Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,
Speaker 1: and this is Bloomberg Crypto, a daily Bloomberg I heard podcast.
Speaker 1: It's Friday, August five. With every additional bankruptcy filing or
Speaker 1: accusation of insider trading and crypto regulators seem to turn
Speaker 1: up the heat ever so slightly when it comes to
Speaker 1: their focus on the digital assets industry. But who's planning
Speaker 1: on doing the regulating and what would that even look like?
Speaker 1: More importantly, what does it mean that the regulators themselves
Speaker 1: don't entirely seem to agree joining me to bring us
Speaker 1: up to speed on what's happening these days with US
Speaker 1: crypto regulation. We have to Bloomberg reportes Alison verse Bro
Speaker 1: in d C. So the CFTC has argued, we feel
Speaker 1: like we have the expertise to do this, and Alex
Speaker 1: newin the current regulation framework in the US is a
Speaker 1: patchwork and it's inadequate. Welcome and thank you both so
Speaker 1: much for being here. Alison, you're in d C. You are,
Speaker 1: you know, dialing in from the studio that we have
Speaker 1: there in the office, and as a result, you have
Speaker 1: probably more real time access to what's going on as
Speaker 1: it relates to legislators on the hill, as it relates
Speaker 1: to how regulators are thinking about things. So I'm going
Speaker 1: to start with you. We've seen the collapse of an
Speaker 1: algorithmic stable coin. We have seen prices of assets across
Speaker 1: the board being quite far from their old time highs.
Speaker 1: We have seen multiple enforcement actions including the SEC, the
Speaker 1: d o J, other regulators, and other entities of the U. S.
Speaker 1: Government accusing people of everything from insider trading to wire fraud.
Speaker 1: Is this environment one that you think is adding some
Speaker 1: urgency to the activity that you're seeing there? I think
Speaker 1: it is, and in certain places, right I think, Um,
Speaker 1: you know, you mentioned the collapse of of Terra, so
Speaker 1: that obviously added some urgency around the stable coin discussions.
Speaker 1: And we do see those, um, you know, starting to
Speaker 1: go somewhere, at least trying to go somewhere. Of whenever
Speaker 1: you're talking about legislation in the US, it's quite difficult
Speaker 1: to get that done on a bar partisan basis, um.
Speaker 1: But basically, you know, we've seen Treasury actually getting involved, um,
Speaker 1: in particular with a bill that's being worked out on
Speaker 1: the House side between a Chairwoman Maxine Waters and ranking
Speaker 1: Member Patrick McHenry on the House Financial Services Committee. UM,
Speaker 1: so we know that they've been trying to work out
Speaker 1: a deal. We know that they're getting pretty close, um,
Speaker 1: that there are still some hang ups. So that's definitely
Speaker 1: a place where we could potentially see action and maybe
Speaker 1: even by the end of the year though mid terms
Speaker 1: are coming up in November and we know that Congress
Speaker 1: kind of gets a little side checked, um anytime that
Speaker 1: we have an election year, So we'll see what happens there. UM,
Speaker 1: I'd say another area, definitely, you know, we're seeing a
Speaker 1: lot of enforcement. UM. In particular, we've seen some actions
Speaker 1: or we saw an action over the last last month
Speaker 1: on an insider trading case at the SEC. Broad we
Speaker 1: also know that the SEC it has an active probe
Speaker 1: into coin Based, the largest US exchange, and it's whether
Speaker 1: it's offering you know, unregistered securities on its platform. The
Speaker 1: SEC looking into coin based, it raises the question of
Speaker 1: defining what is the security, what is the commodity? Who
Speaker 1: has control over what? I mean? How far away are
Speaker 1: we really from getting those answers? But we can expect
Speaker 1: I think some of that to pick up as well. UM.
Speaker 1: And then the last thing I would say is we've
Speaker 1: definitely seen sort of a growing um effort on Capitol
Speaker 1: Hill to you know, give the Commodity Futures Trading Commission
Speaker 1: more authority to regulate cryptocurrency directly. So basically, right now
Speaker 1: it has most a jurisdiction over crypto derivatives. But you know,
Speaker 1: if there are some folks I think certain coins like bitcoin,
Speaker 1: ether are commodities and that they should be directly regulated
Speaker 1: by the CFTC. We've started to see some lawmakers um
Speaker 1: supporting that effort. You know, I think it remains to
Speaker 1: be seen whether or not you could get enough lawmakers
Speaker 1: on board to actually pass something in the House and Senate.
Speaker 1: But you know, another one to watch um at the
Speaker 1: end of this year and into next year. So just
Speaker 1: to unpack that for the folks who aren't necessarily paying
Speaker 1: attention to the minute of which US regulators involved in crypto,
Speaker 1: there's there's almost like factions might be too strong a word,
Speaker 1: but there are definitely different perspectives and approaches here, right So,
Speaker 1: as you've identified, on the one hand, we have the
Speaker 1: U S Securities and Exchange Commission in the SEC which
Speaker 1: typically does not get involved in anything that looks like
Speaker 1: a commodity, which, for argument's sake, let's say Bitcoin and
Speaker 1: ether are considered to be. But then over on the
Speaker 1: other side, you have somebody which literally has commodities in
Speaker 1: the name, um, the CFTC, which is like, hey, we're
Speaker 1: here and we're very interested in doing these things. Now.
Speaker 1: One of the things that we've talked a lot about
Speaker 1: on this podcast is that everything else in crypto that's
Speaker 1: not Bitcoin, that's not ether, seems to be up for
Speaker 1: grabs over whether it is defined as a security or
Speaker 1: if it's just defined as a commodity. Is that a
Speaker 1: fair assessment of the of the fight right now? I
Speaker 1: would say that's a fair assessment, And I think, you know,
Speaker 1: we definitely see the crypto industry kind of pushing for
Speaker 1: for the CFTC to be its main regulator. Um. You know,
Speaker 1: I have heard a few reasons why. Um, the industry
Speaker 1: will say that they feel like the CFTC is more
Speaker 1: open to working with them, and that they feel like
Speaker 1: their assets truly our commodities, um, and thus that regulator
Speaker 1: is a better one for them, whereas maybe more cynical
Speaker 1: folks would say, I would say that the CFCC has
Speaker 1: you know, less stringent investor protection standards, and you know,
Speaker 1: there's some thought that they may be a little bit
Speaker 1: of an easier regulator than the SEC, though I will
Speaker 1: note UM Chair Rosten Venom of the of the CFTC
Speaker 1: has pushed back against that aggressively. UM you know, always
Speaker 1: points to their enforcement record. You know, they have brought
Speaker 1: dozens of enforcement cases UM over the last several years,
Speaker 1: and so he's continued to say that the CFTC is
Speaker 1: aggressive of the c CFTC will continue to go after
Speaker 1: fraud and manipulation in this area. You know, there's there's definitely, uh,
Speaker 1: some debate as to as to why the industry would
Speaker 1: be pushing for the CFTC, but it's definitely something that
Speaker 1: we're seeing right now. And Alex you have written about
Speaker 1: exactly that that Allison is describing this idea of the
Speaker 1: CFTC saying, hey, no, we're here, We're serious, We're ready
Speaker 1: for this. Can you talk a little bit more about that.
Speaker 1: The SEC has seemed to have taken a more aggressive
Speaker 1: effort when it comes to enforcement actions, but the CFTC
Speaker 1: chair have also recently signaled that the agency is also
Speaker 1: going to ram up it's UM enforcement actions as well.
Speaker 1: Pointing out that the current regulation framework in the US
Speaker 1: is a patchwork and it's inadequate in terms of UM
Speaker 1: regulating the industry. And he has also said that they
Speaker 1: will creatively use their authority in this field to do
Speaker 1: so without really naming exactly what that would look like. Yes,
Speaker 1: the thing that various people in crypto seem to be
Speaker 1: clamoring for is the C word, which is clarity. You
Speaker 1: you hear this a lot. They're like, we just want
Speaker 1: to know what rules we have to follow, as um
Speaker 1: Allison said earlier, more cynical folks might argue they want
Speaker 1: to know what those rules are so they can immediately
Speaker 1: higher lawyers who can help them not have those rules
Speaker 1: applies to them. But there definitely does seem to be
Speaker 1: a very strong and explicit desire for at least some boundaries,
Speaker 1: guardrails whom I regulate. Is what those things are? As
Speaker 1: you know, Alex has pointed out the cfc C is saying, Hey,
Speaker 1: we're here where we want to be able to do this,
Speaker 1: What in your experience would that look like? And how
Speaker 1: might that be different from what the SEC is proposing.
Speaker 1: That's one of the arguments that they make. But I
Speaker 1: do know that. The CFTC also has pointed out that
Speaker 1: if it were to get more authority and more jurisdiction,
Speaker 1: that it would need additional resources. I think an important
Speaker 1: important point to make is that the CFTC is a
Speaker 1: much smaller agency than the SEC, which some say is
Speaker 1: an argument for why the SEC maybe should take this
Speaker 1: over just because it has more resources, that has more money,
Speaker 1: it has more staff. UM. So the CFTC has argued,
Speaker 1: you know, we feel like we have the expertise to
Speaker 1: do this, but yes, we do need Congress to give
Speaker 1: us more money. UM. There's been talk of maybe, you know,
Speaker 1: imposing some sort of user fee um like exists in
Speaker 1: other industries to help pay for for some of this
Speaker 1: extra work. So, you know, we'll have to see how
Speaker 1: that all shakes out in terms of the you know,
Speaker 1: the money, resources questions that would all have to get
Speaker 1: approved by legislatives. Is that correct? That is correct? Um?
Speaker 1: And like I said, some of the bills that we've
Speaker 1: seen out there, such as the UM you know, there
Speaker 1: was a bill from Senators Lammis and Jilla Brand and
Speaker 1: that would have had some sort of user fee as
Speaker 1: like the funding mechanism for this extra power. So I know,
Speaker 1: that's been something that's been pretty popular in terms of
Speaker 1: legislative proposals. But we'll have to see, you know, if
Speaker 1: that's ultimately um, what ends up happening. Coming up, we'll
Speaker 1: have more from Allison Verse, Brol and Alex Newin. One
Speaker 1: thing we haven't talked about is what if everybody just
Speaker 1: got along. They're like, we're all going to regulate crypto
Speaker 1: and it's gonna be great, and we're going to combine
Speaker 1: forces and we'll have twice as much ability to you know,
Speaker 1: keep everyone in line. Like, what is the vibe, as
Speaker 1: it were, that you're getting from folks that you've spoken
Speaker 1: to the agencies? You know, the agencies always say, um,
Speaker 1: that they that they worked together. And I think the staffs.
Speaker 1: You know, if I talk to folks at these agencies,
Speaker 1: they say the staff in particular the career staff. You know,
Speaker 1: they've worked together for years on these types of issues. UM.
Speaker 1: I do think more recently, you know, the SEC brought
Speaker 1: an insider trading case. Uh. In that case, it chose
Speaker 1: to identify nine tokens as securities. If they were found
Speaker 1: to have traded securities, then the company may well have
Speaker 1: to file register with the SEC. As in exchange, and
Speaker 1: I know that that created some frustration at the CFTC.
Speaker 1: According to the sources that I talked to, they've been
Speaker 1: conducting sort of a parallel investigation. There was a lot
Speaker 1: of thought that maybe some of the tokens that were
Speaker 1: identified by the SEC um could have actually been commodities.
Speaker 1: And so you know, there's a feeling of being a
Speaker 1: little bit bigfooted with that with that case. Um, So
Speaker 1: I think that has created maybe some attention, and yes,
Speaker 1: has exacerbated the tensions. And you know, there's been some
Speaker 1: thought amongst staff. From one of the people that I
Speaker 1: talked to, they said, the staff are concerned that are
Speaker 1: they now going to have to go to the SEC
Speaker 1: every time they want to carry out an enforcement action?
Speaker 1: Do they need SEC approval? Um? You know, given sort
Speaker 1: of this jurisdiction grabs. So we'll have to see how
Speaker 1: that continues to kind of, you know, play itself out
Speaker 1: in the coming months. Um if that causes maybe more
Speaker 1: of a rift than we've seen before. Interesting. So it
Speaker 1: sounds like, you know, in addition to folks in the
Speaker 1: industry saying they want clarity, and I'll give a specific example.
Speaker 1: So right after this enforcement action, these allegations against the
Speaker 1: former employee of coin base, as well as against coin
Speaker 1: Base itself came to light. UM their chief legal officer
Speaker 1: like went on Twitter and in a blog post to say,
Speaker 1: you know, we have no securities on our platform. We
Speaker 1: have an extensive review process that prevents there from being
Speaker 1: securities in the pros platform. We've engaged with the SEC previously.
Speaker 1: So you're definitely getting the impression that people do want clarity,
Speaker 1: they want more communication, but they would much prefer that
Speaker 1: that clarity being a direction that works better for them. Yes,
Speaker 1: I think yeah, going back to the cynical view. Um.
Speaker 1: You know, we had that a Bloomberg Crypto summit of
Speaker 1: pretty recently and at that summit, SEC chair former SEC
Speaker 1: chair Jay Clayton made a comment when he said, you know,
Speaker 1: the industry, when they talk about wanting regulatory clarity, what
Speaker 1: they really want is de regulation and to be treated,
Speaker 1: you know, differently than every other market. One of the
Speaker 1: things that I think is important about regulation of digital
Speaker 1: assets is to look at the etymology the genesis of
Speaker 1: digital assets. They came about in a different way from
Speaker 1: most financial innovations. Most financial innovations are domestic and institutional.
Speaker 1: Digital assets our global and largely retail that has presented
Speaker 1: a regulatory challenge that we really haven't encountered before, which
Speaker 1: is trying to have global coordination UM across a new
Speaker 1: type of asset class at the retail level. So I
Speaker 1: think if you think about it that way, you understand
Speaker 1: why there's some challenges. So, you know, I I do
Speaker 1: think though to the industry's point, you know, we haven't
Speaker 1: really seen a ton of real rags or guidance in
Speaker 1: this area. UM. I think in part because you know,
Speaker 1: I've talked to folks that agencies where you know, this
Speaker 1: is an emergency, emerging area. It takes a little while
Speaker 1: for people to get educated on this stuff. And I
Speaker 1: think you're actually starting to see more movement of late
Speaker 1: because government agencies has had to have had some time
Speaker 1: now to understand crypto a little bit more. Alex, just
Speaker 1: as a closing question, I want to ask you about
Speaker 1: an agency that doesn't often come up in crypto, which
Speaker 1: is the fd I C. You wrote a story recently
Speaker 1: about the fd i S the Federal Deposit Insurance Court,
Speaker 1: which exists to help customers of banks be protected in
Speaker 1: the event that something happens to that bank. But they
Speaker 1: had to wait into a crypto situation. What was that? Yes,
Speaker 1: So recently the fd i C and I believe the
Speaker 1: Federal Reserve UM demanded Voyager is a now bankrupt crypto platform.
Speaker 1: Voyager announced that they suspended UM deposited trading withdraws and
Speaker 1: now they filed for a Chapter UM eleven bankruptcy productions
Speaker 1: to clarify to their customers that the fd i C
Speaker 1: doesn't ensure products issued by Voyager, and I think they
Speaker 1: wanted the platforms to correct any misleading statements around that. So, Allison,
Speaker 1: you know hearing things like this for the ft i C,
Speaker 1: which really center around this idea of customer confusion. We
Speaker 1: have customers being confused, we have crypto companies being confused,
Speaker 1: we have regulators being confused. What hope is there for
Speaker 1: clarity anytime soon? You know? I think we could see
Speaker 1: some clarity around the edges on some of this stuff. Right.
Speaker 1: So with the f d i C, they approved regulations
Speaker 1: in May clarifying that, you know, the agency's procedures for
Speaker 1: taking action against firms and people who make misleading claims
Speaker 1: about deposit insurance, you know, essentially saying that you can't
Speaker 1: do this, UM, we will come after you if you do.
Speaker 1: And so I think we could see agencies putting out
Speaker 1: little actions like this all around the perimeter that sort
Speaker 1: of help investors and help clarify the rules in terms
Speaker 1: of big action. You know. Again, I'll say that I
Speaker 1: think the the stable coin effort, it's for sure one
Speaker 1: of the most likely to the most likely to pass
Speaker 1: in the near term. I say that with hesitancy because
Speaker 1: whenever you're talking about legislation on Capitol Hill, um, it's
Speaker 1: always kind of like take the timing with a grain assault,
Speaker 1: you know, you always have to use as soon as
Speaker 1: because things just they change pretty fast. Um. But we have,
Speaker 1: like I said, I mean, it seems like the big
Speaker 1: hang up with stable quail legislation right now is over
Speaker 1: a provision regarding custodial wallets, and essentially Democrats and the Treasury,
Speaker 1: which has been working with lawmakers, want a provision in
Speaker 1: there that would protect customers in cases where intermediaries uh
Speaker 1: go insolvent um. And so this would separate assets that
Speaker 1: they keep in custodial wallets from the proprietary assets of
Speaker 1: these crypto firms and maybe have some protections to prevent
Speaker 1: you know, situations like we've seen with some of these bankruptcies,
Speaker 1: and so the big hang up there is they want
Speaker 1: a federal requirement and I was told by sources that
Speaker 1: Republicans are looking for that to be set at the
Speaker 1: state level, and so you know that's one of the
Speaker 1: hang ups. But if it's something that they can overcome
Speaker 1: by September, which is their their next goal for considering
Speaker 1: this legislation, then you know, I think, uh, it's looking
Speaker 1: more likely that we get something by the end of
Speaker 1: the year. Well, as you said, we'll see and if
Speaker 1: it's and if it does happen, we'll report on it,
Speaker 1: and if it doesn't happen, we'll probably have to report
Speaker 1: on that too. So that is how it works. So
Speaker 1: thank you so much, Alison, and thank you so much
Speaker 1: Alex for joining us today. You can find more of
Speaker 1: both Allison and Alex's work on the Bloomberg Terminal on
Speaker 1: Bloomberg dot com and on Twitter. Allison is at ali
Speaker 1: very Sprill that's a L L y V E R
Speaker 1: s p r I L l E, and Alex is
Speaker 1: at Alex nwin eleven. That's a L E x N
Speaker 1: g U y E N two three one one. On
Speaker 1: the next episode, of Bloomberg Crypto. I used to argue
Speaker 1: you could divide folks into two categories, people who play
Speaker 1: video games and people who don't. Gaming is bigger in
Speaker 1: revenue terms worldwide than the film and television industries combined.
Speaker 1: It's also a complex universe that's currently dealing with hard
Speaker 1: and necessary conversations over who benefits from that profitability, over
Speaker 1: things like labor conditions, and of course about intellectual property.
Speaker 1: And then you add blockchain and n f t s
Speaker 1: into the mix and things get even more complicated. In
Speaker 1: the next episode, you'll hear from Bloomberg reportos Cecilia donastells
Speaker 1: you for a discussion of why and how crypto is
Speaker 1: showing up in video games. This is Bloomberg Crypto, a
Speaker 1: daily podcast from Bloomberg and I Heart Radio. For more
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Speaker 1: Apple Podcasts, or wherever you get your podcasts. Send us
Speaker 1: your comments, questions, or suggestions for the show to Crypto
Speaker 1: at Bloomberg dot net or find us on Twitter. We're
Speaker 1: at Crypto. The supervising producer of Bloomberg Crypto is Vicky
Speaker 1: ver Galina. Our senior producer is Janet Babin. Our producer
Speaker 1: is Sharon Burriro, Associate producer is Moses and um Dasta
Speaker 1: wonder At is our engineer. Original music by Leo Sidrn.
Speaker 1: I'm Stacy, Marie, Ishmael. Have a great weekend.