The Breakdown - Crypto at a Crossroads in Wyoming

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 Wednesday, August 20th, and today we are talking about the crossroads of crypto adoption. 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 podcast. All right, well, yesterday we covered the Kansas City Fed's conference in Jackson Hole, but per crypto folk, that's arguably not even the most important conference taking place in Wyoming this week. We also have the Wyoming Blockchain Symposium, which is getting into full swing.

Starting point is 00:00:53 The inaugural conference was held last August, and at the time, the industry was making a big push towards legitimization. BlackRock's Bitcoin ETF was outperforming expectations, and crypto was playing a leading role in the lead-up to the election. Still, many policymakers had never met the broad cross-section of people working in the crypto industry or had much of an opportunity to familiarize themselves with the sector. With that in mind, it made perfect sense to bring the Crypto Conference to Wyoming on the same week that the world's top economists, central bankers, and policymakers were in town. A few did stop in to take a look, but broadly it was still a crypto conference stacked with the usual names. The same isn't true this year, with numerous

Starting point is 00:01:28 prominent government figures taking the opportunity to talk about crypto policy. Tuesday's headline event was a speech from Federal Reserve Governor Michelle Bowman. Bowman is one of the Republican members of the board and appointed to the role of vice chair of supervision earlier this year. That means she's in charge of setting the policy around bank regulation and overseeing the Fed staff working in that area. In a speech entitled Embracing Innovation, Bowman said, We stand at a crossroads. We can either seize the opportunity to shape the future or risk being left behind. By embracing innovation with a principled approach, we can define the course of history and fulfill our responsibility to promote the safety and soundness of the banking system and financial stability. The speech covered the paradox that financial regulators have found themselves in since the GFC.

Starting point is 00:02:08 The core concern has been to minimize risk, and rapid transformation certainly comes with a lot of risk. However, Bumman commented, we must pay equal attention to the benefit side of the equation. Innovation and regulation don't need to be on opposite ends of the spectrum. In fact, they complement each other. A more modern, efficient, and effective financial system furthers key regulation objectives, promoting safe and sound banking operation, financial stability, and economic growth. This is a point you've heard from people that bridge the crypto and banking worlds over and over. Austin Campbell, for example, has often argued that adoption of crypto and banking will actually

Starting point is 00:02:39 reduce risk due to instant settlement and a transparent record of ownership. Bowman is now articulating a technology forward approach where the Fed acknowledges and adapts to technological changes rather than fighting against them. She said, some bankers have expressed concerns about new technologies posing a threat to traditional business models and practices, but the banking system is constantly evolving, and technology can change the banking system regardless of how banking. and regulators choose to respond. Belmont also warned that failure to act is even more risky, commenting that, ideally changes will occur with the willing embrace of regulators,

Starting point is 00:03:10 allowing use cases to proliferate in a way that benefits the banking system. If this is not our approach, then we risk the banking system becoming less relevant to consumers, businesses, and the overall economy. Her point was that regulation gets harder if the financial system moves away from banks and into the non-bank sector. Arguably, that was one of the core problems during the last cycle, with far too many so-called crypto banks that had absolutely zero regulatory oversight. Bowman declared, it is essential that banks and regulators are open to engaging in new technologies and departing from an overly cautious mindset. Regulators must understand new products and services and recognize the utility and necessity of embracing technology in the traditional financial

Starting point is 00:03:47 sector. The speech covered a range of other minor topics. Bowman commented that Fed staff and other regulators should be allowed to hold a small amount of crypto, arguing, I certainly wouldn't trust someone to teach me to ski if they'd never put on skis, regardless of how many books and articles they have read or even wrote about it. Boman also briefly touched on debanking and acknowledged the role that reputational risk assessments played in shutting out the crypto industry. But mostly this was the head regulatory official at the Fed, coming to a crypto conference and extending her hand, looking to work together on a better regulatory system. Bowman told attendees, I would also like to encourage the industry to engage with regulators to help

Starting point is 00:04:21 us understand blockchain and its potential to solve other problems. I'm committed to changing our culture and attitude towards the adoption and integration of technology and new products and services. Now, we've never had a Fed official at this level speak in this way at a crypto conference before. Her appearance demonstrates that reform efforts around crypto are far from surface level. Key personnel are engaging with the industry and genuinely moving forward with the outreach and work that needs to be done. Caitlin Long, CEO of Custodia Bank tweeted, Pinch Me, the Federal Reserve Vice Chairman for Supervision is making a speech supportive of tokenization and stablecoins, including facilitation of near real-time payments in my home state, the leading state for

Starting point is 00:04:57 crypto of Wyoming. Change is coming. Nate Garassi, the president of Nova Diaz-Welv commented, shift towards crypto is happening fast. We put this up there with SEC Chair Paul Atkins' recent Project Crypto speech. This isn't some random person. This is a sitting governor of the Federal Reserve. Speaking of which, Chair Atkins was also present and gave an interview that fleshed out

Starting point is 00:05:18 the SEC's Project Crypto. Atkins said, we cannot go about looking at tokens themselves as necessarily being a security. From the SEC's perspective, we will plow forward and on the idea that just the token itself is not necessarily the security and probably not. There are very few in my mind tokens that are securities, but it depends on what's the package around it and how that's being sold. Now, obviously, this is in a new position, but some repetition is definitely welcome after spending years listening to Gary Gensler claimed that all crypto tokens are securities. There was nary a duck analogy in sight. Ackins acknowledged that there's

Starting point is 00:05:50 an incredible amount of work to do, but praise the administration for handing him a mandate to get moving. He said there's a long to do list and a lot of questions to be answered, nodding to market structure legislation still to be passed in Congress. However, Atkins called the Genius Act a, a, quote, seminal step for the U.S. government to officially recognize one part of the industry. Now, part of the discussion that really struck a chord was the notion that it's high time for legal clarity. Atkins told the crowd, you've paid enough legal fees not just to fend off the government, but to try to figure out the crazy quilt of different court opinions and statutes in different jurisdictions. How do you push forward with a legal business? Touching on the longstanding question of

Starting point is 00:06:23 which agency will become the Supreme Crypto Regulator, Atkins commented, I didn't come to Washington to engage in a turf battle. That's the last thing in the world I want to do. But we have to future-proof what we're going to be doing with the rules of the road, because in five or ten years from now, things will be completely different, and we can't put things into little cement boxes that are immutable. We have to have flexibility. One of Atkins's big ideas is that he wants to flatten out all of the separation between securities and commodities registration, allowing brokerages and custodians to cover both sides of the financial industry, essentially taking the same approach that most other countries do and allowing everything to be traded under one roof.

Starting point is 00:06:56 Concluding Atkins said, it's a new day, especially for this industry. We are about innovation, now we want to embrace innovation. Today's episode of The Breakdown is brought to you exclusively by Grayscale. Grayscale is almost certainly a name you know. They've been offering exposure to crypto for over a decade now and offer over 20 different crypto investment products ranging from single asset to diversify to thematic exposure to crypto and the broader crypto industry. They have long been innovators at the intersection of TradFi and Crypto, and one of the benefits for a lot of us is that grayscale products are available right through your

Starting point is 00:07:35 existing brokerage or IRA. Now, of course, investing involves risk, including possible loss of principle. For more information and important disclosures, visit Grays, Grayscale.com. Go to grayscale.com to explore their full suite of crypto investment products and invest in your share of the future. Rounding out the government presence at the conference, Senate banking chair Tim Scott made an appearance to talk about next steps for the market structure bill. He said that he believes he could get between 12 and 18 Democrats senators on board, if not for one big problem. Scott said, the force is against it, let me just say it clearly, like Elizabeth

Starting point is 00:08:11 Warren, standing in the way of Democrats wanting to participate. It's a real force to overcome. In this context, Scott is talking about the Senate version of the bill, which takes a slightly different approach to the House bill. But for the moment, it doesn't seem like dialing in the best form of the legislation is the core focus. Scott knows that without getting a dozen or so Democrats on board, he doesn't have the votes to move any bill forward.

Starting point is 00:08:31 His comments reinforce what we kind of already knew, that Elizabeth Warren is opposed to crypto legislation in any form. Last month, Warren said we need crypto regulation, but it turns out that none of the bills currently on offer apparently meet her standards. While Warren is the major remaining roadblock, Scott was grateful that she's the only one. He told the crowd, Thank you to all of y'all for getting rid of Sherrod Brown. Scott's comments leave some hope for negotiations once Congress is back in session at the beginning of September.

Starting point is 00:08:56 The sponsors of the Senate bill have set a self-imposed deadline of September 30th to make some progress, most likely pushing it through a banking committee markup hearing to prepare it for a floor vote. There is a lot of work to be done before we get there, but it's clear the bill is a priority for the next session. Scott said, we have to get it done now. executive action is not enough, period. If one president hated it, this one loves it, we need the Senate and the House to get legislation passed. What Scott revealed, however, was that this fight is going to be largely about political will rather than drafting and legal reasoning. There are Democrats who want to participate, but now Scott has to clear Warren and her politics out of the way. He commented that he's currently,

Starting point is 00:09:31 quote, looking for folks off the committee to help provide cover for those on the committee to vote for it. Now, on final piece of news out of the Cowboy State, Wyoming used the conference to launch their official state-backed stablecoin. Called the Frontier Stablecoin or FRNT, the Stable coin has gone live on mainnet across seven different blockchains. The Wyoming Stable Token Commission wrote in a press release, this historic move marks Wyoming as the first public entity in the United States to issue a blockchain-based stable token. Front is designed to provide secure, transparent, and efficient digital transactions for individuals, businesses, and institutions worldwide. This groundbreaking initiative cements Wyoming at the forefront of digital finance and

Starting point is 00:10:07 blockchain innovation. As for technical specifications, this is a Genius Act compliance stablecoin, meaning it's fully backed with U.S. dollars, held in bank accounts and short duration treasuries. The commission has a mandate to achieve 2% over collateralization through retained interest earnings. No one knows how much adoption the token will see. Presumably it won't be much even if the state incentivizes its use for various taxes and fees. But to some extent, the project was always more about cementing Wyoming's place as a crypto-forward state and serving as a test case for government-issued stablecoins. Staking with government crypto advocates for a moment, former White House crypto-advisor Bo Hines has landed his next gig with Tether. Heinz's formal title will be strategic advisor for

Starting point is 00:10:44 digital assets and U.S. strategy. Informally, it's clear why Tether would benefit from hiring a Washington insider with close ties to the administration. The company is currently in a strange position. They've declared their intention to deepen their presence in U.S. markets, but currently their flagship stablecoin is not Genius Act compliant and risks being banned at the end of the three-year grace period. Tether has said they want to launch a separate institution-grade stablecoin that complies with the legislation. CEO Paulo Arduino said that work is well underway on Tether's U.S. expansion. He said that Hines, quote, deep understanding of the legislative process, combined with his passion for practical blockchain adoption, makes him an invaluable asset as Tether enters the biggest

Starting point is 00:11:21 market in the world. In markets, the key question for this week is whether the top is already in. Both Bitcoin and Ethereum have plunged the levels not seen since Tuesday, but still that's enough for many traders to question whether we're on the downside of the cycle. Alex Kruger offered some reassurance tweeting, remarkable how every time you get a correction from new highs, so many people start to fret about the cycle top, over and over again. I have a high degree of confidence this cycle is not over, because I am expecting changes in the Fed to bring on considerably more dovish monetary policy, which is not priced in at the moment. This would start to get priced in once Trump announces his nominee to replace Powell. In the immediate term, Powell is speaking at Jackson

Starting point is 00:11:56 whole on Friday, and I lean slightly bearish into it as a hawkish speech to reduce the odds of a September cut, for the Fed to retain optionality and not let the market push itself into a corner. Taking the other side of the argument, though, we just kind of got the mother of all top signals with Chamath Palahapatia now launching a crypto SPAC. Called the American Exceptionalism Acquisition Corp, the SPAC is technically open to buying AI, defy, or warfighting robotics, which are the market segments that Chimoth thinks are, quote, fixing the fundamental risks that come from our interconnected global order while reinforcing American exceptionalism. The regulatory documents were a pretty strong vibe check with Chimoth actually writing,

Starting point is 00:12:31 there can be no crying in the casino. For another sign of how frothy things are getting, crypto treasury companies have raised $15 billion so far this year to officially overtake venture funding in the space. The chart went absolutely parabolic last month with nine of the $15 billion raised in July alone. While there are a lot of generalized fears that the cycle is coming to an end, there is one big specific fear around micro-strategy. Three weeks ago, Micro Strategy pledged that it wouldn't issue more stock unless their share price

Starting point is 00:12:56 was more than 2.5 times the value of their Bitcoin. That guidance was abandoned on Monday with Microstrategy instead stating that they would, quote, tactically issue stock to pay interest or dividends and when otherwise deemed advantageous to the company. The guidance applies all the way down to a one-time valuation, at which point the company will consider issuing bonds to buy back their stock. So essentially, Micro Strategy has moved away from clear guidance to just issuing more stock whenever they decide to. That would be all well and good if Micro Strategy would be we're still roaring ahead, but they've been in a steady downtrend for the past month. The premium is currently at around 1.5 times. Now, I am not at all interested in amplifying the

Starting point is 00:13:31 legions of micro-strategy doomsayers. There are plenty of those all over CryptoTwill this week. Primarily, it's just an important moment for one of the more critical assets of the cycle, so worth paying attention to. For their part, TD Cowen seems completely unfazed by the strategy adjustment. In a research note on Tuesday, they restated their price target 2x higher. They commented, what started as a defensive strategy to protect the value of its reserve assets has become an opportunistic strategy intended to accelerate the creation of shareholder value. Essentially, as long as Michael Saylor is buying, T.D. Cowan is still in. One interesting observation from Udi Wertheimer came when he recognized that the noise

Starting point is 00:14:06 on crypto Twitter is even less important than usual this cycle. He wrote, one thing that you have to understand is that crypto prices are not driven by crypto-natives anymore. It's absolutely crucial you understand this, having 100% of CT deciding one day that micro-stratage's play is dead, is completely immaterial and means absolutely nothing. At the end of the day, even meme coins only go up and down based on the trickling down of Tradfai liquidity. Cutting through all the noise, Bernstein has urged everyone to have a time horizon that extends past the end of this week, declaring that the bull market could carry through into 2027. They wrote, the Trump administration is in mission-critical mode to build the U.S. into the

Starting point is 00:14:41 crypto capital of the world. We expect a long crypto bull market continuing the surge into 2026 and potentially peaking in 2007. The firm raised their targets on Coinbase, Robin Hood, and Circle, pointing to the various acquisitions and initiatives yet to play out. Bernstein's main call is that this will be a, quote, long, exhausting bull run breaking out of the four-year cycle. Right now, whatever position you want to take, there are plenty of people who will agree with you and plenty of people who will disagree, which means I think that it's the perfect time

Starting point is 00:15:08 to actually maybe take your last couple weeks of summer and chill out, although, of course, I won't be taking my own advice to do so. That's going to do it for today's breakdown. Appreciate you listening, as always, and until next time, be the same. safe and take care of each other. Peace.

The Breakdown - Crypto at a Crossroads in Wyoming

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