Bitcoin Drops Below $63,000, Wiping Out Gain Since Trump’s Win

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1:39Bloomberg Audio Studios, podcasts, radio, news. This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy plus global business finance and tech news as it happens the bloomberg business week daily podcast with carol masser and tim stenebeck on bloomberg radio well let's bring in paul krugman nobel laureate in economics research professor at the city university of new york's graduate center author of a popular sub stack more than a half million subscribers people are following him his writings are a must he joins us remotely.

2:24Professor, good to have you with us. You argue or ask the question, rather, is this crypto's fimble winter? Do you think it is? Yeah. Yeah. So I got a little, you know, we have talked about crypto winters a few times in the past, and I got carried away with the winter metaphor. And in Norse mythology, the fimble winter is the final disastrous winter before Ragnarok, the end of all things. You know, crypto, it's a really weird space, right? If you ask how is Bitcoin value compared to fundamentals, well, what fundamentals? It's kind of all vibes. And it has bounced back several times from big declines because people had faith in it and because it was, you know, there was a lot of ideology behind it.

3:10But this time looks different. This time, a lot of the recent rise has been driven by Strategy Inc. and other crypto hoarders. A lot of it has been political associated with Donald Trump. Everyone is comparing the price now to what happened when he won the election. And those things are harder. The kind of sentimental or almost mystical attachment that people have had to Bitcoin itself probably doesn't apply to shares in strategy. Probably doesn't. And the kind of libertarian ideology that supported Bitcoin doesn't really apply now that it's largely a political creation. And it's sort of it's in some ways tied to what you think Trump's future prospects are.

3:58So this is different. You know, I think about this a lot, Professor Krugman, and I think about supply demand, certainly when it comes to trades in assets. I'm not quite sure what you call cryptocurrencies. I think we still struggle with what it really is. Having said that, if President Trump wasn't in the White House, what's your view on whether or not crypto would be, you know, here around$64 ,000? Would it be a very different trade potentially? Well, it might be. I don't think it would have gotten up to$125 ,000 or, you know, thereabouts without his election. It's possible that the Day of Reckoning might have waited longer.

4:34I mean, there was a, in some ways, the very prominence of crypto, the huge attention given to it, all of the hype about this is a crypto-friendly White House has in some ways led to a big run-up, but also focused people's minds. I think there's a lot more. So what is this actually for anyway? And there's also the sell America trade, the debasement trade, which among other things, first of all, should have benefited Bitcoin if it was the kind of refuge asset that people had sold it as. But also the fact that a lot of people sold Bitcoin as being the next gold. And it turns out that in the face of doubts about stability, doubts about politics, the next gold turns out to be gold, not Bitcoin.

5:23I think is a big wake up for people that, you know, maybe this isn't actually going to be an enduring asset. So, you know, no, it's again, it's really, really hard if you ask what when people make for price forecasts for Bitcoin. I always wonder on what basis. Yeah. It's not like you could do a price earnings ratio on this thing because there's no no earnings, no services. It's all just pure faith. But it does feel like we're seeing a real crisis of faith right now. What would stop this administration, in your view, from coming in and bailing out the industry? I mean, the industry spent a lot in 2024 to get pro-crypto politicians elected.

6:01It was successful in many different cases, particularly in the Senate race in Ohio, unseating Sherrod Brown. Some Republicans want Scott Bessett, the Treasury Secretary, to buy Bitcoin by selling some of the U.S.'s gold reserves. When asked whether the US Treasury has the ability to bail out Bitcoin, the Treasury's Secretary said this week he doesn't have the authority to buy Bitcoin with tax dollars. Could the president do that? Well, yeah. I mean, in general, Scott Besant, his word is not good as gold, let's say, on these things. And they could. But I would say, look at the parallel. The U.S.

6:34spent a really fairly limited sum in bailing out Malay and Argentina. Relatively, you know, it's a tiny sum compared with what it would take to bail out Bitcoin. And there was a firestorm of outrage over it. Not enough to stop them from doing it, but enough to really give pause. If they tried to step in and bail out this industry, especially given all the stories about crypto as a channel of corruption, all the stories about the Trump family being enriched through crypto, all of the buying of politicians, the pardons of crypto criminals. I think the political backlash would be huge. Now, maybe the crypto industry has spent enough money to overrule all of that, but I think it's highly questionable.

7:23You know, one thing I think about, Professor Krugman, is transparency to investors. It's something we talk about with everything. It's one of the things we're going through with private credit, right? It's why, although the U.S. market, financial markets may not be perfect, it is why it's in many ways the gold standard for global investors. Having said that, on that transparency issue, does it make sense as we look at what's going on in crypto that we really have a full understanding of the White House's exposure, the president and his family to cryptocurrencies to understand what's at stake for them personally, politically, financially, especially as policies unwind, and to understand maybe how that might be from a supply demand metric and all that that entails supporting this market, at least up until late.

8:16Yeah, I mean, people are just making guesses at how much the Trump family is exposed. and other government officials, by the way. Let's not forget that the Commerce Secretary, Howard Lutnick, his firm was very close to Tether, which is very much in the crypto business and particularly seems to be used for a lot of the unsavory aspects of that business. But it's certainly a significant exposure. And there's a kind of shadow exposure in the sense that the crypto industry has been throwing a lot of money, not just at campaign contributions, but at the presidential family directly. And another crypto winter would be financially harmful to the first family.

9:07But again, that's all sort of taken as a given, that there's a stake there. I don't even know if It's a lack of transparency. We all know that there's a large personal financial stake in how crypto does. The question is, can they really get away with it? I mean, there's lots of things have been gotten away with. But this is the kind of thing that really does get voters enraged. This is the kind of thing that leads to a lot of yelling at Republican members of Congress in town halls. So I'm not sure that this is something that they're going to be able to do. Because this is big, right? Crypto is still, even with the recent fall, it's still$2.5 trillion asset class.

9:44It takes a lot of money to bail that out. We should point out on Howard Lutnick. His sons, Brandon and Kyle, now serve as chief executive and executive vice chairman, respectively, of Cantor Fitzgerald. And that, Howard Lutnick, did divest to comply with ethics agreement he signed when he joined President Trump's cabinet. So we just wanted to kind of put that out there. Yeah, that's right. I mean, he's not personally, but, you know, if my relatives were very involved in a business, people would be kind of would not say that I had fully disconnected myself from it. Hey, Professor, before we let you go, the promise of Bitcoin was this decentralized currency that would flow easily across borders, allow people to exchange value, and it would be, you know, not tied to a single government entity.

10:30In your view, does Bitcoin have any value? No, or let me give a slight qualification. The places where Bitcoin has actually been useful to people, I mean, it's largely used for essentially criminal enterprises of some kind, but not all crimes are the same. And I will say that if you're trying to smuggle money out of Iran or something like that, then Bitcoin is a way around capital controls. But it's also a way that criminals who install malware on your computer and then demand a ransom collect the money. In terms of the original idea that this was actually a superior form of money, it's a total bust.

11:14And it's a 17-year-old bust. That's the thing that gets to me. This is not an idea of the future. This is not a cutting edge technology. This is something that is only slightly younger than the first iPhone. Right. And if it hasn't made any inroads as an actual legitimate means of payment in 17 years, then clearly it wasn't a great idea to start with. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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13:10public.com slash disclosures. Hello, hello. I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna, and I asked him, how can companies use AI to its fullest potential to create smarter business? My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side. For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30 % more productive today, with the goal of being 70 % more productive.

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14:30you're listening to the bloomberg business week daily podcast catch us live weekday afternoons from 2 to 5 eastern listen on apple carplay and android auto with the bloomberg business app or watch us live on youtube i want to bring in yurian timmer director of global macro at fidelity investments 17 and a half trillion in assets under management 6.8 trillion in discretionary assets. He joins us from Boston. Urien, I want to start where we left off with Professor Krugman. And that's all about the effect of cryptocurrency, the decline in Bitcoin that we're seeing, and whether or not that has a wider effect.

15:07Michael Burry certainly warned of that earlier this week. Are you worried about it? No, I think it is. There's a few things going on. And And by the way, I do disagree with Professor Krugman about the inability to value Bitcoin, because you can make that same argument for gold. And even though neither of those assets generate a cash flow, you can value them, right? You can value Bitcoin on the size of its network. It is a network asset. And you can value gold on the basis of it being hard money. So you can compare it to soft money. So if you do a ratio of the gold above ground value to the M2 money supply, it goes in a band, in a ratio, if you will.

15:55And you can apply the same logic to Bitcoin. So I do think you can value them. And I do that. I compare the value of both gold and Bitcoin to the money supply. And they've both run a lot. You know, a few years ago, they were half the size of the money supply. But even gold on its own is now$35 trillion. The money supply is$23 trillion. Bitcoin is about$1.7 trillion in market value. So they've come a long way. And it's not that surprising that they're taking a rest. You know, Bitcoin did form kind of its fifth wave, if you will, to$226 ,000. It was 105 % CAGR over 145 weeks. At 65 ,000, I actually think it has some value again.

16:42But they're different players on the same team. They take turns, and that's exactly what we've seen. But coming back to your question, I don't think Bitcoin, its decline itself, will be a systemic event. The last time it happened, it wasn't. It is getting caught up in the speculative, you know, first frenzy and then unfrenzy in, you know, kind of the mean stocks and non-profitable growth stocks, the other speculative names. And of course, we have the Treasury, you know, those Treasury companies that are that are really hurting right now. So it is part of a bigger picture, but I don't think it's going to lead to a systemic, you know, sell off in assets in general.

17:26OK, cool. And with today's decline down 9 % right now, the market cap of all of Bitcoin is falling pretty quickly. It's at about$1.3 trillion as we speak. So, Jorin, what would you rather own, Bitcoin, gold or stocks? I actually like them all. I mean, the stock market is the stock market, and that is the best compounder over time. You know, they do generate cash flows and earnings. You can value them. Most of the stocks around the world are not expensive. The S &P is, but that's because of basically seven names that are trading in the mid-30s. But the equity market is an undisputed compounder over time.

18:12I think, in my view, it should always be the anchor asset in any portfolio. And then beyond that, you know, I see gold and Bitcoin and commodities in general, as well as alternatives as as basically diversifiers, assets that generally are uncorrelated to both equities and bonds. And certainly gold fits that bill even more so than Bitcoin. So I think they all have a place and especially in a world of fiscal dominance where maybe debt gets debased over time. we get maybe a closer cooperation with between the Fed under presumably soon to be Kevin Warsh and the Treasury under Scott Bessend, if there's going to be greater coordination in terms of managing the debt load.

19:01I can see the argument for harder assets. And I think gold and Bitcoin, again, I see them as different players on the same team. But again, I don't think either one of them compares to equities over the long term. Just got 30 seconds, forgive, and you've got to come back soon. But the AI trade, it does feel like we're having a little bit of a reckoning, certainly when it comes to software. 30, 40 seconds on your view there. Well, so AI, of course, is perhaps the greatest technological innovation we've seen in a long time. And I think, you know, because that market has ramped up so high that whenever anything goes wrong, you can see the rationale for everyone sort of exiting first and asking questions later.

19:46But we've seen this before. We saw this even last November. We've seen it before that. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Well, Citadel's Ken Griffin made some comments at a Wall Street Journal event this week. They're getting a lot of traction. He said the Trump administration's tendency to reward loyalists doesn't play well with business executives. He also criticized the president's willingness to enrich his family while in office.

20:19Here's what he said. He said President Trump has made, quote, missteps in making decisions that benefit his family while in office. It raises the question of whether the public is being served, he said, at the Journal event. Yeah, he did. So this brings us to Tim O 'Brien and his latest column for Bloomberg Opinion, how the president's UAE deal is a security risk. Tim joins us now here in our Bloomberg Interactive Brokers studio. Tim, it's interesting. I feel like since the Journal did this dive into this deal or what seems to be a transactional deal could appear that way. In a presidency that many agree, there are so many transactions that go on.

20:55It is a transactional White House. Why are we talking so much, or why should we, about this particular deal? Well, the context of it is that during the Biden administration, the export of high-end computer processing chips were banned to the UAE. And they were banned because the UAE is a transit port for the same chips to China. And the U.S. is in a foot race on the technological side around AIE that these chips fuel. And then obviously militarily, they have all sorts of military applications. And the Biden administration and a number of national security experts didn't feel it was a safe transit point.

21:38Cause for concern in terms of U.S. national security. Yeah, and our economic competitiveness, both. Right. Both. You know, I mean, one of our edges in the world is technological innovation, and it's represented by chips. And I think that's an entirely non-ideological, nonpartisan viewpoint. It's about American security and American economic growth. Within two months of Donald Trump getting inaugurated, those bans were being renegotiated. And various things. And then by May, an agreement was in place. And by last November, it was finalized. And the UAE now gets those chips. And there have been various reasons posited for this change in that position.

22:18The Emiratis promised about a$1.4 trillion investment in the United States over 10 years. I believe that was given as one reason. A little further along, Bloomberg News reported that the Emiratis took a stake in World Liberty Financial, the crypto platform that Trump's control. And then the New York Times did a big deep dive in the fall last year about the apprehension within Trump's own administration about loosening these controls, members of his own White House. The new element of this that then surfaced was this recent Wall Street Journal story in which we learned that actually four days before he was inaugurated, before Donald Trump was inaugurated, Sheikh Tachnun, who is one of the most powerful people in the UAE, is the brother of the country's president.

23:07He oversees one of the world's biggest sovereign wealth funds. He controls two AI companies. And he oversees the nation's national security and intelligence apparatus. Made a big investment in the Trump family's company. And it was about a half a billion dollars. And of that, about 187 million went to the Trump family. Raising the obvious question of was Donald Trump bribed to loosen chip exports to the UAE? And I think anyone who sort of looks at this dispassionately would say, yes, that's certainly a possibility. So we should note that the White House in that Wall Street Journal story said that, quote, President Trump only acts in the best interests of the American public.

23:54There are no conflicts of interest. The White House spokeswoman added that Whitcoff is working to advance President Trump's goals of peace around the world. I bring that up because, you know, that's that's what the White House says. Congress, though. Wait, can I just comment? Yeah, please. Yeah. So first off, the Whitcoff family also benefited from Sheikh Tanoon's investment. Steve Whitcoff, who's the envoy to the Middle East, his son is a co-founder of World Liberty Financial. Todd Blanche, who's the deputy attorney general, was on the news shows last weekend. He was asked the same question. He said what Trump is doing is neither untoward or unprecedented, but actually it is untoward.

24:34And the volume of these transactions and the frequency of them is certainly unprecedented. So I want to go to the we're going to jump around your piece a little bit. But you end this piece in a way that I think is important because it's kind of crickets right now coming from Congress. You write that it's absolutely true that Trump has hung a four cell sign on the Oval Office at a scale and frequency that is untoward and unprecedented. It's also true that a Republican controlled Congress and the courts are unlikely to do a thing about it. You know, there's the 400 million dollar jet from Qatar that in any other world would be like, you know, outrage from from Congress, perhaps.

25:11Why are lawmakers so unwilling to push back? Well, I mean, I think I think this was also true of his first term. And the reality is, I think the Republican Party has been recast in President Trump's image. And I think that members of his party are disinclined to take him on publicly about, you know, abusing the privileges and powers of an office that's always by design, by constitutional design, had a meaningful amount of latitude compared to all of the other federal offices. So I think that's one factor. The other factor is that the federal agencies that would look into things like this are also beholden to President Trump, whether it's the Justice Department or the FBI or the Securities and Exchange Commission, State Department, et cetera, et cetera.

25:57You know, it's funny. We talked with Paul Krugman at the top of the hour and or top of the 2 p.m. hour. And he's he talked about he's looking at what's going on with crypto. and he says if we're going to have a crypto crash, best to get it over with now before the industry becomes too big or too politically powerful to fail. It's just this interconnectedness, if you will, with so many things it feels like with what appears to be in terms of the White House, family moves and so on. I guess what I'm blown away by, Tim, and maybe this sounds so naive, that there are absolutely, it feels like, no checks and balances.

26:31And I would say the same thing if this was a Democratic White House. Yes. So is our system broken or like what? I don't know. I'm thinking about what do we do on the other side of this? Because I'm just wondering, could there be then whoever next comes into the White House, whatever party they might be, that are now emboldened to see the power to self deal? Yeah. Well, you know, the framers of the Constitution worried about this. You know, they were realists. And there are two so-called emoluments clauses in the Constitution that forbid the president from essentially an emolument. Emolument is a 18th century word for bribe that basically prevents the president from accepting gifts or monies or titles in order to make sure that the policymaking process is pristine.

27:19at the same time, the conflict of interest rules that have come into the federal government since Watergate don't apply to the presidency. For reasons, right? For good reasons, because the president touches so many things from a policy level and a diplomatic level that once you begin circumscribing what they can touch, you actually diminish the powers of that office to act effectively. So there's a good reason for that. What that then means is you have to have someone occupying the office who is morally grounded, who is observant of the law, who is self-regulated, and who has a respect for the majesty and powers of that office, regardless of what power they party they come from.