We Study Billionaires - The Investor’s Podcast Network - BTC038: Bitcoin Legislature, Regulation, & Legal w/ Joe Carlasare and Jason Brett (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone. Welcome to this Wednesday's release of the podcast where I'm talking about Bitcoin. On today's show, I have two legal and policy experts, Jason, Brett, and Joe Carlisari. They're going to be talking to us about Bitcoin's emergence into sovereign level game theory and regulation. Recently, the Senate has been working on passing an infrastructure bill that is a certain clause that references crypto, and it's created an enormous buzz throughout the formation of the bill. Since recording this discussion last week, more amendments were proposed than what we talked about during the show, and in the end, none of the amendments were added to the bill as it left the Senate.

Starting point is 00:00:38 Now, it waits to proceed to the House of Representatives for their adjudication and reviews, which won't happen until the fall. Not only that, but during the conversation, Jason and Joe talk about a much bigger bill that's currently being drafted, that's 58 pages in length, and what might be presented moving forward for much deeper regulatory guidance and policy. This was a fascinating conversation that provides incredible context into the thinking and actions that are currently taking place with respect to the future regulatory efforts. So with that, here's my conversation with Jason and Joe. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey, everyone. So like I said in the introduction, I'm here with Jason Brett and Joe Carlosari.

Starting point is 00:01:35 And guys, I've been anticipating this conversation. all day long because my, oh my, this topic is so hot right now. There's so much happening. There's so much to talk about. So welcome to the show. Awesome to have you here. Thanks for having us. So the thing that everybody's talking about is this infrastructure bill. Can one of you guys just give us an overview of like how anything crypto related worked its way into this infrastructure bill? Give us a little bit of the language that initially came out with it. Now, I know there's amendments that are being proposed.

Starting point is 00:02:11 Talk all that to us and just kind of give us a one over the world on what's going on. I'll let Jason speak to the first part out, and I'll go over the language actor. We get that established. Yeah, so back in April, the commissioner of the IRS was testifying in the Senate Finance Committee, and they were looking at gaps or ways to increase the amount of taxes they're collected. And one of the identified areas by the commissioner was better ways of, reporting cryptocurrency taxes. And so the reason at the time during that hearing was actually just to help with the development of how to define cryptocurrency for a tax bill that was going

Starting point is 00:02:51 to be passed to help give better guidance to the way people file their taxes. However, that bill never really came about. And what happened was with the development of this infrastructure bill at the White House is we haven't had an infrastructure bill in this country forever. Roads, bridges, And the way they've negotiated this to be bipartisan is to say that we need offsets. So one of the offsets that if you look at the White House fact sheet on what's in this bill, Invest in America Act, is to actually collect more cryptocurrency taxes through the theory that if there's better reporting of what is actually happening in cryptocurrency, the IRS commissioner and many in the White House feel like there's no visibility into the taxes

Starting point is 00:03:33 and that there's a lot of taxes that could be collected simply by better reporting. So I think, and I'll let Joe then turn to the language and the fumbling of which really has gotten us to where I think both of us are in disbelief that there's this much attention being paid to this. Absolutely. So joint committee on taxation, correct and wrong with Jason, they had this figure, Preston, where they thought there's approximately $28 billion of underreporting. How they came up with that figure, where that comes from, you know,

Starting point is 00:04:03 We're not really sure. But they say, we've got this problem with underreporting. And what's really typical in the field is we basically say, we're not just going to trust the self-reporting of all the consumers that are engaging in these taxable events. We want to get the intermediaries involved. We want them to sort of play a role in reporting and giving information on a regular, mandatory basis to the IRS and some honeypot of information that they can go cross-check against the individual returns that are filed.

Starting point is 00:04:31 So to do that, obviously, they have to decide who's the brokers, who are the people that are actually facilitating or engaging or enabling the kind of trading of digital assets? Is it Coinbase? Is it a Dex? Is it peer to peer? Is it an ATM? Whatever it is, we need to find a definition for this. So the bill starts out with the definition of what is a digital asset. It offers a very broad definition of a digital asset. It says any digital representation of value. It's your guess is good in mind what that means. That can mean NFTs. It can mean Bitcoin, it can mean all these other tokens and ICOs and whatever. But that's their definition. And then they further define it with brokers. They say, you're a broker of a digital asset.

Starting point is 00:05:11 If you are, and I'm just going to read it, any person who for consideration is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person. So that's the original language. And I'm sure you can guess that's problematic, right? What does it mean to effectuate the transfer of digital assets on behalf of another person? They originally started out with language that said to facilitate. Facilitate, obviously, minors, note operators, everybody that's engaged in this decentralized, distributed ledger, they're going to be looped into that. They moved it to effectuate, which is still sort of problematic.

Starting point is 00:05:47 And this is what really led the community to say, whoa, you need to pump the brakes here. This is a problem. So, and that's not even talking the amendment language, effectuate. So help me with the definition. And anytime you start getting into the law, you quickly get into the definitions of terms here. Help me understand the difference between effectuate and what was the term service? Facilitate. Facilitate.

Starting point is 00:06:10 What's the delta between those two? See, this is one of those things where, and I actually wrote a threat about this, I was basically explaining, I don't believe minors and node operators effectuate. Effectuate means under the law and typical dictionary definition means to bring about directly. And that's not really what most miners are doing. They're more of a facilitating role. They're directing their hash power. They're routing it.

Starting point is 00:06:33 But effectuate, you think of like, okay, if Coinbase is sending your Bitcoin to your hardware wallet, that's clearly effectuating the transfer of digital asset. There's no doubt there. But it becomes more of a gray area when you get into what about hardware wallet manufacturers. What about hardware wallet manufacturers? Are they effectuating the transfer? by developing this technology. And even though the language itself gave us a lot of solid arguments to say that's not

Starting point is 00:06:58 effectuating the transfer of digital asset, miners do not effectuate, nodes do not effectuate the transfer digital asset, it's always cleaner from a legislative standpoint to have the specific language that says these things are excluded. They're not part of what we're talking about here. So the problem you point out is that we don't have a clear definition for what it means to be effectuated, transfer to digital asset. Yeah, and it gets really tricky because when you go from light, to Bitcoin at the base layer, the full node that I have, the full node that you guys might be running, on that base layer, we're all keeping a record of every single affection that has

Starting point is 00:07:34 occurred since the Genesis block. But whenever you get into the Lightning network and you start thinking about, well, now I'm potentially collecting a fee by just routing a data packet through my node, but not terminally ending up on my node, those are two completely different things, but we're still talking about one piece of hardware that's sitting in my house that's onion wrapped and there's no way to track. Well, it's clear from my perspective. I think what they were trying to do is because the original language actually specifically mentioned dexes, and they wanted to capture that activity.

Starting point is 00:08:07 They didn't want to say just centralized exchanges that store Bitcoin. They wanted to capture activity broader than Bitcoin, some of these other products and NFTs and whatnot. That's what led them to incorporate this broad language. But then our people said, wait a second, Bitcoin people specifically, they said, wait a second, this is going to potentially affect miners and affect node operators and all these other groups. So that's where we've got the recent push to try to revise language. So now when you're hearing these conversations on the Hill, are you hearing various array of opinions on it? Or do you find that most representatives are just open to learning and just trying to understand what it is that they're

Starting point is 00:08:48 missing? Or are they more on the offensive like, no, this is what's going to happen? And I know it varies from person to person, but if you could just generalize some of the different types of opinions and personalities that you've experienced, what's that look like? So I think if we start with Senator Portman's office, he's the one that was bringing this language into the bill. And he probably was doing it with White House support. And And it's clear that his office was totally caught off guard. And you could tell from some of the statements he was making, he just wanted people to go away from his office.

Starting point is 00:09:21 And I talked to some people who said, like, when they were asking for updates and things were going back and forth, that there was a sense of, like, exasperation, like, are we really making this big deal about it? And then sources in the White House commented off the record that they felt like this was crypto's attempt to try to water down the package. As you have to remember, the White House said they didn't have all this. a specific language, they just said, let's collect as much taxes from crypto as possible. Seen as an attempt to water it down when really people were just trying to define and explain

Starting point is 00:09:50 how the system works and there wasn't a lot of understanding around that. For some, what's fascinating about this dynamic is that the Republicans, both Toomey's office, Pat Toomey, who ended up introducing this, is introducing it against another Republican. So the Senate's 50-50, but it's democratically controlled. So it's very rare to have these top Republicans who are essentially the minority, were really fighting with each other over the language. And to me, he said that the language was unworkable in a statement. So you had a little bit of a food fight. And I think that there was clearly education that had to happen, but what was scary and why you saw the industry get so involved in these discussions so fast is because this is like a bill that's,

Starting point is 00:10:33 it's going right through, right? It's going through like a Mack truck. It's a must pass bill. This infrastructure bill is literally the crowning achievement of Biden's thing. And here we are with like days. We don't know how long to try to get fix this language. And again, remember, this is a bill. It's like, it's 2,700 pages. It's 2700 pages. It's like, if you remember Obamacare Act, like no one actually read the bill. They just voted on it. So it's been really hard to get people to pay attention. But as they've been doing it, it's clear that they've been listening because to get top senators to make comments about a specific amendment shows that actually I feel like crypto and Bitcoin's really come of age. But I found funny. And I think

Starting point is 00:11:12 what one of the conversations was that was most interesting was this idea of for so long the government's been like cracking down on Bitcoin saying it's worthless, it's made out of thin air, it's just used by money launders and terrorists. But the minute that we can now say that it's used to pay for our bridges, our tunnels, our roads, like maybe we finally hit the first real use case for Bitcoin. Do you think that that's opened up the eyes to a lot of elected individuals to see just the response for such a small segment in this 2,700-page document? like all the calls and everything that are coming into the office over this very small portion

Starting point is 00:11:47 of this bill, do you think it's opening up some eyes and people saying, whoa, hold on, maybe there's a lot of money here. And last time I checked how my incentive structure works for reelection, it comes down to dollars and marketing and all that kind of stuff, right? So are we seeing a kind of a moment in Congress where the eyes are opening up and saying, what is it then I'm missing about this particular community. Is that happening? I think that's absolutely happening. And Jason can speak to that. But one thing I wanted to point out is that when they released the original language, they essentially, and Jason alluded to this, Rob Portman, the influential senator from Ohio, his staff came out and said, like, this doesn't affect holders and this doesn't

Starting point is 00:12:30 affect non-brokers or software developers or minors. They had to push that back, even though there were credible legal arguments, why it would affect those sorts of groups. So this just tells me, and I'll let Jason speak to this, if he's getting the same sense. But my impression is that the original language is more driven by just maybe not comprehensive thought. They just kind of didn't really understand the tech. They didn't get it. And they kind of threw in some clumsy language and didn't realize the problem they may have created by using this language. So I don't know, Jason has thoughts on that. I've never seen anything like it, but it's the dawn of an actual advocacy group, whether you think about NRA or where things come from. They're going to look back at

Starting point is 00:13:07 these last few days. Because as the crypto industry and the folks that like coin center and blockchain association have been really on the front lines battling this, there's been allies of established nonprofits that have come to the aid of the crypto industry, almost like the revolution, like we've got France coming in. And one of it, the main one is fight for the future. org, which has been around since 2011 and fights for people's privacy rights online. If you go all the way back to the beginning, they were dealing with this whole thing with Justin Bieber and your privacy about writing for things that were copyrighted. They really are very fiercely defensive when it comes to people's rights and privacy rights. And so they have mobilized

Starting point is 00:13:44 on behalf of the crypto industry, they got up to 5,000 calls to senators. And they still have numbers and ways to contact senators. And the industry really has come together. And Joe and I were talking about this because, of course, there's Bitcoin and then there's everything else and all these other things like NFTs, but there really has been this unification. And as much as it was that the decentralized exchanges got removed, it was very clear, you know, the peer to peer marketplace from the initial language got removed. And then when you think about what's now in it, we're specifically excluding Bitcoin miners. It's, it has been a team effort. I don't think we can think about the tribes in this instance. And I think it's been helpful to Bitcoin. Joe.

Starting point is 00:14:24 It's an extraordinarily, my takeaway, Preston, is that this is very bullish, just in of a, I know this is an investing show and just market structure show that if you think about the standpoint of that, we went from having very little sort of force and lobby on these, a lot of these issues, even though there were people, fantastic people working out for years, they went right to the forefront and they got influential senators to pay attention to them and potentially, potentially, fingers crossed, we might actually get the language modified to clear up some of these issues. That is from just an investor standpoint, I think that's really bullish. They could have just said, you know, go pound sand. We don't care if this creates problems for you

Starting point is 00:15:02 in your community. We're not going to listen to your concerns. Deal with it. If they were really being hostile, because you hear this refrain all the time that they're going to ban Bitcoin or they're going to ban these currencies, the fact that they went or they seem to be going out of their way to try to help, or at least some of them that help alleviate our concerns, I think it's positive. Even at coming originating, based on what you guys have said, originating out of the White House as a revenue source to the top line of the nation, And they're not trying to ban it. They're trying to figure out ways that they can add to the top line.

Starting point is 00:15:34 And I'm not one to promote taxes to it. I just find it interesting that having been in the space for years at this point, the thing that I always heard for years was, oh, the government is just going to ban it and that's going to be the end of it and it's over, right? You're going to lose everything. And we're just not seeing anything like that, correct? No, it's not even close to that conversation. And it's really a scene as a lobby on certain aspects of personal rights and also, as you said, a revenue source now where the Republican Party is taking Bitcoin for their campaigns.

Starting point is 00:16:07 I mean, so it's really, and that's when you start to see the changes, right, when they get the donations that way in the form of the type of currency that we're talking about. But what's fascinating about this bill, Preston, is that this is an offset type of bill situation. So this debate actually gets gotten so important that it's actually, it's a, you know, it's threat. that the bill might not even work. And they've said that because if they change the language, they're going to come back and say, well, then we can't collect this amount of billion dollars from it. I got you. And so, and there's no offset. In other words, the idea of this bipartisan packages, the taxpayers aren't going to pay for it. Now, the joke is there's Schumer's ready with a $3.5 trillion package and where they're just going to let the money printer go burr. But in the

Starting point is 00:16:49 meantime, we're trying to be, you know, straight and narrow here. So just every, every Satoshi counts, right? The mirage of it being paid for is disappearing. Yeah. I have a note here to ask you guys about El Salvador and whether that has entered into any of the conversations as this infrastructure bill is taking place. Are they saying, hey, well, you know, I mean, this stuff is now legal tender in other countries? Are people saying that, or is it much more focused towards trying to make it work for this particular bill and to raise the revenue that they're going after? Well, I have not present seen anything really come up regarding El Salvador. I think those are two separate issues. I think that the administration is not necessarily that favorable to El Salvador.

Starting point is 00:17:34 So it gets tricky, right? Because, I mean, as I'm sure you know, and I'm sure a lot of your listeners know, there is this question about how much Chavez has influence over the current El Salvador regime. So Chavez out of Venezuela, who we've had to do sanctions on, there's questions about members that surround current president. And so it's played very cautiously, right, from a foreign affairs standpoint as to how far to really follow the El Salvadorian model. And there's also a bit of arm's length. What exactly is going to happen here? Like, is Chavez in the background trying to get something out of what El Salvador is doing with Bitcoin? So they're really watching it very carefully from a sanction standpoint. And I wouldn't say it's something that crosses over

Starting point is 00:18:16 into what we're doing here in the U.S. Yeah, I'd agree with that. I mean, from just a general legal standpoint, I think one of the most interesting issues on that front with El Salvador remains these statements and potentially some of this policy, I think coming from the IMF, and the IMF essentially saying they issued sort of a veiled warning against El Salvador's adoption of Bitcoin, nothing too explicit. But then there are these provisions that I'm not intimately and not familiar with them. But my understanding is that in the IMF and the World Bank institutions, They do respect the sovereignty of certain states to select what is legal tender and recognize that. So that's going to be interesting to see if they now tweak the language to sort of weasel out

Starting point is 00:18:57 of that issue and no longer accept what El Salvador is elected to do. So, Jason, you had said that there was 5,000 calls that were made, and I'm assuming that was just in the last couple days. Is that a high number relative to other topics that are going through with bills? or is that kind of like normal? Give us a sense for what that number represents. That number is actually pretty normal to high for what you would expect from an advocacy standpoint.

Starting point is 00:19:28 So if you think about it, it's actually trying to get somebody to pick up a phone and call or send an email. So it's pretty, again, it's pretty significant when you look at it from the perspective of there wasn't really anybody even ready to make these calls. Usually a lot of the calls are just ready to go, script. You get what you need to do.

Starting point is 00:19:45 you call in as a grassroots. So it's very, very successful to reach that and still have more people calling. I mean, if you look at Twitter, right, you can see Jack Dorsey, Jack Dorsey actually retweet and said, call these offices, encourage these senators, go for the Lummus To Me, Wyden Amendment. And so it's Senator Cynthia Lummiss from Wyoming, Senator Pat Toomey from Pennsylvania, and Senator Ron Wyden from Oregon, who, as a Democrat. So it's this bipartisan leadership of Senate of three senators who are pushing for this amendment and they're encouraging everybody to call all 50 senators offices, 100 senators' offices to help them with getting what they're going to need, which is 60 votes for the amendment.

Starting point is 00:20:27 We should see that vote tomorrow. Question. So there's actually, and I think it's important just to mention it, although it probably has very little chance of passing Jason correctly in the law. But there's actually two amendments. There's the first one Ted Cruz, the Senator Texas proposed, which basically said, let's scrap this whole thing. Let's just get it out of the bill. I think that and actually some prominent advocacy groups have backed that and Jason can probably speak to that. But then

Starting point is 00:20:52 there's the amendment that was just referred to by Jason, the Lummis and widened and two-me-one. And we can go through that if you want to explain how the language changes. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using.

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Starting point is 00:24:52 and start hearing... Sign up for your $1 per month trial today at Shopify.com, slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. Before we do that one, I'm curious, Jason, what do you think of the one that the Texas amendment that's just basically saying scrap the whole thing?

Starting point is 00:25:20 Do you think that that has a probability of passing or is it pretty low probability? Well, it's Senator Cruz and he's sort of gone out on his own here on the Republican side. It's really, it's a bipartisan bill. So it's just really, when you ever see one senator, it might get some votes. But throwing it out is not really, to be honest, the way that the industry should be working with Congress right now. We should adjust the language and we should realize it's an offset because throwing it out puts the whole bill in jeopardy. And so there's a little bit of give and take here. I mean, I'm sure there are a lot of people, hardcore, say, throw it out, don't do it.

Starting point is 00:25:57 But that would then mean there'd have to be somewhere else. And if we're talking about legitimate taxes that need to be paid and we set it up in a way in this bill where at least it's much, much better than where it was before, that's to me much the way we want to be known because if you think about it, if we push so hard and then we get it thrown out, the IRS is still going to be there tomorrow and we don't want to get the IRS and government out to just get us, right? So we kind of want to just make things in my mind that you go with the amendment. It's a nice idea with Cruz, but there's really, you're then not offsetting anything and it's a bipartisan package. So there's a little bit of

Starting point is 00:26:29 compromise, I think, here. And it's perfectly fine language that's in there now from the amendment from Lumas, Tumey, and Wyden. Let's talk to the amendment. Okay. So again, just to recap, we're talking about broker. What does it mean to be a broker of digital assets? So what the new amendment does, the bipartisan amendment we've been talking about, it then excludes certain actors from being a broker. Number one, anybody who's just validating digital ledger transactions, they're not the broker. Okay, node operators, miners, those categories of people not going to happen. They're not brokers. They don't have to report no heightened reporting obligations.

Starting point is 00:27:11 Number two is those selling hardware or software for which the sole function is to permit a person to control private keys, which are used for accessing digital assets on a distributed ledger. That's your treasurers, your nanel ledgers, those sort of things. They're not going to be in this. and also software laws, they're off. And the final one is the most broad. It says if you're developing digital assets or their corresponding protocols for the use of any person, provided that such person are not customers of the person developing the assets.

Starting point is 00:27:39 So that's the broad one. That's some of the elements of tokens and DFI and some of these other things. The most interesting from a Bitcoin perspective is that first one, because it says that we're going to exclude folks that are validating distributed ledger transactions. However, they did not take the next step to deal with lightning or any layer two issues. Obviously, folks, like you've pointed out, that are running lightning knows they are technically taking compensation. So that's part of the standard of the bill.

Starting point is 00:28:08 You can't let the perfect be the enemy of the good because this is obviously a big improvement, this amendment. But there is some concern that this could potentially pose some problems for lightning operators. So then let's say that gets pushed through and it gets approved. Can that be updated or can there be a follow-on bill that specifically addresses that, that could be in conjunction with some other major effort? How would that be addressed or adjudicated in the future?

Starting point is 00:28:35 Do you just have to allow the judicial system to figure that out? I can speak to the judicial system, but I'll hand it over to Jason first for the likelihood of being amended or conference committee or some other thing legislatively. Part of it would be the interpretation, but like, So what originally happened with this bill, and it's not the best solution is to have a legislative record. So that would mean we probably should ask those three senators if they would say on the floor, this is not intended for likely note operators.

Starting point is 00:29:06 And then sometimes they'll issue a conference report and it specifies it's not as strong as the actual wording being in it, but it's clear. And if it ever does go to court or there's a question. It's clear what the intent of the bill was. I think that's the enemy the good, trying to explain. enlightening to U.S. senators where the average age is over, I mean, you know, you try to talk about a node. I'll never forget during the Lieber hearings, there was one Congresswoman who was trying to explain what a node was or she was trying to pronounce it. She's like, is it a nod,

Starting point is 00:29:37 is it a neat? But I don't care. What are you doing with all these things? So, you know, you have to recognize there's the amount of time that we've had where people are literally working around the clock on this and trying to explain some of these things. That would have been a really tough reach to try to build that in to this. I don't really think that lightning node operators should worry about it. I don't think they're in jeopardy. I think you want to think about it again, Preston, like, we're collecting taxes here, right? So is there really that much revenue to get from lightning node operators? It could be addressed in the future and it could be clarification, even from the IRS itself. Say this is not what we're looking to collect at this

Starting point is 00:30:13 from. It is a mess. Even right now, absent this bill, pressing folks running a lightning node. I don't know if you run one, but if you're receiving like a couple sats for routing transaction, that's a tax bull event, which is really annoying. Just for the sake of simplicity of trying to foster innovation and technology, we need to clean it up. It's a mess and we need to fix it. Obviously pay your taxes. I'm not saying don't pay your taxes, but to pay a two-Satoshi routing fee just seemed kind of absurd in my view. I totally agree with you guys. And when you just look at the sheer size of the Lightning Network today relative to the base layer, it's very small, relatively speaking. And if you would think about the revenues that are being generated

Starting point is 00:30:56 through routing on Lightning, it's not anything that I think the IRS wants to spend its time trying to chase down either. But with that said, in five years from now, I could see that as being a location where there is going to be, especially for large businesses that conduct a lot of business-to-business-type transactions, especially in payment clearance. So if your Visa or your MasterCard and you're using these rails to reduce your expense structure because it immediately clears, like those are the businesses that are going to be huge beneficiaries of Lightning, in my humble opinion, in the future. And they are going to have substantial revenues that are kicking off of just that routing, I would suspect. So they're going to need something. I would

Starting point is 00:31:39 imagine their lobbying game is on par. Correct, Jason? Yeah. And I think in that case, what you're talking about will probably be resolved at the IRS level, right? And that is where you can still have Congress help influence. Maybe from what you're saying, there might be a certain threshold, right? If you get above a certain threshold on your node, then you have to do the reporting. And so that's something I think that can be worked out and should certainly not be forgotten. In fact, could be tomorrow that we introduce a bill to sort of direct the IRS to do that or come up with rulemaking around that. So it's something we want to stay on. We don't want to wait five years to find out, oh, it's just all of them. So that might be something that when we actually have

Starting point is 00:32:16 time and have slept can actually talk about maybe what this is going to look like down the road. I'm kind of curious if you've seen traditional banks, because I mean, their lobbying effort has to be off the charts as far as how long they've been doing it, just all of that, right? Are you seeing them interject into this particular piece of the bill to fight it or to make it worse or just in general? How are they involved right now? And what's kind of their point of view? Because, I mean, this thing is basically going to disrupt that entire space. You know, it's funny.

Starting point is 00:32:53 When I'm reminded a few years ago in an Uber going into D.C. And someone was like asking us a little bit of what I do with lobbying and like lobbying for Bitcoin. I was explaining, well, the banks don't really like us. And obviously, it's like the largest bank lobby. The government really doesn't like us and what we're trying to lobby for. I remember the guy turned around and said, I wouldn't take a job like that. Someone would be liable to knock you off. You know, you're going up against really powerful forces.

Starting point is 00:33:16 And the banking lobby is like the powerful force. I don't think they got involved in this one. And I think there's a reason why it's just recently been a change where banks, as you see in the news, like Wells Fargo and others are just trying to look at how to custody Bitcoin. And the American Bankers Association, actually, as of July 15th, put out a understanding cryptocurrency memo. It was the first one to their members. And it's actually quite interesting because they talk about trying to partner with

Starting point is 00:33:41 crypto companies because they're making so much revenue to help banks with their revenue. So I think there's this now acceptance of crypto. It's a fascinating read, actually, because it actually gives you use cases. And I never thought there'd be a day when I'd be reading the American Bankers Association Guide to Banks, and they're explaining things like defy, how to do lending, how to do interest, interest rate accounts, and they equate everything in the crypto system to the banking system. So I don't think that to them this was that much of a concern. Now, when it comes to trying to, you know, do anything related to banking or get a bank charter,

Starting point is 00:34:12 that's quite a different story. And obviously, the Caitlin Longs and others have seen there's a lot of pushback on that to try to keep the players entrenched where they are. I listened to an interview with Caitlin recently, and when she got into the risk of immediate clearance or clearance happening in 10 minutes, and the re-hypothecation risk when traditional banks are trying to, or they're just accustomed to re-adjudicating their books on a daily basis at the end of every day as everybody kind of looks and makes sure that things have cleared and they assess that risk at that pace and everybody's

Starting point is 00:34:46 kind of on the same frequency, right? Now you're dealing with the custody of something that's clearing every 10 minutes and like the risk structure is just totally different. And so that piece, is there anything else that you guys would add on the challenges that are that are being faced there or how it's being viewed optically from a policy standpoint? Is there anything that you've heard that you think is worth exploring or talking about? Well, I think one thing that's interesting is how we've seen the SEC chairman come out and give a speech just yesterday, Gary Gensler, and basically try to lobby his own version of what he wants to see happen in the cryptocurrency industry. So it's clear things have really been sparked from this, this crypto tax being

Starting point is 00:35:34 discussed in such a public way because, you know, it's very possible he had plans or certain things he wants to see happen. And this was his chance now. He's realizing that everyone's talking about on the hill. And then there was a very large bill introduced by Representative Don Bayer was very comprehensive, almost 60 pages in length. It's very evident that right now everyone's trying to sort of a stake out their turf. And it's no longer like an exercise. And so Gary Gensler coming out also was very interesting. I don't know if we'll get to that, but because he really set up a system that's important to understand, again, just what's happened in the week of exactly how all of the tokens in the system are going to be treated, what his plans are, the way he sees the

Starting point is 00:36:15 platforms, and really what he expects of exchanges as far as coming to register with the SEC. So, Joe, I don't know if you feel it, to me, that was the biggest jump in that he came out with that while all this is happening. Yeah, and to directly answer your question, Preston, my view is that you just need more certainty in the form of legislation. I think you've got various bodies on a regulatory basis trying to cobble something together to make it work. But there's really, with respect to custody, with respect to record keeping, with respect to how you deal with some of these things internally at an institution that's holding Bitcoin or other digital assets. Everybody's kind of guessing, doing their best estimate at this point as to what is legally

Starting point is 00:36:57 sufficient. But really, the buyer bill that Jason Ruperty, that provides real comprehensive definitions of what these things are under the Bank Secrecy Act and gives them sort of clarity that they need to do custodial services that are going to help this industry grow. We'll cover that last, the Don Buyer bill that's the 60 page. It sounds like it's the real legislative piece that's going to be introduced in what we're dealing with right now with the infrastructure bill is just like a small sample of what's to come through that.

Starting point is 00:37:29 But before we go there, let's talk about the Ginsler speech. So he had a huge speech. I found it a little hilarious. I didn't know if you guys saw the tweet from the CFTC Commissioner today. I see Jason nod in his head. Let's talk about the Ginsler speech and then kind of that response. the commodity side, the regulatory body for the commodities side and health, he's responding to it as well?

Starting point is 00:37:53 I think it's important. I mean, I'm an ex-regulator from the FDIC and I was there during a financial crisis in 0809. So I saw the bank collapses and working in all the different scenarios of AIG. It's important to understand where Gary Gensler is coming from. So he's the regulator at the CFTC during the financial crisis. And after the crisis, he's the one whose crowning achievement was expanding the authority, right, the CFTC to actually regulate derivatives and that, you know, there was no ability to see what

Starting point is 00:38:21 we were in the derivatives. So that was a huge accomplishment for him. So he left that. He did a lot of teaching and classes to learn about this industry. And here he is back. And it's like, I'm laughing because this is like such a Gary Gensler thing to do is, all right, now we're going to expand the powers of the SEC. Let's bring all the different changes in. And this is my, my master plan. And it was actually very, very well thought out in terms of when you heard him talk about the concept of Bitcoin and everything else and the tokens. And he's talking about an exchange. What he's trying to say is, can you really sit here and tell me that if you have 50 tokens on your exchange, they're all not securities? Like, there's got to be some securities in there.

Starting point is 00:39:00 And so it's a very subtle thing what he's talking about. When he talks about coming in and register, you're hearing about coming in and register. It isn't necessarily just the token company that, oh, do we have to go like register with the SEC? What he's actually alluding to is that the exchanges themselves might come in and the exchanges would have to register. Because what he's saying is if you have one security token on your exchange, you need to come register at the SEC. They are the securities and exchange commissions. So it would make sense to eventually see all of the exchanges maybe having to register

Starting point is 00:39:32 with the SEC, right? And that's essentially what he's looking to create. And that's what he's fighting for with all this money. And what I think is really interesting about that. And then Joe can get to the tweet on the CFTC and that interaction about sort of how Bitcoin is treated. is if you think about it then, press, and that means that then the SEC has, so let's say, you know, Brian Armstrong and I walk in and I sit down with Gary Gensler, we've got a hundred

Starting point is 00:39:52 tokens to my platform. Then Gensler can just be like, okay, security, not a security. Like, it's a very subtle thing and it's powerful. Yeah. And so that's going to have a lot of effect if that comes to fruition, obviously, like where the SEC sort of really is in the controlling seat of deciding what tokens get listed and on exchange, just like we dealt with with the New York Bitnight license from years ago that I'm sure you remember was a disaster. But, yeah, Joe is much better on the Bitcoin definition. And yeah, I'll let him go to that.

Starting point is 00:40:23 So delay the groundwork for this. And I saw a tweet by Nick Carter basically attesting to the fact that, you know, this is an influential speech. That's something that we're going to look back historically on. It's going to have this moment in time. This is a speech that he's giving to the Aspen Security Forum. It's a nonprofit. It's mostly focused on security issues, international security issues.

Starting point is 00:40:44 So there's kind of an overarching theme that he brings up several times in the speech about national security and doing what is necessary to protect national security. The interesting thing I thought the takeaway was that he really wants to sort of lay the groundwork from the beginning in the speech. He starts out going all the way back to Halloween in 2008 in the depths of the financial crisis and Satoshi Nakamoto and these messaging boards. And then he works his way all the way up through the ICO bubble, through the tenure of Chair Clayton, then gets to where we're at right now.

Starting point is 00:41:18 So it's kind of a great history. I think what a lot of observers took away from this, or at least legal observers that I've spoken with, is that we kind of expect a little more because of what Jason was talking about, a clear regulatory regime. We're getting some of that at the margins. But the big takeaway is that he thinks the definitions of security. as applicable to tokens are clear as day. He said that they're clear.

Starting point is 00:41:45 They've been clear since the 1930s. They've been clear through decades of case law. And regardless of what anybody wants to couch it as a different technology or new innovation, if it looks like a duck, quacks like a duck, it's a duck. That's basically the takeaway for these things. So he draws a dividing one. He says, here's Bitcoin and here's what it is and how it's different. It's a commodity.

Starting point is 00:42:04 It's not under my jurisdiction. The only thing I would fall under his jurisdiction really is the market structure aspect of it, but the actual commodity itself is not under my jurisdiction. But then there's all these other things. And he says basically that, I don't care if it's a stable coin, stock token, stable value token. If it's a security, if it's backed like a security, it falls under the how we test, that's what it is. And he says, this kind of comment echoing former Chair Clayton basically saying, like, in all these things I've seen, I haven't seen one of them that doesn't look like a security, all these other tokens. So, I mean, he's effectively,

Starting point is 00:42:40 saying it's Bitcoin and everything else. Exactly. He wouldn't even answer the theory of question. A couple times, he actually said something like, you can ask me three or four times. I'm not going to comment on any other thing besides Bitcoin. There's a sort of funny back and forth between the moderator at different points. So that's interesting to me. Obviously, we'll watch that carefully.

Starting point is 00:43:01 But I think what people were hoping for was like comprehensive framework, analyze all these things. And really what they've stuck to both in their public comments, and in the SEC versus Bipple case, they've taken this position that you have to look at each individual token. You have to assess them on a case-by-case basis to determine whether they qualify as an investment contract. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates

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Starting point is 00:46:45 So talk to us about the CFTC's commissioner today. He came out and basically said, well, you know, if cryptocurrencies, cryptocurrencies, and he used the word cryptocurrencies. He didn't specifically say Bitcoin, which is interesting because you would think that maybe he would, based on Gensler's take. Some of them are considered commodities. Well, then the SEC has no jurisdiction making comments or pontificating about it. So what was your read on that tweet today from him? A really interesting point. And the former chair, Chris John Carlo, of the CFTC, or Cryptodad, he came out and he said he made a very good point. which is, as we've realized, there's no head of the CFTC right now. So Gensler is kind of doing this

Starting point is 00:47:31 power grab and there really hasn't anybody running the ship at the CFTC. We're still waiting for an appointment from the White House. The CFTC has spent a lot of time and they're also fighting for their own budget where they want to one day be able to regulate crypto commodities. And they see that as a world where if Bitcoin's a commodity, then there's nothing the SEC needs to do in terms of investor protection, right? Like, if I'm going to buy some cattle, do I go to the SEC and complain if there's something wrong with them? No, it's a commodity. If it's orange juice, it's whatever. And, you know, and then there's even an inspire bill, they've talking about changing the CFTC language to actually incorporate Bitcoin as an actual commodity, like after like

Starting point is 00:48:13 cattle and stuff. Because just to make it clear, just to stop all this back and forth nonsense, but that was a very smart comment by John Carlo because he's pointing out what's kind of the obvious, which is it's like, you know, you have a captain of a team who's already very aggressive. And then you, that's why the CFTC commissioner's like, hey, we don't have everybody in charge here, but back off, buddy. And they have put a lot of resources in the thinking about, particularly with like the, um, as they come over, the Bitcoin futures. And if you notice, Genser was talking about a lot of these things. And that's why I think the CFTC finally just tweeted out because he's like, he's talking about futures. He's just going to take over the CFTC here.

Starting point is 00:48:49 You know, like he's, he was very oversized. And it's not. It's. For those who saw Gensler with the way he dealt with the CFTC back then, I mean, the expression was a bulldog. So, you know, there's nothing to be surprised about it. And I think it was smart for the CFTC to kind of speak up a little bit. And you might very well see some push now to actually get a chair at the CFTC. So things can actually be a little bit more on even ground. And I think the crypto community is going to need that too as far as protecting Bitcoin

Starting point is 00:49:18 and everything else and keeping it in that realm, right? Because if you had a strong chair or the CFTC, he'd just come out. and be like, Bitcoin's mine. Just go away, you know. They're very territorial. I mean, they're very important. That's one thing that's important to know, again, from being with the FDIC is there is a little bit of calculus because there's so many different regulators as to what your turf is. Even in times of crisis, you're always looking at maybe, oh, this is an area you want to regulate.

Starting point is 00:49:44 And again, the CFTC has done a great job. They need a lot more money, but they've done a great job laying out what it might look like as far as the regulation of commodities. They have the options, the futures now. So they're doing just fine. This idea that Gensler is promoting is this concept of he cares about investor protection. And he put out that cute little tweet where he's like, well, I'm neutral. I'm technology neutral, but I'm not neutral about protecting investors, particularly

Starting point is 00:50:10 investors in Bitcoin. And that's maybe just a general question. Back to you, Preston, is what are the expectations when we buy Bitcoin? I mean, are there any assurances? Are there any, you know, do we need protections? I mean, I don't think that's what this community or this new invention is all about. So there's really not any credible argument that Bitcoin would be a security. There's never been anything advanced.

Starting point is 00:50:34 I don't think anyone disagrees with that. He made that abundantly clear. But if you're thinking from a territorial perspective of what these guys are trying to accomplish to get the funds for their particular agency, if you draw a dividing line and say, Bitcoin's over here, that's clearly not a security. That's CFBC. But everything else, NFTs, all these other assets, they're mine. I get to do with them.

Starting point is 00:50:56 I get to laid out the groundwork. It makes sense why he would drive that narrative home in this speech. And by the way, when he did his question and answer, Preston, it was very telling. And if you remember when Coinbase filed its direct listing on NASDAQ, they said one of the risks was if we find out who Satoshi Nakamoto was. So in terms of regulators speak, whenever they say something, they're saying it to make a point. So when he asked, he said, oh, Paul Vigner, are you going to tell me who Satoshi is? Does anyone in a thousand people in this audience want to stand up and say they're Satoshi Nakamoto, which he's joking, but he's also saying if someone actually, we find out who that person is, does that change the conversation? Which is why Coinbase, I think, put that risk in when they did their S-1.

Starting point is 00:51:38 Oh, that's really, really interesting. I've never heard that take. I mean, when you guys are talking, I'm just thinking, holy game theory, Batman. You're watching two regulatory bodies fighting over Bitcoin. I mean, these are things that have been talked about for years is just the game theory that happens at an individual level where people wanting to get their hands on this, then happens at a very small, local governmental level, and then goes to a state level, goes to a federal level, then it goes to like this nation-state competition.

Starting point is 00:52:12 Never did I think you'd see infighting for it to be under. their regulatory jurisdiction because it can suck more revenues into their political or their governmental organization. I mean, it's just, this is wild. For legacy, Preston, also legacy, right? Some of these guys, they all want to leave their market. Yeah. Like Jason said, I fixed Bitcoin.

Starting point is 00:52:36 I fixed this market. I fix whatever. That's a big part of it. The legacy they want to leave when they retire and say, I do this. It is really the arrival of Bitcoin. in terms of being taken seriously, I always say, like, when you start to see something regulated and people fighting over it, that means it's really something of value. So when I was at the FDIC, like the joke would be you'd go to, you know, examine a bank on a Monday, leave in a Friday.

Starting point is 00:53:00 And when you show up, they're like, oh, we're really happy to see you here, but we'll be even happier when you go. The fact that you're actually showing up means you're in existence, you're, you know, doing well financially, but then you can just leave because we don't want you to shut us down. So there is that element now of that the regulators have, you're going to I see the market. They understand where this is going. And I mean, it's incredibly bullish when you think about it because it's not only reliant on a tax source now with Bitcoin, but it's being, we're seeing this fight take out in real time over who's going to get to regulate it. So based on your comment about the Satoshi Nakamoto piece, does that put Ethereum at risk?

Starting point is 00:53:37 Based on the question in the way that he was responding to, you know, the people in that audience that were framing their questions, the fact that Coinbase was. writing this into their language, are the regulatory bodies and the people at the helm of these organizations, are they signaling that that is kind of the critical element that makes something a security or not? Is that the founders and the creators are knowable? I think that's part of it, even going back to Director Hymondon's speech, he talks about this concept of being sufficiently decentralized, and he takes this approach where the asset can actually transition over time. It could start out as perhaps an unregistered security offering or investment contract. And over time,

Starting point is 00:54:21 it can become sufficiently decentralized. And I think that that's a big part of their analysis. They also want to look at the expectations. And Clayton, Chairman Gensler talked about this in the speech. He said, you know, most of these investors, they come to this. They buy these tokens because they want to sell them 10 months later and have a 10x. That's purely the expectations of profit from the work, entrepreneurial work of these small teams that put these things into the market, that falls squarely under Howley. So I think the invocation of Satoshi Nakamoto is, if you have a big figure here that could potentially control this market or influence the value of this thing, that is the risk,

Starting point is 00:55:02 right? That and then maybe it's not essentially decentralized. But, you know, obviously, technically, I think Bitcoin's evolved quite a bit for even he or she or they, Satoshi came about, they'd be able to influence it. It's just too distributed and diverse at this point. That's my view personally. If they go to the exchanges and they go to the Coinbase, they go to the Crackens and they say, hey, all of these tokens, pretty much every token but Bitcoin is a security now.

Starting point is 00:55:26 We've determined that. What are the requirements for now? What does that change, if anything? So again, the way they've been shaping policy from Clayton to Gensler now is that they shape the policy through enforcement. That's the key thing. They bring an action against the Kik token or the telegram. work against XRP. That's how they're sort of laying the groundwork at a case-by-case basis.

Starting point is 00:55:52 That's frustrating from a lot of lawyers and people working in the field because we want to have this certainty. And actually, we'll get to it in a little bit. They don't have the legislative ability at this point. They can issue no action letters, of course, but they don't have the legislative ability to sort of go and issue these 25 assets, these 20 assets are securities, commodities, give that sort of firm direction. That's part of what is included in the buyer bill we talked about, they actually are going to be able to issue, I think it's the top 25 assets by market cap. They're going to be able to give clear direction for these and classifications. But that's a legislative fix. And I think their position to this point, we have to continue

Starting point is 00:56:30 to analyze these things on a case-by-case basis. We can't give, we can't publish a list one day on our website, at least right now under the law that says these tokens are XYZ. Okay, so let's talk about the Don Buyer 60 page. Today, size bill that is all about the regulations for Bitcoin, crypto, everything. There are bills that are introduced and talked about pretty regularly. In fact, remember Congress with, at least in the House side, you have 435 members. So it's like having 435 small businesses. They're all trying to introduce bills. Not all the bills make it, not a very small fraction of the bills actually make it to the finish line. But this particular bill, what was striking is that he is

Starting point is 00:57:15 not spoken at all with any of the regular Congress people who actually are involved in this space and are working on things. And talking about Congressman Warren Davidson and Congressman Tom Emmer, who's the co-chair of the Congressional Blockchain Caucus on Republican side. And then on the Democratic side, you have Congressman Darren Soto. And then there's a bunch of others on both Republican side, mainly Republicans and also some Democrats who've been really involved in helping to create legislation. There's even a working group that they have, where you're a, where they, you know, we're trying to figure out what legislation will look like. And we're talking years in the making. I mean, I'm thinking all the way back to 2016, 2017. So when a congressman

Starting point is 00:57:55 just comes along and drops a bill and says, here's how the space is going to work. And he's never had any conversations with his colleagues. There's some skepticism. And so, and even Congressman Tom Emmer was talking earlier on this with Coin Desk. And he was saying, bills like this usually means it probably was generated by like Yellen's office. So believe it or not, I mean, legislation, whether it's Federal Reserve or U.S. Treasury, sometimes they want to influence things in Congress and they'll pass on what they think is really good legislation. I'm never comfortable with that. I think it's much better if it's Congress acting as it's on its own to figure out what kind of legislation they're supposed to be the, you know, the representatives of the people.

Starting point is 00:58:36 There does not seem to be, he's never talked about the bill. There's no real explanation. So it does kind of look like just someone put together a really fancy 60-page bill handed it to him and all he had to do was introduce it in Congress, which happened all the time. The takeaway is, and I've talked to some pretty well-respected lawyers in the field, that they think this bill, out of all the things that, as Jason was looking at all the bills that have been introduced over the years, they think this one, this is the first one they've seen that's comprehensive enough, thorough enough, where it might actually become law. I don't know if that's the case, but in terms of just the depth of the bill and how it goes, divides every single agency and every single rulemaking

Starting point is 00:59:15 authority. It's pretty thick and somebody put a lot of thought into it. So it seems unlikely that sort of a congressman that doesn't have a history with this space would have that depth and that sort of research behind him to put forward this. So take that for what you will. But the bills title the digital asset market structure and investor protection act. And they're really focused on consumer protections, a ton of new requirements on disclaimers and basically new information on consumers, consumer forward, what you're buying when you're acquiring these different things. But the clear thing it provides is that it provides a statutory definition for digital assets, which are going to be regulated by the CFTC. So it puts that in that bucket. That's their

Starting point is 00:59:56 jurisdiction. They're going to take care of that. And then another bucket for digital security asset or digital asset securities, I think, the term they use. And that's SEC. So each one of them get a little bucket that they're in charge of. It gives you regulatory certainty for the top 90% of digital asset market space. So if you go to probably the top 20 to 30 coins on coin market cap, they're going to be issuing sort of clear language as to what these things are. It has penalties built for listing unregistered securities or assets that should be on exchanges. So it gives you some rulemaking authority to go after exchanges for just listing any XYZ token without doing any diligence or going through the proper protocols. It hits stable coins. It basically says

Starting point is 01:00:40 that to the extent it's a digital asset security stable coin, in other words, a stable coin that has underlying securities. That's going to be SEC, but otherwise it says Treasury has the authority to prohibit dollar based of stable coins that are not there, prove stable coins. So it's really comprehensive. And it also incorporates some of the things we were talking about earlier with respect to monetary instruments under the Bank Secrecy Act. It formalizes, exactly what you're talking about, Preston, about, you know, what do you need to do from a record keeping perspective, from a money laundering perspective, from reporting requirements at the banking side, really thickly brief comprehensive language about what a bank would need to do to hold

Starting point is 01:01:18 digital assets on their book in a client way. So from that standpoint, I think it's really something that there was a lot of thought into it. Well, the one piece there that really kind of stood out to me on the stable coin part, that it allows, did you say the Fed or the Treasury to the Treasury. The Treasury. So Janet Ellen will then have the ability to say, hey, that's not an approved stable coin effectively, is what you said. Absolutely.

Starting point is 01:01:44 The Fed has the authority to permit or prohibit any U.S. dollar or not just U.S. dollar, any Fiat-based stable coin. They can permit. Any Fiat-based stable coin. When I think about this, the thing that kind of pops into my head is I would suspect, and I might be dead wrong about this, I would suspect that the U.S. would want the stable coins to the private entities to run these stable coins, opposed to standing up a central bank digital currency simply because of the risk of having a

Starting point is 01:02:16 technological failure. Like if they started transitioning to a central bank digital currency to replace the existing dollar-based digital system that currently exists with the Fed wire clearing every four hours and ACH clearing every day to three days, that system has not. demonstrated a failure. And I think, I suspect that policymakers would be really concerned about replacing that technologically and stepping into a new system that could have these really broad macro implications if there was a technological failure. So how do they try to circumnavigate that? Well, just allow the private sector to have these stable coins. And then we just provide a lot of

Starting point is 01:03:00 oversight as to how they're doing it and how they're actually backing it with actual U.S. dollars out of the system that currently exists today. Would you agree with that? And if you wouldn't, why not? Well, one thing I forgot to mention, and probably should have brought up is that this bill, the Bayerville actually provides the Federal Reserve explicit legislative authority to create a digital version of the U.S. bill. So the CBDC from the Fed is in the buyer bill. That's there as well. And I'll let Jason comment further on the issue of their view on stable coins. So it's really interesting. Since the beginning of the administration, believe it or not, stable coins are actually seen

Starting point is 01:03:41 as the biggest threat to the U.S. dollar. And so it's not really seen, especially remember it's a Democratic administration. So it's not so much big on what private sector might do. They want to see, you know, the Federal Reserve be in charge of a central bank digital currency. And if you heard, Powell recently testifies saying he thinks that the. introduction of a CBDC would make Bitcoin, stable coins, everything go away. The threat of the stable coin or the idea is you have this thing moving 24-7 and it is sidestepping some policy

Starting point is 01:04:10 goals that they have about the way, again, and this is what this whole space is about a lot, which is how the Federal Reserve governs us from a behavioral economics standpoint. The central bank digital currency, there are forms like in the Bank of England has explored this where the Fed might introduce it, but it is still going to be private companies. that are distributing it, right? So we might see that hybrid model. But what's really interesting is they're talking about how the CBDC is also going to help them with the lower bound. So here we are stuck with these low interest rates. Well, you know, you could always just make a charge, right? If I have 500 central bank digital currencies, you could just say,

Starting point is 01:04:47 or in dollars, you could just say, I'm going to charge you $5 of that amount unless you spend it to get me to spend it. So it increases lower bound. And they've even talked about giving people interest rates like a bond, like six or seven percent, to encourage people to get it. So what I think we're going is you're going to see, because you've seen that a few times said by Yellen and you've seen that from the Fed is, I think you're going to see basically the Federal Reserve try to create a currency and make it as attractive as possible. So people will use that versus a stable coin. So they continue to administer Fed economic policy the way they already do now sort of through

Starting point is 01:05:22 the banks. And by formalizing the buyer legislation or language that's taken from the legislation, they clearly want to sort of crowd out the competition, I think, because they're going to be the exclusive gatekeeper for these. I mean, no person's going to be able to transport or issue stable coin under this bill without stamp of approval from Treasury. And as we know, even civil coins like USDC and UST, they have underlying securities. They're not just one-to-one pegged with the dollar.

Starting point is 01:05:53 So that raises, that brings the SEC back into the mix there. They can find that really these stable coins are securities or at least make that allegation. So it's clear to me that they kind of want to crowd out the competition. Well, yeah, and if they're interest-bearing, I guess they would be considered a security at that point. To Jason's point, if they're saying, hey, we're going to offer this much interest rate if you basically don't use it for this period of time, at the end of that period, you'll receive this 1% coupon that would be associated with lock or not using it for whatever duration that would be associated with it. Now, the other part was interesting about what you said, Jason, is you're talking about something

Starting point is 01:06:34 that has a positive yield and something that has a negative yield at the same time. And we're also just glossing over the fact that the government's, the global government's track record of spending, exceeding tax revenue. revenues doesn't appear to be on a trend line that would reverse itself anytime soon. So it's interesting that that's, do they just not understand that piece or do you think they actually truly do understand that piece and they kind of understand that Bitcoin's really kind of the only thing that's not going to be the base because of the decentralized nature of it having a fixed unit like 21 million coins, right?

Starting point is 01:07:15 Do they understand that or do they actually believe that this would make Bitcoin not a high-demand asset? I think it would actually make Bitcoin more valuable, right? And so I think that perhaps there's some political gamanship happening when you have the Fed say that because what's so interesting to me about this in terms of the stable coins is, if you think about it, with Facebook, when they came out in 2019 with Libra, everyone was criticizing Facebook because they were telling people you couldn't do crypto ads on Facebook. And then they introduce their own cryptocurrency.

Starting point is 01:07:47 And then the government comes really hard down on Facebook, which is really like saying, no, no, no, you don't get to make money. And now here the government is ready to introduce a white paper and they're going to introduce their own money while not letting anyone really. So I think if anything, the goal is, the policy goal is to slow down the Bitcoin market as much as possible, just to make it kind of slog through so they can have the time that they need to build out this CBDC. And there's also a lack of trust a little bit on the private.

Starting point is 01:08:15 sector, you know, when you talk on the Hill, like, there are Democrats that still see a lot of these products, and they don't differentiate, like, a lot of this defy stuff from, like, credit default swaps. They just think, how are we really helping the unbanked with some of these products? So there's still a lot of education needs to be done, both on the White House side, I look forward to continuing due in the administration as well as in Congress, helping Democrats understand, like, we have a lot of unbanked people in the country, and there's a lot of ways that stable points could help. Even one of the Fed deputy directors quarrels, actually came out, who's director of supervision, and said, I think there could be some use in

Starting point is 01:08:49 stable coins. So what you've raised is actually really, it's a big debate right now. You have two heavyweights of the Federal Reserve, Quarles, and then Federal Reserve Governor Lail Brainerd, Brainerd's like the CVDC person. She's pounding that CBDC home. She's driving the whole ship on it. And all of a sudden, Quarles speaks up like, oh, maybe we just use stable coins. I wouldn't want to be by the water cooler with both of them right now because that's a little bit of an infight in the Fed over which direction to go. Yeah, and just to echo the point made by Chair Gensler in his Aspen Institute's Beach, he talked about, you know, Nakamoto creating this private form of money and other actors creating private form money. That's not a new concept. That goes back in our history for a long time. And he kind of dismisses it with the notion that, you know, what really happens with a lot of these private.

Starting point is 01:09:38 private money is that eventually they just disappear and go bust. They're not valid. So I think that from my view, he's sort of dismissing the notion that private money has a long-term staying power. And I guess I understand it has to take that position. But it's fascinating because you read that with some of the efforts to control stable coins and why they're so focused on stable coins, that really would be a serious issue. Because right now, one of the main reasons why Bitcoin is not used more as a medium

Starting point is 01:10:06 exchange is because it's primarily tax code. The tax code makes it completely untenable as a current medium exchange. Every $5 coffee having to record that just becomes too cumbersome in large degrees. So I think it's very self-serving to sort of have a tax code that inhibits Bitcoin from becoming, at least right now, a medium of exchange. One final point on this too, Preston, is we have our beliefs about what Bitcoin can do, but the Federal Reserve has like, and just the government has almost a 200-year history of being able to stamp out currencies that they don't want to deal with, whether it's state currencies, wildcat banking era with private digital notes.

Starting point is 01:10:44 Government can come in and they feel like if they need to get rid of some stuff and they want people to use a certain thing, it's so there could be really just an underestimation of what Bitcoin's going to just remain part of it. And that might catch them by surprise. Absolutely. You know, for a person who's hearing this that's a hardcore Bitcoiner, I think the whole stable coin central bank digital currency, the real concern is on the privacy side. And if I have a digital wallet on my phone and I have a central bank digital currency and the government doesn't like me,

Starting point is 01:11:16 or they want to peer into all the transactions I've had over the last 10 days, like they can do some crazy things once you start talking about that. So does the buyer bill address, the privacy constraints of a central bank digital currency so that it aligns with the founding principles of this country? Or are we starting to get a little dystopian here and a little bit scarier in the direction that this is all going as far as privacy concerns go? No, at least not as so far as the Fed's authority to issue this digital version of the US dollar. We don't really get into too much of the terms of that. They give them this explicit authority. they say go do it and you're charged with regulations or issuing directs and guidance and how that

Starting point is 01:12:02 works. We're that repository of all that private, sensitive drops of data is going to be. That is something I think they just don't have in the bill right now. So in the event we get movement on a digital dollar, I think that's going to be a huge push because people don't people, I think privacy is a really, it resonates with common people. I mean, even this issue right now that we're dealing with the infrastructure bill, I think folks, the notion that transactions, every, single movement of a coin is going to be sent off to some honeypot of information. I think that bothers a lot of people. I don't think that's the kind of regulatory regime you want.

Starting point is 01:12:38 And there's been a couple of hearings on this. And there's also what's called the Central Bank Digital Currency Study Act in the House that would look to explore this. But what's been raised by a lot and actually the Electronic Frontier Foundation that talks about digital privacy is saying, do we really want to go this route, Preston? Because when you start talking about this dystopian situation, I mean, that's China, right? That's the way they're creating. There's to follow everything their citizens are doing, you know, continue to control the people in that country.

Starting point is 01:13:07 And so there's a lot of people and you hear some who are strong Bitcoin advocates rightly say, you know, maybe we don't need to go down this route. Maybe we don't want to. Or maybe it's, there's no compromise, right? Like the way it's been explained to me and again, you know, forgive the people who are running our country for not being that technologically understanding of it. But they say to me, you know, why can't you just give me like a currency, but like not on a blockchain? Just give it to me and I'll put up my pocket and I'll walk away. And there doesn't have to be my identity associated

Starting point is 01:13:37 with it. That could be a very interesting concept, right? What I laugh about with that is I think one day maybe the government's going to come down and say, wow, maybe we need lightning. Maybe lightning should be the way we transact because we don't have to get into this who I am. And anonymity is actually a good thing. Like right now, everyone's like freaking out over Taproot, how Taproot's going to make things less visible on the blockchain and does this mean it's going to be more private? Maybe that's actually what the government's going to need at some point to satisfy. Because America's not a culture that is happy when people are just surveilling them all the time.

Starting point is 01:14:10 Absolutely. I think I would get a lot of crap from listeners if I didn't bring this one up. The ETFs. Talk to us about the timeline on this. I know Ginsler has just recently come out. he's talking about it being cash settled and not spot settled, which is an eye roll for me because of just how I look at the gold market and the cash settled gold market on a derivative side. And I know, Jason, you have a lot of experience on the commodities and derivatives market.

Starting point is 01:14:38 So I'm sure you're well versed on the differences between cash settled and physically settled markets. So why is he saying that? Why isn't he saying that an ETF will be approved that would be spot settled? Well, I think because he doesn't fully want to believe the way Bitcoin should work, right? I think there's an element of with it being spot settled or, as you say, cash settled, the fact is that you're going to really have people who are going to look at this and say, and to him, you know, it's more of a way of tracking it. And there's a distinction between the type of ETF that he introduced.

Starting point is 01:15:15 And Joe knows that, right? Joe, the aspect of the type of ETF. But I think it has to do with the ability of just the way he thinks the market should function. But yeah, let me turn it to Joe. Going back, and I think anyone who's interested in the ETF should always start, actually start with Commissioner Hester versus dissents and how she lays out the issue. And really, she does very comprehensive thorough analysis of Section 6B, the Exchange Act to basically say, they're reading this heightened requirement into the

Starting point is 01:15:49 Act. They're basically treating this commodity market different from every other commodity market that gets approved because they're basically, they want this standard where there's almost no fraud or manipulation of the underlying spot market. That's really the key focus that they've had. So the problem is that, and they've identified this in sort of the denials, is that they can't get enough information about the primarily these offshore or leveraged derivative exchange in the spot markets abroad and if there's volume being fake. And because we have this whole global ecosystem and a lot of it lies outside the United States, we can't ensure the integrity of the underlying market. The problem is that that is not, in Commissioner Percy's

Starting point is 01:16:27 view, that is not within their role. They're not supposed to ensure the perfect stability of the underlying fraud market. So if you take that and you take the denials of the registration statements that have been issued over the years, there clearly has to be something that changes within the market structure to give them the ability to pivot. There has to be something, even if it's like a political solution that they can come forward and they can put in some sort of regulatory regime for these exchanges, at least the U.S.-based exchanges. Then they can say now, the market is sufficiently mature. We are confident enough in the U.S. regulated exchanges that the volume's not being faked and there's no problem with the spot. And that opens the door for us to pivot and say,

Starting point is 01:17:06 we're finally going to give the green light to the ETA. That's my view of it personally, just assessing the groundwork. Right now, I think the consistent issue is we don't really have any, thing, any movement or new regulatory regime on the exchanges, I think that comes, and I think that gives the eventual green light. Two things in terms of the timeline, which you asked about, Preston, number one, and as many have pointed out on the official agenda for the SEC, there's nothing on there about crypto, despite the fact that we've been talking about and they've been making public statements. Some have read that to be an indication that an ETF is not close. It's really unfortunate on that front that they haven't, you know, fast-track this. But I think personally that if we

Starting point is 01:17:47 get some sort of regulatory guidance on the exchanges or some legislation on the exchanges, that is going to open the door to them pivoting on this EPA issue. And just to clarify, like, it's about investor protection at the end of the day and how he feels, and that's why he's looking for these stricter rules. Because again, remember, whether it's Bitcoin or Bitcoin ETF, he's looking at everything from how do I protect the investor. So he obviously sees some risk in not doing it in a way that would make the most sense. He wants to do it in a way that's just going to protect investors. And I think that's because he's not fully comfortable yet with the Bitcoin market and wants

Starting point is 01:18:25 to see some of these regulations. Yeah. And the question is like, when is he going to be comfortable? Because no matter what they do, a lot of the trading in Bitcoin is overseas outside their jurisdiction. And it's all interrelated. The trade's going between finance and Coinbase. And if that portion of the market is outside your jurisdiction, what has to occur, Mr. Gensler, Jeremy Gensler, to get this through? What do we have to have when you're never going to be

Starting point is 01:18:51 able to regulate a lot of these institutions overseas? My concern is more on a systematic front. So if you go to a person today and they say, hey, buy some Bitcoin and they just don't want to have to open another account of exchange, how are they buying? They're going on to their fidelity account or whatever exchange that they are using for their traditional stocks that they own and they're buying GBT. All of that capital, all that money is flowing into this trust, this one trust because there's no optionality for people to do it in their traditional stock investing brokerage accounts. And so I guess I would make the counter argument of the failure to approve an ETF is funneling all of this money into this one thing that could

Starting point is 01:19:34 potentially have issue. Maybe they have custody issues. Maybe they run into whatever problem with the GBT vehicle that is working and is listed on all these exchanges. I don't know. It just, it doesn't make any sense to me. That's exactly Commissioner Pierce's company. Esther Pierce has said the almost verbatim thing that the fact you're driving these people to unsapered markets, markets that would be refined if we had an ETF. And it's also kind of unfortunate now that, you know, we've got the Canadian ETFs, which are in place and there have no issue with those And I hate to disappoint you, Preston, but the government doesn't do a lot of things that makes sense. And that's a little hard reason for why we have these kinds of conversations. And this is

Starting point is 01:20:18 where at least just from the political angle, what you have to realize is Gensler just got a letter from Senator Elizabeth Warren. And the whole narrative has been cracking down on Bitcoin, too much energy, all these other things. So if Gensler, maybe he actually wants to do what you're talking about, maybe he thinks it's the right thing to do. But if he could, comes out and does that right now. And, you know, they're talking about money launderers using it and all this stuff. It's like, oh, why don't you just like let the terrorists into the country kind of thing by him approving a Bitcoin ETF. So unfortunately, I think it's being delayed for political reasons. And I'd like to see, I'd like to see this sooner than later. Because to be honest, it's almost

Starting point is 01:20:58 getting to the point where it's criminal because it's been a 12-year marketplace. There's others that get ETFs. There's just absolutely no reason why I can't just get an ETF. brilliant market cap. And it'd be easier and safer for a lot of consumers who, like you say, go to a 401k and everything. It's creating unnecessary risk by having it all be in one trust. So unfortunately, I'm not optimistic, but maybe by like early next year, we might start to see it.

Starting point is 01:21:23 And you know what? I could totally see that happening. I could totally see that playing out. Hey, the blockfying news, are you guys well versed on any of that, the New Jersey? I know it was in New Jersey and it was a couple other states where they put a stop order on them taking on new clients and it's a concern with them paying interest. What do you guys know on that? I'm most familiar.

Starting point is 01:21:43 I read it the cease and desist order in New Jersey. I think it's Alabama, Jersey, Texas. Yeah. So, again, this is action by the states because each state says their Bureau of Securities it is in New Jersey. And essentially the argument that they have is that the BIA, the Black Buy Interest account, that that constitutes an investment contract. And let's go through the Howie analysis.

Starting point is 01:22:08 Okay. You're putting your Bitcoin. So you're giving something of value to BlockFi. They're then taking those funds. They're re-hypocating it. They're investing in unregistered securities. They're investing in tokens. We don't know what they're investing in, to be honest.

Starting point is 01:22:22 And then they're giving you a yield. So you as an investor are giving something of value. And then you have a reasonable expectation of profit from the management and entrepreneurial skills of BlockFi. That's Howie right there. This is state law. so it's not federal. So it's a little bit of distinction because New Jersey's law and defining a security

Starting point is 01:22:40 is broader, arguably, than the federal law. But that's the framework. The fact that they are advertising their website, we're going to give you X amount of yield on your tokens. I can see why regulators have an issue with that. I'm not going to get into my prediction as to where I think this goes. But you can kind of see why this presents concern. You're falling squarely under contributing something of value,

Starting point is 01:23:03 depending on others to get a profit to get some sort of gain. So you have to really justify why isn't that an investment contract? It reminds me a lot of 2017 with the ICOs, because you did have a lot of states that would stop certain ICOs. And so the states are starting to look carefully at all these new marketplaces. And the problematic thing about attorney generals getting involved in this is to me that they're now also another, it's not just the SEC, right? It can be the states that can say you're a security. And BlockFi had, it's, you know, lending license, right? You can get that consumer lending license in the state. So it really puts anyone who has an interest-bearing account in a little bit of jeopardy. The fix on this, and to me, the policy goal

Starting point is 01:23:49 should be for our community to think about, so like CDs, right? CEDs are actually securities. But when they're in a bank, no one cares, right? Because it's time deposit 90 days, so there's your, you know, benefit. And banks. are allowed to do that. Now, if you have a brokered CD, you buy it from your broker, that's why it's then it's considered a security. So I think we have to give it that sort of like context of within a bank. Yes, is it a security? Absolutely. But it's giving this interest and this is what, you know, people are buying. I mean, it'll be driven by consumer demand. I don't think, and especially if you look at other jurisdictions, these kinds of interest bearing counts are

Starting point is 01:24:25 very attractive and not going away. So, you know, again, it's this sometimes, I mean, even being a former regulator. It just gets frustrating, right? Because if it's not the federal government, it's the state. And it does concern me that it's three different ones. So I'm hoping either the states work together or the federal government's able to give some kind of resolution to this. And I think they'll have to. To me, those have been very popular products. Yeah, I think they'll have to do. And the interesting thing is I think we're going to figure out how they're getting this yield where it's coming from. Obviously, the block lies over time has been their yields been decreasing. So there's a lot of different reasons and supposition about why

Starting point is 01:25:00 that's occurring. But, you know, if they're taking consumer funds and investing them in, you know, the liquid tokens to get some sort of yield, that could be problematic, right? Like, you could, they're going to be in the SEC's cross here, potentially there. Fascinating stuff. By the time this airs next week, we're going to know the outcome of whether the amendment on the current infrastructure bill was approved or not. I'm curious, what do you guys think if you had to put on your prediction hat, do you think that the amendment's going to get accepted? I think it is going to get accepted. I think at this point, there's been enough noise, and with the efforts we're going to see tomorrow, by the way, by the time the states will already

Starting point is 01:25:43 know about it, but we'll see like the Washington Post is going to have banner ads, telling people to be continuing to call their senator offices. If you look at Twitter, you can see nothing, but like this is how you call your senators. There's been enough pushback on this. where I think that ultimately they're going to, they wouldn't have gone through the changes of all this language if it probably wasn't going to be accepted. It also has three senators supporting it, which is a pretty big deal. So I think we'll be living in a world where it will be past that the joke will be for all your listeners that by that time, all the senators will be on break and the house is going to pick this up. And because the house doesn't actually

Starting point is 01:26:19 come back till September 20th, it's going to sit there for like 70 days and then the house will get to it. But in the meantime, I do think we'll see it at least move to the house. Yeah, I generally concur with Jason there. I think the fact that Portman's office, the main architect of the original language, seems to suggest that miners and note operators and wallet manufacturers, they're not included. It strikes me as, well, what's the argument for not changing this? You got an amendment here, it clarifies it, pulls this out, why not fix it? And I haven't heard anyone, even folks that are very hostile towards crypto like Elizabeth Warren,

Starting point is 01:26:53 no one's come out and said, we need to keep this language in there for any different reason. So absent some justification for not making the change, I think what we'll get the change. Say it doesn't go through and then it goes over to the House at a later date. And the House introduces the amendment. Could that happen? And if it would, would it then have to come back to the Senate for adjudication that they added the amendment and the Senate didn't? I don't know that they would actually do it because at that point they know the Senate's rejected it. So, you know, usually when you go to conference, it just might not be on the table anymore.

Starting point is 01:27:26 You might see it introduced, but then when it goes to the House, the next step is that it's going to the president. They've worked out a lot of that in conference. Okay, I got you. My final question for you guys or highlight that you guys can put out there, it seems like the buyer bill is really kind of the big talking point, the thing to really focus on out there that's going to happen in the future. Are there any professional congressional staffers that people that are listening to this should reach out to or representatives themselves? that they should reach out to to try to influence and try to educate or how can a person who's listening to this who has an extensive amount of knowledge of the power that this is going to bring have an impact. How can they do something? What would be your recommendation?

Starting point is 01:28:12 And if there are names of people that can be contacted or influenced or whatever, what would you guys, what would be your recommendation? I actually penned a piece with a friend, Amanda Cavalary for Bitcoin Magazine about this that I ultimately think. that this is sort of a new era moving into where we've got 40 plus million people that have some exposure to Bitcoin in this country. And I think Bitcoin related activism, single-issue voters that are passionate about Bitcoin and the hope it brings for a lot of people are going to get involved and they should stay involved. Obviously, this was a galvanizing force over this infrastructure bill, but there will be many other skirmishes and discussions along the way. We're not going

Starting point is 01:28:52 to get to a $10 trillion or $50 trillion market cap on Bitcoin, unless, we engage with these policymakers on a regular basis and let them know that Bitcoin matters and they shouldn't just push us to the kids table. We're going to increasingly be a force. And I would say, when it regardless of where you're at, you could be in a blue state or a red state in the United States, even locally, you should be having this dialogue, making sure policymakers are informed that they understand how important this is, that they gain awareness of how the technology works.

Starting point is 01:29:23 And all it can be sometimes is just a simple call with your Congress. I can call with your senator say, you know, Bitcoin matters to me. You know, have you thought about, you know, Bitcoin legislation that could be positive? Have you thought about reforming how Bitcoin is taxed? These issues require a consistent dialogue and not just a one-off where we're out of the woods here and it's not going to be a problem anymore. I would say definitely think about reaching out to like blockchain association and Coin Center and the associations that are working on this legislation as a good first step. And they've actually gathered 100 organizations together to help support this initiative of trying to get this one particular thing changed. That's really remarkable.

Starting point is 01:30:04 I'll probably kill me for saying it, but Landon's an really good friend of mine. And I think, and has been amazing since 2016. So he started out as a staffer for Congressman Tom Emmer, was there at the birth of the Congressional Blockchain Caucus. I remember when he was so excited when he first bought Ethereum, he's really done a masterful job of understanding this space. understanding the technology. And he actually moved over to the Senate Banking Committee. So if you approach Senate banking and you have ideas, there probably isn't a lot that goes out about cryptocurrency simply because it's such a niche subject. But Landon would be an excellent resource. And is someone we have to thank a lot. I remember talking to him a few years ago when we first met and his vision

Starting point is 01:30:45 of how he tried to want to bring clarity so this industry could flourish. He didn't want to see it happen in other countries. Chris Land is also good. He used to work with Caitlin Long in Wyoming, and he's the rep for Senator Lummis, and he's also who's created what's called the Innovation Caucus, financial innovation caucus. So caucuses are these clubs, are great ways to come. And, you know, you can do show and tell. They have different topics. You can look at it on their website. I think they want to discuss things like, you know, the use of Bitcoin mining is one of the subjects. I want to talk about like central bank digital currency. So there's lots of those caucuses.

Starting point is 01:31:20 And by the way, and I do this for Bitcoins all the time and I'm doing it for somebody tomorrow. Anytime like for free, I'm happy to help anyone. Just if you reach out to me, happy to give you some pointers and guides as if you're trying to figure out what to say or how to do things. And hopefully we can create a resource for Bitcoins everywhere with not feeling intimidated by the process. I always encourage people.

Starting point is 01:31:42 It's, you know, a democratic country. You don't have to know everything about D.C. Don't be afraid of it. If you have an idea and you want it done, it could be your local town. It could be your state. It could be Washington, D.C. You can still walk in there and give your idea, your paying citizen. All right, gentlemen, this has been just so enjoyable for me.

Starting point is 01:32:02 We have got to do this on a quarterly basis where we just re-cage and talk about everything that's changed and is about to happen. If you guys are willing to do that, I would love to have you back to do that. That'd be awesome. and Joe, in that order, give people a handoff to maybe your Twitter account or where people can learn more about you or anything that you guys want to highlight. I'm at Joe Carlosari. Really easy one.

Starting point is 01:32:26 It's my name. Hard last name, but if you search for at Joe Carlosari, you'll find me on Twitter. You can also find me on my firm's website at Smith-Ombinson LLC. And I'm at Jason underscore VTF. VTF is for Value Technology Foundation. It's a nonprofit 501c3 that actually does education on this subject for some of the agencies and the government, not a lobbying organization, but definitely helping with education and always looking for thought leaders to help build out the space. Gentlemen, thank you so much for making time. I'll have links to all of that in the show notes.

Starting point is 01:33:03 And yeah, I look forward to doing this again. Absolutely. Thanks, Preston. Thanks. Hey, so thanks for everybody listening to the show. if you enjoyed the conversation, be sure to subscribe to the show on whatever podcast app you're using. We really appreciate that. And if you have time, leave us a review. So thanks for joining us this week and we'll catch you next Wednesday. Thank you for listening to TIP. To access our show

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We Study Billionaires - The Investor’s Podcast Network - BTC038: Bitcoin Legislature, Regulation, & Legal w/ Joe Carlasare and Jason Brett (Bitcoin Podcast)

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