The Breakdown - Yesterday's Hearing Was Crypto's Most Positive Interaction with the US Government, Ever

Starting point is 00:00:00 I have to imagine that for a lot of folks, it's finally just the point at which they can no longer ignore crypto. They finally have to take the time to form an actual opinion on that. It may be that a lot of what we're seeing is just that shift happening, the fact that it is no longer ignorable, and people finally being able to and willing to allocate the time to figure out how they actually feel about an industry that is clearly not going away. 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.

Starting point is 00:00:43 What's going on, guys? It is Thursday, December 9th, and today we are talking about why yesterday's hearing in Congress was crypto's most positive interaction with the U.S. government ever. And as you might be able to guess, the title sort of says it all. I tweeted something much to the same effect yesterday. really believe it. I have been watching these hearings for years, and the tone is always, always, mostly antagonistic or disinterested or grandstanding and just trying to weave these issues into someone's personal political talking points or what have you. I think yesterday represented a fundamental tone shift, and what I'm going to do is go through some of the themes that came out to try to convey that. Now, first the setup. Yesterday's hearing was called digital assets in the future of finance, understanding the challenges and benefits of financial innovation in the United States.

Starting point is 00:01:37 The crypto industry was represented by Jeremy Allaire, the co-founder, chairman and CEO of Circle, which of course as part of the center consortium issues USDC, the stablecoin. Samuel Bankman-Fried, the founder and CEO of FTX, which is, of course, a company that I do marketing work with, for full disclosure. Brian P. Brooks, the CEO of the Bitfury Group, also the former general counsel at Coinbase, also the former acting comptroller of the currency for the United States government. and also the former CEO of Binance US, so obviously someone who spans both the public and private sector as it relates to crypto. We also had Charles Cascarilla, the CEO and co-founder of Paxos, which issues a stable coin, Dinell Dixon, who's the CEO and Executive Director of the Stellar Development Foundation, and Alessia Haas, who is the CFO of Coinbase Global and the CEO of Coinbase Inc.

Starting point is 00:02:24 Now, like I said, giving a sense of what hearings have been in the past, it has often been a real assault on the representatives. Part of this is that Congress really only started holding hearings about crypto after Mark Zuckerberg and Facebook decided to get in the game with their Libra project. And so we were coming out of the gate in a contentious position. But as I mentioned, this one felt really different and that is the first theme that I want to describe, which was the vibe check and just the fundamental shift in how these different actors were interacting with one another. Jake Chravinsky from the Blockchain Association tweeted,

Starting point is 00:02:56 This House Financial Services Committee hearing has been overwhelmingly positive so far. I'm shocked. The members are well informed and asking great questions, recognizing crypto's innovative potential, and focusing their concerns on real issues like fraud. What's even happening right now? I didn't expect this. Later, he followed it up and said today's HFSC hearing was the most positive, constructive, and bipartisan public event on crypto I've seen in Congress ever. I mean that literally. It's a testament to the effectiveness of industry and community engagement in D.C. in recent months. We've made shockingly big progress. Vance Spencer from Framework Ventures said, this is the first positive public hearing on crypto that I can remember.

Starting point is 00:03:35 Congress seems to have done their homework. Industry seems prepared and synchronized. Still not sure what Stellar is doing there. Very bullish. Could be the start of a trend. Ron Hammond, also from the Blockchain Association, said, as someone who has been involved in every crypto hearing as a Hill staffer, and now with the Blockchain Association, I can without a doubt say that was the best bipartisan hearing on crypto to date. The Democrats especially were well-educated and asked pointed questions. Great work all. Now, what about the folks who are testifying? Well, FTX Sam said a huge thanks to Chair Maxine Waters, ranking member Patrick McHenry, and the Whole House Financial Services Committee for having us today

Starting point is 00:04:09 to talk about the future of digital assets. The meeting was productive, and I'm really grateful for the engagement and thoughts from policymakers. I came in expecting some hostility in grandstanding, but instead found the discussion to be by and large, productive and helpful. I'm excited to keep engaging with lawmakers and regulators to refine the regulatory landscape. Jeremy Allaire from Circle echoed these themes in an excerpt that I'm going to read of his thread, saying, the level of engagement was high and members were taking this very seriously. Very thoughtful questions on so many issues from so many members across the aisle. There was a real commitment to engaging and understanding.

Starting point is 00:04:43 I'm more encouraged than I've ever been about Congress engaging on crypto, and there seems to be a genuine desire to consider and address many of the critical issues, not just a rush to judgment. Now, an even more optimistic, and in some ways real take comes from Loomdart, who tweeted, The best part about crypto is how everyone is stuck in this fuck, we're going to have to defend crypto again mindset, even though it's insanely clear. We have won and everyone is starting to understand how fucking dope it is. It's so beautiful.

Starting point is 00:05:09 Now, I think it's worth pausing at this point and asking why the shift in tone has happened. One possibility is lobbying is working. This is what Jake Trapinski started. Especially since this summer after the infrastructure bill fight, there has been massively more engagement in Washington, D.C. from the crypto industry. And perhaps that is actually working to put this on the real. radar of more politicians is something that they should engage with and something that they have allies and people who are willing to take the time to help educate them on.

Starting point is 00:05:34 Second, it could be that politicians have a sense that the political tides are shifting. Crypto is on a relentlessly marching mainstreaming path. Every month and year that goes on, more and more people come into the space. This year, we've seen multiple doors that people could walk through to get in, from the inflation trade and Bitcoin to NFTs and new types of digital ownership. Now, this is particularly true among younger constituents. people who are thinking about their future and who want growth opportunities, who want new industries to emerge that can accommodate them. It could be that part of why politicians are looking at this differently now is that they feel this shift happening and they want to appeal to these

Starting point is 00:06:11 constituencies. Third, I think it's worth noting how weirdly and increasingly bipartisan crypto is. Republicans are all over it from a free market perspective, from an innovation perspective, from a small government perspective. But Democrats are starting and I think this is so important to vibe the power of the no gatekeeper thing. So much of the institutional disenfranchisement that Democrats care about and that the progressive left cares about comes from the entrenchment of old industries and old power structures. Crypto could represent an upending to that. And perhaps that's why it's not surprising that polls suggest that minority groups in America hold crypto in greater percentages than white Americans do. A fourth possible reason why this shift is happening is

Starting point is 00:06:56 money. Crypto has created an enormous amount of wealth for a very loud group in a very short amount of time. In terms of the business of being a politician and the fundraising that goes along with that, it wouldn't surprise me if many of the folks in Congress are recognizing that this is a new source of potential political capital in the financial sense. And related, it could also be a recognition of the emergent power of this block from a political perspective. Now, of course, a big part of that is money, but it's also that we put up a hell of a fight this summer. We stopped the infrastructure bill for weeks from going on, and from all reports in D.C., insiders could not believe that this industry was the thing holding up this landmark must-pass legislation.

Starting point is 00:07:41 The people who decided to railroad that provision in at the last minute seriously underestimated the ability of this industry to be loud and organized in its loudness. and I don't think that's a mistake that people are going to make again. A final reason why this shift might be happening now is honestly just time. We're used to thinking about politicians only in the context of the particular issues that care about us, but if they are genuinely trying to represent their complete constituencies that they're supposed to represent, they have a huge number, a diversity of issues that they have to care about, that they have to know about, that they have to have an informed opinion upon.

Starting point is 00:08:17 I have to imagine that for a lot of folks, it's finally just the point, at which they can no longer ignore crypto. They finally have to take the time to form an actual opinion on that. It may be that a lot of what we're seeing is just that shift happening, the fact that it is no longer ignorable, and people finally being able to and willing to allocate the time to figure out how they actually feel about an industry that is clearly not going away. By a mile, I think this is the most important takeaway. The TLDR of this whole thing is that there is a fundamental shift in tone in the relationship between the U.S. government, or at least these members of Congress in the House Financial Services Committee and the crypto industry.

Starting point is 00:09:00 NIDIG sponsors this podcast, and they're helping CFOs, traders, and risk managers, safely and securely integrate Bitcoin into their operations. Learn more about what NIDIG does and how they do it at NIDIG.com slash NLW. That's nydig.com slash NLW. Let's talk about a couple more themes. One that really rang loudly was the discussion of the hegemony of the U.S. dollar. Now, in many ways, this is an inevitable follow-through of the Libra conversation. Part of why Libra was such a touch point is that all of a sudden the idea of Facebook doing a digital dollar, or even worse, a digital basket currency that didn't

Starting point is 00:09:39 even hold up the supremacy of the dollar, is that Facebook had billions of monthly active users that it could instantly push this to. There was a threat, in other words, to not only monetary sovereignty in the U.S., but in the case of the U.S., the status of the dollar as the world's reserve currency. The crypto industry is now clearly turning this narrative on its head. Brian Brooks hammered this point home, saying, I've said for a long time that the secular reduction of dollar holdings as a percentage of central bank holdings is alarming. What that tells me is that in the future, with the rise of China and other major economies, the US dollar can't take its primacy for granted. We need to start thinking about competing on utility, on features,

Starting point is 00:10:18 not just based on a post-World War II monetary system that we could take for granted for the last two generations. One of the best places that this came up was in the exchange we're about to listen to between Democrat Richie Torres and Paxos Charles Cascarilla. Basically, it shows how Torres had gone through a conversion process of at first thinking that stable coins represented a threat to US dollar dominance, but in fact, maybe it was exactly the opposite. And one of my concerns about crypto is that it would present a challenge to the supremacy of the US dollars, the world's reserve currency. But what I have found striking is that the leading stable coin issuers have actually chosen to peg their stable

Starting point is 00:10:58 coins to the dollar, which strikes me as a vote of confidence that reinforces rather than challenges the status of the dollar as the world's reserve currency. So what are your thoughts on the relationship between the dollar and the crypto? Is it as contradictory as many have feared, or could it be actually complementary? I'll answer that. I actually don't think that it's contradictory at all. What people want is a U.S. dollar bank account. Everywhere in the world, people want to be able to have U.S. dollars. And actually, that's the hardest thing to get. And crypto is a tool for a lot of different things, including bringing communities together.

Starting point is 00:11:34 But what people want in order for their everyday spending, it's dollars. If you're in Argentina, you want dollars. If you're somebody anywhere in the world, you want to have access to dollars. And that's the hardest thing to get access to right now. And that's why tokenized dollars is so valuable because you don't need to have a bank account, yet you can have access to the dollar-based system. And then very, very important tool. for inclusion.

Starting point is 00:11:54 There was a lot of this type of discussion throughout the session, this point that USD stable coins were actually to the benefit of the U.S. dollar, that they represented the next generation of U.S. dollar dominance. Jeremy Allaire from Circle also made a point that I've made many times on this show. And that point is that if you look at the central bank digital currency arms race as only competing on the vector of whose central bank is farther in terms of developing a digital currency, then China is blowing everyone else out of the water. The digital yuan has done numerous multi-million dollar tests and is actively being used in certain contexts around the country.

Starting point is 00:12:31 However, instead, if you just focus on which currencies are most denominated in used stable coins, then it is a very different story. Here's how Jeremy put it. The U.S. and the U.S. dollar is winning the digital currency space race today. Dollar stable coins are doing trillions of dollars of transactions. The experimental beta of a Chinese yuan, which is government controlled in China, has done 10 billion in transactions. This has the potential to grow at a very significant speed around the world and would benefit the U.S. dollar, U.S. businesses and households. The primacy of this infrastructure and development of this infrastructure is a strategic national security and national economic priority for the U.S., and we need to get going on

Starting point is 00:13:08 it right now. I believe that this being a new narrative is hugely significant. Another theme that I saw a lot was just a sense of a shift moving from defensive to offensive. And this one was subtle, but let me try to describe. A defensive posture would have been, here's why stable coins aren't going to hurt the U.S. dollar. An offensive posture is what I was just describing, why stable coins reinforce dollar dominance. A defensive posture would have been why we shouldn't just have banks be the only companies allowed to issue stable coins. An offensive posture was something like Jeremy Aller's quote when he said, well-designed stable coins are safer than bank deposits. With bank deposits, you're taking a risk on the lending book of the

Starting point is 00:13:47 underlying bank. You have run risk, you have default risk of deposits, and loans that might sit in a bank. A full reserve form of money, which is what a dollar digital currency such as USDC represents, is actually a safer form, not just to store value, but as a transactional medium as well. A defensive posture would have been something like, crypto isn't so risky. Look at the great risk engines we've built. To an offensive posture, which is having markets open 24-7 is actually much less risky. than our current system where risk accumulates in those off hours. I think this shift is really powerful and really important

Starting point is 00:14:20 because it's going to help us get all on board on the right debates. Another theme, this was a coming out party for Web3. And here's why I think you shouldn't dismiss that rebranding of crypto to Web3 in many ways, which is kind of what was starting to happen yesterday. First of all, the Web3 moniker positions this industry in opposition to Big Tech, which is both smart politically and also literally true. The way that these systems are being designed is with the examples, and the capture and the intermediaries of Web2 in mind

Starting point is 00:14:51 and trying to run in the opposite direction. But in terms of that smart politically, I was actually concerned at the beginning of the hearing because Maxine Waters used her full five minutes as the first questioner on the day to grill Charles Cascarilla from Paxos about his company's association with a Facebook Novi pilot doing remittances from Guatemala. Facebook, Big Tech are poison politically right now, for both some good, but also a lot of political

Starting point is 00:15:16 reasons, but ultimately it doesn't matter. The reality is painting something in opposition to big tech is a good move at this moment. Second, and this sounds stupid, but why a rebrand isn't bad, Web3 as an idea, makes one of the most important things clear, which is inevitability. Three comes after two, and if you've learned anything about technology, you know that there's always something next. Now, in terms of how this actually showed up, it showed up in questions about things like different types of network ownership structures. Ranking member Patrick McKenry actually chose to use his time

Starting point is 00:15:48 to do a little bit of a 101-style lesson on how Web 3 is organized structurally differently than Web 2. Now, I will say there were also a few low lights on the day. I didn't love the media's framing of this. It painted it as way more divisive than it was, grabbing one of the few loud moments. Also, one of the framings I saw in many popular media outlets was that this was just the CEOs of crypto companies telling Congress that they wanted to be regulated exactly as they saw fit. That, of course, is not what was going on. First of all, the crypto industry has long had a sense that it should self-regulate and that it should have a proactive hand in advocating for what it sees as correct.

Starting point is 00:16:24 That just feels imperative when there is so much new here. These companies are not just companies but subject matter experts on something almost entirely new. And if that's the case, they need a voice in the conversation about how policies should be modified to accommodate new norms, new realities. Plus, companies like Coinbase and FTX and Circle have all put out policy ideas. They've done work to actually think about how they believe they should fit into the public policy structure. So why wouldn't Congress be interested in hearing about that? Speaking of, from the side of the questioners, it wasn't, hey, tell us how you want to be regulated. It was a lot of, do you agree that thing X is an issue.

Starting point is 00:17:01 If not, why not? But if so, what do you think we should do about it? That's an extremely productive starting point for a healthy conversation. Two other lowlights. One was Brad Sherman doing his Brad Sherman thing. I've talked about him a lot on the show. I don't need to get into it. The only thing that I'll say is that it actually sort of felt like his heart wasn't into it, in his questioning or pontificating as it usually was. Going back to questions of political power, Brad Sherman has a primary opponent in Areca Rhodes, a young STEM teacher who was named Teacher of the year by the LA Clippers for constructing an effective science curriculum and who has garnered a lot of support among the crypto community. Another low light was a line of questioning from Rashida Talib.

Starting point is 00:17:41 And this was kind of just disappointing. It was about Bitcoin's environmental footprint and weirdly felt like sort of a setup for the Stellar Foundation. That was the only witness that Congresswoman to leave asked these questions to. And it felt sort of like a setup for Stellar to talk about an alternative consensus mechanism. A lot of Bitcoiners were frustrated and I understand it was pretty cringe. But holding aside the stellar connection, and I'm not making any accusations about that. I don't know. I'm just reacting to how it felt watching it. It still feels to me like there is room even for Bitcoiners to go have a conversation with this particular Congresswoman. The way that I read it is that it feels like her mind is made up about the importance of climate issues. It also feels

Starting point is 00:18:19 like based on the example she chose that she's steeped in the anti-Bitcoin climate perspective, which, let's admit, is a big part of the political climate. But I don't necessarily think that that means or that we have to choose to think it means that her mind is made up on Bitcoin. Perhaps given new information, new perspectives, that could change. One of those perspectives is what the real impact of the shift in mining away from China might be. A second related is how having Bitcoin domiciled in the U.S. could be transformative even on these issues. A third is how Bitcoin could allow for the capture of otherwise lost resources. And then, of course, there's the value of Bitcoin to population she cares about, the notion that Bitcoin is worth environmental cost. To be quite honest, it just sounded mostly to

Starting point is 00:18:59 me like she didn't want coal-fired Bitcoin, and that's not really that far off from a mainstream perspective, even in this industry. Still, like I said, those were the lowlights, and that's pretty powerful, given what we've seen before. It didn't have to be that way. Ranking member Patrick McHenry sort of teed up in a way that showed that he was worried. He asked his colleagues, do you know enough about this technology to have a serious debate? If the answer is no, then we need to first seek to understand, to build up that understanding of this new technology, so we can have a serious debate on how we can appropriately respond to updated regulations and perhaps laws. Congressman Trey Hollingsworth said,

Starting point is 00:19:34 I'm on a genuine fact-finding mission. I'm not here to confirm my preconceived notions about how this could be used, or alternatively how it should be treated by regulators. The industry certainly noticed. Sam Tribuco from Alameda said back in 2018, there were congressional hearings about crypto too. Congresspeople had a lot of rudimentary questions. A lot of the questions are basically antagonistic, clearly coming from the perspective of,

Starting point is 00:19:55 this is probably a scam. My goal is probably nixing it. This is super understandable. Most people had barely heard of crypto, and a lot of the context in which people had heard of it was government seizure of criminals' coins. There were outliers for sure, but many people involved were in a similar spot to the typical American. This hearing, though, has felt different. Almost every member of this committee has been between hesitant but inquisitive, open to the idea that their concerns can be addressed, and outright enthusiastic about figuring out a way to make crypto a part of the U.S. landscape. And that's understandable too. Over the past years, especially, 2021, there's been a ton of institutional adoption and mainstream acceptance and awareness of crypto.

Starting point is 00:20:31 It's really exciting that Congress is following a similar trajectory. The more rudimentary questions have come from a place of knowledge-seeking and not one of derision, things like explanations of how the technology works toward the really cool use cases the panelists have been talking about. And there have been some really insightful questions about things like security in the rapidly evolving tech landscape, what the future of payments might look like, and how different blockchain technologies differently impact the environment. Ultimately, this is the thing that stuck out to me.

Starting point is 00:20:56 I don't think there are bad questions when they're asked in good faith, and that was the story of yesterday. Now, I will say, before we get too excited, I'm going to end on a quote from Jake Trevinsky again. He says, I don't want us to get too carried away by how well yesterday's hearing went. House Financial Services has come a long way, but it's not like all our antagonists just disappeared. Senate banking has a hearing on stable coins next Tuesday. Fair warning, it may not be so friendly. So I guess, guys, we know what our topic is for next Wednesday's show. Until tomorrow, be safe and take care of each other.

Starting point is 00:21:29 Peace.

The Breakdown - Yesterday's Hearing Was Crypto's Most Positive Interaction with the US Government, Ever

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