The Breakdown - How Serious is the Democrat Crypto Pivot?

Episode Date: May 31, 2024

On today's episode NLW checks in on the idea that we're seeing a pivot towards crypto from Biden and other US Dems. Today's Show Brought To You By Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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 Friday, May 31st, and today we are continuing our coverage on this Democrat pivot, question mark, when it comes to crypto. 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 at the show notes or go to bit.ly. Breakdown pod. Well, friends, it has been all crypto politics all the time for the last couple of weeks ever since, really, former President Donald Trump started taking the crypto mantle. And the most recent version of the story, which we covered at length yesterday, was reports that the Democrats had started

to shift their attitudes as well, making overtures even from the White House and the Biden campaign to the crypto space. However, one of the big questions is if this is indeed happening, how deep is the shift, how broad is the shift, how real is the shift, and how are they going to prove it? Today we're going to look into a couple stories that somehow relate to that. We start with someone who is most distinctly not trying to bridge to the crypto industry, which is, of course, Elizabeth Warren. Warren is back with another letter this time to the DEA, that's the Drug Enforcement Agency for those who don't know,

asking for an update on, quote, actions to crack down on drug traffickers exploitation of crypto to grow their businesses and launder their ill-gotten gains. Warren's central argument in the letter is that, quote, cryptocurrency has played an increasingly prominent role in the global fentanyl trade over the past decade, both in terms of facilitating the manufacturing and trafficking of fentanyl and in laundering drug cartels' criminal proceeds. This narrative that crypto is fueling the drug trade was pushed by Warren mid-last year.

Since then, the Treasury has added individuals and entities linked to the Sinaloa cartel to the sanctions list. 25 Chinese drug manufacturers known to be exporting fentanyl precursors were also sanctioned. Each of these measures included listing crypto wallet addresses tied to these entities. When Warren has presented this issue in Congress, she has typically cited a single case, where a Sinaloa cartel member was indicted for laundering $900,000 using crypto. Of course, what's missing from her attacks is the billions of dollars the cartel launders through the traditional financial system. Just to take one example at the beginning of this month, the DOJ announced an investigation into TD Bank for laundering hundreds of millions

of fentanyl profits. So far, there have been no calls to shut down the bank, as Warren is aiming to do with the crypto industry. This is, of course, Elizabeth Warren's playbook. She takes a very real widespread problem, focuses the entirety of the problem on the crypto industry, and presents a crypto crackdown as the only solution. It's somewhere between incredibly pernicious and incredibly naive. The idea that an issue as complicated as the fentanyl trade can be quickly and easily solved with a crypto ban is just ludicrous. Crypto lawyer John Deaton, who is running against Warren in November, has made this point

during his campaign. During a panel at consensus, he referred to Warren as the true crypto candidate in Massachusetts as she has abandoned almost every other policy in favor of going after crypto. He said, there's a lot of real-world things that need to be addressed. I relish the day that I can stand on a stage with her and we can talk about income equality and the opioid problem. What's more, this letter is emblematic of the problem with Warren's approach. Instead of asking the DEA generally about their efforts to stem the flow of fentanyl, all she cares about is the crypto angle.

There's no talk of additional resources that might be needed in other areas, only a question of whether the agency needs Warren to push anti-crypto legislation, which leads one to the inevitable conclusion that she does not care about the actual issue underlying this. She has decided to be the world's great crypto policewoman and increasingly cares about nothing else. Other people in politics aren't buying her shtick. Senator Cynthia Lummus tweeted, 900 million in non-cryact currency money laundering versus 900,000 in crypto money laundering. Crypto is clearly not the problem.

Criminals and bad actors are. It would be a historic mistake to crush an entire emerging industry based on incorrect data. Speaking of Senator Lummus, she and House Financial Services Committee Chair Patrick McHenry have written to President Biden urging him to back to back. down from his veto threat. The legislation that would repeal SAB 121 is currently sitting on Biden's desk, with a deadline to make a decision coming early next week. You'll remember that SAB 121 requires custodians to place their customers' crypto assets on their own balance sheet. Not only does this put crypto assets at risk during the bankruptcy of a custodian, but it also functions as a ban on

commercial banks providing custody due to onerous capital requirements. Even with the threat of veto hanging over the bill, a large number of Democrats defied the White House and voted in favor of the bill. Lummison McHenry wrote, Given the overwhelming bipartisan votes, we urge you to sign the bill into law and work with the SEC to rescind the staff guidance. Rescending SB 121 is well within the SEC's authority, and there is ample precedent for revisiting a staff accounting bulletin.

If the president does decide to go through with his threat to veto, overturning that would require a two-thirds majority vote in Congress. And although Democrat support for the bill was much larger than expected, it was not enough to hit that threshold. Some have been suggesting that the White House could be looking for an exit ramp on this issue. The threat to veto could be viewed as a heavy-handed call for support from congressional Democrats. If the president simply signs the bill and pretends that the veto threat never happened, it could be seen as backstabbing Democrats who voted in line with White House policy.

On the other hand, vetoing the bill will be seen as a clear sign that the White House isn't serious about its pro-crypto pivot. This could further damage relationships with crypto industry figures, who have been approached to help repair the administration's crypto stance heading into the election. For this reason, we could be heading into a situation where the SEC is required to take one for the team and rescind the guidance, as Lummison and McHenry have suggested. This would sidestep the veto issue and allow the White House to save face. Of course, that would require SEC Chair Gary Gensler to take the loss instead, compounding the embarrassing reversal on eth ETFs from last week.

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Check out the link to the Bitcoin Ledger Nano in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. In many ways, this pair of stories really show just how much work remains to be done to unwind years of terrible crypto policy. Even the short-term decisions taken at the start of this month are making it difficult for the White House to demonstrate good faith in their crypto pivot. Finance lawyer Scott Johnson produced a list of everything that has happened under the Biden

White House and came up with 27 current policy positions that are still harming the industry. These include the OCC's refusal to enact Brian Brooks's Fair Access Banking Rule, enforcement actions against Coinbase Binancing Cracken, Wells notices to consensus, uniswap and Paxos, SEC incorporating Defi into the dealer rule, Treasury inserting broker language in the debt of the night into must-pass legislation without debate, the FBI issuing a warning to crypto wallet users suggesting that they may lose their funds, the DOJ violating five years of FinCEN guidance to shut down Ternado Cash,

the Kansas City Fed branch denying Custodia's application for a master account, 103 Democrats and two Republicans signing an Elizabeth Warren letter falsely exaggerating terrorist financing, and a number more. On the positive side of the ledger, he could think of only four items. The two recent votes, the ETF decision, and the Biden campaign reaching out to industry figures. He concluded, there's a long way left to go before anyone in this space trust that Dems are actually turning the corner at least to a meaningful degree. And boy, did this take resonate across a wide section of the crypto industry. Nick Carter tweeted, yep, no time for forgiveness. They held their boot to our neck for years and lifted it a millimeter over the last two weeks.

Boot is still firmly on neck. Total regime change is needed. Others are more focused on the idea that they just haven't seen nearly enough to change their mind. Van Spencer, co-founder of Framework Ventures, wrote, Not that the Biden and Min would reach out to me for advice on crypto, but my two sense is that step one is just calling off the dogs. Maybe it's possible they don't know how muscular their regulators have gotten, but it's hard to have any conversation without that happening.

There has been a reasonable amount of the crypto industry that are willing to wait and see what the Biden admin can come up with. Generally, their arguments focus on the idea that Donald Trump can't be trusted to follow through on any of his commitments, or that it's in the industry's best interest to strive for bipartisan support. During his debate with Ryan Selkis on Thursday night, Uniswap Lab's chief legal officer Marvin Amori put forward his best case for why bipartisanship is important. But even then, he's still acknowledged that there's still a lot of work to be done to win back the crypto vote after the disaster of Gary Gensler. Now, for those of you who hold out hope that this doesn't have to just

become a D versus our issue, yet another thing calcified into left versus right. I want to share this clip of Republican GOP whip Tom Emmer discussing why crypto needs to remain nonpartisan. First off, it ain't bipartisan. This is nonpartisan. And I hope both camps figure this out, because this can't become a us versus them issue. It has to be a we. And we've tried, we've worked really hard to do this. And I know people are going to make arguments, but I don't believe you've got Republicans and Democrats fighting with each other right now. I believe you have people who side with the administrative state and the central government, and you have people who side with the individual. So what would it look like to actually shift policy? Well, some folks aren't

waiting around to make their ideas clear. SEC Commissioner Hester Perce has proposed a plan, for example, to allow U.S.-based firms to take part in the UK's digital security. The U.K. policy is set to begin in January of next year and will allow Tradfive firms and FinTechs to pilot real-world asset transactions using blockchain infrastructure. The program is being overseen by the Bank of England and the Financial Conduct Authority, who will use the sandbox to familiarize staff with the regulatory implications of blockchain-based trading. Firms will be limited to relatively small volumes, but will be allowed to test novel approaches to real-world asset trading and settlement without the fear of regulatory enforcement.

The program is expected to operate for two years with the possibility of extending it to five. Perce presented the idea of U.S. firms and regulators taking part in a cross-border sandbox. She explained that previous sandboxes have allowed disruptive startups to more easily survive and compete in highly regulated fields. The approach also allowed regulators to get a better idea of how emerging services would operate in the real world, increasing the effectiveness of regulatory oversight. Pierce wrote, most important, sandboxes can benefit the public. Allowing firms to access markets without having to comply immediately with the full panoply of regulations provides a manageable entry point into highly regulated markets. As a consequence,

and investors have access to products and services that might not otherwise be available to them. She also argued that collaboration across the Atlantic would be a powerful accelerator, writing, Across Border Sandbox could be even more transformative than a solely domestic one. The U.S. and the UK are well paired for such an experiment due to our shared commitment to capital markets as a vital building block of a growing and dynamic economy. Point being, there's no shortage of ideas for how to make this work and work practically. It's just a question of whether we're going to actually listen to them.

So for now, I think we have to say that we are still in wait and C mode, when it comes to this Democratic pivot. But hey, it's a hell of a lot better than where we started the week, right? That's going to do it for today's breakdown. Big thank you, as always, to my sponsor for today's show. Check out the Ledger Bitcoin Orange Nano. 5% of sales will go to support Bitcoin development. Until next time, be safe and take care of each other. Peace.