Odd Lots - This Is What the Crypto Industry Actually Wants From Trump

Episode Date: January 20, 2025

We all know that the new Trump administration is likely to be more friendly to the crypto industry than the Biden administration was. And we know that the industry has generally been rather supportive and enthusiastic about the change at the White House. But what's actually coming next? What does being favorable to the industry really look like in practice? What does the crypto industry actually want to see in terms of changing regulations under a new administration? On this episode, we speak with Austin Campbell, professor at NYU's Stern School of Business and the CEO of stablecoin company WSPN USA about the possibilities ahead, and what moves the industry is hoping to see from the SEC and bank regulators.00Read More: Trump Plans to Designate Cryptocurrency as a National Priority Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots See omnystudio.com/listener for privacy information.

Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, analysts, analytics. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, analysts, analytics, lists and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk, Vanguard Marketing Corporation distributor. Thanks for listening to OddLots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast, OddLots on Amazon Music. Hey there, Oddlots listeners, we have a very special announcement. Joe and I are hosting our annual Frot Lots Pub Quiz on Thursday, February 13th in New York City,

and it's going to feature some very special guests and prizes. So come test your wits in finance markets and economics for a chance to win the ultimate oddlots glory and hang out with your fellow listeners. Tickets are on sale now at events.bloomberglive.com. slash odd lots pub trivia. You can also find links on our Twitter feeds or in the newsletter, and you can find the link also on our show notes. We hope to see you there. Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Jill Weisenthal. And I'm Tracy Al-Awey. Tracy, here's two things that I know, or I think that I know. One is that a lot of people in the

crypto industry are excited about the new Trump administration and perhaps regulatory changes that may come about. And it also seems like a lot of people affiliated with the Trump administration have an affinity for the crypto industry. But beyond that, I don't know what any of that means. Like it's one thing for different groups of people to like each other, have some affinity. But what it means in terms of substantive changes in the world, or at least in regulation, I don't have a clear idea. Yeah. There's definitely been a very important. vibe shift. But in terms of what that means concretely in the real world, I am also unclear. I will say I'm looking at a chart of Bitcoin right now. And I mean, you can see like beginning of November.

Yeah. It just shoots up. And obviously there have been some things that are sort of happening already. So for instance, you know, Gary Gensler is out at the SEC and he's going to be replaced by Paul Atkins, who is a, I think he's generally considered a crypto proponent. And he's. So that's one thing. Crypto kind of hated Gensler. So there's that expectation. But beyond that, there's talk of like a strategic Bitcoin reserve and all these other things. And I guess I guess the difficulty is crypto is never a unified body. Like everyone wants different things and there's all this infighting. And so I'm just curious like what is it that the different factions are basically after at the moment? Yeah. There's a really great way to put it. And it's clear even as you described, there is a range. of ideas that are sort of some seem more perhaps realistic or in the short term. Some strike me as sort of fantastical, but I would never count out anything. If we one day have a strategic Bitcoin reserve in the U.S., like, I don't know, it's 2025. Anything could happen.

Anything is possible. But there is like a range, right? There's a range of what's pursued. Maybe is it more regulatory clarity on certain sort of like token projects? Is it a way so that some sort of stable coin regulation can be resolved in some way that expands their ability to be a source of payments. Many big questions, many interesting possibilities. So as you know, at the new administration, I think we should get a better sense of what people in the industry are actually substantively looking for. Absolutely. Let's do it. Well, I'm really excited to say we have, I believe, the perfect guest, someone we've had on the podcast before, and I said at the time, We were talking about stablecoins specifically that time.

But I think I said at the time, this guest should really be the crypto industry only. You said the crypto industry should shove everyone else in a broomcloth. Yeah, that's right. And just have this guest be their spokesperson, at least when talking to the mainstream media like us, maybe like on crypto podcast, they can have other people. But when they sort of dress someone up for the mainstream media and want to be presentable, I really think this is the only guest that they should have. Very excited.

We're going to be speaking with Austin Campbell. He is an adjunct professor at the NYU Stern School of Business. And he is also the CEO of WSPN USA, where he does stablecoin stuff. So, Austin, thank you so much for coming back on the show. Yeah, well, I'm glad I'm not stuck in the broom closet. Thank you for coming out. I think the WSPN job is new since the last time we talked to. What's going on there?

Yeah, it is new. So WSPN is an up-and-coming stable coin issuer. I think one of my observations about the industry right now, and the way I sort of try to say it to people who are not deep into it is we've got a whole lot of MySpace and very little Facebook when it comes to stable coins, which is to say I do have immense respect for the work people have done so far with things like, you know, tether, circle, et cetera. But the reality is none of these are, in my opinion, fully formed implementations yet. I think the industry still has a long way to go to get genuinely professionalized. So WSPN is an effort started out of Singapore, really, and expanding globally to take a run at that problem. So knock on wood, hopefully will be a little bit more Facebook. But time will tell. Okay.

So let's talk about what's, I don't know, what crypto is excited about because it does seem to be very excited. And a bunch of different coins have been rallying off the back of Trump's win. What's going on here other than the vibes? So I think some of this is just the expectation that people can do business potentially with some degree of clarity. So Trump coming in and keep in mind the Trump administration in particular is just one piece of this puzzle, has the industry pretty hopeful that we're going to get a significantly greater degree of regulatory clarity around what you're allowed to do in the United States without breaking the rules, which is something that it transparently has not had. And like a good example of this is the SEC. So recently, Coinbase in their case against the SEC was just granted an appeal, which is going up to the Second Circuit now. And if you read the judge's ruling, a lot of the reason for that is, well, you know, we have my case and then there's a case against Crackin and a case against Finance and a case against Ripple.

And hopefully, multiple federal judges are all coming to different conclusions on what the law is and what you're allowed to do here. So if people were saying there's regulatory clarity, you have at least four federal judges who disagree with you on that point right now. And it looks like, honestly, if you understand how like circuit splits work, a fast track to SCOTUS to get some clarity on this, which could be exciting. But I think the idea is that with turnover in the leadership at the SEC, there's at least a non-zero probability that they'll like write the rules down before going after people for not obeying them, which would be helpful. there's probably going to be significantly more access, as in maybe any access to banking services in the United States for crypto companies, which would be particularly helpful. And then the other part of the puzzle is beyond the admin, having the Republicans take the House and the Senate means that you have a much more friendly environment for actually passing legislation. And I would say even more than the Biden administration, if you want to know why we're currently in the case we're in, it's the inability of Congress to pass laws. Because if you're trying to use the 40 Act to regulate crypto, I will remind people that was written closer to the Civil War than the current day and before the creation of the Internet.

Certainly before the creation of Bitcoin. Correct. So I can see why that may be a little bit complicated. So this really gets into a core thing, which is that it might be nice to have some sort of clarity on, say, what constitutes a security in the crypto age. and because of how hard it is to pass laws, period, in this country, especially on big things, let alone sort of smaller, more controversial things, basically been gridlock. So maybe there is a chance of getting legislation. If I recall, the issue with Coinbase and the SEC is basically like the SEC said you're selling or you're a platform for the dealing, the trading of unregistered security, right?

So it's one thing, and I guess this gets to the question about legislation, it's one thing say, okay, regulatory clarity is good. But what does that regulatory clarity look like in the good version? So I'll say, to echo something Tracy said earlier, there is never one opinion out of the crypto industry. But I would say if you talk to like the mainstream exchanges and some of the more call it regulated, call it non-libertarian maximalist people in the space, here is fundamentally what they want. They want to know what the rubric is for understanding when a token is a security and when it is not. Because the reality is there's been an overwhelming focus on the use of ledger technology, which if you step back and leave crypto is kind of transparently insane, right? Because if I'm at

JP Morgan and I'm trading a book and it's got securities in it and I just move my back-end ledger from like Microsoft Excel to Microsoft Access, that shouldn't change whether those things are securities or not. It's an economic substance test. And the theories promulgated around this have been overly focused on the ledger. And you need to ask, tokenized gold is pretty obviously not a security, but tokenized Apple stock pretty obviously is. And where is the dividing line between these two sorts of things as you start mixing stuff? That question we need answered. Then the second question you need answered is crypto dispenses with some of the traditional functions of a securities market. Like, we don't need a clearing agency when we have a blockchain. The blockchain does the

clearing. So how does that work? Can somebody just write it down? Which is a problem similar to like when the ABS market came into existence. A lot of the original securities issue where things are kind of meaningless. Like who is the senior management of an SPV becomes like a sort of weird question? And so the SEC helpfully at the time, and they are totally capable of doing this if they want, created a whole rubric for registering asset back securities. And that's gone from not existing to like a trillion dollar market because of that. So I think what the industry wants in a responsible way is just like, listen, any vaguely reasonable set of rules are fine, just what are they? Can we write them down? Is there any concern there that when you get regulatory clarity, it might not be

the regulatory clarity that you want, right? Like, it might go the other way. And in particular, I kind of, I always think of, you know, elderly politicians gathered in rooms trying to to wrap their heads around blockchain and all this new technology, it seems like there's a risk there. Well, the good news is most of this stuff is going to be written by 20 to 30-year-old staffers instead of the elderly politicians, right? Just talking about how the sausage is really made. But you make a good point, which is, you know, always be careful what you wish for with

Washington. I would say in the current situation where you've had an administration trying to just wipe out the industry and make it illegal, almost any regulatory framework is. better on a forward basis. I think there's also at least some degree of hope with the current crop of Republicans that they won't make the mistake of overspecifying a particular approach or technology, because that's the way you could really get into trouble here. Like, I was talking to somebody who was a staffer recently, and my caution on this is imagine if the United States in the mid-90s canonized AOL, right, as the tool for accessing the internet and using email, right? That

would have been a big mistake. So principles-based regulation focused on economic substance is probably the best outcome. If you get something worse than that, there will at least hopefully be enough attention on it that you can start chipping away. Sometimes when I think about alternative histories of the internet, like I wonder if there could have been a situation in which it's still largely like the DARPA net. And there are like furious debates like should we allow commercial access to the internet in the year 2025? It's like, oh no. It's kind of actually. easy to imagine these other versions. What's wrong with the Howie test? When we're talking about like a rubric or something to determine what is a security, you know, it looks to me like many

things that are tokens that get traded. There's an investment contract, expectation of profit, common enterprise. A lot of these things, I don't know. I'm like, guess I'm not convinced that it's so ambiguous that these are, oh, is these a security? It's like they kind of look like they are in many cases. Yeah, so I would say my personal view again, there are some tokens that to me are pretty obviously not securities and some tokens that are pretty obviously securities. Well, other than Bitcoin, what are some tokens that are obviously not securities too? Well, great example, like dollar-backed stable coins that don't pay interest, like somebody helped me out with that one, tokenized gold, the things that purely do governance and have no expectation of cash flows.

What about a governance token for a decentralized crypto trading platform? So here becomes the question. what are the underlying economic characteristics that it might give you access to? And you've gotten to the place I was going, which is the annoying part is a lot of these tokens do exist at the gray area of Howie in general. Because like, again, let's zoom out from crypto and create one that I think actually sort of reveals the problem is, let's say that I buy some sort of collectible shoes, right? Jordans or something like that. Okay. So if I'm purely a buyer of the shoe, I'm probably not in a collective enterprise with Nike. But the ecosystem theory from the SEC that they've raised is, well, hold on.

If there's a whole network of brokers and promoters and Nike is sponsoring events and all of this hype around that, you are buying with the expectation of profit, like, where really is the boundary between that and formally owning a share of Nike stock? if you're genuinely buying hundreds of thousands of dollars of Jordans a year to resell them with an expectation of profit, are you not in a sort of collective enterprise? And I would say you can take that principle and pretty transparently ported onto Defi. And I think the problem that people in crypto have had, if you talk to the really savvy lawyers in the space, like, for instance, Lewis Cohen, who's in New York, wrote a paper about this called Interlectable Modality of Securities Law. And what you run into is there are things in traditional markets where they haven't gone after this, but they did go after essentially the same activity in crypto. So now, one, where is the dividing line? And then two, even if you agree that what I just said might be a securities arrangement, does that make the Jordans themselves a security not necessarily, right? To go back to Howie, the oranges are not the security.

So one of the big dividing lines is take the ripple case. XRP may have been sold as part of an investment contract, but it does not necessarily follow from that that XRP itself is a security. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day.

But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio.

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Like, I know he went after Coinbase and, like, prosecuted a bunch of other frauds, but he also approved the ETFs. And it's not like the crypto industry necessarily shrunk under his tenure. Crypto seems to be doing pretty well. So I'll answer that question in two ways. I do think Gensler intended to be quite bad for crypto. And the things I would point at about the SEC at the time and the heart of my past critiques of them are one, you somehow managed to go after preemptively like Coinbase and Crackin and MetaMask and people like that. But you missed all of FTX Celsius, Terraform Labs, block five.

Like, basically, if you were a fraud, they didn't preemptively enforce. And if you weren't, they did. And that's a pretty poor track record. And then number two is that complete inability to just write the rules down. I think even if crypto didn't like the rules, if they had just written them down and said, this is what you do, they would have been at least tolerable. Because, like, I would tell you that's where the CFTC is. Like, people in crypto don't love the CFTC, but don't feel like they're being treated

unfairly because they'll at least just tell you what they mean to a much. greater extent. And again, when we're in a point where four federal judges who are all individually very bright people can't agree with each other on the rules, that's kind of a problem. Now, to answer your question literally, actually, I think Gensler might have been good for crypto. And the reason I say that is that sort of by swinging the pendulum that far, it brought a lot more public attention to this sort of thing than you otherwise would have had had he not. Like the Barberus Streisand. It's the Streisand principle. Yeah. Like his try. so hard to kill the industry, ironically, may have won Trump the election.

Right? If you look at... So Stand With Crypto mobilized literally over 100,000 people to go vote and was pushing them to the polls. And if you look at the margins in some of the swing states, it's entirely possible, especially because, I mean, remember, it looks like men under the age of 30 just straight voted Republican. And a shocking number of those are registered with Stand With Cryptos.

So I have questions. I kind of buy it. I kind of buy it, actually. Talk a little bit more about stable coin regulation. When we had you on last time, and I'm like kind of a stable coin convert at this point, or at least potentially, because just the idea that this could be like a very like powerful like unified software rail or payment rail that could not be done under traditional legacy rails because you couldn't coordinate the different parties. I find that actually pretty compelling. I'm still a little not sure. I'm not sold how big the use case will be, but that's for other people to argue about. What regulatory ambiguity today in your view holds back stable coin growth? So there's kind of two parts to that. One has been the banking regulators primarily led by the FDIC, but to a lesser extent, the OCC and the Federal Reserve, kind of saying you just can't do these things. Right. There was a note in the Federal Register in early. 2023 where they essentially said public blockchains are not compatible with safe and sound

banking practices, which is kind of a blocker, if we're being totally honest, and I think is really inhibited the United States' ability to approach new technology. And to be clear, this kind of rides on the back of the technophobia of banking regulators in general, because I don't think in their case they're singling out, you know, crypto so much as they're singling out any new use of technology, because they're still angry with the traditional fintechs as well. The other thing that's really held it back is the complete lack of any federal legislation. So I'm dealing with 50 states on a state-by-state basis that kind of all vaguely disagree with each other about how to do things. And one of the things I'm most optimistic about in 2025 is federal legislation on stable coins moving.

And part of that is back to just how the sausage is made in Washington. We've had McKenry Waters in the House, Lummus Gillibrand in the Senate, and Senate banking is working on a draft of something. Like there's legislation that people know that they're reasonably comfortable with where the Venn diagram overlap is pretty significant. Like it's not perfect. There's things they're fighting about. But it's majority agreed. That's something you can pass unlike, say, market structure where I don't think if you look at that bill, there's majority consensus even on how it should work or what they should do with it. Could you ever envision a future where the big banks get on board with stable coins?

because I think generally, like right now, they're kind of considered competition in terms of payments, technology. But on the other hand, they could, as you've laid out in a previous episode, allow them to make payments more efficiently. I do think so. And I think banks in general need a path forward where they can do something new. You know, we talked about last time how it's hard to take a current bank balance sheet and create a stable coin with it because they're not fungible between each other in terms of assets and liabilities. But in theory, like legally, there would be nothing stopping people with federal legislation, you know, a J.P. Morgan, a Wells Fargo, a B of A, from starting a segregated trust company and just using that to launch a stable coin. They can totally do that. And you know what the banks do have is a ton of distribution. Chase has a lot of customers. I don't think that's news to anybody.

And so to answer your question, could there be an effort like that? Yes. And also, it could take many forms, Joe, to your earlier point, I think I'm very pro stable coin technology winning in the long run. I am not yet convinced on the exact form that's going to take commercially because could it be that each bank has their own stable coin and they're roughly fungible and they all accept them? Sure. Could it also be the case that they do something like DTCC where there's a repository of all the securities and everybody uses it? Sure. Could that even be bigger than banks and you get asset managers and insurance companies in there? Sure. I don't know. Well, you know, I think, by the way, it was just a few weeks after we recorded our last episode.

Stripe made a $1.1 billion acquisition of a stable coin startup called Bridge, which I hadn't been familiar with. But I was familiar with Stripe, and that strikes me as a pretty big endorsement. Maybe two parts. Actually, can you just sort of give a 20-second description of what that deal is all about for Stripe? But also, more importantly, I certainly get stable coins for the purpose of crypto trading. Okay, I get that. like that's pretty obvious. And then you sort of like, all right, there's probably some like cross-border stuff where stable coins are better, faster, cheaper than other rails. But like how big are we

talking about? Like beyond that, I guess this is the part I'm not totally sold on yet in terms of like how big this market gets out of a couple of fairly obvious niches. All right. So I'll give you my super hot take, which is I think over the next call it 20ish years, probably the entire euro dollar market is moving to stable coins. All right, that's a hot take. Say more. So the Eurodollar market currently, if you're outside the United States

and you're leaving dollars in foreign banks and institutions that are trying to get access to dollar rails is a little bit of a patchwork in janky market. It's got poor standards. It can be hard to move money around. It's highly suspect in times of stress. See, like, the Federal Reserve,

doing the dollar swap lines and the great financial crisis to bail essentially foreign banks holding dollars out. I think that entire, market moving to stable coins, removes a lot of the correspondent banking issues. It becomes much easier and cheaper to send money around and standardizes and makes safer the reserves for the entire euro dollar market. That seems like a very large upgrade to the entire system. And my

prediction is just based on the commercial forces over time will be overwhelming to push you there. So if you want a use case, euro dollars, I would also say, zoom out of the money and think about standards. Brazil is maybe a great example for this. If you think about PICS, where they created a uniform standard that everybody had to use because the government was promoting it, suddenly you've got all of these new apps, new ability to move money around, and interoperability of a system that you don't have in a very fragmented and bespoke system. So the other important part of the blockchain part is that open access part, where if everybody's plugging into the same ledger and can move dollars on the same ledger, it just creates way more ability to innovate, to build,

and to access. By the way, on the topic of Eurodollars, if you haven't listened to it already, you should definitely go back and check out our three-part series on the history of Eurodollars with Lev Menend and Josh Younger. It's really fun. Anyway, moving on from Eurodollars, the other big thing that people seem fixated on, again, some people, because crypto is not a monolith, is the strategic. strategic Bitcoin Reserve, which seems, you know, a little bit far-fetched to me.

But as Joe suggested earlier, anything is possible. Is that realistic, in your opinion? Well, Austin, by the way, has done some great threads on Twitter about how silly this idea is in his opinion. Anyway, keep going. Yeah, I will say, I'm going to file that entire idea for the crypto community under be careful what you wish for. I don't think that people who are promoting a technology where the value proposition is that there's not government interference with the technology should be advocating strongly for significantly more government interference in their technology. To me, the easiest way to send Bitcoin to zero in the long run is to push for the strategic reserve.

And the reason I say that is if you understand the thinking of nation states around financial rails, if you tell the United States, hey, Bitcoin is, highly strategic. Their thought is not, well, that means we should buy coins to like go up in value. The United States can print its own money. And there are people at the very top who are very aware of this. They're going to think, oh, well, we should control that network if people are going to use it to transfer value, which will eventually, even if not at the start, lead to things like commandeering or nationalizing minors and having legal authority to take control of them in times of crisis. And by the way, like if you read between the lines, and look at our activities in the Middle East over the past 20 years.

How do you feel about drone strikes against foreign miners and things of that sort? If you're telling them it's strategic, be careful because they may actually agree with you and then start doing these things. Doing the types of things that governments do when a resource is strategic. Correct. It's grim, but also seems apt. I forget who said it on Twitter. If we're going to have the government buy a bunch of Bitcoin for strategic reason,

then the least we could do is apply a special exercise. tax on existing Bitcoin holders, because if it's so important for strategy, let's at least make sure it's not just some money grab. That could be the test. Are all Bitcoiners willing to pay a tax because of this important aspect of having a strategic holding? I will remind all Bitcoin people that the government confiscated gold. There you go. Another thing that actually sort of dovetails with a lot of this conversation, including the politics and including you specifically. Sometime, I think it was late last year.

Mark And Driesen went on Joe Rogan's show. And in the middle of a broader conversation, he talked a lot about debanking and debanking the crypto industry. And there's all this talk about how like maybe for political reasons, maybe not. And I think there were some details that some people poked holes in. But this idea that the government had gone after the crypto industry, perhaps for political reasons. First of all, let's just start with the sort of narrow question of what has been the status of a crypto company's ability to just have a bank account? All right. So in the United States from

2022 onwards, the answer to that question is probably not, but maybe yes and also be careful. And what I mean by that is starting in 2022 after FTX, it probably originated with what I think is a legitimate effort to look into where was FTX banking and how the hell did this happen, which is a reasonable question to ask in the wake of a collapse like that. But then quickly metastasized into actually, you know what, just get rid of all the bank accounts of all the crypto companies with the FDIC doing things like telling companies you can't have more than 15% of your deposits in crypto, but also if you want to bank anybody in crypto, you need permission from us. And we're just going to ask infinity questions and never actually give you permission and make very clear we're

essentially going to torture you to death with, you know, scrutiny if you do these kinds of things. And that led to it being nearly impossible to get accounts for handling customer money. But it also led to, in my opinion, much more questionable things like if you're just a regular way operating company in crypto, not being able to get a bank account to, like, I don't know, make payroll, right? Or like, pay your rent. And that starts getting into the realm of, hold on, what are we doing to people? I also specifically know of individuals who had their personal accounts and accounts of family members closed for taking jobs in crypto.

And these are not like, I'm coming from China, I won't disclose the source of my money. This is like somebody who was a lawyer admitted to the bar and an American citizen leaving a bank to go to a crypto company and having her daughter's accounts closed. So that seems to me excessive. Now, you raised Mark being on Joe Rogan's podcast. Mark, when he was on there, I think, kind of revealed something the average person doesn't understand, which is that understanding banking regulation in the United States is really complex. Like, I used to joke with people. There was this slide at J.P. Morgan when I was there on who regulates us that looks like the Pepe Silva conspiracy theory meme from It's Always Sunny. And the answer is, yes,

like 82 different regulatory agencies. And so Mark on Joe Rogan tagged the CFPB. I'll just transparently say, sorry, Mark, I know we've talked about this. I don't think that's correct. I think the drive came from the FDIC, the OCC, and the Federal Reserve, and it was highly variable in its understanding and competence, ranging all the way from very granular, I think, correct and legitimate supervisory concerns all the way down to if it says blockchain in it, you're banned from doing it. So I get that you find some of these crackdowns excessive, but the FDIC ultimately insures these deposits. And when I hear something like 15% of assets in crypto, that doesn't seem

insane to me to want to limit something. Exposure. Yeah, something that is notoriously volatile and could go down to zero for no reason. How would you design those types of guardrails? Yeah, I would say, I think the problem there is the FDIC is basically stuck in the 1970s. And what I mean by that is one, crypto assets are not monolithic. If you're telling me I'm worried about the hot money liquidity deposits of a stable coin reserve, I'd be like, no, yeah, that's totally legitimate. But if you're telling me that Uniswap making payroll is somehow a hot deposit that's very scary, that's different, and they threw them in the same bucket. But what about if a bank has 15% of its assets in Bitcoin and another bank has 15% of its assets

in Doge or something like that? So to be very clear here, we're talking about banks giving dollar accounts to crypto companies. This is not banks holding crypto on the balance. And I want to be clear. I think that's quite risky given the volatility in crypto and it should have very large risk weights. I'm talking about like Uniswap having a checking account. Okay. This is just the payment system. Yes. I get that. Okay, clearly a bank's assets should be mostly dollars or safe things like treasuries, etc. But the liability side of who is there. So the 15% is you're capped at 15% of basically your liabilities are crypto-related company? Or that was the, is that statute?

Is that just regulatory? Like, what was that? That was kind of regulatory fiat. And so to me, I would say two parts to it. One, this is the classic problem of you're only looking at one side of the problem. Yeah. Right. And what I mean by that is so say I'm a bank and I say, well, hold on.

Crypto is my main business and I primarily make money off of facilitating payments for crypto companies not doing large-scale commercial lending. So, hey, FDIC, if I tell you, I'm only going to hold T-bills to back the crypto deposits, would you still hold to this 15% threshold? And they say, yes, I have a lot of questions because that's not an asset liability matching issue unless you think the Treasury market is too dangerous. But just to go on. So like, I mean, SVB got into trouble because it had a tremendous concentration in one industry, right? Correct. And, and isn't part of, regulatory, supervisory preventing too much concentration on the liability side, on the depositor side? Well, no. So here's where I was going to go. SVB got into trouble because they had a high

concentration in one industry and then yoloed into like 15 year duration MBS as rates went up. Had SVB been in T-b bills, they would still be solvent and operating today. So what you're really looking at, this is something I thought a lot about at J.P. Morgan running a bank capital book, is it's the asset liability matching part where people get it wrong. The more concentrated your deposit base is, the more liquid and safe your asset base needs to be. And that needs to exist in balance with each other. So like, you know, let's take one of the extreme examples that the Fed hates. But like if I ran a narrow bank, I should in theory be able to have a hundred percent concentration. What does it matter? And so my point about the whole issue is if you're

only going to look at the deposit side of the balance sheet. I'm actually terrified about your competence as a banking regulator because you're not understanding this is a multivariate system. You're just over-fixating on one thing. And two, by the way, if you're going to say individual banks are limited to 15%, but then you also go tell other banks you can't get in. Now you've created a systemic level problem. Where are those deposits going? Yeah. Speaking of multivariant systems, at the very beginning of this conversation, you said that Trump was only one piece. of the puzzle. What are the other pieces? So I think the other big pieces here are the judicial system as we're about to experience, because as the SEC sort of loosed these torpedoes in the

water, you need to be very careful because those get out of your control very quickly when they encounter the federal judiciary who will have their own opinions on things. And I've been saying this since the litigation started. With the current makeup of the Supreme Court, you should be really careful about taking securities litigation stuff all the way there because there is a non-zero chance you are going to get very strict rulings that nobody likes. Is it so far beyond the pale with the current somewhat literalist Supreme Court that they look at the 40 Act and say, guys, we don't see anything about the internet in here. Why did you think any of this was okay not to do with paper trading? Right. And I'm not saying it'll go there, but I'm saying you're

opening a Pandora's box. And that's open right now. The other part is Congress, right, as we've come back to. I really think the biggest shift there, which people have not talked about, is control of the Senate moving from the Democrats to the Republicans, because the biggest crypto opponents were the Senate's like Democratic people on the bank. Warren and Sherrod Brown, who lost his election in Ohio. Those two come to mind. Correct. And so Senate banking was serving as a bottleneck for a lot of legislation. Like even if the House had moved stable coins, the Senate was not going to take it up. You saw what happened with fit, right? Even. Sab 121 repeal, which I think kind of everybody agrees is a good idea now, couldn't get a super majority because of the Democrats and Senate banking. With the Republicans in control of that, I think the pathway is open for legislation. And I think that may be a bigger change in the long term than Trump. Just to be clear, though, going back, sorry, I keep hammering on this

question, but having a diverse depositor mix at your bank is a principle of banking regulation, right? You don't want to have all your depositors be biotech startups, et cetera, right? Because then something bad happens to the industry and everyone pulls their money out at once. I get your point about, okay, you want to balance the depositor mix with the safety and, yes, SBB had only been in T-bills. But this idea that it's something novel that you want to not be too concentrated in one area does not seem new to crypto. No, but that is kind of why I referred to the FDIC being stuck in the 1970s. I agree with you that's a principle, but the problem is when you say, well, new technologies are scary, so don't bank them. And we're going to apply a huge amount of scrutiny.

And you've got to be a deep specialist to bank them at all, which means a lot of cost, a lot of effort, a lot of buildout. But then also you can't do a material amount of these things anyways. That is an industry level ban on innovation. That's what I mean by the multivariate part. Any one of these principles is fine on its own. But it's like if you tell me that I can only have a car that has space for eight car seats, but also my car can't have more than one row of seats. Like how the heck do I build a car?

It gets the interplay of these rules together. That's a problem. Austin Campbell, perfect guest. Thank you so much for coming back on a lot. Yeah, thank you. Really enjoyed being here. Tracy, I still stand by my point about Austin as just like the best avatar, the best spokesperson for the industry. No, I agree.

I did think, I have a lot of support. with the idea that if you're in crypto and you sort of did all the right things in terms of regulation, you were often the one that was most likely to get cracked down on, whereas someone who just, you know, did whatever and didn't follow the rules, kind of got away with it. This really been a huge story. And that does not seem good, which is that you did have these endeavors that tried to be like the, you know, Coinbase made it, right? They did, they played good. And then now, you know, another publicly listed company doing phenomenally well. And I don't know, it seems like a good chance, perhaps, that things will turn in their favor from a regulatory perspective on what's lingering.

Here's something that I'm still confused about. Okay, let's say they establish a securities framework for crypto, which seems possible. Securities law, I think it adds all kinds of obligations about like disclosure and all these kinds of things. Like, what's that even going to mean for someone in their living? living room somewhere, maybe in Singapore or Vietnam, who like creates a, or in the U.S., who creates some token for decentralized trading network. I get the macro premise, oh, we need rules. But the idea of then applying those rules to the industry, which is sort of like famous

for like, it's just code strikes me as it's going to be very difficult. Yes, very difficult. The other thing I'm wondering about is, you know, it seems like there's a desire to have more nuance in the rules. And I wonder at what point do you end up with regulators having to basically evaluate new technology. And, you know, regulators don't necessarily seem best place to do that. That seems like a risk as well. In the end, I do think there are some exceptions like maybe stable coins, but a big part of crypto is essentially this idea that you can have things that have value that exist on the internet outside of the regulated banking system or the regulated finance

system or whatever. And the idea, like, it always sort of seems like once you try to mix it with the financial system, it's like oil and water. But I guess we're going to see how they can mix it. Yeah. The one thing I'll say is Bitcoin especially has this tendency to really go with any narrative. It's that narrative flexibility, right? And so there is an irony that a lot of crypto proponents and Bitcoin proponents now want more legislation and they want, you know, that strategic Bitcoin reserve or at least some of them. But so far, it's resonated in the price, right? Like Bitcoin has seized on that narrative and that positive momentum. And here we are. I loved Austin's point that if you convince the government that Bitcoin is strategic, the government might start doing

things associated with other strategic resources and it may not be so pretty. So also, Also the through line from Gary Gensler cracking down on crypto and Trump winning the election. I think there's, you know, I'm like, I think there might be something to it. I think you would have said that to me six months ago. I would have been more skeptical. I think I'm less skeptical now. Yeah. All right.

Shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wisenthal. You can follow me at the stalwart. follow our guest Austin Campbell. He's at Campbell J. Austin. Follow our producers, Carmen Rodriguez,

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