The Breakdown - Jamie Dimon Tells US Government He Would Close Crypto Down

Episode Date: December 7, 2023

NLW argues that the anti-crypto army is grasping at straws and mounting a last offensive as their chance to help crypto die quickly dissipates. Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown 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 Thursday, December 7th, and today we are talking, of course, about Jamie Diamond's incendiary comments yesterday. 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 in the show notes or go to bit.ly slash breakdown pod. Well, friends, today, like I said, we are talking about some incendiary comments, and I'll get a little bit more into this at the end, but it very much feels to me, like as we turn a corner into a different market mindset, where the full realization that crypto has not died and is, in fact,

useful and interesting and dynamic and something that's going to be around for a long time to come, is causing a last gasp reaction from those critics who wanted to see it perish this last cycle. and so keep that in mind as we go through the episode's recountings of yesterday's events. So, during a hearing before the Senate Banking Committee on Wednesday, Jamie Diamond suggested the government should shut down the crypto industry. Yes, the J.B. Morgan Chase CEO has never been shy about dismissing crypto as useless, but this time around, his comments veered toward calling the financial technology actively harmful. Again, the key quote was, if I was the government, I'd close it down.

The comments came during an oversight hearing with eight executives of the largest banks and financial institutions in the U.S. present to give testimony. Senator Elizabeth Warren had set up the premise by discussing the current protections against illicit finance required by the Bank Secrecy Act. She asked each of the executives whether their institutions have systems in place to, quote, catch it, report it, and shut it down. Diamond had pushed back slightly, noting that although J.P. Morgan has extensive systems in place, no system is full-proof.

Warren delivered a long list of bad actors who had used crypto transactions as part of their operations. She then asked Diamond why crypto is, quote, such an attractive financial tool for terrorists, drug traffickers, and rogue nations. Diamond responded, I've always been deeply opposed to crypto, Bitcoin, etc. You pointed out that the only true use case is for criminals, drug traffickers, anti-money laundering, and tax avoidance.

And that is a use case because it is somewhat anonymous and because it doesn't go through all these systems that have built up over many years. Know your customer, sanctions, OFAC, they can bypass all of that. Now, of course, what Warren was doing was using the line of questioning to push her bill, which would subject the crypto industry to BSA reporting requirements. although notably in ways that are potentially impossible to comply with. She referenced recent comments from the Treasury calling for a crypto-focused update to the legislation, stating, we cannot rely on statutory definitions that are decades old to address the

illicit finance risks we face in 2023. Warren claimed that, quote, crypto lobbyists are working overtime to block any legislation. They claim that crypto is special and it shouldn't even have to comply with the Bank Secrecy Act, even if that means allowing bad actors to move billions of dollars completely unrestricted. Warren asked each executive whether crypto companies facilitating financial transactions should have to follow the same anti-money laundering rules that your bank has to follow. She grew increasingly gleeful as each CEO responded absolutely. Warren closed out by noting that, quote, when it comes to banking policy, I am not usually holding hands with the CEOs of multi-billion dollar banks, but this is a matter of national security.

Now, most of today's episode is going to be about the response from the crypto community to these incendiary comments from Diamond. But before that, it's worth briefly reflecting on the way that Warren characterized her proposal and the need to expand the BSA to cover crypto. Warren said that crypto lobbyists have been opposed to any legislation, but of course, that's simply not true. Most of the people involved in this industry understand that anti-money laundering monitoring is an inevitable requirement for genuine financial intermediaries in crypto. The pushback from the industry has come because Warren's proposal includes all manner of crypto infrastructure, from validators to wallet providers. Warren said her proposal is to place

these requirements on quote-unquote crypto companies, but it goes far beyond them. You don't see people running around being opposed to requiring exchanges to file anti-money laundering reports. But when it comes to placing the same requirements on distributed infrastructure, the proposal barely makes sense and appears completely unworkable. Now, part of Warren's premise is that terrorists and other bad actors have become more sophisticated in the way that they circumvent AML provisions. She noted that some of these loopholes were closed in 2001, but illicit finances continue to seek out new ways around the detection systems. One of the reasons that Warren's proposal has been denounced by the industry is that it runs the risk of

pushing illicit finance further to the edges of the crypto industry, counterintuitively making it more difficult to detect. The logic is that if Warren's proposal is impossible to comply with, the decentralized infrastructure will simply move outside of the U.S. jurisdiction. This is why, of course, the misleading narrative from Warren is so dangerous. It paints the crypto industry as obstinately opposed to any reporting requirements, when in reality, most firms are simply calling for intelligently targeted reporting requirements that can actually be complied with. Today's episode is brought to you by Cracken.

For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, what if? It invites people in instead of leaving them out. It's on 24-7-365 and moves at the speed of real life. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress throughout.

And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc., PVI, DBA, Cracken. Now, back to this hearing. It, of course, makes an impactful statement to have eight of the most powerful financial CEOs in the country, agreeing that your proposal is important to push through during a Senate hearing. But then again, disagreement is completely unsurprising.

Realistically, these executives were agreeing that the government should snuff out their competition using onerous and costly regulations that are impossible to comply with. Reuters correspondent Pete Schroeder writes, In a stunning turn of events, Elizabeth Warren and Big Bank CEOs are in agreement at today's hearing, specifically on the need for crypto firms to comply with BSA requirements. Maksie responded, Assume you're joking about this being a stunning turn of events. They've had an alliance to ban private sector crypto development for years.

Warren wants a monolith retail CBDC, Big Banks want a wholesale CBDC, either would set us back 10 years and undermine competitiveness. Austin Campbell responded, to be more specific to comply with BSA requirements using old methods for a closed system that do not actually work and instead facilitate huge amounts of crime. Banks don't want crypto firms developing better ways of doing this over time. It would put them out of business. Collins Belton wrote,

Imagine going back to 2011 and showing the Occupy Wall Street crew, Senator Warren eagerly supporting Jamie Diamond's perspective that a payment network uncontrolled by Wall Street with unprecedented and frankly unsafe levels of transparency is the true threat to America. Fascinating. So let's talk about some of the other themes of commentary and response. One of them was that this was obviously just an anti-competitive position

that the banks were taking. Crypto lawyer Orlando Cosmey writes, Remember folks, if Jamie Diamond thought that crypto could at all be beneficial to J.P. Morgan Chase, and by extension, all large banks, he'd have a fiduciary duty to support it. Jamie knows very well that crypto is a threat to the very system he's on top of. Swan Bitcoin co-founder Jan Pritzker writes, Breaking, horse and buggy salesmen find billions for serving criminals, asks government to help shut down the car industry because it is used, quote, only for crime.

Tyler Winklevoss from Gemini simply said, If crypto wasn't the future, the establishment wouldn't be so hell-bent on trying to shut it down. Now, another point of conversation that some took is basically arguing that it is validating to the existence of crypto that banks and governments aren't really happy about it. writes Bloomberg's Joe Wisenthal, there's no point in crypto if it's not something the government feels impelled to ban. Peter Van Valkenberg from Coin Center clarified saying, illiberal governments. Crypto enables an open society and multiplies the costs of trying to retain centralized control over individual behavior. Maksie again responded, I'm afraid that we have

no choice but to accelerate and take the worst ideas of our incompetent boomer bailout elite to their logical conclusion. Only then will the damage to economic competitiveness and civil liberties be obvious enough to generate the needed electoral backlash. The progressive Bitcoiner wrote, Senator Warren has repeatedly proposed legislation that goes after your right to privacy in holding and using Bitcoin. You have the right to privacy and property in the United States, period. This is not up to her. Not sure what world Senator Warren prefers, but it's antithetical to American ideals, all in the name of national security. We've seen this before, and in the post-9-11 in Iraq War Age, we are no longer fooled and complacent. Luke Graman tweeted,

A country where people cannot choose how they store their personal wealth is not a democracy. Best case. It's an oligarchy. Best case. Now, others made the point that the alliance between government and banks in America is nothing new. DC investor says, what you need to understand is Jamie Diamond is basically a U.S. government employee. And honestly, there was a very weird vibe at this hearing. It honestly had sort of a Politburo feel, like the bank executives had just been summoned to be given their instructions publicly. Some took the comments as reason to call for a boycott. Castle Island Ventures Matt Walsh writes, If you are supportive of public blockchain tech, Bitcoin, ETH, stablecoins, etc., and have an account at JPMorgan for banking or wealth management,

you are actively supporting a company that is working for Elizabeth Warren to choke off access to an emerging industry. Digital asset news wrote, Well, well, well, Jamie Diamond meant what he said at today's congressional hearing with Senator Warren. I call on all crypto holders, enthusiasts, and supporters to move all funds and to ban the use of J.P. Morgan and all services thereof. Who the hell do these people think they are? Now, another line of conversation was, of course, the what do they do versus what do they say? I Am Nomad tweets, Do I really have to dig up the exchange report again that shows that J.P. Morgan Chase are the major market maker in every crypto exchange traded product?

I thought we were over this in 2017. Delphi Labs General Counsel Gabriel Shapiro writes, So why is JPM heavily invested in consensus? I'm confused. Chairman Burr-Bernacki writes, What's it called when you're so opposed to something that you fund that very thing's development? Cryptotrater Prethry writes,

Jamie Diamond making negative statements about crypto after launching his own private blockchain for payments and settlement a month ago? Color me surprised. Finally again, writes Matt Walsh. If any of the 218 blockchain folks at JPMorgan are looking for jobs in the crypto sector, please get in touch.

Life is too short to spend it making Jamie diamond more money. A next and unavoidable and important set of the conversation was about JPM hypocrisy. Indeed, this is by far the most common take if you just go breeze around X or Twitter. Neeraj from Coin Center writes, remember when JPM got fined for not only failing to report made off suspicious transactions, but using the information to protect its own investments? Venturecoinist host Luke Martin writes, this video hits different when you learn that JPMorgan was the banking partner for Jeffrey Epstein's operation. Largest trafficking case in history, source of funds a mystery, client for 15 years. Interesting that he chose J.P. Morgan instead of Bitcoin.

Dan Held wrote, J.P. Morgan fines over the last 23 years for fraud, money laundering, market manipulation, etc., 39 billion. Gavorgarbach expanded that, saying since 2000, regulators find banks 7,400 times totaling to fees of 380 plus billion. Banks should stay silent. Still, some saw this as overall a more positive sign. Ryan Selkis writes, Six months ago, I thought our policy positioning was existentially bad in the U.S., but the timing of the Jamie Diamond Liz Warren Fudd is interesting, as yesterday marked a turning point, and I've never been more confident that will win the U.S. Then they fight you. So what is Ryan talking about? Well, as I intimated at the beginning of the show, we have

clearly turned a corner when it comes to the crypto industry. There are a lot of different parts of this. One part of it has nothing to do with crypto, and I think reflects a broader acquiescence among markets in general to the end of the zero interest rate period. There was a long interval there as the Fed was hiking rates where markets basically just weren't accepting that this was the new reality. Now that they are, even if they are anticipating cuts starting next year, there is still, I believe, a move past the grasping at that old period, which had a particular deleterious impact on risk assets. So one part of the transition is just something that markets in general are going through. But of course, there is much more that is crypto-specific. It is hard to overestimates.

the negative impact that SBF's fraud and the collapse of FTCX had on public perception of the crypto industry. As we've discussed all year, it opened the industry up to the possibility of Operation Chokepoint 2.0 as pretty much all of our allies in the bureaucracy, even if they didn't change their minds fundamentally, moved aside and let the most virulent critics come at us because were they really going to stick their neck out for us after what had just happened? Likewise, though, everything ultimately returns to a state of equilibrium. Now a year on from that crisis, Sam Bankman-Freed is in jail awaiting sentencing. CZ has also pleaded guilty and left finance a thing that many didn't think would ever happen.

And there is a sense of opportunity to move past that whole period in crypto's history. Now, that sense of new opportunity is embodied, of course, in a Bitcoin spot ETF. Part of the reason that this matters much more than just some financial instrument is that it is an indicator of a shift in the power center of this industry, in the investor base for this industry. And by the way, preview of a couple months from now once these things get approved, we're going to have a lot of conversations around whether that power shift and investor shift at the base is actually a good thing for the industry. But for right now, it's incredibly important from a narrative and a psychological perspective,

and not just for those of us in the industry, but for others on the outside as well. In other words, the march to a different crypto industry that is ready to embrace the next part of its cycle feels very inexorable right now. The momentum is building, and increasingly these pot-shops. from the peanut gallery feel like exactly that. Last gas efforts to throw it off the rails before the train picks up its full speed. I think it will be not surprising to you that I just don't think it's going to work. Indeed, I think Sam gave them the single best chance they would ever have, and yet once again, crypto still didn't die. And so I say this to Jamie Diamond and all the media

parroting his comments, and everyone even who's concerned about them. I have but one word. whatever. If you think this matters at all for anything going on right now, I humbly and respectfully disagree. And so, Jamie, see you on the other side of the Bitcoin Spot ETF. I know that when it's here, you'll make plenty of money from it. Until next time, guys, be safe and take care of each other. Peace.