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Speaker 3: Hello and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Jill Weisenthal and I'm Tracy Alloway.
Speaker 3: Tracy, here's two things that I know, or I think
Speaker 3: that I know. One is that a lot of people
Speaker 3: in the crypto industry are excited about the new Trump
Speaker 3: administration and perhaps regulatory changes that may come about. And
Speaker 3: it also seems like a lot of people affiliated with
Speaker 3: the Trump administration have an affinity for the crypto industry,
Speaker 3: but beyond that, I don't know what any of that means.
Speaker 3: Like it's one thing for different groups of people to
Speaker 3: like each other have some affinity, but what it means
Speaker 3: in terms of substantive changes in the world or at
Speaker 3: least in regulation, I don't have a clear idea.
Speaker 1: Yeah, there's definitely been a vibeh the vibes, yes, but
Speaker 1: in terms of what that means concretely in the real world,
Speaker 1: I am also unclear. I will say I'm looking at
Speaker 1: a chart of bitcoin right now, and I mean you
Speaker 1: can see, like beginning of November it shoots up. And
Speaker 1: obviously there have been some things that are sort of
Speaker 1: happening all ready. So for instance, you know Gary Gensler
Speaker 1: is out at the SEC and he's going to be
Speaker 1: replaced by Paul Atkins, who is a I think he's
Speaker 1: generally considered a crypto proponent, So that's one thing. Crypto
Speaker 1: kind of hated Genstler, So there's that expectation. But beyond that,
Speaker 1: there's talk of like a strategic bitcoin reserve and all
Speaker 1: these other things. And I guess I guess the difficulty
Speaker 1: is crypto is never a unified body like everyone wants
Speaker 1: different things, and there's all this infighting, and so I'm
Speaker 1: just curious, like, what is it that the different factions
Speaker 1: are basically after at the moment.
Speaker 3: Yeah, there's a really great way to put it. And
Speaker 3: it's clear even as you described, there's a range of
Speaker 3: ideas that are sort of some seem more perhaps realistic,
Speaker 3: or in the short term, some strike me as sort
Speaker 3: of fantastical. But I would never count out anything. If
Speaker 3: we one day have a strategic bitcoin reserve in the US,
Speaker 3: Like I don't know, it's twenty twenty five. Anything could happen,
Speaker 3: but there is possible. Is like a range, right, there's
Speaker 3: a range of what's pursued. Maybe is it more regulatory
Speaker 3: clarity on certain sort of like token projects. Is it
Speaker 3: a way so that some sort of stable coin regulation
Speaker 3: can be resolved in some way that expands their ability
Speaker 3: to be a source of payments? Many big questions, many
Speaker 3: interesting possibilities. So, as you know, with the new administration,
Speaker 3: I think we should get a better sense of what
Speaker 3: people in the industry are actually substantively looking for.
Speaker 1: Absolutely, let's do it.
Speaker 2: Well.
Speaker 3: I'm really excited to say we have I believe the
Speaker 3: perfect guest. Someone we've had on the podcast before, and
Speaker 3: I said at the time we were talking about stable coins
Speaker 3: specifically that time. But I think I said at the time,
Speaker 3: this guest should really be the crypto industry.
Speaker 1: It's only you said the crypto industry should shove everyone
Speaker 1: else in a boom close.
Speaker 3: Yeah, that's right. I just have this guest be their
Speaker 3: spokesperson at least when talking to the mainstream media like us.
Speaker 3: Maybe like on crypto podcasts, they could have other people,
Speaker 3: but when they sort of address someone up for the
Speaker 3: mainstream media and want to be presentable, I really think
Speaker 3: this is the only guest that they should have. Very
Speaker 3: excited we're gonna be speaking with Austin Campbell. He is
Speaker 3: an adjunct professor at the NYU Stern School of Business,
Speaker 3: and he is also the CEO of WSPN USA, where
Speaker 3: he does stable coin stuff. So, Austin, thank you so
Speaker 3: much for coming back on the show.
Speaker 4: Yeah, well, I'm glad I'm not stuck in the broom closet.
Speaker 3: Thank you for coming out. I think the WSPN job
Speaker 3: is news since the last time we talked to you.
Speaker 3: What's going on there?
Speaker 4: Yeah, it is new. So WSPN is an up and
Speaker 4: coming stable coin Issuer. I think one of my observations
Speaker 4: about the industry right now, and the way I sort
Speaker 4: of try to say it to people who are not
Speaker 4: deep into it, is we've got a whole lot of
Speaker 4: MySpace and very little Facebook when it comes to stable coins,
Speaker 4: which is to say, I do have immense respect for
Speaker 4: the work people have done so far with things like
Speaker 4: you know, tether Circle, etc. But the reality is none
Speaker 4: of these are, in my opinion, fully formed implementations. Yet
Speaker 4: I think the industry still has a lot long way
Speaker 4: to go to get genuinely professionalized. So WSPN is an
Speaker 4: effort started out of Singapore really and expanding globally to
Speaker 4: take a run at that problem. So Knock on Wood
Speaker 4: hopefully will be a little bit more Facebook. But til tell.
Speaker 1: Okay, so let's talk about what's I don't know what
Speaker 1: crypto is excited about, because it does seem to be
Speaker 1: very excited, and a bunch of different coins have been
Speaker 1: rallying off the back of Trump's When what's going on
Speaker 1: here other than the vibes?
Speaker 4: So I think some of this is just the expectation
Speaker 4: that people can do business potentially with some degree of clarity.
Speaker 4: So Trump coming in and keep in mind the Trump
Speaker 4: administration in particular is just one piece of this puzzle.
Speaker 4: Has the industry pretty hopeful that we're going to get
Speaker 4: a significantly greater degree of regulatory clarity around what you're
Speaker 4: allowed to do in the United States without breaking the rules,
Speaker 4: which is something that it transparently has not had. And
Speaker 4: like a good example of this is the SEC. So recently, Coinbase,
Speaker 4: in their case against the SEC, was just granted an
Speaker 4: appeal which is going up to the Second Circuit now,
Speaker 4: And if you read the judges ruling a lot of
Speaker 4: the reason for that as well, you know, we have
Speaker 4: my case, and then there's a case against crack In,
Speaker 4: and a case against Finance, and a case against Ripple,
Speaker 4: and helpfully, multiple federal judges are all coming to different
Speaker 4: conclusions on what the law is and what you're allowed
Speaker 4: to do here. So if people were saying there's regulatory clarity,
Speaker 4: you have at least four federal judges who disagree with
Speaker 4: you on that point right now. And it looks like, honestly,
Speaker 4: if you understand how like circuit splits work, a fast
Speaker 4: track to scotus to get some clarity on this, which
Speaker 4: could be exciting, But I think the idea is that
Speaker 4: with turnover in the leadership of the SEC, there's at
Speaker 4: least a non zero probability that they'll like write the
Speaker 4: rules down before going after people for not obeying them,
Speaker 4: which would be helpful. There's probably going to be significantly
Speaker 4: more access as in maybe any access to bankings in
Speaker 4: the United States for crypto companies, which would be particularly helpful.
Speaker 4: And then the other part of the puzzle is beyond
Speaker 4: the admin. Having the Republicans take the House and the
Speaker 4: Senate means that you have a much more friendly environment
Speaker 4: for actually passing legislation, and I would say even more
Speaker 4: than the Biden administration. If you want to know why
Speaker 4: we're currently in the case we're in, it's the inability
Speaker 4: of Congress to pass laws. Because if you're trying to
Speaker 4: use the forty Act to regulate crypto, I will remind
Speaker 4: people that was written closer to the Civil War than
Speaker 4: the current day, and before the creation of the Internet.
Speaker 3: Certainly before the creation of big clin.
Speaker 4: Correct, So I can see why that may be a
Speaker 4: little bit complicated.
Speaker 3: So this really gets into a core thing, which is
Speaker 3: that it might be nice to have some sort of
Speaker 3: clarity on, say, what constitutes a security in the crypto age,
Speaker 3: and because of how hard it is to pass laws
Speaker 3: period in this country, especially on big things, let alone
Speaker 3: sort of small or more traversial things, basically been gridlocked.
Speaker 3: So maybe there's a chance of getting legislation if I
Speaker 3: recall the issue at coinbase in the SEC is basically
Speaker 3: like the SEC said, you're selling or your platform for
Speaker 3: the dealing the trading of unregistered security.
Speaker 1: Right.
Speaker 3: So it's one thing, and I guess this gets to
Speaker 3: the question about legislation. It's one thing to say, Okay,
Speaker 3: regulatory clarity is good, but what does that regulatory clarity
Speaker 3: look like in the good version?
Speaker 4: So I'll say, to echo something Tracy said earlier, there
Speaker 4: is never one opinion out of the crypto history. But
Speaker 4: I would say if you talk to like the mainstream
Speaker 4: exchanges and some of the more call it regulated, call
Speaker 4: it non libertarian maximalist people in the space, here is
Speaker 4: fundamentally what they want. They want to know what the
Speaker 4: rubric is for understanding when a token is a security
Speaker 4: and when it is not. Because the reality is there's
Speaker 4: been an overwhelming focus on the use of ledger technology, which,
Speaker 4: if you step back and leave crypto is kind of
Speaker 4: transparently insane, right, Because if I'm at JP Morgan and
Speaker 4: I'm trading a book and it's got securities in it,
Speaker 4: and i just move my back end ledger from like
Speaker 4: Microsoft Excel to Microsoft Access, that shouldn't change whether those
Speaker 4: things are securities or not. It's an economic substance test,
Speaker 4: and the theories promulgated around this have been overly focused
Speaker 4: on the ledger, and you need to ask tokenized gold
Speaker 4: is pretty obviously not a security, but tokenized applestock pretty
Speaker 4: obviously is. And where is the dividing line between these
Speaker 4: two sorts of things as you start mixing stuff. That
Speaker 4: question we need answered. Then the second question you need
Speaker 4: answered is crypto dispenses with some of the traditional functions
Speaker 4: of a securities market, Like we don't need a clearing
Speaker 4: agency when we have a blockchain. The blockchain does the clearing,
Speaker 4: So how does that work? Can somebody just write it down?
Speaker 4: Which is a problem similar to like when the abs
Speaker 4: market came into existence. A lot of the original securities
Speaker 4: issue where things are kind of meaningless, like who is
Speaker 4: the senior management of an SPV? It's like a sort
Speaker 4: of weird question, and so the sec helpfully at the time,
Speaker 4: and they are totally capable of doing this if they want,
Speaker 4: created a whole rubric for registering asset backed securities, and
Speaker 4: that's gone from not existing to like a trillion dollar
Speaker 4: market because of that. So I think what the industry
Speaker 4: wants in a responsible way is just like, listen, any
Speaker 4: vaguely reasonable set of rules are fine, Just what are they?
Speaker 4: Can we write them down?
Speaker 1: Is there any concern there that when you get regulatory clarity,
Speaker 1: it might not be the regulatory clarity that you want,
Speaker 1: right like, it might go the other way. And in particular,
Speaker 1: I kind of I always think of, you know, elderly
Speaker 1: politicians gathered in rooms trying to wrap their heads around
Speaker 1: blockchain and all this new technology. It seems like there's
Speaker 1: a risk there.
Speaker 4: Well, the good news is most of this stuff is
Speaker 4: going to be written by twenty to thirty year old
Speaker 4: staffers instead of the elderly politicians. Right just talking about
Speaker 4: how the sausage is really made you make a good point,
Speaker 4: which is, you know, always be careful what you wish for.
Speaker 4: With Washington, I would say, in the current situation where
Speaker 4: you've had an administration trying to just wipe out the
Speaker 4: industry and make it illegal. Almost any regulatory framework is
Speaker 4: better on a forward basis. I think there's also at
Speaker 4: least some degree of hope with the current crop of
Speaker 4: Republicans that they won't make the mistake of overspecifying a
Speaker 4: particular approach or technology, because that's the way you could
Speaker 4: really get into trouble here. Like I was talking to
Speaker 4: somebody who's a staffer recently, and my caution on this is,
Speaker 4: imagine if the United States in the mid nineties canonized
Speaker 4: AOL right as the tool for accessing the Internet and
Speaker 4: using email right, that would have been a big mistake.
Speaker 4: So principles based regulation focused on economic substance is probably
Speaker 4: the best outcome. If you get something worse than that,
Speaker 4: there will at least hopefully be enough attention on it
Speaker 4: that you could start chipping away.
Speaker 3: Sometimes a bit when I think about alternative histories of
Speaker 3: the Internet, like I wonder if there could have been
Speaker 3: a situation in which it's still largely like the darp
Speaker 3: in it they are, and they are like furious debates
Speaker 3: like should we allow commercial access to the Internet, you know,
Speaker 3: in the year twenty twenty five, It's like, oh no,
Speaker 3: It's kind of actually easy to imagine these other versions.
Speaker 3: What's wrong with the Howie test when we're talking about
Speaker 3: like a rubric or something to determine what is a security?
Speaker 3: You know, it looks to me like many things that
Speaker 3: are tokens that get traded, there's an investment contract, expectation
Speaker 3: of profit, common enterprise, a lot of these things. I
Speaker 3: don't know. I'm like, guess, I'm not convinced that it's
Speaker 3: so ambiguous that these are, oh these are securities, like
Speaker 3: they kind of look like they are in many cases.
Speaker 4: Yeah, So I would say my personal view again, there
Speaker 4: are some tokens that to me are pretty obviously not securities,
Speaker 4: and some tokens that are pretty obviously.
Speaker 3: Rather than bitcoin, what is what are some tokens that
Speaker 3: are obviously not securities?
Speaker 4: Well, great example like dollar backed stable coins that don't
Speaker 4: pay interest, like, somebody help me out with that one
Speaker 4: token gold, the things that purely do governance and have
Speaker 4: no expectation of cash flows, because what.
Speaker 3: About a governance token for a decentralized crypto trading platform.
Speaker 4: So here becomes the question what are the underlying economic
Speaker 4: characteristics that it might give you access to? And you've
Speaker 4: gotten to the place I was going, which is the
Speaker 4: annoying part is a lot of these tokens do exist
Speaker 4: at the gray area of Howie in general, because like, again,
Speaker 4: let's zoom out from crypto and create one that I
Speaker 4: think actually sort of reveals the problem.
Speaker 2: Is.
Speaker 4: Let's say that I buy some sort of collectible shoes, right,
Speaker 4: Jordan's or something like that. Okay, so if I'm purely
Speaker 4: a buyer of the shoe, I'm probably not in a
Speaker 4: collective enterprise with Nike. But the ecosystem theory from the
Speaker 4: sec that they've raised as well, hold on, if there's
Speaker 4: a whole network of brokers and promoters and Nike is
Speaker 4: sponsoring events and all of this hype around that you
Speaker 4: are buying with the expectation of profit, Like, where really
Speaker 4: is the boundary between that and form owning a share
Speaker 4: of Nike stock. If you're genuinely buying hundreds of thousands
Speaker 4: of dollars of Jordan's a year to resell them with
Speaker 4: an expectation of profit, are you not in a sort
Speaker 4: of collective enterprise? And I would say you can take
Speaker 4: that principle and pretty transparently ported onto DeFi and I
Speaker 4: think the problem that people in crypto have had if
Speaker 4: you talk to the really savvy lawyers in this space,
Speaker 4: like for instance, Lewis Cohen who's in New York wrote
Speaker 4: a paper about this called Inteloctable Modality of Securities Law.
Speaker 4: And what you run into is there are things in
Speaker 4: traditional markets where they haven't gone after this, but they
Speaker 4: did go after essentially the same activity in crypto. So
Speaker 4: now one, where is the dividing line? And then two,
Speaker 4: even if you agree that what I just said might
Speaker 4: be a securities arrangement, does that make the Jordans themselves
Speaker 4: a security? Not necessarily right to go back to Howie
Speaker 4: the oranges are not the security. So one of the
Speaker 4: big dividing lines is take the ripple case. XRP may
Speaker 4: have and sold as part of an investment contract, but
Speaker 4: it does not necessarily follow from that that XRP itself
Speaker 4: is a security.
Speaker 1: Can I ask a provocative question? And crypto people on
Speaker 1: Twitter slash x please don't come at me for this,
Speaker 1: but was Genstler really that bad for crypto? Like I
Speaker 1: know he went after Coinbase and like prosecuted a bunch
Speaker 1: of other frauds, but he also approved the ETFs. And
Speaker 1: it's not like the crypto industry necessarily shrunk under his
Speaker 1: tenor Crypto seems to be doing pretty well.
Speaker 4: So I'll answer that question in two ways. I do
Speaker 4: think Genszler intended to be quite bad for crypto, and
Speaker 4: the things I would point at about the SEC at
Speaker 4: the time and the heart of my past critiques of
Speaker 4: them are one, you somehow managed to go after preemptively
Speaker 4: like Coinbase and crack In and meta mask and people
Speaker 4: like that, but you missed all of FTX, Celsius, Terraform
Speaker 4: Labs Block five, like basically, if you were a fraud,
Speaker 4: they didn't preemptively enforce, and if you weren't they did,
Speaker 4: and that's a pretty poor track record. And then number
Speaker 4: two is that complete inability to just write the rules down.
Speaker 4: I think even if Crypto didn't like the rules, if
Speaker 4: they had just written them down and said this is
Speaker 4: what you do, they would have been at least tolerable, because,
Speaker 4: like I would tell you, that's where the CFTC is,
Speaker 4: Like people in crypto don't love the CFTC, but don't
Speaker 4: feel like they're being treated unfairly because they'll at least
Speaker 4: just tell you what they mean to a much greater extent.
Speaker 4: And again, when we're in a point where four federal
Speaker 4: judges who are all individually very bright people, can't agree
Speaker 4: with each other on the rules. That's kind of a problem.
Speaker 4: Now to answer your question literally, actually, I think Kensler
Speaker 4: might have been good for crypto. And the reason I
Speaker 4: say that is it sort of by swinging the pendulum
Speaker 4: that far, it brought a lot more public attention to
Speaker 4: this sort of thing than you otherwise would have had
Speaker 4: had shot the streisand principle. Yeah, like his trying so
Speaker 4: hard to kill the industry ironically may have won Trump
Speaker 4: the election, right if.
Speaker 3: You look at it.
Speaker 4: So Stand with Crypto mobilized literally over one hundred thousand
Speaker 4: people to go vote and was pushing them to the polls,
Speaker 4: And if you look at the margins and some of
Speaker 4: the swing states, it's entirely possible, especially because I mean,
Speaker 4: remember it looks like men under the age of thirty
Speaker 4: just straight voted Republican and a shocking number of those
Speaker 4: are registered with Stand with Crypto. So I have questions.
Speaker 4: I kind of buy it. I kind of buy it.
Speaker 3: Actually talk a little bit more about stable coin regulation
Speaker 3: when we hit you on last time, and I'm like
Speaker 3: kind of a stable coin convert at this point or
Speaker 3: at least potentially because just the idea that this could
Speaker 3: be like a very like powerful like to find software
Speaker 3: rail or payment rail that could not be done under
Speaker 3: traditional legacy rails because you couldn't coordinate the different parties.
Speaker 3: I find that actually pretty compelling. I'm still a little
Speaker 3: not sure. I'm not sold how big the use case
Speaker 3: will be. But as for other people to argue about
Speaker 3: what regulatory ambiguity today in your view, holds back stable
Speaker 3: coin growth.
Speaker 4: So there's kind of two parts to that. One has
Speaker 4: been the banking regulators, primarily led by the FDIC, but
Speaker 4: to a lesser extent, the OCC and the Federal Reserve
Speaker 4: kind of saying you just can't do these things right.
Speaker 4: There was a note in the Federal Register in early
Speaker 4: twenty twenty three where they essentially said public blockchains are
Speaker 4: not compatible with safe and sound banking practices, which is
Speaker 4: kind of a blocker if we're being totally honest, and
Speaker 4: I think has really inhibited the United States's ability to
Speaker 4: approach new technology. And to be clear, this kind of
Speaker 4: rides on the back of the technophobia of banking regulators
Speaker 4: in general, because I don't think in their case there's
Speaker 4: singling out, you know, cryptos so much as they're singling
Speaker 4: out any new use of technology because they're still angry
Speaker 4: with the traditional FinTechs as well. The other thing that's
Speaker 4: really held it back is the complete lack of any
Speaker 4: federal legislation. So I'm dealing with fifty states on a
Speaker 4: state by state basis that kind of all vaguely disagree
Speaker 4: with each other about how to do things. And one
Speaker 4: of the things I'm most optimistic about in twenty twenty
Speaker 4: five is federal legislation on stable coins moving, and part
Speaker 4: of that is back to just how the sausage is made.
Speaker 4: In Washington, we've had McHenry Waters in the House, Lumus
Speaker 4: Gillibrand in the Senate, and Senate Banking is working on
Speaker 4: a draft of something like there's legislation that people know
Speaker 4: that they're reasonably comfortable with where the ven diagram overlap
Speaker 4: is pretty significant, Like it's not perfect, there's things they're
Speaker 4: fighting about, but it's majority agreed. That's something you could pass,
Speaker 4: unlike say market structure, where I don't think if you
Speaker 4: look at that bill, there's majority consensus even on how
Speaker 4: it should work or what they should do with it.
Speaker 1: Could you ever envision a future where the big banks
Speaker 1: get on board with stable coins, because I think generally,
Speaker 1: like right now, they're kind of considered competition in terms
Speaker 1: of payments technology. But on the other hand, they could,
Speaker 1: as you've laid out in a previous episode, allow them
Speaker 1: to make payments more efficiently.
Speaker 4: I do think so, and I think banks in general
Speaker 4: need a path forward where they can do something new.
Speaker 4: You know, we talked about last time how it's hard
Speaker 4: to take a current bank balance sheet and create a
Speaker 4: stable coin with it because they're not fungible between each
Speaker 4: other in terms of assets and liabilities. But in theory,
Speaker 4: like legally, there would be nothing stopping people with federal legislation.
Speaker 4: You know, a JP Morgan and Wells Fargo a b
Speaker 4: of A from starting a segregated trust company and just
Speaker 4: using that to launch a stable coin. They can totally
Speaker 4: do that. And you know, what the banks do have
Speaker 4: is a ton of distribution. Chase has a lot of customers.
Speaker 4: I don't think that's news to anybody. And so to
Speaker 4: answer your question, could there be an effort like that, Yes,
Speaker 4: and also it could take many forms, Joe, to your
Speaker 4: earlier point, I think I'm very pro stable cooin technology
Speaker 4: winning in the long run, I am not yet convinced
Speaker 4: on the exact form that's going to take commercially, because
Speaker 4: could it be that each bank has their own stable
Speaker 4: coin and they're roughly fungible and they all accept them. Sure.
Speaker 4: Could it also be the case that they do something
Speaker 4: like DTCC, where there's a repository of all the securities
Speaker 4: and everybody uses it. Sure could that even be bigger
Speaker 4: than banks if you get asset managers and insurance companies
Speaker 4: in there. Sure.
Speaker 3: I don't know, well, you know, I think by the way,
Speaker 3: it was just a few weeks after we recorded our
Speaker 3: last episode, Stripe made a one point one billion dollar
Speaker 3: acquisition of a stable coin startup called Bridge, which I
Speaker 3: hadn't been familiar with, but I was familiar with Stripe,
Speaker 3: and that strikes me as a pretty big endorsement. Maybe
Speaker 3: two parts. Actually, can you just sort of give a
Speaker 3: twenty second description of what that deal is all about
Speaker 3: for Stripe? But also more importantly, I certainly get stable
Speaker 3: coins for the purpose of crypto trading, Okay, I get that,
Speaker 3: Like that's pretty obvious. And then you sort of like,
Speaker 3: all right, there's probably some like cross border stuff where
Speaker 3: stable coins are better, faster, cheaper than other rails, But like,
Speaker 3: how big are we talking about? Like beyond that? I
Speaker 3: guess this is the part I'm not totally sold on
Speaker 3: yet in terms of like how big this market gets
Speaker 3: out of a couple of fairly obvious niches.
Speaker 4: All right, So I'll give you by super hot take,
Speaker 4: which is, I think, over the next call it twenty
Speaker 4: ish years, probably the entire euro dollar market is moving
Speaker 4: to stable coins.
Speaker 3: All right, that's a hot take.
Speaker 4: Say more so the euro dollar market currently, if you're
Speaker 4: outside the United States and you're leaving dollars in foreign
Speaker 4: banks and institutions that are trying to get access to
Speaker 4: dollar rails, is a little bit of a patchwork and
Speaker 4: janky market. It's got poor standards, it could be hard
Speaker 4: to move money around. It's highly suspect in times of stress,
Speaker 4: see like the Federal Reserve doing the dollar swap lines
Speaker 4: and the Great Financial Crisis to bail essentially foreign banks
Speaker 4: holding dollars out. I think that entire market moving to
Speaker 4: stable coins removes a lot of the correspondent banking issues.
Speaker 4: It becomes much easier and cheaper to send money around,
Speaker 4: and standardizes and makes safer the reserves for the entire
Speaker 4: euro dollar market. That seems like a very large upgrade
Speaker 4: to the entire system, and my prediction is just based
Speaker 4: on the commercial forces over time will be overwhelming to
Speaker 4: push you there. So if you want a use case
Speaker 4: euro dollars, I would also say zoom out of the
Speaker 4: money and think about standards. Brazil is maybe a great
Speaker 4: example for this. If you think about picks, where they
Speaker 4: created a uniform standard that everybody had to use because
Speaker 4: the government was promoting it. Suddenly you've got all of
Speaker 4: these new apps, new ability to move money around, and
Speaker 4: interoperability of a system that you don't have in a
Speaker 4: very fragmented and bespoke system. So the other important part
Speaker 4: of the blockchain part is that open access part where
Speaker 4: if everybody's plugging into the same ledger and can move
Speaker 4: dollars on the same ledger, it just creates way more
Speaker 4: ability to innovate, to build and act access.
Speaker 1: By the way, on the topic of euro dollars, if
Speaker 1: you haven't listened to it already, you should definitely go
Speaker 1: back and check out our three part series on the
Speaker 1: history of euro dollars with Lev Menon and Josh Younger.
Speaker 1: It's really fun. Anyway, Moving on from euro dollars. The
Speaker 1: other big thing that people seem fixated on, again some people,
Speaker 1: because crypto is not a monolith, is the strategic Bitcoin Reserve,
Speaker 1: which seems, you know, a little bit far fetched to me,
Speaker 1: but as Joe suggested earlier, anything is possible. Is that
Speaker 1: realistic in your opinion?
Speaker 3: Well, Austin, by the way, it has done some great
Speaker 3: threads on Twitter about how silly this idea is in
Speaker 3: his opinion. Anyway, keep going.
Speaker 4: Yeah, I will say I'm going to file that entire
Speaker 4: idea for the crypto community under be careful what you
Speaker 4: wish for. I don't think that people who are promoting
Speaker 4: a technology where the value proposition is that there's not
Speaker 4: government interference with the technology should be advocating strongly for
Speaker 4: significantly more government interference in their technology. To me, the
Speaker 4: easiest way to send bitcoin to zero in the long
Speaker 4: run is to push for the strategic reserve. And the
Speaker 4: reason I say that is if you understand the thinking
Speaker 4: of nation states around financial rails. If you tell the
Speaker 4: United States, hey, bitcoin is highly strategic, their thought is not. Well,
Speaker 4: that means we should buy coins to go up in value.
Speaker 4: The United States can print its own money, and there
Speaker 4: are people at the very top who are very aware
Speaker 4: of this, they're going to think, oh, well, we should
Speaker 4: control that network if people are going to use it
Speaker 4: to transfer value, which will eventually, even if not at
Speaker 4: the start, lead to things like commandeering or nationalizing miners
Speaker 4: and having legal authority to take control of them in
Speaker 4: times of crisis. And by the way, like, if you
Speaker 4: read between the lines and look at our activities in
Speaker 4: the Middle East over the past twenty years, how do
Speaker 4: you feel about drone strikes against foreign miners and things
Speaker 4: of that sort. If you're telling them it's strategic, careful
Speaker 4: because they may actually agree with you and then start
Speaker 4: doing these.
Speaker 3: Doing the types of things that governments do. And a
Speaker 3: resource is strategic, correct, that's it's a it's grim, but
Speaker 3: also seems I forget who said it on Twitter. If
Speaker 3: the if we're going to have the government by a
Speaker 3: bunch of bitcoin for strategic reason, then the least we
Speaker 3: could do is apply a special excise tax on existing
Speaker 3: bitcoin holders, because if they're so, if it's so important
Speaker 3: for strategy, let's at least make sure it's not just
Speaker 3: some money grab. That could be the test. Are all
Speaker 3: bitcoiners willing to pay a tax because of this important
Speaker 3: aspect of having a strategic holding.
Speaker 4: I will remind all bitcoin people that the government confiscated gold.
Speaker 3: There you go. Another thing that actually sort of dovetails
Speaker 3: with a lot of this conversation, including the politics and
Speaker 3: including you specifically. Sometime I think it was late last year,
Speaker 3: Mark and Dreesen went on Joe Rogan's show, and in
Speaker 3: the middle of a broader conversation he talked a lot
Speaker 3: about debanking and how debanking the crypto industry, and there's
Speaker 3: all this talk about how like maybe for political reasons,
Speaker 3: maybe not. And I think there were some details that
Speaker 3: some people pugged holes in, but this idea that the
Speaker 3: government had gone after the crypto industry perhaps for political reasons.
Speaker 3: First of all, let's just start with this sort of
Speaker 3: neuro question of what has been the status of a
Speaker 3: crypto company's ability to just have a bank account?
Speaker 4: All right, So in the United States from twenty twenty
Speaker 4: two onwards, the answer to that question is probably not,
Speaker 4: but maybe yes. And also be careful, and what I
Speaker 4: mean by that is starting in twenty twenty two, after FTX,
Speaker 4: it probably originated with what I think is a legitimate
Speaker 4: effort to look into where was FTX banking and how
Speaker 4: the hell did this happen, which is a reasonable question
Speaker 4: to ask in the wake of a collapse like that,
Speaker 4: but then quickly metastasized and to actually, you know what,
Speaker 4: just get rid of all the bank accounts of all
Speaker 4: the crypto companies, with the FDIC doing things like telling
Speaker 4: companies you can't have more than fifteen percent of your
Speaker 4: deposits in crypto. But also if you want to bank
Speaker 4: anybody in crypto, you need permission from us, and we're
Speaker 4: just going to ask infinity questions and never actually give
Speaker 4: you permission and make very clear we're essentially going to
Speaker 4: torture you to death with you know, scrutiny if you
Speaker 4: do these kinds of things. And that led to it
Speaker 4: being nearly impossible to get accounts for handling customer money.
Speaker 4: But it also led to, in my opinion, much more
Speaker 4: questionable things like if you're just a regular way operating
Speaker 4: company in crypto, not being able to get a bank
Speaker 4: account to like, I don't know, make payroll right, or
Speaker 4: like pay your rent, and that starts getting into the
Speaker 4: realm of hold on what are we doing to people.
Speaker 4: I also specifically know of individuals who had their personal
Speaker 4: accounts and accounts of family members closed for taking jobs
Speaker 4: in crypto and these are not like I'm coming from China,
Speaker 4: I won't disclose the source of my money. This is
Speaker 4: like somebody who's a lawyer admitted to the bar in
Speaker 4: an American city in leaving a bank to go to
Speaker 4: a crypto company and having her daughter's accounts closed. So
Speaker 4: that seems to me excessive. Now, he raised Mark being
Speaker 4: on Joe Rogan's podcast. Mark, when he was on there,
Speaker 4: I think kind of revealed something the average person doesn't understand,
Speaker 4: which is that understanding banking regulation in the United States
Speaker 4: is really complex. Like I used to joke with people,
Speaker 4: there was this slide at JP Morgan when I was
Speaker 4: there on who regulates us? That looks like the Pepe
Speaker 4: Silva conspiracy theory from It's Always Sunny And the answer
Speaker 4: is yes, like eighty two different regulatory agencies and so
Speaker 4: Mark on Joe Rogan tagged the CFPB. I'll just transparently
Speaker 4: say sorry, Mark, I know we've talked about this. I
Speaker 4: don't think that's correct. I think the drive came from
Speaker 4: the FDIC, the OCC in the Federal Reserve, and it
Speaker 4: was highly variable in its understanding and competence ranging all
Speaker 4: the way from very granular I think correct and legitimate
Speaker 4: supervisory concerns all the way down to if it says
Speaker 4: blockchain in it, you're banned from doing it.
Speaker 1: So I get that you find some of these crackdowns excessive,
Speaker 1: but the FDIC ultimately ensures these deposits. And when I
Speaker 1: hear something like fifteen percent of assets in crypto, that
Speaker 1: doesn't seem insane to me to want to limit something. Yeah,
Speaker 1: something that is notoriously volatile and could go down to
Speaker 1: zero for no reason. How would you design those types
Speaker 1: of guardrails?
Speaker 4: Yeah, I would say. I think the problem there is
Speaker 4: the FDIC is basically stuck in the nineteen seventies. And
Speaker 4: what I mean by that is one, crypto assets are
Speaker 4: not monolithic. If you're telling me I'm worried about the
Speaker 4: hot money liquidity posits of a stable coin reserve, I'd
Speaker 4: be like, no, yeah, that's totally legitimate. But if you're
Speaker 4: telling me that uniewap making payroll is somehow a hot deposit,
Speaker 4: that's very scary. That's different, and they threw them in
Speaker 4: the same bucket.
Speaker 1: Wait, well, what about what about if a bank has
Speaker 1: fifteen percent of its assets in bitcoin, and another bank
Speaker 1: has fifteen percent of its assets in doge No.
Speaker 4: No, no. So to be very clear here, we're talking
Speaker 4: about banks giving dollar accounts to crypto companies. This is
Speaker 4: not banks holding crypto. Oh I see, yeah, of course,
Speaker 4: And I want to be clear. I think that's quite
Speaker 4: risky given the volatility in crypto, and it should have
Speaker 4: very large risk weights. I'm talking about like uniewap having
Speaker 4: a checking account.
Speaker 1: Okay, this is just the payment system, yes.
Speaker 3: I get that. Okay, Clearly a bank's assets should be
Speaker 3: you know, mostly dollars or safe things like treasures, et cetera.
Speaker 3: But the liability side, who is there? So the fifteen
Speaker 3: percent is your captive fifteen percent of basically your liabilities
Speaker 3: are crypto related companies. Oh that was the is that
Speaker 3: statute is just regulatory like.
Speaker 4: That was kind of regulatory fiat And so to me,
Speaker 4: I would say two parts to it. One, this is
Speaker 4: the classic problem of your only looking at one side
Speaker 4: of the problem. Right. What I mean by that is,
Speaker 4: so say I'm a bank, and I say, well, hold on,
Speaker 4: crypto is my main business, and I primarily make money
Speaker 4: off of facilitating payments for crypto companies, not doing large
Speaker 4: scale commercial lending. So, hey, FDIC, if I tell you
Speaker 4: I'm only going to hold T bills to back the
Speaker 4: crypto deposits, would you still hold this fifteen percent threshold?
Speaker 4: And they say yes. I have a lot of questions
Speaker 4: because that's not an asset liability matching issue unless you
Speaker 4: think the treasury market just to go on.
Speaker 3: So, like, I mean, SVB got into trouble because it
Speaker 3: had a tremendous concentration in one industry, right, correct, And
Speaker 3: and isn't part of regulatory well supervisory preventing too much
Speaker 3: concentration on the liability side on the depositor side.
Speaker 4: Well no, So here's where I was going to go.
Speaker 4: SVB got into trouble because they had a high concentration
Speaker 4: in one industry and then yoloed into like fifteen year
Speaker 4: duration mbs as rates went up. Had SVB been and
Speaker 4: T bills, they would still be solvent and operating today.
Speaker 4: So what you're really looking at this is something I
Speaker 4: thought a lot about at JP Morgan running a bank
Speaker 4: capital book, is it's the asset liability matching part where
Speaker 4: people get it wrong. The more concentrated your deposit base is,
Speaker 4: the more liquid and safe your asset base needs to
Speaker 4: be and that needs to exist in balance with each other.
Speaker 4: So like, you know, let's take one of the extreme
Speaker 4: examples that the FAD hates. But like if I ran
Speaker 4: a narrow bank, I should in theory be able to
Speaker 4: have one hundred percent concentration. What does it matter? And
Speaker 4: so my point about the whole issue is, if you're
Speaker 4: only going to look at the deposit side of the
Speaker 4: balance sheet, I'm actually terrified about your competence as a
Speaker 4: banking regulator because you're not understanding this is a multivariate system.
Speaker 4: You're just overfixating on one thing and two By the way,
Speaker 4: if you're going to say individual banks are limited to
Speaker 4: fifteen percent, but then you also go tell other banks
Speaker 4: you can't get in, now you've created a systemic level
Speaker 4: probable where are those deposits going?
Speaker 1: Yeah, speaking of multivariant systems, At the very beginning of
Speaker 1: this conversation, you said that Trump was only one piece
Speaker 1: of the puzzle. What are the other pieces?
Speaker 4: So I think the other big pieces here are the
Speaker 4: judicial system as we're about to experience, because as the
Speaker 4: SEC sort of loosed these torpedoes in the water, you
Speaker 4: need to be very careful because those get out of
Speaker 4: your control very quickly when they encounter the federal judiciary,
Speaker 4: who will have their own opinions on things. And one
Speaker 4: of the I've been saying this since the litigation started,
Speaker 4: with the current makeup of the Supreme Court, you should
Speaker 4: be really careful about taking securities litigation stuff all the
Speaker 4: way there because there is a non zero chance you
Speaker 4: are going to get very strict rulings that nobody likes.
Speaker 4: Is it so far beyond the pale with the current
Speaker 4: somewhat literalist Supreme Court that they look at the forty
Speaker 4: acted say guys, we don't see anything about the Internet
Speaker 4: in here. Why did you think any of this was okay?
Speaker 4: Not to do with paper trading? Right? And I'm not
Speaker 4: saying it'll go there, but I'm saying you're opening a
Speaker 4: Pandora's box, and that's open right now. The other part
Speaker 4: is Congress. Right as we've come back to. I really
Speaker 4: think the biggest shift there, which people have not talked about,
Speaker 4: is control of the Senate moving from the Democrats to
Speaker 4: the Republicans, because the biggest crypto opponents were the Senates,
Speaker 4: like Democratic War on the.
Speaker 3: Bank Shrod Brown, who lost his election in Ohio. Those
Speaker 3: two come to mind.
Speaker 4: Correct, and so Senate Banking was serving as a bottleneck
Speaker 4: for a lot of legislation, Like even if the House
Speaker 4: had moved stable coins, the Senate was not going to
Speaker 4: take it up. You saw what happened with fit right,
Speaker 4: even SABE one repeal, which I think kind of everybody
Speaker 4: agrees is a good idea now couldn't get a super
Speaker 4: majority because of the Democrats and Senate Banking. With the
Speaker 4: Republicans in control of that, I think the pathway is
Speaker 4: open for legislation, and I think that maybe a bigger
Speaker 4: change in the long term than Trump.
Speaker 3: Just to be clear though, going back, Sorry I keep
Speaker 3: hammering on this question, but having a diverse depositor mix
Speaker 3: at your bank is a principle of banking regulation.
Speaker 4: Right.
Speaker 3: You don't want to have all your depositors be biotech startups, etc. Right,
Speaker 3: because then something bad happens to the industry and everyone
Speaker 3: pulls their money out at once. I get your point about, Okay,
Speaker 3: you want to balance the depositor mix with the safety
Speaker 3: and yes, SBB had only been in T bills, But
Speaker 3: this idea that it's something novel that you want to
Speaker 3: not be too concentrated in one area does not seem
Speaker 3: new to crypto.
Speaker 4: No, but that is kind of why I refer to
Speaker 4: the FDIC being stuck in the nineteen seventies. I agree
Speaker 4: with you, that's a principle. But the problem is when
Speaker 4: you say, well, new technologies are scary, so don't bank them,
Speaker 4: and we're going to apply a huge amount of scrutiny,
Speaker 4: and you've got to be a deep specialist to bank
Speaker 4: them at all, which means a lot of cost, a
Speaker 4: lot of effort, a lot of build out. But then
Speaker 4: also you can't do a material amount of these things anyways,
Speaker 4: an industry level ban on innovation. Okay, that's what I
Speaker 4: mean by the multivariate part. Any one of these principles
Speaker 4: is fine on its own, but it's like if you
Speaker 4: tell me that I can only have a car that
Speaker 4: has space for eight car seats, but also my car
Speaker 4: can't have more than one row of seats, Like, how
Speaker 4: the heck do I build a car? Ita'st the interplay
Speaker 4: of these rules together, that's a problem.
Speaker 3: Austin Campbell perfect, Gosh, thank you so much for coming
Speaker 3: back on online.
Speaker 4: Yeah, thank you, really enjoyed being here.
Speaker 3: Crazy. I still stand by my point about Austin. It's
Speaker 3: just like the best avatar, the best spokesperson for the industry.
Speaker 1: No, I agree. I did think I have a lot
Speaker 1: of sympathy with the idea that if you're in crypto
Speaker 1: and you sort of did all the right things in
Speaker 1: terms of regulation, yeah, you were often the one that
Speaker 1: was most likely to get cracked down on, whereas someone
Speaker 1: who just you know, did whatever and didn't follow the
Speaker 1: rules kind of got away with it.
Speaker 3: That's really been a huge story, and that does not
Speaker 3: seem good, which is that you did have these endeavors
Speaker 3: that tried to be like the you know, Coinbase made
Speaker 3: it right, they did, they played good, and then then
Speaker 3: now you know, now they're a publicly listed company doing
Speaker 3: phenomenally well. And I don't know, it seems like a
Speaker 3: good chance perhaps that things will turn in their favor
Speaker 3: from a regulatory perspective. On what's lingering. Here's something that
Speaker 3: I'm still confused about. Okay, let's say they establish a
Speaker 3: securities framework for crypto, which seems possible securities law. I
Speaker 3: think it as all kinds of obligations about like disclosure
Speaker 3: and all these kinds of things like what's that even
Speaker 3: gonna mean for someone in their living rooms somewhere, maybe
Speaker 3: in Singapore or Vietnam. Who like creates a to own
Speaker 3: the US, who creates some token for decentralized trading network.
Speaker 3: I get the macro premise, oh, we need rules, But
Speaker 3: the idea of then applying these rules to the industry,
Speaker 3: which is sort of like famous for like it's just code,
Speaker 3: strikes me as it's going to be very.
Speaker 1: Difficult, Yes, very difficult. The other thing I'm wondering about is,
Speaker 1: you know, it seems like there's a desire to have
Speaker 1: more nuance in the rules, and I wonder, at what
Speaker 1: point do you end up with regulators having to basically
Speaker 1: evaluate new technology. Yeah, and you know, regulators don't necessarily
Speaker 1: seem best place to do that. That seems like a
Speaker 1: risk as well.
Speaker 3: In the end, I do think there are some exceptions,
Speaker 3: like maybe stable coins, but a big part of crypto
Speaker 3: is essentially this idea that you can have things that
Speaker 3: have value that exist on the Internet outside of the
Speaker 3: regulated banking system or the regulated finance system or whatever.
Speaker 3: And the idea like it always sort of seems like
Speaker 3: once you try to mix it with the financial system,
Speaker 3: it's like oil and water. But I guess We're gonna
Speaker 3: see how they can mix it.
Speaker 1: Yeah. The one thing I'll say is bitcoin especially has
Speaker 1: this tendency to really go with any narrative. It's that
Speaker 1: narrative flexibility, right, And so there is an irony that
Speaker 1: a lot of crypto proponents and bitcoin proponents now want
Speaker 1: more legislation and they want you know, that strategic bitcoin reserve,
Speaker 1: or at least some of them. But so far it's
Speaker 1: resonated in the price.
Speaker 4: Right.
Speaker 1: It's like bitcoin has seized on that narrative and that
Speaker 1: positive momentum, and here we are.
Speaker 3: I loved Austin's point that if you convince the government
Speaker 3: that bitcoin is strategic, the government might start doing things
Speaker 3: associated with other strategic resources and it may not be
Speaker 3: so pretty.
Speaker 1: So also the through line from Gary Gensler cracking down
Speaker 1: on crypto and Trump winning the election.
Speaker 3: I think there's you know, I'm like, I think there
Speaker 3: might be something to it. I think you would have
Speaker 3: said that to me six months ago. It would have
Speaker 3: been more skeptical. I think I'm less skeptical now.
Speaker 1: Yeah, all right, shall we leave it there.
Speaker 3: Let's leave it there.
Speaker 1: This has been another episode of the odd Lots Pott.
Speaker 1: I'm Tracy Alloway. You can follow me at Tracy.
Speaker 3: Alloway and I'm Jill Wisenthal. You can follow me at
Speaker 3: the Stalwart. Follow our guest Austin Campbell. He's at Campbell
Speaker 3: j Austen. Follow our producers Carmen Rodriguez at Carmen armand
Speaker 3: dash Ol Bennett at Dashbot and Kelbrooks at Calebrooks. And
Speaker 3: for more Oddlots content, go to Bloomberg dot com slash
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