WEBVTT - Regulating The Regulators 0:00:03.320 --> 0:00:07.080 I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News. 0:00:07.560 --> 0:00:10.520 And this is Bloomberg Crypto, a new daily podcast from 0:00:10.560 --> 0:00:19.239 Bloomberg and I Heart Radio. It's Friday, June three. Cryptocurrencies 0:00:19.280 --> 0:00:22.840 are increasingly popular as investments. Everyone from traders on Reddit 0:00:22.960 --> 0:00:25.720 to big institutional shops like Fidelity seem to have a 0:00:25.720 --> 0:00:29.000 crypto strategy. But what happens when the people investing in 0:00:29.040 --> 0:00:31.840 this asset class are also the ones in charge of 0:00:31.880 --> 0:00:35.959 regulating it? Senators like Pat too Me of Pennsylvania. So 0:00:36.159 --> 0:00:39.000 I'm just asking the SEC to provide some clarity. Let 0:00:39.080 --> 0:00:41.080 us know, why do you think this is a security? 0:00:41.080 --> 0:00:44.520 What are the characteristics? And Cynthia Lemus of Wyoming known 0:00:44.560 --> 0:00:47.760 to many as somewhat of a bitcoin evangelist, so I'm 0:00:47.880 --> 0:00:51.840 very confident that bitcoin will withstand the test of time. 0:00:52.560 --> 0:00:56.920 Both hold crypto investments while also considering who and how 0:00:57.360 --> 0:01:00.480 might potentially regulate this asset class. So what are the 0:01:00.520 --> 0:01:04.920 ethical implications when members of Congress buy and hold bitcoin? Today? 0:01:05.040 --> 0:01:07.800 I speak with bloombag reports Aquila Gardner about how to 0:01:07.880 --> 0:01:15.920 regulate the regulators. Welcome with Kaela. Thank you, Stacy, Marie. 0:01:16.560 --> 0:01:19.520 Great to have you. So, first of all, you've been 0:01:19.520 --> 0:01:21.720 reporting on this, tell me a little bit about your story, 0:01:21.840 --> 0:01:25.480 what you've found so far, what's interesting. So basically, we 0:01:25.600 --> 0:01:29.240 got some data from a research organization called two i Q, 0:01:30.040 --> 0:01:33.320 and they track the trading habits of Congress members and 0:01:33.400 --> 0:01:36.200 really compile the things that they're investing in. And so 0:01:36.319 --> 0:01:40.120 what they found is about one point eight million dollars 0:01:40.120 --> 0:01:44.440 worth of crypto related investments owned by members of Congress. 0:01:44.640 --> 0:01:47.800 And so those include stocks that are related to crypto, 0:01:48.000 --> 0:01:52.480 like coin based block which obviously offer trading, and that 0:01:52.560 --> 0:01:57.560 also includes cryptocurrencies like your bitcoin, your theory um doche coin, 0:01:58.320 --> 0:02:03.200 and investments in crypto investment funds. And what's interesting about 0:02:03.240 --> 0:02:05.960 this is all the funds that were invested are owned 0:02:05.960 --> 0:02:09.320 by gray Scale, which is one of the biggest crypto 0:02:09.400 --> 0:02:13.919 asset managers, and there's about two or three um Congress 0:02:13.960 --> 0:02:18.000 members who have holdings and Gray Skill investment funds. Got it. So, 0:02:18.240 --> 0:02:20.959 you said a couple of things that I find really interesting, 0:02:21.200 --> 0:02:23.200 And I want to start with a kind of a question, 0:02:23.639 --> 0:02:26.440 which is, as you were reporting this, were you surprised 0:02:27.040 --> 0:02:29.959 by either the size of the investments or you know, 0:02:30.000 --> 0:02:31.480 maybe you thought it was small, maybe you thought it 0:02:31.480 --> 0:02:33.760 was big, or even just the names of the folks 0:02:33.760 --> 0:02:36.640 who were popping up in this data sets. I think 0:02:36.800 --> 0:02:39.840 what was interesting is just the amount there was twenty 0:02:39.880 --> 0:02:44.200 one members in total who fall under that um, eleven Democrats, 0:02:44.320 --> 0:02:49.280 ten Republicans. But more interesting perhaps was the amount of 0:02:49.480 --> 0:02:53.799 senators representatives who hold cryptocurrencies, because obviously you have to 0:02:53.880 --> 0:02:56.400 kind of go out of your way to invest in those. 0:02:56.400 --> 0:02:58.400 Some of the stocks are just a part of a 0:02:58.480 --> 0:03:01.560 four one K exact, a fun that they might have 0:03:01.760 --> 0:03:05.160 that's managed by a third party. But that number was 0:03:05.200 --> 0:03:09.240 particularly interesting. The people that actually own bitcoin, ethereum and 0:03:09.360 --> 0:03:14.400 some even fringe names like Basic Attention Token like those 0:03:14.400 --> 0:03:18.200 investments were really interesting. And then also the investment funds 0:03:18.240 --> 0:03:21.200 because they're becoming more popular, but still they're not as 0:03:21.240 --> 0:03:24.919 widely held as your four one case, your retirement savings. 0:03:25.160 --> 0:03:28.480 Got it. So, folks in Congress own lots of things 0:03:28.560 --> 0:03:30.600 all the time. They have access to lots of information 0:03:30.680 --> 0:03:33.640 all the time. With crypto and with some of what 0:03:33.680 --> 0:03:37.720 you're describing, some of the conflicts are perhaps less immediate. 0:03:38.040 --> 0:03:41.160 Right there's as you've identified, this is still a growing 0:03:41.440 --> 0:03:45.119 asset class. It's much less widespread but this is also 0:03:45.160 --> 0:03:49.080 an asset class that is under intense regulatory scrutiny right now, 0:03:49.560 --> 0:03:52.720 and some of these folks, some of these members may 0:03:52.840 --> 0:03:58.560 have themselves be considering sponsoring bills about regulating crypto, or 0:03:58.600 --> 0:04:01.080 you know, are on committee is that are interested in 0:04:01.080 --> 0:04:03.280 regulating crypto. Can you tell me a little bit more 0:04:03.280 --> 0:04:06.720 about what you found on that angle. I think you 0:04:06.800 --> 0:04:09.480 bring up an interesting point, which is this debate has 0:04:09.560 --> 0:04:12.800 kind of happened for a long time, whether it's tech 0:04:12.840 --> 0:04:16.560 stocks or defense stocks. You know, there's always been questions 0:04:16.600 --> 0:04:19.159 should you serve on the Committee of Armed Services and 0:04:19.240 --> 0:04:22.039 also hold defense stocks? And the same thing goes for 0:04:22.120 --> 0:04:25.720 tech and so it's really interesting about crypto, particularly because 0:04:25.800 --> 0:04:29.159 it's still so early in that process of regulation. And 0:04:29.200 --> 0:04:32.080 the two committees, or the two areas of committees both 0:04:32.080 --> 0:04:34.360 in the Senate in the House. Um that we looked 0:04:34.400 --> 0:04:37.640 at in this story was the Committee of Agriculture and 0:04:37.680 --> 0:04:40.520 the Committee of Banking, and those go under different names 0:04:40.600 --> 0:04:45.400 under different chambers, but those committees are particularly important because 0:04:45.440 --> 0:04:49.880 they oversee the SEC and the CFTC, the two biggest 0:04:49.880 --> 0:04:53.320 potential regulators for crypto at the moment. There's a bit 0:04:53.360 --> 0:04:56.640 of a tug of war right now about which cryptocurrencies 0:04:56.680 --> 0:05:00.679 are considered commodities and which are considered securities. And different 0:05:00.720 --> 0:05:04.000 Congress members have different motivations for why they want one 0:05:04.080 --> 0:05:07.760 regulator to take more control than another, and so it 0:05:07.800 --> 0:05:10.520 was definitely interesting. Seven of the members that we found 0:05:10.720 --> 0:05:13.159 in this study are part of those committees, so you 0:05:13.200 --> 0:05:16.479 have to consider how their investments might play into their 0:05:16.520 --> 0:05:19.760 decision making, because whether we like it or not, regulation 0:05:19.880 --> 0:05:22.240 does have an impact on the market and on the prices, 0:05:22.279 --> 0:05:26.039 and oftentimes when big regulatory actions come out, it can 0:05:26.120 --> 0:05:29.479 move the needle on whichever coins of the day, and 0:05:29.800 --> 0:05:33.279 that's something that's definitely being raised with our story. So 0:05:33.800 --> 0:05:35.680 one thing we should know is none of this is 0:05:35.760 --> 0:05:40.279 technically illegal right right there. There's no rule that says 0:05:40.360 --> 0:05:42.760 you're not allowed if you're thinking about a bill that 0:05:42.839 --> 0:05:46.520 regulates bitcoin miners to hold or not hold bitcoin. I 0:05:46.560 --> 0:05:49.520 know folks are very strong opinions about whether there should 0:05:49.560 --> 0:05:52.120 in fact be more rules, but I'm interested in hearing 0:05:52.160 --> 0:05:57.200 what are the members themselves saying about any of this. Well, 0:05:57.240 --> 0:05:59.919 some of the big names in this story was Senator 0:06:00.040 --> 0:06:03.960 Pat to Me, who owns investments in gray Scale, speaking 0:06:03.960 --> 0:06:06.719 of sensative to me. He was on CNBC recently talking 0:06:06.720 --> 0:06:11.039 about regulating crypto. Let's listen to that. I'm not in 0:06:11.080 --> 0:06:13.240 the camp that thinks that there should never be any 0:06:13.320 --> 0:06:16.120 kind of regulation over any cryptocurrency, and that saw my 0:06:16.120 --> 0:06:18.440 position at all. But I do think there needs to 0:06:18.480 --> 0:06:22.200 be transparency and objectivity about what we're doing here, and 0:06:22.240 --> 0:06:25.760 the SEC is taking enforcement actions without first having laid 0:06:25.760 --> 0:06:29.680 out how they interpret how they apply existing securities law 0:06:30.040 --> 0:06:34.040 to this really really important and innovative new category of finance. 0:06:36.680 --> 0:06:39.919 His spokesperson says crypto makes up less than one percent 0:06:39.920 --> 0:06:43.680 of his portfolio, but he explicitly said he does not 0:06:43.800 --> 0:06:46.440 support the kind of proposals that are out there right 0:06:46.480 --> 0:06:51.640 now that specifically ban individual investments in stocks or other 0:06:51.720 --> 0:06:55.160 categories bonds and something like crypto might fall under that 0:06:55.200 --> 0:06:58.320 as well, because he doesn't want it to deter people 0:06:58.320 --> 0:07:00.920 who could potentially run for cong Roice or for Senate. 0:07:01.160 --> 0:07:04.320 So he sees it as there's just too much in 0:07:04.360 --> 0:07:07.640 the economy that Congress overseas to restrict any of these. 0:07:07.920 --> 0:07:10.520 But we should say some of these proposals, there's multiple 0:07:10.600 --> 0:07:14.679 out there, have support from both parties. There's bipartisan support 0:07:14.720 --> 0:07:18.400 for some of these proposals that would ban these individual investments. 0:07:18.640 --> 0:07:20.800 But yeah, a lot of the people we spoke to, 0:07:21.280 --> 0:07:24.720 especially people who have stocks like coin Basin Block, said, 0:07:25.160 --> 0:07:28.120 you know, my portfolio is managed by someone else, but 0:07:28.360 --> 0:07:31.680 even the thought or the realization of knowing that those 0:07:31.720 --> 0:07:34.720 things could be in their portfolio could still impact their 0:07:34.760 --> 0:07:39.440 decision making. When we return, a look at another crypto 0:07:39.520 --> 0:07:43.680 enthusiast who also happens to be a sitting Senator, Wyoming's 0:07:43.680 --> 0:07:58.800 Cynthia Lemmas, we'll be right back. Okay, So you know, 0:07:58.840 --> 0:08:02.080 in the story you mentioned in the SEC and the CFCC, 0:08:02.160 --> 0:08:05.960 the Commodity Future of Trading Commission are still figuring out 0:08:06.360 --> 0:08:09.720 this kind of regulatory context. It's it's a pretty big 0:08:09.760 --> 0:08:12.000 tug of war between the two committees that you reference, 0:08:12.080 --> 0:08:14.960 the Sundate Banking and Agriculture. Do you find that there 0:08:15.000 --> 0:08:18.600 were more members from those particular committees than you were expecting, 0:08:18.680 --> 0:08:22.840 or any like individual ones other than to me. Another 0:08:22.920 --> 0:08:27.400 person is Senator Loomis Um. She's been a longtime investor 0:08:27.440 --> 0:08:31.880 in bitcoin. She's very outspoken about her belief that bitcoin 0:08:31.960 --> 0:08:35.200 and crypto is an avenue for freedom, and she's also 0:08:35.720 --> 0:08:39.000 putting forth a bill that would set out some guidelines 0:08:39.080 --> 0:08:42.840 for the SEC and the CFTC under which they can 0:08:42.880 --> 0:08:47.480 regulate certain spot markets, futures markets. And that's something that's 0:08:47.480 --> 0:08:50.840 really interesting because she's also partnering with somebody on AGGS. 0:08:50.840 --> 0:08:54.800 She sits on the Banking Committee with to me as well, well, Okayla, 0:08:54.880 --> 0:08:56.960 we actually have a clip of Senator Loomis thanks to 0:08:56.960 --> 0:08:59.280 our producers. Here's what she has to say recently on 0:08:59.440 --> 0:09:03.679 Meet the Press about the need for cryptoregulation. So I'm 0:09:03.800 --> 0:09:07.760 very confident that bitcoin will withstand the test of time. 0:09:08.320 --> 0:09:13.040 I'm not confident that every other digital asset that's out 0:09:13.040 --> 0:09:19.679 there has the same qualities of permanence and complete decentralization. 0:09:19.920 --> 0:09:23.520 So there's some fraud that's going to occur, which is 0:09:23.600 --> 0:09:26.000 why I think it's so important for the United States 0:09:26.000 --> 0:09:32.120 to create a regulatory framework that allows for innovation but 0:09:32.240 --> 0:09:36.600 still creates rules of the road that protect individual privacy, 0:09:36.760 --> 0:09:41.240 but that also have disclosure components to them, so the 0:09:41.520 --> 0:09:48.680 purchaser knows what they're getting, and you just have to 0:09:48.679 --> 0:09:51.319 wonder someone who holds bitcoin for a long time and 0:09:51.800 --> 0:09:54.560 her range that she reported is between fifty thousand and 0:09:54.559 --> 0:09:57.280 a hundred thousand, and value of the bitcoin that she holds. 0:09:57.280 --> 0:09:59.559 So that's a pretty big number or a pretty big 0:09:59.640 --> 0:10:02.120 range at pretty big range as well. Yes, we should 0:10:02.160 --> 0:10:05.360 note that as well, that all of the representatives have 0:10:05.440 --> 0:10:08.520 to report a range in the assets that they hold, 0:10:08.559 --> 0:10:11.200 regardless of whether they're crypto or not um and so 0:10:11.240 --> 0:10:14.320 that one point eight million number is a range of 0:10:14.480 --> 0:10:16.920 all of the things that they reported. So that's a 0:10:17.000 --> 0:10:20.640 particularly interesting one because you have someone who's outspoken about 0:10:20.640 --> 0:10:23.280 where she believes certain things should fall under, and you 0:10:23.320 --> 0:10:27.280 have to think about how that could potentially impact her holdings. 0:10:28.000 --> 0:10:30.800 Thank you. One other thing about these reports is, as 0:10:30.800 --> 0:10:34.000 you say, it represents the value of the crypto held 0:10:34.120 --> 0:10:36.960 at that moment in time. So one of the fun 0:10:37.040 --> 0:10:40.360 things fun slash challenging things about crypto as an asset 0:10:40.360 --> 0:10:42.959 class is it's really volatile. And so if we were 0:10:43.000 --> 0:10:45.240 having this conversation two months, you could be saying that 0:10:45.240 --> 0:10:47.480 that one point eight million number is a lot bigger 0:10:47.960 --> 0:10:50.600 or a lot smaller, even if none of the members 0:10:50.640 --> 0:10:54.520 had acquired or sold any crypto as a report to 0:10:54.720 --> 0:10:58.439 do you find that covering this asset class is more 0:10:58.640 --> 0:11:01.680 or less challenging because of this volatility and the kinds 0:11:01.720 --> 0:11:03.280 of data that you have to be looking at to 0:11:03.320 --> 0:11:06.840 really get the full story. I think that's an interesting question, 0:11:07.320 --> 0:11:10.600 especially because bitcoin right now is trading in such a 0:11:10.679 --> 0:11:14.640 tight range. It's hard to know how much their assets 0:11:14.679 --> 0:11:17.920 are really valued because they don't have to report exactly 0:11:17.920 --> 0:11:20.600 how much they hold. But the thing to know is 0:11:20.880 --> 0:11:23.120 it has to be over at least a thousand dollars. 0:11:23.120 --> 0:11:26.360 So these ranges are pretty wide, but we don't actually 0:11:26.840 --> 0:11:29.679 have a full picture of how much they're investing in, 0:11:29.679 --> 0:11:33.160 whether it's these individual tokens or the stocks. We we 0:11:33.200 --> 0:11:36.120 don't have that full picture to see how much UM 0:11:36.120 --> 0:11:38.000 it's impacting. And so that's why we have to reach 0:11:38.040 --> 0:11:40.679 out to these members and ask them, why can you 0:11:40.679 --> 0:11:43.120 give us a better idea so we can let readers 0:11:43.200 --> 0:11:47.400 know what exactly you're holdings entail. So that's like something 0:11:47.480 --> 0:11:50.000 like Senator to me telling us that it's one percent 0:11:50.000 --> 0:11:52.800 of his asset class. It gives us a better picture. Okay, 0:11:52.840 --> 0:11:56.080 this is how much Disco potentially impact him personally. I 0:11:56.080 --> 0:11:58.079 should say a lot of the other members gave much 0:11:58.200 --> 0:12:02.480 less detail um into those amounts, But that's something that 0:12:02.520 --> 0:12:05.079 would be great to have if we could have that data. Yeah, 0:12:05.120 --> 0:12:07.719 I would love just a list of the wallets addresses 0:12:07.760 --> 0:12:09.520 of all of the different members that would be That 0:12:09.520 --> 0:12:12.120 would be fantastic and definitely make our lives easier. So 0:12:12.240 --> 0:12:14.360 tell me who are the players and what is the 0:12:14.400 --> 0:12:18.960 partisan or bipartisan representation that you're seeing. So we found 0:12:18.960 --> 0:12:23.679 twenty one members of Congress own crypto related investments, and 0:12:23.720 --> 0:12:27.800 so that includes stocks like coin base and block It 0:12:27.840 --> 0:12:34.120 also includes cryptocurrencies like bitcoin ethereum, and these crypto investment 0:12:34.160 --> 0:12:37.120 funds which are all under Gray Scale, which happened to 0:12:37.120 --> 0:12:39.600 be issued by Gray Skill. And we found that the 0:12:39.679 --> 0:12:44.080 breakdown of that is Democrats Republicans is eleven to ten. 0:12:44.760 --> 0:12:48.199 Democrats were much more likely to own these stocks as 0:12:48.200 --> 0:12:51.400 a part of perhaps like a widely held fund or 0:12:51.400 --> 0:12:55.400 an education trust. Another thing to mention to. These reportings 0:12:55.440 --> 0:12:58.960 also include the holdings of their spouses, perhaps their children 0:12:59.559 --> 0:13:03.920 as well the household exactly. But the kind of differences 0:13:04.120 --> 0:13:07.320 is definitely Democrats tend to hold more of the stocks, 0:13:07.720 --> 0:13:11.560 while Republicans happened to dabble more in the cryptocurrencies and 0:13:11.559 --> 0:13:14.680 the funds. I want to also, you know, you mentioned 0:13:14.679 --> 0:13:19.360 there's kind of both bipartisan supports and bipartisan rejection of 0:13:19.679 --> 0:13:21.599 some of these various proposals. Can you tell me a 0:13:21.640 --> 0:13:23.920 little bit more about any of the Dems that popped 0:13:23.960 --> 0:13:27.480 up in this data sets. One Democrat who invested in 0:13:27.960 --> 0:13:32.560 we call this category like cryptocurrencies or funds focused specifically 0:13:32.679 --> 0:13:36.280 on crypto So that Democrat was Marie Newman. She had 0:13:36.600 --> 0:13:39.959 investments in a gray Scale fund. She declined to comment 0:13:40.360 --> 0:13:43.240 for this story, but yeah, again, it's interesting to see 0:13:43.280 --> 0:13:46.240 the amount of people that are specifically gravitating towards gray 0:13:46.240 --> 0:13:49.800 Scale um. That could say something about why people are 0:13:49.840 --> 0:13:53.320 choosing this. And what's interesting about Gray Scale is they 0:13:53.360 --> 0:13:56.520 have a big lobbying effort right now for the SEC 0:13:56.760 --> 0:14:00.320 to approve lots of comment letters exactly to prove a 0:14:00.360 --> 0:14:03.200 spot bitcoin et F. So they're having a really big 0:14:03.240 --> 0:14:05.520 push for that right now. And you have to think 0:14:05.559 --> 0:14:08.199 about if members are investing in gray Skill, how does 0:14:08.200 --> 0:14:11.960 that impact their thinking when they're communicating with regulators, when 0:14:12.040 --> 0:14:14.520 regulators are coming to the House or the Senate to 0:14:14.559 --> 0:14:17.320 be questioned. And that's something important to talk about. Two 0:14:17.440 --> 0:14:21.240 is this relationship between the regulators and Congress. While they're 0:14:21.280 --> 0:14:26.120 technically separate, Congress votes them in, they can organize hearings, 0:14:26.440 --> 0:14:30.400 They have tremendous agenda setting powers, and so even though 0:14:30.440 --> 0:14:35.240 there's a separate relationship, there's still very much communication throughout 0:14:35.320 --> 0:14:38.720 the year, and Congress members are constantly letting them know 0:14:38.800 --> 0:14:41.200 what they think is the best idea and if they 0:14:41.240 --> 0:14:44.720 should choose to make regulation, that would be law over 0:14:44.800 --> 0:14:48.200 anything the regulators do individually. And so that's another thing 0:14:48.320 --> 0:14:51.960 is will Congress actually put legislation in place in terms 0:14:52.000 --> 0:14:55.520 of crypto or will the regulators kind of work themselves 0:14:55.520 --> 0:14:58.840 out with different actions. I talked to one lawyer who 0:14:58.880 --> 0:15:02.040 said he thinks it's less likely that we'll see legislation 0:15:02.560 --> 0:15:05.880 and more likely that regulators will just kind of come 0:15:05.880 --> 0:15:09.000 out with their own stances and kind of work it out. 0:15:09.320 --> 0:15:13.400 There's a lot of legal implications too, so there's question 0:15:13.640 --> 0:15:16.440 exactly all of these things are kind of working themselves out, 0:15:16.760 --> 0:15:19.040 But we can't negate the fact that Congress has this 0:15:19.120 --> 0:15:25.680 tremendous agenda setting power. You can find more of a 0:15:25.720 --> 0:15:29.200 Kala gardeners reporting on Bloomberg dot Com, the Bloomberg Terminal 0:15:29.320 --> 0:15:33.000 on Twitter. A Gardener a Kala on the next episode 0:15:33.000 --> 0:15:36.680 of Bloomberg Crypto. Sometimes it's good to define our terms, 0:15:37.160 --> 0:15:39.360 even for those of us who do this for a Living. 0:15:40.360 --> 0:15:43.720 Join me Monday for a conversation with Bloomberg's Hannahmilla and 0:15:43.800 --> 0:15:47.920 Vildana Hodrick. We'll be reviewing their handy Crypto glossary. You'll 0:15:47.920 --> 0:15:57.120 hear about terms like staking, bridges and more. I'm Stacy 0:15:57.200 --> 0:16:00.920 Marie Ishmael and this is Bloomberg Crypto Daily podcast from 0:16:00.920 --> 0:16:03.880 Bloomberg and I Heart Radio. For more shows from I 0:16:03.960 --> 0:16:07.240 Heart Radio, visit the I Heart Radio app, Apple Podcasts, 0:16:07.480 --> 0:16:11.640 or wherever you get your podcasts. Email your comments, questions 0:16:11.720 --> 0:16:15.640 or suggestions to Crypto at Bloomberg dot net and you'll 0:16:15.640 --> 0:16:20.080 find us on Twitter at Crypto. The producer and editor 0:16:20.120 --> 0:16:24.160 of this episode is Vicky Vergelina. Our engineer is Blake Maples. 0:16:24.760 --> 0:16:28.800 Original music by Leo Sidran. Bloomberg's head of Podcasts is 0:16:28.840 --> 0:16:29.600 Francesca Levi