The Breakdown - Unpacking Arizona's Bitcoin Legal Tender Proposal

Starting point is 00:00:00 The partisan nature of the U.S. system absolutely eats and destroys every issue that it comes into contact with. It demands full allegiance to whatever people think. And it means by default, roughly half of the other people are meant to not agree with you on the issue. I don't believe that Bitcoin is only for half the people and I don't want only half the people to be interested because of some preemptive partisan stance. 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 nexo.io, Abra, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Monday, January 31. We have had a hell of a first month of 2022, haven't we?

Starting point is 00:00:51 Today is no exception, as we are talking about Arizona's Bitcoin legal tender proposal. But first, if you were enjoying the breakdown, please go subscribe. rate, review, or if you want to get into the conversation in a deeper way, join the Breakers Discord. You can find the link in the show notes or go to bit.ly slash breakdown pod. Finally, before we dive in, the standard disclosure. In addition to them being a sponsor of the breakdown, I also work with FTX. So, Friday was one of those days where I locked all the shows for the weekend, and then boom, some great, interesting, fascinating news comes out after I'm done, leaving me to wait all weekend to share and discuss with you guys.

Starting point is 00:01:33 This time, that was news that a state senator in Arizona had introduced a bill to make Bitcoin legal tender in the state. So today we're going to discuss the bill itself, the game theory around states going after pro-Bitcoin consumers and businesses, which includes not only Arizona but Texas and some others. We're going to talk about the author of the AZ bill herself, the constitutional question contained within and partisanship in Bitcoin and crypto more broadly. So SB 1341 was introduced by Senator Wendy Rogers, a Republican state senator in Arizona. The idea of making Bitcoin legal tender, which you'll probably be familiar with at this point because of El Salvador,

Starting point is 00:02:14 means that Bitcoin would necessarily be accepted for the payment of debts, public charges like fines and service charges, taxes, and other state duties. Functionally, this bill would be about requiring Bitcoin to be accepted as payment to discharge private debts, taxes, or other payments to the state. There are, as you might imagine, some pretty big implications on how cryptos are taxed. Bitcoin is currently taxed as an asset, which attracts capital gains when it's sold for USD. The way that foreign currency exchange is currently set up is a very different tax system. So if Bitcoin were legal tender, it's a pretty open question if payment of taxation or payment of debts would be treated similarly as liquidating stock holdings to pay taxes, creating a capital gains tax burden,

Starting point is 00:02:58 or if it would be treated more similarly to USD payments. This in turn would open up the potential of citizens running their finances using Bitcoin as their unit of account. Anyways, the point is that there's a whole lot of technical questions that come with this, which would be fascinating and have a pretty big impact on how Bitcoin evolved, but let's shift to the community reaction, and it's pretty much what you might expect. Lark Davis tweeted, if Arizona City's exceeds in making Bitcoin legal tender, then it is a very big deal. It has around the same population as El Salvador, but more than 10x the GDP. Plus, the implications of BTC being legal tender in a U.S. state would be huge. Don't expect it to be easy. Stephen Cole points out how hospitable Arizona is in

Starting point is 00:03:40 general to Bitcoin right now, writing Bitcoin in Arizona, legal tender bill introduced, Intel and TSM chip production facilities, chamber of Satoshi accelerating local merchant adoption, weekly media, in Phoenix, Gilbert, and Tucson. Conference coming in Phoenix, January 2023. In addition to Arizona, however, a lot of folks are also talking about Texas and the broader game theory of state-level adoption. Dennis Porter writes, a candidate for governor of Texas laid out a plan for Bitcoin legal tender and his state, and less than a week later, Arizona drops a bill to define Bitcoin as legal tender. Game theory is beautiful. Mark Moss tweets the Balkanization intensifies. The Fed Treasury White House scramble to clamp down on Bitcoin, states like Arizona and Texas are moving to make

Starting point is 00:04:26 Bitcoin legal tender. Slim Trady writes it was all over the news. Arizona and Texas are leading the charge and states will pour in if the bills get any support at all, which they will. People are looking for something to turn to and Bitcoin is still easily one of the most untapped assets for mainstream U.S. investors. Nexo is a trusted and easy-to-use crypto platform where you can buy cryptocurrencies at the touch of a button and start earning up to 17% annual interest. that is paid out daily. They support all of the major assets on the market and even allow you to swap one asset for another or borrow cash against your crypto without selling it.

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Starting point is 00:06:22 That's FtX.U.S. Clearly we need to go to the Texas part of the story, and there are currently three men running for governor of Texas who have all come out as pro-Bitcoin. That includes incumbent Greg Abbott, as well as Don Huffins and Alan West. And what's more, this pro-Bitcoin positioning is making news around the election. Bloomberg writes, Texas Governor Abbott turns to Bitcoin miners to bolster the grid and its re-election. A press release from candidate Alan West says Texas will lead nation on Bitcoin blockchain integration and innovation. Allen Buss also said Bitcoin is the, quote, greatest technology shift since the internet.

Starting point is 00:07:02 Don Huffine said, I am committed to making Texas the citadel for Bitcoin and also says that if elected, he would make Bitcoin legal tender. Blockworks writes that Greg Abbott says he believes Bitcoin miners can fix the state's power grid problem. Jeff Booth sums up what's going on, saying states and countries are starting to figure out that the best way to attract talent and build prosperity for their citizens is to advocate for a free market. Game theory accelerating a competition for the best and brightest. Nico Bitfold 7 writes, Arizona, Florida, Texas, Wyoming, all competing for Bitcoin business. We all knew theoretically this was how it was always going to play out, but seeing it play out in reality is insane. What a time to be alive.

Starting point is 00:07:41 When states compete for your business, the individual wins. Deep Blue Crypto says effort is on to make Florida the most pro-Bitcoin state, Texas most pro-Bitcoin state, Wyoming most pro-Bitcoin state, New York most pro-Bitcoin state, Tennessee most pro-Bitcoin state. Michigan most pro-Bitcoin state? In terms of Michigan, U.S. Senator Jim Ananich says, I'm going to work to make Michigan the most pro-Bitcoin state in the country. Kyle Davies from Three Arrow's Capital says, slowly then quickly, every red state will be pro-crypto. Bitcoin as an ideology is just good politics. Now, you'll notice that Kyle talked about red state, obviously right-leaning Republican-leaning states or red states in the U.S. for those of you outside. And that, of course, sparked a ton of

Starting point is 00:08:24 discussion around partisanship in crypto. Now, this is something that I watch very, very closely at every hearing when we have crypto representatives in front of Congress or the Senate. I will start with my point of view. I feel strongly that the longer Bitcoin and crypto remain a bipartisan issue, which I believe they are now, the better it is for the industry. The partisan nature of the U.S. system absolutely eats and destroys every issue that it comes into contact with. It demands full allegiance to whatever people think, and it means by default roughly half of the other people are meant to not agree with you on the issue. I don't believe that Bitcoin is only for half the people, and I don't want only half the people to be interested because of some preemptive partisan stance. I also feel strongly that there is nothing about Bitcoin that inherently makes it right or left.

Starting point is 00:09:16 The American right has something in it in terms of self-sovereignty and its check on government power. The American left, for their part, has located so much of the problem. of the past in too big to fail financial institutions and the structures of financial power, that there's a lot to find value in a decentralized, permissionless, open citizen control network as well. Then, of course, there are issues which really have something for both sides. Load balancing of renewable energy grids and incentivizing renewables has a pro-jobs bent for the right and a green bent for the left. But, of course, it also feels like the longer things go on, the more they calcify, no matter how bipartisan they might seem at the beginning.

Starting point is 00:09:54 I know that's the way of the world, or at least U.S. politics, and it's naive to think Bitcoin and crypto wouldn't start to trend in that direction. Plus, the people who are frustrated with the left about it have fair reasons. Ryan Selkis from Asari is definitely choosing violence at this point and has said, paternalists in the Democratic Party have decided to protect people from crypto. Progressives in the industry should work on converting their own. The rest of the swing voters are going to flock to wherever they're supported. Both parties, but especially Dems, underestimate crypto's single-issue voters at their own peril. Crypto is by-partial. Crypto is by It should be bipartisan, but we need more democratic support.

Starting point is 00:10:28 If they want to be hostile to the industry, that's on them, not us. Kyle Davies writes, Bitcoin is not left, not right, but forward. It's just embraced more tightly by the right side of the hug. Still, others like Ledger Status, the co-host of Up Only, says, making crypto-red versus blue issue is an enormous mistake. Those who advocate for crypto to politicians should work against partisanship and language, alliances, and proposals. The right-left dialectic around Bitcoin is certainly something that I'm

Starting point is 00:10:54 keeping an eye on, and I feel very strongly about, so expect to hear more about that in the weeks and months to come. But let's talk about the politics of these bills and these state-level efforts. As I mentioned in Texas, the gubernatorial candidates who are pro-Bicoyne are all Republican candidates. In Arizona, the source is even more controversial. Here's how Hedgeye sums up Wendy Rogers. They say this bill was, quote, introduced by Wendy Rogers, a member of the oathkeepers of far-right militia. She has also appeared on true news, a white supremacist and conspiracy media outlet. Why are people so willing to accept the support of horrible people? Tammy Jillies, the Anti-Defamation League, regional director for San Diego and Phoenix, said,

Starting point is 00:11:32 We've just released an analysis of extremist rhetoric in the elections this year, and Wendy Rogers is at the top of that list. Wendy Rogers tweeted about that herself, saying, I am so dangerous, I am a state senator. I am not the president, a United States senator, or a United States congressman. I'm not a governor or even in Senate leadership. Yet the ADL calls me the most dangerous person in the nation at the top of the list. Wendy Rogers also wrote on January 28th,

Starting point is 00:11:56 Welcome to all of the Bitcoin people. I love you all. So a real question, a challenge for progressive bitcoiners, is whether Bitcoin and digital assets are an issue that they are willing to find common cause on with people that they otherwise disagree with. My perhaps naive, idealistic position is that the aphorism Bitcoin is for enemies is something that actually could be a meaningful moment

Starting point is 00:12:18 for bipartisanship in the country. Now, as you can probably tell, the most important thing about this discussion around Arizona for me is what these types of new moves say about the overall U.S. government crypto relationship. But let's discuss the Arizona law specifically in terms of just how possible it is. The answer is that it's not super clear. Wendy Rogers doesn't yet have a huge support base in the state, although that could change over time. And moreover, there's a pretty big constitutional debate around whether making Bitcoin legal tender is something that state could

Starting point is 00:12:48 actually even do. On the no side are people citing the Coignage Act of 1792, an Article 1, Section 10 clause one of the Constitution, which is powers denied to the states. No state shall enter into any treaty alliance or confederation, grant letters of marquee and reprisal coin coin omit, omit bills of credit, make anything but gold and silver coin a tender and payment of debts, etc, etc., etc. However, lawyer banana on Twitter says an argument can be made that it's okay under federal law. Bitcoin is not issued by the state and it is not a debt instrument. There's no federal mandate on what can be exchanged for goods and services only payment of debt. So who knows, that's way beyond the scope of my legal knowledge for sure. But obviously, the fact

Starting point is 00:13:27 of this bill existing matters at least right now as much as whether it can actually pass in this form. I think, like I said, though, what's really at stake here, what's really important, is understanding how the political lines are being drawn as we come up on a huge number of issues. To mention briefly a couple of them. Remember the unhosted crypto wallet rule that's Stephen Mnuchin, the former Treasury Secretary, tried to ram through in the last days of the Trump administration, well, it turns like that is coming back. Matt Carrallo, the Blue Matt, writes, Treasury's semi-annual addenda and regulatory plan includes several rounds of,

Starting point is 00:14:01 You Can't Transact with Convertible Virtual Currency without telling us. Get ready to file respectful comments and make sure advocacy organizations are well-funded. There's also a new SEC bill. Crypto Briefing says new SEC proposal could be a disaster for defy exchanges. Lewis Cohen writes, the SEC just dropped a... 600-page release ostensibly focusing on darkpool markets for U.S. Treasuries. Before you dismiss this, have a look at what SEC Commissioner Hester Perce had to say. Quote, a final message to those who operate any service that is designed to facilitate

Starting point is 00:14:31 any communication between potential buyers and sellers of any type of security. Read this release. Even if you have nothing to do with government securities or even fixed income or with traditional securities, read this release. Preferably as soon as it's published on the commission's website. It covers a lot of ground and you should not assume that it has nothing to do with you because it probably does. Nick Carter sums up, TLDR SEC looks to be covertly expanding definition of securities exchange to encompass automated market makers and DFI protocols, and maybe even interfaces and block explorers, 30 days to comment. Then, of course, you probably saw headlines around crypto as a national security issue.

Starting point is 00:15:05 Forbes says, A Matter of National Security, reports reveal Joe Biden's surprise Bitcoin Ethereum and NFT plan. Punk 6529 points to a Barron's piece saying, Barron's White House wants crypto rules as a matter of national security. Always turn up your antennas when the main framework is national security. It's usually not great. Eric Weinstein writes, we should talk about national security and the money supply even before we talk about national security and crypto. Luke Burgess goes farther. The thing is, he says, crypto is a matter of national security, but for the opposite reasons, not for its ability to threaten and destroy, but for its ability to bolster and create. It is a matter of national security to get this one right.

Starting point is 00:15:44 The good news is that there are a lot of new voices who are getting actively involved in this process, even as all these things are happening. Areca Rhodes, who's a candidate in California, a progressive candidate, by the way, who has come out as pro-Bitcoin says, Biden's pending executive order on regulating Bitcoin and crypto is exactly why we need new voices in Congress and advocates on the Financial Services Committee. If I were in Congress right now, I'd be pushing back on regulating because one in six people either have Bitcoin or crypto. It's very clear to me that with 2022 being a mid-term election,

Starting point is 00:16:14 year, the political discourse around Bitcoin and Crypto are going to go to heights never before seen. We're coming off of a bull run that brought massive amounts of new money into the space, along with new types of institutions and investors. Like it or not, Bitcoin and crypto are political issues now. And so understanding who's an ally, how partisan you believe it has to be, are going to be really important questions for this year to come. For now, I am glad that I get to have this conversation with you guys. I want to say thanks again to my sponsors, nexo.io, Abra, and FtX for supporting the show. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Unpacking Arizona's Bitcoin Legal Tender Proposal

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