The cryptocurrency “crisis of confidence”.

This is an audio transcript of the About FT News podcast episode: ‘The Crypto Bank’s “Crisis of Confidence”.

Marco Filippino
Good morning from the Financial Times. Today is Friday January 6th and this is your FT news briefing.

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A US jobs report came out today and it looks like the Federal Reserve’s higher interest rates are working. And the cryptocurrency sector continues to get kicked while already dormant. Additionally, our business columnist Pilita Clark noted that it’s getting harder to call a business because they’re dropping their phone numbers. I guess the upside isn’t the music on hold anymore. I’m Marc Filippino and here’s the news you need to start your day.

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Employment data from the Bureau of Labor Statistics is due out today and estimates show that the rate of US job growth in December will have slowed for the second straight month. Then the more you work, but not as much as the month before. It suggests that the Federal Reserve’s interest rate hikes are working as the central bank tries to tackle inflation. But the bottom line is that the US economy is still strong. The FT’s Colby Smith explains what that means for the Fed as he considers his next interest rate decision in a few weeks.

Colby Smith
So the jobs report is one of the biggest types of data points that the Fed looks at. This is in addition to the inflation data that we also get on a monthly basis. What they’re really going to be looking for is further evidence that wage growth, in particular, is starting to slow down by any magnitude here. Essentially, the inflation problem that they’re facing right now is the fact that price pressures have shifted to the goods side of the economy. So for things like furniture and appliances, those costs have come down considerably. But on the services side of the economy — think dining out, getting a haircut — that type of business, prices are still pretty high and that has a lot to do with the fact that the job market remains pretty strong. Companies are hiring, they have roles to fill, and as long as that’s the case, it’s going to be pretty difficult for the Fed to dampen demand enough to keep inflation in check.

Marco Filippino
So, Colby, can the Fed still engineer what’s called a soft landing, basically bringing down inflation without plunging the US economy into a recession?

Colby Smith
So a soft landing isn’t entirely out of the question, but the odds of it decrease considerably the longer the Fed keeps rates high and the higher, of course, it pushes the Fed funds rate eventually. So what Fed officials have signaled is that they will likely raise the key policy rate above 5% at some point this year, and they expect that to drive the unemployment rate to around 4.6%. . Now this is on the low side. If you talk to economists on Wall Street and also in academia, we see, you know, expectations of the unemployment rate possibly eclipsing 5.5%, let’s say. But the Fed has said it’s not trying to engineer a recession. They don’t think, you know, it needs to happen for inflation to come down. But the more resilient the economy and the more persistent these price pressures are, the greater the likelihood of a recession this year.

Marco Filippino
Colby Smith is the US economics editor of the FT.

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Yesterday US bank Silvergate saw its share price fall by more than 40%. The reason? A report has come out that showed customers withdrew $8 billion in deposits from the crypto-focused bank late last year. It forced Silvergate to sell assets if that news wasn’t bad enough for the cryptocurrency community. Lender Genesis also announced yesterday that it is laying off 30% of its staff. And on top of that, the New York Attorney General is suing the founder of another cryptocurrency lender, Celsius. To help unpack this. I am joined by Nikou Asgari from the FT. Hi Nikou.

Nico Asgari
Hello Marco.

Marco Filippino
So, Nikou, we have seen some cryptocurrency lenders and players fail last year, BlockFi, Three Arrows Capital and Celsius, which I just mentioned. But what does it mean that Silvergate has been so successful?

Nico Asgari
Well, all those you listed all crypto natives as people call them, sort of major crypto firms, while Silvergate, is listed on the New York Stock Exchange, is a member bank of the Federal Reserve as regulated as any other typical bank in the US . It really started out as a small community lender and has grown to lend and specialize for cryptocurrency companies in recent years. And here comes this huge hit, as you know, you’ve seen the FTX crash and now the arrest of Sam Bankman-Fried and those institutional clients, the people who would be depositing money with them, are actually pulling, as you said, $8 billion of their deposits and say, we really don’t want our money anywhere near cryptocurrencies, anywhere near this industry, and just snatch it from society.

Marco Filippino
So it seems that with the Silvergate report, the cryptocurrency crisis has indeed crossed the threshold from niche industry into mainstream finance. And the bank’s chief executive, Alan Lane, said the bank run came during a “time of crisis of confidence”. Do you think the crisis will continue?

Nico Asgari
Well, I think this is the first week of January and we are talking about a crisis in a banking cryptocurrency. I don’t think it will disappear anytime soon. We have to see what happens with SBF, obviously, and FTX and Alameda going bankrupt and all the ripples of that. And I think this is just one of many to come.

Marco Filippino
So let’s step back for a second. We have Congress looking into the collapse of FTX. We just saw the New York Attorney General sue the founder of bankrupt crypto lender Celsius. Will regulators continue to go after people in the crypto space?

Nico Asgari
Oh absolutely. I think since the collapse of FTX late last year, regulators have really stepped up their scrutiny of cryptocurrencies, whether it’s exchanges, lenders or banks like Silvergate. At the end of the day, it’s the ordinary customers who are typically really missing out on this whole slump.

Marco Filippino
Nikou Asgari is the FT’s digital markets correspondent. Thanks Nico.

Nico Asgari
Thank you.

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Marco Filippino
OK, so we’re all starting to unwind from the holiday season. Maybe you’re turning off the lights, polishing off the last few holiday cookies, or trying to return those thoughtful gifts that you’ve received but don’t quite hit the mark. You have the receipt in hand ready to go. But when you try to look up the company phone number, it just doesn’t exist. And we are not talking about communicating with a human being. We’re just talking about finding a real phone number in the first place. Many companies have either removed customer support numbers from their websites or buried them so deep that they are virtually impossible to find. FT business columnist Pilita Clark took notice and wrote about it recently. She now she joins me. Hello Pilita.

Pilate Clark
Hello Marco.

Marco Filippino
Everything is fine. So Pilita, who are you trying to reach that prompted you to write about this?

Pilate Clark
Well actually, I was trying to reach out to a corporate portrait photographer for a column I did the other week. So I started looking around and came across a site that looked great. But not only could I not find a phone number, this particular photography studio had put up a sign on their website saying, “We have removed our phone number. It’s because we noticed that customers prefer to chat online by email or by filling out the form below”. And I have to say that I didn’t answer well mentally. (laughter) And then very grumpy he went to look for another one, he found another studio that he not only had a prominently displayed phone number but also had someone answer the phone very promptly and thus found it difficult to find the phone number very often And I know I’m not alone in this so I thought I’d write about it.

Marco Filippino
Why do you think this is so? Do we kill it too and the rest of my millennials?

Pilate Clark
Well, first of all, someone has to write a PhD on this, because try as I might, I haven’t been able to find some sort of definitive answer to this. While many people agreed with me that it seemed like during the pandemic when many businesses really needed to improve their digital services very, very quickly because there was basically no other way to communicate easily with people or not they had No people in the office answering landlines or for whatever reason, they actually ended up deciding it was better, maybe cheaper, more convenient to have online forms or just drop a phone number. You know, basically humans are more expensive, or at least it seems like they are. But I’ve always thought that it’s actually really easy to measure the cost of a body and an employee and really hard to measure the loss of income you suffer when you know you’re a guy like me who goes to a rival because he picks on the phone and you only have one online form.

Marco Filippino
Pilita Clark is a business reporter for the FT. Thank you very much for this conversation, Pilita

Pilate Clark
A real pleasure, Marc. Thank you.

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Marco Filippino
You can read more about all these stories at FT.com. This has been your daily FT News Briefing. Be sure to check back next week for the latest economic news. The FT News briefing is produced by Sonja Hutson, Fiona Symon and myself, Marc Filippino. Our editor is Jess Smith. This week we had help from David da Silva, Michael Lello and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is Global Head of Audio and our soundtrack is by Metaphor Music.

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