Speaker 1: Because you're a subscriber to this Bloomberg podcast, we thought
Speaker 1: you'd be interested in a sponsored podcast called Evolving Money,
Speaker 1: produced by Coinbase and Bloomberg Media Studios. It explores how
Speaker 1: money has changed over the centuries and whether cryptocurrency is
Speaker 1: just the next logical evolution of how we pay for
Speaker 1: things and store long term value. Here is a recent episode.
Speaker 2: It's been nearly fifteen years since a computer programmer named
Speaker 2: Laslohnyez famously spent ten thousand bitcoin for two Papa John's pizzas,
Speaker 2: the first ever purchase using bitcoin.
Speaker 3: At the time, those.
Speaker 2: Ten thousand coins were worth only forty one dollars. Since
Speaker 2: that landmark moment, the digital currency has traveled an uncertain road,
Speaker 2: which isn't unexpected. When new financial practices gained traction, regulation
Speaker 2: is usually slow to catch up with the new reality.
Speaker 2: As a result, throughout its short history, the crypto market
Speaker 2: has been plagued by regulatory uncertainty.
Speaker 3: But last year things started to shift.
Speaker 2: One of the first big breakthroughs came when federal regulators
Speaker 2: approved an ETF that tracks bitcoin. Then came election Day,
Speaker 2: which was a game changer. A record number of pro
Speaker 2: crypto candidates on both sides of the aisle one at
Speaker 2: the state and federal levels, with the most pro crypto
Speaker 2: Congress ever on its way to Washington. On December seventeenth,
Speaker 2: Bitcoin closed above the one hundred thousand dollars mark for
Speaker 2: the first time ever. At that moment, the amount of
Speaker 2: bitcoin that Laslohanye has used to buy his two pizzas
Speaker 2: back in twenty ten was worth one billion dollars. That's
Speaker 2: a lot of pizza no matter how you slice it.
Speaker 2: It seems clear that crypto is entering a new era,
Speaker 2: But what will that new era actually look like? Welcome
Speaker 2: back to Evolving Money from Coinbase and Bloomberg Media Studios.
Speaker 2: I'm your host, Maggie Lake. On this podcast, we take
Speaker 2: a different look at cryptocurrency. It's been as a radical
Speaker 2: departure for the monetary system, but what if it isn't
Speaker 2: radical at all, just the next logical evolution of how
Speaker 2: we pay for things and store long term value. Along
Speaker 2: the way, we'll explore how money has changed over the
Speaker 2: centuries and look for lessons that might predict its next evolution.
Speaker 2: As investors finally begin to see a path toward regulatory
Speaker 2: clarity for crypto, what new opportunities are about to be
Speaker 2: unlocked for investors and consumers. I'll pose those questions to
Speaker 2: Carrick Calvert, head of US policy at Coinbase, and hear
Speaker 2: how a clear regulatory framework could build even more momentum
Speaker 2: behind crypto and usher in the next wave of money's evolution.
Speaker 2: But first we'll speak with historian Daniel Carey about a
Speaker 2: moment three centuries ago when a radical new way of
Speaker 2: lending money was born and why it took another one
Speaker 2: hundred years for the government to catch up to this innovation.
Speaker 2: In seventeen twenty six, a new book was making waves
Speaker 2: across Europe, Gulliver's Travels. You probably read it in high school,
Speaker 2: but did you know that the author, Jonathan Swift, was
Speaker 2: also deeply involved in Irish politics.
Speaker 4: He's a controversialist, he's a satirist, a very patriotic supporter
Speaker 4: of Ireland.
Speaker 2: That's Daniel Carey, professor at the University of Galway in Ireland,
Speaker 2: where his work focuses on money and the economy in
Speaker 2: the Enlightenment. With the success of Gulliver's Travels, Swift became
Speaker 2: newly rich. With his now substantial personal wealth, Swift decided, hey,
Speaker 2: why not try to do some good well.
Speaker 4: Swift clearly has a sympathy with those who are trying
Speaker 4: to get by dealing with you know what.
Speaker 5: We would call liquidity issues.
Speaker 4: They've gone debts that they have to call in, they
Speaker 4: have bills that they need being repaid. He decides to
Speaker 4: make person loans.
Speaker 2: He approached farmers, builders and entrepreneurs he knew, offering loans
Speaker 2: of five to ten pounds roughly thirteen hundred to twenty
Speaker 2: six hundred dollars in today's money, and Swift didn't ask
Speaker 2: for a cent of interest on these loans.
Speaker 3: Swift's idea was a smashing success.
Speaker 2: Soon networks of peer to peer loans began popping up
Speaker 2: across Ireland, an unofficial system providing crucial liquidity and startup
Speaker 2: funds to people who had no access to financial institutions.
Speaker 4: It is significant in terms of enfranchising people and giving
Speaker 4: them a little bit of a sense of reward for
Speaker 4: what Swift thinks of as their honestry and their commitment
Speaker 4: and diligences tradespeople.
Speaker 2: Even as this informal system spread and its benefits became clear,
Speaker 2: the British Parliament didn't formalize or ban these peer to
Speaker 2: peer networks, and that lack of structure limited the scale
Speaker 2: of their growth. It wasn't until seventy eight years after
Speaker 2: Swift's death that Parliament passed legislation to formalize what he created.
Speaker 4: The legacy for Swift is probably in systems of microcredit,
Speaker 4: which for most people are relatively recent in terms of
Speaker 4: their thinking about what can be achieved through supporting industrious
Speaker 4: but impoverished people.
Speaker 2: Fast forward to the late nineteen nineties, when online technologies
Speaker 2: began to inspire a resurgence in the kind of peer
Speaker 2: to peer lending that Swift made popular centuries earlier. Instead
Speaker 2: of a wealthy merchant going to a farm to lend
Speaker 2: a worker a few pounds, now online platforms could match
Speaker 2: individual lenders with borrowers. It took nearly a decade for
Speaker 2: the Securities and Exchange Commission to regulate P to P
Speaker 2: lending services. Once it did, the system flourished, and today
Speaker 2: the P to P market is valued at over twenty
Speaker 2: six billion dollars.
Speaker 4: These are just evolving systems. It takes a long time
Speaker 4: to evolve that and to develop systems of trust.
Speaker 2: Taken to extremes, government regulation can be the enemy of innovation,
Speaker 2: stifling change. But as the history of peer to peer
Speaker 2: lending shows not once, but twice. Instituting the appropriate regulation
Speaker 2: can also normalize new kinds of financial practices, Innovation can accelerate,
Speaker 2: and even more opportunities open up for crypto. It appears
Speaker 2: that breakthrough moment has arrived.
Speaker 5: I got my start in crypto about a decade ago
Speaker 5: and had started working for coinbase here in Washington, d C.
Speaker 5: Was really one of the few lobbyists on the ground
Speaker 5: that was working on digital asset issues, crypto issues, blockchain technology.
Speaker 2: This is Kara Calvert, vice president for US Policy at Coinbase.
Speaker 2: As an advocate for financial innovation on Capitol Hill, Kara
Speaker 2: has seen how slow regulators and institutional investors can be
Speaker 2: when it comes to embracing something new like crypto.
Speaker 5: When I first started working on these issues, it was
Speaker 5: much more viewed through the lens of technology, and really
Speaker 5: it was so new and nascent that nobody really knew
Speaker 5: what to think.
Speaker 2: As the crypto industry has grown, the SEC has sent
Speaker 2: mixed and often confusing signals. Rather than regulating crypto through
Speaker 2: new roles that treat it as the financial innovation it is,
Speaker 2: the SEC has insisted crypto fits its existing set of
Speaker 2: roles that approach has led to some murky and seemingly
Speaker 2: arbitrary classifications. The SEC, for example, considers most digital assets
Speaker 2: as securities, but not bitcoin and ethereum. Back in twenty eighteen,
Speaker 2: the SEC ruled that Bitcoin and ethereum, the two most
Speaker 2: popular and widely held digital currencies out there, weren't digital
Speaker 2: assets at all, but quote replacements for sovereign currencies. The
Speaker 2: SEC's selective regulations have resulted in a regulation by enforcement approach,
Speaker 2: leading to a slew of lawsuits against crypto companies, including Coinbase.
Speaker 3: In twenty twenty three.
Speaker 2: The SEC alleged that Coinbase had been acting as an
Speaker 2: unregistered broker. That's consistent with its view that most crypto
Speaker 2: products are no different from stocks, bonds, and other securities.
Speaker 2: But Coinbase and other crypto companies targeted by the SEC
Speaker 2: have argued in court that digital assets are different and
Speaker 2: that it doesn't make sense for them to be treated
Speaker 2: the same as existing financial instruments.
Speaker 5: We have been working and really tried to work with
Speaker 5: regulators from the beginning. When Brian Armstrong founded this company,
Speaker 5: it was to be the mostested, in, safe and secure
Speaker 5: way to transact in digital assets, and in order to
Speaker 5: do that, you have to work with regulators, and so
Speaker 5: I think the SEC over the course of the last
Speaker 5: four years had very much a yes, you can come
Speaker 5: talk to us, but well, listen, we may not give
Speaker 5: you anything in return.
Speaker 2: Kara says that the absence of clear rules has stifled
Speaker 2: industry wide progress that.
Speaker 5: Created a real depression I think on innovation here in
Speaker 5: the United States and ultimately resulted in a lot of
Speaker 5: startups and more importantly, the investors in those startups saying,
Speaker 5: let's go overseas. There's a better way to do this
Speaker 5: in one of these jurisdictions, not a deregulated jurisdiction, a
Speaker 5: regulated jurisdiction.
Speaker 2: There have been signs that the legal tide might be turning.
Speaker 2: In twenty twenty three, the SEC sued Ripple, a firm
Speaker 2: which provides digital asset infrastructure to financial services companies, for
Speaker 2: violating securities laws, but the judge sided with Ripple, ruling
Speaker 2: that it didn't break the law when the currency it created, XRP,
Speaker 2: was sold on public exchanges. The industry's momentum continued when
Speaker 2: the SEC approved an ETF that tracks the price of bitcoin.
Speaker 2: That was a big win for crypto custodians like Coinbase,
Speaker 2: which provides custody, trading, and financing for etf issuers as
Speaker 2: well as investors around the world.
Speaker 5: I do think it paved the way for retail investors
Speaker 5: other investors around the world to have access to our
Speaker 5: very deep in liquid markets in the United States, and
Speaker 5: I think that was very much a turning point for
Speaker 5: many people.
Speaker 2: As for Coinbase's battle with the SEC, in March twenty
Speaker 2: twenty four, a Manhattan federal judge found quote the challenge
Speaker 2: transactions fall comfortably within the framework that courts have used
Speaker 2: to identify securities for nearly eighty years, setting the stage
Speaker 2: for a jury trial. But then in January she granted
Speaker 2: Coinbase's request for a pre trial review of her March
Speaker 2: order by the Second Circuit. Those sorts of interlocutory appeals
Speaker 2: are rarely granted. A promising sign for the industry. In
Speaker 2: the meantime, it can still feel like the US is
Speaker 2: in the dark ages when it comes to crypto.
Speaker 5: You have seen now Europe is ahead of the United
Speaker 5: States in a innovative technology which doesn't happen that often.
Speaker 5: And we're actually very excited about the work in the
Speaker 5: EU and working with our counterparts and with regulators In
Speaker 5: the EU, they developed a very clear framework and they're
Speaker 5: going to be implementing that soon. You have the UK, Singapore, Australia,
Speaker 5: there are so many different countries. Roughly eighty percent of
Speaker 5: G twenty and other financial hubs already have rules that
Speaker 5: they're putting in place to deal with this asset class.
Speaker 2: So why has the US government in comparison been so
Speaker 2: slow to create a federal framework.
Speaker 5: The foundational regulatory framework that we're working with in the
Speaker 5: United States is frankly more complicated. We have a bifurcated
Speaker 5: system where we determine what is a security and then
Speaker 5: what is a non security or a commodity. And in
Speaker 5: the rest of the world they don't really have that
Speaker 5: type of differentiation, and that I think has allowed them
Speaker 5: to move more quickly. State regular market regulators two different
Speaker 5: market regulators that are in a tug of war. They
Speaker 5: just don't have that in most international jurisdictions. Crypto is
Speaker 5: not asking for a deregulated environment. Instead, we're asking for
Speaker 5: consistent rules that actually address both the benefits of crypto
Speaker 5: and of blockchain technology and the risks.
Speaker 2: Today there's more hope than ever that the industry will
Speaker 2: finally get the regulatory clarity that will pave the way
Speaker 2: for wide scale adoption with widespread benefits for consumers and
Speaker 2: investors alike. While the SEC remained reluctant to regulate crypto
Speaker 2: and legal proceedings ground on in the courts, the crypto
Speaker 2: industry turned its attention to the third branch of government, Congress.
Speaker 3: Ahead of the twenty twenty four election.
Speaker 2: Knowing what was at stake, the industry mobilized to support
Speaker 2: pro crypto candidates, contributing more than one hundred and thirty
Speaker 2: million dollars to election coffers. Industry advocacy groups such as
Speaker 2: Stand with Crypto mobilized as well, organizing more than two
Speaker 2: million crypt do advocates through grassroots efforts, and come November,
Speaker 2: twice as many crypto supporters were elected to the House
Speaker 2: of Representatives as anti crypto candidates. The market's response was emphatic.
Speaker 2: In December, bitcoin hit the one hundred thousand dollars milestone,
Speaker 2: a remarkable moment considering that just two years ago the
Speaker 2: price had dipped below seventeen thousand dollars.
Speaker 5: It's been a complete one eighty. You've got the most
Speaker 5: pro cryptocongress, you have a president, you have Republicans and
Speaker 5: Democrats all saying, all right, now we know more about
Speaker 5: this industry. It is maturing. We understand what the future
Speaker 5: might hold and why it's important. So I would certainly
Speaker 5: say the narrative has evolved. It's matured. You have more
Speaker 5: people at the table, and I think that's the exciting part.
Speaker 2: Now with a new pro crypto administration in the White House,
Speaker 2: new leadership at the SEC gives the industry hope for change.
Speaker 5: Now. I think the SEC really has an opportunity to
Speaker 5: write the rules that these are not rules that are
Speaker 5: deregulatory in nature. It needs to be because the asset
Speaker 5: is not identical to what we traditionally see in an
Speaker 5: equities market. It has different characteristics, it evolves. We are
Speaker 5: really eager and we are very optimistic that the regulators
Speaker 5: will work together to actually come up with a framework
Speaker 5: that looks at both the role of the SEC with
Speaker 5: the digital assets securities and the role of the CFTC
Speaker 5: with digital asset commodities.
Speaker 2: The CFTC is the US Commodity Futures Trading Commission, a
Speaker 2: government agency that's always been overshadowed by the SEC, but
Speaker 2: under the Trump administration, the CFTC is positioned to play
Speaker 2: a bigger role in regulation, working alongside the SEC for starters,
Speaker 2: Congress could empower the CFTC to regulate digital assets as
Speaker 2: commodities rather than securities.
Speaker 5: Congress has a really important role here to ensure the
Speaker 5: CFTC has the federal authority to regulate these spot markets
Speaker 5: for digital assets, but also that the SEC can use
Speaker 5: to tailor and move in the right direction. And so
Speaker 5: the work of Congress to really make sure that we
Speaker 5: have something in law that can withstand the test of time.
Speaker 5: It can it can move through administration to administration, regulator
Speaker 5: to a regulator.
Speaker 2: Among the topics the crypto industry hopes Congress and regulators
Speaker 2: will address is the status of stable coins. The discussion
Speaker 2: around stable coins is only intensified with the growing possibility
Speaker 2: of legislation that would facilitate their trading.
Speaker 5: There are a lot of really important characteristics of stable
Speaker 5: coins that need to be captured in a federal framework.
Speaker 5: How we create a framework at the federal level to
Speaker 5: ensure that folks who are issuing digital assets as stable
Speaker 5: coins are safely protecting their reserves, are putting those reserves
Speaker 5: in a one for one bank account or in an
Speaker 5: equivalent of a treasury or cash, that they're holding that
Speaker 5: in a bankruptcy remote way, that they are accounting for that,
Speaker 5: and they are demonstrating that in a transparent way.
Speaker 2: Another simmering subject the industry hopes Congress takes on is
Speaker 2: d banking, the practice of lenders dropping cryptocompany and founders
Speaker 2: as clients.
Speaker 5: If you can't get a bank account, it's pretty hard
Speaker 5: to start a new business. Stand with Crypto has brought
Speaker 5: more than one hundred founders to Washington to meet with lawmakers,
Speaker 5: and a really interesting piece of the puzzle for them
Speaker 5: is their banking services. And in almost every meeting they
Speaker 5: went into, they expressed concern that they couldn't have access
Speaker 5: to payroll or checking accounts. And we said, well, would
Speaker 5: you be willing to go raise your hand in public?
Speaker 5: And Autumn said, well, I actually don't feel comfortable raising
Speaker 5: my hand in public because I'm still trying to get
Speaker 5: that bank account. I'm still trying to find somebody who
Speaker 5: will give me those services. And if I say right
Speaker 5: now that I can't be trusted to get a bank account,
Speaker 5: nobody else is going to give it to me. And
Speaker 5: so what we saw was this inability for people to
Speaker 5: really voice their concerns and raise the issues.
Speaker 2: But less than a month into the new administration, that's
Speaker 2: already changing. Just a few days into his term, President
Speaker 2: Trump issued an executive order that fundamentally changed the federal
Speaker 2: government's approach to crypto Fulfilling a promise he made on
Speaker 2: the campaign trail.
Speaker 5: The executive order really encapsulated those campaign promises, everything from
Speaker 5: ensuring that you can continue to self custody your assets,
Speaker 5: to ensuring that there's no central bank digital currency, to
Speaker 5: creating a working group to ensure that we stop the
Speaker 5: turf war between the different agencies and instead have them
Speaker 5: work together.
Speaker 2: The new administration also quickly moved to counteract SAB one
Speaker 2: twenty one, an SEC bulletin that prevented a lot of
Speaker 2: financial institutions from entering the crypto space.
Speaker 5: SAB one twenty one represents the staff accounting Bulletin number
Speaker 5: one twenty one. Think about what that represents. It is
Speaker 5: a staff letter, It is not a rule. It did
Speaker 5: not go through the proper rulemaking process with notice and comment.
Speaker 5: It was bureaucrats inside the SEC who decided to write
Speaker 5: an accounting bulletin that then imposed a new framework on
Speaker 5: the entire industry.
Speaker 2: SAB one twenty one was a barrier that cut off
Speaker 2: access to banking services for crypto companies and kept banks
Speaker 2: out of the crypto business. Coinbase has always prided ourselves
Speaker 2: on being one of those access points, but when we
Speaker 2: think about the recision of ZAB one twenty one, it
Speaker 2: really allows other banks other financial institutions to engage as well.
Speaker 2: Within days of being appointed, the acting director of the
Speaker 2: SEC countermanded SAB one twenty one. Just like that, one
Speaker 2: of the major obstacles preventing banks from taking on crypto
Speaker 2: clients vanished. Charis is it's a crucial step in allowing
Speaker 2: banks the security they need to serve clients who hold
Speaker 2: or deal in crypto. Nobody is telling the banks that
Speaker 2: they need to not engage in risk analysis and make
Speaker 2: sure that the companies that they are banking makes sense
Speaker 2: for their own risk profiles. But ultimately we are saying
Speaker 2: that you shouldn't punish an entire industry or an entire
Speaker 2: class of people because of what they do. We will
Speaker 2: continue to advocate for the industry. We will continue to
Speaker 2: try to lead from.
Speaker 5: The front and honestly try to make sure that everybody
Speaker 5: can have banking services.
Speaker 2: The industry is optimistic this newfound clarity will break down
Speaker 2: barriers and allow Americans to understand the promise of crypto.
Speaker 5: So right now there are about fifty two million Americans
Speaker 5: who own crypto, So I think that there are investors
Speaker 5: and consumers. Really the consumption, I think is what people
Speaker 5: are excited about. The ability to say, all right, that
Speaker 5: I want to get into this because I think it's
Speaker 5: a new industry, it's a new way to transact. Wanting
Speaker 5: to know more about this technology, wanting to make sure
Speaker 5: it thrives in the US, wanting to make sure that
Speaker 5: we can grow jobs here because we're seeing thousands of
Speaker 5: small startups come to the market now with really interesting
Speaker 5: ideas of how to use this technology. And that I
Speaker 5: think that was the secret sauce over the course of
Speaker 5: the last year and working with policymakers is showing that
Speaker 5: this was more than a handful of individuals who were
Speaker 5: getting rich off bitcoin and really a much broader based industry.
Speaker 2: Crypto has proven that it's pretty much impossible to predict
Speaker 2: the future, but the industry is optimal mystic that a
Speaker 2: new era is beginning when we.
Speaker 5: Start to educate policymakers. They realize eventually this will be
Speaker 5: a ubiquitous like the Internet. But in order to get there,
Speaker 5: we have to create the framework, and that generally starts
Speaker 5: in the regulatory environment. That disruption isn't scary, It needs
Speaker 5: to be embraced, and we can in fact find a
Speaker 5: way forward that enables new economic opportunities. We're very optimistic.
Speaker 2: Just as the growth of peer to peer lending in
Speaker 2: Ireland far outstripped the pace of royal regulation, crypto has
Speaker 2: burst onto the scene so fast we're only now seeing
Speaker 2: American regulators catch up. But now there's a clear path
Speaker 2: for regulatory clarity, unlocking a new future for companies, investors,
Speaker 2: and consumers, and accelerating the next wave of money's evolution.
Speaker 2: Thank you to Cara Calvert and Daniel Carey. This is
Speaker 2: Evolving Money, a podcast from Coinbase and Bloomberg Media Studios.
Speaker 2: If you like what you hear, subscribe and leave us
Speaker 2: a review. I'm Maggie Lake.
Speaker 3: Thanks for listening.