Preston Pysh (00:07:19):
Yeah. And it gets really tricky because when you go from Lightning to Bitcoin at the base layer, the full node that I have, the full node that you guys might be running, on that base layer, we’re all keeping a record of every single affection that has occurred since the Genesis Block. But whenever you get into the Lightning Network and you start thinking about, “Well, I’m now potentially collecting a fee by just routing a data packet through my node, but not terminally ending up on my node,” those are two completely different things, but we’re still talking about one piece of hardware that’s sitting in my house, that’s onion wrapped and there’s no way to track.

Joe Carlasare (00:07:59):
Well, it’s clear from my perspective, I think what they were trying to do is… Because the original language actually specifically mentioned Dexis and they wanted to capture that activity. They didn’t want to say just centralized exchanges that store Bitcoin. They wanted to capture activity broader than Bitcoin, some of these other products and FPs and whatnot. That’s what led them to incorporate this broad language. But then our people said, “Well, wait a second,” the Bitcoin people specifically, they said, “wait a second. This is going to potentially affect miners and affect node operators and all these other groups.” So that’s why we’ve got the recent push to try to revise language.

Preston Pysh (00:08:32):
So now you are hearing these conversations on the Hill. Are you hearing various array of opinions on it? Or do you find that most representatives are just open to learning and just trying to understand what it is that they’re missing or are they more on the offense of like, “No, this is what’s going to happen.” And I know it varies from person to person, but if you could just generalize some of the different types of opinions and personalities that you’ve experienced what’s that look like.

Jason Brett (00:09:02):
So I think if we start with Senator Portman’s office, he’s the one that was bringing this language into the bill and he probably was doing it with White House support. And it’s clear that his office was totally caught off guard. And you could tell from some of the statements he was making, he just wanted people to go away from his office. And I talked to some people who said when they were asking for updates and things were going back and forth, that there was this sense of exasperation, like are we really making this big deal about it? And then sources in the White House commented off the record that they felt like this was crypto’s attempt to try to water down the package. Because you have to remember the White House said… They didn’t have a specific language, they just said, “Let’s collect as much taxes from crypto as possible.” Seeing it as an attempt to water it down when really people are just trying to define and explain how the system works. There wasn’t a lot of understanding around that.

Jason Brett (00:09:55):
What’s fascinating about this dynamic is that the Republicans both, Toomey’s office, Pat Toomey who ended up introducing this, is introducing it against another Republican. So the Senate’s 50-50, but it’s Democratically controlled. So it’s very rare to have these top Republicans who are essentially the minority, who are really fighting with each other over the language. And Toomey said that the language was unworkable in a statement. So you had a little bit of a food fight. And I think that there was clearly education that had to happen, but what was scary and why you saw the industry get so involved in these discussions so fast is because this is a bill that, it’s going right through. It’s going through like a Mac truck. It’s a must-pass bill. This infrastructure bill is literally the crowning achievement of Biden’s thing. And here we are with days. We don’t know how long to try to fix this language. And again, remember this is a bill that’s like 2,700 pages. It’s 2,700 pages. If you remember Obamacare Act, no one actually read the bill, they just voted on it.

Jason Brett (00:10:56):
So it’s been really hard to get people to pay attention, but as they’ve been doing it, it’s clear that they’ve been listening. Because to get top senators to make comments about a specific amendment, shows that actually, I feel like crypto and Bitcoin’s really come of age. What I found funny, and I think one of the conversations that was most interesting was this idea of, for so long the government’s been cracking down on Bitcoin saying it’s worthless, it’s made out of thin air, it’s just used by money launderers and terrorists. But the minute that we can now say that it’s used to pay for our bridges, our tunnels, our roads, maybe we finally hit the first real use case for Bitcoin.

Preston Pysh (00:11:31):
Do you-

Joe Carlasare (00:11:31):
Absolutely.

Preston Pysh (00:11:31):
… think that that’s opened up the eyes to a lot of elected individuals to see just the response for such a small segment in this 2,700 page document, all the calls and everything that are coming into the office over this very small portion of this bill. Do you think it’s opening up some eyes and people saying, “Whoa, hold on. Maybe there’s a lot of money here. And last time I checked how my incentive structure works for reelection, it comes down to dollars and marketing and all that stuff.” So are we seeing a moment in Congress where the eyes are opening up and saying, “What is it that I’m missing about this particular community?” Is that happening?

Joe Carlasare (00:12:13):
I think that’s absolutely happening, and Jason can speak to that. But one thing I wanted to point out is that when they released the original language, they essentially, and Jason alluded to this, Rob Portman, the influential senator from Ohio, his staff came out and said, “This doesn’t affect holders and this doesn’t affect nonbrokers or software developers or miners.” They had to push that back, even though there were credible legal arguments why it would affect those sorts of groups. So this just tells me, and I’ll let Jason speak to this if he’s getting the same sense, but my impression is that the original language is more driven by just maybe not comprehensive thought. They just didn’t really understand the tech. They didn’t get it. And they threw in some clumsy language and didn’t realize the problem they may have created by using this language. So I don’t know if Jason has thoughts on that.

Jason Brett (00:12:59):
I’ve never seen anything like it. But it’s the dawn of an actual advocacy group. Whether you think about NRA or where things come from, they’re going to look back at these last few days. Because as the crypto industry and the folks like Coin Center and Blockchain Association have been really on the frontlines battling this, there’s been allies of established nonprofits that have come to the aid of the crypto industry, almost like the revolution. Like we’ve got France coming in. And one of the main one is fightforthefuture.org, which has been around since 2011. And fights for people’s privacy rights online. If you go all the way back to the beginning, they were dealing with this whole thing with Justin Bieber and privacy about writing for things that were copyrighted. So they really are very fiercely defensive when it comes to people’s rights and privacy rights.

Jason Brett (00:13:43):
And so they have mobilized, on behalf of the crypto industry, they got up to 5000 calls to senators and they still have numbers and ways to contact senators and the industry really has come together. And Joe and I were talking about this, because of course there’s Bitcoin and then there’s everything else and all these other things like NFTs. But there really has been this unification and as much as it was that the decentralized exchanges got removed, it was very clear the peer to peer marketplace from the initial language got removed. And then when you think about what’s now in it, where it’s specifically excluding Bitcoin miners. It has been a team effort. I don’t think we can think about the tribes in this instance. And I think it’s been helpful to Bitcoin. Joe.

Joe Carlasare (00:14:25):
It’s an extraordinarily… My takeaway, Preston, is that this is very bullish, just in terms of, I know this is an investing show and just market structure show, if you think about the standpoint of that, we went from having very little force and lobby around a lot of these issues, even though there were people, fantastic people working on it for years, they went right to the forefront. And they got influential senators to pay attention to them, and potentially, potentially, fingers crossed, we might actually get the language modified to clear up some of these issues.

Joe Carlasare (00:14:54):
That is, from just an investor standpoint, I think that’s really bullish. They could have just said, “Go pound sand, we don’t care if this creates problems for you and your community, we’re not going to listen to your concerns, deal with it.” If they were really being hostile, because you hear this refrain all the time that they’re going to ban Bitcoin or they’re going to ban these currencies. The fact that they went, or they seem to be going out of their way to try to help, at least some of them, to help alleviate our concerns, I think that’s positive.

Preston Pysh (00:15:20):
Even it originating, based on what you guys have said, originating out of the White House as a revenue source to the top line of the nation, they’re not trying to ban it, they’re trying to figure out ways that they can add to the top line. And I’m not one to promote taxes to it, I just find it interesting that having been in the space for years, at this point, the thing that I always heard for years was, oh, the government’s just going to ban it, and that’s going to be the end of it. And it’s over. You’re going to lose everything. And we’re just not seeing anything like that, correct?

Jason Brett (00:15:53):
No, it’s not even close to that conversation. It’s really seen as a lobby on certain aspects of personal rights and also, as you said, a revenue source now where the Republican Party is taking Bitcoin for their campaigns. I mean, so it’s really… And that’s when you start to see the changes, right? When they get the donations that way in the form of the type of currency that we’re talking about. But what’s fascinating about this bill, Preston, is that this is an offset type of bill situation. So this debate actually has gotten so important that it’s actually, it’s threatening that the bill might not even work. And they’ve said that. Because if they change the language, they’re going to come back and say, “Well, then we can’t collect this amount of billion dollars from it.”

Preston Pysh (00:16:35):
No. I got you.

Jason Brett (00:16:36):
And there’s no offset. In other words, the idea of this bipartisan package is the taxpayers aren’t going to pay for it. Now, the joke is, Schumer’s ready with a $3.5 trillion package and were they just going to let the money printer go BRRR. But in the meantime, we’re trying to be straight and narrow here, so just every satoshi counts, right?

Preston Pysh (00:16:55):
The mirage of it being paid for is disappearing.

Jason Brett (00:17:00):
Yeah.

Preston Pysh (00:17:01):
I have a note here to ask you guys about El Salvador and whether that has entered into any of the conversations as this infrastructure bill is taking place? Are they saying, “Hey, well, I mean, this stuff is now legal tender in other countries.” Are people saying that? Or is it much more focused towards trying to make it work for this particular bill and to raise the revenue that they’re going after?

Jason Brett (00:17:23):
Well, I have not, Preston, seen anything really come up regarding El Salvador. I think those are two separate issues. I think that the administration is not necessarily that favorable to El Salvador. So it gets tricky. Because, I mean, as I’m sure you know and I’m sure a lot of your listeners know, there is this question about how much Chavez has influence over the current El Salvador regime. So Chavez out of Venezuela, who we’ve had to do sanctions on, there’s questions about members that surround the current president. And so it’s played very cautiously from a foreign affairs standpoint as to how far to really follow the El Salvadorian model. And there’s also a bit of arm’s length, what exactly is going to happen here? Is Chavez in the background, trying to get something out of what El Salvador is doing with Bitcoin? So they’re really watching it very carefully from a sanctions standpoint. And I wouldn’t say it’s something that crosses over into what we’re doing here in the US.

Joe Carlasare (00:18:19):
Yeah, I’d agree with that. I mean, from just a general legal standpoint, I think one of the most interesting issues on that front with El Salvador remains these statements and potentially some of this policy, I think, coming from the IMF. And the IMF essentially saying… They issued a veiled warning against El Salvador’s adoption of Bitcoin, nothing too explicit. But then there are these provisions that I’m not intimately familiar with them, but my understanding is that the IMF and the World Bank institutions, they do respect the sovereignty of certain states to select what is legal tender and recognize that. So that’s going to be interesting to see if they now tweak the language to weasel out of that issue and no longer accept what El Salvador has elected to do.

Preston Pysh (00:19:02):
So Jason, you had said that there was 5000 calls that were made. And I’m assuming that was just in the last couple of days. Is that a high number relative to other topics that are going through with bills? Or is that normal? Give us a sense for what that number represents.

Jason Brett (00:19:21):
That number’s actually pretty normal to high for what you would expect from an advocacy standpoint. So if you think about it, it’s actually trying to get somebody to pick up the phone and call or send an email. So it’s pretty, again, it’s pretty significant when you look at it from the perspective of there wasn’t really anybody even ready to make these calls. Usually, a lot of the calls are just ready to go, script, you get what you need to do and you call in as a grassroots. So it’s very, very successful to reach that and still have more people calling. I mean, if you look at Twitter, you can see-

Preston Pysh (00:19:54):
Oh, yeah.

Jason Brett (00:19:55):
… Jack Dorsey. Jack Dorsey actually retweeted and said, “Call these offices, encourage these senators, go for the Lummis, Toomey, Wyden amendment.” And so it’s Senator Cynthia Lummis from Wyoming, Senator Pat Toomey from Pennsylvania and Senator Ron Wyden from Oregon who is a Democrat. So it’s this bipartisan leadership of three senators who are pushing for this amendment. And they’re encouraging everybody to call all 50 senators’ offices, 100 senators’ offices to help them with getting what they’re going to need, which is 60 votes for the amendment. And you should see that vote tomorrow.

Joe Carlasare (00:20:30):
Preston, so there’s actually… And I think it’s important just to mention it, although it probably has very little chance of passing. Jason, correct if I’m wrong. But there’s actually two amendments. There’s the first one, Ted Cruz, the senator of Texans proposed, which basically said, let’s scrap this whole thing. Let’s just get it out of the bill. And actually, some prominent advocacy groups have backed that. And Jason can probably speak to that. But then there’s the amendment that was just referred to by Jason, the Lummis and Wyden and Toomey one, and we can go through that if you want, to explain how the language changes.

Preston Pysh (00:21:02):
Before we do that one, I’m curious, Jason, what do you think of the one that, the Texas amendment, that’s just basically saying, scrap the whole thing? Do you think that that has a probability of passing or is it pretty low probability?

Jason Brett (00:21:15):
Well, it’s Senator Cruz, and he’s gone out on his own here on the Republican side. It’s a bipartisan bill, so it’s just really, when you only see one senator, it might get some votes, but throwing it out is not really, to be honest the way that the industry should be working with Congress right now. We should adjust the language and we should realize it’s an offset. Because throwing it out puts the whole bill in jeopardy. And so there’s a little bit of give and take here. I mean, I’m sure there are a lot of people hardcore, who will say, “Throw it out, don’t do it.” But that would then mean it would have to be somewhere else.

Jason Brett (00:21:49):
And if we’re talking about legitimate taxes that need to be paid and we set it up in a way, in this bill where at least it’s much, much better than where it was before, that’s to me the way we want to be known. Because if you think about it, if we push so hard and then we get it thrown out, the IRS is still going to be there tomorrow. And we don’t want to get the IRS and government out to just get us. So we want to just make things, in my mind that go with the amendment. It’s a nice idea with Cruz, but there’s really, you’re then not offsetting anything and it’s a bipartisan package. So there’s a little bit of compromise, I think here. And it’s perfectly fine language that’s in there now from the amendment from Lummis, Toomey and Wyden.

Preston Pysh (00:22:27):
Let’s talk the amendment.

Joe Carlasare (00:22:29):
Okay. So again, just to recap, we’re talking about broker. What does it mean to be a broker of digital assets? So what the new amendment does, the bipartisan amendment we’ve talking about, it then excludes certain actors from being a broker. From number one, anybody who’s just validating digital ledger transactions, they’re not a broker. Okay? Node operators, miners, those categories of people, not going to happen. They’re not brokers, they don’t have to report, no heightened reporting obligations.

Joe Carlasare (00:23:01):
Number two is those selling hardware or software for which the sole function is to bring in a person to control private keys which are used for accessing digital assets on a distributed ledger. That’s your treasurers, your nano ledgers, those sort of things. They’re not going to be in this. And also software wallets, they are.

Joe Carlasare (00:23:17):
And then the final one is the most broad. It says, if you’re developing digital assets or their corresponding protocols for the use of any person, provided that such person are not customers of the person developing the asset. So that’s the broad one. That’s some of the elements of tokens and DeFi and some of these other things.

Joe Carlasare (00:23:35):
The most interesting from a Bitcoin perspective is that first one, because it says, we’re going to exclude folks that are validating distributed ledger transactions. However, they did not take the next step to deal with Lightning or in Layer 2 issues. Obviously, folks, like Jason you pointed out that are running Lightning nodes, they are technically taking compensation. So that’s part of the standard of the bill. You can’t let the perfect be the enemy of the good because this is obviously a big improvement, this amendment, but there is some concern that this could potentially pose some problems for Lightning operators.

Preston Pysh (00:24:09):
So then, let’s say that gets pushed through and it gets approved, can that be updated? Or can there be a follow on bill that specifically addresses that, that could be in conjunction with some other major effort? How would that be addressed or adjudicated in the future? Do you just have to allow the judicial system to figure that out?

Joe Carlasare (00:24:30):
I can speak to the judicial system, but I’ll hand it over to Jason first for the likelihood of being amended or conference committee or some other things legislatively.

Jason Brett (00:24:39):
Part of it would be the interpretation. So what originally happened with this bill, it’s not the best solution is to have a legislative record. So that would mean we probably should ask those three senators if they would say on the floor, this is not intended for Lightning node operators and then sometimes they’ll issue a conference report and it specifies it’s not as strong as the actual wording being in it, but it’s clear. And if it ever does go to court or there’s a question, it’s clear what the intent of the bill was. I think that’s… I mean, the good, trying to explain Lightning to US senators where the average age is over… I mean, you try to talk about a node… I’ll never forget during the LIBOR hearings, there was one congresswoman who was trying to explain what a node was or she was just trying to pronounce it. She was like, “Is it a nod, is a… I don’t care. What are you doing with all these things?”

Jason Brett (00:25:29):
So you have to recognize there’s the amount of time that we’ve had, where people are literally working around the clock on this and trying to explain some of these things, that would have been really tough reach to try to build that in to this. I don’t really think that Lightning node operators should worry about it, I don’t think they’re in jeopardy. I think you want to think about it again, Preston, like we’re collecting taxes here. So it is really that much revenue to get from Lightning node operators. It could be addressed in the future and it could be clarification, even from the IRS itself to say, “This is not what we’re looking to collect taxes from.”

Joe Carlasare (00:26:03):
It is a mess. Even right now, absent this bill, Preston, folks running a Lightning node, I don’t know if you run one. But if you’re receiving a couple of sats for routing a transaction, that’s a taxable event, which is really annoying. It’s just for the sake of simplicity, trying to foster innovation, this technology, we need to clean it up. It’s a mess. And we need to fix it, obviously, pay your taxes. I’m not saying don’t pay your taxes. But to pay a two satoshi routing fee just seems absurd in my view.

Preston Pysh (00:26:33):
I totally agree with you guys. And when you just look at the sheer size of the Lightning Network today, relative to the base layer, it’s very small, relatively speaking. And if you would think about the revenues that are being generated through routing on Lightning, it’s not anything that I think the IRS wants to spend its time trying to chase down either. But with that said, in five years from now, I could see that as being a location where there is going to be, especially for large businesses that conduct a lot of business to business type transactions, especially in payment clearance. So if you’re Visa or you’re MasterCard and you’re using these rails to reduce your expense structure, because it immediately clears, those are the businesses that are going to be huge beneficiaries of Lightning, in my humble opinion in the future. And they are going to have substantial revenues that are kicking off of just that routing, I would suspect. So they’re going to need something. I would imagine their lobbying game is on par. Correct, Jason?

Jason Brett (00:27:33):
Yeah. And I think in that case, what you’re talking about will probably be resolved at the IRS level. And that is where you can still have Congress help influence maybe from what you’re saying, there might be a certain threshold. If you get above a certain threshold on your node, then you’d have to do the reporting. And so that’s something I think that can be worked out and should certainly not be forgotten, in fact, could be tomorrow that we introduce a bill to direct IRS to do that or come up with rulemaking around that. So it’s something we want to stay on. We don’t want to wait five years to find out, oh, it’s just all of them. So that might be something that when we actually have time and have slept, can actually talk about maybe what this is going to look like down the road.

Preston Pysh (00:28:11):
I’m curious if you’ve seen traditional banks, because I mean, their lobbying effort has to be off the charts as far as how long they’ve been doing it, just all that. Are you seeing them interject into this particular piece of the bill to fight it? Or to make it worse? Or just in general, how are they involved right now? And what’s their point of view because I mean, this thing is basically going to disrupt that entire space?

Jason Brett (00:28:42):
It’s funny, I’m reminded a few years ago, in an Uber going into DC and someone was asking just a little bit of what I do with lobbying. Lobbying for Bitcoin. I was explaining, “Well, the banks don’t really like us. And obviously, it’s the largest bank lobby. The government really doesn’t like us and what we’re trying to lobby for.” And I remember the guy turned around and said, “I wouldn’t take a job like that, someone be liable to knock you off. You’re going up against really powerful forces. And the banking lobby is the powerful force.”

Jason Brett (00:29:08):
I don’t think they got involved in this one. And I think there’s a reason why. It’s just recently been a change where banks, as you see in the news, like Wells Fargo and others are starting to look at how to custody Bitcoin. And the American Bankers Association actually, as of July 15th put out an understanding cryptocurrency memo. It was the first one for their members. And it’s actually quite interesting because they talk about trying to partner with crypto companies because they’re making so much revenue to help banks with their revenue.

Jason Brett (00:29:35):
So I think there’s this now acceptance of crypto, it’s a fascinating read, actually, because it actually gives you use cases. And I never thought there’d be a day when I’d be reading the American Bankers Association guide to banks and they’re explaining things like DeFi, how to do lending, how to do interest rate accounts and they equate everything in the crypto system to the banking system. So I don’t think that to them this was that much of a concern. Now, when it comes to trying to do anything related to banking or get a bank charter, that’s quite a different story. And obviously, the Caitlin Longs and others of the world have seen there’s a lot of pushback on that to try to keep the players entrenched where they are.

Preston Pysh (00:30:11):
I listened to an interview with Caitlin recently, and when she got into the risk of immediate clearance or clearance happening in 10 minutes and the rehypothecation risk when traditional banks are trying to or they’re just accustomed to re-adjudicating their books on a daily basis at the end of every day is everybody looks to make sure that things have cleared and they assess that risk at that pace and everybody’s on the same frequency. Now you’re dealing with the custody is something that’s clearing every 10 minutes and the risk structure is just totally different. And so that piece, is there anything else that you guys would add, on the challenges that are being faced there? Or how it’s being viewed optically from a policy standpoint? Is there anything that you’ve heard that you think is worth exploring or talking about?

Jason Brett (00:31:03):
Well, I think one thing that’s interesting is how we’ve seen the SEC chairman come out and give a speech just yesterday, Gary Gensler, and basically try to lobby his own version of what he wants to see happen in the cryptocurrency industry. So it’s clear things have really been sparked from this crypto tax being discussed in such a public way. Because it’s very possible he had plans or certain things he wants to see happen. And this was his chance now. He’s realizing, well, everyone’s talking about on the Hill. And then there was a very large bill introduced by Representative Don Beyer, was very comprehensive, almost 60 pages in length. It’s very evident that right now everyone’s trying to stake out their turf. And it’s no longer an exercise.

Jason Brett (00:31:49):
And so Gary Gensler coming out also was very interesting. I don’t know if we’ll get to that. Because he really set up a system that’s important to understand, again, just what’s happened in the week of exactly how all of the tokens in the system are going to be treated, what his plans are, the way he sees the platforms and really what he expects of exchanges as far as coming to register with the SEC. So Joe, I don’t know if you feel that. To me, that was the biggest jump in that he came out with that while this is happening.

Joe Carlasare (00:32:17):
Yeah. And to directly answer your question, Preston, my view is that you just need more certainty in the form of legislation. I think you’ve got various bodies on a regulatory basis, trying to cobble something together to make it work. But there’s really, with respect to custody, with respect to record keeping, with respect to how you deal with some of these things internally at an institution that’s holding Bitcoin or other digital assets. Everybody’s guessing, doing their best guesstimate, at this point as to what is legally sufficient. But really the Beyer Bill that Jason referred, provides real comprehensive definitions of what these things are under the Bank Secrecy Act and gives them clarity that they need to do the custodial services that are going to help this industry grow.

Preston Pysh (00:33:02):
We’ll cover that last, the Don Beyer Bill, that’s the 60 pages. It sounds like it’s the real legislative diss that’s going to be introduced in what we’re doing. What we’re dealing with right now with the infrastructure bill is just a small sample of what’s to come through that. But before we go there, let’s talk about the Gensler speech. So he had a huge speech, I found it a little hilarious. I didn’t know if you guys saw the tweet from the CFTC commissioner today, talk to… Yeah, I see Jason nodding his head. Let’s talk about the Gensler speech and then that response between the commodity side, the regulatory body for the commodities side and all these responding to it as well.

Jason Brett (00:33:43):
I think it’s important. I mean, so I’m an ex regulator from the FDIC, and I was there during the financial crisis in ’08, ’09, so I saw the bank collapses and working in all the different scenarios with AIG. It’s important to understand where Gary Gensler is coming from. So he’s the regulator at the CFTC during the financial crisis, and after the crisis, he’s the one whose crowning achievement was expanding the authority of the CFTC to actually regulate derivatives. And that there was no ability to see what were in the derivative. So that was a huge accomplishment for him.

Jason Brett (00:34:13):
So he left that, he did a lot of teaching and classes to learn about this industry. And here he is back, and it’s like, I’m laughing because this is such a Gary Gensler thing to do, is, “All right. Now we’re going to expand the powers of the SEC, let’s bring all the crypto exchanges in and this is my master plan.” And it was actually very well thought out in terms of, you heard him talk about the concept of Bitcoin and everything else and the tokens. And he’s talking about an exchange. What he’s trying to say is, “Can you really sit here and tell me that if you have 50 tokens on your exchange, they’re all not securities? There’s got to be some securities in there.”

Jason Brett (00:34:49):
And so it’s a very subtle thing, what he’s talking about because when he talks about coming and register, you’re hearing about coming in and register. It isn’t necessarily just the token company that, oh, we have to go register with the SEC, what he’s actually alluding to is that the exchanges themselves might come in and the exchanges would have to register. Because what he’s saying is, if you have one security token on your exchange, you need to come register with the SEC. They are the Securities and Exchange Commission. So it would make sense to eventually see all the exchanges and maybe having to register with the SEC. And that’s essentially what he’s looking to create. And that’s what he’s fighting for with all this money.

Jason Brett (00:35:27):
And what I think is really interesting about that, and Joe can get to the tweet on the CFTC and that interaction about how Bitcoin is treated, is if you think about it, then, Preston, that means that then the SEC has… So let’s say I’m Bryan Armstrong and I walk in and I sit down with Gary Gensler, we’ve got 100 tokens to my platform, then Gensler can just be like, “Okay, security, not a security, security,” it’s a very subtle thing. And it’s a [crosstalk 00:35:50].

Preston Pysh (00:35:49):
This sounds painful.

Jason Brett (00:35:50):
Yeah. And so that’s going to have a lot of effect, if that comes to fruition, obviously, where the SEC really is in the controlling seat of deciding what tokens get listed on exchange, just like we dealt with the New York bit night license from years ago that I’m sure you remember, was a disaster. But yeah, no, Joe’s much better on the Bitcoin definition. And yeah, let him go to that.

Joe Carlasare (00:36:12):
So to lay the groundwork for this, and I saw a tweet by Nick Carter basically attesting to the fact that this is an influential speech, that it’s something that we’re going to look back historically on, it’s going to have its moment in time. This is a speech that he’s giving to the Aspen Security Forum. It’s a nonprofit, it’s mostly focused on security issues, international security issues. So there’s an overarching theme that he brings up several times in this speech about national security and doing what is necessary to protect national security.

Joe Carlasare (00:36:43):
The interesting thing I thought the takeaway was that he really wants to lay the groundwork from the beginning. In the speech, he starts out going all the way back to Halloween in 2008, the depths of the financial crisis and Satoshi Nakamoto and these messaging boards. And then he works his way all the way up through the ICO bubble, through the tenure of Chair Clayton, then gets to where we’re at right now. So it’s a great history.

Joe Carlasare (00:37:10):
I think what a lot of observers took away from this, at least legal observers that I’ve spoken with, is that we expect a little more, because of what Jason was talking about, a clear and regulatory regime. We’re getting some of that at the margins. But the big takeaway is that he thinks the definitions of security as applicable to tokens are clear as day. He said that, “They’re clear, they’ve been clear since the 1930s. They’ve been clear through decades of case law. And regardless of what anybody wants to couch it as a different technology or a new innovation, if it looks like a duck quacks like a duck, it’s a duck.” That’s basically the takeaway from this thing.

Joe Carlasare (00:37:47):
So he draws a dividing line. He says, “Here’s Bitcoin, and here’s what it is and how it’s different. It’s a commodity, it’s not under my jurisdiction,” the only thing that would fall under his jurisdiction really is the market structure aspect of it. “But the actual commodity itself is not under my jurisdiction.” But then there’s all these other things. And he says, basically that, “I don’t care if it’s a stable coin, stock token, stable value token, if it’s a security, if it’s backed like security, if it falls under the Howey Test, that’s what it is.” And he says, this comment echoing former Chair Clayton, basically saying, “In all these things I’ve seen, I haven’t seen one of them that doesn’t look like a security.” All these other tokens.

Preston Pysh (00:38:28):
So I mean, he’s effectively saying it’s Bitcoin and everything else.

Joe Carlasare (00:38:32):
Exactly. He wouldn’t even answer the Ethereum question. A couple of times he actually said something like, “You can ask me three or four times I’m not going to comment on any other thing besides Bitcoin.” There was a funny back and forth between the moderator and him, at different points. So that’s interesting to me. Obviously, we’ll watch that carefully. But I think what people were hoping for is a comprehensive framework to analyze all these things, and really what they’ve stuck to, both in their public comments and in the SEC versus Ripple case, they’ve taken this position that you have to look at each individual token, you have to assess them on a case by case basis to determine whether they qualify as investment contract.

Preston Pysh (00:39:12):
So talk to us about the CFTC’s commissioner today, he came out and basically said, “Well, if cryptocurrencies,” and he used the word cryptocurrencies he didn’t specifically say Bitcoin, which is interesting, because you would think that maybe he would, based on Gensler’s take, some of them are considered commodities, well then the SEC has no jurisdiction making comments or pontificating about it. So what was your read on that tweet today from him?

Jason Brett (00:39:42):
A really interesting point. And the former chair, Chris Giancarlo, of the CFTC, or crypto dad, he came out and he made a very good point, which is, “We’ve realized, there’s no head of the CFTC right now. So Gensler is doing this power grab, and there really isn’t anybody running the ship at the CFTC, we’re still waiting for an appointment from the White House.” The CFTC has spent a lot of time and they’re also fighting for their own budget, where they want to one day be able to regulate crypto commodities. And they see that as a world where if Bitcoin’s a commodity, then there’s nothing the SEC needs to do in terms of investor protection. If I’m going to buy some cattle, do I go to the SEC and complain if there’s something wrong with them? No, it’s a commodity. If it’s orange juice, it’s whatever. And then there’s even in this Beyer Bill, they’re talking about changing the CFTC language to actually incorporate Bitcoin as an actual commodity after cattle and stuff, because just to make it clear, just to stop all this back and forth nonsense.

Jason Brett (00:40:44):
But that was a very smart comment by Giancarlo because he’s pointing out what’s the obvious, which is, it’s like you have a captain of a team who’s already very aggressive. That’s why the CFTC commissioners are like, “Hey, we don’t have anybody in charge here, but back off, buddy.” And they have put a lot of resources into thinking about, particularly with as they come over to the Bitcoin futures. And if you noticed, Gensler was talking about a lot of these things. And that’s why I think the CFTC finally just tweeted it out. Because it’s like, he’s talking about futures. Is he just going to take over the CFTC here? It was very oversized, and it’s not… For those who saw Gensler with the way he dealt with the CFTC back then, I mean, the expression was a bulldog.

Jason Brett (00:41:26):
So there’s nothing to be surprised about it. And I think it was smart for the CFTC to speak up a little bit, and you might very well see some push now to actually get a chair at the CFTC. So things can actually be a little bit more on even ground. And I think the crypto community is going to need that too, as far as protecting Bitcoin and everything else and keeping it in that realm. Because if you had a strong chair at the CFTC, he’d just come out and be like, “Bitcoin’s mine. Just go away.”

Joe Carlasare (00:41:54):
They’re very territorial. I mean, they’re very territorial.

Jason Brett (00:41:57):
Yeah. So that’s one thing that’s important to know. Again, from being with the FDIC is there is a little bit of calculus because there’s so many different regulators as to what your turf is, even in times of crisis, you’re always looking at maybe, oh, this is an area you want to regulate. And again, the CFTC has done a great job, they need a lot more money. But they’ve done a great job laying out what it might look like as far as the regulation of commodities. They have the options, the futures now. So they’re doing just fine. This idea that Gensler is promoting, is this concept of he cares about investor protection. And he put out that cute little tweet, where he’s like, “Well, I’m neutral. I’m technology neutral, but I’m not neutral about protecting investors, particularly investors in Bitcoin.” And that’s maybe just a general question, back to you, Preston, is what are the expectations when we buy Bitcoin? I mean, are there any assurances? Do we need protections? I mean, I don’t think that’s what this community or this new invention is all about.

Joe Carlasare (00:42:54):
So there’s really not any credible argument that Bitcoin would be a security. There’s never been anything advanced. I don’t think anyone disagrees with that. He made that abundantly clear. But if you’re thinking from a territorial perspective of what these guys are trying to accomplish to get the funds for their particular agency, if you draw a dividing line and say, Bitcoin’s over here, that’s clearly not a security, that’s CFTC, but everything else, NFTs, all these other assets, they’re mine. I get to deal with them, I get to lay out the groundwork. It makes sense why he would drive that narrative home in this speech.

Jason Brett (00:43:28):
And by the way, when he did his question and answer, Preston, it was very telling. And if you remember when Coinbase filed its direct listing on NASDAQ, they said one of the risks was if we find out who Satoshi Nakamoto was. So in terms of regulator speak, whenever they say something, they’re saying it to make a point. So when he asked he said, “Oh, Paul Vigna, are you going to tell me who Satoshi is? Does anyone in the 1000 people in this audience want to stand up and say they’re Satoshi Nakamoto?” Which he’s joking, but he’s also saying if someone actually, if we find out who that person is, does that change the conversation? Which is why Coinbase I think put that risk in when they did their S-1. [crosstalk 00:44:06].

Preston Pysh (00:44:05):
That’s really, really interesting. I’ve never heard that take. I mean, when you guys are talking, I’m just thinking, holy game theory Batman. You’re watching two regulatory bodies fighting over Bitcoin. I mean, these are things that have been talked about for years, is just the game theory that happens at an individual level where people wanting to get their hands on this then happens at a very small local governmental level and then goes to a state level, goes to a federal level, then it goes to this nation state competition. Never did I think you’d see infighting for it to be under their regulatory jurisdiction because it can suck more revenues into their political or their governmental organization. I mean, it’s just, this is wild.

Joe Carlasare (00:44:56):
For legacy, Preston. Also legacy. Some of these guys they all want to leave their mark.

Preston Pysh (00:45:00):
Yeah.

Joe Carlasare (00:45:01):
Like Jason said, I fixed Bitcoin, I fixed this market, I fixed whatever. That’s a big part of it. The legacy they want to leave when they retire and say, “I did this.”

Preston Pysh (00:45:09):
Wow.

Jason Brett (00:45:11):
It is really the arrival of Bitcoin, Preston, in terms of being taken seriously. I always say when you start to see something regulated and people fighting over it, that means it’s really something of value. So when I was at the FDIC, the joke would be, you’d go to examine a bank on a Monday, leave on a Friday, and when you show up, they’re like, “Oh, we’re really happy to see you here. But we’ll be even happier when you go.” The fact that you’re actually showing up means you’re in existence, you’re doing well financially, but then you can just leave because we don’t want you to shut us down. So there is that element now of, that the regulators see the market, they understand where this is going. And I mean, it’s incredibly bullish when you think about it, because it’s not only reliant on a tech source now with Bitcoin, but it’s being, we’re seeing this fight takeout in real time over who’s going to get to regulate it.

Preston Pysh (00:45:59):
So based on your comment about the Satoshi Nakamoto piece, does that put Ethereum at risk based on the question, and the way that he was responding to the people in that audience that were framing their questions. The fact that Coinbase was writing this into their language. Are the regulatory bodies and the people at the helm of these organizations, are they signaling that that is the critical element that makes something a security or not? Is that the founders and the creators are knowable?

Joe Carlasare (00:46:31):
I think that’s part of it. Even going back to Director Hinman’s speech, he talks about this concept of being sufficiently decentralized. And he takes this approach where the asset can actually transition over time, it could start out as perhaps an unregistered security offering or an investment contract, and over time, it can become sufficiently decentralized. And I think that that’s a big part of their analysis. They also want to look at the expectations like Chairman Gensler talked about this in his speech. He said, “Most of these investors, they come to this, they buy these tokens, because they want to sell them 10 months later and have a 10X.” That’s purely the expectations of profit from the work, entrepreneurial work of the small teams that put these things into the market. That falls squarely under Howey.

Joe Carlasare (00:47:16):
So I think the invocation of Satoshi Nakamoto is, if you have a big thing here that could potentially control this market or influence the value of this thing, that is the risk. That then maybe it’s not sufficiently decentralized. But obviously, technically, I think Bitcoin’s evolved quite a bit where even he, she or they, Satoshi came about, they’d be able to influence it. It’s just too distributed and diverse at this point. That’s my view, personally.

Preston Pysh (00:47:43):
If they go to the exchanges and they go to the Coinbase, they go to the crack-ins, and they say, “Hey, all of these tokens, pretty much every token, but Bitcoin is a security now, we’ve determined that.” What are the requirements for now… What does that change, if anything?

Joe Carlasare (00:48:01):
So again, the way they’ve been shaping policy from Clayton to Gensler now, is that they shape the policy through enforcement. That’s the key thing. They bring an action against the Kittoken or the Telegram or against XRP. That’s how they’re laying the groundwork on a case-by-case basis. That’s frustrating, from a lot of lawyers and people working in the field because we want to have this certainty. And that actually, we’ll get to in a little bit, they don’t have the legislative ability at this point. They can issue action letters, of course, but they don’t have the legislative ability to go and issue these 25 assets, these 20 assets are securities, commodities, give that firm direction. That’s part of what is included in the Beyer Bill we talked about, they actually are going to be able to issue I think it’s the top 25 assets by market cap. They’re going to be able to give clear direction for these and classifications.

Joe Carlasare (00:48:52):
But that’s a legislative fix. And I think their position at this point we have to continue to analyze these things on a case by case basis. We can’t publish a list one day on our website at least right now under the law that says these tokens are X, Y, Z.

Preston Pysh (00:49:07):
Okay. So let’s talk about the Don Beyer 60 page today size bill that is all about the regulations for Bitcoin, crypto, everything.

Jason Brett (00:49:20):
There are bills that are introduced and talked about pretty regularly. In fact, remember Congress with, at least on the House side, you have 435 members. So it’s like having 435 small businesses, they’re all trying to introduce bills. Not all the bills make it. A very small fraction of the bills actually make it to the finish line. But this particular bill, what was striking is that he has not spoken at all with any of the regular Congress people who actually are involved in this space and are working on things and talking about Congressman Warren Davidson and Congressman Tom Emmer, who’s the co-chair of the Congressional Blockchain Caucus on the Republican side. And then on the Democratic side, you have congressman Darren Soto. And then there’s a bunch of others on both Republican side, mainly Republicans and also some Democrats who’ve been really involved in helping to create legislation. There’s even a working group that they have, where they’re trying to figure out what legislation will look like. And we’re talking years in the making. I mean, I’m thinking all the way back to 2016, 2017.

Jason Brett (00:50:20):
So when a congressman just comes along and drops a bill and says, “Here’s how the space is going to work.” And he’s never had any conversations with his colleagues, there’s some skepticism. And even Congressman Tom Emmer was talking earlier on this with CoinDesk and he was saying, “Bills like this usually means it probably was generated by Yellen’s office.” So believe it or not, I mean, legislation, whether it’s Federal Reserve or US Treasury, sometimes they want to influence things in Congress and they’ll pass on what they think is really good legislation.

Jason Brett (00:50:52):
I’m never comfortable with that. I think it’s much better if it’s Congress acting on its own, to figure out what legislation. They’re supposed to be the representatives of the people. There does not seem to be… He’s never talked about the bill. There’s no real explanation. So it does look like just someone put together a really fancy 60-page bill, handed it to him. And all he had to do was introduce it in Congress, which happens all the time.

Joe Carlasare (00:51:17):
The takeaway is, I’ve talked to some pretty well-respected lawyers in the field that they think this bill, out of all the things, as Jason was alluded, all the bills that have been introduced over the years, they think this one, this is the first one they’ve seen that’s comprehensive enough, thorough enough, where it might actually become law. I don’t know if that’s the case. But in terms of just the depth of the bill, and how it goes, divides every single agency and every single rulemaking authority, it’s pretty, pretty thick. And somebody’s put a lot of thought into it. So it seems unlikely that a congressman that doesn’t have a history with the space would have that depth and that research behind him to put forward this. So take that for what you will.

Joe Carlasare (00:51:56):
But the bill’s title, the Digital Asset Market Structure and Investor Protection Act. And they’re really focused on consumer protections, a ton of new requirements on disclaimers, and basically new information on consumers for what you’re buying when you’re acquiring these different things. But the clear thing it provides is that it provides a statutory definition for digital assets, which are going to be regulated by the CFTC. So it puts that in that bucket, that’s their jurisdiction, they’re going to take care of that. And then another bucket for digital security asset or digital asset securities, I think the term they used. And that’s SEC.

Joe Carlasare (00:52:31):
So each one of them get a little bucket that they’re in charge of. It gives you regulatory certainty for the top 90% of digital asset market space. So if you go to probably the top 20 to 30 coins on CoinMarketCap, they’re going to be issuing clear language as to what these things are. It has penalties built for listing unregistered securities or assets that shouldn’t be on exchanges. So it gives you some rulemaking authority to go after exchanges for just listing any X, Y, Z token without doing any diligence or going through the proper protocols. It gets stable coins, it basically says that, to the extent it’s a digital asset securities stable coin, in other words, a stable coin that has underlying securities, that’s going to be SEC. But otherwise, it says Treasury has the authority to prohibit dollar-based stable coins that are not approved stable coins.

Joe Carlasare (00:53:21):
So it’s really comprehensive. And it also incorporates some of the things we were talking about earlier with respect to monetary instruments under the Bank Secrecy Act. It formalizes exactly what you’re talking about, Preston, about what do you need to do from a record keeping perspective, from a money laundering perspective, from reporting requirements at the banking side? Really thickly, brief, comprehensive language about what a bank would need to do to hold digital assets on their book and a client. So from that standpoint, I think it’s really something that there was a lot of thought into it.

Preston Pysh (00:53:52):
Well, the one piece there that really stood out to me on the stable coin part that it allows, did you say the Fed or the Treasury to-

Joe Carlasare (00:54:00):
Treasury.

Preston Pysh (00:54:00):
The Treasury.

Joe Carlasare (00:54:01):
Treasury. Yeah.

Preston Pysh (00:54:02):
So Janet Yellen will then have the ability to say, “Hey, that’s not an approved stable coin effectively,” is what you said.

Joe Carlasare (00:54:10):
Absolutely. The Fed has the authority to permit or prohibit any US dollar or not just US dollar, any fiat-based stable coin, they can permit-

Preston Pysh (00:54:18):
Any fiat-based stable coin. When I think about this, the thing that pops into my head is, I would suspect, and I might be dead wrong about this, I would suspect that the US would want the private entities to run these stable coins, opposed to standing up a central bank digital currency, simply because of the risk of having a technological failure. If they started transitioning to a central bank digital currency to replace the existing dollar based digital system that currently exists with the Fedwire clearing every four hours and ACH clearing every day to three days, that system has not demonstrated a failure.

Preston Pysh (00:55:01):
And I suspect that policymakers would be really concerned about replacing that, technologically and stepping into a new system that could have these really broad macro implications if there was a technological failure. So how do they try to circumnavigate that? Well, just allow the private sector to have these stable coins, and then we just provide a lot of oversight as to how they’re doing it and how they’re actually backing it with actual US dollars out of the system that currently exists today. Would you agree with that? And if you wouldn’t, why not?

Joe Carlasare (00:55:39):
Well, one thing I forgot to mention, I probably should have brought up is that this bill, the Beyer Bill actually provides the Federal Reserve explicit legislative authority to create a digital version of the US dollar. So the CBDC from the Fed is in the Beyer Bill, that’s there as well. And I’ll let Jason comment further on a separate issue of their view on stable coins.

Jason Brett (00:56:01):
So it’s really interesting, since the beginning of the administration, believe it or not, stable coins are actually seen as the biggest threat to the US dollar. And so it’s not really seen, especially remember, it’s a Democratic administration. So it’s not so much big on what private sector might do. They want to see the Federal Reserve be in charge of a central bank digital currency. And if you heard, Powell, recently testify saying he thinks that the introduction of a CBDC would make Bitcoin, stable coins, everything go away.

Jason Brett (00:56:29):
The threat of the stable coin or the idea is you have this thing moving 24/7 and it is sidestepping some policy goals that they have about the way again, and this is what this whole space is about a lot, which is how the Federal Reserve governs us from a behavioral economic standpoint. The central bank digital currency, there are forms like in the Bank of England has explored this where the Fed might introduce it, but it is still going to be private companies that are distributing it. So we might see that hybrid model. But what’s really interesting is they’re talking about how the CBDC is also going to help them with the lower bound.

Jason Brett (00:57:04):
So here we are stuck with these low interest rates, well, you could always just make a charge. If I have 500 central bank digital currencies, you could just say or in dollars, you could just say, “I’m going to charge you $5 of that amount unless you spend it.” To get me to spend it. So it increases the lower bound. And they’ve even talked about giving people interest rates, like a bond like six or 7% to encourage people to get it. So where I think we’re going is you’re going to see, because you’ve seen that a few times said by Yellen and you’ve seen that from the Fed, is I think you’re going to see basically the Federal Reserve try to create a currency and make it as attractive as possible so people will use that versus a stable coins to continue to administer Fed economic policy the way they already do now through the banks.

Joe Carlasare (00:57:49):
And by formalizing the Beyer legislation or a language that’s taken from the legislation, they clearly want to crowd out the competition, I think. Because they’re going to be the exclusive gatekeeper for these. I mean, no person is going to be able to transport or issue stable coin under this bill without stamp of approval from Treasury. And as we know, even stable coins like USDC and USD, they have underlying securities, they’re not just one to one peg with the dollar. So that brings the SEC back into the mix there, are they going to find that really, these stable coins are securities or at least make that allegation. So it’s clear to me that they want to crowd out the competition.

Preston Pysh (00:58:35):
Well, yeah. And if they’re interest bearing, I guess they would be considered a security at that point. To Jason’s point, if they’re saying, “Hey, we’re going to offer this much interest rate, if you basically don’t use it for this period of time,” at the end of that period, you’ll receive this 1% coupon that would be associated with not using it for whatever duration that would be associated with it.

Preston Pysh (00:58:57):
Now the other part, what was interesting about what you said, Jason, is you’re talking about something that has a positive yield and something that has a negative yield at the same time. And we’re also just glossing over the fact that the government, the global government’s track record of spending, exceeding tax revenues, doesn’t appear to be on a trend line that would reverse itself anytime soon. So it’s interesting that that’s… Do they just not understand that piece? Or do you think they actually truly do understand that piece and they understand that Bitcoin’s really the only thing that’s not going to be the base because of the decentralized nature of it having a fixed unit like 21 million coins. Do they understand that? Or do they actually believe that this would make Bitcoin not a high demand asset?

Jason Brett (00:59:50):
I think it would actually make Bitcoin more valuable.

Preston Pysh (00:59:52):
Yes.

Jason Brett (00:59:52):
And so I think that perhaps there’s some political gamesmanship happening when you heard the Fed say that. Because what’s so interesting to me about this, in terms of the stable coins is, if you think about it, with Facebook, when they came out in 2019 with Libra, everyone was criticizing Facebook because they were telling people, you couldn’t do crypto ads on Facebook and then they introduced their own cryptocurrency. And then the government comes really hard down on Facebook, which is really like saying, “No, no, no, you don’t get to make money.” And now here the government is ready to introduce a white paper and they’re going to introduce their own money, while not letting anyone really. So I think if anything, the goal is, the policy goal is to slow down the Bitcoin market as much as possible, just to make it slog through so they can have the time that they need to build out this CBDC.

Jason Brett (01:00:39):
And there’s also a lack of trust, a little bit in the private sector. When you talk on the Hill, there are Democrats that still see a lot of these products and they don’t differentiate a lot of this DeFi stuff from credit default swaps. They just think, “How are we really helping the unbanked with some of these products?” So there’s still a lot of education needs to be done, both from the White House side, I look forward to continuing to do in the administration, as well as in Congress, helping Democrats understand, we have a lot of unbanked people in the country. And there’s a lot of ways that stable coins could help. Even one of the Fed deputy directors, Quarles, actually came out, who’s director of supervision and said, “I think there could be some use in stable coins.”

Jason Brett (01:01:16):
So what you’ve raised is actually really, it’s a big debate right now. We have two heavyweights in the Federal Reserve, Quarles and then Federal Reserve Governor Lael Brainard. Brainard’s like the CBDC person, she’s pounding that CBDC home, she’s driving the whole ship on it. And all of a sudden, Quarles speaks up like, “Oh, maybe we just use stable coins.” I wouldn’t want to be by the water cooler with both of them right now. Because that’s a little bit of an infight in the Fed over which direction to go.

Joe Carlasare (01:01:45):
Yeah. And just to echo the point made by Chair Gensler in his Aspen Institute speech, he talked about Nakamoto creating this private form of money and other actors creating private form of money. That’s not a new concept. That goes back in our history for a long time. And he dismisses it with the notion that what really happens with a lot of these private money is that eventually they just disappear and go bust. They’re not valid.

Joe Carlasare (01:02:09):
So I think that from my view, he’s dismissing the notion that private money has a long-term staying power. And I guess, I understand [inaudible 01:02:17] has to take that position. But it’s fascinating because you read that with some of the efforts to control stable coins and why they’re so focused on stable coins, that really would be a serious issue. Because right now, one of the main reasons why Bitcoin is not used more as a medium of exchange is because, it’s primarily the tax code. The tax code makes it completely untenable as a current medium of exchange, where every $5 coffee, having to record that just becomes too cumbersome in large degrees. So I think it’s very self-serving to have a tax code that inhibits Bitcoin from becoming, at least right now, a medium of exchange.

Jason Brett (01:02:53):
One final point on this too, Preston, is we have our beliefs about what Bitcoin can do, but the Federal Reserve, and just the government, has almost a 200 year history of being able to stamp out currencies that they don’t want to deal with. Whether it’s state currencies, Wildcat banking era with private digital notes. Government can come in and they feel like if they need to get rid of some stuff, and they want people to use a certain thing, it’s… So there could be really just an under estimation of how Bitcoin is going to just remain part of it. And that might catch them by surprise.

Joe Carlasare (01:03:24):
Absolutely.

Preston Pysh (01:03:26):
For a person who’s hearing this, that’s a hardcore Bitcoiner, I think the whole stable coin, central bank digital currency, the real concern is on the privacy side. And if I have a digital wallet on my phone, and I have a central bank digital currency, and the government doesn’t like me or they want to peer into all the transactions I’ve had over the last 10 days, they can do some crazy things once you start talking about that. So does the Beyer Bill address the privacy constraints of a central bank digital currency so that it aligns with the founding principles of this country? Or are we starting to get a little dystopian here and a little bit scarier in the direction that this is all going as far as privacy concerns go?

Joe Carlasare (01:04:13):
No. At least not as far as the Fed’s authority to issue this digital version of the US dollar. We don’t really get into too much of the terms of that. They give them this explicit authority. They say, “Go do it and you’re charged with regulations or issuing directives and guidance and how that works.” Where that, repository of all that private sensitive drops of data is going to be, that is something I think they just don’t have in the bill right now. So in the event we get movement on a digital dollar, I think that’s something that’s going to be a huge push, because people don’t… I think privacy, it resonates with common people. I mean, even this issue right now that we’re dealing with, with the infrastructure bill, I think, folks, the notion that transactions, every single movement of a coin is going to be sent off to some honeypot of information, I think that bothers a lot of people. I don’t think that’s the regulatory regime you want.

Jason Brett (01:05:04):
And there’s been a couple of hearings on this. And there’s also what’s called the Central Bank Digital Currency Study Act in the House that would look to explore this. But what’s been raised by a lot, and actually the Electronic Frontier Foundation, that talks about digital privacy, is saying, do we really want to go this route? Preston. Because when you start talking about this dystopian situation, I mean, that’s China. That’s the way they’re creating theirs to follow everything their citizens are doing, continuing to control people in that country.

Jason Brett (01:05:34):
And so there’s a lot of people and you hear some who are strong Bitcoin advocates, rightly say, “Maybe we don’t need to go down this route. Maybe we don’t want to.” Or, “Maybe it’s there’s no compromise.” The way it’s been explained to me, and again, forgive the people who are running our country for not being that technologically understanding of it, but they say to me, “Why can’t you just give me a currency but not on a blockchain? Just give it to me and I’ll put it in my pocket and I’ll walk away. And it doesn’t have to be my identity associated with it.” That could be a very interesting concept.

Jason Brett (01:06:09):
What I laugh about with that is, I think one day maybe the government’s going to come down and say, “Wow, maybe we need Lightning. Maybe Lightning should be the way we transact because we don’t have to get into this, who I am. And anonymity is actually a good thing.” Right now everyone’s freaking out over Taproot. How Taproot is going to make things less visible on the blockchain. And does this mean it’s going to be more private? Maybe that’s actually what the government’s going to need at some point to satisfy. Because America is not a culture that is happy when people are just surveilling them all the time.

Joe Carlasare (01:06:37):
Absolutely.

Preston Pysh (01:06:39):
I think I would get a lot of crap from listeners if I didn’t bring this one up, the ETFs. Talk to us about the timeline on this, I know Gensler has just recently come out, he’s talking about it being cash settled and not spot settled, which is an eye roll for me, because of just how I look at the gold market, and the cash settled gold market on a derivative side. And I know, Jason, you have a lot of experience on the commodities and derivatives market. So I’m sure you’re well-versed on the differences between cash settled and physically settled markets. So why is he saying that? Why isn’t he saying that an ETF will be approved, that would be spot settled?

Jason Brett (01:07:17):
Well, I think because he doesn’t fully want to believe the way Bitcoin should work. I think there’s an element of with it being spot settled or as you say cash settled, the fact is that you’re going to really have people who are going to look at this and say, and to him it’s more of a way of tracking it. And there’s a distinction between the type of ETF that he introduced. And Joe knows that, right? Joe, the aspect of the type of ETF. But I think it has to do with the ability of just the way he thinks the market should function. But yeah, let me turn it to Joe.

Joe Carlasare (01:07:54):
Going back, and I think anyone who’s interested in ETF should always start, actually start with Commissioner Hester Peirce’s [inaudible 01:08:03] and how she lays out the issue. And really, she does a very comprehensive, thorough analysis of the Section 6(b) of the Exchange Act to basically say, they’re reading this heightened requirement into the act. They’re basically treating this commodity market different from every other commodity market that gets approved, because they’re basically, they want this standard where there’s almost no fraud or manipulation of the underlying spot market. That’s really the key focus that they’ve had.

Joe Carlasare (01:08:31):
So the problem is that, and they’ve identified this in the denials is that they can’t get enough information about the, primarily these offshore leverage derivative exchange and the spot markets abroad, and if there’s volume being faked. And because we have this whole global ecosystem, and a lot of it lies outside the United States, we can’t ensure the integrity of the underlying market. The problem is that that is not, in Commissioner Peirce’s view, that is not within their role. They’re not supposed to ensure perfect stability of the underlying fraud market.

Joe Carlasare (01:09:00):
So if you take that and you take the denials of the registration statements that have been issued over the years, there clearly has to be something that changes within the market structure, to give them the ability to pivot. There has to be something, even if it’s a political solution, they can come forward and they can put in some regulatory regime for these exchanges, or at least the US based exchanges, then they can say now, the market is sufficiently mature, we’re confident enough in the US regulated exchanges that the volume’s not being faked and there’s no problem with the spot. And that opens the door for us to pivot and say we’re finally going to give the green light to the ETF. That’s my view of it personally, just assessing the groundwork.

Joe Carlasare (01:09:39):
Right now, I think the consistent issue is we don’t really have any movement or new regulatory regime on the exchanges. I think that comes and I think that gives the eventual green light. Two things in terms of the timeline, which you asked about Preston, number one, and as many have pointed out on the official agenda for the SEC, there’s nothing on there about crypto, despite the fact that we’ve been talking about and they’ve been making public statements. Some have read that to be an indication that an ETF is not close. It’s really unfortunate on that front, that they haven’t fast-tracked this. But I think personally, that if we get some regulatory guidance on exchanges or some legislation on the exchanges, that is going to open the door to them pivoting on this ETF issue.

Jason Brett (01:10:24):
And just to clarify, it’s about investor protection at the end of the day and how he feels. And that’s why he’s looking for these stricter rules. Because again, remember, whether it’s Bitcoin or Bitcoin ETF, he’s looking at everything from, “How do I protect the investor?” So he obviously sees some risk in not doing it in a way that would make the most sense. He wants to do it in a way that’s just going to protect investors. And I think that’s because he’s not fully comfortable yet with the Bitcoin market and he wants to see some of these regulations.

Joe Carlasare (01:10:55):
Yeah. And the question is, when is he going to be comfortable? Because no matter what they do, a lot of the trading in Bitcoin is overseas, outside of their jurisdiction. And it’s all interrelated. The trades going between Binance and Coinbase. And if that portion of the market is outside your jurisdiction, what has to occur, Mr. Gensler, Chairman Gensler, to get this through? What do we have to have when you’re never going to be able to regulate a lot of these institutions overseas?

Preston Pysh (01:11:21):
My concern is more on a systematic front. So if you go to a person today, and you say, “Hey, buy some Bitcoin,” and they just don’t want to have to open another account of exchange, how are they buying? They’re going on to their fidelity account or whatever exchange that they are using for their traditional stocks that they own and they’re buying GBTC. All of that capital, all that money is flowing into this trust, this one trust, because there’s no optionality for people to do it in their traditional stock investing brokerage accounts.

Preston Pysh (01:11:52):
And so I guess I would make the counter argument of the failure to approve an ETF is funneling all of this money into this one thing that could potentially have, maybe they have custody issues, maybe they’ve run into whatever problem with the GBTC vehicle that is working and is listed on all these exchanges. I don’t know. It doesn’t make any sense to me.

Joe Carlasare (01:12:15):
That’s exactly Commissioner Peirce’s comment. Hester Peirce said the almost verbatim thing, that the fact you’re driving these people to unsafe markets, markets that would be refined if we had an ETF. And it’s also unfortunate now that we’ve got the Canadian ETFs which are in place and they have no issues with those [crosstalk 01:12:34].

Preston Pysh (01:12:33):
Yeah.

Jason Brett (01:12:35):
And I hate to disappoint you, Preston, but the government doesn’t do a lot of things that make sense and that’s why we have these kinds of conversations. And this is where at least just from a political angle, we have to realize is Gensler just got a letter from Senator Elizabeth Warren. And the whole narrative has been cracking down on Bitcoin, too much energy, all these other things. So if Gensler, maybe he actually wants to do what you’re talking about. Maybe he thinks it’s the right thing to do. But if he comes out and does that right now, and they’re talking about money launderers using it and all this stuff, it’s like, oh, why don’t you just let the terrorists into the country kind of thing by him approving a Bitcoin ETF. So unfortunately, I think it’s being delayed for political reasons. And I’d like to see this sooner than later. Because to be honest, it’s almost getting to the point where it’s criminal, because it’s been a 12 year marketplace, there’s others that get ETFs, there’s just absolutely no reason why it can’t just get an ETF.

Preston Pysh (01:13:32):
Trillion market cap.

Jason Brett (01:13:34):
And it’d be easier and safer for a lot of consumers who, like you say, go to a 401k and everything. It’s creating unnecessary risk by having it all be in one trust. So unfortunately, I’m not optimistic, but maybe by early next year, we might start to see it.

Preston Pysh (01:13:48):
And you know what? I could totally see that happening. I could totally see that playing out. Hey, the BlockFi news. Are you guys well versed on any of that? The New Jersey, I know it was in New Jersey, and it was in a couple of other states where they put a stop order on them taking on new clients and it’s a concern with them paying interest. What do you guys know on that?

Joe Carlasare (01:14:08):
I’m most familiar… The cease and desist order in New Jersey, I think it’s Alabama, Jersey-

Jason Brett (01:14:15):
Texas.

Joe Carlasare (01:14:16):
Yeah. So again, this is actions by the states, because each state has their Bureau of Securities in New Jersey. And essentially, the argument that they have is that the BIA, BlockFi Interest Account, constitutes an investment contract. And let’s go through the Howey analysis, okay? You’re putting your Bitcoin, so you’re giving something of value to BlockFi, they’re then taking those funds, they’re rehypothecating it, they’re investing in unregistered securities or investing in tokens. We don’t know what they’re investing in, to be honest. And then they’re giving you a yield. So you as an investor are giving something of value, and then you have a reasonable expectation of profit from the management and entrepreneurial skills of BlockFi. That’s Howey, right there.

Joe Carlasare (01:15:01):
This is state law. So it’s not federal. So it’s a little bit of distinction, because New Jersey’s law and defining a security is broader, arguably than the federal law. But that’s the framework, the fact that they are advertising their website, we’re going to give you X amount of yield on your tokens. I can see why regulators have an issue with that. I’m not going to get into my prediction as to where I think this goes. But you can see why this presents concern. You’re falling squarely under contributing something of value, handing it to others to get a profit, to get some sort of gain. So you have to really justify why isn’t that an investment contract.

Jason Brett (01:15:38):
It reminds me a lot of 2017 with the ICOs, because you did have a lot of states that would stop certain ICOs. And so the states are starting to look carefully at all these new marketplaces. And the problematic thing about attorney generals getting involved in this is to me that they’re now also another, it’s not just the SEC. It can be the states that can say, “You’re a security.” And BlockFi had its lending license. You can get that consumer lending license in the state. So it really puts anyone who has an interest bearing account in a little bit of jeopardy. The fix on this, and to me, the policy goal should be for our community to think about… So like CDs, right? CDs are actually securities. But when they’re in a bank, no one cares. Because it’s time deposit 90 days. So there’s your benefit. And banks are allowed to do that. Now, if you have a brokered CD, you buy it from your broker, that’s why then it’s considered a security.

Jason Brett (01:16:34):
So I think we have to give it that context of within a bank, yes. Is it a security? Absolutely. But it’s giving us interest and this is what people are buying. I mean, it’ll be driven by consumer demand. I don’t think, and especially if you look at other jurisdictions, these kinds of interest bearing accounts are very attractive and not going away. So again, it’s this… Sometimes, I mean, even being a former regulator, it’s just frustrating. Because if it’s not the federal government, it’s the state. And it does concern me that it’s three different ones. So I’m hoping either the states work together or the federal government’s able to give some resolution to this. And I think they’ll have to. To me, those have been very popular products.

Joe Carlasare (01:17:14):
Yeah, I think they’ll have to, too. And the interesting thing is, I think we’re going to figure out how they’re getting this yield, where it’s coming from. Obviously, the BlockFi’s, over time their yield’s been decreasing. So there’s a lot of different reasons and supposition about why that’s occurring. But if they’re taking consumer funds and investing them in illiquid tokens to get some sort of yield, that can be problematic. They’re going to be in the SEC’s crosshair, potentially there.

Preston Pysh (01:17:43):
Fascinating stuff. By the time this airs next week, we’re going to know the outcome of whether the amendment on the current infrastructure bill was approved or not. I’m curious, what do you guys think, if you had to put on your prediction hat? Do you think that the amendment’s going to get accepted?

Jason Brett (01:18:00):
I think it is going to get accepted. I think at this point, there’s been enough noise and with the efforts we’re going to see tomorrow, by the way, by the time the states will already know about it, but we’ll see the Washington Post is going to have banner ads, telling people to continuing to call their senator offices. If you look at Twitter, you can see nothing but this is how you call your senators. There’s been enough pushback on this where I think that ultimately they’re going to…

Jason Brett (01:18:27):
They wouldn’t have gone through the changes of all this language, if it probably wasn’t going to be accepted, it also has three senators supporting it, which is a pretty big deal. So I think we’ll be living in a world where it’ll be passed. The joke will be for all your listeners that by that time, all the senators will be on break and the House is going to pick this up. And because the House doesn’t actually come back till September 20th, it’s just going to sit there for 70 days, and then the House will get to it. But in the meantime, I do think we’ll see it at least move to the House.

Joe Carlasare (01:18:54):
Yeah, I generally concur with Jason there. I think the fact that Portman’s office, the main architect of the original language, seems to suggest that miners and node operators and wallet manufacturers, they’re not included. It strikes me as well, what’s the argument for not changing this? You got an amendment here, it clarifies it, pulls this out. Why not fix it? And I haven’t heard anyone, even folks that are very hostile towards crypto-like Elizabeth Warren, no one’s come out and said, “We need to keep this language in there,” for any good reasons. So absent some justification for not making the change, I think that we’ll get the changes.

Preston Pysh (01:19:29):
Say it doesn’t go through and then it goes over to the House at a later date. And the House introduces the amendment. Could that happen? And if it would, would it then have to come back to the Senate for adjudication that they added the amendment and the Senate didn’t?

Jason Brett (01:19:43):
I don’t know that they would actually do it, because at that point, they know the Senate’s rejected it. So usually when you go to conference, it just might not be on the table anymore. You might see it introduced but then when it goes to the House, the next step is that it’s going to the president. They’ve worked out a lot of that in conference.

Preston Pysh (01:20:02):
Okay. I got you. My final question for you guys or highlight that you guys can put out there, it seems like the Beyer Bill is really the big talking point, the thing to really focus on out there, that’s going to happen in the future. Are there any professional congressional staffers that people that are listening to this should reach out to or representatives themselves that they should reach out to, to try to influence and try to educate? Or how can a person who’s listening to this, who has an extensive amount of knowledge of the power that this is going to bring, have an impact? How can they do something? What would be your recommendation? And if there are names of people that can be contacted or influenced or whatever, what would be your recommendation?

Joe Carlasare (01:20:47):
I actually penned a piece with a friend, Amanda Cavaleri for Bitcoin Magazine about this, that I ultimately think that this is a new era we’re moving into, where we’ve got 40 plus million people that have some exposure to Bitcoin in this country. And I think Bitcoin related activism, single issue voters that are passionate about Bitcoin and the hope it brings for a lot of people, are going to get involved and they should stay involved. Obviously, this was a galvanizing force over this infrastructure bill. But there will be many other skirmishes and discussions along the way.

Joe Carlasare (01:21:18):
We’re not going to get to a 10 trillion or a $50 trillion market cap on Bitcoin unless we engage with these policymakers on a regular basis and let them know that Bitcoin matters and they shouldn’t just push us to the kids’ table. We’re going to increasingly be a force. And I would say, regardless of where you’re at, you can be in a blue state, red state in the United States, even locally, you should be having this dialogue, making sure policymakers are informed that they understand how important this is, that they gain awareness of how the technology works. And all it can be sometimes is just a simple call with your congressman, call with your senator say, “Bitcoin matters to me, have you thought about Bitcoin legislation that can be positive? Have you thought about reforming how Bitcoin is taxed?” These issues require a consistent dialogue and not just a one-off where, we’re out of the woods here and it’s not going to be a problem anymore.

Jason Brett (01:22:11):
I would say definitely think about reaching out to Blockchain Association and Coin Center and the associations that are working on this legislation as a good first step and there’s a lot they’ve… They’ve actually gathered 100 organizations together to help support this initiative of trying to get this one particular thing changed. So that’s really remarkable. He’ll probably kill me for saying it, but Landon Zinda’s a really good friend of mine, and has been amazing since 2016. So he started out as a staffer for Congressman Tom Emmer, he was there at the birth of the Congressional Blockchain Caucus. I remember when he was so excited when he first bought Ethereum. He’s really done a masterful job of understanding the space, of understanding the technology and he actually moved over to the Senate Banking Committee.

Jason Brett (01:22:55):
So if you approach Senate Banking and you have ideas there probably isn’t a lot that goes out about cryptocurrency simply because it’s such a niche subject. But Landon would be an excellent resource. And is someone we have to thank a lot. I remember talking to him a few years ago when we first met, and his vision of how he tried to want to bring clarity so this industry could flourish. He didn’t want to see it happen in other countries.

Jason Brett (01:23:18):
Chris Land is also good. He used to work with Caitlin Long in Wyoming and he’s the rep for Senator Lummis. And he’s also who’s created what’s called the Innovation Caucus, Financial Innovation Caucus. So caucuses are these clubs, are great ways to come and you can do show and tell, they have different topics. You can look at it on their website. I think they want to discuss things the use of Bitcoin mining, is one of the subjects, they want to talk about central bank digital currency. So there’s lots of those caucuses.

Jason Brett (01:23:47):
And by the way, and I do this for Bitcoiners all the time and I’m doing it for somebody tomorrow, anytime, for free, I’m happy to help anyone just if you reach out to me. Happy to give you some pointers and guides if you try to figure out what to say or how to do things, and hopefully we can create a resource for Bitcoiners everywhere with not feeling intimidated by the process. I always encourage people it’s a democratic country, you don’t have to know everything about DC. Don’t be afraid of it. If you have an idea and you want it done, it could be your local town, it could be your state, Washington DC, you can still walk in there and give your idea. You’re paying citizens.

Preston Pysh (01:24:25):
All right, gentlemen, this has been just so enjoyable for me. We have got to do this on a quarterly basis where we just re-cage and talk about everything that’s changing, is about to happen. If you guys are willing to do that, I would love to have you back to do that. That’d be awesome. Jason and Joe, in that order, give people a hand-off to maybe your Twitter account or where people can learn more about you or anything that you guys want to highlight.

Joe Carlasare (01:24:50):
I’m at @JoeCarlasare, really easy one. It’s my name. Hard last name, but if you search for @JoeCarlasare you’ll find me on Twitter. You can also find me on my firm’s website at SmithAmundsen LLC.

Jason Brett (01:25:02):
And I’m @jason_vtf. VTF is for Value Technology Foundation. It’s a nonprofit 501(C)(3) that actually does education on this subject for some of the agencies in the government. Not a lobbying organization, but definitely helping with education and always looking for thought leaders to help build out the space.

Preston Pysh (01:25:25):
Gentlemen, thank you so much for making time. I’ll have links to all of that in the show notes. And yeah, I look forward to doing this again.

Joe Carlasare (01:25:32):
Absolutely. Thanks Preston.

Jason Brett (01:25:34):
Thanks.

Preston Pysh (01:25:36):
Hey, so thanks for everybody listening in to the show. If you enjoyed the conversation, be sure to subscribe to the show on whatever podcast app you’re using. We really appreciate that. And if you have time, leave us a review. So thanks for joining us this week and we’ll catch you next Wednesday.

Outro (01:25:50):
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