The Breakdown - Another Pro-Crypto Appointment in the Biden Administration?

Starting point is 00:00:04 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. The breakdown is sponsored by nexo.io and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, January 23rd, and that means it's time for the weekly recap. Now, of course, from a short-term perspective, the story of this week was the price action. It started nice for the Ethereum folks who finally had their moment getting up above the widely agreed upon marker of 1420 as the Ethereum all-time high. They got their moment of celebration before it quickly went back down again, which the Bitcoin

Starting point is 00:00:51 community obviously understands as we had that long two-week period between 19,000, 674, and 20,000, where we were all debating whether we actually hit that all-time high or not or if it even mattered. Anyways, by the end of the week, it had gotten ugly for absolutely everyone, but especially the Bitcoiners. On Thursday, prices dipped all the way back down under 30,000 before rebounding again on Friday. Theoretically, this was all about a fud cycle. There was Janet Yellen Fudd when she testified as part of her confirmation hearings to become Treasury Secretary and said that crypto was mainly used for illicit activity. There was the persistence of tether fud, the idea that there's a huge scam waiting to unravel and it'll take the whole Bitcoin industry down with it because it's the genesis of Bitcoin

Starting point is 00:01:39 success. And then of course there's the double spend fud, which happened on Thursday and which was really a story of reporting gone wrong. I explained yesterday why I think those were not actually the cause of this dip, but simply narrative fuel helping sophisticated buyers take advantage of what was an inevitable correction after such a massive move up. But if that price was the short-term story, I think that they're sitting right in front of our faces was also the more significant medium-term story. That's the story of the transition of the Biden administration

Starting point is 00:02:11 and what it's going to mean for this industry. President Joe Biden was inaugurated on Wednesday, meaning he is formally in go-mode. He has signed an absolute flurry of executive orders, many of which are meant to undo previous President Trump actions, and one of which was meant to freeze last-minute Trump administration actions. For example, remember that whole boondoggle with FinCEN and self-hosted wallets and it got the most comments that FinCEN had ever seen? That is now on ice, which is to be celebrated. That said, it doesn't mean that everything is rosy for crypto. We don't know exactly

Starting point is 00:02:47 what this administration's treatment of Bitcoin and cryptocurrencies is going to be. There's some concern after seeing Democrats introduce things like the Stable Act that it may not be particularly friendly to crypto. I think for now the best tea leaves to read for what a Biden administration might look like for the industry is to look to the appointments, to look to the specific people who are being put in positions of power and influence. Let's first recap some of those we've discussed. Probably the most airtime has gone to Janet Yellen. She's the former head of the Fed, who is now the Treasury Secretary. We have her past statements from back in the day around crypto and Bitcoin, but everyone has been waiting to see what the update was,

Starting point is 00:03:28 have her opinions changed or evolved. And this week, we got our first inclination. At her hearing, she effectively said that crypto was mainly used for illicit transactions. In fact, it wasn't just effective. That was exactly what she said. This, as you might imagine, arose ire from the industry that has been trying to fight this narrative forever. Interestingly, on the same day that those comments happened, Chainalysis issued its annual report, which showed that the that in fact, the percentage of on-chain volume that was for crime in any sort of way was down to 0.34% from 2.1% the year before, a tiny, tiny fraction of the overall activity. This compares to the UN estimate that 2% to 5% of global GDP is used for illicit activity. Now, importantly,

Starting point is 00:04:14 Yellen walked these comments back pretty meaningfully in her written testimony, which I would TLDR as, we want the good parts of crypto and fintech innovation, just not the bad. Some might argue that you can't really hack it apart like that when it comes to an open permissionless censorship-resistant technology. However, you have to think that it's a better starting point than just crypto is all bad. Next on the list of people we might discuss is Gary Gensler, President Biden's choice for SEC chairman. When it comes to Gensler, the reaction of the industry has been cautiously optimistic. On the one hand, Gensler is not afraid to try to wrench the private sector into regulatory frameworks. He proved that during his tenure at the CFTC. On the other hand, he has enough knowledge about this particular industry

Starting point is 00:05:01 that he has taught a course about Bitcoin and blockchain at MIT. In other words, he has a long horizon of knowledge that gives us a base to have real discussions with. Basically, this industry might still have some pretty fierce debates with Gensler, but hopefully they won't be about or come down to fundamental misunderstandings about this space or underdeveloped knowledge around the technology. Many investors want to be a part of the next bull run. Others seek to build their dream home, finally launch that startup, or fund their education. Try Nexus's instant crypto credit lines and borrow against any major cryptocurrency with no minimum or maximum withdrawal amounts, no fees whatsoever, no credit checks, and flexible repayment. Not to mention, the APR starts at just

Starting point is 00:05:47 5.9%. Stay on top of your investment game. With Nexon, And remember, it's your crypto, your credit, your choice. Get started at nexo.io. What about the Office of the CompTroller of the currency? I'd be willing to bet that before Brian Brooks took this role last year, most of us hadn't spent a moment thinking about this bank regulator. I certainly hadn't. Brooks, however, showed just how significant the role is.

Starting point is 00:06:17 With a number of guidance letters, he effectively transformed how bank and federally regulated financial institutions can interact with stablecoins, crypto custody, and blockchain as a settlement layer. We're already seeing the impact of some of those changes with banks like Goldman Sachs, historically anti-Crypto Goldman Sachs, reportedly getting into the game through crypto custody. These changes that Brooks brought are some of the most important to watch, given that some in Congress have straight up asked Biden to repeal them. Brian Brooks' replacement looks to be Michael Barr,

Starting point is 00:06:50 the dean of the public policy school at University of Michigan. We don't know much about Barr in the context of crypto, except that he joined the board of advisors of Ripple in 2015. Now, boards of advisors are as fuzzy and wishy-washy a position as exists. And as I mentioned on the brief a couple days ago, Barr has never tweeted about Ripple or crypto or even really Bitcoin other than a couple of retweets. Presumably, however, if he joined the board of advisors six years ago, he's had at least passive familiarity with the evolution of the space, which is more than you could say about a lot of folks who might have gotten this job. But finally, I want to talk about a new character entering our game that appears poised for an important role as the head of the CFTC. Former CFTC Chairman Heath

Starting point is 00:07:33 Tarbert was a very pro-crypto figure. During his tenure, he declared Ethereum a commodity, which was something that his predecessor, Christian Carlo, had done for Bitcoin. Tarbert is stepping down as chair, but will remain a commissioner, so that's a force for positive energy, even if he's not at the head anymore. So what do we know about his likely replacement, Chris Brummer? Brummer is a professor of international law at Georgetown and was nominated by President Obama in 2016 and 2017 to be the CFTC commissioner. It never came to a floor vote, however, and the nomination was eventually withdrawn when Trump took office. What was Chris doing during this time that he wasn't at the CFTC? Well, for starters, he was editing a volume called

Starting point is 00:08:14 crypto assets, legal, regulatory, and monetary perspectives that featured a chapter by none other than our very own Nick Carter. He also spent a ton of time addressing questions turned up by Facebook's Libra. He was on dozens of shows discussing Libra. He's written a huge amount about digital dollars and central bank digital currencies. He's hosted conversations with other central bank leaders. Now, I've only had a chance to go over this output briefly, but if I had to make a rough estimate, he seems to be in the Chris Giancarlo camp when it comes to a digital dollar. As I mentioned, Chris Giancarlo is the former CFTC chair who is now leading the digital dollar project, advocating for the U.S. to take a leadership position when it comes to

Starting point is 00:08:54 central bank digital currencies. Giancarlo's position is that the U.S. Constitution prevents unlawful surveillance of people's assets and that because of that we desperately want the world to have a U.S. digital dollar rather than, for example, a Chinese digital yuan, because the U.S. won't be able to abuse their power for more surveillance. Skeptics might of course say that the surveillance apparatus in this country hasn't necessarily always respected the Constitution, but I think intellectually at least it's an important voice in the conversation about digital dollars and central bank digital currencies. On his blog, Brummer has also written about other aspects of the crypto industry. Here's a line I know many of you will love from a post about custody.

Starting point is 00:09:36 He writes, on the one hand are what can be described as the non-custodial wallets, though I prefer to describe it as self-custody. Now, this sounds like a small thing, but self-custody is an idea that is much more protected. Having ownership over our own property, not being forced to have someone else hold it for us is an intrinsic right that Americans expect. A lot of what former Secretary Mnuchin was trying to do with his last-minute rule was minimize self-custody, in part by reframing the language to this non-custodial non-hosted wallets. You have to think that's a positive indication for both Brummer's depth of understanding of this space, but also where he stands vis-à-vis the rights of the individual and what crypto assets do for them. We don't know for sure that Brummer will actually be nominated,

Starting point is 00:10:23 but it was reported by Reuters and they tend not to push out things that they're not pretty convinced of, at least. What's more, we don't know how someone would behave in the context of a leadership position like this, even if they've written about it on their blog. But again, it would be another agency head who at least had tried to engage deeply and thoughtfully with this industry for years before being called to do so in a regulatory capacity. Seems to me like if we get one of those at the IRS as well,

Starting point is 00:10:50 we've got kind of a clean sweep when it comes to at least good partners to be engaging with. There are plenty of reasons to be pessimistic about any sort of interaction between Bitcoin and governments and crypto and states, but for me at least it feels a little bit cautiously optimistic just based on who we've seen in positions of power so far. Anyways, guys, looking forward to keeping an eye on this with you. I hope you're having a great weekend.

Starting point is 00:11:13 Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Another Pro-Crypto Appointment in the Biden Administration?

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