Bloomberg Crypto 01/16/2024

“Bloomberg Crypto” covers the people, transactions, and technology shaping the world of decentralized finance. Today’s guests: 7RCC Global Co-Founder and CEO Rali Perduhova and Kraken CEO David Ripley
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Live from Bloomberg’s world headquarters in New York. I’m Sonali Basak and I’m katie Greifeld in for Kailey Leinz. Welcome to Bloomberg crypto. A look at the people, transactions and technology shaping the world of decentralized finance. Coming up, investors are wondering what the next big thing will be for the world

Of cryptocurrencies after the debut of those spot Bitcoin ETFs. And we’ll discuss what it all means for crypto exchanges with Kraken CEO Dave Ripley and details from DuPont’s lawyer about his potential extradition in a $40 billion fraud case. That’s all ahead. But first, let’s look at a snapshot of these markets right now.

You can see Bitcoin above $43,000 a coin, up about 8/10 of a percent. We know that last week turned into a bit of a sell the news moment, but coming back a bit now, so too is ether. You take a look at ether currently up

About 1.7% outpacing Bitcoin’s rise. So too is Coinbase. A lot of questions about what the debut of spot Bitcoin ETFs will mean for Coinbase, whether that will take away trading volume. Coinbase was down 15% last week alone, currently up about 2.3%. Those questions also apply to MicroStrategy.

MicroStrategy not quite able to go into the green today. Down about 2/10 of a percent. I want to talk now more about those Bitcoin ETFs and the movements they have had in the market and the impact it’s had on Bitcoin prices. Katie, if you take a look here, you saw

Movement out of the grayscale Bitcoin trust converting to an ETF by the tune of almost $600 million in those first days of trading. And where did the money go? On one hand, there was some selling, but you also saw hundreds of millions of dollars, nearly 800 million go into

Bitcoin ETFs. And it was partly a matter of fees but also a matter of brand name. You did see BlackRock Fidelity really raking in the bulk of the assets here. Bitwise Ark also having a strong showing, but a lot of questions in terms of what the flows look like moving

Forward and the impact it will have on the crypto community. Leaders so far are sharing some optimism about the path forward. Take a listen to Circle CEO Jeremy Allaire speaking at Davos earlier today. This is a watershed moment. You have signaling from, you know, all

Of the major participants in the financial sector, the exchanges, the biggest trading houses, you know, the biggest asset managers that they’re moving into this space. And that’s a kind of validation. And I think to the average, whether it be person or institution or large

Internet firm, this sends a signal that this is now connecting to the global financial system. And joining us now is David Ripley. He is the CEO of Kraken. David, there’s a lot of questions here about the future of the exchanges. Now that we have spot ETFs on the

Market, the business model, the fees and transacting on exchanges for Bitcoin, is there a negative impact in the future given we see so much trading in ETFs? Well, thanks for having me on. It’s great to be here. You know, as far as impact on Kraken’s business, this is undoubtedly a net

Positive for us and there’s a few different areas where that comes out. So first off, our mission is to grow cryptocurrency adoption back in chief, this end goal of financial freedom and hey, this, you know, the introduction of ETFs is another access point for individuals to come into this space.

So frankly, this is in line with our mission in a positive as as it relates to our business specifically. So, I mean, the first thing I’ll mention is that, you know, we benefit directly from this. Kraken provides the industry for six of the 11 spot Bitcoin ETFs that were

Approved. So we, you know, directly benefit from this as these ETFs are our customers. And that’s the one of our a cracking business by the name of S.F. Benchmarks. The second is we’re just going to, you know, it’s yet another access point.

It’s an easier path for some to get into cryptocurrency to, you know, get their first exposure to Bitcoin. That’s going to grow the overall ecosystem. Exposure and awareness is going to grow and these things grow the overall overall industry in total. Okay. Sure.

It’s possible that some newer individuals to crypto May 1st go and buy an ETF as opposed to go into Kraken or Coinbase, some of our peers, but that’s entirely fun. Kraken offers a plethora of different features and functionality and 200 plus tokens and the number of different

Services that you can just get from an ETF, namely the ability to actually hold Bitcoin in custody yourself. So I think this is a really a fantastic event in a net positive for for Kraken in so many ways. Well, just as well on this point a little longer you think about the bear

Cases for crypto exchanges coming out of these spot Bitcoin ETFs finally. Launches. And the point has been made plenty of times that you think about these ETFs, some of them costing 20 basis points or below for an annual cost. And you compare that to the cost of

Trading on a coin based on a crack in. And there’s a difference there. Do you plan to lower the cost of trading to compete with these? Yeah. Again, it’s a great question. I think there’s a couple of things. One, we view the the offerings, the

Products different enough such that they’re they’re really not direct substitutes, if you will. And so, yes, there’s a different price point for that product, but it’s a different product. And so we don’t have any plans to adjust, adjust fees or anything of the like, you know, due to this introduction.

Like I said, I think we offer through different products and services that, you know, differ in a lot of ways from from the ETF. How do custody fees start to compare with trading fees if you do see a compression, at least even initially in trading volumes and people moving to

ETFs? How do you build a business off of custody that is as robust? Will it be as robust as it was on the spot trading? Yeah, well, for Kraken specifically, we’re actually in set to launch our custody product this quarter. So this is, you know, will be a big

Event for us, you know, and something that, you know, kind of brings in a new and interesting custody product to the market. And so I do think that for a lot of customers and again, you know, the ETFs themselves being customers of exchange venues and custody providers like

Kraken, there is often a synergy between the two, right. And so there is clearly a convenience to be able to custody at the same place where you find liquidity. Of course, in some instances, you know, businesses choose to use an alternate custody provider in addition and or even

Custody themselves. And so I think there are those alternatives out there, but there’s definitely a synergy between the two. And so I think usually when clients, customers of ours are looking at the offering, they kind of view it as a full package.

When it comes to the custodian business, how do you differentiate yourself? Because on the crypto native side, if you want to call it that, you have Coinbase, you have Gemini, and then you have on the Tradfri side of the ledger, of course you have fidelity, etc. when it comes to custodian and

Attracting actual new business there, How do you plan to do it? Well, I think there’s a, you know, probably two things. You know, Kraken has a long, long history in the industry, you know, over a decade. And we built this company with security in mind. In security first, one of our

Co-founders likes to refer to crack and as a security company with an exchange built on top. And so this is something that is known extensively throughout the industry that Kraken is one of the strongest when it comes to security. We have the features and functionality

On that front to prove it. And so that’s one of the top things that that that customers look for when they look for custody. So I think that’s number number one for us and where we look for from a, you know, a custody standpoint and what we’ll look to differentiate with the

Other shoe. Right, David? I mean, there’s custody and then there’s other businesses that you could potentially get into. How do you see yourself using a banking license and diversifying into financial services? Yeah. So I think you’re referring to the special purpose depository institution license that we have with with the state

Of Wyoming. And it is a it is a different a novel license that’s out there that actually they’ve embedded into their law some very crypto specific parts of the law that govern this custody effectively. You know, what happens during fireworks and various different events that are net positive for for customers.

And so we think that’s going to be yet another benefit that that we can bring to, you know, potential custody customers. All right, David, got to leave it there. I hope to check in with you again soon. Really appreciate your time. That is Kraken CEO David Ripley.

Now, we do want to turn to some breaking news right now coming in the last couple of minutes. Spirit Airlines really plunging right now, currently halted for volatility. That’s after a judge blocked its merger with JetBlue on anti-trust grounds. JetBlue falling a little bit.

Spirit Airlines, though, down about 61% before being halted for volatility. Let’s get some more context now with George Ferguson of Bloomberg Intelligence. Joining us now for more. George, how surprising is this? Well. So I think that, you know, near the end of the trial, it seemed like it was

Really close to 5050, whether or not the judge was going to deny this, this purchase or not. So I don’t know that it’s super surprising. But Spirit, obviously, if you are invested in Spirit shares, I think you are really hanging on.

You know, the acquisition by JetBlue. So I think what you see is a lot of people exiting based on that. Well, how do you think about the future of Spirit Airlines without this deal? I think it’s difficult, right? So Spirit not even profitable in three. Q Traditionally a very strong quarter

For U.S. airlines. You know, if you look at consensus in the Bloomberg terminal, you’d see that they don’t the consensus estimates don’t show profitability for a number of years. We typically don’t look out quite that far, but consensus doesn’t show profitability for a number of years.

I mean, the US airline business really looks over capacities right now. If that’s a that’s a word. You know, we saw Delta’s earnings on Friday. Domestic fares were declining. You know, essentially Delta showed a pretty, you know, like a 12% growth in revenue, but very flat operating profit because fares are weakening, especially

In domestic markets and expenses are going up because pilots are getting paid more. And I would expect that to be even worse at the airlines that are more focused on the domestic market. Spirit being one of them, and they’re in one of the weaker shapes here as we as

We go through this decline in in fares. All right, George, really appreciate your quick insight. That is Bloomberg intelligence’s George Ferguson. Now, coming up, we’ll catch up with Raleigh Perdue over CEO of seven, R-S.C., Global. Next. This is Bloomberg. This really brings Bitcoin into a much broader investable asset class for

Trillions of dollars of assets. Previously, Arias many wealth managers pensions couldn’t access crypto, and this gives them a vehicle, gives them a very familiar wrapper that they can now access through the traditional securities markets. So we think this is a wonderful step forward bringing crypto to the mainstream.

And that was Coinbase CFO Alisha Haas speaking to Bloomberg’s Francine Lacqua at Davos about none other than those spot Bitcoin ETFs making their debut last week. And let’s keep the conversation going now with Rally Protocol, The co-founder and CEO of seven RCC Global, which filed

For a spot Bitcoin and Carbon credits Futures ETF in December. A little Bitcoin ESG to get the blood pumping. Let’s talk about the competitive landscape here because out the door we already have 1011 spot Bitcoin ETF issuers and I know you can’t talk to

Specifically about an active filing but how do you plan to differentiate yourself? Thank you, Katie. Well, I think this is just the beginning of a lot of filings that will come up with a very different and go with automatic, you know, preposition. And, you know, we’re glad to be one of

The first ones out there showing something different. When you say a thematic proposition, is this the ESG angle over over the Bitcoin overlay? And what does that really mean, given Bitcoin has not been known to be the most eco friendly?

Well, obviously, I can’t really speak a lot about the strategy, but, you know, in our view, those two asset classes are very similar in some sense. You know, they’re both new asset classes and they offer, you know, exposure to clients for a lot of upside down the road.

Okay. So a lot of blue sky there. Let’s talk about how big this arena could actually get, because again, we talk about the fact that what there’s about a dozen spot Bitcoin ETFs out there, there’s plenty more S&P 500 ETFs out there.

How big do you think that the spot Bitcoin industry in the US could actually become? Well, I think the estimates are about 40 billion and inflows over the next one year. And if we use Canada as a as a playbook, you know, we saw about a billion in a

Room within the first month of inflows and Canada is about 40 times smaller market than us. So I think 40 billion it’s about a realistic estimate that we’re going to see here and that obviously will put some price pressure and hopefully, you know, decrease the volatility, maybe

Decrease the volatility as Bitcoin goes mainstream. I want to talk a little bit more about Bitcoin price. Since you think about what happened last week. I think a lot of people within the cryptocurrency community were surprised to see Bitcoin fall in the days after the ETFs were launched.

How are you thinking about the dynamic between these products now being available and what we’re seeing in the actual price? Well, I think it will take time before, you know, we see more of a mainstream adoption than before. We see it on the distribution channels

Off of the usual Wall Street players. But I think over time I’m in a camp of a hundred thousand Bitcoin price. And I mean that that affects the whole digital asset space, right? We saw Etherium going up and already pricing some possible interim spot. You you’d still have to double though to

Get to 100,000. And in the advent of the spot ETF, you still saw a decline given the run up we’ve recently seen. So what takes you from 43000 to 100? Well, I think it’s simple supply demand, right? If you have 40 billion of inflows and

The limited supply of bitcoins, it will put pressure on pricing. So I’m pretty optimistic on that price target. What about a theorem? On one hand, you did see some pressure on Bitcoin in the days right after the ETF, but you did see some optimism in a

Theorem. How soon do you think it will take the market to move on quickly to that next ETF for a different crypto asset? Well, I think the Bitcoin ETFs have been a great stepping stone and will open the door for probably a little bit of a quicker, you know, new coins wrapper

ETFs out there. And Etherium will be probably the first one. But if we use, you know, Europe as an example, we see some, you know, coins wrapped in into ETFs like Cardano and Polkadot and Solana. So it will be interesting to see what

Else comes out there when we think about what could be next. Now that we’re past the launch of these Bitcoin products, what do you think the future holds for the Bitcoin futures products? That’s a great question. Well, I think they’re still could be

Used for of hedging strategies and there is a space for them as well. We see that in other commodities out there where there is a future in spot. So I think that won’t be any different. What about the future of exchanges? We just had a conversation with Kraken as well.

Do you think that the spot trading will hold up to be just as robust when investors now have more options? Oh, it’s interesting to see what happens in the in the industry right now. We probably will see some consolidations in the exchanges custody. You know, there is there is a lot out

There and a lot of big Wall Street banks now looking at the space. So I wouldn’t be surprised if we start seeing some consolidation in the space. Raleigh, Purdue out of seven RCC Global. We thank you so much for your time.

Flurry of filers up for the market. Coming up next, COINSHARES is buying an ETF business from Valkyrie. We’ll talk more about that next. Stick with us. This is Bloomberg. There’s a company that I like called Tether. It’s a it’s a stablecoin. And, you know, I manage many, many of

Their assets. And that Tether Holdings is the name of the group and the group. I want to say it here with you. From what we’ve seen and we did a lot of work. They have the money they say they have. And the last attestation, they said they

Had 86 billion of assets and 83 billion of liabilities. And I’ve seen a whole lot in the pharmacy and a whole lot. And they have the money. And so there’s always been a lot of talk. Do they have it or not? Some with you guys saying, we’ve seen it and they have it.

And that was Cantor Fitzgerald CEO Howard London speaking to Bloomberg earlier today in Davos about Tether’s reserves. Just one of the many conversation and stories that we’re following in the crypto world. Yeah, and a few more stories that caught our attention this week. Cash CME Group, one of Hong Kong’s two

Licensed crypto exchanges, said it raised nearly $100 million in a funding round, giving it a so-called unicorn status. The company operates a trading platform as well as a crypto venture funding and asset management in Hong Kong and Singapore. Hash Key’s valuation is now around $1.2 billion.

Up next, we have TerraForm Labs co-founder Joe Quan. He could be extradited to the U.S. by mid-March to face charges. Quan is accused of orchestrating a $40 billion cryptocurrency fraud scheme. Currently, he is in custody in Montenegro for traveling on a fake passport. And lastly, Coinshares.

It exercised an option to buy an ETF business from rival Valkyrie Investments. The decision came two days after Valkyrie’s Bitcoin ETF started trading under the ticker BE RR. Coinshares expects the deal to bolster assets under management currently at 4.5 billion by $110 million. Now, that’s an interesting number, given

That some of the largest asset managers in the world were now playing in the Bitcoin wave here. But consolidation nonetheless, what does it give them, Katie? Yeah, it’s interesting. Obviously they’re getting valkyrie’s suite of ETFs not worth too much, but $100 million, you know, still something to write home about.

And I think this story really stuck out to me because we talk about consolidation both in the ETF world and in the crypto industry quite often. And when it comes to the crypto ETF world, I mean, I’m sure you asked this

Question and we’re asked this question many times last week Does the world need a dozen US listed spot Bitcoin ETFs and already you’re starting to see some combinations. Interestingly enough, Valkyrie had among the highest fees by having the house of Coinshares over it.

Do you think that they are incentivized to compete harder on fees or is it late anyways? It’s a great question. I mean, how do you stand out? It seems like the answer for most issuers up to this point has been let’s compete on fees.

But then you push back a little bit. I mean, what else can you do except cut your fees to basically zero and it comes down. I keep hearing it. Trust and experience in the crypto industry. Obviously, Valkyrie and a lot of these

Other issuers have that. It all remains to be seen whether that matters to the financial advisors, etc., that they’re trying to market to, whether they care about crypto experience or traditional finance experience, whether they would just trust BlackRock and Fidelity. Speaking of BlackRock Fidelity, we’ve been talking about the inflows they

Brought in, but BlackRock, Larry Fink, the CEO, took a moment there to really talk through the idea that everything can be ETF, not just that, but that tokenization will also take over many, many asset classes. You know, Adina Friedman once told me that every asset in the world can be

Digitized, so let’s see how that goes. I have to say, after I heard Larry Fink say tokenization, I had to like, take a moment and Google it because he’s he’s ahead of me. I’ve been so focused on this spot, Bitcoin ETF that I forgot about tokenization and all the problems that

The dollar is doing it. JPMorgan’s doing it. Wall Street is coming for the tokens. All the cool kids are doing it. That does it for us, though. A programming note for next week, Bloomberg Crypto will be every Tuesday at noon Eastern. Starting next week. This is Bloomberg Crypto and this is Bloomberg.