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Speaker 1: Because you're a subscriber to this Bloomberg podcast, we thought

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Speaker 1: you'd be interested in a sponsored podcast called Evolving Money,

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Speaker 1: produced by Coinbase and Bloomberg Media Studios. It explores how

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Speaker 1: money has changed over the centuries and whether cryptocurrency is

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Speaker 1: just the next logical evolution of how we pay for

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Speaker 1: things and store long term value. Here is a recent episode.

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Speaker 2: It's been nearly fifteen years since a computer programmer named

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Speaker 2: Laslohnyez famously spent ten thousand bitcoin for two Papa John's pizzas,

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Speaker 2: the first ever purchase using bitcoin.

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Speaker 3: At the time, those.

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Speaker 2: Ten thousand coins were worth only forty one dollars. Since

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Speaker 2: that landmark moment, the digital currency has traveled an uncertain road,

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Speaker 2: which isn't unexpected. When new financial practices gained traction, regulation

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Speaker 2: is usually slow to catch up with the new reality.

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Speaker 2: As a result, throughout its short history, the crypto market

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Speaker 2: has been plagued by regulatory uncertainty.

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Speaker 3: But last year things started to shift.

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Speaker 2: One of the first big breakthroughs came when federal regulators

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Speaker 2: approved an ETF that tracks bitcoin. Then came election Day,

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Speaker 2: which was a game changer. A record number of pro

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Speaker 2: crypto candidates on both sides of the aisle one at

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Speaker 2: the state and federal levels, with the most pro crypto

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Speaker 2: Congress ever on its way to Washington. On December seventeenth,

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Speaker 2: Bitcoin closed above the one hundred thousand dollars mark for

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Speaker 2: the first time ever. At that moment, the amount of

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Speaker 2: bitcoin that Laslohanye has used to buy his two pizzas

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Speaker 2: back in twenty ten was worth one billion dollars. That's

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Speaker 2: a lot of pizza no matter how you slice it.

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Speaker 2: It seems clear that crypto is entering a new era,

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Speaker 2: But what will that new era actually look like? Welcome

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Speaker 2: back to Evolving Money from Coinbase and Bloomberg Media Studios.

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Speaker 2: I'm your host, Maggie Lake. On this podcast, we take

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Speaker 2: a different look at cryptocurrency. It's been as a radical

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Speaker 2: departure for the monetary system, but what if it isn't

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Speaker 2: radical at all, just the next logical evolution of how

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Speaker 2: we pay for things and store long term value. Along

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Speaker 2: the way, we'll explore how money has changed over the

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Speaker 2: centuries and look for lessons that might predict its next evolution.

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Speaker 2: As investors finally begin to see a path toward regulatory

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Speaker 2: clarity for crypto, what new opportunities are about to be

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Speaker 2: unlocked for investors and consumers. I'll pose those questions to

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Speaker 2: Carrick Calvert, head of US policy at Coinbase, and hear

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Speaker 2: how a clear regulatory framework could build even more momentum

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Speaker 2: behind crypto and usher in the next wave of money's evolution.

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Speaker 2: But first we'll speak with historian Daniel Carey about a

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Speaker 2: moment three centuries ago when a radical new way of

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Speaker 2: lending money was born and why it took another one

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Speaker 2: hundred years for the government to catch up to this innovation.

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Speaker 2: In seventeen twenty six, a new book was making waves

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Speaker 2: across Europe, Gulliver's Travels. You probably read it in high school,

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Speaker 2: but did you know that the author, Jonathan Swift, was

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Speaker 2: also deeply involved in Irish politics.

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Speaker 4: He's a controversialist, he's a satirist, a very patriotic supporter

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Speaker 4: of Ireland.

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Speaker 2: That's Daniel Carey, professor at the University of Galway in Ireland,

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Speaker 2: where his work focuses on money and the economy in

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Speaker 2: the Enlightenment. With the success of Gulliver's Travels, Swift became

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Speaker 2: newly rich. With his now substantial personal wealth, Swift decided, hey,

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Speaker 2: why not try to do some good well.

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Speaker 4: Swift clearly has a sympathy with those who are trying

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Speaker 4: to get by dealing with you know what.

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Speaker 5: We would call liquidity issues.

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Speaker 4: They've gone debts that they have to call in, they

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Speaker 4: have bills that they need being repaid. He decides to

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Speaker 4: make person loans.

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Speaker 2: He approached farmers, builders and entrepreneurs he knew, offering loans

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Speaker 2: of five to ten pounds roughly thirteen hundred to twenty

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Speaker 2: six hundred dollars in today's money, and Swift didn't ask

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Speaker 2: for a cent of interest on these loans.

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Speaker 3: Swift's idea was a smashing success.

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Speaker 2: Soon networks of peer to peer loans began popping up

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Speaker 2: across Ireland, an unofficial system providing crucial liquidity and startup

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Speaker 2: funds to people who had no access to financial institutions.

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Speaker 4: It is significant in terms of enfranchising people and giving

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Speaker 4: them a little bit of a sense of reward for

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Speaker 4: what Swift thinks of as their honestry and their commitment

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Speaker 4: and diligences tradespeople.

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Speaker 2: Even as this informal system spread and its benefits became clear,

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Speaker 2: the British Parliament didn't formalize or ban these peer to

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Speaker 2: peer networks, and that lack of structure limited the scale

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Speaker 2: of their growth. It wasn't until seventy eight years after

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Speaker 2: Swift's death that Parliament passed legislation to formalize what he created.

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Speaker 4: The legacy for Swift is probably in systems of microcredit,

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Speaker 4: which for most people are relatively recent in terms of

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Speaker 4: their thinking about what can be achieved through supporting industrious

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Speaker 4: but impoverished people.

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Speaker 2: Fast forward to the late nineteen nineties, when online technologies

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Speaker 2: began to inspire a resurgence in the kind of peer

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Speaker 2: to peer lending that Swift made popular centuries earlier. Instead

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Speaker 2: of a wealthy merchant going to a farm to lend

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Speaker 2: a worker a few pounds, now online platforms could match

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Speaker 2: individual lenders with borrowers. It took nearly a decade for

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Speaker 2: the Securities and Exchange Commission to regulate P to P

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Speaker 2: lending services. Once it did, the system flourished, and today

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Speaker 2: the P to P market is valued at over twenty

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Speaker 2: six billion dollars.

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Speaker 4: These are just evolving systems. It takes a long time

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Speaker 4: to evolve that and to develop systems of trust.

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Speaker 2: Taken to extremes, government regulation can be the enemy of innovation,

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Speaker 2: stifling change. But as the history of peer to peer

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Speaker 2: lending shows not once, but twice. Instituting the appropriate regulation

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Speaker 2: can also normalize new kinds of financial practices, Innovation can accelerate,

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Speaker 2: and even more opportunities open up for crypto. It appears

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Speaker 2: that breakthrough moment has arrived.

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Speaker 5: I got my start in crypto about a decade ago

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Speaker 5: and had started working for coinbase here in Washington, d C.

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Speaker 5: Was really one of the few lobbyists on the ground

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Speaker 5: that was working on digital asset issues, crypto issues, blockchain technology.

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Speaker 2: This is Kara Calvert, vice president for US Policy at Coinbase.

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Speaker 2: As an advocate for financial innovation on Capitol Hill, Kara

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Speaker 2: has seen how slow regulators and institutional investors can be

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Speaker 2: when it comes to embracing something new like crypto.

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Speaker 5: When I first started working on these issues, it was

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Speaker 5: much more viewed through the lens of technology, and really

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Speaker 5: it was so new and nascent that nobody really knew

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Speaker 5: what to think.

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Speaker 2: As the crypto industry has grown, the SEC has sent

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Speaker 2: mixed and often confusing signals. Rather than regulating crypto through

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Speaker 2: new roles that treat it as the financial innovation it is,

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Speaker 2: the SEC has insisted crypto fits its existing set of

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Speaker 2: roles that approach has led to some murky and seemingly

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Speaker 2: arbitrary classifications. The SEC, for example, considers most digital assets

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Speaker 2: as securities, but not bitcoin and ethereum. Back in twenty eighteen,

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Speaker 2: the SEC ruled that Bitcoin and ethereum, the two most

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Speaker 2: popular and widely held digital currencies out there, weren't digital

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Speaker 2: assets at all, but quote replacements for sovereign currencies. The

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Speaker 2: SEC's selective regulations have resulted in a regulation by enforcement approach,

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Speaker 2: leading to a slew of lawsuits against crypto companies, including Coinbase.

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Speaker 3: In twenty twenty three.

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Speaker 2: The SEC alleged that Coinbase had been acting as an

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Speaker 2: unregistered broker. That's consistent with its view that most crypto

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Speaker 2: products are no different from stocks, bonds, and other securities.

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Speaker 2: But Coinbase and other crypto companies targeted by the SEC

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Speaker 2: have argued in court that digital assets are different and

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Speaker 2: that it doesn't make sense for them to be treated

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Speaker 2: the same as existing financial instruments.

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Speaker 5: We have been working and really tried to work with

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Speaker 5: regulators from the beginning. When Brian Armstrong founded this company,

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Speaker 5: it was to be the mostested, in, safe and secure

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Speaker 5: way to transact in digital assets, and in order to

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Speaker 5: do that, you have to work with regulators, and so

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Speaker 5: I think the SEC over the course of the last

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Speaker 5: four years had very much a yes, you can come

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Speaker 5: talk to us, but well, listen, we may not give

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Speaker 5: you anything in return.

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Speaker 2: Kara says that the absence of clear rules has stifled

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Speaker 2: industry wide progress that.

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Speaker 5: Created a real depression I think on innovation here in

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Speaker 5: the United States and ultimately resulted in a lot of

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Speaker 5: startups and more importantly, the investors in those startups saying,

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Speaker 5: let's go overseas. There's a better way to do this

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Speaker 5: in one of these jurisdictions, not a deregulated jurisdiction, a

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Speaker 5: regulated jurisdiction.

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Speaker 2: There have been signs that the legal tide might be turning.

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Speaker 2: In twenty twenty three, the SEC sued Ripple, a firm

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Speaker 2: which provides digital asset infrastructure to financial services companies, for

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Speaker 2: violating securities laws, but the judge sided with Ripple, ruling

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Speaker 2: that it didn't break the law when the currency it created, XRP,

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Speaker 2: was sold on public exchanges. The industry's momentum continued when

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Speaker 2: the SEC approved an ETF that tracks the price of bitcoin.

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Speaker 2: That was a big win for crypto custodians like Coinbase,

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Speaker 2: which provides custody, trading, and financing for etf issuers as

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Speaker 2: well as investors around the world.

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Speaker 5: I do think it paved the way for retail investors

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Speaker 5: other investors around the world to have access to our

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Speaker 5: very deep in liquid markets in the United States, and

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Speaker 5: I think that was very much a turning point for

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Speaker 5: many people.

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Speaker 2: As for Coinbase's battle with the SEC, in March twenty

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Speaker 2: twenty four, a Manhattan federal judge found quote the challenge

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Speaker 2: transactions fall comfortably within the framework that courts have used

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Speaker 2: to identify securities for nearly eighty years, setting the stage

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Speaker 2: for a jury trial. But then in January she granted

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Speaker 2: Coinbase's request for a pre trial review of her March

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Speaker 2: order by the Second Circuit. Those sorts of interlocutory appeals

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Speaker 2: are rarely granted. A promising sign for the industry. In

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Speaker 2: the meantime, it can still feel like the US is

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Speaker 2: in the dark ages when it comes to crypto.

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Speaker 5: You have seen now Europe is ahead of the United

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Speaker 5: States in a innovative technology which doesn't happen that often.

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Speaker 5: And we're actually very excited about the work in the

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Speaker 5: EU and working with our counterparts and with regulators In

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Speaker 5: the EU, they developed a very clear framework and they're

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Speaker 5: going to be implementing that soon. You have the UK, Singapore, Australia,

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Speaker 5: there are so many different countries. Roughly eighty percent of

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Speaker 5: G twenty and other financial hubs already have rules that

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Speaker 5: they're putting in place to deal with this asset class.

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Speaker 2: So why has the US government in comparison been so

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Speaker 2: slow to create a federal framework.

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Speaker 5: The foundational regulatory framework that we're working with in the

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Speaker 5: United States is frankly more complicated. We have a bifurcated

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Speaker 5: system where we determine what is a security and then

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Speaker 5: what is a non security or a commodity. And in

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Speaker 5: the rest of the world they don't really have that

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Speaker 5: type of differentiation, and that I think has allowed them

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Speaker 5: to move more quickly. State regular market regulators two different

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Speaker 5: market regulators that are in a tug of war. They

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Speaker 5: just don't have that in most international jurisdictions. Crypto is

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Speaker 5: not asking for a deregulated environment. Instead, we're asking for

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Speaker 5: consistent rules that actually address both the benefits of crypto

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Speaker 5: and of blockchain technology and the risks.

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Speaker 2: Today there's more hope than ever that the industry will

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Speaker 2: finally get the regulatory clarity that will pave the way

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Speaker 2: for wide scale adoption with widespread benefits for consumers and

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Speaker 2: investors alike. While the SEC remained reluctant to regulate crypto

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Speaker 2: and legal proceedings ground on in the courts, the crypto

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Speaker 2: industry turned its attention to the third branch of government, Congress.

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Speaker 3: Ahead of the twenty twenty four election.

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Speaker 2: Knowing what was at stake, the industry mobilized to support

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Speaker 2: pro crypto candidates, contributing more than one hundred and thirty

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Speaker 2: million dollars to election coffers. Industry advocacy groups such as

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Speaker 2: Stand with Crypto mobilized as well, organizing more than two

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Speaker 2: million crypt do advocates through grassroots efforts, and come November,

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Speaker 2: twice as many crypto supporters were elected to the House

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Speaker 2: of Representatives as anti crypto candidates. The market's response was emphatic.

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Speaker 2: In December, bitcoin hit the one hundred thousand dollars milestone,

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Speaker 2: a remarkable moment considering that just two years ago the

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Speaker 2: price had dipped below seventeen thousand dollars.

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Speaker 5: It's been a complete one eighty. You've got the most

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Speaker 5: pro cryptocongress, you have a president, you have Republicans and

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Speaker 5: Democrats all saying, all right, now we know more about

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Speaker 5: this industry. It is maturing. We understand what the future

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Speaker 5: might hold and why it's important. So I would certainly

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Speaker 5: say the narrative has evolved. It's matured. You have more

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Speaker 5: people at the table, and I think that's the exciting part.

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Speaker 2: Now with a new pro crypto administration in the White House,

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Speaker 2: new leadership at the SEC gives the industry hope for change.

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Speaker 5: Now. I think the SEC really has an opportunity to

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Speaker 5: write the rules that these are not rules that are

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Speaker 5: deregulatory in nature. It needs to be because the asset

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Speaker 5: is not identical to what we traditionally see in an

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Speaker 5: equities market. It has different characteristics, it evolves. We are

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Speaker 5: really eager and we are very optimistic that the regulators

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Speaker 5: will work together to actually come up with a framework

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Speaker 5: that looks at both the role of the SEC with

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Speaker 5: the digital assets securities and the role of the CFTC

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Speaker 5: with digital asset commodities.

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Speaker 2: The CFTC is the US Commodity Futures Trading Commission, a

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Speaker 2: government agency that's always been overshadowed by the SEC, but

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Speaker 2: under the Trump administration, the CFTC is positioned to play

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Speaker 2: a bigger role in regulation, working alongside the SEC for starters,

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Speaker 2: Congress could empower the CFTC to regulate digital assets as

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Speaker 2: commodities rather than securities.

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Speaker 5: Congress has a really important role here to ensure the

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Speaker 5: CFTC has the federal authority to regulate these spot markets

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Speaker 5: for digital assets, but also that the SEC can use

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Speaker 5: to tailor and move in the right direction. And so

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Speaker 5: the work of Congress to really make sure that we

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Speaker 5: have something in law that can withstand the test of time.

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Speaker 5: It can it can move through administration to administration, regulator

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Speaker 5: to a regulator.

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Speaker 2: Among the topics the crypto industry hopes Congress and regulators

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Speaker 2: will address is the status of stable coins. The discussion

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Speaker 2: around stable coins is only intensified with the growing possibility

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Speaker 2: of legislation that would facilitate their trading.

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Speaker 5: There are a lot of really important characteristics of stable

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Speaker 5: coins that need to be captured in a federal framework.

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Speaker 5: How we create a framework at the federal level to

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Speaker 5: ensure that folks who are issuing digital assets as stable

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Speaker 5: coins are safely protecting their reserves, are putting those reserves

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Speaker 5: in a one for one bank account or in an

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Speaker 5: equivalent of a treasury or cash, that they're holding that

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Speaker 5: in a bankruptcy remote way, that they are accounting for that,

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Speaker 5: and they are demonstrating that in a transparent way.

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Speaker 2: Another simmering subject the industry hopes Congress takes on is

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Speaker 2: d banking, the practice of lenders dropping cryptocompany and founders

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Speaker 2: as clients.

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Speaker 5: If you can't get a bank account, it's pretty hard

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Speaker 5: to start a new business. Stand with Crypto has brought

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Speaker 5: more than one hundred founders to Washington to meet with lawmakers,

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Speaker 5: and a really interesting piece of the puzzle for them

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Speaker 5: is their banking services. And in almost every meeting they

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Speaker 5: went into, they expressed concern that they couldn't have access

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Speaker 5: to payroll or checking accounts. And we said, well, would

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Speaker 5: you be willing to go raise your hand in public?

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Speaker 5: And Autumn said, well, I actually don't feel comfortable raising

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Speaker 5: my hand in public because I'm still trying to get

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Speaker 5: that bank account. I'm still trying to find somebody who

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Speaker 5: will give me those services. And if I say right

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Speaker 5: now that I can't be trusted to get a bank account,

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Speaker 5: nobody else is going to give it to me. And

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Speaker 5: so what we saw was this inability for people to

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Speaker 5: really voice their concerns and raise the issues.

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Speaker 2: But less than a month into the new administration, that's

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Speaker 2: already changing. Just a few days into his term, President

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Speaker 2: Trump issued an executive order that fundamentally changed the federal

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Speaker 2: government's approach to crypto Fulfilling a promise he made on

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Speaker 2: the campaign trail.

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Speaker 5: The executive order really encapsulated those campaign promises, everything from

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Speaker 5: ensuring that you can continue to self custody your assets,

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Speaker 5: to ensuring that there's no central bank digital currency, to

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Speaker 5: creating a working group to ensure that we stop the

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Speaker 5: turf war between the different agencies and instead have them

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Speaker 5: work together.

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Speaker 2: The new administration also quickly moved to counteract SAB one

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Speaker 2: twenty one, an SEC bulletin that prevented a lot of

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Speaker 2: financial institutions from entering the crypto space.

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Speaker 5: SAB one twenty one represents the staff accounting Bulletin number

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Speaker 5: one twenty one. Think about what that represents. It is

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Speaker 5: a staff letter, It is not a rule. It did

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Speaker 5: not go through the proper rulemaking process with notice and comment.

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Speaker 5: It was bureaucrats inside the SEC who decided to write

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Speaker 5: an accounting bulletin that then imposed a new framework on

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Speaker 5: the entire industry.

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Speaker 2: SAB one twenty one was a barrier that cut off

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Speaker 2: access to banking services for crypto companies and kept banks

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Speaker 2: out of the crypto business. Coinbase has always prided ourselves

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Speaker 2: on being one of those access points, but when we

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Speaker 2: think about the recision of ZAB one twenty one, it

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Speaker 2: really allows other banks other financial institutions to engage as well.

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Speaker 2: Within days of being appointed, the acting director of the

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Speaker 2: SEC countermanded SAB one twenty one. Just like that, one

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Speaker 2: of the major obstacles preventing banks from taking on crypto

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Speaker 2: clients vanished. Charis is it's a crucial step in allowing

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Speaker 2: banks the security they need to serve clients who hold

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Speaker 2: or deal in crypto. Nobody is telling the banks that

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Speaker 2: they need to not engage in risk analysis and make

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Speaker 2: sure that the companies that they are banking makes sense

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Speaker 2: for their own risk profiles. But ultimately we are saying

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Speaker 2: that you shouldn't punish an entire industry or an entire

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Speaker 2: class of people because of what they do. We will

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Speaker 2: continue to advocate for the industry. We will continue to

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Speaker 2: try to lead from.

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Speaker 5: The front and honestly try to make sure that everybody

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Speaker 5: can have banking services.

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Speaker 2: The industry is optimistic this newfound clarity will break down

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Speaker 2: barriers and allow Americans to understand the promise of crypto.

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Speaker 5: So right now there are about fifty two million Americans

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Speaker 5: who own crypto, So I think that there are investors

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Speaker 5: and consumers. Really the consumption, I think is what people

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Speaker 5: are excited about. The ability to say, all right, that

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Speaker 5: I want to get into this because I think it's

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Speaker 5: a new industry, it's a new way to transact. Wanting

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Speaker 5: to know more about this technology, wanting to make sure

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Speaker 5: it thrives in the US, wanting to make sure that

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Speaker 5: we can grow jobs here because we're seeing thousands of

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Speaker 5: small startups come to the market now with really interesting

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Speaker 5: ideas of how to use this technology. And that I

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Speaker 5: think that was the secret sauce over the course of

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Speaker 5: the last year and working with policymakers is showing that

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Speaker 5: this was more than a handful of individuals who were

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Speaker 5: getting rich off bitcoin and really a much broader based industry.

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Speaker 2: Crypto has proven that it's pretty much impossible to predict

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Speaker 2: the future, but the industry is optimal mystic that a

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Speaker 2: new era is beginning when we.

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Speaker 5: Start to educate policymakers. They realize eventually this will be

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Speaker 5: a ubiquitous like the Internet. But in order to get there,

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Speaker 5: we have to create the framework, and that generally starts

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Speaker 5: in the regulatory environment. That disruption isn't scary, It needs

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Speaker 5: to be embraced, and we can in fact find a

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Speaker 5: way forward that enables new economic opportunities. We're very optimistic.

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Speaker 2: Just as the growth of peer to peer lending in

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Speaker 2: Ireland far outstripped the pace of royal regulation, crypto has

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Speaker 2: burst onto the scene so fast we're only now seeing

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Speaker 2: American regulators catch up. But now there's a clear path

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Speaker 2: for regulatory clarity, unlocking a new future for companies, investors,

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Speaker 2: and consumers, and accelerating the next wave of money's evolution.

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Speaker 2: Thank you to Cara Calvert and Daniel Carey. This is

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Speaker 2: Evolving Money, a podcast from Coinbase and Bloomberg Media Studios.

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Speaker 2: If you like what you hear, subscribe and leave us

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Speaker 2: a review. I'm Maggie Lake.

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Speaker 3: Thanks for listening.