The Breakdown - How the Sanctions Hearing Helped Democratic Senators Understand Crypto

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.io, Arculus, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, March 19th, and that means it's time for the weekly recap. Before we get into the weekly recap, however, if you are enjoying the breakdown, please go subscribe, rate review, you know the schick. and if you want to talk about these topics or really anything else, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Also a disclosure as always, in addition to them being a sponsor of the show I also work with FTX.

Starting point is 00:00:52 Finally, one more quick note before the show starts. If you haven't bought your tickets yet, I highly suggest you check out CoinDesks Consensus 2020, which this year is happening in Austin, Texas, between June 9th and June 12th. The event has voices and topics representing a huge cross-section of the crypto space. You've got your CZs and SBFs, but also Punk 6-529 and Kathy Wood. It should be a really, really good time. If you're interested, you can use code breakdown for 15% off your ticket. Check out coin desk.com slash consensus 2022.

Starting point is 00:01:30 All right, weekly recap time. This week we have a fair bit of regulatory intrigue to catch up on. First, there has been a growing tension between congressional blockchain advocates and the SEC. Tom Emmer and seven other congressmen sent a letter to Gary Gensler and the SEC this week. He wrote on Twitter, My office has received numerous tips from crypto and blockchain firms that SEC chair Gary Gensler's information reporting requests to the crypto community are overburdensome, don't feel particularly voluntary, and are stifling in a business. This is why I sent a bipartisan letter today to Gary Gensler with Darren Soto, Warren Davidson,

Starting point is 00:02:08 Jake Ockincloss, Byron Donalds, Josh Gottheimer, Ted Bud, and Richie Torres regarding the SEC's crypto information-seeking process. While the SEC has authority to obtain info from market participants for rulemaking purposes, it must ensure that these inquiries don't infringe on the standards established in the Paperwork Reduction Act, which limits the burden the government imposes on private businesses and citizens. Crypto startups must not be weighed down by extra and burdensome reporting requirements. We will ensure our regulators do not kill American innovation and opportunities. Ron Hammond, the Director of Government Relations for the Blockchain Association, said, this is an incredible bipartisan effort for Democrats and for Republicans, led by the ranking

Starting point is 00:02:47 member of the Financial Services Oversight Subcommittee which oversees the SEC. Jake Chivinsky, the head of policy at the Blockchain Association, was not pulling any punches, saying the SEC's tactics of regulation by enforcement are both harmful to the crypto industry and counterproductive to the SEC's own mission. My thanks to Representative Tom Emmer and this amazing bipartisan group of leaders in Congress for investigating the SEC's enforcement practices. Lawyer Jason Gottlieb wrote, This is a good letter.

Starting point is 00:03:13 I respect the SEC enforcement staff smart and hardworking. But their requests are almost always far too broad, inflicting massive costs on fintech companies and individuals, many of them not wealthy. The SEC needs to be reasonable and consider costs. I think it's a good reminder that when we speak about the government in its relationship with crypto, we should not view it in monolithic terms. Not only do you have multiple departments within the Biden administration trying to figure this stuff

Starting point is 00:03:37 out, you also have the difference between elected officials and non-elected officials. I expect to see elected officials try to assert a lot more authority in the coming weeks and months as Biden's executive order starts making its way into government policy. Next, let's move to yesterday's very weird hearing, understanding the role of digital assets in illicit finance. So this was obviously about crypto and Russian sanctions, and it felt like something that was maybe meant to pin the industry down, but sort of didn't go that way. It featured testimony from Jonathan Levin, the co-founder and CSO of Chainalysis, Michael Mosier, the former acting director

Starting point is 00:04:10 of the Financial Crimes Enforcement Network, FinCEN, Michael Chobainian, the founder of Kuna Exchange, and the president of the Blockchain Association of Ukraine, and Shane Stanesbury from the Duke University School of Law. One of the more notable exchanges came between Elizabeth Warren and Johnny Levin from Chainalysis. Niraj Agrawal, from Coin Center, said about it, I don't think that went the way she thought it would go. The clip he posted, which we're about to listen to now, has over a million views. Mr. Levin, let's consider one of Putin's cronies, who already has a billion or so in crypto, that he wants to hide from the governments that are enforcing sanctions on oligarchs. Now, can this oligarch make it harder to trace his money if he hops

Starting point is 00:04:55 from one blockchain to another, if he deposits those tokens into a couple of wallets that don't require him to provide identifying information, and if he uses a mixing service that launders his money with other people's money. Thank you, Senator. So the scenario that you described where an oligarch has a billion dollars to be able to launder requires significant amounts of liquidity to be able to obfuscate that amount of money through the use of cryptocurrency. In fact, many times we've been able to identify. I'm sorry, let me just remind you what my question was again. What I'm asking is about the

Starting point is 00:05:36 tools that are available. Now, he may have to break it up into multiple pieces of, who knows, $100 million at a crack. But the question I'm asking is, does hopping from one blockchain to another, does depositing tokens in a couple of wallets that don't require them to provide identifying information and does using a mixing service all make it easier for him to hide his money? So, Senator, the answer to that question is no, because the chain hopping that occurs, you need to actually provide the tokens, which in a transparent way that allows you to move across blockchains. We've actually got software that allows you to- So you don't think chain hopping makes it any easier to hide your money. How about depositing tokens

Starting point is 00:06:18 in wallets that don't require identifying information? You can always split the money up into wallets that don't require it. And that would help hide the money. And how about using a mixing service? That doesn't remove the record of where the money actually sits. But the question I'm asking is, does it make it harder to track the money? No, so it doesn't make it harder to track the money. And using a mixing service, you're telling me, doesn't make it harder to launder money? The daily liquidity value of mixing services globally is about $30 million. So you might have to do this day by day? And we have done extensive work in tracking, large sums of money through mixes that have led to the arrests of people and the disruption of their

Starting point is 00:06:58 activity. You know, I'm actually a little surprised by your answers, since you charge a lot of money to untangle and track assets through the system and the system keeps developing war ways to obscure that money, and that's part of what you advertise. This exchange largely reflects what we've seen over and over. The folks who are trying to warn about crypto-helping sanctions keep getting politely talked down by actual experts in the situation, but they don't seem to want to listen. Nexo is the go-to platform for all things crypto. Invest in the hottest coins out there

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Starting point is 00:09:19 Watching the Senate hearing right now, it seems incredibly bullish to me. Republican senators are great as always, and Democratic senators, aside from Warren, seem to be pretty measured and reasonable. Senator Van Hollen writes, I'm grateful for the hearing because I think everybody's working to get up to speed on the public policy challenges. Clearly, there are benefits, as have been described in this hearing, and there are also risks. This is an area that's here to stay. Senator Smith says Congress seems to be trying to fit crypto into existing regulatory frameworks. She then asks Johnny Levin what damage or lack of regulatory clarity has had on the industry. That is literally a pro-crypto talking point.

Starting point is 00:09:51 Senator Warner says, candidly, I want to acknowledge that Senator Lummis's last point with our witness from the Ukraine. This has been a way to move assets to the Ukrainian people in a relatively fast way, and I want to commend that. Senator Cortez Mastow asks rhetorically if anyone thinks crypto is going away, thanks Chobanian for testifying, and then asks him how Russians are using crypto to oppose Putin. I mean, these are not things you say when you've made up your mind to be staunchly anti-crypto. Our advocates in D.C. are making headway with policymakers. They continue to benefit from our support, and I think all of us should continue to provide it generously. My feeling is that it's pretty hard to have a panel with this set of guests and go in with anything resembling good faith and not come out

Starting point is 00:10:29 having an understanding of crypto's role in this conflict that's a lot closer to the average crypto-twitter person than it is to, for example, Senator Warren. Indeed, the headlines coming out of the hearing were finally the headlines that accurately depict the situation. Bloomberg writes, crypto experts say no evidence of major Russian sanction dodging. Alas, that wasn't to be Elizabeth Warren's last word on the topic. Niraj again tweets, a rushed knee-jerk bill was just introduced in Congress. It flies in the face of what the industry and the administration's own experts say about cryptocurrency sanctions risk. Bill would place sweeping restrictions on persons who build, operate, and use cryptocurrency networks even if they have no knowledge or intent to help evade sanctions. The bill is

Starting point is 00:11:09 called the Digital Asset Sanctions Compliance Enhancement Act, and basically it would give the Treasury Department power to compel exchanges to block transactions with all Russian wallets. Classic crypto antagonist Brad Sherman is planning to introduce a companion bill in the house. Coin Center for their part is not having it. They wrote that the bill would quote, place sweeping restrictions on the cryptocurrency ecosystem under the guise bolstering sanctions against Russia for its unjustified invasion of Ukraine. The bill would place sweeping restrictions on persons who build, operate, and use cryptocurrency networks even if they have no knowledge or intent to help anyone evade sanctions.

Starting point is 00:11:44 It's called for sanctioning technologists and users merely for the act of publishing open-source software or facilitating communication among network participants. This is unnecessary, overbroad, and unconstitutional. On Twitter, Peter Van Falkenberg from Coin Center went even deep. deeper. Okay, let's go into depth on why Warren's bill, A, would not improve our ability to hobble the Russian government in kleptocracy. B, would direct the president to sanction people for publishing open-source software and powering peer-to-peer networks that undermine the Russian war. The FBI director, the White House, and the Treasury have all repeatedly said

Starting point is 00:12:15 that cryptocurrencies do not have the scale, liquidity, or opacity to be a useful tool for meaningful sanctions evasion. Moreover, Mike Chobanian just testified that when ordinary Russians convert rubles to Bitcoin on exchanges, they are undermining the Russian war machine. Why would we want to stop that? The president already has plenary authority to sanction anyone. The Warren bill insidiously pushes the administration to use that authority to sanction people who publish open source software, who provide technical support, who help build open peer-to-peer networks.

Starting point is 00:12:42 That means, under Section 3, you could be fully cut off from the global economy, even though A, you merely published software or ran a Bitcoin note on your home computer, and B, had no knowledge of or intent to help anyone violate any sanctions. Under Section 4, you could be ordered by the Secretary of Treasury to stop interacting with any cryptocurrency address that may even possibly be quote-unquote Russian. You can't run an open freedom-enhancing peer-to-peer network on that kind of atomistic screening of every bit of data. In short, Senator Warren's bill has incredible in sweeping powers to harm innovation in human rights. Worse, it directs the executive to wield those powers against technologists who are, by every

Starting point is 00:13:16 account, undermining rather than supporting the despicable Russian invasion. So, for those keeping track at home this week, we had a near miss on what would have amounted to a proof-of-work ban in Europe, beaten in voting on Monday in the EU Parliament. A big enough topic to be at the lead of any given weekly show. We had Yuga Labs, board apes, buying the IP of Cryptopunks, completely and fundamentally challenging how we think about the leadership of the NFT space, how we consider commercial rights, how we discuss commerce versus culture. And then to top it all off, they launched their ape coin, a new token which has the industry

Starting point is 00:13:56 chattering like basically nothing else right now. On Wednesday, we saw the Federal Reserve raised rates for the first time since 2018. This despite all the volatility in global markets based on economic sanctions against Russia denying the world economy huge numbers of exports that it had previously relied upon. We had China's CCP signaling major support for their domestic stock market. At the same time as various parts of that country go into or remain in COVID-19 lockdowns. We had the hearing that you just heard about around crypto and sanctions and now have a bill to fight on the same front. We have topics that I haven't even had the chance to address like Facebook confirming Zuckerberg himself, in fact, confirming at South by Southwest, that Instagram is going

Starting point is 00:14:41 to be integrating NFTs. By the way, on that, the takes come in pretty much exactly two formats. Jynxieverse writes, people on Instagram are going to get wrecked, already infested with scammers, people's profiles hacked all the time, wish them the best. And then on the flip side from Johann Lolos, as soon as Instagram will allow creators to mint their own NFTs on the platform, we might just make a 10-year jump in NFT adoption. Oh, and then, if that wasn't enough, Ukrainian President Zelenskyy signed legislation legalizing crypto. So there you go. That was the week that was, another week in the year of absolutely everything. For now, I want to say thanks again to my sponsors, nexus.io, Arculus, and FTX. And thanks to you guys for listening.

Starting point is 00:15:21 Until tomorrow, be safe and take care of each other. Peace. Hey, breakdown listeners. Come join CoinDesk's Consensus 2020, the festival for the decentralized world this June 9th through the 12th in Austin, Texas. 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.

Starting point is 00:15:52 Don't miss speakers like Kathy Wood, SBE, F, Z, 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 - How the Sanctions Hearing Helped Democratic Senators Understand Crypto

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