Live from Bloomberg World Headquarters in New York, I am Tim Stenovec with Isabelle Lee. Welcome to Bloomberg Crypto. Here is what is at stake today. Robinhood CEO Vlad Tenev will stop by in a minute. This is as the company sees massive gains in its prediction markets business.
And we speak to Jack Mallers, who strikes a deal for 21 Capital.
We are going to the Milken Conference for a conversation with former Treasury Secretary Steven Mnuchin. First, we have to go to the price action with Bitcoin. The token going above $80,000 for the first time all the way back to January. This as the U.S.-Iran ceasefire halts to an extent. Bitcoin is up 20% since the start of the U.S. is really more a neuron and have highlighted it.
Going, these shares are seesawing between gains and losses, but now they are down by 3%. The company today announced it will cut around 14% of its workforce. CEO Brian Armstrong cited market volatility and AI as the main catalysts. Let's discuss more with Bloomberg reporter Emily Nicolle. Thank you so much for joining us. Talk more about what stood out to you in this announcement. Brian Armstrong is saying he will concentrate around AI while reducing layers of management.
There were a few things in Brian's statement that stood out. As you point out, he wants to concentrate teams around AI, saying they may even have one-person teams in the future for roles like engineer, product design, all collapsed into a single person. Then the need for teams to get using AI agents as well. He wants a staff that can handle fleets of agents, do all the jobs that multiple people may have done in the past. That will also help to condense management across the company. Managers will also have to do more work rather than just managing people, but also responsible for products, shipping things. This is a broad issue that Coinbase is happening. There are broader because that need to happen at the company. This is one thing motivating the stock cuts.
Why do the broader cuts need to happen?
Coinbase had a pretty difficult quarter at the end of last year. Revenue was down 20%. We expect earnings on Thursday that will tell us how the recent quarter has gone. It is down about one-third from that point right now. That kind of market is difficult for exchanges. On the one hand, volatility can mean more trading, which means more income, but equally prices are down and not recovering. That means fewer buyers into the system, and that is not good for a company like Coinbase.
We see layoffs at several companies. What does that say about the broader industry? Is it really AI-related or has to do something more about the crypto winter we are seeing?
AI is definitely the buzzword. That is everywhere. We are hearing a lot about it from companies, something that companies are making job cuts are saying is the reason behind it. They want to shift to AI production. At the same time, we cannot ignore that the market is down right now, a difficult time for crypto exchanges in particular. We have seen them make job cuts like this in previous bear cycles, so no reason to expect that this would be happening even if we didn't have AI. We have done a story about whether this is an AI-washing trend, especially when it comes to the company laying off about half of its staff. It remains to be seen whether or not we see AI take over those job roles or if we see more people come back into the fold when markets are high again.
The question is, were there over-hirings happening, especially at Block? That was the conversation happening around those layoffs. Emily Nicolle on the latest of those Coinbase layoffs. Check out her reporting and more on the terminal. Coinbase said last week that a deal had been reached on a key stablecoin policy, potentially clearing a path for crypto legislation to move forward in the Senate. Senior analyst Nathan Dean has been following the Clarity Act. He joins us from Washington, D.C. We are going to get to the Clarity Act, I promise. The SEC is proposing a measure to allow companies to file semi-annual reports. This just crossed minutes ago on the terminal. How are you watching this?
We knew this proposal was coming. With this proposal, I haven't read the specifics yet, but it is aiming to allow publicly traded companies to go semi-annual versus quarterly reporting. And give it similar to what they are doing in Europe currently. Our analysis shows, prior to this proposal coming out, companies that are smaller are going to gravitate toward semi-annual. Over the next few years, you could see a push from the larger companies to move toward this idea of semi-annual reporting. We will have to see what the specifics say here, but this is certainly something that we will have a lot of opinions on. When the SEC floated this idea of doing it in 2018, there was lots of pushback from certain aspects of the investment community.
Not to mention our own pushback as journalists who live for these quarterly reports. What are we going to do?
Every quarter I have one slated. That will be the highlight of my week. Now pivoting to the Clarity Act, the fight over whether crypto exchanges should be able to offer stablecoins. That is what caused the hold-up in the legislation. Banks have pushed against this legislation. Why are we now seeing this development?
Under the Genius Act, issuers of stablecoins are prevented from paying yield or interest. We saw stablecoin issuers partner with third-party platforms like Coinbase to offer rewards. The banks didn't like that. The agreement between Senator Thom Tillis and Senator Angela Alsobrooks would prevent the paying of interest or reward programs on balances but would allow on transactions, use a product or service, and market-making abilities. It would direct the SEC and CFTC to move forward with rulemaking specifying the details. We saw Coinbase supported this. The banks, however, are pushing back with their statements. I anticipate the banks will keep pushing back. Senator Tillis over the weekend said, look, this is the deal, take it or leave it. I am paraphrasing his words, but you will see a markup in the Banking Committee in May. It will go to the floor. The banks will keep on pressure, but we think there is a 60% chance this bill passes in 2026.
We are lucky that we have Nathan Dean available. Everywhere you can find his research, on the terminal and on Bloomberg.com. Also lucky to have such a great team at the Milken Global Conference. That is where Joe Mathieu and Carol Massar are interviewing former Treasury Secretary Steven Mnuchin.
There are too many companies focused on quarterly earnings, whether they miss or beat expectations, analyst expectations. The idea of giving companies the option of whether they want to do quarterly or semi-annual is a good thing. I can imagine there are a number of companies, particularly companies that are growing, that are still going to be interested in showing quarterly earnings, showing their progress. I think giving companies the option is a very good idea.
Does it do anything from the U.S. perspective, because of the transparencies, some of the rules and regulations that govern our companies here?
No question the U.S. is the gold standard for companies to be listed, the most liquid market in the world. Giving companies the options, I think, will continue to have transparency.
Do you think most of them will stick to quarterly reporting?
My guess is some will and some won't. If you are a growth company, you have every reason to want to show the growth every quarter. If you are a company in turn and things are improving, you want to show it. On the other hand, there are plenty of companies where they are focused on long-term trends. Giving them the option is a good thing.
Two classes of companies when it comes to reporting season.
That will mess up our world a little bit, but we will figure it out.
I'd love to hear from you on this market as a whole, this psychology that is confounding a lot of us. As we mentioned, it is rare time, oil prices are lower again after the Defense Secretary suggested that this effort in the street would not go on forever. That is all you need and we are back to buying on Wall Street. Is this getting a little toppy, or can you rationalize what we are seeing?
Two things going on in the market. One, you have very large capex spending and growth around AI, data centers, around the cloud. We are still in the early innings of this transition. There is no question AI will impact almost every business that we touch. That is something that will be a very positive thing. There will also be job issues and job implications on that. The second thing we have going on is, the U.S. is the destination where people want to invest. Europe's economy is underperforming, people are concerned about what is going on. The flow of funds into the U.S. dollar, in particular into U.S. equities, is still very strong. I like to say if you can take a 10-year horizon, there is no better place than buying S&P 500. If you are day trading, it's a different issue, predicting the markets.
How do we figure out if the spend on data centers is not too much, that there is not an overspend? We were talking on a real estate panel, all investing in data centers. Do we need to have an exit strategy? We talk about data centers in space. This thing could evolve as chips get more efficient. Could this be down the road, not to worry about now, or do we need to worry about the overspend?
I would say in the short term the demand for compute is very strong. You are seeing this across a number of companies. I would say there are two different things. OpenAI and Anthropic on the one hand, who are going to consume a lot of cash as they build on these businesses, then you have Microsoft, Amazon, Google, Meta, that are all cash machines, building out both AI and the cloud. The good news is, if there is overspending in the next few years, they will cut back. I don't think you'll see the same trajectory. The other issue is we are going to run out of power with data centers. People want to spend the money now, get the data centers operating, and if they have to scale back over time. Some of these data centers, particularly the training centers that have 15-year leases, my guess is 15 years from now they are dark. The cloud data centers will have tremendous growth and will be around for the next 50 years.
Do you have exposure to the area?
We spent a lot of time in the area, but we are long-term investors. We are looking for stabilized data centers.
This might be where you are going a little bit, but efficiencies, whatever is going to be developing in the next couple of years will render these massive data centers useless. They could be the size of a phone booth at some point or just a completely different, to Carol's point, in space. Does this have a shorter timeline on that technology will evolve?
If you look at data centers from 20 years ago in Virginia, we are still using them. I separate training data centers. You will need to train these models. It's very different to cloud-native issues. Going back to the market, the market is discounting the geopolitical risk in my opinion. We don't really see -- the market is expecting that we will have a good outcome. I completely support President Trump and what he is doing in Iran. I always said Iran getting a nuclear weapon is the biggest risk in our lifetime. No question from my experience in the government, they intended to do that. How we play out from here is a little more complicated. We have seen a lot of volatility in the oil markets and the stock market is really not discounting this going on.
Sounds like we are missing something here.
I wouldn't say we are missing. Hopefully, we will have a good outcome, Iran will come to the negotiating table. The economics, the sanctions work.
Even if we reopen tomorrow, it could be months before energy flows are back to where they were. Does the energy market have a check coming up?
It will take a while. Having said that, there is such positive things going on in the economy that I think, to the extent trade can open up relatively soon, the economy will absorb those energy costs.
You were in the first administration, a great understanding of President Trump. As we say, the markets can go day to the headlines, looks like a 180. How should we be reading what the President is doing, what do we need to understand? Do you feel like this is a different Donald Trump than the first term?
I don't. There are a lot of similarities on it. This is an issue that he's been focused on since the first term. He is determined, and his legacy will be that he will prevent Iran from getting a nuclear weapon. There have been other administrations that understood the risk but were concerned. I also give Israel a lot of credit. One of the concerns was all of the ballistic missiles. Obviously, the air defense systems in the region have been very powerful. But I think this is a President that would prefer not to go to war with them again but will if he needs to.
Could we be talking about war at the end of the year?
I think we could. I think he wants to prevent this from happening, the nuclear situation. And he said this, he took out a lot of the leadership, so part of this is making sure that leadership develops in Iran that can negotiate a deal that they'll stick with.
What's the other geopolitical? You say geopolitical. Is it just the Middle East, or are you thinking about China or other parts of the world?
I think it's -- I mean, there is this war in Ukraine. I don't want to forget what's going on in Ukraine.
We'll talk about it later.
That's still an important issue. I feel like we don't see it on the press every day. But the big issue right now in terms of risks for the economy, risks for the world is the Middle East.
There's another cloud, you could argue, hanging over this market that has nothing to do with the war in Iran, although maybe there's a cost. But that's the debt, now topping 100% of G.D.P., Mr. Secretary. How long can we sustain this? Hank Paulson mentioned to David Westin the need for a break-glass solution. What should the Treasury be preparing at this time?
I unfortunately think there's not a break-glass solution. You know, I think there's no question that during COVID, we have to spend massive amounts of money. We shut down the economy. Anybody who ran a business never ran it thinking you'd have zero revenues. You know, I'm particularly proud of we saved the airline industry, so we have a very robust airline industry.
Well, we saved the industry overall. And I think it was the right thing to let Spirit go through what they are. Having said that, it kind of normalized trillion-dollar spending, and I think this is an issue that needs bipartisan support. You know, part of it is the mandatory spending. We have to deal with that part of the budget.
Defense too? If you look at what's being allocated for defense in this budget, it's a lot.
Look, there's no question, particularly in this day and age, we need to spend more money on defense. I think right now it's going to be hard to spend another $500 billion in defense without significantly cutting other things out of the budget. So I am concerned about deficits. I think this has to be dealt with. And I think the good thing is President Trump understands these issues. And if there's someone who can tackle the spending issues, I think he's the one to do it.
Does this mean -- I mean, what's the make-or-break moment? Because I'll go back 10, 15 years, we were talking about concerns about the deficit. And then it kind of faded away. So what is the make-or-break moment? I think about this in the context of Kevin Warsh coming in as the next Fed Chair, pressure that might be on him. Kind of roll it all together, do you think that he should be cutting rates in this environment?
Well, I think we're close to the equilibrium rate. So before the situation in the Mideast, we did have inflation close to the Fed's 2% target. And I think you can say the equilibrium rate is probably between 2.5% and 3%. So we're close to that level. Also, there's no question that the deficits push up our cost of funding, so that there's a risk premium built in. And one of the things that Kevin is talking about, which I also support, is shrinking the Fed's portfolio. Well, if you shrink the Fed's portfolio, that's also another tool that you don't have to lower rates. Ultimately the Fed does short-term rates, if they're not doing quantitative easing, which they're not going to do now, they're not setting long-term rates. I mean, I don't think we're going to have a make-or-break moment where one day we wake up and we can't finance the debt. I do think you'll see an increase in risk premiums. I mean, you see the 30-year bonds kind of approaching, kind of 5%, part of that is the volatility around inflation and what's going to happen with the work. But part of that is also just pushing up the cost of long-term financing for us.
What's Kevin Warsh in for when he wakes up in the morning and looks at Truth Social? Is this contentious relationship with the Chair if he's not cutting going to continue?
I think Kevin will do terrific in his new job.
I think he will be an independent Fed. That doesn't mean that he will or won't agree with the President. Now, look, part of it is interest rates depend on the economy. If we continue to have a very strong economy, we're not going to need to cut rates. For whatever reason we will go into a recession, we will have 1% rates. We had zero rates in COVID. There was a reason why they went down to zero.
We can't leave without talking about Lionsgate. About 13% position?
What's your plan? What do you want to do?
It's a great business. I recently got on the board. Lionsgate is one of the few independent studios left. It has an incredible film library. Michael has been a great success.
Do you want to own all of it?
Let's wrap with one fun question about the movie. 'Michael' is an incredible debut. Looks like it's across the board when it comes to demographics. And we're in a world where consumer sentiment is pointing lower. There are worries about consumer spending. The price of gas. But they're lining up for that movie. What does that tell us?
It shows you that when you have the right content, people still want to go to the movies. It's not just about sitting at home and watching it on TV. And Michael Jackson is such an incredible performer, and his music was pretty extraordinary.
On my playlist, 'Got to Be Starting Something'.
We all remember growing up with TV and 'Thriller'.
It's not just old folks going.
