People who are already criminals and they're engaged with so like a good example of
that is the SEC had a lot of meetings with SBF and yeah, he
does belong in jail. So if that's your reference frame for CEOs, then
of course, if the only people you're talking to are criminals, you think
everybody is a criminal. The other group of people is trad fi skeptics who
quite frankly hate blockchain right because they don't have a problem talking to the SEC.
They do want to destroy the space, And so where you end up
there is an SEC that can't get good information, can't talk to constructive actors,
and can't really find a way to operate because they themselves poisoned. Well.
So when I saw those comments from Gary to me, that is just
a statement of how the pathway chosen by the SEC and their policies has been
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Welcome to the Thinking Crypto Podcast. I'm your host Tony Edward and with
me today is Austin Campbell, who's the founder and managing partner at Zero Knowledge
Consulting and an adjunct professor at Columbia Business School. Austin. Great to have
you on, Thank you, Tony. Happy to be here again, Austin.
Lots of talk about whatever at Dell Day. In crypto and of course
on the legislation regulation law side, there's a ton of things happening. Let's
start with the SEC's partial approval of the etheromyts. This looks like it's going
all the way. A lot of people are expecting an approval maybe in early
July, but part of leading up to that was the SEC dropping their investigation
against Etheroreum and consensus. It's a mess. Genser refuses to even say before
the Senate or Congress that if etherrem is a commodity or not, what are
your thoughts on all these things? Yeah, So I wouldn't read too much
into the closing of that investigation because at the closure they basically said that the
staff recommended not proceeding with any sort of enforcement actions at the current point in
time. So one of the things to remember is that investigation being closed does
not mean permanently eth is off the hook for all reasons forever, like if
other actions are taken, if things change, if they change their mind on
theories, it could be reopened. I would say the bigger point on that
one that makes it harder to backtrack, or at least backtrack significantly, is
the ETF approvals. Right if you have live ETFs on ethereum trading with investors
in those Given that part of the SEC's mission is investor protection, they're going
to need to proceed a little bit more carefully because spiking the football on current
investors and their own decision making process is a lot more egg on their face
than just closing an investigation and then opening it again a year later. Do
you think the approval of the ethfs was maybe fifty percent political pressure Donald Trump
and even the Democrats turning on Gainser and Elizabeth Warren, and also the threat
of lawsuits. Grayscale was able to defeat the SEC over the big twin ETF.
I can't imagine what Blackrocket Fidelity would have done to the SEC. Yeah,
I mean to be honest, like, when you're looking these sorts of
things from the outside, the usual answer is it's likely a mix of all
of these things, and in kind of nonlinear ways, certainly political pressure plays
at least some part in what's going on, Because the SEC's actions towards crypto
have been pretty nakedly political. If we're being honest, there are other things
they could have and probably should have been focused on, even within the crypto
space, as opposed to what they were much less in other spaces. So
I come from the position that some of their work is clearly political in the
first place. The second part, though, on the lawsuit part, and
this is important, you already lost on the bitcoin ETFs, and some federal
judges said some pretty harsh things with regard to the SEC, calling them arbitrary
and capricious and questioning their exercise of authority. If after that happens, you
essentially give the double middle finger to some federal judges and do the exact same
thing on the exact same fact pattern again that when you're starting to sail into
very dangerous territory as a regulator, that's how you end up getting sagtioned,
as they did in the debt box case. That's how you end up having
Scotus take a look at you and be like, ah, maybe we shouldn't
be giving these guys deference, like litigate everything they don't get essentially even one
degree of deference from the courts and so on and so forth. That could
make the SEC's life really hard. And I'm sure there are staff who looked
at that. We're probably recommending we should probably just approve these because if we
don't and we get sued and we lose spectacularly, there's a huge amount of
doubts. Oh yeah, And there's so many eyeballs on this now because of
that political aspect. You know, they've made this political. It's not just
the industry looking at it, it's members of Congress and other folks in other
industries looking at this like what is the SEC doing here? So they've kind
of put the spotlight on themselves, and I'm kind of curious, why do
you think they launched some sort of investigation in the first place. They approved
the Etheroreum futures last year and they engaged with the filers, but then all
of a sudden, we're launching an investigation into who what's the point of that?
So that's the hard part about federal investigations. A lot of the times
when they start them, they're not going to tell you why, and to
be fair, nor should that, because if somebody had done something actually criminal,
you don't want to tip them off as to what you're looking for to
give them avenues to try to do things like destroy evidence or high facts,
you know, all of those sorts of things. But the fact that they
closed it and haven't really given a complete accounting means, to be honest,
we'll just never know, and it could be anywhere from this was nakedly political.
They were looking for ways state or fear with things if they could have
gotten away with it, to something much more specific and granular, like we
think this one person made false statements and manipulated the market or something like that.
So there are many layers to that, and from the outside, I
would say, we really don't know right now, and I would caution people
like on that front, I would be patient, do you think and this
could be or this may change as a result of against her being gone,
a new president potentially in place that the SEC may come back years later and
say, you know what, we got it wrong with regards to the theorem.
We're going to follow another law suit to your point earlier. It kind
of leaves a door open date they could do that. I mean, this
is one of the problems of federal regulatory authorities and agency deference in general.
Right, Like anybody who thinks that this is a problem unique to crypto has
not been paying attention to administrative law written large right Like this happens with the
banking regulators, this happens with the FTC, this happens with some of the
environmental agencies. Like these sorts of issues that we have where an agency will
have one political party in charge and make one opinion, and then another political
party in charge and change its mind produces a lot of inconsistency for American companies
and consumers in general, and I would say that problem, essentially, what
you've raised here is much larger than just the SEC. Now. This week,
sure Gencer was interviewed by Bloomberg and made some pretty scathing remarks about crypto
CEOs. They're all going to jail and all kinds of things. I mean,
it's pathetic. What are your thoughts on what do you have to say?
I would say in many ways, that to me is more revealing of
Gensler and how bad the SEC's relationship with the industry is than the industry itself,
because if you look at the history of the SEC, they had told
people earlier on, come in and talk to us, and as a result
of that, we'll listen to you and try to make rules. And what
they actually did was come in and talk to us and will immediately start an
investigation into you with the facts you gave us to try to fight with you.
Almost every single competent lawyer that I know who works with crypto companies,
advises their clients, no matter how clean they are, never ever ever talk
to the SEC. Voluntarily, make them show up with speanut, meet them
in court. Do not disclose anything you do not have to. They are
bad people trying to build a case against you. There is no productive pathway.
That is the pretty generic legal advice people are getting. And what this
means is that the SEC can only talk to two kinds of people now.
One people who are already criminals and they're engaged with so like a good example
of that is the SEC had a lot of meetings with SBF and yeah,
he does belong in jail. So if that's your reference frame for CEOs,
then of course, if the only people you're talking to are criminals, you
think everybody is a criminal. The other group of people is trad fise skeptics
who quite frankly hate blockchain right because they don't have a problem talking to the
SEC. They do want to destroy the space. And so where you end
up there is an SEC can't get good information, can't talk to constructive actors,
and can't really find a way to operate because they themselves poisoned the well.
So when I saw those comments from Gary, to me, that is
just a statement of how the pathway chosen by the SEC and their policies has
been incredibly destructive really to everybody. The SEC. Yeah, and you know,
it's kind of ironic that the SEC reports that we heard was trying to
work some special broker deal license deal with SBF and FTX where they would have
had I think some sort of monopoly monopoly, excuse me, And yet they
didn't do their due diligence. SBF was scamming people and doing all kinds of
fraud, right, And then I saw, you know, Chair Patrick McHenry
had threatened Gary against and the SEC for not handing over the communications, and
so I don't think they have yet, but he threatened a subpoena subpoenas I
think it is to get that information that has seemed to fall on the wayside.
But I wish someone would fallow up on that, you know, we
would see what was taking place between SBF and Gensler. So one thing I
would say is I'm always a little bit skeptical of any idea of like,
oh they're going to hand him a monopoly to a specific company or things like
that. A lot of that probably leaves the realm of there was a kernel
of truth, and you know, gets into sort of crypto Twitter's favorite thing
to do, which is conspiracy theories. With that said, clearly they were
talking to SBF, and they were taking him seriously. Now that does represent
probably at least some degree of poor judgment if you were primarily talking to him
the other part, I would say, I'm like Congress and the House and
activities around that is, I would wait until after the election. I would
expect if the Republicans win, there may be significantly more investigations with way more
muscle behind them into the sec. People always ask the House, why haven't
you done more? And the answer is, well, the entity that should
really be investigating this is the DJAG and that is currently controlled by the Biden
administration. So let's wait and see what happens this year and come back to
that point. That's a great point. I didn't think of that that they
would have, like you said, more political muscles to go after Againstter and
do more investigations because right now it's probably gonna get blocked by Gainster's Democrat friends
pretty much. Now, speaking of Democrats and Republicans, Crypto has become this
political force. I mean, it's amazing. There's like there's complete one to
eighty. A few months back, many Democrats joining their Republican colleagues across the
al to pass the FIT twenty one bill. Out of the House repeal SAB
one to one in the House and the Senate. What are your thoughts on
this? And is it because of Donald Trump's stance? All right, so
this is a complicated topic, so I'm going to try to answerain pieces so
we can discuss each one. Let's start with SAB one twenty So that's staff
accounting bulletin one twenty one that came from the SEC. And it is a
ruling, to simplify this for the audience, that basically bans regulated American companies
from doing crypto customing. It's not an explicit ban, but what it does
is makes it both uneconomic and likely damaging to the consumer to do it the
way they've said to do it, so you can think of it as a
de facto ban on the thing. Right. As a result, a lot
of people do not like and do not think that rule is like well founded,
and both the House and the Senate voted to repeal it. The important
thing to remember is that the House vote went through with twenty ish Democrats involved,
and they were largely the people who have been skeptics of the Biden administration
stance on crypto to begin with. So it's people like the Richie torres Is,
the Wiley Nichols of the world, who have been some of the most
informed people of in Congress on this issue, have thus been willing to buff
the administration because they understand the implications of what is happening. However, I
would not take a lot of information from the Democrats who it in favor of
the repeal from the Senate, and the reason for that is that they already
knew it was going to be vetoed and that there were not enough votes to
override the veto when that vote happened. That makes it very easy for somebody
like John Tester and Montana who's been an arch cryptoskeptic for a long time to
pander to the industry by voting to repeal. And I put voting in air
quotes there because he knows there's no way it's actually getting refuted. So in
many ways, I would advise people, if you're trying to understand the stance
of people on crypto, just completely ignore the SAB one twenty one vote in
the Senate. It had no informational value because the outcome was predetermined. Now
fit twenty one is a little bit different of an animal lobbing something over with
seventy plus Democratic votes to the Senate is more of a statement that seems to
me like the younger members of the House, because again, if you look
at who voted for it, like, it's not one to one, but
there's strong correlation between Democrats not struggling with email and understanding technology and voting for
Fit twenty one right, Whereas if you look at the people who are against
it, they are largely geriatric, and so that many people defecting and voting
for that and sending it to the Senate is a clear signal that Democrats are
starting to break with the administration on this topic. What that means to me
is exactly what you said, which is that crypto entering into the political sphere
is starting to have an impact on how it is treated. And I'm going
to go two different directions on that and response to your question, so we'll
get to Trump last, because that's where everybody wants to talk and what we
generate headlines. So let's do the crypto like stance. First. Two things
that I would tell people to keep an eye on are fair Shake, who
has been spending a lot of money in races, especially primaries right now in
order to help pro crypto candidates win. So example of their influence was they
put a couple million dollars into the race where Jamal Bowman, who was one
of the loudest but least informed Crypto skeptics, was just bounced and Latimer beat
him in the primary. Now, Bowman was a bad candidate to begin with,
there were other problems with him, but getting piled on by Crypto really
doesn't help, and people are taking note, well, if I oppose this,
especially in an uninformed way, I'm going to have a lot of problems.
Two, you have Stand with Crypto, and what Stand with Crypto is
doing is getting people to sign up, give out their phone numbers, give
out their location information, so that as elections come around, they are going
to get prodded to go vote on the basis of the Crypto stances of candidates.
I would tell you in many ways, Stand with Crypto could genuinely impact
the election, both for many of the House seats, for some of the
Senate seats, and for the presidency. Because if you've already got a million
plus people signed up and they are high in ten voters, and you get
them to the polls and they vote on the basis of crypto. There are
states where House elections are like tens to hundreds to thousands of votes, and
you know states in the presidential election that are ten thousand is votes. So
stand with crypto could literally swing the election. I would not want to be
on the wrong side of them right now from a crypto perspective. All right,
So that's the ground game stuff. Last part. Anytime Donald Trump says
anything repeatedly, it becomes a relevant political talking point, and that's just because
of how pressurized the political scene is. So Trump embracing crypto forces the Democrats
to respond. And one of the things Trump has been good at this time
around on a couple of issues is finding a position where sixty plus percent of
Americans agree with him and then embracing it loudly and strongly. And what that
does is it forces the Democrats to either change their position or fight him from
weak ground. Right, So ignoring Trump the person that's strong political tactics.
You want to get on the right side of an issue and put your opponent
on the wrong foot. So I think the Biden administration's antipathy to crypto opened
that door. Had they just been neutral, that wouldn't have really been possible.
But by being arn't skeptics, they kind of handed the momentum to Trumpet
boy as he seized it. Do you think, though, I know it's
not so much Biden, but it's Elizabeth Warren who has power of the financial
markets a bit. She's the one driving a lot of this. I don't
think it's just Elizabeth Warren like that. Again, that's sort of the classic
oversimplification of things. So Warren is definitely a cryptos skeptic. We all know
that there are other crypto skeptics out there, though, like Sharon Brown has
not historically been a friend of crypto. John Tester, all Senate banking people,
like on the d side, they're powerful right now, excuse me.
There are some people in the house, like the Brad Sherman's of the world
have been very anti crypto for a long time, and in the administration you
have some people who are pretty skeptical on the economic side. It's not just
Elizabeth work right, and so many of the people in that orbit who are
call it kind of like pro mercantilism, pro state control. They are naturally
opponents of crypto because crypto quite frankly reduces the power of the government to explicitly
control things at many places, and so I think it's a more complicated coalition
than just Elizabeth Warren. But I think it would be fair to say that
the Biden administration written large has been pretty crypt like cryptoskeptical over time, though
knock on wood. One hopes they're maybe changing that view. Like Carroll House
just rejoined, you know, the government, and I think she's a more
positive influence than many of the people currently there. So I'm hoping that elevates
the level of discourse and that they add more people like her. Yeah,
absolutely saw that note as well as our LinkedIn posts. Now we're recording is
on Thursday, June twenty seventh. We got the presidential debate tonight. The
first we were talking a bit about it before the recording that we potentially expect
crypto to be brought up as a topic. If not, Donald Trump may
try to bring it up. Yeah. I mean, again back to what
I just said, it is good political tactics to get on the right side
of that issue. If you look at support for crypto in the United States,
groups that support crypto disproportionate compared to their call it. Current political affiliation
include young people who are tech savvy or bank skeptical, and minorities who tend
to be very bank skeptical because, to be totally honest, they've been historically
treated pretty poorly by some of the financial industry as a result of that.
If you're a Republican looking to flip marginal voters, BOYD, wouldn't it be
great to have an issue you're on the right side of where people under the
age of forty five and minorities are like, yeah, I like what he's
saying. So I would suspect, you know, as politics goes, either
there will be a question about crypto and the debate, or if there's not,
and you're a savvy politician, you find a way to wedget in there
during one of your answers to another question, just to plant the flag.
So I would say my expectation is if Trump does well in the debate,
one of the things he will have done is found a way to introduce crypto
in one of the answers that he has in the debate. Now, I
want to move ahead to there's been some fud around tether USDT Consumer First campaign.
I believe that is the name of the agency or whatever it is,
launch some sort of campaign here against tether. What are you hearing and seeing
about this? And I'm very curious who might be funding this? Yeah,
So one, unraveling political funding is always a difficult thing. But if you
think about who those kinds of campaigns are funded by, in general, there's
usually a coalition of two types of people, right, which is, one
is moralists with an axe to grind, So a lot of times it's people
who just don't like somebody for personal reasons or have had negative experiences with them,
And two is hedge funds shorting things. Right, So, if you
look at like some of the thud around banks and where some of that apparently
came from during some of the collapses, like research from hedge funds who are
short often drives the start of some of these campaigns. And by the way,
that's not to say it's true, and that's not to say it's false.
That's just to say these are the kinds of people you often uncover when
you could really look under the rock, what is the substance of the claims
here? I would kind of rank it into like three different sort of sets
of things. Claim Number one, which I am just going to say I
am highly skeptical of, is that Tether is somehow a Ponzi scheme and does
not have any of the money. That just seems unlikely. I've seeing fun
flows in and out of Tether right through market makers and things like that,
and the many billions of dollars. The idea that they have like none of
the money and are just paying this out as a literal Ponzi scheme is highly
implausible, especially in a world where just by holding treasuries you make five percent
on your holdings. And reminder, Tether does not pay interest to owners of
tethers, So that means if you've got one hundred billion of tether just by
holding tea bills, you're making five billion dollars a year to do nothing.
Right, that's a pretty good business if you can get it. So I
think the fud around that is unlikely. And if it is true, then
that implies that the CEO of Cantor Fitzgerald is like on TV committing fraud.
Yeah, because he claims to have seen their books and like trades their stuff.
But it's just implausible, Like, is Tether perfect? Are they penny
for penny in all circumstances with no volatility. I have doubts about that.
But do they have the super majority of the money in a way that's at
least somewhat sane. I think that's nothing is ever certain, but I think
it's close to certain. Yeah, my gut instincts were telling me that given
the market pullback, someone was shorting here. And because I've seen stuff like
this over the years. I've been here since twenty sixteen, and these headlines
pop up at the most opportunistic times, right when the market is maybe at
a weak point. You're looking at the charts and it's like, wait a
minute, why weren't you saying this? You know, when it was pumping,
Well, no one would pay attention, it wouldn't have any impact.
And then you know, these guys come out and say these things, but
they don't show any proof. It's usually just a headline, sensationalized and so
forth. I was gonna say so to that end. Also, if you're
a truly serious person, you're not like renting a truck to drive this thing
around in Times Square Like that's ridiculous. What you're doing is taking your private
findings to the Department of Justice or some of the regulators, right and handing
it to the missile with sir of course. So this to me is like,
what do you guys do? Yeah, I was gonna say, but
let's address the other sort of types of their complaints here, I would say
number two, And this one I think is like at least semi plausible or
you know, potentially at least partially true. Is that Teather is like facilitating
for bad actors throughout the world. That is to say, funding like terrorists,
funding like money laundering, you know, like purchases of fechnyl precursors,
you know, things of that sort. Now I would tell you, do
I think tether is like going to these people and soliciting their business. I
find the odds of that, whow not zero? Nothing is ever zero?
But WHOA. Now, do I think they have insufficient controls or maybe turn
a blind eye to some bad activity? That's much more likely, right,
That is the kind of thing that typically happens when you look at large money
flows across the globe. And by the way, that's also been true of
banks like go read about the money laundering issues at like abn Amro or City
Bank, or HSBC like similar story. This would not be unique to tether,
which is why I look at that and go, well, there's at
least some plausibility because there's a pretty good track record from tradfi of this kind
of exact bad behavior. Right, And then I think case number three is
this sort of like market manipulation of bitcoin prices, and I think to be
totally blunt. That rests on a misunderstanding of how money works. Like the
idea that people put money into tether to buy bitcoin and that's somehow illegitimate.
Is like saying people put money into their bank to go buy food and that's
somehow illegitimate. Like the way our system works is you give cash to somebody,
it gets transformed into a deposit, then use that deposit for electronic payments.
Like if your stance is doing that is somehow blowing a bubble. Then
let me tell you, don't start with teather, go talk about fractional reserve
banking in general, which is why I say I think that to be one
is just kind of a misunderstanding of modern monetary systems. Absolutely well, put,
yeah, I'm going to try to see if you can get these people
from consumer first on. I don't know if they'll be willing to talk to
me, but I'll try to get them, I think. I honestly,
I think it would be a worthwhile endeavor to get people like that on because
when you really put the questions to them, either they're going to have granular
answers about what they think is going on that they can back up, or
they're going to be revealed to kind of be like, you know, the
same sort of hype merchants that quite frankly we see do a lot of pumping
in the crypto space. This is just the opposite of that, trying to
get something to tell. Yeah. Absolutely, And when I saw that billboard
in Times Gray, I'm like, what the hell is this? Ninety percent
of people walking by they don't have a clue what the hell Teather is.
And it's just like to your point, if you had actual evidence, you
would go to the authorities. I would remind people that prior to that Tether
billboard, probably the most famous billboard from crypto was the terrorform Labs billboard for
the Washington Nationals. So hysterical comments on billboards about crypto doesn't usually put you
in very serious company. Maybe that's like like some sort of omen or somebody
like you know, if I want to take somebody down, I'll put them
on a billboard somewhere I know. Okay, So listen. I know of
hedge funds who track giant buildings for corporate headquarters and purchasing stadium naming rights as
indicators they use to consider underweighting or shorting things. Right, there are people
who literally do that. Yeah, all right, final item here, and
this news broke this morning, and that is the coinbase new lawsuit against the
SEC and the FDIC regarding for your requests into details of Operation Choke point two
point zero crypto being debanked and so forth, what are your thoughts on that?
Okay, So this is another one we got to look at a couple
of anglers from one earlier in our conversation. You mentioned Chair McHenry and his
efforts to get information from the SEC and how he had been so far largely
unsuccessful. So the stonewalling by the SEC is part of a pattern of conduct
where they have tried to not show their work in a bunch of different crypto
cases. And I would say, I personally feel this is a matter of
significant like public importance and that I am totally in favor of people pressing this
point from a foyer perspective, which for those who don't know, that's the
Freedom of Information Act that basically tells you, as Americans, you have a
right to certain kinds of deliberation. For government agencies, they can't just like
hide in a broom closet and do everything and come out and be like it's
magic, right, Like, they kind of have to show their work.
And when we've seen the SEC's work, such as with the Big point ETFs
or with what happened in the Debt Box case, where I will remind people
they lied to a federal judge, We're sanctioned for it, attorneys resigned,
and the Salt Lake office for the SEC was closed. It hasn't been pretty.
So I am very much in favor of transparency because that solves a lot
of ills in government when they have to be honest and show their work to
everybody. Two. You referenced Operation Choke point two point oh, and so
one Choke point one point oh was back under the Obama administration, and what
the banking regulators were doing was basically cutting off access for industries to banking,
not by explicitly banning it, but by going to the banks and essentially engaging
in the mafia style behavior of ah, you know, I see you're doing
X y Z. It'd be terrible if something happened to your charter because these
see very high risk sort of jaw boating, which is not always explicit consequences,
but rather it would be like if you banked the firearms industry, or
maybe the cannabis industry, or maybe other high risk industries, in this case,
the crypto industry, they would come in and start turning over every single
rock they could in your bank to find any wrongdoing and then bring the hammer
down on you excessively for that while quite frankly ignoring the same conduct at your
peers. So what it does is creates a massive paperwork burden and legal liability
issue for companies that were banking crypto. So this is what choke point two
point zero was alleged. I would tell you there's pretty good evidence that some
amount of this is going on. Any bank that banks Crypto. Has been
getting excessive scrutiny from the FDIC, the Federal Reserve, the OCC and those
regulators jointly published a letter basically saying we don't think like public blockchains comport with
safe and sound activities in the Federal Register in twenty twenty three. So the
question here is how much of that is going on, why, and what
are the motivations? That is, again, why you need a Foyer request
and you want to see what people have been saying, or you know,
a fact pattern of not writing any of it down and only saying it in
verbal conversations itself would be very very interesting from this front. So again,
in the context of just revealing the information I'm largely on the side of coinbase
here. Now. I think sort of the leading point that you were trying
to get to is what's going to happen with this? Am I right about
that? Yeah? Okay, So in the United States, when you have
this sort of dispute about a Foyer request where the government is trying to say,
no, this isn't valid, we don't have to respond, and private
persons are saying, actually, yeah, you do have to respond, there's
a forum where you go to get these things resolved, and that is court.
So that's why a lawsuit has been filed. A judge will look at
these things and start ruling on what do they have to disclos what do they
not have to disclose? And by the way, are you the right parties
to even be important like do you have a standing? Are we in the
right place? And a lot of those, to be honest, will go
in the favor of the government, a lot of them will go in the
favor of the people sort of requesting information. And many of them will also
be split decisions where a judge will say, well, you do have to
say X, y Z, but you don't have to reveal abs. So
this could go any number of ways, but I think it's a very important
effort to press the point to try to learn everything we can about what's been
going Yeah, absolutely, because we do have some breadcrumbs already, given things
that the different agencies have done reporting by different folks, So you can get
a bit more, you know, to add to the puzzle here to another
piece. It could pretty much, you know, help paint a clearer picture
of what's been going on and the agenda by debund and administration led by Elizabeth
Warren and these folks. Yeah, I mean, without you know, revealing
personal sources. I have heard from several people that the FDIC informally communicated things
like percentage limits on deposits or extreme heightened scrutiny on clients with regard to any
crypto banking activities. I think of the three federal banking regulators, they are
probably the most skeptical, and potentially inappropriately so. They were also the nexus
of choke point in one point zero. On the other hand, you know,
to sort of give credit where credit is due. I think the OCC
has been struggling with the issue, but Mike Sue, who's the acting Comptroller,
has come out and started to become positive on tokenization. I think he's
still skeptical on public blockchains, but to be totally honest, I think the
OCC probably has not been presented with some of the best in class compliance programs
and isn't fully up to speed on what's possible in that space. I am
hopeful that as they learn more, they will get significantly more positive, because
I'll make the provocative statement the public block chains are a far better tool for
finding financial crime than traditional banks, where the system is much more opaque and
fragmented. Lastly, nobody should ever accuse the Federal Reserve of having one opinion
about anything. It is many regional banks staffed by very smart economists, and
if you get three economists in a room and ask them a question, you
typically get at least five opinions. So just be aware. The Federal Reserve
is literally the opposite of a monolith. There are very cryptoskeptical people in the
Federal Reserve. They are very pro crypto people in the Federal Reserve, and
they're probably having a big debate about what they really think and buy weall question
on public blockchains. I think it was black Rocks Cio, if I'm not
mistaken. He made a statement that they tested private blockchains, but they found
public blockchains are way better, and they of course tokenized on etherorem recently.
How much weight does that carry in politics, given that you have the world's
wealthiest asset manager doing this and they're very much, I say, waist deep
in crypto now, I mean, it's definitely important, and I think it
speaks again zooming out from crypto to one of the things that we've sort of
been struggling with in a post Dot Frank work, which is this banks like
centralized, closed, looped platforms where they largely have control of things. Asset
managers would prefer that things be significantly more open source, and that banks don't
get to act as middlemen or kind of toll gates on a lot of these
activities because they find often they charge excessive spreads or fees and quite frankly,
don't deliver a lot of value. So I have said elsewhere that I think
private blockchains, especially those narrowly held, are basically a bridge to nowhere,
right because if JP Morgan runs on X or Goldman runs there on internal blockchain,
or city runs their own internal blockchain. As somebody who's been a chief
risk officer at a company, I would say, one, if I'm another
financial company, boy, do I not want to use that thing? Because
they control it. They can change the rules anytime they want, and they'll
screw me if something goes wrong. And two, from a regulatory perspective,
I probably shouldn't like that because now I'm taking these too big to fail banks
and making them too bigger to fail by giving them control of other critical pieces
of infrastructure. On the other hand, as we talk about quote unquote public
blockchains, one of the things I challenge crypto people about is what do you
mean by public? Because let me propose a thought experiment. If we took
the top call it five hundred financial entities in the world, right, so
that will include bank's, asset managers, payments, companies, and they all
jointly maintained a blockchain for financial transactions. Is that decentralized and is that public?
Because I tell you, in some ways that's probably more decentralized than a
lot of blockchain applications because although there are fewer nodes in theory, many of
the nodes have diverging interests in greater individual strength, So your governance in some
ways might even be more stable. And on the other hand, is that
public Well, in a literal sense, probably no. But on the other
hand, if it's the five hundred largest firms of the world, that's probably
most people on the globe who could still access this thing. So I would
tell people decentralization is not binary. There's a continuum. And one of the
things I think we're going to have to grapple with as an industry in crypto
is over time, especially for more regulated financial products, it can't just be
complete DJM permissionless or centrally held bank things as are only two options, because
quite frankly, neither of those work. Austin I want to ask you a
question, but I don't want to sound like a conspiracy theorist. But I
do understand how the world works, and that is if I'm an incumbent and
there's disruptors at my door, and I've had my tentacles in every part of
the government and working with the Federal Reserve to control currency, and I'm the
largest bank in the world. I'm JP Morgan, and these folks are coming
to steal my lunch, right, They're going to take money out of my
pocket, take away control that I've had for a long time. I've had
politicians I donated to for years. I'm friends with people of the Treasury and
so forth. There's a revolving door with Wall Street and the government many times.
And am I making the phone call to have these cryptos startups slow down
or file lawsuits against them to kill them. And then on the inside,
I'm building ONYX. So I think the problem that you run into with that
is some element of that is definitely happening. That's how political lobbying works in
all industries. And by the way, if you think that's unique to crypto,
again, suit out. This is happening everywhere. However, there's two
problems with that theory. One, you cannot really in the United States.
I'm going to call it by power explicitly, which is to say, you
still have to actually win the election and have your stance be popular. And
one of the few things that's about is unpopular. As most politicians, it's
banks, so they do face a demographic problem over time. Of the politicians
who support those stances, like say Jamal Bowman, are likely to be voted
out over time by people who just don't like that. So at some point
you're going to have to win the battle of public opinion in the United States
to carry that stance in the long run. So can you throw some sand
in the gears and slow things down? Sure? But can you stop the
gears from turning? No? Two? Okay, congratulations, you did that
in the United States. JP Morgen. You've jammed public blockchains and you've had
the regulators be hysterical and block all kinds of things. But as it turns
out, if that view is not shared by the rest of the world,
what you may have actually done is killed yourself, because what will happen is
the custodians will be the offshore bags. The people who are serving the crypto
natives will be the offshore payments firms and bags like market makers. And what
you will find is that if this technology continues to advance, that actually,
now you're really behind the eight ball, because five years, ten years forward,
your competitors have a ton of reps, trust, with customer market understanding,
and you have done none of that by essentially trying to stand in the
way of progress. What I would tell you is that if you want a
model of where that happened, that is Europe. With regard to the original
tech boom and social media. They made a bunch of regulations that favored their
incumbents. And so as a result, let me ask this question, how
many of the largest tech companies in the world are based in Europe? And
by the way, who now controls tech in Europe? A bunch of Americans
and Asian company? Right, And so you can stand in front of the
train of progress and shout stop, But history would tell you that just means
you're gonna get run over by a train. So you're absolutely right, But
is it more of slowed them down so that hey, our R and D
can build onyx and jpm coin and try to catch them doesn't mean they're going
to be successful. There's no guarantee. But or for example, sue Coinbase,
uh, Sue Gray's gill whatever block their ETF, but all of a
sudden black Rock comes in and gets it. Well, I would I would
say ironically one of the biggest winners of the ETF fiasco has been coinbase.
So this is kind of the point I'm making, Like, because sab one
one was probagated to block crypto custody by regulated institutions, who does the super
majority of crypto custody huh coin Base? Right, So again, these things
tend to backfire on you because I think in front of progress just doesn't work.
And I'm sure that many people at BAGS would like to slow down the
crypto people to build things themselves. But let me tell you what is the
history of large entrenched incumbents innovating in major ways versus startups. It's pretty bad.
Now. That's not to say it never happens. There have been large
companies that have generated like world changing, you know products, see for instance,
Apple with the iPhone after they were already a major computer manufacturer. But
those are often the exceptions that prove the rule. Right, Like, how
many social media companies that are now giants came out of regular old media companies.
So yeah, I do think, Toty, you're right. They're going
to try, and also I think they're going to fail because they're just not
good at those things. Awesome, great stuff. Man, all is a
pleasure chatting with you. Appreciate your knowledge and insights. Thank you so much.
Yeah, great to see you again. Thank you. Task post to
post the task