The Breakdown - The Week Crypto Truly Entered the Political Conversation

Episode Date: May 11, 2024

On this edition of The Friday Five with Scott Melker, NLW discusses why this week was the week that truly entered the political mainstage. Today's Show Brought To You By Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet 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 Friday, May 10th, and that means it's time for the Friday 5. 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. All right, friends, back with another Friday 5, and I,

I will tell you just in advance that this one gets a little weird, structurally at least. There is apparently some apocalyptic storm happening where Scott is recording from, meaning that he had a hard time getting on initially, and then had to dip out for a few minutes where I just had to wax poetic and op-ed style. But the TLDR on this week, and I think that this is pretty clear, is that the big story is the political realignment that's happening around crypto right now. I'm not going to say that much more here because I talk a lot more than usual even on the show. So let's dive right in.

I just lost power two times in the lead up to this show, trying to get it started. So we probably should go and beat the next attempt. How you doing today, man? Things are good. There's a storm here, but not so apocalyptic, it seems like. You had some big news this week. It's not one of our Friday five, but the breakdown is getting some serious attention right now. Yeah, the breakdown is moving over into the Blockworks family.

I've really wanted ever since, you know, especially since I've sort of experienced, expanded and started to do the AI thing and super intelligent. I wanted the breakdown to have entrepreneurial energy behind it as well, you know, people who want to help grow it and think about new versions of it and expansion. And the Blockworks team is, I think, awesome for that. I've known them for a long time. I think they're building something great. So functionally, everything will be the same for listeners. You know, the formats staying the same. I'm continuing to host, but it is now a Blockworks show and I can be more excited. Yeah, I started my podcast with Blockworks for the first couple of years.

So really cool to see you. I join that team. They are absolutely amazing. Now, let's dig into the news, though, because you cannot talk about crypto right now without talking about this wholesale acceptance from the Donald Trump campaign, right? We've got Bitcoin can benefit from a Trump win

and U.S. fiscal dominance from Standard Charter. Donald Trump says he'll accept crypto for campaign donations, but more importantly, a video I've showed here and I won't show again, he basically said, if you vote for Joe Biden, your crypto's dead. If you vote for Donald Trump, I'm going to let you guys do what you want here. It's a wild shift.

I called this the completion of Trump's 180 on crypto. I think it was completely inevitable, right? I mean, it makes sense. It's more coherent in some ways with his previous positions than where he was at the end of the last administration. That's why I think people always felt when we got that sort of, you know, I'm no fan of Bitcoin, blah, blah, blah, blah, blah. That tweet, one, felt like it was written by then Treasury Secretary Steve Mnuchin.

This was all the way back in 2020 or whenever it was. But two, it also very clearly was not so much about Bitcoin and crypto, but about the U.S. government's hatred of Mark Zuckerberg, right? This was prompted by Zuckerberg launching Libra and wanting it to be, you know, this sort of have an alternative currency to the U.S. dollar. And we just got kind of swapped up in that dragnet. So it always felt a little out of place, perhaps, to regular sources. of Republican politics. And over the last four years, we've obviously seen a little bit more of that

divide start to take place. You know, Trump has been testing for the last few months this sort of language. He's been softening his stance in a very progressive way. He started talking about CBDCs in January and was explicitly surprised by what a big reaction it had. He kind of mentioned that he had no idea that it was such a big issue for people. Then I think a month later, he sort of started to say that he loved the almighty dollar the most, but, you know, crypto was fine. There were a lot of people using it. And so this is sort of like, I think, in some ways, the natural evolution of that position. And the crypto industry was waiting with open arms after what they've experienced with this current administration for the last few years. Yeah, I mean, I don't know if he means it,

if it's speaking to his audience, if it's a tactic. But regardless of your thoughts on him or his beliefs, it's definitely smart if he's trying to woo crypto voters. And I'm not taking a political position at all, but it's a savvy move in the context of what was happening. We do have one of the videos here, it's about 25 seconds. So let me just play it really quick to give people some context. Biden, Biden doesn't even know what it is. If you ask Biden, sir, are you four against crypto? What's that? What that? Get me off the stage. You say, get me off the stage. Now, he has no idea, but look, the against her is very much against it. The Democrats are very much against it. And I say this, a lot of people are very much for it, probably a lot of the people

in this group, and I'm fine with it. I want to make sure it's good and solid and everything else, but I'm good with it. And if you like crypto in any form, and it comes in a lot of different forms, if you're in favor of crypto, you better vote for Trump. Yeah. I mean, like I said, you can have your opinion on what his intentions are, but you can't have an opinion on what he said. Yep. It is a crystal clear position. I actually think that just from a sheer political analysis standpoint, he's sort of still hedging than making it, you know, it would be weirder if he was all of a sudden pretending that he loved crypto. He's not really doing that. He's saying, I'm cool with it. You guys like it. That's fine with me. I like free enterprise. You know, it's a much more sort of

free enterprise and I want American entrepreneurship type of argument, which I think is, it's really tamping down on the, is he just kind of playing us critique with some people, right? I think a lot of folks are rightly skeptical of any politician who starts to move into a particular space and shifts their opinion on it. And I actually think that it's sort of more resonant with some portion of the crypto crowd because it's not a full-throated endorsement of the thing. It's a full-throated endorsement that the thing should be allowed to exist regardless of what he thinks about it, which is kind of where everyone wants to be. Also a full-throated position that's the antithesis of the guy who's running against, which probably affect him. We have a few more political

stories. We'll just talk through Bowden meme coin surges after Trump quips about it. He literally had to answer a question about Bowden for those who missed it. He said, I don't like that investment, obviously. He wasn't aware of it. He was just, it was described to him and he quipped, but pretty funny. Elizabeth Warren calls for crackdown on crypto's role in child sex abuse. I literally don't know what she can come up with next, but we can see where the line in the sand is drawn between the two parties and who's pushing it from each side. Most people cringe about crypto, but enough care to warrant politicians' attention. This is a survey of swing state voters shows that as many as 21% of them are serious about crypto policies, though more than two-thirds

of people distrust the digital assets movement. This is always what's curious to me about the anti-crypto army. You have passionate people who will vote on this issue solely because they love it, but nobody's going to vote solely on the anti-crypto agenda, right? They say they distrust it, but they're not going to vote based on somebody opposing it. I mean, it has always felt to me like this sort of, well, one, the anti-crypto army thing was a very explicit decision. That was not a random errand comment from Warren that got a bunch of traction that just went off. That was a bunch of people sitting around in a room deciding that they were going to make this an issue, right? And then doubling down on it at various points throughout the last

couple of years. My feeling has been that it was not even so much about crypto initially. it was crypto as the next generation of sleazy big business, which is a winning issue, particularly for the Elizabeth Warrens of the world. I think that that's, you know, you heard this in her hearing statements a couple of from a couple years ago, where it was, you know, you guys say you're about decentralization, but really it's just the big money in a new form, right? That was her line over and over and over again. I think that that's what she thought she was getting into with this. What they seriously underestimated was the extent to which this is a very discreet, specific lobby and community that punches way above its weight class

is much louder, much more insane than anything they could have possibly imagined. And so now they're fighting a war that they didn't realize that they were going to have to fight. They thought they were just going to score some cheap points going after big business again. And that is not how it played out. Young, rich, and angry were not the people that they thought they were picking a fight with and giving no Fs to that end. And so you can see that. You can see. everybody's pushing back here. Nobody seems to fear them anymore. And there's a huge war chest being gathered on all sides. As you said, politically, for donations, punching way above our weight, but also, you know, in response to all of these suits that have been coming up.

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notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. The next topic, it may seem like we're still just talking about the opposing views in politics, but this is very specific. House votes to erase SEC crypto policy while President Biden vows veto. This is staff accounting bulletin number 121. This is a really interesting story and very difficult for me to unpack, to be honest, because this seems like one of the things that the Biden administration would embrace because it would move crypto further into the hands of Wall Street, which is along lines of what we've seen with the

ETF. This is disallowing the biggest custodians in the world from custody and crypto assets because they have to be listed as liabilities on the balance sheet. You would think that maybe they would want State Street and B&Y Mellon to have control of custody of crypto, but in their scorched earth, they're just opposing anything that seems reasonable crypto, even if it ends up past bipartisan in both the House and the Senate? This was an insane, insane choice to make. I think it'll go down as a very bad political decision to have sort of decided to die on this particular hill.

So the super fast TLDR for people who have it been paying attention, staff accounting bulletin 121, it was basically about crypto had to be put on the actual balance sheet, which one of the functions of that is that it's not bankruptcy remote, like it's not protected if a financial institution goes to bankruptcy, which is obviously very much worse for investors than if they could custody it separately. Second, because of capital requirements, it just effectively meant that banks, as you said, Scott, couldn't be in the game, right?

So it entirely cut off traditional regulated banking financial institutions from participating. Now, from the SEC standpoint, obviously it's pretty clear what they want. They don't want crypto to be around. They effectively wanted to bulldoze it and block it from being integrated into sort of those traditional institutions, not because they think that's best for investor. protections, but because they want to do sort of this sort of soft ban that eventually kind of pushes it entirely offshore, right? Like, as we're screaming about all these policies, pushing it offshore, that's exactly what these folks are hoping for. They don't want to deal with it in the U.S.

Anyways, this all happened as part of this sort of staff accounting bulletin, but it didn't go through a normal rulemaking process, right? It was just sort of announced there was no ability for industry to comment on it. And last year, the GAO said that that was illegal. The way that they had done it was inappropriate. It was not the right process that it did amount to rulemaking and that it needed to be up for congressional review. That led to this bill, which was introduced by Representative Mike Flood, that basically overturned this on the basis of it being determined by the GAO to have been an illegal incorrect process. And so what happened, interestingly, was that as this was coming up for a boat, Biden made the very, very unusual decision to preemptively vow a veto if this were to pass,

which is a really dramatic action for any type of legislation, not just crypto. And even though their votes were not required to pass this, 21 House Democrats cross the aisle to vote in favor of repealing this rule. And if you go through Twitter and look at a lot of them, again, it's not some sort of full-throated defense of crypto. It's a lot of really rational common sense takes. There's one congresswoman from Colorado, for example, who said, look, people are buying crypto. I want them to be as protected as they can be. This doesn't accomplish that. It's an easy

decision. And it's been a fascinating thing to see just how dumb this is playing out for Biden and the Democrats. Well, it looks like the internet is out again. So I will just keep going with this until Scott comes back. So two things that I think are interesting. And apologies for not being able to share this live. Obviously, in the wake of these Trump comments, there have been this large-scale conversation around whether crypto is now fully partisan, right? For a long time, it was resoundingly more bipartisan, at least than other areas. You know, still, I think it's pretty obvious that the sort of free market Republican point of view is a little bit less inherently hostile to crypto. But there was broad differences here that made it not so clear

cut. It's calcified a little bit over the last year. And I think that it's calcified in a way that pro-crypto Democrats and just pro-free enterprise Democrats have not really been excited about. And that really came to the fore in the wake of these Trump comments and in the wake of this vote. Representative Wiley-Nichael, for example, yesterday tweeted, we cannot hand this issue to the Republicans. Digital assets shouldn't be a partisan issue. I'm going to continue working in a bipartisan way to support Web 3 so that we can protect American consumers and keep blockchain and crypto innovation in the United States.

Avichal from electric capital said something similar. He wrote, Biden does not equal Democrats. Crypto becoming partisan would be a very bad outcome. Given that 21 Democrats rejected SAB-121 yesterday from the SEC is a good opening for crypto, we just need to pry it open. We are at this inflection point moment where crypto is going to go one or two ways. It is going to either become incredibly partisan because the presumptive Republican nominee for president decides to embrace it and that really drives it in a particular direction. And one outcome of that could be that Democrats who loathe anything having to do with Trump just run in the other direction. However, I think it's fascinating that what we're actually seeing play out is that in spite of that, this group of Democrats are just trying to rip it back, to not see this issue. The sum total of all of this when push comes to shove is not about any one political party, but it is an answer to a question which has been on people's minds for some time, which is how much is, how much is, is crypto actually a resident political issue when it comes to this election cycle?

Will crypto actually make a difference with people voting? I think Scott had the right of it earlier when he said that pro-crypto people will vote their feelings on the basis of people's perspectives on crypto, while anti-crypto people are unlikely to make decisions on that basis. And what is undisputable, I think, at this point or indisputable, is that crypto is now on the agenda as a political issue. It has been officially elevated by President Trump. This particular line in the sand drawn by Biden with his veto has significantly supercharged

what people think about it. And it is now on the agenda in ways that are going to play out over the next few months before November. This is by far the most important thing that happened this week, by an order of magnitude. I think it's actually kind of reflective of the state of this week that this is the big issue that everyone is talking about. This was the most significant event of this. week. It's an event that we will remember for a long time in the same way that I can basically

still tell you exactly when Trump sent that first Bitcoin tweet. Crypto is on the political agenda in a big way. Oh, are you back? I think so. I op edded for a while. So I think we've pretty well summed up the political side of things. Awesome. Did you talk about Robin Hood? Because that was no, no, I talked about nothing else. I was about to cut it off and say, who cares about everything else? This is the big issue for this week, which functionally is true. But you know, you're back. So we might as I'll get to some of the other. Okay, then we're going to do it real quick. We've got obviously Robin Hood receiving a Wells notice. Interestingly, Vlad Tenev, you know, obviously laying out the case for why Robin Hood has done their best. We saw a story that Robin Hood has met with the SEC

in good faith 16 times. You guys might remember Robin Hood is licensed to offer securities. They delisted everything that was passively named an unregistered security by the SEC and still, still having issues. Of course, their volume surged massively, so the company doing quite well. And I love these two stories. Robin Hood would likely win CryptoC court case with the SEC. And then Robin Hood is unlikely to win in a full-out battle with the SEC. Great. Before all the Trump stuff, this one still has a similar effect of sort of accelerating this battle within crypto or the perception of this battle. You know, it's very clear that no one is beyond targeting at this point for the SEC, that they're not just going to go after.

after, you know, sort of really bad actors. Their purview is everyone, which I think confirms something that you and I have talked about a lot in past shows, which is, it doesn't really seem like the goal is to win these cases. It seems like it's to sow as much chaos

as humanly possible in the short time in front of us. Yeah, I think that that's clearly the case. And there's nothing to dig into here. We'll see how many of these cases even exist if the politics change, right? Because none of them are going to be resolved in this next six months. Like you said, I think it's just napalm scorched earth

anyone they can get a Wells notice in. We'll see if they even bring a case. We don't even know yet, right? The Wells notice is kind of the Justin Sun style announcement of an announcement. So I guess we'll see what happens there. Final story since I'm glitching here. Grayscale's application for Ethereum futures ETF withdrawn. Now, we already had Ethereum futures ETFs approved long ago. So can you unpack why this became such a big story this week? Yeah, this one was weird to people because it was widely perceived. that Grayscale had only filed this application so that the SEC would deny it so that that Grayscale could take him back to court and basically replay the same case that they brought

with the suit around the Bitcoin Spot ETF. You know, you'll remember that part of a big part, it seems, of the reason that we have a Bitcoin Spot ETF right now is that Grayscale won this court battle where basically the judge said, like, has to be treated as like. And there's no real basis for saying that a futures ETF is different than a spot ETF, at least based on the the logic that the SEC had provided, which is that the market for a spot ETF was more manipulable. Basically, the price index is the same, which means that the manipulation capacity is the same. And so it just didn't hold water that that was the reason. So basically, the court didn't say you have to approve an ETF. What that court decision said was you can't deny these

ETFs on the basis of that anymore. And so everyone thought that Grayscale was just trying to run that back. So it was very weird when they withdrew this because it, usually the reason that you withdraw one of these things is that you've gotten word from the SEC that it's not going to go through. There's some things you need to change. And they want you to change the filing date so you can get all your ducks in a row. But they're kind of, it's often a sort of short term bad, long term good type of a thing because it means, you know, it's going to be refiled with a better chance to be approved at some future date. This one, again, because they, we didn't think that they were actually trying to win or get approved. It's very weird. And no one really knows exactly what, uh, what, what the reason for

it is. Yeah, if it had been, you know, withdrawing their application for an Ethereum Spot ETF, I would have expected it to be huge news, right? Because maybe they would have known something. But the fact that it was a futures ETF, when we already have those products approved. I mean, Grayscale CEO, Michael Sondenshine basically said, we just want to focus on spot products. There's nothing here.

And by the way, if anyone looked, Ethereum futures products are really unpopular. Yeah. I mean, it's entirely possible that at least part of that is completely legitimate in the sense that let's say that we were all right and they really were just doing this to to fight that that court battle. Gray scale has been bleeding like crazy. They could have decided that they don't want to fight another court battle right now. Yeah, leave it up to someone with an Ethereum spot ETF filing to go fight the next

battle. It shouldn't be Grayscale, especially if they know that they're not going to make that much money on the Ethereum Spot ETF or features ETF even if they get approved. Guys, that's all we got. My power is literally glitching again. So we're going to go. We will be back next Friday with the Friday 5. Thank you, everybody.

Thank you, NLW, man. See you soon. Later, guys.