Crypto Regulation News, Lummis Gillibrand Bill, & SEC Bitcoin Spot ETF Lawsuit with Ron Hammond - Transcripts

June 22, 2022

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Ron Hammond of the Blockchain Association talks the latest news with US crypto regulations. We discuss Senators Lummis and Gillibrand Crypto bill, Senator Bill Hagerty letter to the SEC on crypto reporting, Rep Patrick McHenry and others send letter...

Transcript

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Well Ron you've got your ears to the ground in D. C. Around crypto policy and regulations. And there's a lot I want to ask you about first. I would like to start with the crypto bill that was put forth by Senator Loomis and Gillibrand. I would love to get your thoughts and and how that is being received in this in your circles. Yeah. So for those who don't know Senator Loomis from Wyoming as well as Senator Gillibrand for new york have been teasing about a large comprehensive regulatory bill for quite some time for crypto. Um and this has been something you've been very passionate about for for a while now and Senator Gillibrand has actually a personal friend of senator lumens which has been great to see that kind of dynamic play out. Especially considering Senator Gillibrand is on the Senate Agricultural Committee which controls a lot of the oversight of the Cftc or as Senator Lemons on the Senate Banking Committee which oversees the sec. So the marriage between the two is actually pretty important because they do have those, both those jurisdictions. Um like we said, it's very very comprehensive bill taxes, Tao's securities law, banking law, um a wide variety of places left and right here for crypto, which is important to recognize because it's so encompassing.

It's gonna be really hard to move this year, but it's definitely a good first step for, you know, at least in the House, we've seen a lot more bipartisan work together on crypto for quite some time dating back to the token Taxonomy act, which I wrote for representing Davidson, which had four republicans, four democrats. We've also seen some other good bills from representing Mchenry for as well from the tax side as well. Um but we really haven't seen that bipartisan coalition uh form at least in the Senate besides the infrastructure bill that happened back in August of last year. So this has been really exciting to see. Um so even if the bill isn't gonna go anywhere this year, I think it's gonna be a really important bill for 2023. Um you know, for all your listeners just to keep in mind, we're getting really, really close to november elections that Congress is in what they call the summer Sprint. They have about four or five weeks here in D. C. Then they go for august recess to go back to their camp, the respective districts to campaign to tell the voters and constituents why to vote for them. They come back for a couple more weeks and they're back on the campaign trail. I mean, it's a, you know, a full time job for them working weekends and everything. Uh, so the legislative days to move something are really, really minimal.

But again, I think it's really important just to highlight that this is a 2023 play and this is one of the one of the biggest bills out there. And I'm gonna be shocked if we see some version of the House introduce something similar to what we see with the senator Lemons and Gillibrand legislation. So a lot of good momentum, a lot of great work. There still needs to be some small improvements here and there. But overall it's been great to see this reception. Yeah, for sure. And it's like you said, a pretty comprehensive bill and it's great to see bipartisan support on this. Um, you know, so you said it's a 2023 play, do you feel that this bill could be, you know, we've seen historically, sometimes these bills get chopped up and they get parts of it gets put into other bills. Do you foresee that being the scenario or this bill actually making it through. So that's the only issue is that there's some of the issues out there is that there's so many jurisdictions that covers when it comes to Congress, you know, Congress is very territorial when it comes to each uh, issue areas. So, for example, tax goes through ways and means, and Senate finance and financial services issues like sec go through financial services committee in the House and Senate banking in the Senate and so on so forth. So there's a plethora of committees that are tapped in this legislation, just because it's so encompassing.

Uh, usually it's a lot easier to pass bills through one committee. You narrow the scope, you go kind of more piecemeal, and then that's where you can move on through the committee without having to get a referral from another committee, because that's when you just have more cooks in the kitchen. Um, so you want to keep it more narrowly tailored. So it's definitely possible we see this bill broken up in smaller pieces and either included it in bigger bills, which tends to happen in Congress. And Congress is very uh, in a bad habit, I would say, of passing big gigantic on in this bill that you may have heard of in the media whenever it comes down to christmas time or as it will probably see pretty soon at the end of july. Um, so these things are very, very common when you just they throw everything in the book. So even if it's not as related, we saw this infrastructure bill, it doesn't have to be really related infrastructure to get included into the legislation. So this is very common play here in D. C. I can easily see a situation where we have both in the ad committee do this thing called the Farm Bill. So I can see that in 2023 being, thank you attach a lot of crypto stuff too. Just because it touches the CFTC so much.

And on the other end, you know, at least for financial services, I can see a bill very similar to the London kilogram bill or something that Mchenry is working on passing in some shape or form again more narrowly tailored. So that's likely going to be the situation. And let's not forget stable coins can easily fall in that category as well. Um uh Cftc jurisdiction. Sec jurisdiction. Uh, there's a lot of different smaller elements that have broken up uh, and pass in different shapes and forms. So I'm sure we'll see that in 2023. But one thing I will copy out with is that we have seen a record number of members of Congress really involved on crypto more than ever before. And this is one of the first times where a lot of the powers began to shift from the regulators just because they were the subject matter experts relative to Congress to. Now Congress being the ones in control. They're the ones who can execute oversight. They're the ones who are calling out the agencies that they're not doing as good of a job between the both the democrat and the republican side calling out the agency.

So Congress is getting the space where it can be pretty dangerous for the regulators because they are now up to speed through a lot of the educational efforts that happened over the years. And I think we're gonna see a really active Congress in 2023, which is exciting, um but remind you also, with the bear market backdrop, it can be it can backfire too, so we're making sure we keep them on the straight and narrow here, and candidly, a lot of the members of Congress are doing a really good job educating appear. So it's been really cool to see this ecosystem evolve. Yeah, that is awesome, and great to hear, because I think people have been waiting for Congress to act. You know, obviously there's a lot of frustration with the folks at the sec in particular, do you feel the love, Mr Hildebrand bill balances out the regulation between the cftc and the sec, given that, you know, a lot of it fell on the sec prior to this bill if you want to put it that way. Yeah, definitely. I think it's um at least when it comes to this legislation it's it's really important to have a balance between what the industry wants, you know, its proper tailor regulation, and at least the Blockchain Association and a lot of other firms here in D. C. We try to strike that balance here saying, look, we understand that there is no need for regulation. You're not gonna get a Bitcoin spot CTF approved unless you have some more regulation potentially in the mind of the sec. Um, So, you know, at least regulation can bring about other good financial products that are really important, but they do need some proper guardrails. And I think this legislation does a good job, at least just dictating where the line is for the sec, where they can't go jurisdictional wise and where the CFTC is a lot more emboldened in this space.

Um So I think it's really, really important that we have that that's all some folks saying that the bill was bad because it puts so much regulation on the industry. And I beg to differ. I'd say, you know, actually, it's important, we have regulations for the industry solely because we need these guardrails so we can get a lot more um institutional investment into the crypto space. We've been seeing a lot recently, we've seen a lot of outflows unfortunate recently, but at the same time a lot of these bigger players are still staying on the sideline, waiting for more regulatory clarity. I think it's really important. I think even for the retail folks, there are still a lot of folks saying, look, we do, I want to be in the game. But I'm still kind of, you know, sure if it's a Wild West or not, and the legislation like this regulation is very similar to it is really important to make sure we bolster that confidence in the market. So, um, So I think it's important, but there were some detractors out there saying that it's, it's a bad bill, but I beg to differ. I'd say it's actually really important like many other bills we've seen in Congress so far. Um, but to your point, Congress, there is growing frustration, but Congress hasn't acting. But I will say, mind you, there's a lot of stuff going on just right now. I mean, let alone this week there's gun legislation that's really important given the whole shooting that happened in Texas, there's a January six hearings.

Um, there is trying to funding the government and there's so much more happening Jay Powell's testifying in the Senate and the House. So there's so much that's taking members of Congress banned with here to educate them on a really tough subject like crypto can be a lot and that's why it's taken to this point, but again, we're in a pretty good spot pretty soon when we have a lot of good members of Congress, again, over 40 probably that we can utilize, um, for oversight, moving legislation so on and so forth. Yeah, I saw you tweeted out a great thread highlighting some of the respective members of Congress who are now on board with crypto supporting it. You know actively trying to put forth regulations and also setting letters to different agencies. Um you know with the recent downturn and some of the crypto companies who are almost at risk. You know I'll call out a name Celsius and and obviously there's been other things happening. Are there any concerns from or any voicings of concerns from those folks in dc? Yeah. I will say Tara was probably obviously was the first one that really broke the the industry's back for a little bit. Um And Tara was first name basis here in D. C. Staffers both pro crypto and against crypto, they all knew what Tara was um remind you is also the time it was a little slower here in D.

C. I live actually at the intersection Nationals Park which is that way and the capital is right there to like half a mile of each other and terrace plastered all over the stadium still there, one of the corporate sponsors. Uh So if you go into the lower bowl of the National Stadium still to this day, terra is plastered everywhere. And so it's a constant reminder of just how fragile ecosystem can sometimes be. Um And it's definitely a reminder that a lot of folks who may or may not have heard of terra. They say oh like wait I might have heard that looks familiar and they do more digging and it's really concerning now, Celsius on the other hand, the good news, but the truth is that there was so much happening in the market elsewhere as well, you know, real estate taking it down to a trend, the entire markets really going down. Um and so it compounded on the negative news for crypto, I will say that, you know, Celsius is definitely top of mind for law staffers here, they're even having briefings now on what Celsius is. Um and I think what you're seeing in the industry is that, you know, it's a differentiation between what Celsius and Terror are versus what the rest of the ecosystem is. You know, a lot of folks are saying, look, Celsius isn't necessarily defy and terra isn't necessarily a stable coin. Um and here's why, and so, you know, I think it's it's good to also as industry to show like, look, there are differences here. Let's not lump in terror as all stable coins. It's not lump in Celsius all defy.

Let's explain what it is, why it failed. And let's show why there's a lot of good innovation out there. And I think that's it's resonating a little bit. Um but in the case of Terror, for example, even the republicans are coming to me saying, how do you regulate this? And candidly, a lot of folks are kind of scratching their heads saying, we don't want to ban it, but we need to have protections here. This is really tough to regulate an algorithm. This is a, you know, this is something that's very, very new and it's very nuanced. And so I think a lot of folks saying, look like I mentioned earlier, let's go to the small bite sized pieces here. Let's go with a single fiat backed currencies for stable coins to go on the regulation side, first focus on Tara U. S. D. C.

Um and we'll touch the algorithm stable coins at a later time when it's a bigger market cap. And there's more of a chance before folks get harmed. But let alone let's not forget a lot of folks did get harm unfortunately with terror and that's a very terrible situation and that has been felt here in D. C. For sure, for sure. And I think all these things have to be figured out, right? And like you you were talking about before with protections for retail investors and regulations are needed not to kill innovation, but to just protect people and and to help more institutional players come into the market as well. Um I did want to ask you about a letter sent from Senator Bill Haggerty and and some other folks to the sec um Could you tell us a bit about that? Yeah, of course, it's the it's a little technical here and little nuance, but the staff accounting board 1 21 called the sad here in D. C. Um And actually this is one of the few examples where the industry, the crypto industry is actually aligned with the banks on this issue and it's an accounting uh procedure. The base of the sec is trying to push through right now, affecting a lot of wallets candidly.

Um And it's trying to touch the nuances of a lot of the accounting principles, at least when it comes to where you keep your assets on your balance sheet. And so um both crypto industry and the banks have been pushing heavily against the sec on on this rule. Um You know, we're trying to see, look, is it, did this violate the american uh procedures act? You know, that's a very big ap a violation. We're looking at potentially having Congress put more pressure on this situation. And Senator Haggerty was kind of the first movers out there saying, look, this is an issue that I've heard, not only from the crypto industry, I've heard this from the banks in particular the large banks. So um you know, there are times where we find weird alliances here in D. C. The infrastructure bill definitely wasn't highlighted that when we're combining our forces with Fintech and other folks in industry within crypto generally um that really never worked together before, but this is one of those situations where it affects all financial institutions, big and small and they're. Really getting into it. Um So uh it's really important, at least to highlight the the the the weird alliances that sometimes are drawn here and how much backlash candidates against the sec. And the law of these proposals.

Not just for crypto only, but the banks are also not having a field day here either. So um so that's a really important letter. It's been really also see Senator Haggerty in particular uh leading this because you know what we all hear about Senator Loomis and Senator Toomey in the Senate and Senator Gillibrand, let's not forget we have a pretty deep bench now um in in the Senate which has been something that I can't say two years ago was even a thing, I mean we had maybe two centers that we can rely on. It is now a very deep bench which is really exciting and very bipartisan as well. For sure. Yeah. It's great to see all these different folks uh now jumping on board and helping to push the the need for clarity reduce you know, the the ridiculous reporting requirements and things that are just outlandish. Um There was also another letter sent by Representative Patrick Mchenry and some others to the E. P. A. Regarding crypto mining. Can you tell us about that?

Yeah, sure thing. So uh as for so much going on these days but for folks may recall there was the executive order from uh President biden's administration on studying crypto and the E. P. A. Was one of those agencies that was tapped to do a study on the issue. Um You know, we're kind of look at the holistic approach here. Let's look at the state of new york which is just recently passed the last second, the mining moratorium on Bitcoin mining. Um And that passed at the last second we thought we had the votes to um shored up. But unfortunately there's a very aggressive set of folks in the environmental lobby space who really pushed for it. And so it's now sitting at the governor's desk. I think it's kind of more of a larger macro theme of what we're seeing as these environmental groups are getting pretty aggressive against Bitcoin mining. Um And they're drawing some weird lines as well.

Um And I'm not sure if you've seen it or not, but uh Center White House, who was from Rhode island uh worked with Senator Warren and a few other democrats centers. Um And they sent a letter to the E. P. A. Before this one actually came out last week, I believe. Um pretty critical on Bitcoin mining. Um And this unfortunately issue we're seeing very parts and I think it just kind of more as the backdrop of E. S. G. As well as just the environment as a whole where we're seeing a very much republican democratic divide and this is a big important initiative for the biden administration. So um so the letter at least that came from Representative Mchenry's. Well Senator Loomis was focused on, look here's are the highlights of Bitcoin money.

You know, things like flaring for example and these things are incredible technologies that have incredible potential here. And we want these jobs to stay here in United States. Let's not forget the china ban that really happened uh almost a year ago and it caused a huge irreparable damage to the industry over there. And all the jobs came over here for the most part. Um, and it's been really exciting to see the United States lead from the fifth largest crypto miners now, the first, um, you know, important jobs, those jobs to stay here in America not going elsewhere, which as we've seen, it's really easy to pick up and go. And a lot of these miners utilizing uh uh they're utilizing clean resources as well, so they're using wind and solar um as well as hydro, even though hydro is not technically classified as renewable, which is another issue that it's way past my skill set here. But that's the important thing they're trying to highlight. So um we'll see what happens with the executive order with the E. P. A. Um, I mean Canada, I'm a little more scared that they're gonna probably go more in the direction of what Senator Warren center White House referring to being more critical of the industry, but there's no way they're gonna do it, the whole sweeping mining ban or anything like that. And mind you again we're gonna probably have a switch in Congress.

So even if there is a move by the E. P. A. They're likely going to be a reciprocal move in Congress when the republicans likely again potentially likely take over um and and put some oversight on this matter. So but this is gonna be a developing issues so it's definitely stay tuned. Yeah it's interesting because I also noticed that the mayor of new york city did flip on the issue he was against and he was now saying no let's you know that's not the way to go. And I know folks are trying to get the governor to not sign um uh the the memorandum into law. You know, I I see the divide. It's interesting because in the south and I've spoken to uh Senator Pete sessions I believe it was and and the big mining facilities that are happening in texas and some of these other states and yet, you know, in the north so to speak. You know, you have folks who are against it. So it's interesting that dynamic that's playing out. We'll have to wait and see.

Definitely. I'd say if you're a minor heart on the job creation, this is a really important at least to give back to the community now. This is something we can see some improvement hopefully is that we've seen a lot of minors um you know they just they plant their equipment there and they walk away. They make no improvements to the local community and that's what a lot of institutions and small business do is that they do make improvements to the community and the well being of those around. So I I think, you know, the more stories that we can tell in D. C. About how they make it a positive impact on the community, let alone, you know, all the jobs they're creating as well. That's more ammo for us to counter all these bad narratives. Because candidly, we're now talking about just the the usage of energy or electricity for certain computers. That's pretty much what we were arguing about is that we don't believe you should use your computer to to do this activity, um, which is pretty ridiculous. But that that's the truth of the matter. And so if we're able to say, look, there's so much positive effect for the electricity use here, because, you know, we all admit that they use a lot of electricity, but that doesn't mean it's, you know, checking out breaks for other folks or it's called situation where it's detrimental to the environment if they're utilizing clean resources.

So, um, so this is something to take in consideration, but, you know, the better stories we can tell here in D. C. That will definitely resonate to the regulator as well, for sure. Um, I didn't want to ask you About, you know, if there are any type types of regulations or crypto bills that you think will get through this year. I know you mentioned the summer break coming up and then campaigning is going to happen. But I know stable coins has been a top priority for a lot of folks. Uh do you think we see stable coin regulations this year are probably nothing and everything. Maybe it happens in 2023. You know, my prediction right now is that the market crash recently is definitely going to give a green light to a lot of the regulators to start pursuing more important actions. There has been a noticeable cry here in D. C. That has been heard folks have been harmed.

The terrorist situation was pretty bad. I think this market downturn just generally is now getting focus on pause um and candidly, you know for the longest time the hacks that happened in the past or the most or the downturns in the earlier times like you know 2018 and before um during those days it was mostly a lot more the institutional folks who were either harmed or they had a lot of losses. Um Or it just wasn't that high priority for the agency. Now everyone's hyper focused on this industry. So whenever these hacks do occur or these uh situations with terror Celsius they do resonate here in D. C. Uh And so I think unfortunately we'll probably see some more enforced actions or denials of like the Bitcoin spotty TF with grayscale orbit wise coming up pretty soon. It seems like they're telegraphing that's gonna be a no from the sec. So I think that's the downside. We're just gonna see a lot more rejections of applications or charters. We're gonna see a lot more enforcement actions. Um There's a chance that Gary Gensler might not testify even until november.

So like the situation that oversight can be pretty hard as well. But I will say we're having a lot of good bills in the hopper right now. There's a lot of bills on stable coins in the works there bipartisan. We're seeing some good work on securities laws as well. We'll get past the finish line. Pretty tough to say. Probably not unfortunately just because again Very limited calendar but 2023, this is laying the groundwork here and especially Representative Henry, he is staying on his chair of financial services to run crypto policy and to to push this through the house floor. So I mean we're going to see a very aggressive agenda. I think very busy 2023 Q one Q two um Which I'm excited for. You just need a lot of rebel. So it should be fun. Final question here for you.

Um you know on that Grayscale Bitcoin spotty T. F. You know, they seem to be preparing to sue the sec if there's a denial and they brought some heavy guns on board their their legal team. What are your thoughts on that? And could other applicants also start filing Lawsuits against the sec. We may have 10 lawsuits against the sec over this. Yeah, I mean hats off a grayscale, they've done an incredible job of getting all these comment letters to the sec. I mean a record number for E. T. F. Application, which has been awesome to see. Let's not forget.

Also, bit wise technically comes first. I believe there's a couple more couple of days and I think that's the six gray scales. There's a few more days earlier. So we're going to find out whether it's been approved this body TF before the grayscale one. Again, I think it's pretty likely that denial and my biggest indicator for that is Hester person's comments last week on why the sc needs to approve a Bitcoin TF. Um The sec tends to follow Esther person direction unfortunately. And so I think if she's publicly making such a loud statement before these decisions, it's pretty indicative of what's gonna happen. We've seen huge columns push from both bit wise and Grayscale and their ads are plastered everywhere here in D. C. Um And then we can we've seen some really top tier talent hires over at Grayscale on the legal side. So it's possible there could be a lawsuit whether, you know, one of those two companies where someone else down the road? Um Let's all forget Skybridge Capital also just put a Bitcoin E.

T. F. Or spike T. F. Application in the other day. So um so it seems like we're gonna be seeing a pretty big backlash on this. Uh And the S. C. Has for a long time that the market is not there. And our opinion as well is that there's concern about manipulation. Uh And I think this whole crash recently it's just just gives them more ammo to say see I told you so um you know whether you know they're right or not, I'll let the lawyers figure that out. But candidly it's been pretty disappointing to see this.

And I think we're going to see a reaction with Congress to if there is a denial that's been pretty critical of that for sure. Well um and I'm anxiously anticipating that I want to see what's going to happen. I think a lot of folks are looking at the industry too because it's interesting to have the people in the industry now be on the offensive going after the sec. And there's a lot of applicants who you know, who threw their hat in the ring for a Bitcoin spotty T. F. So we'll see what happens. But Ron thank you so much for joining me. Always a pleasure chatting with you. Of course. Thanks again. And and it can be a help. Please let me know.

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