• 00:00Live from bloomberg world headquarters in new york city. I'm Matt Miller. And from our studios in washington, dc, i'm Kailey Leinz. Welcome to bloomberg crypto. A look at the people, transactions and technology shaping the world of decentralized finance. Coming up, Sam Bankman-fried returns to the stand for day four of his fraud trial. Grilled by the prosecution and judge over RTX and alameda debt. We'll get the latest from the courthouse. And crypto markets still seeing a dearth of liquidity amid the latest resurgence of trading activity. We'll discuss more with Loop's Darius Darabont Chief Commercial Officer And we're going to look at the intersection of crypto and A.I. with Chris Edwards, head of the Coinbase Institute. All right, so all of that is ahead. But first, let's get a snapshot of the market. The best way to do that on your Bloomberg terminal c r y p go. And what you will find is it is a bit of a mixed day actually bitcoin and ether off the lows of the session. Bitcoin now essentially unchanged. Still hanging out north of that three 30,000 level, $34,000 and change is where we trade at the moment. Ether now just fractionally positive remaining around that 800 level. What is interesting though, Matt, is that you're seeing underperformance of a lot of the altcoins today. I just took a few examples Cardano down by about three and a half percent Polkadot lower by about two and a quarter percent as well. So interesting to see the divergence here between the altcoins and the main coins, if you will. Yeah, very interesting. And a lot more talk about all coins over the past few weeks as we've seen this resurgence in Bitcoin. Take a look, by the way, at the inflows for crypto related really Bitcoin related assets like futures ETFs. This is put together by Coinshares. You can see that we've jumped up over $300 million in inflows into assets tied to Bitcoin as the price has climbed back up to $35,000 scaling. Really interesting indeed. But of course, it's also been interesting to watch the events of what's happening where you are, Matt, in New York, specifically Lower Manhattan, where Sam Bankman-fried returned to the witness stand in federal court there earlier today. Let's head over now to the courthouse for the latest from Bloomberg's Ava Benny Morrison. So, Ava, last day of testimony from him has wrapped up. What did we learn? It's been a pretty tough run for Sam Bankman-fried. It's been his chance to finally tell his side of the story, which I'm sure he's been dying to do for the past several weeks of his trial, under direct examination from questioning from his own lawyer. He seemed pretty cool, calm, collected. He was giving very simple explanations. He said that he'd learned Alameda had borrowed about $10 billion from RTX. And while he wasn't in full crisis mode over that, it warranted some further analysis. But what really wasn't clear was his explanation for spending customer funds on venture investments, on real estate, on a bunch of other things. Some of the lavish spending patterns at FTC's under cross-examination, this is where he sort of started to fall apart a little bit. He was evasive at times. His questions weren't as glee. He would constantly say, I don't recall or I don't remember. And I think that's when he sort of lose lost a little bit of engagement with the jury there. Yeah. I was going to ask how that's all played out with the jury. Jury? How does it look like the jury is responding. So while we're sitting in the gallery of the courtroom when he was giving evidence and when I was having a closer look at how the jury was responding, you could tell when the prosecutor was sort of pushing Sam to give clear answers, yes or no. You know, she wasn't asking whether he thought the evidence was correct or not. And in those more sort of confrontational moments, some of the jurors would smirk or that would glance at each other. At one point, one of the jurors frowned when he was, you know, being a little bit evasive about how to answer a question as well. So they've been pretty engaged after most of the testimony when it's gone into the technical aspects, some of them have zoned out. You know, one of them was even taking a nap yesterday. All right. Interesting stuff. I'm sure it's amazing to get a seat in there. And I know there are a lot of people watching this trial. We're glad to have you reporting for us. Bloomberg's Ava Benny Morris and talking about the testimony that Sam Bankman-fried is giving. And obviously it's fairly rare for white collar defendants to testify in their own trials. But that's exactly what he is doing now, even with the recent resurgence in crypto trading activity. Market depth remains at its lowest point this year, according to Falcon Ex and blockchain data firm Kiko says the dearth of liquidity is an after effect of the collapse of FTC's. Bloomberg reporting, quote, The drop in overall liquidity was dubbed the Alameda Gap. Last November. Alameda Research was the trading arm of FTC's. The lingering effect is largely a result of the huge losses that market makers incurred after the meltdown of FDX, according to Keiko. Now joining us to discuss is Luke Striders, Deribit chief commercial officer, one of the biggest futures exchanges in the world. Luke, thanks so much for joining us. What do you see out there in terms of the lack of liquidity? Is it picking back up as we see the price of Bitcoin pulling altcoin trading back to the four? As. Thanks for having me. First of all, we pretty much options focused. So two thirds of our business is options driven. So liquidity and the options have never had an impact of FDX because the firm's active in the auction space are different from Alameda and those type of trading firms. So the FDX effect pretty much had a massive effect on us because the price was dropping, because capital was more sky, so people had more difficulties obtaining capital and therefore sufficient margin. But in terms of trading firms impacted, we didn't see that much impact because none of them had overlap with FDX Altimeter essentially on the options space. And of course, that implosion happened almost a full year ago now looks so the market has had some time to recover here. What we know, though, is that activity has been relatively muted for some time now. What are you seeing in terms of activity and volumes? It has been muted since 2021. So we saw a peak in open interest in 2021. So we reached 21 billion in open interest when the market hit something like $65,000. And what we see after the action, after let's say, the muted year thus far is that the the current focus on potential positive ETF news has surged. Volatility and overall interest in BTC again which has resulted in a lot of options trading and positioning towards towards the upside. So last week, just before the October expiry, we reached 21 billion or 23 actually again at half the BTC price, which means that the market has doubled in size when you look at it in a messaging context. So we can't complain. Actually, we had like an amazing month this this month because of the renewed activity. Well, and you mentioned a lot of that activity is really bullish bets being placed. What are what is options trading implying about the trajectory of Bitcoin from a price perspective from here? So what we see now is that volatility is back. So obviously, premiums are slightly higher. Volatility is not where it has been. So so if you look at volatility, we measure that in what we call diesel, which is a bit like VIX, the VIX Straits at around 20 at the moment. We see traded up until a month ago at around 35, 44 times as high. But in the the big day Deville or VIX for BTC was 90 to 1 to five times higher. We're looking at 60 at the moment, so we're halfway there. And so volatility is back. The basis is back to the future versus spot difference is around 7 to 10% annualized. So that's good news. And if you look at positioning, we look at skew the skew is the relative to pricing, of course, versus goods. And what we see now is that bulls are more expensive than crude. So it's a demand and supply driven effect. So calls are simply priced higher because the demand is higher. So you see that in pricing, you see that in the number of calls outstanding. So if we look at positioning, what does the market think they're positioning for further upside for the moment? Look, you you've been in this business for quite a while. As long as Bitcoin has existed and even longer, you're the biggest crypto derivatives exchange in the world, I believe, by a long shot. Who do you see trading this and has that group of people changed? Have you seen more trad fi traders come into the business recently? Yeah, not recently. I think for the last few years or so, it's an ongoing trend. More and more traditional firms enter the space and they would look for Obsidian futures and we are the biggest, so they typically go to us. So what what's, what's different now is that it's more about mutual onboarding versus them onboarding with us. And because of the checks and the backlash there, the trust is essentially gone or halfway gone. So the focus on stuff like audited financials, ISO certification, sorta licensing across the world is way more important than it was before. For that reason, we're working with the variety of offer exchange custody solutions. So where we offer the clients choice, how to criticize the assets so that they can actually see their assets. So the problem with FDX is that you deposit and who knows what's going to happen to the assets and will you actually see them back when you need them? The new way of working for us, and if you want to exchange is all exchange custody solutions, which means that we lock the assets in their account, but the assets don't actually leave their account. Only the PNL get settled. So the backlash I think, has made the system quite a lot stronger. And of course, the focus on us and many other platforms on stuff like licensing, ISO, certification, etc., it's become way more important than it was two years ago. So it's interesting to think about your your customers and users and what they're doing, but also where they are. Obviously, deribit not operational in the U.S. but I know you are joining us, I believe, today from Dubai and you're looking to get a license there. Can you just tell us where you are in that process? Yeah. So we used to be or we're still operators from Panama, but we are planning to move all over the business from Panama to Dubai later this year or early next year after we get the license. So the license we think is imminent, but then we need to give close the heads up that the terms are changing, the domicile is changing. So we need to give them time. So it's going to be year end early next year when we're going to port over the business. But as of then we will hopefully get a word in the VARA, which is the Dubai regulators called an FMB a full market product, which means an all encompassing license for everything we do, which which includes derivatives trading, which includes fault, which includes custody, essentially everything we do. So we hope to get that. And it's it's imminent as far as we know. All right, Luke. Thanks very much for joining us. Really appreciate your commentary, your insight. Terabits. Luke Strayer talking to us about volatility and liquidity. Coming up, Coinbase Institute head Chris Edwards joins us to discuss how A.I. and blockchain technologies will complement each other. And the IRS is bracing for billions more tax filings due to new rules for crypto brokers. We'll break that down. Plus, to access all the latest data and news on crypto. If you have a Bloomberg terminal, you can just type c are y p go. This is Bloomberg. To realize the promise of aid and avoid the risk we need to govern this technology. This order builds on the critical steps we've already taken to ensuring the A.I. Bill of Rights to bring together clean air companies who agreed to voluntarily make certain certain commitments to make sure air is safe and the system is secure. I'm determined to do everything in my power to promote and demand responsible innovation. That was President Biden on regulating artificial intelligence before signing an executive order yesterday, urging Congress to pass safeguards on A.I.. And today, the Coinbase Institute released a white paper on the impact of blockchain technology and what impact it will have on artificial intelligence. It says, quote, The digital revolution created access to vast amounts of data. AI holds promise to make efficient use of this information, While blockchain can protect against some of the key risks and concerns around privacy, interoperability, standardization and protection. Coinbase Institute Head and Chief of Staff to the Chief policy officer, Christopher Edwards is joining us now from Richmond, Virginia. Chris, great to see you. Thank you so much for joining us. You go on in the white paper to talk about the challenge that comes next, which includes developing a supportive ecosystem, managing negative consequences like fraud and deception, creating regulatory environments that promote innovation and safety. I've got to be honest, it sounds a little tough. How does it get done? Good afternoon and thank you so much for having me. You know, it might be tough, but I think there is a tremendous opportunity and because of that opportunity, it's worth it. What we talk about in a paper is that blockchain on one side and I on the other are two technologies that are really transforming the Internet. But what a lot of people don't understand is these pieces of technology can really work together to make that transformation even greater than what most people realize. So what we do is we talk a little bit about A.I. on one hand and how it has the ability to do tasks that historically have only been able to be performed by humans and human cognition. That is really good, for example, for analyzing data. On the other hand, blockchain has a number of use cases that you and your audience all know transferring value without an intermediary, owning data and centralizing data. So what we talk about in the paper is how those different variety of use cases can really come together in a way that is tremendously impactful. But in terms of thinking about how they should be policed and regulated going forward, we know that there is a real struggle still being had, at least here in Washington, to wrap our heads around AIG and how exactly guardrails should be put into place. And there's also a certain understanding gap, at the very least in a struggle to understand how to regulate blockchain and crypto technology. So should these things be regulated, regulated separately before they come together? Or does this have to be kind of simultaneous? I think they need to be regulated separately. But what policymakers do need to understand at the same time is the opportunity that both sets of technology hold. For example, right now the crypto industry has the financial innovation and technology for the 21st Century Act that is currently going through Congress. It passed out of committee earlier this summer. That piece of legislation has a number of different provisions that are fit for purpose crypto regulation, and that's exactly what the industry has been asking for for a number of years now. Most of those individual pieces of regulation and legislative rules, those apply to crypto. But what policymakers need to be thinking about when they're looking at a piece of legislation like Fiat 21 is the potential for innovation and how innovation potentially could be delayed if it's not necessarily appreciated during the initial drafting stage of important legislation. You've been asking this question Is America kind of missing out on on the innovation potential of around around crypto? We haven't really been asking it that much about AI because it seems all of that is on the West Coast. Is there a place where the two. Is there a physical place where the two join together? Is this A.I. that we're seeing, this A.I. revolution that we're seeing happen in California and Seattle, going to meet up with crypto, which seems to be more centered on this side of the country. I think that in terms of the use cases, those use cases are going to have an impact not only around the whole entire country but around the world. If I can really give you one example that we talk about in the paper, which is the authentication point of view right now, one of the biggest concerns when it comes to A.I. is misinformation. I think at this point a number of us have seen that they can be used to create deepfake using the technology to create photos, audio recordings, even videos making it look like an event has happened. And in reality, that event never took place. This is the type of thing that is going to impact all of society, all of the world. And what we're thinking about it at the Coinbase Institute is how we can take blockchain to solve that problem. And a couple of the answers that we come up with have to do with taking information, putting it on the blockchain, and then using cryptographic resources in order to secure and authenticate information. For example, crypto hashes can be used in order to protect content on the blockchain to make sure that it's not changed even more. Crypto hashes can also be used to basically give a digital fingerprint on the content so that users can actually know that a piece of content is coming from a trusted source like Bloomberg. Listen to. We heard from the feds Michael Barr about the potential the possibility of a central bank digital currency. Listen to what he had to say. While the Federal Reserve supports further research and continued engagement with a broad range of stakeholders, the Fed has made no decision on issuing a cbdc. And as Chair Powell has emphasized, we would only proceed with clear support from the executive branch in authorizing legislation from Congress. With this in mind, learning from both domestic and international experimentation can aid decision makers in understanding how we can best support responsible innovation that safeguards the safety and efficiency of the U.S. payment system? All right. So it doesn't look like they're going to get there any time soon. And obviously, the token is different than the blockchain, but I wonder if you think they could use A.I. to improve, you know, our version of a cbdc. I think that where we are focused right now is the private, innovative potential of both of these solutions. Blockchain. And I know when you're talking about a cbdc, I would be remiss if we didn't also talk about Stablecoins because while the idea of a cbdc is hypothetical and likely many years away, Stablecoins are actually solving the payment problem today. They're proving to be kind of the killer use case, the killer app that a number of people have been asking for for years now. And I think that stablecoins are going to be able to combine with A.I. in order to do really innovative things like allowing A.I. to engage in transactions. And if you think about A.I. being able to do that, the possibilities are tremendous. You'll be better. You'll be able to better automate e-commerce systems and manufacturing systems and have A.I. actually engage in real life human transactions. That's huge. And stablecoins make that possible today. All right. Really interesting stuff. Thank you so much for joining us. Chris Weitz, Coinbase Institute's head and chief of staff to the chief policy officer, Christopher Edwards. We appreciate your time. Now coming up, we have a little more for you, including why a New York judge overseeing the Celcius bankruptcy is urging the FCC to make a decision fast. This is Bloomberg. This is bloomberg crypto. I'm Kailey Leinz in washington with matt miller in new york. Now to some crypto stories that caught our attention this week, including a new york judge overseeing the celcius bankruptcy, asking the FCC to move quickly in deciding if it will authorize the plan to transform something Celsius into a publicly traded Bitcoin mining first. The judge is considering whether to approve Celsius his plan to partially repay customers whose accounts have been frozen since June 2022. The U.K. government confirmed plans plans to regulate crypto asset activities under the same umbrella as traditional financial services. The plans include a mandate for crypto exchanges to write detailed requirements on admission standards and disclosures for token issuers when listing new assets. The full proposal is expected next year, and the IRS plans to release a new reporting form and instructions soon for crypto brokers to disclose client transactions. It's expecting an estimated 8 billion filings related to crypto after the rules came out or come into effect in 2026, double the amount of any other type of 1099 format. 8 billion. That's a lot. Yeah. Unbelievable amount of filings expected. Programming note, we will be back next when Wednesday, November 8th rather than Tuesday with Michael Sonnenshein of grayscale. This is Bloomberg.

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