Bets Are Off: DFV, BUIDL, CFTC

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Anyway, hello and welcome to the Money Stuff Podcast.

Your weekly podcast,

okay.

All right, we're going to get through this.

Hello, and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money.

I'm Matt Levine, and I write the money stuff column for Bloomberg Opinion.

And I'm Katie Greyfeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

What's going on, Katie?

Great question.

We're going to talk about meme stocks and the week that has been.

We're going to talk about Biddle.

It's a tokenized money market fund, essentially, stablecoin, whatever you want to call it.

And then we are going to talk about election contracts and how much the CFTC does not like them.

A certain amount.

I feel like I've said that in these signpost things before.

Yeah.

Certain amount is usually the answer.

So.

Meme socks.

Meme socks.

This started on Sunday.

No, this started in 2021.

Right, right.

This episode.

Ended in 2021, too.

And started, ended 2021.

We're dormant for a while.

Roaring Kitty.

He came back.

Question mark, did he for real?

His account did.

I just took it for granted that he came back.

Me too.

I'm not so sure anymore.

I also took it for granted that, oh, the account posted it must be him.

There is some speculation that it's not actually Roaring Kitty.

We haven't seen.

He said who Roaring Kitty is.

Can we say who Roaring Kitty is?

Okay, his name is Keith Gill.

He's a real man.

He had a starring role in the 2021 episode of Meme Stock Mania.

He did tell Congress I am not a cat, which is like a great.

It was perfect.

He also said,

He likes the stock.

He really liked GameStop.

Yeah.

And he made a lot of money really liking GameStop into the early 2021 rally in GameStop, where he made tens of millions of dollars.

I do think his origin story is really interesting, though, because in addition to being Roaring Kitty, he's also known as DF

Exactly.

Yeah, like this truly started because he actually did like the stock.

Yeah, like he's not, he's become this meme-y character, but he's like a guy who did fundamental research on GameStop and thought it was undervalued and did like multi-hour YouTube tutorials and why GameStop was a good company.

Like, he was a he's pretty serious about it.

Exactly.

So, he started from a place of fundamental analysis.

He tweeted again on Sunday after not tweeting since June 2021.

The pace of his tweets have been breathless.

He has been posting so much.

How many of them have been about GameStop?

That's the thing.

Zero, surely.

Yeah.

I mean, he did, or the account posted a clip of CNBC talking about GameStop.

So that blurs the lines, but you're right that the thing that kicked it all off on Sunday was just a cartoon man leaning forward in a chair.

He didn't mention GameStop, but GameStop skyrocketed.

Yeah, I mean, the cartoon man

represented him, and the leaning forward in the chair represented he was coming back to lead the masses to victory and GameStop to the moon.

That's how people interpreted it.

He has not commented.

We haven't seen his face.

He hasn't posted any YouTube videos.

As it posted on Reddit, I believe.

Yeah.

So it's really,

really magical that this Twitter account can move.

You know, it added something like $3 or $4 billion to the market cap of GameStop on like Monday.

Yeah.

Just like for getting the band back together like for the lols.

Nothing happened.

Neither GameStop nor allegedly Roaring Kitty said anything about GameStop.

There's no news.

There's just like, oh, that guy's back.

That'll be fun.

So the question I have for you, and you posed this in one of your columns in the context of if you were designing an exam, could this count as market manipulation, given that he didn't mention GameStop?

But what if he had bought a whole bunch of calls on GameStop and then he posted?

When I learned about market manipulation, though, these many years ago, people talked about materiality and like the reasonable investor.

And information was material to the reasonable investor, you know, if it was useful in the reasonable investor's investment decisions.

And, you know, if you lie about material stuff, that's fraud.

Materiality is the sort of standard for all of the securities law stuff.

And one thing that has happened in recent years is you're like, what does the reasonable investor have to do with anything, right?

Because if you had gone back to me in law school and said, is it material to the price of GameStop stock that a guy tweeted a picture of a guy leaning forward in a chair?

I would have said, oh, that has nothing to do with the reasonable investor or anything else or GameStop.

Like he's never mentioned, you know, I didn't mention GameStop in the tweet.

So he couldn't possibly have been tricking anyone about anything material.

So it seems hard to argue that there's any sort of market manipulation.

Even if, by the way, even if he was doing it as nefariously as possible, even if he bought a bunch of call options and tweeted the thing and then sold the call options, if he had bought co-options and tweeted like GameStop discovered the cure for cancer and then sold this call options, like that's obviously market manipulation.

But if you just replace tweeting something about GameStop with tweeting a picture of him leaning forward in the chair, which has way more of an effect,

I think it becomes not anything that the SEC can do anything about because

he's not saying anything.

He's not lying.

He's not misrepresenting anything.

He's just, you know, tweeting a picture of a guy in a chair.

Now, I will say, there's an amazing case about Bed Bath and Beyond where like Ryan Cohen, the actually GameStop CEO now, was also dabbling in that stock.

And he tweeted.

I can think in a reply to someone, he tweeted like a moon emoji or a rocket moon emoji, which doesn't even look, it looks like a smiley face, but it's allegedly a moon emoji and someone sued saying that was a fraud and a judge like wrote a long opinion being like well the moon emoji represents his views on the fundamentals of and basically decided the thought suit could go forward so like there is some ambiguity here but i do think that you know even if he was like trading on these tweets he's still clean now the really interesting question is you know as you say no one seems really sure that he's back

if you hacked his twitter and stole his account or if you bought his twitter from him and you were just tweeting these things which have nothing to do with game GameStop, but which have caused the price of GameStop to go up by billions of dollars,

is that market manipulation if you're trading on that?

And again, you're not saying anything about GameStop, so it's really hard to argue that it is, but it also feels like it is.

Yeah.

Yeah.

I love it.

And what if he just sold his account?

Well, I mean, if he just sold his account, he's out of it, but whoever's using the account is like.

If he sold his account to anyone other than someone planning to manipulate the price of GameStop, he got a bad deal, right?

Because it's a valuable account.

Yeah.

And Twitter or ex, Patrick Patrick McKenzie tweeted you shouldn't be able to increase the market capitalization of a company by billions of dollars by pointedly not mentioning it a tweet but at least two people can one is nearly the richest person on earth and the other's labor is deeply mispriced right so one is like Elon Musk when he tweets about something you know he famously tweeted use signal about the encrypted messaging app and like the price of this unrelated company called signal went up so when he like doesn't tweet about companies he can still cause their price to go up he's made some use of that skill and also happens to be extremely wealthy.

But then Keith Gill has done pretty well for himself.

Keith Gill's labor is not that underpriced.

He's made a lot of money.

But even still, if you or I were suddenly to become Keith Gill,

how do you capitalize on this power

in a legal way?

I don't want to give legal advice.

More to the point if I just like acquired Keith Gill's Twitter account.

Right.

I think I would have tweeted exactly what was treated here.

I don't know what people were trading.

But what I would have done is I would have bought a lot of call options on GameStop.

I would have tweeted something like, I'm back.

There you go.

Go reference the GameStop.

And then I would have sold all the call options.

Yeah.

And then you do, you get diminishing returns, but I think we're there.

Yeah.

Well, I think you're probably right.

But like, if you do this once, you got to do it for a lot of money and you got to do it as levered as possible, like call options.

I'm just piecing together the price action with how often he has been tweeting.

On May 15th, he tweeted at least 20 times.

Sorry.

You get diminishing returns of going away and coming back.

Oh, right.

Since his first tweet from his Sunday comeback, like, ah, you get nothing after that.

Unless you start tweeting about GameStop, which seems riskier.

No one has really succinctly defined to me what him being back means.

Well,

I've seen it.

But tweets are coming from his account about movies.

Like, movie clips are being tweeted from his account.

Yeah, but he hasn't posted anything substantial.

Oh, no.

Why does it matter that he's back?

Why does it matter that he's tweeting?

I'm asking almost.

These are like the deepest questions of financial markets.

Yeah.

Why does it matter that Keith Gillis is tweeting movie clips.

Maybe it doesn't.

Maybe we're wasting our time here.

But like, you know, I mean, it caused the price of GameStop to go up by $3 or $4 billion.

And like, why?

Because GameStop was like the quintessential meme stock.

And what a meme stock is like something whose trading action is entertaining and gives people a sense of community.

And it's like fun to be part of this online message board community where you like trade jokes and share memes and then also buy call options on GameStop, right?

That died down for a number of reasons.

One of which is that the price of GameStop, after going up a lot in 2021, came down.

But there are other ones, like the pandemic ended, and so people who were like shut at home got to go out or, you know, entertainment moves on, right?

And people like found other things that were fun.

And so the community fun meme sensibility that grew over on GameStop ended.

And when he comes back by tweeting memes, like this has nothing to do with the fundamentals of GameStop.

business, but it's, oh, great, this fun thing is back.

Like our online friends are back.

Like we can go have fun together online.

And when they go have fun together online, one thing that means is buy call options on GameStop.

And so the price goes up.

Yeah, I think I'm searching too hard here.

Oh, yeah.

I just, I haven't seen that.

None of it makes sense.

But it sort of does, right?

I mean, like, it is a fun thing to do online.

And like, part of the fun is like you do trade the stock.

And so like the entertainment franchise is back.

Like we're on season two of GameStop.

And so that does make sense on its own terms.

It just doesn't make sense in like financial terms.

The thing that I do find fun and that I do find interesting is that when what you're describing, this sense of community, we're in it for the lulz, when it actually does translate into the fundamentals of the business.

And I'm talking about AMC and what AMC did this week.

Yeah, this has kind of always been how it's worked.

Going back to 2021, GameStop has always been like, we don't understand what being a

meme stock is.

And, you know, they are a meme stock.

They're run by a meme stock guy and like they like the memes, but they don't do anything corporate financey with it.

Whereas AMC, at every moment when their price has rallied irrationally, they've been like, like, we are selling stock, we are raising money, we are going to get through like our tough financial times by selling stock to people at the best possible time.

And so AMC actually didn't quite hit the best possible time.

They got really lucky, though.

So they were selling stock for the last six weeks.

Yeah.

And so they almost entirely missed this rally.

They got some of it, but like they ended their stock sale plan basically on that first day when AMC rallied in sympathy with GameStop and everything else and all the other meme stocks.

But then they did turn around like the next day and sell a bunch of stock, not in the open market, but they like exchanged a bunch of their debt for stock.

Yeah.

AMC has always, this has always been AMC's strategy.

They're like a very indebted, somewhat struggling movie theater chain.

And every time their stock rallies, they're like, we're going to get rid of some of our debt by like exchanging it for this like incredibly overvalued stock.

Yeah.

In terms of why they always seek to capitalize and maybe GameStop doesn't, if you take a look at the debt profiles, AMC still has four and a half billion dollars in debt.

One answer is they need to, but I do also think there's like a personality issue really.

Yeah.

AMC, like their CEO at NRN, is like, I'm going to lean into being the leader of the apes, as they call themselves, and as he calls them, like the retail meme traders who love AMC, like he's all in on getting an online personality.

It is wild to me that in the year of Our Lord 2024, like I get AMC Ape or some variation of that trending on on X for me all the time.

And I made the mistake of tweeting that I fell asleep during Dune 2.

I went to a midnight showing and I shouldn't have.

And I fell asleep and I tweeted that and I thought it was pretty innocent.

And my mentions and my inbox were destroyed from people who just love AMC and are in the cult of AMC.

So they're not like Dune 2 was a great movie and we're offended by you not liking it.

They're like, movie theaters are great and we're offended by you sleeping in one.

Exactly.

Yeah, because because it was like exclusive to AMC or something that I didn't realize before I sent it.

They weren't upset that I didn't like the content of the movie.

It was

secretly in the pay of AMC short sellers.

That's exactly what they thought.

Let me clear the record right now.

I am not.

But anyway, Gave Saab, I thought this was interesting.

It has long-term debt of $17.7 million,

and it remains limited to a low-interest, unsecured term loan associated with the French government's response to COVID-19.

Yeah.

That's good debt.

AMC's debt was like, I forget exactly what it's called, but it's 10-slash-12% pick toggle second liens subordinate.

It's all the words that you were like, oh, that's bad debt.

Yeah, my heart started racing.

Pick toggle, yeah.

That's a lot of words.

Yeah.

Did get a little bit into the fundamentals.

I would also add that the movie business is really tough right now to be a movie theater chain.

Didn't keep Katie Griff all the week.

No, no.

And you think about the lagged effects of the writers and actor strike.

There was some forecast out there that there won't be a single summer blockbuster to break a billion dollars, which is pretty terrible.

And then you take a look at GameStop, and it's trading at more than 1,200 times its expected 12-month forward earnings.

So a lot of movement on the charts and a lot of silly valuations right now.

Right, right.

If any of this were being discussed on Keith Gill's Twitter account, things would be different.

It would be different.

The summer blockbuster, the summer entertainment is Keith Gill's Twitter account.

I'm just searching.

I'm searching too hard for meaning, but I need something to ground me in this life.

Are you done talking about this?

No, I'm going to talk about this more on the Bloomberg Big Cake podcast about meme stocks.

Sounds like a riot.

It's something.

You can listen to it on Apple Podcasts, Spotify, or wherever you get your podcasts.

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Wait, are there lots of sirens in this podcast?

What's going on?

Should I call my mom?

Should we go to section two?

I think I would feel a lot better, a lot grounded, more in touch with reality if we started talking about the blockchain and tokenized whatever this is.

Meme Stock Expert 2021 and now they're back.

I feel like I tried to walk away from the blockchain a little bit in recent months, but now I'm like really back.

You're really back.

Are you saying that officially you are really back?

Like Keith Gill?

No, I would say that like I happened to write a lot about crypto this week.

Yeah.

There's that.

There is.

I'm not like looking forward to doing it again next week.

But you did talk.

Always hoping not to.

You wrote about it in a very sedate grown-up way because you wrote about BlackRock involved.

The sedate grown-ups of crypto.

Yes.

Is that true?

I always wonder, like, if you walk into the BlackRock crypto floor, is everyone like wearing shorts?

I somehow doubt that.

Yeah.

It's still pretty BlackRock.

I don't think you're seeing any knees there.

Notions.

I think they're all wearing pants.

But let's talk about Biddle.

Biddle.

Take it away.

That's spelled like Bild, but wrong.

Like B-U-I-D-L.

Like Hoddle.

Like Hoddle, right.

Hoddle, which is crypto for hold.

And crypto for build.

But it actually stands for something, right?

It's an acronym.

I don't know.

It is the BlackRock USD Institutional Digital Liquidity Fund.

Yeah, Biddle.

I have a lot of things.

I love crypto does a lot of fun stuff with names, but like traditional finance, you know.

I grew up on a derivative structuring desk, and that job is 40% coming up with acronyms for things.

And so I respect that BlackRock is like, we're going to just very casually slip this acronym name into it.

Yeah, I grew up in New Jersey, so a little bit different.

You can come at it from TradFi or you can come at it from like crypto.

The traditional answer is like, this is a money market mutual fund.

It's a short-term Treasury bill liquidity fund.

So it's just a money market fund.

But you can trade it on the blockchain, right?

It's on the Ethereum blockchain and you can send your units of biddle from your Ethereum wallet to someone else's.

And so you can

use it on the blockchain for crypto trades.

If you're doing a crypto derivatives trade and you need collateral, you can post Biddle as collateral, or you can use it as money and pay people with Biddle, I guess.

If you come at it from the other way, from crypto, it's a stable coin, right?

It's like a thing that is worth a dollar, that is, you know, stably worth a dollar, that is underpinned by like short-term money-good US dollar debt obligations,

and that lives on the blockchain.

So it's a stable coin that is in competition with the Circle USTC coin or Tether, but unlike those, it pays interest just natively.

In a world where Fed funds is like 5%,

that's pretty attractive.

Right.

Crypto is in many ways a low interest rate phenomenon, right?

Because it's like, oh, all these projects that have no cash flows, but like weird, grandiose promises, that's a better pitch in a world of low discount rates.

But like stablecoins in particular are a low interest rate phenomenon because when Tether was like, we'll take your money and do something weird with it, but we'll give you back the dollar whenever you ask for it.

That's a better trade if you can't get 5% interest on your dollar elsewhere.

But now that you can get 5% on your dollar elsewhere else, Tether is not a particularly attractive pure investment opportunity.

Now, there are ways to use Tether and crypto to make money, but the proposition at Tether is you give them your dollar and they invest it in probably a treasury or something.

That's what they would say.

That's what they say.

And then they earn 5% interest and they keep it and they don't give it to you.

Whereas Biddle is like, kind of the same thing, but we will give you the interest.

Trevor Burrus, Jr.: So thinking about it in the the framing of who is this for, and it's for people in crypto, helped me understand this a lot more.

Because when you're talking about it as a money market fund that's on the blockchain and tokenized, my first reaction is that is a long walk for a short drink of water.

But then you think about it from the perspective of this is for crypto people.

It's not necessarily like a gateway to bring institutional suppliers into crypto.

It's for people who are already in crypto, who actually want to earn interest

on basically their cash management.

It makes a lot more sense.

Aaron Powell, I think that the fact that BlackRock has a crypto division is a bet on some notions of crypto will become more accepted in broader institutional finance, right?

Yeah.

And so one thing that means is that if traditional institutions are going to get more into crypto, stablecoins are kind of like an important part of crypto trading, of collateralizing trades, of payment for trades.

And

at some level, institutions are going to say, I'm not going to keep my money in a stablecoin that is one, possibly

issued by someone who's in more regulatory hot water than BlackRock, and two, that doesn't pay interest, right?

And so, BlackRock is like, well, we have this alternative product where you can get paid interest and you can have your money with BlackRock.

And not just BlackRock, but a BlackRock money market fund, which is like a thing that people understand, right?

Like, it's easy to understand what a money market fund is because it's like exists and it's like well-known technology.

And so, if your sort of long-term bet is like more traditional institutions are going to get into crypto, then like having this traditionally appealing product helps with your offering in crypto.

But yeah, I also think, right, it's like you're a crypto trader and like you need to hold stable coins and like we'll give you interest, right?

I mean, maybe that is BlackRock's long-term vision.

I'm thinking about the position of the Securitize CEO.

BlackRock, of course, partnered with Securitize for this thing.

His name is Carlos Domingo.

And his perspective on who this is for is that this particular product, so specifically this one, it's geared towards crypto institutions that want to have a cash management product for treasury management on the blockchain.

So it's more for the crypto nature.

Yeah, right.

If you're a traditional institution, you're just not.

You don't need to be on a blockchain right now.

Exactly.

You would just buy a money market fund.

I will say, though, the Financial Times article about this mentions T plus One settlement.

Yeah, this is where it lost me.

It loses me as well.

But I'm going to put it out there.

This is more of a 2017 thing, but people used to think that having a blockchain would somehow speed up trading and settlement in financial markets.

That like right now, things exist on computers and in databases that are too slow.

And if you put them on the blockchain, they'll be faster and you can settle trades instantly rather than having to wait for T plus one or T plus two settlement.

And so the idea here, supposedly, this is not decided to blackrock or securitize.

This is just an idea that is floating out there, is that tokenizing things like, you know, money, like cash management will allow for like faster settlement of transactions and ultimately the traditional finance system will move to a blockchain-based system and you'll need this for for that to work now

in 2017 people really did go around saying the traditional finance system will move to a blockchain-based system in 2024 that's like a little embarrassing to say because they mean larry fink is still into it well then that's there you go larry fink is the ceo of blackrock he's you know still in 2024 expressing support for a long time there's been a competitive tension between money market funds and checking accounts.

Yeah.

Bank accounts, right?

Yes.

Because money market funds have advertised themselves as like, we are a place that pays high interest rates.

And you can use it as cash.

You can use it as for checking.

And, you know, money market funds are interested in being a cash substitute for companies and individuals and institutions.

And if you think the future of payments or the future of securities settlement is on the blockchain, who controls cash on the blockchain?

Well, the answer is like, eh, tether, right?

The answer is like the big stablecoin issues.

But like, arguably, if BlackRock can build a better product for offering cash on the blockchain, then not only does that mean that they have a good crypto product or they're offering a good product to people who are currently in crypto, but it's like if you think the future involves the blockchain, then this product can insert you into the heart of the payments infrastructure.

So

I think that's all far-fetched, but I think it's an interesting bet.

Well, I mean, I feel like that's the future that the SEC would certainly, but that it's BlackRock.

Oh, yeah, absolutely.

I don't think the SEC is going around hoping for a blockchain-based

future of payments.

But like, if they're going to have a crypto-based future of payments, I think they would prefer that it be BlackRock them Tether, right?

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Are you ready?

Oh, I'm ready.

Time to bring it home.

It's our third act, and we're going to talk about events contracts.

Oh, yeah.

Yeah.

Elections.

Let the people trade.

Let them trade.

Events contracts.

You have places like Calci, you have Predicted.

They're pretty popular.

They're very popular.

Yeah.

Despite being like, people want to know who's going to win the election, right?

And like the sort of standard model of looking at polls feels unreliable and somewhat outdated.

And the prediction market feels like it should tell you the answer.

It should be like, oh, the smart money thinks that the odds of, you know,

Trump winning.

You can say it.

Can I?

Are whatever, 55% or whatever.

And so therefore, that's like the correct odds, right?

There's like the Nate Silver model of translating polling results into probabilities, but there's like the simple model of like markets providing the probabilities.

And like people like that.

But like those markets are thin in part because they're illegal, right?

The U.S.

Commodity Futures Trading Commission has just never really been a fan of election prediction markets.

You know, the way it works is you to list a prediction event contract, you go to the CFTC and ask for permission.

And if it's an election contract, they just say no.

And so Calci has been told no, and other exchanges like that have been told no.

And last week, the CFTC proposed a rule that would just say, it's always no, right?

Like instead of asking us, we'll just categorically exclude certain kinds of event contracts.

Yeah.

And the kinds are, for the most part, sports,

the Oscars, and elections.

Those all count as gambling, and so they're not allowed to be listed on U.S.

commodities exchanges.

Yes, CFTC commissioners voted 3-2 to release the proposed regulation for public review agencies.

Three Democratic commissioners voted in favor.

You had two Republicans dissenting.

I don't know.

So I, as a journalist, like prediction markets just because it's nice to see what people are thinking.

As a consumer, I really want there to be a deep, liquid prediction market that could tell me what election odds are.

Well, we were on the way there because did you see the news from April that Susquehanna is starting a trading desk focused on events contracts in partnership with Calci?

They plan to act as a market maker for transactions with Calci, which is obviously trying to expand.

Obviously, this would

they weren't able to do elections and gaming.

I think in the reasons for why the CFTC doesn't want to do this are interesting.

Tell me, I forget his name, but the election cop guy.

The election cop guy, yeah, that's that's Rustin Benham, who's the chair of the CFTC,

gave a really interesting statement when proposing these rules saying basically he doesn't want the CFTC to be election cops.

So like the way it works is that the CFTC mostly regulates commodities futures markets.

And so if you like spoof and putting in orders for lead futures, then then you get in trouble with the CFTC.

But also they regulate the underlying commodities to make sure the futures markets are fair.

So if you go burn a cornfield, you'll get in trouble with the CFTC and probably other people too because you've manipulated the market for corn futures.

The theory here is that if there are election futures, the CFTC will regulate them.

And if you then throw away a bunch of ballots or whatever, then the CFTC will have to come in and decide whether you've committed election fraud that affects a CFTC regulated contract.

And the CFTC is like, we don't want that responsibility.

I mean, maybe I'm being naive, but it just seems unlikely that would ever be their responsibility.

I get that they have to regulate the underlying market, but even still.

I hear you.

But like, one thing that I've been writing about for a long time is that the SEC, the securities regulator, has a surprising amount of responsibility for regulating all sorts of stuff that doesn't sound like securities law because of how it affects the securities of public companies.

And so the SEC is very interested in greenhouse gas emissions, regulating how companies account for and disclose and also do like their carbon emissions because the SEC says, well, yeah, that's irrelevant to investors.

And so all this environmental stuff gets wrapped up into stock prices.

And so we regulate it.

The SEC has rules about conflict diamonds.

They did an enforcement action against SeaWorld for its mistreatment of killer whales.

All this stuff, where if it affects securities markets, the SEC is like, oh, we'll put our hand in that.

We'll be interested in that.

And I write about this a lot.

I say everything is securities fraud, right?

It's some combination of the SEC is interested in expanding its power as much as possible.

And so they're like, ooh, we'll be the environmental regulator.

But it's also like

US politics are not necessarily good at writing substantive regulations.

And so like people are like, I want to fix this problem.

And the way I'm going to fix it is by suing for securities fraud.

It's a thing that courts and the SEC are just more responsive to than to a lot of other complaints.

You get a sympathetic hearing in court.

And so like all of this stuff in the world gets smuggled into securities law.

And the CFTC is looking at that and saying, if elections get smuggled into commodities futures law, that's going to be really controversial.

We're going to get in trouble for trying to regulate that.

So, I think they want to stay away from it.

And I agree with you that it sounds far-fetched to everyone, except me, because it's a thing I've been thinking about for a decade.

So, and I'm like, oh, yeah, I see where you're coming from, CFTC.

So, I mean, maybe in a decade, I'll be there as well.

By the same token.

If I do this podcast for that long.

Yeah, so we'll revisit this before what

the 2034.

Yeah.

500, maybe.

By the same token, you think about some of the proponents, of course, betting on, or sorry,

prediction marketing.

You think about some of the proponents for these political events contracts, they argue that they could be a valuable source of data for forecasting election outcomes.

This is from the Wall Street Journal.

Kind of agree with that as journalists.

Which is true.

But then that they would also allow companies to hedge risk associated with either Democrats or or Republicans coming to power.

I don't super know what that means.

Yeah, I don't really believe that.

I think that people are pretty bad about predicting the directional impact of elections on financial quantities.

So if you're like, oh, the price of oil will go up if a Democrat is elected, so I have to hedge that.

You should just buy oil features.

Come on.

You shouldn't like, if you think, oh, it'll be bad for my business in some unspecified way if a Democrat is elected, that's probably wrong.

And you should probably think about how it will be bad for your business and hedge in those financial markets rather than hedge by betting on Democrats winning an election.

On Calci.

On Calci.

Yeah, that's pretty funny.

To the extent you're hedging, you are, I think, undermining the predictive impact, right?

Yeah.

Because you're not betting.

You're like, I don't know who's going to win, but if they win, that's bad for me.

Well, that's something I think about a lot with these prediction markets.

I don't know much about betting.

I'm not a better.

But the way I understand it, if like there's super long odds on something and I wanted to bet on something outlandish, but that has a high potential payout, I would take take that bet, and that's not necessarily what I think is going to happen.

You're implicitly saying.

I think the probability of that happening is higher than the probability reflected in the market.

That's true.

Implicitly.

Like you're not really.

Probably a lot of people are taking 1% bets, not because they think the odds are 2%, but because,

you know,

I think that's a lot of people.

But like not in like two-party elections.

Yeah, true.

But it's not like a survey where I'm 100% always going to say what I think is going to happen.

I'm betting, and there's some strategy to that.

Yeah, but the counterpoint is like surveys, you can say whatever you want.

It doesn't affect you, right?

There's real money online in betting.

And if you had a big, liquid prediction market for elections, that would incentivize big,

smart financial institutions to invest time and resources into figuring out who's going to win so they could bet on the winning side.

And then they would probably be accurate.

And they could hedge themselves.

They could hedge themselves, sure.

I don't know.

Against something.

I am curious to see how this actually turns out.

So they're opening it to public review.

I mean, there's a chance that nothing changes before the election itself.

Big chance, right?

And then like after that, you know, like all butts are off.

I will say that one of the Republicans who dissented was like, this is there's a weird thing here where there's like two ways to bet on sports.

There's like event contracts regulated by the CFTC, and then there's like regular sports gambling, which is regulated by the states.

And it used to be that the way it worked is that gambling was kind of illegal almost everywhere.

And so like the CFTC was like, you can't have betting on sports on CFTC exchanges.

And everyone's like, oh, of course.

And all the states were like, you can't have betting on sports here.

And everyone's like, okay, fine, we'll do it illegally.

Most states now have like legalized sports gambling.

And so there's a lot of sports gambling.

Oh, yeah.

It's very easy to gamble on sports.

It's very easy to gamble on sports on your computer, right?

And then also there are these people who are like, we're going to run a national futures exchange.

We're having events contracts.

And the CFTC is like, no, you can't do that.

There's like a really kind of like fuzzy distinction between like, what is a futures exchange that allows events contracts and is regulated by the CFTC?

And what is a sports book that is on the internet and that allows sports betting, right?

One of the commissioners who dissented was like, we are stepping on state jurisdiction by saying, you know, you can't have sports gambling.

And I actually don't know how it works.

Like, I'm very puzzled if any sports book is going to get in trouble with the CFTC saying, actually, you're running a futures exchange with an events contract and you're not allowed to do that.

We've talked about sports.

We've talked about the election.

Are we going to talk about the Oscars or?

Oh, yeah, the Oscars.

The CFTC doesn't want to promote gambling.

And so they're like, you can't bet on the Oscars.

But Ray, why the heck heck not?

It seems fun, it does seem fun.

And I wrote this, but like, the CFTC doesn't want to be an election cop, and I think that is wise of them.

But they added it, it'd be fun to be like the Oscars cop, right?

To have the CFTC auditor in the room.

Also, I'm sure it's rigged already.

So they'd find that they're going to be able to get a

CFTC in there to finally get to it.

Right.

If you were a CFTC enforcement lawyer, wouldn't you want to be the one cracking whether the Oscars?

I would be salivating.

There was a case this week about someone running a cattle Ponzi scheme.

You know, that's also good of it, but like...

How on earth does that

do the cattle not exist?

Yes.

I figured it out.

And that was the Money Stuff Podcast.

I'm Matt Levine.

And I'm Katie Greife.

You can find my work by subscribing to the Money Stuff newsletter on Bloomberg.com.

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Kevin and Rachel and Peanut MMs and an eight-hour road trip.

And Rachel's new favorite audiobook, The Cerulean Empress, Scoundrel's Inferno.

And Florian, the reckless yet charming scoundrel from said audiobook.

And his pecs glistened in the moonlight.

And Kevin, feeling weird because of all the talk about pecs, and Rachel handing him Peanut MMs to keep him quiet.

Uh, Kevin, I can't hear.

Yellow, we're keeping it PG-13.

MMs, it's more fun together.