The Breakdown - Bitcoin’s Allies in the US Senate Are Increasing

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 nexus.io, Arculus, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Monday, March 28th, and today we are talking about Congress and the Senate stepping into the crypto and digital money discussion. Before we get into that, however, if you are enjoying the breakdown, please go to the second. subscribe, give it a rating, give it a review, or if you want to get deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit. Bit.e slash breakdown pod. Also, a disclosure, as always, in addition to them being a sponsor of

Starting point is 00:00:51 the show, I also work with FTX. So first, let's give a little bit of context for how we got here in terms of Senate and the Congress starting to get deeper into the crypto conversation. One of the most anticipated events of the year, as relates to crypto and the government, was the release of President Biden's executive order. This happened a couple weeks ago, and up until that point, there had been a huge amount of speculation about what that EO would consist of. Would it be something that was warmly embracing the crypto industry? Would it be something that was on the other end of the spectrum closer to China's ban of the

Starting point is 00:01:28 crypto industry? While most people thought it was probably going to be somewhere in the middle, there were definitely partisans who thought either side might be the case. And in particular, there were plenty of people who thought that it was going to be a lot harsher and more concerning than it ended up being. Instead, what we got was sort of your standard political blend of, this technology represents both a big opportunity, but also significant risks and challenges. And we need to be able to harness that opportunity while also addressing those challenges. But as I said, even that middle path was itself significant, given how many people had expected it to be draconian, restrictive, or otherwise

Starting point is 00:02:04 anti-crypto. What's more, its particular methodology was in it of itself moderate. Instead of making new rules in the executive order, President Biden ordered a lot of study. Indeed, the whole thing felt like the administration saying, look, this is significant, it's important, but we can't have this very piecemeal agency-by-agency way of going about this. We need to actually ask the right questions, get all the information in a single place, and then work from there. That was a lot better than a lot of versions of how this could have gone, which is why the crypto industry acted with such enthusiasm when they saw it. Now, there was also a lot of focus on central bank digital currencies, and this CEO clearly showed a desire on the part of the administration

Starting point is 00:02:49 to move that conversation forward, which isn't necessarily something we've seen from other actors in the space like the Federal Reserve, who have been much more cagey about whether there should be a U.S. digital dollar, a U.S. CBDC. So as I mentioned, the net activity coming out of these EOs was a period of research study and bringing things back to the government with new ideas to move the regulatory apparatus forward after that period of study had concluded. Now, my bet, and what I said on this show is that I thought that this executive order was going to prompt an acceleration of activity in Congress and the Senate. The reason for that is that it's not clear to me that it should be unelected officials, appointed officials in the

Starting point is 00:03:30 Treasury or the SEC or the CFTC, even if they're well-intentioned good faith people, being the ones who are making the rules for this entirely new category of assets. There's a pretty cogent argument that that's actually the job of elected officials. And clearly, I'm not the only one who feels that way. We knew that Wyoming Senator Cynthia Lummis was working on legislation. She has been one of Bitcoin's biggest defenders, and there have been reports about the legislation she's working on since last fall. However, we got some really interesting news late last week when we discovered that Lummis is joining forces with New York Senator Kirsten Gillibrand on this legislation. On March 24th, Cynthia Lummis tweeted big reveal, thrilled to be working with Kirsten Gillibrand on a bipartisan framework to create clarity,

Starting point is 00:04:16 establish responsible sideboards, and ensure reasonable consumer protections. With feedback, this legislation will allow the digital assets industry to innovate and flourish in America. So at a political live event on Thursday night, they said that they are teaming up. They said that the provisions of the bill are still in flux that they're at the beginning of the process, getting feedback from their peers and colleagues, but that they want to create, quote, a broad-based regulatory framework for how this industry should potentially be regulated in the future. Now, they've said that they are not intending to change the definition of a security, but that

Starting point is 00:04:49 their legislation does currently include a, quote, standing body that will make judgments as the industry grows. One interesting thing that may be shifting or still in flux is that in December, reports were that Lemus was looking to mandate a new organization under the joint jurisdiction of the CFTC and the SEC, but at the political event, they said that the bill seeks to empower the CFTC. The bill will be introduced in the next several weeks, and Senator Gillibrand said, I think it is something we can hopefully get a vote on by the end of the year, if we do our work well and if our committees have hearings and it has a chance to go through regular order. Now, one of the things that makes this regulatory effort notable is that they're actually trying to

Starting point is 00:05:27 have a vote on this. And while that sounds sort of duh, of course, there are an unbelievable number of bills that are made just to make a point. Bills that people realize will never go anywhere. This one clearly has backers who want to build the grassroots support from their colleagues to actually get it done. Roshini Primaratni, a tremeratny, a treasurer, Treasury staffer wrote up some notes on the Politico event. Want some insight into how the Senate is approaching regulating digital assets? Today, Senator Gillibrand and Senator Lummis spoke to Politico on their upcoming digital assets regulatory framework, a thread with takeaways. TLDR, the U.S. is taking an executive, legislative, and judicial approach to digital assets, and we can expect

Starting point is 00:06:09 major movement this year. The senators are focused on this industry as a commodities market, consumer protection, environmental concerns, stable coins, a CBDC, and taxes. Senator Gillibrand listed three priorities for U.S. regulation of digital assets. One, safety and soundness. Two, consumer protection, and three, security for markets. They spoke to the regulation of digital assets like crypto being largely split between the CFTC and the SEC. CFTC equals commodity futures trading commission, which regulates the U.S. derivatives market. SEC equals securities and exchange commission, which enforces law against market manipulation. Gillibrand sits on the Agriculture Committee, which oversees the CFTC,

Starting point is 00:06:49 and Lummis sits on the banking committee, which oversees the SEC, making them the perfect sponsors and women to lead this legislative effort. Senator Lummis specifically referred to Bitcoin and Ethereum as commodities, and they both spoke to the integral role the SEC will play in securing consumer protection and preventing fraud. We know Gary Gensler was happy for this highlight. They also mentioned that stable coins and a CBDC would be addressed in the bill, although to a smaller degree.

Starting point is 00:07:12 Senator Lummis discussed how a US-CbDC would be different than China's digital yuan. She said that while the digital yuan is a DTC product, the US-Cbd-C would function more like how the current Federal Reserve operates. The CBDC would go through banks domestically and internationally and would then issue staple coins pegged to the USD. About Ukraine, Senator Lummis also mentioned how digital assets are actually easier to track and freeze than dollars because of the speed of transactions and visibility in the blockchain, which is much easier to navigate than international wire transfers.

Starting point is 00:07:41 Lastly, the pair did speak to environmental concerns around blockchain. Senator Gillibrand spoke to the migration from proof of work to proof of stake as being a positive move for energy conservation and crypto, and the prospect of creating incentives for the crypto industry to use more green energy. On this, Senator Lummis mentioned an interesting use case in Wyoming where oil companies are giving gas to crypto miners because of a process called flaring, releasing CO2 emissions into the atmosphere because the drilled wells don't yet have pipeline attached. Senator Gillibrand gave four reasons to embrace digital assets.

Starting point is 00:08:11 competitiveness, opportunity, entrepreneurialism in innovation. In her words, innovation thrives when there is a regulatory framework that is reliable and can be counted on. At the end of the day, as Senator Gillibrand said, you need a law. The executive order is not enough, but they are working in parallel to the EO as its reports are developed in the coming months. These two powerhouse women are taking up the challenge in writing that law. So I think that the details are less something to be concerned of right now, given where they are in the process.

Starting point is 00:08:38 This is the part of the billmaking process where they're going out and getting feedback from colleagues, and it could look a lot different than a lot of what you're hearing now. To me, the biggest part of this story at the moment is the bipartisanship, the fact that this isn't just coming from a traditional ally of crypto on the Republican side of the aisle. Kristen Smith, the executive director at the Blockchain Association, wrote about this as well, saying, if you've been paying attention the past few weeks, there's a lot of evidence of a bipartisan vibe shift on crypto. Contrary to the media narrative that pushes a polarized split on the issues, here's what I've seen.

Starting point is 00:09:10 Last night, Politico hosted regulating the digital gold rush with Senator Lummis and Senator Gillibrand. Lots of folks know Lummis' bona fides on crypto. Adding Gillibrand to the mix, with the goal of creating a pro-innovation regulatory framework is a big deal. The New York House delegation is involved, too. If you haven't read Representative Ritchie's op-ed making the liberal case for crypto, please do. This isn't some pie-in-the-sky vision for a progressive paradise. These are real solutions to problems being developed right now. There's healthy legislative bipartisanship in the House, too. Last week, Representative Tom Emmer led a group of four Republicans and four Democrats and sending a letter to the SEC imploring the agency to not stifle innovation by imposing on onerous reporting requirements

Starting point is 00:09:48 on crypto companies. After Biden's crypto executive order, we're keeping an even closer eye on the federal agencies and regulatory bodies. That's why I was happy to see this reserve but bullish by government standards remark from Senator Yellen this morning. Kristen is here referring to Senator Yellen's appearance on CNBC where she said, I have a little bit of skepticism. On the other hand, there are benefits from crypto and we recognize innovation in the payment system can be a healthy thing. Back to Kristen's thread. And I know many in the crypto community are frustrated by the media's point of view, but the coverage is, on average, improving and increasing. You can have issues with how they approached it, but it's meaningful that the New York Times dedicated an entire section to crypto.

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Starting point is 00:12:14 When you trade NFTs on FTX, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. Now, in that thread that I just read, Kristen Smith referred to an essay, a liberal case for cryptocurrency by House Democrat Richie Torres. Torres writes, every industry has actors good and bad. Crypto is no exception. The best actors should be left to innovate and the war should be held to account. A comprehensive regulatory framework that distinguishes one from the other is urgently needed,

Starting point is 00:12:44 both federally and in New York state. Torres then goes on to basically rip apart the bit license saying that it has, quote, inhibited job creation and innovation without the actual benefit of protecting a single consumer or investor. It's a classic case of bureaucracy, trumping efficacy. Torres went on to say that there's more to crypto than ransomware and there's more to money than money laundering. He also said, quote, no serious person would ever propose eradicating money in order to eradicate money laundering. Every technology is open to abuse, and no technology should be defined solely by the criminals who abuse it. So you see, he starts his essay with the counterpoints to the negative take on crypto, but then he moves to the positive take.

Starting point is 00:13:21 Crypto has the power to create a better, cheaper, and faster payment system for many transactions. The traditional financial system is plagued by high fees and long delays to prey upon the poorest Americans. Those of us who live in underserved areas often see the infamous Western Union yellow sign, listing all the fees that poor people have to pay just to transfer their own money. According to a 2008 study commissioned by the city's then Department of Consumer Affairs, the lowest-income New Yorkers pay more than $200 million a year in check-cashing fees. We know the financial noose around the poor has only tightened in the 14 years since. Crypto, which facilitates direct money transfers without a corporate middleman,

Starting point is 00:13:56 gives the lowest-income Americans, especially immigrants, more freedom to transfer their own money and send remittances to their loved ones abroad without the burden of long delays and high fees. He also talks about the exploitation of tech platforms, which is a strong part of the Web 3 argument for why the Internet needs to be reinvented outside of the big tech platforms. Torres says the power of crypto should and must be harnessed to create an alternative economy where individual innovators are no longer at the mercy of corporate rent seekers. He ends his piece, no one knows for sure how the crypto revolution will unfold,

Starting point is 00:14:28 but we should all be rooting for its success because decentralizing both finance and the Internet would offer a long overdue counterweight to the very concentrated power and wealth that has increasingly put the American dream out of reach. Now, many progressives who are in Bitcoin or crypto have lamented the fact that a person that they had in many other respects and context admired Elizabeth Warren has chosen to make herself the great enemy of the crypto industry. What you're hearing from Torres in this piece is, I believe, what they had hoped to hear from Elizabeth Warren and other progressive champions

Starting point is 00:14:59 because it's what they feel themselves. Decentralizing concentrations of wealth and power is an inherently progressive goal. and it would certainly be appropriate for progressive politicians to try to ensure that crypto actually lives up to those promises. What's made people sad about the historic progressive response is the idea of assuming that those promises are bullshit in the first place. But with all that said, I find this development very exciting. I think it's staggering and important that Bitcoin and crypto are somehow staying out of the partisan hardening that takes everything in this country, and I hope we continue to see more of that. Now lastly, and we won't spend quite as much

Starting point is 00:15:36 much time on this one. As I was prepping this show, there was another digital currency-related announcement regarding the U.S. Congress. The Electronic Currency and Secure Act or E-Cash Act is a bill from four Democratic representatives in Congress that asks Treasury to pilot a P-to-P retail digital dollar that is meant to resemble cash as much as possible. Now, interestingly, it does not use blockchain or any other ledger technology. From the block, quote, uniquely, the e-cash Act would digitize the dollar not just without decentralized ledger technology, but without a ledger at all. One of the only technological limitations it puts on the Treasury's pilot programs is for, quote, secure hardware-based architectures for the purposes of creation,

Starting point is 00:16:17 distribution, holding, and payment that do not involve any common or distributed ledger. The pilot programs, which along with hardware wallets would include a cell phone app and a form prepaid card, would then open up to field tests. Another way of describing it comes from Coindesk who writes, the electronic dollars to find in the bill would be a bearer instrument that people could hold on their phone or a card. The system would be token-based, not account-based, meaning if someone were to lose their phone or card, they would lose the funds. In other words, it would be like losing a wallet with dollar bills in it. Rohan Gray, who's an assistant professor at Willamette, and who you've probably seen arguing with Bitcoiners and crypto people on Twitter,

Starting point is 00:16:53 consulted on the bill, saying, we're proposing to have a genuine cash-like bearer instrument, a token-based system that doesn't have either a centralized ledger or distributed ledger because it had no ledger whatsoever. It uses secured hardware and software, and it's issued by the Treasury. To the block, Gray explained why the Treasury was a better actor than the Federal Reserve for this particular challenge. You hear the Fed say things like, we don't have the competency to do retail services. We don't provide retail banking services, so we can't provide retail CBDC. The reality is that they are probably right in that they don't have that capacity. but they are incorrect to say that the government doesn't have that capacity because the Treasury

Starting point is 00:17:28 provides those services all the time. End quote. What's more, while it's a Dem bill, Gray thinks there's opportunity to get Republican support because of the bill's focus on the privacy and anonymity of cash. Quote, this bill may get framed as radical, but I think that's the wrong way of looking at it. This is a small C conservative defense of existing privacy and freedom. So since the theme of today's show is bipartisanship, I want to again highlight Rohan's commitment to privacy in my money. As I mentioned, he's often an antagonist, at least in the Twitter sphere, to the crypto industry, but he is a stalwart when it comes to the importance of having a cash-like instrument in the digital world. I personally think it's extremely positive for Congress to be having this

Starting point is 00:18:10 debate from multiple angles and in multiple ways. I would like this message of privacy preservation and cash-like properties to take root even before we're debating the specifics of CBDCs. So Net Net, a pretty exciting few days for the world of digital. currencies, cryptocurrencies, private monies in a digital era, and so on. For now, though, I want to say thanks again to my sponsors, nexo.io, Arculus and FTX, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, breakdown listeners, come join CoinDesk's Consensus 2020, the festival for the decentralized world this June 9th through the 12th in Austin, Texas. This is the only festival

Starting point is 00:18:56 showcasing and celebrating all sides of blockchain, crypto ecosystems, Web3, and the Metaverse, and is designed for crypto newbies, investors, entrepreneurs, developers, and creators. Don't miss speakers like Kathy Wood, SBF, CZ, Punk 6529, and Joe Lubin to name just a few. Use code breakdown to get 15% off your pass at coindesk.com slash consensus 2022.

The Breakdown - Bitcoin’s Allies in the US Senate Are Increasing

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