The Breakdown - The Politics of Bitcoin

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. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Friday, November 12th, and today we are talking about the politics of Bitcoin. And no, I don't mean we're talking about post-apocalyptic libertarian fantasies, you jerks. What I mean is that we are talking about the state of political discourse around Bitcoin and crypto and how it is intersecting with the political and crypto systems. One of the things that's always made Bitcoin so interesting to me is that it is in some

Starting point is 00:00:50 ways inherently political, yet ultimately philosophically agnostic. What I mean is that wrenching control of the system of money, or at least providing an alternative to the system of money from governments, is an inherently political act. Yet, who gets to participate in that inherently political act has no political or philosophical gatekeeping. Bitcoin is not only for everyone, it is for enemies. People who are completely diametrically opposed to each other can both use Bitcoin for their purposes. That's a really unique and different thing. Now, where Bitcoin and Crypto more broadly fits into the larger political landscape has been a long evolving concern. There was an extended period there at the beginning

Starting point is 00:01:33 where it was just all about Silk Road. It was money for criminals. To be clear, for some politicians, it still is in this phase and will always be this. In fact, you could almost say this is the base political discourse. There was also a period for which it was just the new Ponzi, an on-ramp to a world of scams and schemes. Just like the Silk Road and criminal analysis, while parts of it were true inherently based on the permissionless nature of the asset, it also radically undersells Bitcoin to view it exclusively as that. Sadly, for some politicians as well, they will never be able to move beyond this view either. Now, an interesting thing happened when Libra launched.

Starting point is 00:02:11 The Libra hearing was in July of 2019. And on the one hand, you had folks like Representative Brad Sherman saying, with a straight face, that, quote, Libra may endanger more Americans than 9-11. If you think that's insane, you're not wrong. He clearly, by the way, is in the Forever Silk Road Camp. In fact, he may be the mayor of the Forever Silk Road Camp. On the other hand, you had Congressman Patrick McHenry say, the reality is whether Facebook is involved or not changes here.

Starting point is 00:02:39 Digital currencies exist, blockchain technology is real, and Facebook's entry into the world is just confirmation, albeit at scale. The world that Satoshi Nakamoto envisioned and others are building is an unstoppable force. We should not attempt to deter this innovation, and governments cannot stop this innovation. Those that have tried have already failed. So the question then becomes, what are American lawmakers going to do to meet the challenges and opportunities of this new innovation? Now, the political discourse around Bitcoin and crypto didn't get much farther after that until this

Starting point is 00:03:15 year. Stable coins remained in the hot seat and Facebook's most aggressive plans were pushed back. But then obviously we had kind of a moment of global distraction. In the wake of COVID-19, very few were focused on Bitcoin or crypto in general, but that wouldn't last long. The whole asset class got a lot more mainstream in the wake of the crisis. That was in part thanks to hedge funds and public companies and traditional market folks, waking up to the possibilities of Bitcoin as an alternative for central bank money. Or more lightly, just a good, solid, math-based inflation hedge. Plus, new things were emerging.

Starting point is 00:03:52 The rise of defy brought up lots of new questions. Indeed, the rise of D5 created a new archetypes for politicians, which is the Protect the Intermediaries archetype, which unbelievably is actually a thing. Defi, however, also supercharged the focus on stablecoins. When the Lieber hearing happened, stable coins were tiny under a billion dollars in total issuance. The threat then was largely about the size of Facebook. Fast forward a couple years and we're talking about assets with well over $100 billion issued. There was a clear exponential growth pattern that has gotten notice. Earlier this fall, when I was talking about why autumn could be Bitcoin season, I pointed out how Bitcoin stands to benefit from questions around other parts of the crypto industry, looking

Starting point is 00:04:37 comparatively clear and comparatively comfortable relative to some of the other more murky areas. Ryan Selkis from Masari made a similar point earlier this week, tweeting one of the most remarkable things about this year in crypto policy has been how insulated Bitcoin seems to be from the worst possible risks. The focus on stable coins, defy, token. tokens, tax compliance, exchange oversight, etc. BTC hides in plain sight block by block. In the short to medium term, BTC appears to have significant tailwinds regardless of regulatory shifts. D5 boom? Well, there's still one trillion in uncollateralized BTC and the bridges are coming. Stablecoin crackdown, USDT risks would lead to a BTC flight to safety. Bitcoin's volatility could help it, once again,

Starting point is 00:05:20 survive and advance as an asset simply because it's being written off for its flaws versus its strengths. If all attention shifts to quote-unquote crypto, while Bitcoin hits $10 trillion, it's game over. Bitcoin will have become too big to fail. NIDIG sponsors this podcast and they're integrating Bitcoin into everyday life, not only for Wall Street, but also for Main Street, because NIDIG is built for Bitcoin and Bitcoin is built for everyone. Learn more at nidig.com slash NLW. That's nydig.com forward slash NLW. Now, taking a step back, I think that when the story of 2021 regulation is written, it will be seen as the year the industry actually started to get taken seriously. The infrastructure bill was clearly Exhibit A.

Starting point is 00:06:14 Remember, what happened with this bill is that forces that be in the Treasury Department, it seems, and allies in the Senate, thought that they would have no problem effectively sticking it to the crypto industry in the pay-for process of a big must-pass bill. It was an easy win-win, right? Be seen as closing tax loopholes, even though you weren't actually justifying what it was that was allowing those taxes not to be collected, radically increase the power of the Treasury Department to regulate and have oversight of crypto. In the meantime, say that you're going to somehow get nearly $30 billion in revenue for this expensive bill. What they didn't anticipate was the vociferousness with which the crypto industry would fight back. We got loud. In fact, we delayed the bill for weeks.

Starting point is 00:07:01 Congress, the Senate, the Treasury Department, all had their heads spinning at how forcefully the crypto industry responded, and frankly, how quickly it did so in an organized way. Ultimately, because of process that had nothing to do with the crypto industry, we weren't successful. But what we were successful in is improving our ability to organize and in uncovering some unlikely allies. Indeed, one of the things that makes me the most optimistic watching that whole thing play out, was how much it was truly bipartisan. There were Republicans and Democrats on the side of trying

Starting point is 00:07:34 to get those provisions in. There were Democrats and Republicans on the side of trying to get those provisions out. And by the end, there was some sort of common understanding that was truly not about trying to screw crypto that would have made it into an amended provision had it not been for procedural issues. But of course, it did make it in, and that bill is now becoming law, and so we move on to the next phase of the fight. Jake Chavinsky wrote a thread last week that concluded with this statement. Let's all recognize that we're in uncharted waters, that we're trying to do something big here, that the challenges are great that will make mistakes, but at the end of the day we'll do it

Starting point is 00:08:09 all together. We'll prevail together, there's simply no other way. Those challenges will come in many forms, but the only one that truly worries me is the time-tested strategy of divide and conquer. The outrage machine has turned its eye toward us. We can't fall for it. We can't feed it. We have to stay focused. We have to be patient. I expect the next few years will be the most important in the history of crypto policy. Before or after, it's up to us to create the future we want for the world. Nobody will do it for us.

Starting point is 00:08:39 We will prevail. I'll have news next week. The news is that Trevinsky has joined the Blockchain Association, one of two new hires which are beefing up their capacity for advocacy. He says, my sole focus. will be crafting and advancing good crypto policy in the USA and abroad, this is our main challenge now I'm all in. He goes on. Like many disruptive technologies, crypto presents a major challenge to the status quo. Many of the legal and regulatory frameworks governing legacy institutions aren't a good

Starting point is 00:09:09 fit for the new digital world we're building, yet public policy has been painfully slow to adapt. It's time for us to take charge of this debate. The Blockchain Association also announced that DC veteran Dave Grimaldi will be joining as their head of government relations. Now, that's reason for optimism, but I believe there's more reason for optimism as well, and I want to share one of the best threads I've seen from a politician on Bitcoin and Crypto in a while. Morgan Harper is a former consumer protection attorney and candidate for the U.S. Senate in Ohio. She writes, I first started hearing about crypto, Bitcoin,

Starting point is 00:09:42 and blockchain when I was working at the Consumer Financial Protection Bureau. We had a lot of pressing issues causing real harm, so I'll admit I wasn't too plugged into this area. Since then, the space has grown a lot. I've recently spent more time learning about Bitcoin and crypto, and to be honest, I'm really interested in the possibilities for our state. First, whether you're pro or anti-crypto, the most important thing is to read up on it and experience it. Make sure you understand the tech. There's a lot of talk about how crypto is just for money laundering and scamming, and for sure, some people are using it for exactly that. But most have a much more positive vision from the technology's applications. Okay, but so what? Here's why it's interesting to me. So much of

Starting point is 00:10:21 my career, I focused on fighting corporate monopolies that are too big to fail. That used to be just banks, but more and more, it's everything. Internet providers, big tech, health insurance, you name it. Often these companies aren't winning because they're the best. They're winning because they lock in users and their data and use that combination to dominate markets and manipulate our democracy by lobbying and bribing politicians. Here's where crypto could come in. For example, Bitcoin automates a lot of what banks do, keeping a ledger of transactions, but without the bank. So instead of enriching some CEO and large shareholders, the wealth of the network accrues to its users. This could be a really powerful model of eliminating intermediaries and distributing economic power.

Starting point is 00:11:00 Imagine Uber, whereas the network becomes more valuable, that value accrues to the drivers and the workers, instead of only the investors. Any of these ideas may or may not pan out, but they are energizing a rush of attempts to try. There are crypto projects out there that want to compete with basically every facet of what a bank or social media company does, and their basic model is more inclusive than a corporation. I've heard anecdotes and seen some stats about how many young people and people of color use Bitcoin, which makes sense. Historically, we've been locked out of traditional forms of investment. Importantly, for all of us in Ohio, the point of this tech is to decentralize, to reverse the trend of power moving from places like Ohio to places like Silicon

Starting point is 00:11:37 Valley. It could give anyone in Ohio a chance to participate, not just already rich and powerful gatekeepers. The point is, we are in desperate need of competition. We need more power and economic freedom to flow through middle America. I think we should be in learning mode on this. I think we should be finding ways to better encourage structured competition and consider ways to keep bad actors out while encouraging innovation. I'm going to keep learning. So if you're out there and thinking about crypto, whether you love it, hated, or land somewhere in between, I want to hear from you. Now, Jake Trevinsky again, he actually shared this thread, and he said this thread from a Democratic candidate for U.S. Senate in Ohio perfectly captures how crypto can attack a problem that politics

Starting point is 00:12:15 has thus far failed to solve, reducing the disproportionate power and influence of the old financial institutions and new tech giants. These are the reasons I always hoped Senator Elizabeth Warren would take a positive view of crypto. Her critique of the megabanks and crypto's goals of disintermediation are deeply aligned. No surprise, Morgan Harper worked for the Consumer Financial Protection Bureau, Senator Warren's own creation. So for my part, I think Morgan represents a few things. First, if you look at the quote tweets, there are more than a few who say it's donation pandering. I personally tend to try not to ascribe motives to super thoughtful threads of people that I'm just learning about, but, you know, you do you. Frankly, if it is donation pandering, if there is an element of that even, good.

Starting point is 00:12:56 Politics is power, and the notion that young politicians are starting to see crypto as a power base that they can tap into, in order to both bolster their careers, but also enable more economic openness, freedom in the future? that's just smart. What's more, this group does have lots of money. Of course politicians are going to go after it. And that's a big part of how shifts in power happen. What's exciting to me is that it's from all parts of the spectrum and people are actually getting the idea that it's not just for rich people or basement libertarians or any other caricature that the media has thrown at us. And by the way, for those who are sticking with the old tropes, I would just point you to a recent Pew Research study. It asked what percentage of U.S. adults have ever invested in

Starting point is 00:13:37 traded or used a cryptocurrency such as Bitcoin or Ether. There was no statistical difference based on household income. Where there was statistical difference was in race. 13% of U.S. adults who are white have used or interacted with crypto. Move to black Americans, and that number rises to 18%. Hispanic Americans 21% and Asian Americans 23%. This is not a technology for one type of person. It's for everyone.

Starting point is 00:14:05 And the more that the political discourse shifts to understand that, the better positioned I think we're going to be. Until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - The Politics of Bitcoin

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