The Breakdown - Poll Numbers Show What Dems Really Think of Crypto

Episode Date: August 14, 2024

...and it's better than you might imagine. Plus more in the Coinbase vs. SEC saga. 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 Tuesday, August 13th. And today we are once again talking about fights between the SEC and the crypto industry. 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.

While Coinbase have renewed their objections to an SEC rule proposal that would massively expand the definition of an exchange, they claim the rule irrationally assumes that decentralized exchanges can register and comply in a similar way to traditional exchanges. The rule was first proposed in January 2022 and has had a long and contentious journey since. The first iteration of the rule attempted to capture any platform that could be used to communicate trading intentions. It didn't mention DIPI specifically, but it was broad enough to capture messaging platforms like Telegram and the Bloomberg Terminal Network where OTC deals are arranged. The implication was that basically every communications platform would need to come in and register as an alternative trading system.

On their second pass, the SEC admitted the rule was partially aimed at Dex's. However, they failed to articulate how squeezing this new form of trading platform into existing regulations would work. The rule is now on its fourth round of public comments. The SEC has received hundreds of comment letters from lawmakers, the crypto industry, and trad-five firms. In their third letter on this rulemaking, Coinbase suggested it's time to withdraw the rule and start over with a proper cost-benefit analysis. They note the SEC has failed to provide a definition of crypto asset securities, which would be the only assets of registered decks would be allowed to offer. The assumption is that the rulemaking would function as a de facto ban by disqualifying most current crypto tokens from being listed.

Coinbase noted, the SEC currently limits a registered exchange to offering only securities, but there are almost no registered digital asset securities because digital asset developers separately cannot comply with the commission's inapt issuer regulations. Indeed, this is just the tip of the iceberg for the incoherent rule, with Coinbase continuing, among other issues, cannot comply with registration and disclosure requirements, designed for legacy financial exchanges managed by centralized companies. And even if Dex's could somehow comply with existing registration and disclosure rules, the commission does not explain how SEC registered Dexes could facilitate the trading of digital assets. At this point, hammering down a definition of a crypto asset security might not even be enough

to save the rule. The SEC has a duty to carry out a cost-benefit analysis before passing any rule, and Coinbase argues that, quote, even if and when the commission eventually settles on a definition, there's no guarantee that its definition will be the same as whatever unstated definition the commission was contemplating in the proposed rule when attempting to conduct its cost-benefit analysis. For that reason, they claim, quote, it is accordingly impossible to see how the commission could possibly have discharged its statutory and procedural obligations to regulate in light of the best available information when the commission

admits that on many key issues it has little or no information at all. Coinbase also presented the new reality of U.S. regulation in a post-chevron world. Soon the Supreme Court overturned Chevron deference, which allowed regulators to articulate their own interpretation of legislation. Provided it was reasonable, courts were obliged to defer to regulators when they seek to expand their jurisdiction in a novel direction. Moving forward, regulators will be constrained by the way judges interpret their authority, which most think will involve a much more literal reading of the legislation. Coinbase wrote, The recent demise of Chevron deference only underscores how unlikely it is that reviewing courts will agree with the commission's

sweeping attempt to stretch the Exchange Act's key terms far beyond their original meaning. own comment letter sent back in July, Uniswap suggests that the SEC is attempting to regulate against the legal backdrop that no longer exists. Coinbase Chief Legal Officer Paul Grewell summarized their letter tweeting, in short, the SEC's proposal lacks critical analysis, rests on irrational assumptions, fails to show there is any problem in need of regulation, and vastly overstates the proposal's purported benefits. At the very least, it should be withdrawn and rewritten. Now, of course, most of the discussion around the SEC has to do with the U.S. presidential elections. And we recently got an interesting data set around that point.

Paradigm has released a new set of crypto polling data looking exclusively at Democrat voters. The poll surveyed 804 self-identified Democrats shortly after President Biden was replaced on the ticket by Kamala Harris. The court finding was that 27% of Democrat voters said they were at least somewhat likely to invest in crypto over the next year. That implies that crypto will be common, increasingly important issue for Democrat lawmakers in future elections. Paradigm honed in on this group in an attempt to figure out how many potential voters Harris is losing over crypto policy. The poll found that 13% of the total voter surveyed are currently not supporting Harris, either because they intend to vote for Trump, a third-party candidate,

or remain undecided. Trump's supporting Democrats are twice as likely to have bought crypto in the past. In addition, 21% of non-Harris voters said that the Biden administration had been too hostile on crypto issues. Overall, Paradigm estimates that up to 2% of Democrats may be leaning towards Trump due to crypto issues. The last poll from Paradigm looked at Republican voters and included a series of questions about financial access and privacy. It found that over 70% of Republicans were at least somewhat concerned with being cut off from the financial system for their religious or political views. This poll of Democrats found similar results, albeit through a different framing. Sixty-two percent of Democrat voters said that they were at least

somewhat concerned their families and their businesses might lose access to the financial system due to their political views. When the prospect of a Trump presidency was introduced, 80% said they were at least somewhat concerned that they would be cut off from financial services. 59% said they were very concerned about this issue under a Trump administration. 72% of respondents said that financial transactions should generally be kept private and only made available to the government for specific purposes. 94% of respondents said it was important to have a way to pay for reproductive care without making their transactions known to the state or federal government, and more than half

said that this was an extremely important issue. Hello, friends, before we get back to the rest of the show, I want to implore you to join me at Permissionless. Permissionless is the conference for Cryptonatives by CryptoNatives, and the reason it's so important this year is that despite regulators' best attempts to push industry founders, devs, and executives out of the U.S., the United States remains the beating heart of crypto. Today, the tide is turning. Policymakers have pivoted from fighting crypto to embracing it. Literally now we are in a major political parties platform, which will lead ultimately to the

creation of new financial products, new applications, and ultimately new adoption. Permissionless is the conference for those using and building on-chain products. It's home to the power users, the devs, and the builders. and perhaps more importantly, I will be there. The location is Salt Lake City, the dates are October 9th to the 11th, and tickets are just $499. If you want to get 10% off, use code breakdown 10. Go to the Blockworks website, blockworks.com. There will be links to register for the conference, and again, you can use code breakdown 10 to get 10% off. Now, this is, I think, really interesting and important data. There is a perception, I think, broadly in crypto, that the progressive side of the aisle

doesn't care at all about the same sort of financial freedom issues that the Republicans do. This data suggests that that is absolutely not the case. Voters on both sides are concerned about how their political views might impact their access to financial services. What's more, while you might disagree with their assessment, it's clear that the issue surrounding abortion and reproductive rights, which is for many Democrat voters the biggest issue heading into this election, is showing up in financial terms. They are making the connection, in other words, that when you cut off access to financial

services for political reasons, even if you agree, with the particular reasons, initially, when someone else takes power, that can be turned against you. This was something that we talked about extensively when Operation Choke Point 2.0 was happening in full swing, that those on the progressive side of the aisle who were supporting it because they didn't like crypto really needed to put it in the context of the issues that did matter to them and were politically unpopular on the other side. This is encouraging from the standpoint of people realizing that there is a real problem here and a real problem that crypto can help solve. Now, Democrats were also concerned about the purchasing power of their money.

80% said that it was very important that their money maintains purchasing power over time. Those questions are, of course, fairly difficult to disagree with, with very few people saying, for example, they don't care about losing the value of their savings. However, again, the point here seems to be that crypto has a clear value proposition that resonates with all sorts of people given the right framing. Democrat views on crypto have also substantially improved since the last time paradigm conducted this survey earlier this year. The data now shows that less than half have an unfavorable opinion of crypto.

Another point of agreement between Democrats and Republicans is that everyone thinks that the U.S. should be a global leader in crypto and fintech. Eighty-tech. 81% of Democrats surveyed said that it was at least somewhat important for the U.S. to lead the world in this area of high-tech innovation. Justin Slaughter, the policy director at Paradigm thinks the results showed that crypto is an important topic for the Harris campaign. Slaughter wrote, crypto ownership isn't just people buying $10 of a meme coin. A lot of Democrats own tens of thousands of dollars of crypto. About 5% of Democrats currently own more than $10,000 of crypto. And this is the kind of holding that influences election decisions. And sure enough, of that 5% of Democrats who own more than 10K, 33% said crypto will be a voting issue for them, along with 23%

of total crypto owners. Reflecting on the rise in crypto sentiment, he added, this is a huge improvement from a year or so ago, and my suspicion is that this is more positive than negative among all voters now. If you think everyone dislikes crypto, that's a sign you're in an information bubble. Opinion leaders in my beloved Democratic Party have become too online. If you view Democratic opinion as represented by Twitter, you'll be way off the mark. Now, for my part, I continue to be skeptical, that crypto is likely to influence all that many Democrats who aren't deeply inside the industry. Obviously, there are going to be some portion of people who are single-issue crypto voters, who recognize and who have felt that their livelihoods and their very industry

has been threatened in an existential way over the past four years. My skepticism comes in the idea that that represents a big, huge block. The numbers that I would like to see are on the independent side. I think independence, which are a huge block in the U.S., are not only taking issue-based stances, but are also using the way that people deal with different issues as proxies to understand candidates' motivations more broadly. In other words, I think that there are a lot of independents who don't even particularly care about crypto, but who have been deeply unimpressed and even concerned with the aggressiveness with which this administration has pursued its anti-crypto policies. It's not hard to draw connections between things that you don't care that much about but that

are being targeted and things that you do care about that are being targeted. Anyways, really interesting stuff. I'm very glad that we have these actual numbers to discuss, rather than just an endless set of tweets. Moving over to markets for a moment, last week's market chaos was read as an opportunity for crypto-etf investors. Globally digital asset products saw $167 million worth of inflows. Ethereum funds captured the bulk of the flows, gathering $155 million for the week. Bitcoin funds were relatively flat on the week with just $13 million worth of inflows. Short Bitcoin funds are their largest outflow since May 20203, with 16 million being withdrawn, which is around 23% of total AUM. These short funds are now at their lowest level for the year,

suggesting bears have taken profits during the last drawdown. The past few months have seen a split opinion between the various countries. CoinChair's head of research, James Butterfield, drew attention to the change in behavior, writing, unusually, every region saw inflows last week suggesting unanimous positive sentiment towards the asset class following the recent price correction. He added that the U.S. is now the only country with month-to-date outflows suggesting the rest of the world is leading bullish sentiment. Monday flows were fairly tepid across both Ethereum and Bitcoin products based in the U.S. After a hectic week of repositioning, it seems as though most traders are comfortable with their

positions. Bitcoin products registered 27.8 million in net inflows, while Ethereum products brought in just $5 million. The most notable piece of data related to Grayskills Ethereum ETF, which recorded its first day ever of zero outflows. Almost $2.3 billion has been redeemed from the fund in the 14 trading days since launch. That's around a quarter of the product starting AUM. It took around four months for GPTC outflows to reach zero, with around half of the fund redeemed by that point. We'll need to see an extended period of low outflows before declaring that the bleeding has stopped, but it appears as though a Grayskills Ethereum ETF, is on its way to stabilizing. Lastly today, an unfortunate update in the situation of Tigran Gambarian,

the finance executive whose condition continues to deteriorate in Nigeria. He has now been in custody for almost six months after meeting with the government in order to negotiate on compliance issues. In May, he contracted malaria and later collapsed during a court appearance. Claims were leveled that he was receiving inadequate medical care while being held in prison, and since then he has suffered pneumonia and multiple throat infections which require tonsil removal surgery to treat. The latest issue is a herniated disc, with family claiming he is now mostly bedridden. His wife Yuki Gambarian said in a statement, The herniated disc in his back has worsened to the point where it might leave permanent damage and affect his ability to walk.

My once fit and healthy husband who loves working out is now wheelchair bound due to a treatable condition that has not been properly addressed. Gambarian is facing criminal charges of money laundering. There's no allegation that he was personally involved in any misconduct. He is merely being charged due to his status as a finance compliance executive. Prior to joining finance, Gambarian was an elite IRS investigator during the early days of Bitcoin. He invented many of the methods of on-chain investigation that are in common use today. He is also, it should be noted, a U.S. citizen. U.S. lawmakers have already raised his case to the attention of the administration.

In June, multiple lawmakers urged the State Department to treat this as a hostage situation. National Intelligence Committee Chairman Brian Fitzpatrick has recently returned from Africa to meet with multiple governments who are holding American citizens in detention. The trip was a partial success with one prisoner being held by the Democratic Republic of the Congo, returned home. He met with Gambarian as well as the Nigerian government, but was unable to secure his release. He said in a statement, there are still Americans like Tigran, enduring unimaginable trauma and detention around the world, and we will not rest until they are home. The United States stands as a beacon of democracy and freedom, and it is incumbent upon all elected officials to uphold our obligation

to promote democracy through strength and peace and ensure the safety of our nation and citizens. That is going to do it for today's breakdown. Until next time, be safe and take care of each other. Peace.