The Breakdown - Are We On the Verge of a New Regulatory Era in Crypto?

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 Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, July 3rd. It's a holiday weekend, a sadly rainy one for those of us on the East Coast, but a holiday weekend nonetheless. So let's keep this weekly recap brief. Let's start with the regulatory landscape. On Wednesday, the show was all about what seems to be potentially a shifting tone among regulators around digital assets in the U.S. There were two things we talked about specifically. The first were comments by Bill Foster, a co-chair of the Congressional Blockchain Caucus, that many of his colleagues were ready

Starting point is 00:00:51 to throw the baby out with the bathwater when it came to crypto. The reason? Ransomware. His answer, cryptographic backdoors, is available to certain judges and authorities. Truly, there is nothing authorities love more than back doors. This is, of course, a non-starved. the one thing that makes blockchain's trustworthy is their immutability. Compromise on that, and we might as well just pack it up. Of course, just packing it up is likely what a fair few in Congress want. On Wednesday, the House Financial Services Committee held a hearing titled America on fire. Will the crypto frenzy lead to financial independence and early retirement or financial ruin? I gave you the rundown of some of the themes that were likely to be on display.

Starting point is 00:01:33 One of the most interesting was questions of were there new systemic risks, created by crypto market volatility as more hedge funds and other traditional financial actors got involved. Still, I do think it was notable that the expert witnesses Congress chose were generally pro-innovation and pro-crypto. There was one who was most vocal about concerns about systemic risk, but her complaint was at least as much about hedge fund opacity as it was about crypto volatility. But what about the questions from congressional members? Did we glean anything new? To be frank, there was a lot of the same old, same old. Brad Sherman, to the surprise of exactly, no one still hates crypto. His hot take this time was that he'd prefer people to bet on the California

Starting point is 00:02:12 lottery than invest in crypto. Quote, cryptocurrency is something you can bet on, but if people want to have the animal spirits to take risks, I'd prefer them to invest in equity markets to support the building of American companies, or the California lottery to support the schools in my state. Cryptocurrencies are highly volatile, so if one person makes a million dollars and nine lose 100,000, Coinbase makes money, the millionaire goes on TV and says how wonderful it is, and nine others do not retire in dignity. This theme of retirement actually came up a fair amount. Is there an epidemic of retirees losing money in crypto that I haven't heard about? Bridge clubs converting to leverage shitcoin trading associations? Now, in 2017, there was some shady shit where Korean pensioners

Starting point is 00:02:54 were suckered into buying ICOs and things like that. That's completely despicable for the record. But this cycle, I haven't seen anything even sort of like that. Anyway, back to the Shermanator. He left no questions to his feelings when he ended with this statement. Cryptocurrencies have the political support of the patriotic anarchists who are rooting for tax evasion. I hope we shut it down. Truly, Sherman's opposition is nothing new, and I will only add a tiny bit of context you may find helpful. According to opensecrets.org, these are just some of the financial companies that rank among the biggest donors to Sherman's 2020 campaign committee.

Starting point is 00:03:31 Capital Group companies, 18,400, Blackstone Group, 16,000. 800, Black Rock Inc., 11,250, American Bankers Association, 10,000, Capital One, Financial, 10,000, Charles Schwab Corp, 10,000, Credit Union National Association, 10,000, Discover Financial Services, 10,000, Deloitte, LLP, 10,000. Fix the money, fix the something, something. There was also a fair bit of discussion around Dogecoin, with Elon clearly on the brain. Tom Emmer asked Peter Van Valkenberg about price manipulation via public statement, and that line of questioning was repeated a lot. Other topics that came up included minorities in financial inclusion. I was delighted to see that many seem genuinely interested in these possibilities, in the idea of

Starting point is 00:04:13 crypto as a vehicle for more financial inclusion. When it comes to CBDCs and stable coins, there has clearly been a significant increase in focus here. There is both a lot of excitement and a fair bit of concern. I even saw some share concerns about the privacy aspects of CBDCs, which is something of a change. The breakdown is sponsored by NIDIG. The breakdown is sponsored by NIDIG. the institutional-grade platform for Bitcoin. As long-time listeners know, NIDIG is a major force in the Bitcoin space, and they're now making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers to offer Bitcoin.

Starting point is 00:04:53 That mainstream access is critical for all of us, and you can learn more about it at NIDIG.com slash NLW. That's nydig.com forward slash NLW. So I think in sum, here's what I would say about the whole thing. If you had never watched one of these hearings about crypto, you would come away thinking that these folks are truly, woefully uninformed and wrongheaded. If, on the other hand, you've been watching these play out over and over and over again, you'd kind of see way more engagement and way more substance in the discussion than in the past. There's still a huge amount of educating and advocacy to be done, but it's also clear to me that by and large, these folks are taking this more seriously than they were in the past. In my estimation, this is a pretty positive step, and here's why.

Starting point is 00:05:39 Almost everything that seems dangerous about crypto feels less scary once you really dig in. There are some, like Sherman, who will never change their mind. But for the vast majority whose minds haven't been fully made up yet, they will see good and bad and opportunity and risk. And that is a just fine place for the average regulator to be. Put differently, the most dangerous outcome for this industry is not in a bunch of people who have really taken the time to learn about crypto creating new regulations for crypto. The most dangerous outcome for this industry is people who haven't taken the time. to learn about it, whose only context is sensationalist soundbites about it, creating new regulations.

Starting point is 00:06:15 Speaking of CBDCs, man, this is a trend that is just marching right along. In China, customers of the industrial and commercial bank can use the digital yuan to pay for Beijing subway fairs. This is a leveling up of the trials which up to this point have just been focused around lotteries. In Russia, the central bank has named 12 banks that will be involved in the initial testing of the digital ruble. Their initial concept was published in October of last year, and their current plan is to develop a prototype by December and start piling it next year. In England, the outgoing chief economist of the Bank of England, Andrew Haldane, gave a speech on his last day that extensively discussed CBDCs. Here's the juiciest line. It could result in something akin to narrow

Starting point is 00:06:55 banking, with safe, payments-based activities segregated from banks' riskier credit provision activities. In other words, the traditional model of banking familiar for over 800 years could be disrupted. Meanwhile, even traditional banks are now finding it impossible to ignore crypto. Nidig, the new sponsor of this show, announced yet another partnership that would use Nidig tools to allow banks and credit unions to offer their customers the ability to buy, sell, and hold Bitcoin directly from within their accounts. This time, it was with NCR Corp and will enable 650 new institutions representing 24 million customers this ability. This is the fifth such deal from nighting in recent months. G.P. Morgan, meanwhile, is focused on the different aspect of the

Starting point is 00:07:36 crypto industry. This week, the firm released a report about ETH II and staking, and said that the shift to Ethereum 2 could kickstart a $40 billion staking industry by 2025. In that report, I think you're seeing another part of the macro narrative finally starting to make its way to Ethereum and DeFi, and that is about yield. Here's a quote. Yield earn through staking can mitigate the opportunity cost of owning cryptos versus other investments in other asset classes such as U.S. dollars, U.S. treasuries, or money market funds, in which investments generate some positive nominal yield. In fact, in the current zero rate environment, we see the yield as an incentive to invest. Buy Bitcoin because inflation means your dollars are going to be worth less.

Starting point is 00:08:18 Go farming because you're not going to get any yield from bonds. Something to watch for sure. Anyway, I'm going to wrap there. I've got to go get ready for rainy barbecues and just one more thing. The official breakdown line on that essay you probably saw flying around that said that grilling is bad is that that person is bad. He's a bad human being. He probably sold a soul to the devil and he's not an American. Just kidding, but grilling is awesome. All right, guys, have a great weekend. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Are We On the Verge of a New Regulatory Era in Crypto?

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