The Breakdown - The IMF and California Chart Different Courses on 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, near NFTX, and produced and distributed by CoinDesk. What's going on, guys? It is Monday, May 9th, and today we are talking the IMF, Argentina, California. Before we get into that, however, a couple housekeeping notes. There are two ways to listen to the Breakdown podcast. You can hear us on the Coin Desk Crypto Podcast Network feed, which features not only the breakdown,

Starting point is 00:00:43 but also a number of other great shows from CoinDesk, or you can listen on the Breakdown-only feed. The Coin Desk feed comes out in the afternoon. The Breakdown-only feed comes out in the evening. Whichever feed you are listening on, if you're enjoying the show, give it a rating and a review. And if you want to come join the conversation in a deeper way,

Starting point is 00:01:00 check out the Breakers Discord. Lastly, a disclosure as always. In addition to them being a sponsor of the show, I also work with FTX. Now, before we get into our main topic, it was a pretty rough weekend for crypto and frankly for everything. Bitcoin and crypto took another big leg down this weekend. And as bleak as stocks are, crypto seems to be a leading indicator of pain in all risk markets. Alex Kruger points out, whales can hold a level or area temporarily, but crypto direction depends almost entirely. on stocks, and stocks are quasi-dead. Stocks liquidity is at its lowest in decades barring the corona crash, charts are all broken,

Starting point is 00:01:39 and there are a few potential positive catalysts coming up. A bunch of Fed speakers tomorrow who will be yapping about inflation, and then CPI on Wednesday are the big events this week. Now, to me, one of the clearest indicators of where we are is how angry people are on Twitter. Especially over this weekend, I started to notice people saying that they were leaving the space, feeling intense burnout. And alongside of all of that, you're also starting to start.

Starting point is 00:02:01 to see a rise in Schadenfreude. A lot of that is external, and the number of think pieces you're going to see saying that this was all obviously total bullshit is going to ratchet up dramatically in the weeks to come. You're going to see some of this aided and abetted by folks in this industry who hate things other than their thing. Now, some of this is relevant reflection. In fact, in bare markets, a lot of the best conversations happen. However, a lot of it is also cynical, I told you so's, but the good news is, that it won't be hard to tell which of those is which. I obviously don't know what's going to happen next. I don't know what the catalyst to get out of this funk is. But I will caution that this sort of

Starting point is 00:02:42 gloom can last a lot longer than it seems. In that context, self-preservation is really important. My best advice is to figure out what you need, especially in terms of space. For me, for example, I spend way less time on Twitter in this sort of environment. Either way, for what it's worth, my conviction in these areas is extremely long-term and pretty disconnected from the hype cycle. So the breakdown should remain a fairly safe space, both from the utter pessimism that could start to characterize discourse, but also its twin unfettered hopium. I'm going to continue to focus on the big picture power shifts, many of which I believe continue to be connected to Bitcoin and the crypto industry writ large. And today we have an almost perfect encapsulation

Starting point is 00:03:25 of one of the most important themes of this year. How exactly. existing power structures in governmental and quasi-governmental organizations are finally taking Bitcoin and crypto seriously and figuring out how they're either going to try to fight them or to adapt them to existing frameworks. Today's stories also show how wildly divergent the outcomes of that conversation can be. So let's start first with Argentina. Argentina is on the never-ending merry-go-round of debt negotiations with international financial institutions. In March, they signed their latest debt restructuring deal, which was a $45 million deal with the IMF. The IMF released a memorandum of understanding that outlined specific financial policies to be adopted and announced that they

Starting point is 00:04:08 had reached a, quote, staff-level agreement with the Argentine authorities. This was a way to avoid default. The New Deal is a renewed and updated financing schedule that's set over a 30-month period that is set to replace a failed $57 billion program that was agreed to in 2018. The New Deal is largely focused on the social safety net. Attached to that memorandum of understanding was a report that detailed the economic structure in Argentina, including chiefly a criticism of the country's pension scheme. The report pointed out that Argentina had pension beneficiaries that represented 140% of the population over 65, compared to the OECD average of 109%. It also noted that the average value of pensions, as compared to active salaries in the nation, exceeded 90%, which is more than the

Starting point is 00:04:55 the 58% average in, again, OECD countries. Now, the specifics are relevant insofar as one might be asking in this situation if the IMF has achieved its strategic goals of, as claimed on its website, to achieve sustainable growth and prosperity for all of its 190 member countries. It's worth asking how their help has worked out. Marty Bent tweeted, Argentina has an average annual inflation rate of 192% since 1944. They joined the IMF in 1956 and have participated in 21 standby agreements or loan since 1958. That's roughly one every three years. It seems to me that the IMF may be a big part of Argentina's problems. Now that 192% number is slightly misleading in that there was a hyperinflation period in there, but still, some more

Starting point is 00:05:42 reasonable stats to use might be a current inflation rate around 50%, and inflation consistently above 10% since 2012 and above 20% since 2017. Lynn Alden responded to Marty, either it's harming or it's not helping. Insanity is repeating the same thing and expecting different results. Looking for ways to step up your crypto game? Then go with Nexo. For starters, you get free crypto for each purchase or swap. How about earning guaranteed yields? Up to 17% paid out daily. Ideal for you hardcore hodlers. You don't even need to sell. Instead, borrow instant cash against your assets. Get the most out of your crypto with Nexo. At Nexo. At Nexo, That's nexo.io.io. This episode is brought to you by NIR, a climate neutral, high speed, and low

Starting point is 00:06:38 transaction fee, layer one blockchain platform. Near is a blockchain for a world reimagined. Through simple, secure, and scalable technology, NIR empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future. Reimagined your world today at neer.org. The breakdown is sponsored by FTXUS. FTXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets, with up to 85% lower fees than competitors.

Starting point is 00:07:16 There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTX, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. Given all this, the premise that removing pensions is the right or a complete solution to Argentina's troubles seems at least worth a bit of discussion. In any event, the point was that in March they signed this agreement and it wasn't just generically that crypto folks were interested. Yahoo finances headline around this says Argentina's IMF bailout deal includes a wild clawing.

Starting point is 00:08:01 that rips cryptocurrencies. Now keep in mind, Yahoo Finance is hardly like a crypto publication, and here's how they framed this. Argentinian senators just approved a $45 billion bailout deal with the International Monetary Fund on Thursday that will help the country avoid an imminent default on its debts. But that's not the unusual part of the agreement. The deal, which was approved in a 56 to 13 vote, includes a wild provision that will force the government of President Alberto Fernandez to take a tough anti-cryptocurrency stance. The clause was included in a letter of intent signed by economy minister Martin Guzman and central bank president Miguel Pesci on March 3rd. It detailed Argentina's efforts, quote, to discourage the use of cryptocurrencies with a view to preventing

Starting point is 00:08:44 money laundering, informality, and disintermediation in order to further safeguard financial stability. Well, at the end of last week, we got a vision of what it looks like for the Argentinian government to actually, quote, discourage the use of cryptocurrencies. Argentina's central bank announced on Thursday that financial institutions in the country would not be allowed to enable citizens to interact with digital assets on their platforms. Two large Argentine banks had previously announced that they were ready to launch crypto trading

Starting point is 00:09:12 as part of their overall investment services. So this is the first example we have of the IMF leaning on a central bank to disallow crypto investment. We certainly had seen the IMF's concern growing in El Salvador, in places like it. But this ratchets things up to another level. Some of the reactions, as you might imagine, are disgusted. Alex Gladstein writes, in order to get an IMF bailout, the Argentine government pledged to crackdown on Bitcoin. There are a few things more dishonorable than a corrupt regime trying to save its own skin by preventing its people from accessing better money.

Starting point is 00:09:45 Others are more optimistic, if in a roundabout way. Preston Pish writes, watching the IMF threaten nations from using Bitcoin is actually providing them the signal of where to move Next. Human nature dictates that when forces attempted, it instills a deep desire and reaction to ask why, and to respond accordingly. Now, this was not the only IMF story from last week. An IMF representative told Bloomberg that the Central African Republic's adoption of Bitcoin as legal tender also raises legal transparency and economic policy challenges, basically the same things they said in El Salvador. In that light, the Argentina debt deal seems like something of a preemptive strike against Argentina trying to go the same way or consider that same direction.

Starting point is 00:10:26 Now, this is an unwelcome, if not entirely unexpected, development. The IMF is a key legacy institution of the last global monetary system. It seems clearer and clearer that if the question is to fight or to adapt, the IMF is choosing to fight. But, as mentioned, today's podcast is a tale of two very different approaches to the emergence of Bitcoin and cryptocurrencies. Unexpectedly last week, the California Governor Gavin Newsom signed an executive order to begin the development and implementation of a crypto policy framework. Newsom said, California is a global hub of innovation, and we're setting up the state for success

Starting point is 00:11:04 with this emerging technology, spurring responsible innovation, protecting consumers, and leveraging this technology for the public good. Too often government lags behind technological advancements, so we're getting ahead of the curve on this, laying the foundation to allow for consumers and businesses to thrive. A few of the key quotes from the order. California becomes the first state in the nation to begin creating a comprehensive and harmonized framework for responsible Web3 technology to thrive. Executive Order aims to create a pipeline of talent for the emerging industry and utilize the technology for public good. California will begin the process of creating a regulatory approach to spur responsible innovation while protecting California consumers,

Starting point is 00:11:40 assess how to deploy blockchain technology for state and public institutions, and build research and workforce development pathways to prepare Californians for success in this industry. The order is somewhat similar to the federal executive order that we had a couple months ago in that it gives agencies a period of time, in this case 60 days, to outline the ways in which they see their needs and share their views regarding this policy framework. The order lists seven objectives. Create a transparent and consistent business environment for companies operating in blockchain. Collect feedback from a broad range of stakeholders. Create a regulatory approach? Collect feedback from a broad range of stakeholders for potential blockchain

Starting point is 00:12:16 applications and ventures. Engage in a public process and exercise statutory authority to develop a comprehensive regulatory approach. Engage in and encourage regulatory clarity. Explore opportunities to deploy blockchain technologies to address public serving and emerging needs. Identify opportunities to create a research and workforce environment. Perry Ann Boring, who's the founder and CEO of the Chamber of Digital Commerce, said the California Executive Order rightly recognizes the role blockchain technologies play in spurring job growth and economic competitiveness for the state. Ron Hammond, the director of government affairs at the Blockchain Association, says, like many things in United States politics, crypto regulation trickles up from the states. For me, the key thing here is that this

Starting point is 00:12:56 continues to obliterate the potential for partisan narratives. Jake Chavinsky, who's the head of policy at the Blockchain Association, says, there's a big difference in the politics of the two states with the largest economies in the U.S., California and Texas. But their approach to crypto is the same, working hard to make sure both industry and technology flourish. The message of bipartisan support couldn't be more clear. Julie Stitzel, who's the VP of Public Policy at DCG, said, California is drawing a stark contrast to New York with this executive order by signaling a more favorable policy and regulatory environment in the state. I hope New York legislators take note. Now, of course, many Californians are reasonably skeptical of what comes out on the other side. Donovan Ward writes, while regulatory

Starting point is 00:13:38 clarity is essential for mainstream adoption, not thrill that Newsom is taking the lead on providing it. Just going to tax the shit out of it and drive all the companies elsewhere like he already has. Hope I'm wrong, but I doubt it. I think it's a worthy reminder that whenever a government gets involved, it's reasonable to be wary of potential co-optation, restrictions that in the name of fitting something in with a public policy framework actually challenge what made it unique in the first place. The last one when it comes to crypto is, I think, particularly the case around issues like privacy. But at the same time, the point of all of this is that this process of government engagement is clearly happening everywhere. There are roughly three available starting points

Starting point is 00:14:16 for that discussion, antagonistic, neutral, or positive. The big question coming into this year was, and continues to be where the U.S. and specific U.S. jurisdictions would land. I would characterize the general belief about where the Biden administration was likely to start this discussion before the executive order as somewhere between antagonistic and neutral. This was based on Janet Yellen's comments when she first was sworn in, the infrastructure bill battle we faced last summer, and Gary Gensler's turn for the aggressive. What we got instead was, I think, neutral to positive. Certainly closer to neutral than positive, but that's a lot more positive than what was expected. I don't believe that there was a strong sense one way or another about where California would start this discussion,

Starting point is 00:14:59 given that I don't think many people had an indication that they were going to even make this an issue. That said, given New York's treatment of crypto and its status as the other big progressive high-tax state, and given the loudness of prominent progressives like Elizabeth Warren, many could be forgiven for assuming that California might enter on that antagonistic and neutral perspective. But here again, we see neutral positive. I think this is a reminder that in the U.S. right now, for a combination of reasons, you simply can't pin this technology easily to Republican and Democrat, and that is, I believe,

Starting point is 00:15:31 to its benefit. Anyway, there will be a lot more to see with what comes back over the next 60 days in California, how aggressive the IMF and other institutions like it go after Bitcoin and Crypto. Like I said, this is one of the key themes of this year and one that we will continue to watch. For now, I want to say thanks again to my sponsors, nexus.io, neir and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

Starting point is 00:16:01 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,

Starting point is 00:16:22 entrepreneurs, developers, and creators. Don't miss speakers like Kathy Wood, SBF, CZ, Punk 6529, and Joe Lubin to name just a few. Use code breakdown to get 15, off your pass at coin desk.com slash consensus 2022.

The Breakdown - The IMF and California Chart Different Courses on Crypto

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.