The Breakdown - A Blueprint for Crypto In America

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, April 6th, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it. Give it a rating, give it a review. Or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, back with another long read, and today we have yet another piece by current U.S. lawmakers, including French Hill, who is the chairman of the House Financial Services Committee,

Starting point is 00:00:46 and who is pushing most strenuously for crypto market structure regulation. It is not French Hill alone. He is also joined by Glenn G.T. Thompson, another congressman and the chairman of the House Committee on Agriculture. The piece is called a blueprint for digital assets in America. I'm going to turn it over to the AI version of me to read this, and then we will come back and talk about these six principles. In 2008, an anonymous person or group of people known only as Satoshi Nakamoto released a now seminal document, the Bitcoin White Paper, introducing a peer-to-peer system for value of exchange without intermediaries. With this revolutionary concept, the idea of a digital

Starting point is 00:01:23 asset was born. Soon after, developers and entrepreneurs expanded on this concept, developing systems where value was exchanged, not just for its own sake, but for services and digital products. Over the past decade, innovators have built permissionless, decentralized networks for computing services, file storage, asset exchange, cellular coverage, Wi-Fi connectivity, mapping tools, lending services, and more. Because digital assets can be used for services that anyone can offer and anyone can access, the use cases, both financial and non-financial, are potentially endless. Despite this promise, these networks have courted criticism. The Biden-Harris administration attempted to block this innovative advance through a relentless campaign of lawsuits and enforcement actions

Starting point is 00:02:09 without providing the regulatory clarity the digital asset ecosystem and its innovators and users so desperately needed. The Securities and Exchange Commission, SEC, failed to clarify how existing securities laws apply, and, more importantly, don't apply to digital asset transactions. This lack of regulatory clarity stifled the digital asset ecosystem, pushing growth out of the United States to jurisdictions that have established clear rules of the road. To address these failures, Congress began exploring ways to modernize the regulatory structure to accommodate the unique characteristics of digital assets and how they could be used in our financial system. These efforts culminated in a series of bills aimed at clarifying how digital assets could be used

Starting point is 00:02:51 in the financial system, ensuring investor protection and fostering innovation. In the 118th Congress, the House Committees on Financial Services and Agriculture launched a historic joint effort to address digital asset regulation. This led to the first ever passage of bipartisan digital asset market structure legislation in a chamber of Congress. This collaboration enabled Congress to address long-standing challenges in the ecosystem and lay the foundation for a fit-for-purpose framework under the leadership of President Trump. This Congress, both the House and Senate, are committed to creating a clear path forward for the digital asset ecosystem. As we move ahead, it is crucial that the framework is both balanced and ironclad for the future. To accomplish this, we have set out

Starting point is 00:03:35 principles for digital asset legislation. Six principles. First, legislation must promote innovation. We seek to protect opportunities for innovators to create and utilize digital assets, while ensuring users can lawfully transact with one another. Second, legislation must provide clarity for the classification of assets. Users of digital assets should clearly understand the nature of their holdings, including whether they qualify as securities or non-securities. Third, legislation must codify a framework for the issuance of new digital assets. The framework should permit issuers to raise capital through the sale of new digital assets under the jurisdiction of the SEC. It should protect retail investors and require developers to disclose

Starting point is 00:04:19 relevant information to help users understand the unique characteristics of digital asset networks. Fourth, the legislation must establish the regulation of spot market exchanges and intermediaries. Centralized, custodial exchanges and intermediaries facilitating transactions with non-security digital assets should adhere to similar requirements as other financial firms. Congress should provide the Commodity Futures Trading Commission, CFTC, with the authority to impose requirements over these entities necessary to protect customers, limit conflicts of interest, ensure appropriate execution of customer orders and provide disclosures. Fifth, the legislation must establish best practices for the protection of customer assets.

Starting point is 00:04:59 Entities registered with the SEC or CFTC should be required to segregate customer funds and hold them with qualified custodians. Customer funds should also be protected during bankruptcy. Sixth, and finally, the legislation must protect innovative decentralized projects and activities. Congress should ensure that decentralized protocols, which pose different risks in benefits are not subject to regulations designed for centralized custodial firms. In safeguarding decentralized activities, Congress must also protect an individual's right to self-custody their digital assets. We look forward to both committees continuing our legislative work together to fulfill President

Starting point is 00:05:35 Trump's request to make America the crypto capital of the planet. In May, our committees will host our second joint hearing to discuss digital asset market structure legislation. Our goal is to bring much-needed regulatory clarity to this rapidly evolving industry, ensuring that America continues to lead in shaping the future of digital finance. Today's episode is brought to you by Crypto Tax Calculator. If you're looking for accurate crypto-taxes with no guesswork, check out Crypto Tax Calculator. Get accurate CPA-endorsed tax reports with full support for IRS rules. For those who have fallen down the on-chain rabbit hole, CTC has you covered with more than 3,000 integrations. They have full support for

Starting point is 00:06:14 defy staking in NFTs. Import directly to TurboTax or H&R block or share securely with your accountant. Create an account, import your sources, and review. It's that easy. Hello, friends. I am thrilled to share that Ledger is once again partnering and sponsoring with the breakdown. Many of you know, but for those of you who don't, Ledger is the most secure hardware wallet for your crypto and logins. It's trusted by 7 million users and secures 20% of the world's digital assets. What's more, ledger is a lot more than wallets. Over the recent years, they've built a comprehensive ecosystem of products and services, all of which are designed to make digital ownership more secure and accessible. You can buy your Bitcoin with Ledger and Ledger Live and so much more. Basically, not only did

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Starting point is 00:07:32 repetitive at this point. But the number of weeks that Long Read Sunday comes around, and I now have a sitting U.S. congressman or senator to read an op-ed from about some pro-crypto legislation or guardrails that they're trying to put in place is pretty remarkable considering where we've been over the last few years. Still, let's dig in a little bit deeper and talk about these six principles. Right at the top we get at the core focus, which is that legislation must promote innovation. This seems simple on the one hand, but does mark a fundamental shift from the idea of focusing on investor protections, which is where much of the government conversation had been for many years. Indeed, the thing that they are seeking to protect here is, as they put it, opportunities for innovators.

Starting point is 00:08:10 Next up, their second principle, they get at the thorniest issue, the one that has always been the third rail. What is the security? What is not? What's the new in between? I have long thought that nothing really matters if this question isn't answered. It's why you have other pro-crypto-c congressional officers proposing legislation that is just focused on that. But it's good to see it prioritize so highly in this blueprint as well. The third principle that legislation must codify a framework for the issuance of new digital assets recognizes the fact that we are not frozen in time now with the assets that are here, that this is going to be a continued growth space, that people are going to continue to create new protocols, new tokens, and that while yes we need procedures that protect retail

Starting point is 00:08:53 investors from the worst impulses of this industry, we have to plan on the industry continuing to grow and develop and new tokens to come because of it. Basically with the second and third principle, you have the backup for the first that legislation must promote innovation. Fourth is where we start to get a little bit more procedural and wonky. One of the glaring holes in the U.S. regulatory apparatus has been that it has never been exactly clear who has authority over exchanges. This, it seems like, should be a fairly easy thing to solve. Fifth, there is some consideration given for protection of customers, but in this case it's not some patronizing determination of what you can or can invest in,

Starting point is 00:09:29 but is instead about what custodians of people's assets can and can't do. Again, this is an area of extreme common-sense consensus, that an exchange should, for example, segregate customer funds, that those customer funds should be protected during bankruptcy. These are obvious, but as we've seen, do need to be articulated. Lastly, and once again, I think that this is really an instantiation of the first idea of promoting innovation. They say that legislation has to protect decentralized projects.

Starting point is 00:09:55 Basically, this is an acknowledgement that defyy is not the same as centralized crypto infrastructure, that these are, in fact, different things. Forever, it has seemed, many of crypto's critics have been trying to sneakily shadow ban Defi by saying that it should be treated like everything else, despite the fact that it is not like everything else, that it is designed differently, that it has different considerations in mind and different relationships between the different actors in these ecosystems. They are explicitly articulating a right to self-custody, which again seems obvious, but has to be articulated as we've seen that that is not something that everyone views

Starting point is 00:10:28 are right to. All in all, this is a very bullish, very clear blueprint, one that I think most people in crypto can get behind. Now the question is just can we get it done? On that, I remain optimistic. For now that that is going to do it for today's breakdown, appreciate you listening as always, and until next time, be safe and take care of each other. Peace.

The Breakdown - A Blueprint for Crypto In America

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