The Breakdown - Senate Democrats Push for Bipartisan Role in Crypto Market Structure Bill

Starting point is 00:00:00 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 Monday, September 22nd, and today we are talking about the latest in the market structure bill. 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. The market structure bill keeps moving, and now Senate Democrats are pushing for more input as the process comes together. On Friday, a group of 12 Democrats released a joint statement, which said, We hope our Republican colleagues will agree to a bipartisan authorship process, as is the norm for

Starting point is 00:00:52 legislation of this scale. Basically, they're asking for a role in drafting the language of the bill rather than just providing input on a GOP written bill through the committee process. This is the same group that released a competing framework for the market structure bill earlier in the month. Their major asks were closing the loophole that allows stable coins to pay interest through third parties and a string of enhanced compliance measures. One of the most concerning parts was a demand to, quote, address bad actors' use of defy platforms to circumvent illicit finance controls. With no further details, some worry that Democrats would push for another backdoor defy ban.

Starting point is 00:01:24 Still at this stage, it's reasonable to think that this Democrat block at least is working in good faith, as this is an entirely separate faction from Elizabeth Warren in her anti-crypto army. Instead, the major consideration is simply time. In their statement that Democrat senators said, Given our shared interest in moving forward quickly on this issue, we hope they will agree to reasonable request to allow for true collaboration. For this process to work, it must start from a place of mutual understanding. Republican leaders were attempting to get this bill moving by the end of the month.

Starting point is 00:01:51 It now looks like that won't be the case with Politico reporting that Senate banking GOP staff have indicated openness to waiting until the week of October 20th for a markup hearing. The bill also needs to go through the markup process in the Senate Ag Committee. before it comes to a vote. All of which means we're running pretty low on time. Even small delays could easily push the bill into next year, given that there's only eight weeks for the Senate in Q4. The Senate is out of session this week and next week will likely be taken up by a fight over another government shutdown. If the bill gets punted into next year, that could kill momentum and could very well mean that nothing gets passed before the midterms. At this stage, banking committee

Starting point is 00:02:25 chairman Tim Scott is striking a very conciliatory tone. His spokesperson told Politico that Scott and the GOP members of the banking committee have, quote, a proven track record of bipartisanship, adding, it's been quite some time since we've seen such bipartisanship on the banking committee. Chairman Scott and his colleagues have worked hard to build trust and hope their Democratic counterparts will come to the table to make America the crypto capital of the world. The group of 12 Democrats have enough votes to make or break this bill when it comes to the Senate floor, so they're holding a lot of cards. Senator Lummis's office has also indicated a willingness to work across the aisle.

Starting point is 00:02:55 In a statement on Friday, Lummas said that she and Scott, quote, have worked tirelessly to promote a bipartisan and transparent process in crafting comprehensive market structure legislation. Her spokesperson did suggest a little frustration with the process being snagged once again, adding in comments to Politico, the Democrats' recent market structure framework demonstrates a shared commitment to ensuring the U.S. leads the world in digital asset innovation. While we have been actively soliciting feedback from our Democratic counterpart since July without receiving input, we remain committed to bipartisan collaboration. We're hopeful the Democrats will work with us to help achieve this shared goal and secure our financial future for generations to come.

Starting point is 00:03:27 Now, the crypto lobby is fairly quiet on Twitter, suggesting that they might be working behind the scenes to build consensus. Justin Slaughter, the VP of Regulatory Affairs at Paradigm simply commented, good statement from the Democrat senators, important for the bill to be truly bipartisan to provide lasting clarity. Meanwhile, Coinbase CEO Brian Armstrong spent last week in D.C. taking meetings along with numerous other crypto executives. In a press tour that ended the week, he said, the crypto market structure bill has bipartisan support and will pass by the end of the year. Comments from Lummus comparing passing a bill to giving live birth to a porcupine spring to mine once again. The question here will be what the intention of the Democrats is. Given how obstructionist

Starting point is 00:04:03 that side of the aisle has been over the past couple of years, it's reasonable to have some skepticism and think that the reason that they're asking for this sort of engagement is that they have major differences with the Republicans. The flip side is that it's not impossible that this is a political calculus, that this group of Democrats is A, well and truly fully on board with crypto legislation, and B, thinks that it's a significant enough deal in the eyes of history that they want to have a bigger seat at the table, not just for the sake of what gets in there, but for the sake of storytelling and narrative after the fact. The optimistic take, in other words, is that they want their names in a more prominent place when the history books are written.

Starting point is 00:04:37 Whatever the case, we won't have to speculate for long. We will get much more information soon about exactly what this particular flavor of bipartisanship looks like. Hopefully there's just enough time to get something done once that's clear. On stable coins, meanwhile, the U.S. Treasury is seeking a second round of comments before they commence rulemaking for the Genius Act. In a Thursday notice, the Treasury said that although advanced notice of rulemaking was not required to implement the Genius Act, they are nevertheless seeking public input. The Genius Act is set to go into force 18 months after its passage in July, or 120 days after the Treasury and the Fed finalized their regulations. In their statement, the Treasury noted that they are, quote, tasked with issuing

Starting point is 00:05:11 regulations that encourage innovation and payment stablecoins, while also providing an appropriately tailored regime to protect consumers, mitigate potential illicit finance risks, and address financial stability risks. In particular, the Treasury is seeking data and other information that could help them tailor regulations related to these and other issues. They noted as an example that the Genius Act doesn't mention taxation, potentially leaving room for the IRS to develop their own interpretation. The bill is also silent on issues like the marketing of stable coins and has room to interpret how the Bank Secrecy Act should apply to stable coin issuers. The comment period is pretty tight ending on October 20th, meaning that potentially Treasury is trying to move quickly

Starting point is 00:05:46 and get the regulations moving before the end of the year. Now we close out today with a little bit market talk. One of the big stories to end last week was the approval of Grayscale's crypto index fund. The fund tracks the top five crypto assets, namely Bitcoin, Ethereum, Salana, Ripple, and Cardano. Bitcoin is around 73% of the fund's weight, with Ethereum representing another 17%, leaving the rest to fit in the last 10%. For Grayscale, this approval is a huge milestone and in some ways the fruition of their long-term thesis. CEO Peter Minnsberg said on Thursday, the launch is more than just another ETP. It's a reflection of our decade-long commitment into being first, moving fast, and giving investors transparent exposure to the crypto ecosystem.

Starting point is 00:06:25 Nate Garassi, the president of Noah Diaz Wealth commented, in my opinion, index-based and actively managed to bot crypto ETFs will be met with significant demand, especially from financial advisors, will be a huge category. Inflows were a fairly impressive $22 million on day one of trading on Friday, compared to $222 million for the Bitcoin ETFs and $47 million for the Ethereum ETFs. Ultimately, while the Crypto Index Fund isn't outperforming products that give single asset exposure, it is still a healthy start for an entirely new category. Lastly today, Crypto Custodian BitGo is the next crypto company up to the plate after they filed their IPO paperwork. The company released

Starting point is 00:07:00 their financials and filed all the necessary documents on Friday paving the way for the stock to list in the coming weeks. So far this year, crypto IPOs have been largely about ignoring the current financial situation and betting on the future. Circle was emblematic of this theme with fairly lackluster earnings leaving crypto Twitter unimpressed ahead of the IPO. Once the stock began trading, however, it was clear that many investors simply wanted exposure to the stablecoin theme and the stock took off. BitGo seems a little better, with the company disclosing some very promising financials. BitGo had $4.2 billion in revenue over the first half of this year, up almost 4x from the first half of 2024. The profit story is a little bit more challenging. They recorded $12.6 million in

Starting point is 00:07:37 profit this year compared to $30.9 million in the first half of last year. The company now has $90.3 billion in assets on its platform, and a client base of more than 4,600 entities and 1.1 million individuals. The filings also disclosed that CEO and co-founder Mike Belchie intends to retain majority voting power due to the company's dual-class shares. BitGo is intending to list on the New York Stock Exchange, but the filings did not disclose a share count or pricing for the IPO. That likely signals that the listing is still a few weeks off. The debates now get into just how strong the business is. Zero XRWA wrote, The art of reading financial statements is going to be a much bigger source of alpha going forward. Crypto Twitter is buzzing with BitGo revenue shooting up

Starting point is 00:08:14 4x year-on-year-on-year but profit going down. The core business is loss-making, though margins are improving. The source of profits is from price appreciation of their treasury assets which are marked to market. As the market went up, those holdings became profitable, but those should be discarded for the right value of equity. But the most important factor is that a major part of the revenue is coming from crypto trading. 4.18 billion of sales against 3.88 billion of costs from buying crypto assets. That means the core custody business is not generating more than a few million dollars of revenue. Chain Yoda, meanwhile, was just impressed they had an actual business behind them commenting, unlike several recent crypto IPOs, BitGo is a legitimate

Starting point is 00:08:47 business with recurring operating revenues, but that low earnings figure is a bit surprising. BitWise CEO Hunter Horsley thinks that the important point is much bigger, saying, in the last several months, circle, bullish, figure, Gemini, and now BitGo, and more to come. People are discovering how big the businesses of this space are. That's going to do it for today's breakdown. Appreciate you listening, as always. And until next time, be safe and take care of each other. Peace.

The Breakdown - Senate Democrats Push for Bipartisan Role in Crypto Market Structure Bill

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