The Breakdown - Governments Banning Bitcoin? Not So Fast as Former Regulators Brooks and Giancarlo Join Crypto Companies

Episode Date: April 21, 2021

As this cycle heats up, “governments will ban bitcoin” is one of the top areas of fear, uncertainty and doubt. On this episode, NLW breaks down why that FUD just doesn’t hold much weight right now, looking at: Why the examples of India, Turkey, Nigeria and China are not as bad as what people have posited  Why the early indications suggest the Biden administration is more open to crypto than what the Trump administration ended up being  Why it matters that two crypto companies today announced major board members and executives from the regulator world  Specifically, NLW looks at Brian Brooks and Chris Giancarlo’s trajectory in both the regulatory sphere and crypto and what their new private sector engagements might mean. -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- 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=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

You've got, one, a more open-seeming administration than the last one, with more crypto-open or even pro-crypto people in key positions of power. Two, you have a new group of entrenched interests from the traditional financial world who represent a new potential lobbying force for this asset and for this industry. And three, you have more experienced allies inside the ranks of prominent companies. So how, again, is the fud that governments are somehow now going to ban it? 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 and produced and distributed by CoinDess. What's going on, guys? It is Tuesday, April 20th, and first of all, I want to acknowledge the date. I thought about a number of different possible shows, and if I hadn't done an episode about Doge, I might have done one today. Quite perfectly, Doge hit 42 cents, and actually I even saw someone grab a screenshot of it at 42 cents and 69.1,000th of a cent earlier this morning. Now, I've seen a bunch of people talk about how Doge pumping is bad because, A, it somehow delegitimate Bitcoin by showing that all of cryptocurrency is absurd. Joe Wisenthel from Bloomberg wrote about that on his column today, or B, that it's going to cause a bunch of regulatory scrutiny.

On point A, listen, I just don't buy it. Doge's success, air quotes, isn't a knock on anything else. If anything, it's a testament to the power of memes and a triumph of internet culture. It's people being weird and unrepentantly so. And it certainly doesn't diminish what Bitcoin represents. This unique, ahistorical force of a non-sovereign money system that allows people to opt out of their local monetary regime. The argument that Doge somehow diminishes the success of that unique historical phenomenon is just going to be pushed by people who are either Bitcoin perma bears or by people

who like to troll Bitcoiners. God bless Joe. On point B, the regulatory scrutiny, this is relevant for the theme of the show, but I also just don't really buy this either. Regulators tend to focus on one of two poles, use of an asset in crime that scares them, or the idea of investor protection. On the first point, to be quite honest, I'm just not seeing the international traffic rings powered by the Almighty Doge yet. On the second point, what is there to protect? It feels so far that most everyone is in on the joke. The most scrutiny might be reserved for Elon Musk, the CEO of a public company, pumping it incessantly. But despite all the jokes, we're not yet, at least, seeing people put their actual 401ks into Doge like it's somehow real. That's because there's no one who's actually

promoting it. It's just a decentralized network of memesters. If that changes, I could be wrong, but right now it doesn't particularly worry me. What's more, if this industry can't handle regulatory scrutiny brought on by a meme dog, we've got another thing coming. Anyways, that was one possibility for a 420 show. The other possibility was doing a full historical look at the prohibition of cannabis and marijuana. What the roots of that prohibition were, the tension between marijuana's place in culture versus its legality, how the legality started to shift and what lessons there might be for crypto in other areas.

areas like it. And maybe a tie between the early history of crypto assets and technology in general to drugs and other illicit areas of the economy. But alas, that was too much for me to do well. If you guys dig that idea, maybe I'll plan for it next year. But still, there was a kernel here, right? The control of marijuana or any substance is about power. Doge is, at least in one dimension, a data-esque satire of people who think they can control markets or networks in any way. And when it comes to crypto markets specifically, one of the great contenders for the biggest fud of this cycle is also about power, the power specifically of governments to ban crypto. The canard of this fud is some variation on, if this gets too popular, governments will just ban it.

Some of the biggest pushers of this fud this cycle have been Mike Green, previously known and frankly quite admired for his work on the role of passive investing, now, for some reason, content to be the Bitcoin fudster podcast reply guy, and then also Ray Dalio, who, while continuously softening his stance on Bitcoin because it's super obvious to me, at least, that they're working on a Bridgewater Sound Money Fund or something, has held on to this as the fud that he's most nervous about. I think this government banning Bitcoin thing is competing with environmental costs of mining as the premier fud of this cycle. Tether was a contender at the beginning, but the New York Attorney General settlement really cut it out

of contention. Environment, of course, is a big player, especially given the surprising flare-up of antipathy related to NFTs. By the way, progressives dying on the hill of NFTs are immoral, when NFTs are also the first thing, more or less, that has given artists money without prostituting themselves and, like, history? Not on my bingo card for this year, but, hey, times are wacky. Still, this government banning idea is a serious area of FUD, too. And there's evidence of this, right? India seems poised to ban crypto. all the while it plans for an official digital rupee. Nigeria's central bank sends out a missive reminding banks of their previous prohibition

from them interacting with crypto holders. Turkey poised to ban crypto as a currency starting at the end of this month, so maybe there's some truth to this narrative. Well, hold on there, cowboy. Let's go through these one by one. Turkey's ban applies only to the use of crypto as a medium of exchange. People are still able to trade and speculate on it as an asset. And remember, the primary driver of Turkish Indian.

interest in things like Bitcoin right now is a Turkish lira that has been extremely volatile as the government plays politics with the central bank. In other words, the government isn't banning crypto for the thing people are actually using crypto for. What's more, crypto is hardly alone in the Turkish government's target lines right now. They're also trying to push people out of any foreign currency, foreign stocks, foreign holdings. They are trying to keep as much money in the lira and in Turkish stocks as possible. Then there's Nigeria. Well, when the central bank sent out that letter, many in Parliament said, hold on there, chief, and actually hauled in the bank for questioning, recognizing how important crypto is to younger generations. And then there's India. On the one

hand, it seems like the most serious of the bans. On the other, there are many recent rumblings, most notably from a finance minister, that it would not be a ban, but in fact, crypto being regulated in a positive way that created official formal space for entrepreneurs and innovators to engage with it. Ah, but you say, but what about China? Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR. Earn passive income with yields of up to 12%

and swap between more than 75 market pairs with the instant nexo exchange. Try the Nexo wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io. China, which has long-banned crypto trading, forcing all of its citizens to use over-the-counter trading. China, which has a digital yuan coming to replace the need for cryptos. Well, during a CNBC panel at the Bao Forum recently, Deputy Governor of the People's Bank of China, Li Bo, said, quote, we regard Bitcoin and stable coins as crypto assets. These are investment alternatives. They are not a currency per se, and so the main role we see for crypto assets going forward is as an investment alternative.

That is a huge, huge shift in tone, and no shift in tone in China happens without intention. There are lots of reasons for this, by the way, that potentially relate to China's global balance of payments, which would make for a great show all in its own. But for now, the clear implication is that this government-bending flood evidence is holding a little less water. But what about the good old US of A? Yesterday I called us-American solipsistic in the sense that U.S. market participants 10 really not to care much about what other countries do. By the way, poor one out for those who think

Canadian Bitcoin ETFs are going to put a bunch of pressure on the SEC. Anyways, the point is that the question that might matter more is what is the U.S. landscape for regulation actually looking like? Well, there's been a lot of bluster, that's for sure. People have been hanging on Yellen and Powell's every word. And it makes sense. These two have spoken a lot more about cryptocurrencies in the last couple months than Powell did in the entire last administration. Yellen even trotted out that old used for crime fud. But let's talk directionality. At the same time, the Treasury Secretary Yellen is talking about being worried about crypto's use in crime. She's also talked about the importance of innovation and what new opportunities it might represent. Let's compare that now to,

oh, I don't know, her direct predecessor, who basically machinated against Bitcoin his entire time in office. It is widely believed that Secretary Mnuchin was behind. Trump's tweet, where he came out and said he was no fan of Bitcoin and cryptocurrencies. And what's more, Manuchin's parting shot, his 11th hour attempt to sneak in some changes, was aimed at new rules that would have made it much harder to use crypto-inonymously. So for my money, right now, we're at worst at parity, and more likely a little bit ahead on the front of the major officials in government. Let's talk about other key positions like Gary Gensler as the SEC chair. I don't need to repeat this if you've literally ever heard a single one of my breakdown shows,

but in short, the dude has taught courses at MIT about this industry. Even if he's going to be a regulatory stickler, at least we are engaging with a man who has taken the time to engage deeply with us. Not for nothing, Commissioner Hester Purse felt enough like the time was right to reintroduce an updated version of her safe harbor rules that would allow crypto teams to experiment building their networks, including, yes, using tokens to do so, without fear of SEC reprisal for unlicensed security sales. So I think, all in all, on a foundational level, we're in a much better starting position with this administration. But there are two more dimensions I'd like to

bring to the conversation. The first is the new advocacy lobby of big traditional financial institutions who are now involved with Bitcoin. This functions in a passive and an active way. Passively, the fact that some of the world's biggest business names are now involved in Bitcoin makes it much harder for lingering Bitcoin fud about it being just used by criminals. Relatedly, it's hard to see something like Bitcoin is overly volatile and risky, when you have nine-figure buyers of it being insurance fund general accounts that started before Abraham Lincoln became president. The more active side is that these firms represent significant financial interests

that could be tapped to lobby on behalf of the industry if it were actually threatened. I think in this regard, the fact that these institutions are outside of tech matters. Tech has a particularly low standing with regulators these days, but again, things like insurance companies make it harder to dismiss as just another bunch of tech companies trying to do everything. The second additional factor around this whole idea of governments banning Bitcoin that I'd like to put into the conversation is the active placement of well-positioned former regulators into companies. And thus, we reach the specific context for having this particular discussion today. Two bits of news about companies in the crypto space welcoming former regulators to their ranks.

The first comes from BlockFi, who have added Chris Giancarlo to their board of directors. Giancarlo was the former head of the CFTC up until 2019. During his tenure, he was affectionately given the nickname Cryptodad. He did things like declare Bitcoin a commodity, his successor Heath Tarbert did the same for Heath, and launch a fintech unit called Lab CFTC. What's more, since he left the CFTC, he has stayed focused on this broadband. broad digital currency space, in particular launching the digital dollar project. He has argued vociferously that the U.S. should take the lead on a central bank digital currency because our constitution protects

the things that we hold dear, like privacy, whereas the other leader in the space, China doesn't have any such protections. The statement from BlockFi says, quote, Giancarlo will provide valuable guidance to the company's leadership on strategic matters, namely blockchain innovation, regulatory developments and growth initiatives, which definitely reads to me, help us navigate regulatory waters. Now, on a normal day, this would be the big news. But it was just one of two such announcements, and the other one was even bigger. Brian Brooks, the former acting director of the Office of the CompTroller of the currency, is the new CEO of Binance U.S. Quick hits on Brooks history for those who haven't heard me talk about him before on the show. He was the chief legal officer at Coinbase

before being tapped to be the deputy director at the office of the comptroller of the currency. When the director left, he became acting director. He was nominated by President Trump for a full term a couple of times, but it never got to a vote in the Senate. Still, he used the less than a year that he had in office to full effect. The OCC during that time issued guidance that banks could work with crypto companies and then even clarified it to make sure that they knew that that meant stablecoin issuers as well. They provided guidance that banks could actually provide crypto custody services to end customers. Finally, they said that banks could even use stable coins alongside other payment rails like Swift and

ACH. A huge amount of the institutionalization that you're seeing of Bitcoin and crypto assets was directly enabled by these changes. Brooks even got reprimanded by some in Congress from moving too fast and spending too much of his attention on crypto assets. These moves were a big part of the inspiration for the Stable Act, which was introduced last November. Well, now that Brooks is private again, he's back in the crypto industry and he's going after his former employees. employer. In an interview with CoinDesk TV, he basically affirmed that he thought that Binance US was the best opportunity to beat CoinDesk at their own game. He also said they're going to offer more services than just trading as they get licenses for them. When it comes to this meta

question of governments banning Bitcoin, of course Brian is not without his detractors in Washington, as we were just saying. Still, he knows how it works and he has allies there too. He's the type of nimble operator who is likely not only to benefit Binance, his company, but the industry as a whole. To sum this all up, you've got, one, a more open-seeming administration than the last one, with more crypto-open or even pro-crypto people in key positions of power. Two, you have a new group of entrenched interests from the traditional financial world who represent a new potential lobbying force for this asset and for this industry. And three, you have more experienced allies inside the ranks of prominent companies.

So how, again, is the fud that governments are somehow not? now going to ban it? The short answer is that the fud just doesn't add up. It's being pushed by people who have a bone to pick with Bitcoin, and you shouldn't listen to it. Don't let Mike Green screw up your day. With that, I hope you guys are having a great week. I appreciate you listening. If you're enjoying the show, please go slap at a rating a review on Apple. It makes a huge difference. And until tomorrow, guys, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history. Join thousands of newsmakers and influencers talking the future of money at Consensus

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