting its lowest level in more than a month, with a 4% drop over the past 7 days.
• 📊 Digital assets are facing significant outflows, with $600 million pulled from crypto products last week, the largest outflow since March.
• 📉 Ethereum and altcoins like Solana and Dogecoin are also moving lower, reflecting a broader downturn in the crypto market.
• 📉 The Federal Reserve's stance on maintaining higher interest rates for longer is challenging speculative investments like cryptocurrencies.
• 💰 Crypto ETFs saw record inflows in the first two quarters of the year, but recent market conditions have cooled the enthusiasm.
• 🔍 The crypto market is seeing reduced trading volumes and lower volatility, with uncertainties around future price movements.
• 🕵️‍♀️ New crypto investors are harder to identify due to ETF settlement practices, but retail investors and rotations from other products remain significant.
• 💼 Institutional interest in crypto, particularly Bitcoin, has not yet materialized significantly, with retail activity dominating the market.
• 🏦 Stablecoins and cross-border payment solutions using crypto are areas of growing interest, especially in regions like Asia where crypto excitement remains high.
• ⚖️ Regulatory clarity in the US is seen as crucial for the stablecoin and broader crypto market to stay competitive with regions like Europe and Asia.

Q & A

What is the current state of Bitcoin according to the script?

Bitcoin is experiencing a summer slump, sitting at its lowest level in more than a month, with a 4% drop over the last 7 days.

How have stocks and bonds performed in comparison to Bitcoin in the second quarter of the year?

Stocks and bonds have delivered better returns than Bitcoin in the second quarter, contrasting with the first quarter when digital assets significantly outperformed traditional markets.

What is the significance of the S&P 500 hitting its 30th record this year?

The S&P 500 hitting its 30th record this year indicates a strong performance in equity markets, which is happening concurrently with Bitcoin's slump.

What does the script suggest about the performance of other cryptocurrencies besides Bitcoin?

Other cryptocurrencies such as Ether, Solana, Tether, and Dogecoin are also moving lower, with Ether down 2.7%, Solana down 6%, and Dogecoin down 88.2%.

What impact has the Federal Reserve's messaging on higher rates for longer had on the crypto market?

The Federal Reserve's messaging on higher rates for longer poses a challenge for speculative investments like crypto, contributing to the current slump in the market.

What was the trend in terms of capital outflows from crypto products last week?

Last week, about $600 million was pulled from digital asset products, marking a significant outflow and reflecting a cautious stance by traders.

What is the term 'sideways summer' referring to in the context of the crypto market?

The term 'sideways summer' refers to a period of little movement or stability in the crypto market, following a period of significant growth or decline.

What is the current situation regarding the inflows into ETFs compared to Bitcoin held on exchanges?

There is a shift in inflows with more assets flowing into ETFs rather than Bitcoin held on exchanges, which may affect the performance of Bitcoin versus altcoins or other higher-risk crypto assets.

What is the potential impact of an Ethereum ETF on the crypto market?

An Ethereum ETF could potentially draw new interest into Ethereum, similar to what was seen with Bitcoin ETFs, and might lead to some flows materializing from institutional investors.

What is the current state of crypto venture capital investments?

Crypto venture capital investments are on the rise, with $2.9 billion invested in over 600 companies, marking a 29% increase quarter over quarter.

What is Tether's new synthetic dollar backed by gold, and why did they create it?

Tether's new synthetic dollar backed by gold is a diversification effort to expand beyond USDT. It allows investors to own gold in token form and convert those tokens into a stable coin related to gold, potentially offering more investment flexibility.

Outlines

00:00

📉 Crypto Market Volatility and Bitcoin's Summer Slump

The video script opens with a discussion on the current state of the cryptocurrency market, highlighting Bitcoin's downturn to its lowest point in over a month. The hosts, Shanali Bassic and Tim Stenc, introduce the topic of digital assets and the impact of higher interest rates on the crypto market. They mention that Bitcoin has seen a 4% drop over the last seven days, contrasting with the record highs in equity markets, where the S&P 500 reached its 30th record high of the year. The conversation also touches on the underperformance of other cryptocurrencies like Ether, Solana, Tether, and Dogecoin. The script notes a significant outflow of $600 million from digital asset products in the previous week, attributing this to traders' reduced expectations for Federal Reserve rate cuts and the challenge this poses for speculative investments like crypto.

05:00

🤔 Analyzing Crypto Flows and Investor Behavior

This paragraph delves into the analysis of crypto flows and investor behavior, with a focus on the uncertainty in the market. Melum Demir, a Coin Shares adviser, is brought in to discuss the current sentiment, referring to the period as the 'sideways summer.' The discussion includes the significant inflows into ETFs, with a record $16 billion in net inflows noted. The conversation highlights the decrease in volatility and trading volumes, with the previous week's $22 billion trading volume dropping to $11 billion. Demir emphasizes the importance of understanding the sources of these flows and the nature of the assets being purchased. The summary also touches on the challenges of obtaining clear data on trading activities due to the use of ETFs and the shift of retail investors from Grayscale products to lower fee alternatives like the Fidelity ETF.

10:01

🌐 Global Perspectives on Cryptocurrency

The script shifts focus to global perspectives on cryptocurrency, particularly noting the differences in attitudes and understanding between the United States and other regions such as Argentina and Europe. It mentions the establishment of Ledger's headquarters in Paris and Australia's debut of its first spot Bitcoin ETF on the ASX exchange. The conversation with Edith Young from Race Capital centers on the state of crypto venture capital, the slowdown in funding, and the opportunities both within and outside the United States. Young's firm's portfolio includes companies like Data Bricks and Solana, which are significant players in the current crypto landscape. The paragraph also discusses the potential for tokens outside of Bitcoin and Ethereum and the importance of institutional investors' savvy approach to the market.

15:03

💡 The Role of Stablecoins in the Crypto Ecosystem

This section of the script discusses the importance and potential vulnerability of stablecoins within the broader crypto ecosystem. Edith Young emphasizes the need for the United States to establish clear regulations to support stablecoin development and use, especially in cross-border payments. She contrasts the regulatory environment in the U.S. with that of Hong Kong, Singapore, and Europe, where she believes clearer guidelines are already in place. Young also touches on the potential impact of the upcoming U.S. presidential election on crypto regulation and the importance of the U.S. not falling behind in the global race for crypto innovation.

20:04

📊 Tether's New Synthetic Dollar Backed by Gold

The final paragraph introduces Tether's new synthetic dollar, a stablecoin backed by gold. Mike Regan from Bloomberg explains the concept, noting Tether's diversification efforts beyond USDT. The new product allows users to tokenize their gold holdings, then exchange these tokens for a synthetic dollar that maintains a connection to the value of gold. This product is aimed at investors bullish on gold, offering them the opportunity to invest their gold-backed dollars elsewhere for potentially higher returns. The script raises questions about the target audience for this product and the risks involved, particularly market risk if gold prices decline. It also suggests that this product could serve as a proof of concept for Tether's new platform, Alloy, which may be used to tether tokens to other assets in the future.

Keywords

💡Bloomberg Crypto

Bloomberg Crypto is a show that discusses the latest trends, transactions, and technology in the world of decentralized finance. It serves as a platform for experts to share insights on the crypto market. In the script, it is the show being watched, where hosts Shanali Bassic and Tim Stenc discuss various crypto-related topics.

💡Bitcoin

Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. In the script, Bitcoin's performance is discussed, noting its slump to a one-month low and its impact on the wider crypto market.

💡Volatility

Volatility refers to the degree of variation of a trading price series over time, typically used in the context of financial markets. In the script, the term is used to describe the fluctuating prices of cryptocurrencies, particularly Bitcoin, and the resulting uncertainty for investors.

💡Decentralized Finance (DeFi)

Decentralized Finance, or DeFi, is a term that refers to financial services that are built on blockchain technology and operate without traditional intermediaries like banks. The script mentions DeFi in the context of the show's focus on technology shaping this space.

💡Ether

Ether, often referred to as Ethereum, is the native cryptocurrency of the Ethereum blockchain, the second-largest cryptocurrency by market capitalization. In the script, Ether's price movement is mentioned alongside Bitcoin, indicating a broader trend in the crypto market.

💡Altcoins

Altcoins are alternative cryptocurrencies to Bitcoin. They are part of the broader category of cryptocurrencies but are not the largest one by market capitalization. The script discusses altcoins such as Solana, Tether, and Dogecoin, noting their decline in value.

💡Crypto Market

The crypto market refers to the collective trading space where cryptocurrencies are bought, sold, and traded. The script discusses the crypto market's reaction to various factors, including Federal Reserve policies and investor sentiment.

💡ETFs (Exchange-Traded Funds)

ETFs are investment funds that are traded on stock exchanges, much like individual stocks. In the context of the script, Bitcoin ETFs are mentioned as a factor influencing the crypto market, with the suggestion that their introduction has affected the flow of investments into Bitcoin.

💡Stablecoins

Stablecoins are a type of cryptocurrency designed to minimize price volatility by pegging the cryptocurrency to a stable asset, like the US dollar. Tether (USDT) is an example mentioned in the script, where it is discussed in relation to a new synthetic dollar product tied to gold.

💡Crypto VC (Venture Capital)

Crypto VC refers to venture capital firms or investors that focus on investing in cryptocurrency and blockchain-related startups. The script discusses the state of crypto venture capital, noting a slowdown in funding and the potential opportunities for investment.

💡Regulation

In the context of the script, regulation refers to the rules and oversight imposed by governing bodies on the operation of financial markets, including the crypto market. The discussion includes the need for clear and supportive regulation of stablecoins and the potential impact on the broader crypto ecosystem.

Highlights

Bitcoin is experiencing a summer slump, sitting at its lowest level in over a month.

Outflows from digital assets are impacting the crypto market, with Bitcoin down 4% in the last 7 days.

Equity markets are hitting record highs, contrasting with the downturn in crypto with Bitcoin and stocks showing better returns in Q2.

Ether and other altcoins like Solana, Tether, and Dogecoin are also seeing declines.

Federal Reserve's messaging on higher rates for longer poses challenges for speculative investments like crypto.

$600 million was pulled from digital asset products last week, indicating a bearish trend in the crypto market.

Coin Shares adviser Melum Demir discusses the current 'sideways summer' in the crypto market.

Demir notes a significant drop in trading volumes and volatility, suggesting uncertainty in the market.

The question of new buyers' identities and their buying motivations is highlighted as crucial for market direction.

Demir emphasizes the importance of price performance in driving the narrative in the crypto space.

Edith Young from Race Capital talks about the slowdown in crypto funding and the opportunities it presents.

Young discusses the potential for tokens outside of Bitcoin and Ethereum, particularly Solana and Telegram's TON token.

Stablecoins and their role in the broader crypto ecosystem are underscored as vital by Young.

Tether launches a synthetic dollar backed by gold, aiming to diversify its business beyond USDT.

The new Tether product allows users to convert gold tokens into a stable coin related to gold.

Mike Regan explains the risks and potential appeal of Tether's gold-backed synthetic dollar.

The success of Tether's new product will be measured by the amount of money locked up in it.

Transcripts

[Music]

live from Bloomberg's world headquarters

in New York I'm shanali bassic and I'm

Tim stenc welcome to Bloomberg crypto a

look at the people transactions and

Technology shaping the world of

decentralized Finance Tim Bitcoin is

taking a summer slump it sits at the

lowest level in more than a month outlow

from digital assets are hitting the

crypto Market we're going to talk about

this volatility and the road ahead with

crypto with melum Demir is a coin shares

adviser and crypto startups are seeing a

Slowdown in

funding Edith race from uh Edith Young

from race Capital joins us to talk about

the opportunities inside and outside of

the United States all that ahead over

the next half hour first though we start

with a snapshot of the market and look

at that just read all around Bitcoin

touching a on month low the prospect of

higher rates for longer leading to some

pain in Bitcoin and The Wider crypto

Market over the last 7 Days Bitcoin down

4% all coming at a time though when

we're seeing new record highs when it

comes to equity markets the S&P 500 hit

its 30th record this year just yesterday

in fact stocks and bonds have delivered

better returns than Bitcoin in the

second quarter of the year it's quite a

turnaround from what we saw in the first

quarter when digital assets outperform

traditional markets by a significant

degree and it's not Bitcoin not just

Bitcoin moving lower today we got ether

and altcoins such as Solana tether

Dogecoin all moving lower today as well

ether down 2.7% Solana down 6% tether

just going into the red uh moving from

green to Red just now and Dogecoin uh

down about 88.2% chali and let's zoom

out look at the weekly performance here

of Bitcoin because as you mentioned it

has been seeing quite a slump it's hit a

level last scen in miday last week's

higher for longer messaging from the

Federal Reserve does pose a challenge

for speculative Investments such as

crypto and you could see so much of the

love you saw on crypto was earlier this

year when you saw the Advent of those

Bitcoin spot ETFs hit the market here

and you have lost a lot of that steam

with the last three out of the four

weeks seeing outflows Tim well speaking

of outflows and losing steam that's what

we're seeing when it comes to flows for

crypto products last week about $600

million was pulled from digital asset

products just last week this is the most

going all the way back to March this

data from coin shares International

again this is all about rates Traders

have scaled back expectations for the

FED to cut rates posing a challenge for

speculative Investments such as crypto

chenol and we're going to bring in coin

shares advisor melum Demir here because

of course we've been talking about that

sour mood here in crypto lately meltam

and you know earlier this year when a

lot of people started buying into the

market with those ETFs there was a big

question on whether this was was the top

whether if you bought in now you would

see a lot of gains in the longer term

how do you answer

that these are all great questions I'm

calling it sideways summer we had the

winter of our despair we had some

thawing and an incredible incredible two

quarters with record inflows into epfs

as of today 16 billion in net inflows

really Blockbuster performance across

the nine us Bitcoin ETFs and I think

what we're seeing now is exactly what we

saw in March we had a hawkish fomc last

week CPI still coming in hot

expectations of rate Cuts were being

priced in volatility also really low

trading volumes we traded 22 billion

last week this week we're looking at

around 11 billion in trading volume so

volatility is down trading volumes are

down I think there's a lot of

uncertainty and again the question we

always look at at coin shares is where

are these flows coming from and the

question rep this summer is going to be

what is the story around flows who are

these net new buyers where are they

coming from and more importantly what is

it they're buying it's really A Tale of

Two Cities in crypto we can dig a bit

more into that as well well what do you

know about these new buyers where are

they coming from who are

they these are great questions and again

I think what we're seeing this cycle is

historically one of the great things

about crypto trading data is trading

happens on Shain settled on chain so we

had the ability to look at the Bitcoin

Ledger The ethereum Ledger and see where

activity was Happ happening the ETFs

have really obus a lot of that data

because settlement isn't happening

necessarily on chain uh you know coin

Bas and some of the other larger

authorized participants in these ETFs

are not settling until day after maybe

they're dividing volume between wallets

so it's more challenging to get the data

we get it after the fact we did get q1

13f filings from hedge funds and I was

personally shocked that there weren't

more large funds buying we did see a few

larger us institutions participating but

by and large it's still driven by retail

and a lot of rotation from people

holding assets maybe arm chain or on a

coinbase rotating into a product that's

traded in a brokerage account and then

the second thing we're seeing is a lot

of rotation out of the grayscale

products into ibit Fidelity ETF and

other lower seed products as well

sideways summer Melton but how can you

be sure that the next move forward is in

significantly

downward there's no guarantees in crypto

if there's anything I've learned I'm

always surprised by this industry what I

will say I think what we've seen is

Bitcoin we still up 50% for the year

ethereum around 40% the year despite a

slow start in ether we're seeing it

buoyed by this news of a pending e ETF

potentially some flows materializing

from there I think the big question here

is with more assets flowing into ETFs

versus Bitcoin held on exchanges for me

the big question is how is Bitcoin going

to perform versus alts or these higher

risk sort of longer tail crypto assets

so far performance there historically

it's Bitcoin runs first and then all

start to run driv by wealth creation in

Bitcoin now with money going into the

ETFs held on brokerage accounts versus

Bitcoin held on crypto exchanges where

there's access to these applets on one

screen I think that effect has been

greatly minimized and we see that across

the board with underperformance in

everything outside of Bitcoin and

ethereum now melum how do you think

through the prospects for e moving

forward there was a lot of questions

around what an ETF would do in terms of

drawing new interest into it but of

course ethereum is not as widely known

as Bitcoin had been for the last several

years how do you think about that

Dynamic moving

forward I think this is a really

interesting question I think for

institutional allocators getting

comfortable with with Bitcoin for most

investors frankly you know bitcoin's

been around for 15 years it's been

widely discussed widely mocked now it's

being accepted as an asset um you have

Larry think Paul tutor Jones some of

these luminaries in the world of

traditional Finance going on and

endorsing bitcoin's role in an

Investment Portfolio but again we

haven't really seen these massive

institutional flows materializing yet if

we look again at 13f filings if we look

at Bitcoin exposure on the institutional

side and these disclosures being filed

at the end of q1 still a lot of retail

activity I think with ether the story is

even more challenging um awareness of

ethereum awareness of the supply and

demand dynamics of ethereum awareness of

the growth potential of ethereum is

still limited that being said I do think

crypto has earned its place in an

investment portfolio I think as more and

more institutional investors and the

investment Banks start to cover ethereum

alongside Bitcoin perhaps we'll see that

narrative materialize but what I always

go back to is price drives narrative

really the story in crypto is always

price drives narrative so I think in

order for there to be material interest

and inflows into ethereum we're going to

need to see some relative outperformance

compared to bitcoin and we just haven't

seen that yet ethereum's really

struggled to Rally against Bitcoin well

speaking of stories I'm I'm curious

about the next chapter in your story

melum and what comes next for you uh

after now you're an adviser at coin

shares previously you were a chief

strategy officer at at coin shares

what's your next move in the

space that's a great question um there's

a lot of I'm interested in working on

but I'm not going anywhere going to

continue to stay in asset management and

in investments in the crypto space and

when I know Tim you will be the first

person I call and I'll share it right

here with all of your viewers that is

what we like to hear thank you so much

that is coin shares adviser malum de Mir

with her many interests in crypto we'll

keep an eye on everything she's up to

next now coming up Edith young joins to

discuss the state of crypto venture

capital and tether launches a synthetic

dollar tied to the price of gold gold

which has been hitting records all year

long and to access all the latest data

and news on crypto check out CRP go on

the terminal this is Bloomberg

[Music]

in many ways they always say that you

know kind of the the um the place to

understand Bitcoin the least is uh is

the United States and maybe the place to

understand it the best is Argentina but

there are you know you know many places

in the world where you just get a

different perspective on you know how

how value flows um from from person to

person and certainly across Europe um it

there's there just so many great

development teams working on this on

this

problem and that's ledgers Ian Rogers on

the show last week after his firm opened

its headquarters in Paris meanwhile

Australia du to list its first spot

Bitcoin ETF on Thursday the Vanek

Bitcoin ETF will debut on the ASX

exchange other players buying for a

Bitcoin ETF include beta shares and

digital X sibo Australia listed a round

of Bitcoin funds two years ago and we're

going to discuss the best places to

invest in crypto with race Capital

General partner Edith young her firm's

portfolio includes data bricks and

salana just to name a few and of course

there's a lot going on in the worlds of

both of those assets right now but Edith

if you think about the way that the

ecosystem is involving moving forward

people of course in the more mainstream

world do look at Bitcoin they do look at

ethereum with the ETFs but when you

think about the potential for the tokens

outside of those two how do you think

about where the next big play would

be yeah so so first off it's so

interesting like for me to hear melum

with your conversation uh earlier focus

on institutional uh investor point of

view but from where I come from sitting

in silic and Valley um we we're very

paying close attention to sort of like

the all coins of the world um the key

thing is you know crypto VC is back um I

think last quarter is like 2.9 billion

which is 20 um been invested to to over

600 um companies and about 29% increase

um quarter over quarter which is a great

sign but at the same time I think like

the mood is a little bit different than

before um I was just chatting with um a

um hedge fund friends in Asia Alpha 9

was telling me that you know

Institutional Investor yes is excited

about Bitcoin and ethereum but they do

place close attention to all coin but a

lot more I guess more Savvy this time

and and the key thing is sometimes what

Institutional Investor don't like to see

which is when a VC

uh which mean us invest too much money

into hundreds and millions of dollars

and when all these tokens are fully

vested and unlock is not necessarily

good for the all coin so sort of

compared to the last cycle which I'm

continue to be bullish on salana and I

also placed close attention to the

telegram ton token and those are really

like the two sort of from the last cycle

now is still strong and standing so it

will be very interesting to see this

cycle you know when more and more crypto

VCS is coming back to Market is are they

being thoughtful about their investing

schedule are they really kind of think

through the true use case um in the

Venture space which you know one of my

companies called human Finance is so

interesting to see now using stable coin

crypto to sort of help with crossborder

payment this we're talking about like

billions of dollars in transaction so

it's really really excited to be back in

the market Edith I'm wondering when it

comes to retail excitement what you're

seeing out there right now and the

metrics that you're looking at because I

I know it's a cliche but back in 2021 I

would regularly get an Uber or a lift

and the driver would talk to me about

crypto that has not happened since the

crypto

winter yeah it's it's interesting so I

just presented a a Hong Kong web 3

report and consensus uh a few weeks ago

the excitement in Austin is definitely

not the same compared to Hong Kong or

Singapore when I go to other conferences

I think yeah I think the US mood in

terms of regulatory environment um is

not getting the taxi driver excited

about uh crypto at all for now but

having said that I do think that things

are improving because us governments

clearly know that we need to do more to

make sure that we stay ahead of the game

but I have to say you know being a

native from Hong Kong originally um

every time I'll go back like people are

excited I I think in Asia particularly

you know regardless is the rwa use case

or gaming or nft people are just excited

and and there are definitely people on

the street um the Hong Kong Taxi Driver

are more excited than the American Taxi

Driver uh with crypto for sure Edith

that's fascinating I want to go back to

another thing that you had said here you

were talking about Huma finance and uh

that you work around stable coins how

important is the stable coin world to

the broader crypto ecosystem and how

vulnerable is it to us

regulation I think stable coin worldwide

is a super important topic um us in many

sense I think you know being sitting in

in Silicon Valley we need to get ahead

of the game because I'm looking at Hong

Kong um actually just launched this year

the stable coin sandbox and for the past

18 months or so they literally went

worldwide and talking to Circle Ripple

uh Visa Alibaba of the world to make

sure that government really are on top

of regulations to basically have very

clear guidelines to approve various

different institution to be able to

support stable coin so in that sense you

know in the crossborder payment if we

just purely let other people to Define

what stable coin is about it's really

not good for the long-term Finance

ecosystem so I think us really need to

we need to get our act together um to

catch up with in Europe with Micah or in

in Hong Kong or Singapore which is

already have very clear regulation to

support it okay you say we need to catch

up with Hong Kong Singapore and and

Europe what specifically would you

advise us Regulators when it came to

stable coin legislation what do you want

to see them

do um I I think just to start with the

be a little bit more clear on which way

we stand I think it's great to see uh

fit 21 that at least go through um the

the house but still we we don't know

like we we need faster regulation it's

just that to the rest of the world us

regul regulatory environment always

seems a little bit disorganized and a

little bit chaotic and I think just to

and then I think for the US

unfortunately a lot of things are still

going to wait and see who's going to get

elected by the end of this year I do

think that what was really really funny

when I was in Austin that that I

literally see a both side of the house

presidential candidate um actually have

a voice uh in a crypto conference which

I think that both candidate knows that

you know like crypto Now 52 million

Americans now own crypto in America this

is a really large population that would

really swing to vote and but

unfortunately I don't see all see all

these things will play out until after

the presidential election raise Capital

General partner Edith young thanks so

much for joining us on Bloomberg crypto

do appreciate it well coming up why

tther has launched a new synthetic

dollar that correlates directly with

gold prices and earlier this hour we

spoke with David McCormack former

Bridgewater CEO who is running for a US

senate seat and he says America must

lead on the way for

crypto I was always worried about the

National Security implications and I

think what's become clear is that we are

in the Next Great Wave of innovation

with crypto and blockchain and if

America doesn't embrace it we're going

to be left behind and by embracing it we

can uh create great jobs uh a great

source of

[Music]

innovation tether the company behind the

stable coin usdt has created a new

synthetic dollar that is backed by gold

Bloomberg's Mike Regan is here to

explain exactly why this is going on

what is the purpose of tether doing this

of course we know that USD is very

popular back by dollars but why then

inch to Gold yeah well I think the big

picture is tether obviously wants to

sort of diversify its business Beyond

just usdt um you know there are

questions in Europe and elsewhere about

what stable coins Will Survive the sort

of heightened regulatory environment so

tether's making a lot of sort of

diversification bets they uh investing

in crypto miners they've made some

investments in artificial intelligence

uh even some medical device uh companies

uh and with this project what they're

doing uh it's really pretty fascinating

they're actually buying gold uh storing

it with a custodian in Switzerland uh

making tokens that represent that gold

so then you can buy the tokens um and

basically own ownership in gold in token

form then what you can do is you give

those tokens back to tether and they

give you a synthetic dollar a tokenized

stable coin basically like usdt but one

that is related to Gold so it's over

collateralized meaning say you put uh

$100 of gold tokens on deposit with

tether they'll give you

$75 back so why would you want to do

that well if you believe if you're

bullish on gold you're happy to own the

gold but then you can take those dollars

back from tether and go invest them

elsewhere speculating in crypto or put

them in a lending protocol and make even

more yield and returns off of that uh

investment in the gold so I'm wondering

who exactly this is for Mike if you're

thinking about it from the perspective

of the organization who are they trying

to appeal to with a product like this oh

certainly there's a little bit of

overlap between people who are you know

gold bugs for for lack of a better word

and Bitcoin in I was going to say like a

a a you know crypto backed by gold it's

like you're hearkening back to the you

know years ago when currencies were back

by gold when the US was on the gold

stand right right so I think they they

assume there is some demand for this but

I think if you take another step back

it's almost a proof of concept for them

for this new uh platform they have

called alloy or alloy I I suppose is how

you pronounce it uh like the metal like

of the metal yes um and there they have

clearly have Ambitions as they've said

to do other things like this to tether

uh uh tokens to the value of other

assets whether it's another currency or

who knows you know they haven't

explained exactly what the next steps

are but they clearly want to make it a

broader what's what's the biggest risk

behind this well I think um the market

risk is the main one obviously if uh if

you're bullish gold you might be willing

to take that risk but if the gold price

does go down then uh what you have to do

is either provide them more collateral

in the form of that those gold tokens or

you get liquidated so that's the you

know clearly the market risk is the main

thing now obviously there are people who

uh still have a little bit bit of

Suspicion towards tether itself um but

you got to look at tether over the last

few years you know there was so much

scrutiny so many much mud slung at them

but that usdt has has maintained that

dollar Peg so um they've earned a little

bit of trust in the market I think to

for a project like this to succeed Mike

just 10 seconds how will we know if this

is successful I we'll watch the the

amount of money that's locked up in it

um you know was just announced yesterday

so we'll we'll we'll check back and see

uh how many people actually playing in

this uh scheme Bloomberg's Mike Regan

thanks so much Mike for joining us

always good to see you that is going to

do it for Bloomberg crypto join us again

next week though on Wednesday June 26

this is Bloomberg