1 00:00:03,520 --> 00:00:06,480 Speaker 1: This is Bloomberg Crypto and Daily Bloomberg I HUD Podcast, 2 00:00:06,640 --> 00:00:09,360 Speaker 1: and I'm Mike Reagan ins today for Stacy Marie Ishmol. 3 00:00:09,640 --> 00:00:27,360 Speaker 1: It's Tuesday, January one. The bankruptcy of crypto Exchange ft 4 00:00:27,640 --> 00:00:30,120 Speaker 1: X and the arrest of its former CEO, Sam Bakman 5 00:00:30,160 --> 00:00:33,400 Speaker 1: Freed have obviously had a lasting effect on the digital 6 00:00:33,440 --> 00:00:37,479 Speaker 1: assets sector, but it's also made an indelible impact on 7 00:00:37,520 --> 00:00:41,479 Speaker 1: the politicians and policymakers who are supposed to regulate the industry. 8 00:00:42,280 --> 00:00:44,760 Speaker 1: There already was a fire lit under some lawmakers when 9 00:00:44,760 --> 00:00:48,440 Speaker 1: it comes to imposing regulations on crypto. Last year, President 10 00:00:48,440 --> 00:00:51,960 Speaker 1: Biden issued an executive order asking agencies to take coordinated 11 00:00:52,000 --> 00:00:55,760 Speaker 1: action on digital assets, and in the summer, Senators Cynthia 12 00:00:55,960 --> 00:00:59,760 Speaker 1: Lummis and Kristen Gillibrand issued a bipartisan crypto bill that, 13 00:01:00,000 --> 00:01:03,160 Speaker 1: among other things, would step up oversight on stable coins 14 00:01:03,680 --> 00:01:06,800 Speaker 1: and crypto energy usage. And then there is the ongoing 15 00:01:06,840 --> 00:01:09,759 Speaker 1: debate between the Securities and Exchange Commission and the Commodities 16 00:01:09,800 --> 00:01:13,880 Speaker 1: Futures Trading Commission over whether cryptocurrencies should be regulated as 17 00:01:13,880 --> 00:01:18,480 Speaker 1: securities were commodities. But with an ongoing wave of crypto 18 00:01:18,520 --> 00:01:21,640 Speaker 1: bankruptcies linked to fd X, government officials are confronted with 19 00:01:21,720 --> 00:01:25,600 Speaker 1: a new sense of urgency surrounding digital asset regulation. Here 20 00:01:25,600 --> 00:01:28,840 Speaker 1: to talk about this are Bloomberg reporters Ali Verspiel and 21 00:01:29,040 --> 00:01:41,679 Speaker 1: Lydia Bayoud Ali, Lydia welcome. So Ali, uh, now that 22 00:01:41,959 --> 00:01:45,399 Speaker 1: one of the largest crypto exchanges has collapsed? Has that 23 00:01:45,600 --> 00:01:50,360 Speaker 1: changed the debate on regulation? What's changed in the conversations 24 00:01:50,400 --> 00:01:54,040 Speaker 1: among regulators after FDx? You know, so, I'll say that 25 00:01:54,080 --> 00:01:57,800 Speaker 1: there's definitely a lot more urgency and the conversations that 26 00:01:57,880 --> 00:02:01,720 Speaker 1: we're hearing both at regulator d's groups like the Financial 27 00:02:01,760 --> 00:02:05,920 Speaker 1: Stability Oversight Council, which is led by Treasury, um at 28 00:02:06,400 --> 00:02:09,200 Speaker 1: you know, the lawmaker level, you're definitely seeing a lot 29 00:02:09,240 --> 00:02:13,320 Speaker 1: more skepticism and you know, talks about trying to, you know, 30 00:02:13,560 --> 00:02:16,640 Speaker 1: maybe put some new rules in place. UM. For instance, 31 00:02:16,960 --> 00:02:20,280 Speaker 1: Senator Shared Brown, who's the chairman of the Senate Banking Committee, 32 00:02:20,840 --> 00:02:23,240 Speaker 1: you know, he recently sent a letter to Treasury Secretary 33 00:02:23,320 --> 00:02:25,239 Speaker 1: Janet Yellen saying, you know, we'd like to work with 34 00:02:25,280 --> 00:02:29,240 Speaker 1: the agencies to put out crypto oversight framework of some sort. 35 00:02:29,760 --> 00:02:32,440 Speaker 1: You know, so you're definitely seeing those conversations happen. UM. 36 00:02:32,480 --> 00:02:34,280 Speaker 1: You know, to some extent, we were seeing a little 37 00:02:34,280 --> 00:02:37,359 Speaker 1: bit of the conversation into last year. You know, there 38 00:02:37,480 --> 00:02:40,760 Speaker 1: was some turmoil before FTX, and obviously f t X 39 00:02:40,840 --> 00:02:43,640 Speaker 1: was a huge event though, and so you know, there 40 00:02:43,680 --> 00:02:49,279 Speaker 1: have been talks ongoing about regulating stable coins and potentially 41 00:02:49,720 --> 00:02:53,079 Speaker 1: you know, offering broader rules as well. I think now 42 00:02:53,080 --> 00:02:55,880 Speaker 1: we're going to see a lot of focus on things 43 00:02:55,919 --> 00:02:59,840 Speaker 1: like fraud, things like protecting customer assets. Um so it'll 44 00:02:59,880 --> 00:03:02,680 Speaker 1: be interesting to see how that plays outgoing forward, and 45 00:03:02,880 --> 00:03:05,360 Speaker 1: just out on the CFTC side, there's also been i 46 00:03:05,400 --> 00:03:08,200 Speaker 1: think more interest using again f t X as this 47 00:03:08,400 --> 00:03:11,400 Speaker 1: kind of Markie example of what can go wrong. The 48 00:03:11,440 --> 00:03:14,320 Speaker 1: CFTC is also interested interested as you know, Congress is 49 00:03:14,360 --> 00:03:17,760 Speaker 1: considering ways to change UH and bring more more direct 50 00:03:17,800 --> 00:03:22,760 Speaker 1: regulation of these exchanges into being. You know, they have testified, 51 00:03:22,800 --> 00:03:25,960 Speaker 1: the chairs testified and other commissioners there have testified that 52 00:03:26,320 --> 00:03:28,320 Speaker 1: they're really limited in their ability to kind of like 53 00:03:28,480 --> 00:03:30,959 Speaker 1: look through, you know, if there's a U S entity 54 00:03:31,080 --> 00:03:33,880 Speaker 1: like FTX actually had a drivers exchange that was regulated 55 00:03:33,880 --> 00:03:35,720 Speaker 1: here with it by the CFTC, but they weren't able 56 00:03:35,760 --> 00:03:38,200 Speaker 1: to look through to the international exchange and kind of 57 00:03:38,200 --> 00:03:42,440 Speaker 1: see that there's this constellation of subsidiaries and sister companies, 58 00:03:42,520 --> 00:03:44,640 Speaker 1: and they they're not able to kind of find out 59 00:03:44,640 --> 00:03:48,040 Speaker 1: all the corporate governance stuff, you know, barring having a 60 00:03:48,040 --> 00:03:51,119 Speaker 1: whistleblower tip or some reason to bring any sort of 61 00:03:51,280 --> 00:03:54,760 Speaker 1: investigation or enforcement action. And you know, they've flagged that 62 00:03:54,760 --> 00:03:58,360 Speaker 1: that's potentially an issue for this very specific market. And uh, 63 00:03:58,400 --> 00:04:01,120 Speaker 1: there were some recent speeches where commisions have asked Congress to, 64 00:04:01,200 --> 00:04:03,560 Speaker 1: you know, consider that fact as they're trying to perhaps 65 00:04:03,640 --> 00:04:06,160 Speaker 1: address some of the lessons learned from f t x 66 00:04:06,320 --> 00:04:12,200 Speaker 1: s and other companies collapse this past year, Lydia, how 67 00:04:12,200 --> 00:04:15,400 Speaker 1: about from the CFTC, and is there any new sense 68 00:04:15,440 --> 00:04:18,400 Speaker 1: of urgency, any new priorities do you think? Yeah? So, 69 00:04:18,440 --> 00:04:20,880 Speaker 1: I think what was notable in the sort of immediate 70 00:04:20,920 --> 00:04:22,960 Speaker 1: fallout of f t x is bankruptcy is that the 71 00:04:23,040 --> 00:04:25,200 Speaker 1: chair of the CFTC had to come before the Senate 72 00:04:25,560 --> 00:04:28,200 Speaker 1: Ad Committee, which is a committee where he had actually 73 00:04:28,240 --> 00:04:31,440 Speaker 1: been a senior staffer at one point, and testify about 74 00:04:31,480 --> 00:04:35,479 Speaker 1: their oversight of kind of a smaller player within the 75 00:04:35,520 --> 00:04:38,480 Speaker 1: f t X universe that had been seeking to do 76 00:04:38,680 --> 00:04:45,080 Speaker 1: an interesting derivatives trading operation with with cryptocurrency and had 77 00:04:45,120 --> 00:04:48,200 Speaker 1: that had never progressed, but also f t X was 78 00:04:48,320 --> 00:04:50,640 Speaker 1: kind of in many ways seen as aligned with the 79 00:04:50,680 --> 00:04:53,160 Speaker 1: CFTC and was helping push legislation that would have given 80 00:04:53,200 --> 00:04:55,719 Speaker 1: it a lot more authority in a way that other 81 00:04:55,760 --> 00:04:58,919 Speaker 1: players in the crypto community thought might also be beneficial 82 00:04:58,960 --> 00:05:01,479 Speaker 1: to them. Said that happened, and it was kind of 83 00:05:01,520 --> 00:05:06,360 Speaker 1: noticeable that the SEC didn't have so much scrutiny from 84 00:05:06,360 --> 00:05:08,120 Speaker 1: the Hill and in terms of getting kind of hauled 85 00:05:08,200 --> 00:05:11,479 Speaker 1: up there to to testify. So since then, I think 86 00:05:11,520 --> 00:05:13,560 Speaker 1: that the CFTC has been very keen to make the 87 00:05:13,600 --> 00:05:15,839 Speaker 1: case that, you know, we can be a strong regulator 88 00:05:15,839 --> 00:05:18,960 Speaker 1: in the space and sort of trying to dismantle this 89 00:05:19,000 --> 00:05:21,240 Speaker 1: perception that they were really closely aligned with Sambing and 90 00:05:21,279 --> 00:05:22,960 Speaker 1: Freed and f t X, And it's also given more 91 00:05:22,960 --> 00:05:25,719 Speaker 1: immunition to the SEC to say, like, hey, we should 92 00:05:26,040 --> 00:05:28,320 Speaker 1: we should be a strong regulator in this space. You know. 93 00:05:28,520 --> 00:05:31,560 Speaker 1: It's interesting to me because in the early years of crypto, 94 00:05:31,880 --> 00:05:36,000 Speaker 1: it seemed almost like the SEC and the CFTC, at 95 00:05:36,040 --> 00:05:37,960 Speaker 1: least the appearance was neither one of them wanted to 96 00:05:38,000 --> 00:05:39,720 Speaker 1: go near it. They didn't think it was their problem. 97 00:05:39,800 --> 00:05:42,920 Speaker 1: But now they're both on the case that you get 98 00:05:42,960 --> 00:05:45,599 Speaker 1: the impression Lydia that going forward they will continue to 99 00:05:45,600 --> 00:05:49,080 Speaker 1: sort of double team the space, that there won't be 100 00:05:49,279 --> 00:05:53,040 Speaker 1: you know, one more aggressive than the other. Well. Ali 101 00:05:53,200 --> 00:05:55,839 Speaker 1: touched on the letter, the letter from Senator around to 102 00:05:56,080 --> 00:05:58,520 Speaker 1: the Treasury Department asking for a hole of government approach 103 00:05:58,560 --> 00:06:00,760 Speaker 1: to regulate the space. And so I think that the 104 00:06:00,800 --> 00:06:03,719 Speaker 1: regulators at least publicly are coalescing behind that notion that like, 105 00:06:03,760 --> 00:06:06,320 Speaker 1: we can all play a role here. But I think 106 00:06:06,360 --> 00:06:10,520 Speaker 1: that the SEC ultimately because they're trying to claim so 107 00:06:10,640 --> 00:06:13,560 Speaker 1: much jurisdiction, and I think with ft X really falling apart, 108 00:06:14,120 --> 00:06:16,839 Speaker 1: there are some jurisdictional issues on the Hill where some 109 00:06:16,960 --> 00:06:20,200 Speaker 1: of the banking committees want to be sure that they 110 00:06:20,480 --> 00:06:22,960 Speaker 1: have kind of direct oversight of the regulator that itself 111 00:06:23,000 --> 00:06:25,320 Speaker 1: would have oversight of the community. And so there's still 112 00:06:25,320 --> 00:06:29,200 Speaker 1: some jurisdictional battles to play out. And you know, it's 113 00:06:29,240 --> 00:06:31,560 Speaker 1: not just ft X these days. We've obviously had this 114 00:06:31,680 --> 00:06:37,920 Speaker 1: fallout with these crypto high savings program offered by Gemini. 115 00:06:38,560 --> 00:06:42,560 Speaker 1: In turn, Gemini turned over customer assets to Genesis to 116 00:06:42,680 --> 00:06:46,120 Speaker 1: invest Ali has that created a new focus at all 117 00:06:46,160 --> 00:06:48,920 Speaker 1: for regulators? Do you think these sort of high yield 118 00:06:48,960 --> 00:06:51,520 Speaker 1: savings and loan programs that go on in crypto. Is 119 00:06:51,520 --> 00:06:54,080 Speaker 1: is that a priority now? Do you believe? So? You 120 00:06:54,080 --> 00:06:57,080 Speaker 1: know what's interesting is that's actually been a priority for 121 00:06:57,680 --> 00:07:00,160 Speaker 1: probably at least a year now. Um. You know, we 122 00:07:00,200 --> 00:07:03,840 Speaker 1: had a Bloomberg story actually last January that talked about 123 00:07:04,279 --> 00:07:06,919 Speaker 1: you know, some of these what you call crypto lenders 124 00:07:06,960 --> 00:07:10,560 Speaker 1: being under scrutiny at the SEC, and so it's been 125 00:07:10,600 --> 00:07:12,600 Speaker 1: sort of a long time priority. You know, you're now 126 00:07:12,640 --> 00:07:14,880 Speaker 1: seeing a lot of those cases come out. You mentioned 127 00:07:15,240 --> 00:07:18,680 Speaker 1: Gemini Genesis. We also recently had an enforcement action against 128 00:07:18,680 --> 00:07:22,480 Speaker 1: Nexo block By. There was an enforcement action earlier last year, 129 00:07:23,200 --> 00:07:25,640 Speaker 1: and so it's definitely a focus. I think one of 130 00:07:25,680 --> 00:07:28,440 Speaker 1: the criticisms you see now from a lot of folks is, 131 00:07:29,040 --> 00:07:31,240 Speaker 1: you know, why did it take so long for these 132 00:07:31,800 --> 00:07:34,680 Speaker 1: you know, enforcement actions to come um, and why did 133 00:07:34,680 --> 00:07:38,760 Speaker 1: it take potentially hundreds of millions of dollars two billions 134 00:07:38,760 --> 00:07:43,080 Speaker 1: of dollars of investor losses before we saw any action? 135 00:07:43,800 --> 00:07:45,880 Speaker 1: And so I think that's going to be kind of 136 00:07:45,920 --> 00:07:49,240 Speaker 1: an interesting thread to watch going forward. Um. You know, 137 00:07:49,280 --> 00:07:53,000 Speaker 1: I am expecting the SEC to bring more cases this year. 138 00:07:53,040 --> 00:07:55,160 Speaker 1: You know, all the indications that I think both Lydia 139 00:07:55,240 --> 00:07:57,080 Speaker 1: and I are getting or that it's going to be 140 00:07:57,120 --> 00:08:00,240 Speaker 1: a pretty active year on enforcement, So you know, we'll 141 00:08:00,240 --> 00:08:01,600 Speaker 1: have to see how that plays out. But yes, I 142 00:08:01,680 --> 00:08:05,800 Speaker 1: think that definitely has been a priority. But it also 143 00:08:05,840 --> 00:08:08,520 Speaker 1: brings up the question. You know, some of these outfits 144 00:08:08,640 --> 00:08:13,720 Speaker 1: are taking deposits, paying out interest on them, and making loans. 145 00:08:14,280 --> 00:08:17,640 Speaker 1: They sound an awful lot like crypto banks. Is there 146 00:08:17,880 --> 00:08:20,240 Speaker 1: a role for banking regulators here too, or are they 147 00:08:20,280 --> 00:08:23,440 Speaker 1: getting in on the action here among regulators? You know, 148 00:08:23,480 --> 00:08:26,000 Speaker 1: it's interesting because I I had talked to people, uh 149 00:08:26,240 --> 00:08:28,280 Speaker 1: kind of making that same point. You know, why why 150 00:08:28,320 --> 00:08:31,120 Speaker 1: isn't this more of a banking product? And it seems like, 151 00:08:31,560 --> 00:08:33,600 Speaker 1: you know, the SEC has really sort of staked its 152 00:08:33,600 --> 00:08:36,520 Speaker 1: claim saying these are actually securities products. I'm not getting, 153 00:08:37,000 --> 00:08:39,600 Speaker 1: you know, any real sense that the banking regulators are 154 00:08:39,640 --> 00:08:45,040 Speaker 1: are necessarily interested in that particular offering. So I think 155 00:08:45,080 --> 00:08:48,280 Speaker 1: we'll continue to see the SEC sort of coming down 156 00:08:48,280 --> 00:08:50,920 Speaker 1: on those. But I will say, I mean, there's not 157 00:08:50,960 --> 00:08:54,480 Speaker 1: really there aren't really many left at this point. Block 158 00:08:54,520 --> 00:08:58,440 Speaker 1: fives and bankruptcy Voyager Celsius. You know, they were victim 159 00:08:58,520 --> 00:09:02,400 Speaker 1: to the crypto turmoil last year. Uh, nexto has has 160 00:09:02,400 --> 00:09:05,199 Speaker 1: said it's not you know, it's exiting. It's us business. 161 00:09:05,840 --> 00:09:08,080 Speaker 1: The coin base at one point wanted to offer these 162 00:09:08,160 --> 00:09:11,000 Speaker 1: kinds of products and you know, the SEC basically told 163 00:09:11,040 --> 00:09:13,720 Speaker 1: them not to and so you know, they never really 164 00:09:13,760 --> 00:09:18,120 Speaker 1: got into that business. So it's uh not, but there's 165 00:09:18,360 --> 00:09:21,560 Speaker 1: there's not there's not much left and I would be 166 00:09:21,679 --> 00:09:25,120 Speaker 1: sort of surprised to see companies starting to get back 167 00:09:25,120 --> 00:09:27,120 Speaker 1: into that as kind of like a new product that 168 00:09:27,160 --> 00:09:29,680 Speaker 1: they want to offer. Yeah, and moving it back from 169 00:09:29,720 --> 00:09:32,080 Speaker 1: crypto lending to just talk about the industry more broadly. 170 00:09:32,120 --> 00:09:35,480 Speaker 1: I think the banking regulators have almost I don't want 171 00:09:35,480 --> 00:09:37,480 Speaker 1: to say, patting themselves on the back, but they've been 172 00:09:37,840 --> 00:09:43,280 Speaker 1: quite pleased. I guess that they haven't discovered, at least 173 00:09:43,280 --> 00:09:46,679 Speaker 1: so far, they haven't discovered really much exposure in the 174 00:09:46,720 --> 00:09:49,840 Speaker 1: main banking system, the traditional banking system to crypto and 175 00:09:49,880 --> 00:09:53,360 Speaker 1: that's kind of been walled off Ali and several other colleagues. 176 00:09:53,360 --> 00:09:57,120 Speaker 1: So it has a really interesting story out recently though, Um, 177 00:09:57,160 --> 00:09:59,920 Speaker 1: if you want to talk about the federal home loan yeah, 178 00:10:00,080 --> 00:10:01,960 Speaker 1: so that you know, this was something that's recently come 179 00:10:02,000 --> 00:10:06,080 Speaker 1: to sort of the spotlight where the federal homelan banks 180 00:10:06,120 --> 00:10:08,880 Speaker 1: which were originally set up to boost sort of mortgage 181 00:10:08,960 --> 00:10:12,040 Speaker 1: lending under President Herbert Hoover. Purpose has sort of shifted 182 00:10:12,040 --> 00:10:15,679 Speaker 1: over the years and now essentially, if you are a 183 00:10:15,720 --> 00:10:18,960 Speaker 1: bank that has the appropriate type of collateral um which 184 00:10:19,000 --> 00:10:22,920 Speaker 1: includes mortgage backed securities, government backed securities, things that you 185 00:10:22,920 --> 00:10:25,199 Speaker 1: can buy in the market, then you're able to put 186 00:10:25,200 --> 00:10:27,280 Speaker 1: that up as collateral and essentially you can get one 187 00:10:27,360 --> 00:10:31,079 Speaker 1: of these loans. And so there were a lot of 188 00:10:31,320 --> 00:10:33,800 Speaker 1: banks that were associated with crypto kind of seen as 189 00:10:33,840 --> 00:10:38,520 Speaker 1: crypto friendly, uh silver Gate for instance, Signature Bank, and 190 00:10:39,040 --> 00:10:41,440 Speaker 1: you know, what recently came came to the flour was 191 00:10:41,480 --> 00:10:45,000 Speaker 1: that they were receiving loans from these federal homelan banks 192 00:10:45,160 --> 00:10:48,320 Speaker 1: and it's raised a lot of new questions about, you know, 193 00:10:48,400 --> 00:10:51,800 Speaker 1: what is really the role of these types of loans. 194 00:10:51,840 --> 00:10:55,200 Speaker 1: Should there be you know, more restrictions in place. Is 195 00:10:55,200 --> 00:10:58,120 Speaker 1: this diverging too much for sort of the initial purpose 196 00:10:58,840 --> 00:11:00,960 Speaker 1: And so that's definitely been and you know, one of 197 00:11:00,960 --> 00:11:03,400 Speaker 1: the things that's come up and kind of shown that 198 00:11:03,520 --> 00:11:06,559 Speaker 1: crypto has seemed a little bit more into the banking 199 00:11:06,600 --> 00:11:11,720 Speaker 1: sector than you know, maybe we originally thought up. Next 200 00:11:11,880 --> 00:11:15,640 Speaker 1: more with Bloomberg reputters Ali Verspiel and Lydia Bayud on 201 00:11:15,720 --> 00:11:19,199 Speaker 1: how the f t X collapse shifted the debate on regulation. 202 00:11:19,400 --> 00:11:31,480 Speaker 1: We'll be right back. One thing I find very interesting 203 00:11:31,520 --> 00:11:35,920 Speaker 1: about this whole topic is that prior to the collapse 204 00:11:35,960 --> 00:11:39,560 Speaker 1: of f t X, UH Sam Bankman Freed himself was 205 00:11:40,040 --> 00:11:44,240 Speaker 1: sort of this very influential character in Washington when it 206 00:11:44,280 --> 00:11:48,960 Speaker 1: came to ideas for crypto regulation. He testified before Congress 207 00:11:49,040 --> 00:11:53,559 Speaker 1: for hours explaining what he thought needed to be regulated. 208 00:11:53,640 --> 00:11:57,120 Speaker 1: And how Lydia, are they just ignoring all that advice 209 00:11:57,760 --> 00:12:01,360 Speaker 1: that that uh SPF is awaiting trial, I mean, or 210 00:12:01,360 --> 00:12:04,040 Speaker 1: were there good ideas there? Do you think that that actually, 211 00:12:04,160 --> 00:12:08,680 Speaker 1: despite what happened, maybe he was right about SPF definitely 212 00:12:08,880 --> 00:12:11,720 Speaker 1: had an influence, but he was just one voice among many. 213 00:12:11,840 --> 00:12:16,080 Speaker 1: And it's interesting because they work, they put themselves out 214 00:12:16,120 --> 00:12:17,959 Speaker 1: there as you know, we're going to do crypto the 215 00:12:18,080 --> 00:12:20,319 Speaker 1: right way, we embrace regulation. It was interesting to see 216 00:12:20,400 --> 00:12:23,760 Speaker 1: some of his remarks UH in the immediate aftermath of 217 00:12:23,800 --> 00:12:27,560 Speaker 1: bankruptcy where he was casting some down on his rosy 218 00:12:27,679 --> 00:12:30,520 Speaker 1: view of regulation. But folks at the CFTC and on 219 00:12:30,520 --> 00:12:33,319 Speaker 1: the Hill have testified, and also I think the SEC, 220 00:12:33,440 --> 00:12:35,320 Speaker 1: but certainly at the CFTC like he was all over 221 00:12:35,360 --> 00:12:38,280 Speaker 1: that agency and they really tried to bend Congress in 222 00:12:38,840 --> 00:12:41,560 Speaker 1: the Hill to sort of their perspective of how to 223 00:12:41,600 --> 00:12:43,440 Speaker 1: regulate the space. But there was also a lot of 224 00:12:43,520 --> 00:12:45,440 Speaker 1: a lot of pushback on it that was also I 225 00:12:45,480 --> 00:12:51,160 Speaker 1: think lawmaker's staff and the regulators were taking that into account. 226 00:12:51,200 --> 00:12:53,560 Speaker 1: I think Ali could probably speak to that somewhat as 227 00:12:53,600 --> 00:12:56,800 Speaker 1: well in terms of, you know, some of the exchanges 228 00:12:56,840 --> 00:12:59,480 Speaker 1: that aren't centralized and what their view was and their 229 00:12:59,520 --> 00:13:01,440 Speaker 1: pushback as well. As you know, there was some pretty 230 00:13:01,840 --> 00:13:06,520 Speaker 1: blockbuster congressional hearings with Terry Duffy taking very negative view 231 00:13:06,760 --> 00:13:09,040 Speaker 1: of what Sam wanted to do in sort of a 232 00:13:09,080 --> 00:13:14,280 Speaker 1: disintermediated derivatives treading for crypto. Well, what do you think, Allie? 233 00:13:14,280 --> 00:13:17,480 Speaker 1: I mean, SPF is such a sort of radioactive name 234 00:13:17,600 --> 00:13:21,040 Speaker 1: right now. Any idea he had back then now considered 235 00:13:21,160 --> 00:13:24,400 Speaker 1: off limits, do you think? So, you know, it's really interesting. 236 00:13:24,440 --> 00:13:27,000 Speaker 1: I mean one of the legislative efforts that he was 237 00:13:27,000 --> 00:13:30,600 Speaker 1: the most vocal supporter of was this bill from the 238 00:13:30,640 --> 00:13:34,800 Speaker 1: Senate ad Committee leaders Debbie Stabina and John Boseman, and 239 00:13:34,920 --> 00:13:38,400 Speaker 1: essentially that was the bill to give the CFTC oversight 240 00:13:38,480 --> 00:13:41,760 Speaker 1: of certain types of tokens that could be considered commodities. 241 00:13:42,200 --> 00:13:46,240 Speaker 1: You know, they specifically named bitcoin and ether, and so 242 00:13:47,160 --> 00:13:51,520 Speaker 1: it's interesting because it's not necessarily just a SAM idea. 243 00:13:51,720 --> 00:13:55,120 Speaker 1: Even the Financial Stability Oversight Council has come out with 244 00:13:55,120 --> 00:13:59,400 Speaker 1: a report saying there's a lack of regulation of tokens 245 00:13:59,440 --> 00:14:03,400 Speaker 1: that are security so bitcoin. It didn't specifically name the 246 00:14:03,400 --> 00:14:05,800 Speaker 1: CFTC as as being the regulator, but you can kind 247 00:14:05,800 --> 00:14:08,720 Speaker 1: of put two and two together because basically right now 248 00:14:08,800 --> 00:14:11,640 Speaker 1: there's no federal overseer of those. It's all regulated at 249 00:14:11,640 --> 00:14:15,120 Speaker 1: the state level. And so that idea, I think there 250 00:14:15,280 --> 00:14:18,599 Speaker 1: is some backing that some sort of gap needs to 251 00:14:18,640 --> 00:14:22,960 Speaker 1: be filled there. But I do think for any legislation 252 00:14:23,040 --> 00:14:26,600 Speaker 1: that SAM was closely involved in or a big supporter of, 253 00:14:27,200 --> 00:14:28,760 Speaker 1: you know, lawmakers are going to have to take a 254 00:14:28,800 --> 00:14:31,640 Speaker 1: second look, make sure that it's as strong as they 255 00:14:31,720 --> 00:14:33,800 Speaker 1: might want it to be, make sure there aren't any 256 00:14:34,000 --> 00:14:36,640 Speaker 1: you know, holes. So I think it's definitely tainted the 257 00:14:36,640 --> 00:14:40,600 Speaker 1: efforts where they stand, But I wouldn't necessarily be surprised 258 00:14:40,640 --> 00:14:43,640 Speaker 1: if we saw policymakers reworking some of that and then 259 00:14:43,680 --> 00:14:45,320 Speaker 1: putting it out, you know, putting it out in sort 260 00:14:45,320 --> 00:14:51,160 Speaker 1: of a slightly different form. Walk us through where they 261 00:14:51,160 --> 00:14:54,640 Speaker 1: do draw that line between what type of crypto is 262 00:14:54,640 --> 00:14:58,720 Speaker 1: considered a security and what's considered a commodity. Yet now, 263 00:14:58,720 --> 00:15:00,920 Speaker 1: I know it's not a hard and fast rule right now, 264 00:15:00,920 --> 00:15:03,720 Speaker 1: but where do they seem to be drawing that distinction. 265 00:15:03,800 --> 00:15:06,400 Speaker 1: Is it as simple as if coin pays a yield 266 00:15:06,920 --> 00:15:09,560 Speaker 1: they considered a security. Is it more complex than that? 267 00:15:10,080 --> 00:15:12,320 Speaker 1: So it's a little more complex. I mean, the distinction 268 00:15:12,400 --> 00:15:15,720 Speaker 1: lies in this Supreme Court ruling, you know, the how 269 00:15:15,760 --> 00:15:18,080 Speaker 1: we test if you will, and it kind of has 270 00:15:18,120 --> 00:15:20,440 Speaker 1: four prongs. You know, there has to be an investment 271 00:15:20,480 --> 00:15:23,680 Speaker 1: of money in a common enterprise with the expectation of 272 00:15:23,720 --> 00:15:27,760 Speaker 1: profiting from the efforts of an organization's leadership. And so 273 00:15:27,880 --> 00:15:31,480 Speaker 1: the SEC will say we think most digital assets fit 274 00:15:31,560 --> 00:15:36,080 Speaker 1: into this this category, whereas crypto firms to often say, well, 275 00:15:36,080 --> 00:15:39,840 Speaker 1: we think our tokens are you know, decentralized where there 276 00:15:39,960 --> 00:15:44,440 Speaker 1: is no kind of central leadership making decisions. And you know, 277 00:15:44,520 --> 00:15:46,560 Speaker 1: that's been one of the big issues at the center 278 00:15:46,760 --> 00:15:50,240 Speaker 1: of the SEC's case against Ripple over its XRP token. 279 00:15:50,840 --> 00:15:54,080 Speaker 1: It's not very clear. So that will be something that 280 00:15:54,200 --> 00:15:56,840 Speaker 1: would be interesting to see if lawmakers decide to weigh 281 00:15:56,880 --> 00:16:01,480 Speaker 1: in on it. It's that securities versus commodity definition is 282 00:16:01,560 --> 00:16:04,120 Speaker 1: kind of like the toughest nut to crack for all 283 00:16:04,160 --> 00:16:07,400 Speaker 1: the policymakers here to kind of move this issue forward 284 00:16:07,440 --> 00:16:09,840 Speaker 1: and sort of designating who gets to regulate what. But 285 00:16:10,200 --> 00:16:12,200 Speaker 1: you know, when we move to the legal venue, I think, 286 00:16:12,320 --> 00:16:14,520 Speaker 1: as far as I can recall um Ali mentioned the 287 00:16:14,600 --> 00:16:16,920 Speaker 1: Ripple case, but so far only bitcoin has like a 288 00:16:16,960 --> 00:16:20,440 Speaker 1: court ruling behind it saying this one's a commodity. Everything 289 00:16:20,440 --> 00:16:22,960 Speaker 1: else still seems kind of up in the air, at 290 00:16:23,000 --> 00:16:24,880 Speaker 1: least in terms of, you know, here is a court 291 00:16:25,000 --> 00:16:28,160 Speaker 1: order making a decision. What is interesting and something to 292 00:16:28,160 --> 00:16:30,840 Speaker 1: watch though, is the SEC brought this case that Ali 293 00:16:30,880 --> 00:16:34,360 Speaker 1: and I covered last year against a an executive at 294 00:16:34,400 --> 00:16:37,360 Speaker 1: coin base who was allegedly sending insider trading tips to 295 00:16:38,480 --> 00:16:42,120 Speaker 1: a friend and a family member. And in that complaint 296 00:16:42,200 --> 00:16:45,480 Speaker 1: the SEC made these declarations. I think it was nine 297 00:16:45,520 --> 00:16:48,120 Speaker 1: tokens that were listed on coin base they claimed that 298 00:16:48,160 --> 00:16:50,960 Speaker 1: they were securities. And you can imagine that this coin 299 00:16:50,960 --> 00:16:55,200 Speaker 1: base wasn't super thrilled about this designation in this court filing. 300 00:16:55,320 --> 00:16:58,120 Speaker 1: And you know, if if eventually because there's also a 301 00:16:58,120 --> 00:17:00,640 Speaker 1: criminal component, which is going to move first through court, 302 00:17:00,680 --> 00:17:03,880 Speaker 1: but eventually if the civil part from the SEC, you know, 303 00:17:04,200 --> 00:17:07,400 Speaker 1: gets decided by a judge, that could also bring certainly 304 00:17:07,400 --> 00:17:12,360 Speaker 1: for those tokens, more clarity to the space. What are 305 00:17:12,440 --> 00:17:15,720 Speaker 1: the leaders of the industry, like coin base, what's their 306 00:17:15,800 --> 00:17:18,480 Speaker 1: perspective on all of this? You know, I think definitely 307 00:17:18,640 --> 00:17:22,119 Speaker 1: the vast majority would rather be have their tokens be 308 00:17:22,200 --> 00:17:24,800 Speaker 1: labeled commodities. You know, a lot will say though, like 309 00:17:24,840 --> 00:17:28,400 Speaker 1: they that they wouldn't mind working with the SEC trying 310 00:17:28,400 --> 00:17:31,480 Speaker 1: to register, but they would claim that, you know, the 311 00:17:31,600 --> 00:17:34,720 Speaker 1: SEC is not working with them, that it's not you know, 312 00:17:34,760 --> 00:17:37,560 Speaker 1: taking too too much of a hardline approach, and that 313 00:17:37,600 --> 00:17:40,679 Speaker 1: they're having a tough time coming to agreement. Um, Whereas 314 00:17:40,720 --> 00:17:43,560 Speaker 1: obviously the SEC will say, well, we think there's a 315 00:17:43,560 --> 00:17:47,240 Speaker 1: lot of illegal activity happening in this space, and it's 316 00:17:47,240 --> 00:17:50,919 Speaker 1: so it's hard to know what exactly is is the 317 00:17:50,920 --> 00:17:54,879 Speaker 1: true narrative here. But I would say in terms of 318 00:17:54,880 --> 00:17:57,600 Speaker 1: pushing legislation, a lot of the crypto industry was behind 319 00:17:57,640 --> 00:18:00,680 Speaker 1: this bill to give the CFTC more authority, the one 320 00:18:00,720 --> 00:18:04,600 Speaker 1: exception being the Decentralized Finance community, which you know, they 321 00:18:04,640 --> 00:18:07,919 Speaker 1: felt that the bill was gave too much of an 322 00:18:07,840 --> 00:18:10,800 Speaker 1: advantage to centralized exchanges like coin based like at the 323 00:18:10,840 --> 00:18:14,879 Speaker 1: time FTX, they were in opposition to that legislation. Well, 324 00:18:15,200 --> 00:18:17,280 Speaker 1: I think we'll leave it at that. I know, ladies, 325 00:18:17,440 --> 00:18:20,600 Speaker 1: you're super busy and we really appreciate your time. Hopefully 326 00:18:20,600 --> 00:18:22,879 Speaker 1: no news broke while we were sitting here talking. I 327 00:18:23,880 --> 00:18:29,080 Speaker 1: don't want to drink. You never know in cryptot, no 328 00:18:29,280 --> 00:18:34,160 Speaker 1: sleep on this speed. Ali Verspiel and Lydia Bayoud, thank 329 00:18:34,200 --> 00:18:36,720 Speaker 1: you so much, Thank you. Thanks. You can find more 330 00:18:36,720 --> 00:18:40,360 Speaker 1: of their reporting on the Bloomberg Terminal and Bloomberg dot com. 331 00:18:40,520 --> 00:18:43,120 Speaker 1: For more, be sure to check out our twice weekly newsletter, 332 00:18:43,200 --> 00:18:53,479 Speaker 1: Bloomberg Crypto. This is Bloomberg Crypto, a daily podcast from 333 00:18:53,480 --> 00:18:57,160 Speaker 1: Bloomberg and I Heeart Radio. For more shows from iHeart Radio, 334 00:18:57,400 --> 00:19:00,679 Speaker 1: visit the iHeart Radio app, Apple Podcasts, or wherever you 335 00:19:00,720 --> 00:19:04,719 Speaker 1: get your podcasts. Send us your comments, questions or suggestions 336 00:19:04,760 --> 00:19:10,439 Speaker 1: for the show to Crypto at Bloomberg dot net. The 337 00:19:10,440 --> 00:19:14,399 Speaker 1: supervising producer of Bloomberg Crypto is Vicky Verglina. Our senior 338 00:19:14,440 --> 00:19:18,040 Speaker 1: producer is Janet Babin. Our producers are Mohammed Faruk and 339 00:19:18,080 --> 00:19:21,800 Speaker 1: Sharon Barriro Our associate producers are Ty Butler and Moses 340 00:19:21,800 --> 00:19:26,119 Speaker 1: on Them. Desta wonder At is our engineer. Original music 341 00:19:26,240 --> 00:19:31,000 Speaker 1: by Leo Sidron. I'm Stacy Marie Shmall. We'll be back tomorrow.