The Breakdown - Crypto Politics Heats Up In Advance of the Midterm Elections

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.com, near NFTX, and produced and distributed by CoinDesk. What's going on, guys? It is Wednesday, May 4th, and today we are talking about crypto politics heating up in advance of the U.S. midterm elections. Before we get into that, however, if you are enjoying the breakdown, please go see. subscribe to it, give it a rating, give it a review, or if you want to get deeper into the conversation, come join us at the Breakers Discord. A disclosure, as always, in addition to them being a sponsor of the show, I also work with FTX. Finally, I would love to invite you to come

Starting point is 00:00:51 join CoinDesk's Consensus 2020. The event is taking place this June 9th through 12th in Austin, Texas. And the thing that makes consensus such a different type of event is that it is truly a big tent event. It is highlighting all aspects of this industry from specific cryptocurrency ecosystems to Bitcoin to Web3 to Metaverse, NFTs, etc. It's got tracks for people who are more enfranchised as well as for people who are newer, and there's great speakers like Kathy Wood, CZ, Punk 6529, SBF, and many, many more. You can use code breakdown to get 15% off your pass if you go to coin desk.com slash consensus 2020. It should be a great time. So today is a Fed day that FOMC meeting is getting reported later this afternoon. So of course, we'll be discussing that tomorrow.

Starting point is 00:01:43 But as of the time of this recording, it's still just speculation around whether we'll see the 50 basis point hike that we anticipated or whether there might be more dramatic action. Today, what we are doing is we are catching up on a bunch of crypto news that I believe shows how crypto is working its way into U.S. politics at a different level than it used to. First up, we're going to talk about the announcement yesterday from the SEC that it would be adding 20 new hires for their crypto assets and cyber unit within their enforcement division. They're jumping from a headcount of 30 to 50, with the unit focused on crypto asset offerings, crypto asset exchanges, crypto asset lending and staking products to centralized finance or defy platforms, non-fungible tokens, NFTs, and stable coins. Since the formation of this unit in 2017, it has brought more than 80 enforcement actions,

Starting point is 00:02:30 resulting in monetary relief of more than $2 billion. So on the one hand, this isn't really surprising, right? I mean, the industry is getting bigger, and part of what the SEC's job to do is to focus on people who break the rules. We don't necessarily have to view this as some crazy targeting or action against us. All that said, there are some fair critiques. One notable frustration comes from a dissenting opinion within the SEC itself. Commenting on the SEC's announcement tweet,

Starting point is 00:02:58 SEC Commissioner Hester Perse said, the SEC is a regulatory agency with an enforcement division, not an enforcement agency. Why are we leading with enforcement in crypto? Others picked up on this theme. Congressman Patrick McHenry said the regulation by enforcement at Gary Gensler's SEC is stifling American innovation. If the U.S. wants to lead the deployment of the next generation of Internet technology,

Starting point is 00:03:21 we must provide clear, thoughtful rules of the road for the digital asset ecosystem. Some folks on Twitter offered what they would do instead. Jake Chravinsky writes, If I were in leadership at the SEC, I would hire a team of policy experts to analyze the unique properties of digital asset markets and craft a tailored regulatory framework that promotes U.S. innovation and competitiveness. Instead, we're told to expect more regulation by enforcement. There are a lot of folks out there who basically said some version of do this right and we support it.

Starting point is 00:03:50 Shapeshifts Eric Voorhees tweeted a poll, hey investors, do you want SEC's protection? And Kobe responded, realistically, if SEC protections meant sensible protections and enforcement against fraud, then probably yes. If it means whatever they are currently doing now, then no. I don't think the SEC is a credible regulator for crypto after the last five years. But I think that if protections are, A, token projects have to be clear and transparent about private token sale terms, B, token projects have to publish clear and transparent investing schedule terms where possible, and C, token projects have to accurately represent API and source of yield, etc., then this is good, sensible regulation. It improves investor

Starting point is 00:04:27 awareness and actual investment safety by letting people make fair decisions with good, transparent, and symmetric information. It doesn't discourage innovation under the premise of extremely old laws. Now, the problem is that some are reading this as being less about fraud and scams and more just the SEC going after what they consider unregistered securities. Alexander Greve writes, tone of this release is wild to me. Seemingly not focused on policing fraudulent practices. It's focused on protecting investors, quote unquote, from everything that the SEC views as currently unregistered securities or securities platforms, aka everything in crypto. No nuance here. Now, the one other issue that some brought up is, where are these 20 people going to actually come from?

Starting point is 00:05:08 Crypto lawyer Nelson Rosario writes, to paraphrase and expand upon what a much smarter crypto lawyer than I said. If there are 20 to 50 lawyers out there that get crypto that are looking for jobs, I'll eat my hat. Now, the one other dimension to this, which is really interesting, is the jurisdictional part. Ron Hammond at the Blockchain Association wrote a long thread on this that I'm going to now excerpt. One theme that will dominate the next year of crypto policy is the jurisdictional battle between agriculture and CFTC and banking slash SEC. While the jurisdictional battle over crypto regulation between the SEC and CFTC has been happening for quite some time, there has haven't been many of the same battle lines drawn in Congress in the respective committees.

Starting point is 00:05:47 That was until last week after two significant developments. First came Patrick McHenry, who confirmed he would move to chair of the Financial Services Committee if the Republicans win the House. Later in the interview, he said, I think you have to have a different regulatory sphere for digital assets that's neither the SECC nor the CFTC. Second development came from the House Agriculture Committee Ranking Member Glenn Thompson, who reintroduced a modified and bipartisan digital commodity exchange act,

Starting point is 00:06:11 which would allow crypto-trading platforms to register with the CFTC. The significance of these efforts lies not only with the statements slash bills, but the power of the members themselves. Both members are the highest-ranking Republicans on their committee, and will have significant sway over the legislative direction of the committee if the Republicans win. In the likely case that Republicans have one or both chambers, they're still going to have the Biden administration and agency heads to deal with. That means Congress is going to need to weigh in with both agencies if they tackle this subject. Odds are one won't be happy and fight. For one agency to have complete control means another would need to seat its power in terms of agency

Starting point is 00:06:46 jurisdiction and congressional jurisdiction. Like the regulators, Congress likes having more control. Highly unlikely a chair signs off on crypto falling outside their scope. How about creating a whole new agency? In a Republican-led Congress, the odds of that happening are slim to none. The political optics of creating a whole new agency is tough for any Republican. Additionally, it is expected the current agencies would be against losing any crypto oversight. How about the current regulatory structure of the CFTC and SECC. There are obvious issues with the system, many gray areas, and questions that many in the industry need answered. However, smaller targeted reforms are easier to pass than major ones like those mentioned earlier. Expect more on this policy battle.

Starting point is 00:07:24 I think the point and the takeaway here, which Ron explains really, really well, is that there is a larger political dimension, a power dimension to this that's playing out and isn't just about finding the right system. It's likely to be a pretty messy process as that happens. Looking for ways to step up your crypto game, then go with Nexo. For starters, you get free crypto for each purchase or swap.

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Starting point is 00:08:12 This episode is brought to you by NIR, a climate neutral, high speed, and low transaction fee, layer one blockchain platform. NIR is a blockchain for a world reimagined. Through simple, secure, and scalable technology, NIR empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future. Reimagined your world today at NIR. The breakdown is sponsored by FTX US. FtXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets, with up to 85% lower fees than competitors.

Starting point is 00:08:57 There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCX, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. Let's talk about a few other areas of crypto politics heating up in advance of the midterms. On April 20th, Representative Jared Huffman and 22 other members of Congress sent a letter to the EPA, the Environmental Protection Agency, raising serious concerns about Bitcoin mining.

Starting point is 00:09:37 The short letter, as many pointed out, relied on many of the greatest hits of Bitcoin junk science to make its point. and because of that, the Bitcoin Mining Council has sent a letter as a point-by-point refutation to that same agency. The letter as 55 signatories including micro-straties Michael Saylor, VC, Nick Carter, Square and Twitter founder, Jack Dorsey, Mike Novogratz, Scaramucci, Tom Jessup of Fidelity, and many more. Like I said, this is really a point-by-point refutation, but a few of the big ideas that they point out include one. Data Centers, which contain miners are no different than data centers owned and operated by Amazon, Apple, Google, Mehta, and Microsoft. and two, that in the U.S., the sustainable electricity mix is up to 58.4%. Making it, they say, quote, markedly more sustainable than the default U.S. energy mix at 21% sustainable. Now, really, I think the key part of this was nailed in a separate thread by Nick Carter.

Starting point is 00:10:31 Imagine if we admit the precedent of deeming certain kinds of computation wasteful and giving the state the power under an environmental pretext to determine what is valid and what is invalid compute. I've always thought that fundamentally the Bitcoin energy conversation comes down to whether or not you like Bitcoin. We can talk about the renewable mix all we want, but if someone doesn't think Bitcoin is relevant or if they actively dislike it, they don't want to spend any energy on it at all. The question that Nick brings up is how much power the state has to be the ones to get to make the determination of what is or isn't a valid use of energy. And it starts to get pretty absurd if you apply the logic to other industries. How would we feel if the U.S. government said you can't have holiday lights this year, or that everyone had to unplug their dryers?

Starting point is 00:11:15 Now, obviously, it's a discussion for all societies to have about how much state power they want their leadership to be able to wield. But even in the context of that conversation, the other important piece of this is that we need to have it based on good data. Because of the egregious sourcing of a lot of the information in the Huffman letter, it makes it more like political theater than a real debate. I think there's a really good conversation to be had about Bitcoin in the environment. For example, about how Bitcoin can continue its path towards more renewable consumption, and in so doing, be a model citizen for other industries.

Starting point is 00:11:47 The funny thing is, there's a strong argument that Bitcoin is more efficient than other industries. Listen to this short clip of Brian Brooks from last week's FDX Salt Conference in the Bahamas for that take. So the way that incentives have really worked super well is twofold. One is that at scale, Bitcoin mining has finally achieved a place where we create more value per unit of energy than many, many other large industrial scale production activities that people do in the world. So, for example, the amount of energy required to produce a billion dollars of value of Bitcoin is much, much less than is required for an airline company to produce a billion dollars of value, a chemical company, a lot of other things that are industrial uses.

Starting point is 00:12:29 And so being able to achieve that value optimization is sort of an amazing thing, particularly in a world where proof of work provides this kind of security. The other thing that I think you'd talk about a little bit is the development of adjacent technologies that crypto mining and Bitcoin in particular has spun off things like, you know, in the Bitfury world, immersion cooling, which now has jumped the shark from Bitcoin mining to high performance and scaling computers computing centers in places like AWS and Microsoft Azure facilities. So these are innovations we would never have had but for Bitcoin mining, where energy intensity is so high. And I would argue those things are super positive developments.

Starting point is 00:13:09 Finally, an interesting little aside about the Ohio Senate race. Primaries are over for the open Senate seat in Ohio, with J.D. Vance winning the Republican vote and Tim Ryan winning the Democratic vote. Vance owns a sizable amount of Bitcoin, is backed by Peter Thiel, and beat out Josh Mandel, the former state treasurer who implemented the state's crypto taxation payment program and proclaimed his vision for Ohio in a tweet as pro-god, pro-family, and pro-Bitcoin. Tim Ryan, who is the Democratic nominee, was the co-sponsor of the Keep Innovation in America Act, a crypto-friendly bill that is seeking to make tax reporting requirements more reasonable. So the clear point here is that all these candidates, including the one who lost, are crypto supporters across both sides of the aisle. Jake Trevinsky from

Starting point is 00:13:50 the Blockchain Association thinks this is bigger than Ohio as well. He tweets, The Ohio Senate primaries were held today. On the Republican side, the pro-crypto candidate won. On the Democratic side, the pro-crypto candidate won. This came as a surprise to no one. All the top candidates on both sides were pro-crypto. Welcome to the 2022 midterms. The way that I would characterize the moment that we're in as relates to Bitcoin and crypto-in electoral politics is that politicians everywhere are finally having to take a position. There is not clear partisan. and guidance on this, given that there are pro-crypto and anti-crypto people on both sides of the aisle. Now, certainly, there is a fault line where progressives could eventually just turn away from crypto entirely because of their beliefs about state power or their environmental positions. But for now, there's still a lot more nuance in the conversation. What's more, there's a big part of the country that's out there actively investing in this,

Starting point is 00:14:48 particularly among young people, which means that even now, even in its nascent political form, there is a risk to turning away from Bitcoin and crypto. I think we're going to get a lot of good information over the next six months leading into the primaries about where crypto is going to fit in the electoral calculus. For now, I want to say thanks again to my sponsors, nexo.io, near an 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 2022, the festival for the decentralized world this June 9th through the 12th in Austin, Texas.

Starting point is 00:15:32 This is the only festival showcasing and celebrating all sides of blockchain, crypto ecosystems, Web 3, 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 - Crypto Politics Heats Up In Advance of the Midterm Elections

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