The Breakdown - Elizabeth Warren has Declared War on Crypto

Episode Date: April 1, 2023

“Then they fight you” but for real this time. Elizabeth Warren is running for re-election to the Senate, and she’s running on the platform of being a crypto antagonist. NLW explores the reactions from the crypto community.  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   “The Breakdown” is written, produced and narrated by Nathaniel Whittemore aka NLW, with editing by Michele Musso and research by Scott Hill. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. Music behind our sponsor today is “Foothill Blvd” by Sam Barsh. Image credit: by CoinDesk.  Join the discussion at discord.gg/VrKRrfKCz8.

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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 produced and distributed by CoinDesk. What's going on, guys? It is Friday, March 31st, and today we are talking about Elizabeth Warren declaring war on crypto. A quick note before we dive in, there are two ways to listen to The Breakdown Podcast. You can hear us on the Coin Desk Podcast Network, which comes out every afternoon and features other great Coin Desk shows. Or you can listen on the breakdown-only feed, which comes out a few hours later in the evening. Wherever you listen, if you are enjoying the show, I would so appreciate it if you would take the time to leave a rating or review.

It makes a huge difference. All right, folks, well, happy Friday and not just Friday, but the last day of the month and the last day of the quarter. And boy, what a quarter it was. Going into this year, the smart money was betting on a pretty rough time of it. December was all just the very beginning of cleanup of the fallout of FTX, and nearly everyone assumed that there would be a big, loud, and potentially price-depressing regulatory response as well. Well, folks were right about the antagonism, as is the subject of today's show.

But boy, were the bears wrong about the price. Bitcoin today completes its best quarter in two years. BTC is up around 70% since the beginning of January. And to be fair, it's not the only asset that's up. The tech-heavy NASDAQ stock index is up around 17%, and gold is up about 8.5%. Now, maybe the key thing that happened this quarter from a broader U.S. economic standpoint was the banking crisis.

The powers that be initially tried to blame it all on crypto, but really it was about something different and endemic across the entire banking sector. That, of course, were the unrealized losses sitting on bank balance sheets, reflecting that the bonds and other securities they purchased, with an influx of ZERP-era deposits, were now underwater due to the Fed's interest rate hiking cycle, which was the fastest of its type in 40 years. Unrealized losses only stay unrealized if no one asks for their money back, but unfortunately, when people start to get nervous, they ask for their money back. In early March, when Silicon Valley Bank revealed that a lot of their customers had been asking for their money back,

not because they didn't trust SVB, but just because being a startup in 2023 involves a lot less money, than in 2022 or 2021, they had to sell billions in securities at a loss, so much so that they were actually needing to raise more money. This freaked markets out and led ultimately to a chain reaction where the extremely densely networked tech industry started pulling their funds en masse. As I discussed with Nick Carter earlier this week, SVB kind of destroyed the ability for regulators to write this off as a crypto issue, and since then, everyone has been laser-focused on these potential unrealized losses sitting at bank balance sheets all over the country. However, in that, context, Bitcoin has seen a bit of a boom. It's not totally clear that narrative drivers got the

rally moving, and in fact, many suspect that the initial price action might have been more driven by Binance stitching their stablecoin for Bitcoin. What's very clear, however, is that the narrative of Bitcoin as a solve for banking problems has significant traction. The last couple of weeks have seen a ton of versions of that same story, coming not just from the crypto space, but from mainstream outlets. Those narrative forces are interacting with a broader move nudging back into risk assets, on the basis that the market believes that the banking crisis is a new factor that will force the Fed to effectively end and ultimately reverse its tightening cycle. And so take all this together and we have Bitcoin's best quarter from a price standpoint in two years. Alas, price is only part

of the crypto story. Yes, when the history books are written, we're not going to remember Q1, 2023 because Bitcoin went from 17K to 28K. We're going to remember it as the beginning of a full frontal assault on the entire industry. The crypto community is extremely fond of the apocryphal Gandhi phrase. First they ignore you, then they laugh at you, then they fight you, then you win. We have a tendency to pretty much always think we've entered the Then They Fight You phase, but as of this quarter, I think it's pretty much official that we are now well and truly into the Then They Fight You phase.

The breakdown has had numerous shows about Operation Chokepoint 2.0 and what seems like a coordinated effort to de-platform crypto companies from U.S. banking and in general push crypto offshore. But just in case there was any doubt, any doubt at all, yesterday Elizabeth Warren, the self-styled emperor of the crypto antagonists, announced her formal re-election campaign for her Senate seat in Massachusetts. To do so, she released a video and a series of graphics with her looking determinedly off-camera with a big blaring headline that had been recently written about her. Some of the accomplishments highlighted included subsidized child care and over-the-counter hearing aids. Great things for sure.

But that wasn't all she chose to focus on, and what she did focus on would overshadow all of it. The image she chose to start that video, the headline reads, Elizabeth Warren is building an anti-crypto army. The headline is drawn from a February article in Politico, which covered the Senator's sponsorship of the Digital Asset Anti-Money Laundering Act last year. That act would have required software providers and blockchain validation infrastructure operators to record significant personal information about protocol users and proactively generate money laundering reports without any government request for information. Coin Center called the bill unconstitutional and said it was quote, a direct attack on technological progress and also a direct attack on our personal privacy

and autonomy. Of course, that's not Warren's only attack on crypto. Since this time last year, Senator Warren has sent at least 15 letters on the topic of crypto to regulators, companies, and even the FTX bankruptcy judge. She's also sponsored at least two bills which would dramatically increase the data collection requirements within the crypto industry. Just for completeness, let's rip through a few of these. March 17, 2022, introduces the digital asset sanctions compliance enhancement act, which would allow sanctioning of foreign crypto firms transacting with sanctioned Russian entities. April 1st, 22, calls for a U.S. CBDC. May 4th, 22, letter to Fidelity investments asking about the appropriateness of Bitcoin services in 401K accounts.

July 15th, 22, letter to EPA and Department of Energy, asking about environmental impacts of crypto mining. July 26, 22, letter to fidelity investments asking to reconsider Bitcoin services in 401k accounts. August 10th, 22, letter to OCC asking them to receive. send guidance that allowed banks to engage in crypto activities. September 9th, 22, letter to meta platforms asking about policies to prevent crypto scams on social media. October 12th, 22, letter to Electric Reliability Council of Texas asking about the impact of crypto mining on climate change and stability of the electric grid. October 24th, 22, letter to seven financial regulators, including SEC, CFTC, Treasury Fed, FDIC, OCC, and Consumer Financial Protection Bureau asking

about ethics guidelines for crypto firms hiring former regulatory staff. November 21, 22, third letter to fidelity asking to reconsider offering Bitcoin in 401k accounts. November 23rd, two days later, letter to Attorney General Merrick Garland urging DOJ action on FDX. December 5th, 22, first letter to Silvergate Bank around banking FTX. December 14th, introducing the digital asset anti-money laundering act. January 11th, 23, letter to Judge John Dorsey presiding over FTX bankruptcy, requesting an independent examiner be appointed. January 26, 23, praises SEC Chair Gensler for stymying the crypto industry. January 30th, 23, second letter to Silvergate around banking FDX. February 6.23, letter to EPA and Department of Energy asking when the departments would

begin to gather data on energy use of crypto miners. March 2nd, 23, letter to Binance asking for details on money laundering controls. And most recently, March 21, 23, a second letter to the public company accounting oversight board urging them to take action of, quote, sham audits of crypto companies. Talk about living rent-free in someone's head. So there are a lot of interpretations and discussions of this inveterate main character syndrome. The first, which feels like it should be dealt with right up front, is that it's a strategically calculated stric-sand effect thing. In other words, Warren knows how loud we are in this industry

and knows that by targeting us, we're going to squawk our faces off and put tons of eyeballs on our campaign. In an any attention-is-good-attention world, maybe that's the goal. Masari founder Ryan Selkis writes, From this day forward, we do not say her name. She wants to make anti-cry-Sand effect issue, so she no longer has a name. Instead, we punish her vulnerable friends.

Next, a second interpretation, maybe more generous than I'd personally make, is that Warren is so conditioned at this point to see anything having to do with money as inevitably morally bankrupt and doomed to hurt regular people that she just hasn't tried to understand why crypto is different.

You see this take from a lot of progressive bitcoiners who once saw Warren as an ally, aligning with her on the corruption and malpractice of large financial institutions. They feel incredibly frustrated that she can't see as they see, that new decentralized financial models could break the sort of monopolistic and centralized power she spent her career nominally rallying against. And what's more, they feel personally betrayed that she doesn't even seem to want to try. Mark Jeffrey writes,

Crypto Defi is fractional citizen ownership banks and exchanges. It pushes the profits of banks to the edges, to the people. It is the most progressive thing ever invented, but it uses capitalism, not socialism, to accomplish it. Left Diserper says, I'm a progressive, Elizabeth Warren. Your anti-crypto stance is defeating. I donated to your campaign in 2020. I am pro-crypto because it allows working families to break generational poverty created by the failed monetary system. I will vote pro-crypto wherever they sit politically. Dysopia breaker writes, I'm a progressive and I'm here to fight for American families against the big banks. That's why I'm working tirelessly to attempt to exterminate technology

that reduces the power of banking and runs on infrastructure that architecturally treats everyone the same while executing contracts in a manner that anyone, regardless of stature, can verify. Because I'm so progressive in fighting of the big banks and for the American family, I will stop at nothing to ensure that the abusive business models used by the big banks are the only legal ones and to extra-legally destroy any attempts to improve or disrupt the situation. I am asking for good faith engagement instead of knee-jerk culture war bullshit that hurts everyone. Put even more simply, Stephanie Esquietta writes, Senator Warren might single-handedly be responsible for my decision and many others in leaving the Democratic Party.

You're on the wrong side, Senator. History will not be kind to you on this one. That's just the tip of the iceberg of progressives who feel betrayed in that way. A third interpretation sees this attack as implicitly a contradiction of her own values. Put simply, the group most excited about Warren's attacks on crypto are the bank lobby, the same bank lobby she once fought. Indeed, according to the article that Senator Warren referenced, Politico writes that Senator Warren was, quote, starting to recruit conservative Senate Republicans to her anti-crypto cause, and getting some early positive vibes from bank lobbyists who also want to reign in digital

asset startups. A fourth interpretation just sees this as wild, regressive Ludditeism, that perhaps reflects America's current hatred of tech, not just crypto. Stephen Cole writes, think how hilariously Luddite and cringe and all-around dumb it would look if you'd run an anti-internet campaign back in the early 90s. That's you, Elizabeth Warren. That's what you look like. A fifth interpretation is that this is all about utter human pettiness. After all, politicians and their staffs are people, too, and in this case, it seems to be personal. Nick Carter writes true Liz Warren's story.

One time I took a call with her chief of staff, she recalled a tweet where I had called her a despot. Liz Warren's team copes and seethes over your tweets and saves them in a dossier of mean tweets. Never forget that. Sixth interpretation is that this is about creeping authoritarianism. Haley Lennon writes, Elizabeth Warren isn't building an anti-crypto army. She's building a pro-Cbdicc army. Zerox Maksie says Warren said the quiet part out loud. The path for crypto to gain mainstream sympathy is as a non-violent resistance movement. Warren is invoking the image of weaponizing the state's monopoly on violence against a minority group to eliminate the private sector's

ability to develop this technology and clear a path to a dystopian retail CBDC that violates civil liberties. This is not a winning issue and should be resisted within both. parties. Finally, a seventh interpretation, a really question, is who is this meant to appeal to? Stats on this are notoriously bad, but still many are making the point that this is extremely weird given how many Americans own crypto. Some put the numbers at above 20%, but even Brian Brinkman here with a lesser estimate makes the point. He writes, 8.3% of Americans own crypto, 36% are liberal leaning. That's around 10 million voters. These aggressive moves are politically disastrous for Democrats in every state, the opposite of progressive.

Now, I'd be remiss if I didn't mention there is one self-reflective type of take that I think is worth considering. That's the recognition that the industry's action have given Warren and her ilk room to maneuver. Anthony Sassano writes, being anti-crypto is sadly the popular stance in the normie circles of the world and will win Elizabeth Warren many votes. What we as an industry need to do is work to change the attitude of regular people towards crypto. One of the ways we do this by building products and services that regular people can get value out of. We also need to do much more to call out Ponzi's like Terra and frauds like SBF. Deifying the people running these projects did enough damage to make being an anti-crypto politician a popular stance. You can post all the memes about

her you want, and you can hate her as much as you want. That won't change the fact that she has a loyal base that will always vote for her, and she can win over many voters by targeting things they already hate, like crypto. Now, sadly, there is, I think, one more dimension of this, which is extremely disappointing to me. That, of course, is the effect this is having hardening partisan and lines around crypto. Crypto in general and Bitcoin in particular has remained incredibly resistant to the unceasing maw of the culture war and partisan politics that tends to eventually consume everything in America. At every major turning point for crypto when it comes to legislation, it's always been a combination of Democrats and Republicans on the pro side and Democrats and

Republicans on the con side. That, I believe, has been significantly to the benefit of this industry. However, the more that the White House pushes, the more that Democratic leaders like Elizabeth Warren decide to make this an issue, which again, 15 public notes in the last year certainly seems like this is a central issue for her, the more it means that this will become the right is pro-crypto and the left is against it. This seems to be validated by the reaction of some right-leaning groups to Republican senators crossing the aisle to work with Warren. GOP Senator Roger Marshall received a grilling in a letter from a trio of conservative groups criticizing his co-sponsorship of the Digital Asset Anti-Money Laundering Act and working on an anti-crypto agenda. The Club for Growth,

Americans for tax reform and Freedom Works, warned that Senator Marshall was stifling innovation and could help push crypto firms offshore. The letter stated, quote, we are extremely disappointed in your efforts to attack digital asset companies. Why are you supporting new big government regulation? Regulation stifles investment in America. It creates a government system that picks winners and losers in the marketplace, and it creates new barriers to entry. Now, whatever the interpretation of all of this, the fight is on and there are many calls for action. A common theme is that it might be time now that we face this clear external threat to put aside the petty grievances and internal squabbling that characterize so much of this space. Wendy O. writes, the fight for liberty against

Warren and her expired geriatric public servant buddies should unite the crypto and Bitcoin communities. It's not about your bias. It's about liberty. Ultimately, whether that's your strategy or not, the fight is most certainly here. And it's only going to ratchet up. I will do my best to keep giving you the info you need to fight it however you choose to. And so until to, be safe and take care of each other. Peace.