Bloomberg Crypto 08/01/2023
Live from bloomberg's world headquarters in new York. I'm Sonali Basak in for Matt Miller today. And from our studios in washington, D.C., i'm katie lyons. Welcome to bloomberg crypto. A look at the people, transactions and
technology shaping the world of decentralized finance. There are two big headlines hitting the crypto world one centered on curve finance and another in the courts. We're going to discuss this with COIN Fund's Chris Perkins. Plus, the Fed's new Real-Time Payment System went live in July. We'll talk about the banking and fintech
fallout with Aaron Klein from the Brookings Institution. And we're going to dig into the latest proposed new crypto rules out of DC with Crypto Council for Innovation CEO Sheila Warren. All right. All of that is ahead. It's going to be a packed show. But first, let's get a snapshot of the market. The best way to do that on your
bloomberg terminal c r y p go. And what you will find is it is largely a down day for these digital currencies, Bitcoin and ether leading that they're each down about 1% bitcoin right now trading just under $29,000. Ether is at 1832. And then XRP we have to note as well. Of course that has been the token in focus over the last several weeks after that ruling from a judge that found it is not a security when sold to retail investors, only to institutional investors. A new case, though, and the judge in that one not making that same distinction when it comes to tariffs generally. We'll have more on that in just a minute.
But that idea that there still is a lot of uncertainty around what is and is not a security and ultimately questions about what that means for some of the other cases the SEC has brought against players like Coinbase are dragging on sentiment today. Coinbase, that exchange down about 5.4% at this point in the session. Generally speaking of that uncertainty around crypto regulation mounting, a New York judge rejected a ruling made earlier this month that a ripple token was not a security. When sold to public District Judge Jed Rakoff allowed the FCC to move forward with its case against TerraForm Labs and said, quote, The court declines to draw a distinction between these coins based on their manner of sale, such that coin, sold directly to institutional investors, are considered securities, and those sold through a secondary market transactions to retail investors are not. Joining us now to discuss this is Chris Perkins Coin Fund president. When you look at this TerraForm case, what does it mean not only for Ripple, but also more securities that other exchanges say Coinbase are privy to? It's confusing, right? It's very confusing for our founders. And gosh, you're going to continue to
expect outputs like this. If we look at the past, you know, the Howey test was created decades ago, and when we're looking at this new technology, wouldn't it be better if we were to focus on nuanced, proactive regulation that really understands the technology and actually tries to cultivate it? I was on the phone with senior government officials from the UK last week. I met with them and met with Japanese officials and they're like pounding their fist on the table saying, Come, come to my country, bring your founders, let's build. So rather than look at look backwards, I'd rather look forward. How do you put money to work with that
kind of uncertainty on what is a security and what is it? Well, the good news is, is that we're on a very what a road map to clarity. We're going to get it one way or the other. We're very hopeful that, you know, the four bills that were that were advanced the first time ever, we've had crypto specific bills that advanced out of committee. That's the ideal way forward. In the interim, we're going to get that clarity one way or another through the courts, and that will allow our founders to build. So again, we're really focused and hopeful that our Congress will get together, our elected officials will give us that, you know, that policy that really cultivates innovation, that's where we should be.
Well, Chris, this is just one of the stories, as we were mentioning, that is maybe working against broader crypto sentiment today, this idea of uncertainty around regulation. Another, though, is curve and the attack we have seen taking place on it in recent days. What is the broader contagion risk for Defi? Yeah. Look, Kayla, I wish I could wave my
magic wand and get rid of bad people. That would be great. And I used to be a marine, and I tried that in a way. So you're not going to let them go away. And we see bad people operating in traditional finance and we also see it operating in the crypto sphere. I think the important thing here is that in crypto, like in the old days, we could always find the bad guy or bad girl, but we couldn't find the transactions. With crypto, you actually can find the
transactions and in many way it allows you to find the bad person of the criminal. So we're very encouraging that, you know, officials, law enforcement, you know, they take robust action against people that hack. And I think the other thing that excites is, frankly, is that we're seeing a number of interesting products. You know, we're in the venture space and there are some really smart people building second and third generation type of security projects that are going to help make it much more difficult. Well, let's talk about some of those projects you have invested in, because this is also related to Defi world coin, Chris, which we just saw officially launch. Are you happy with how that launch has gone so far ultimately? What do you think World Coin is going to do and change? So we're investors in World COIN. We've we've been we've invested since
2020. So this is this is a team that's well known to us was speaking to some of my investors today even the team members from 2018 World coin is very exciting. And why is that? It's because we're entering and it's exciting to work at COIN Fund because we're at the absolute frontier and we see what's happening with AI, we see what's happening with crypto. And even if you look at Web two, the bots are out of control. And so as we move forward into this
environment, it's going to be really important to understand proof of personhood, who is a human and who is a bot. And world coin is a is a very interesting solution because for the listeners who don't know, what they attempt to do is use biometrics, and biometrics are a way of proving that that someone's a person. There's other ways to do it via social graphing, and perhaps they'll be numerous capabilities that come online to really determine who's a person and who's not. So particularly when you see the intersection of AI and crypto proof of personhood is going to be really important and we're excited about the team. It's a controversial project, but we believe that the team is incredibly focused on privacy and really espouses those web3 values that that we believe in. But speaking to controversy, some of the issues, the worries behind this is this is biometric data we're talking about.
What if the project were to get hacked and expose biometric data to people that shouldn't have it? Look, I think we have that same fear with clear your iPhone and everything else. We know that the team here invested a significant amount of time, energy and effort into creating what we call this orb. And and the technology that we've reviewed ensures that they use zero knowledge UK technology to ensure that that data. Now it's you always have risks right. But we'll continue to work with the team
to help them with any resources they need. At what point and do you see world coin coming to United States? Well, it's already here. I've had my or personally scanned. It's a matter of when will the token drop. And I think maybe it goes back to, gosh, it sounds like a lot of these cryptocurrencies are a lot like oranges. And so as that narrative plays out, I
think you'll see the token become available here. But but yeah, it's here. You can get your eyes scanned on the orb and again, I think it's going to deliver real utility as we go into this brave new world. Speaking of brave New world, the morals the world of financial regulation is in theory, about to change very soon.
Now that the Basel three end game has fully been laid out. And this is something you were actually tweeting or saying maybe we call it now about just recently how the Basel rules drive bank behavior. You essentially said that smart contracts should benefit from this because it's going to drive more financial activity outside of banks. How does this read through into crypto? What a lot of people don't understand and I spent 15 years in traditional finance on Wall Street.
Yes, banks comply with markets regulation, but if you want to know what really drives bank business business behavior, it's the Basel rules, because as you become a senior banker, you're very focused on returns and optimizing those returns. The great news about Basel is that it was an incredible unlock for crypto. Why? Because they gave us rules, capital rules for cryptocurrencies. I'd never seen that before in my career that we have a brand new asset class. And frankly, it was one of the drivers that that launched my career into crypto full time. Now, that said, the crypto rules right now are very, very punitive for banks, things like 1250 percent risk weighting.
I was the guy who got Bitcoin and Ethereum futures approved at Citi. It was wasn't easy. And when I did that, it's very obvious that you can't really scale that business because the capital is so intense. And so the good news here is that smart contracts can actually perform many of the traditional functions of banks. You can settle trustless permissionless. And so, you know, I think that you're going to see because it's so punitive. The other thing you'll see is probably
some additional products that emerge that are synthetic. We have recently launched a product named Caesar, which was an interest rate derived from Etherium. So there'll be innovation on the synthetic side, but you're going to see probably a lot of activity moving because of Basel into the private side, not too different than private credit. Chris, thank you so much for your time. That is Chris Perkins of COIN Fund. Coming up, Brooking Institutions Aaron Klein on Fed Now and Crypto's core financial purpose. Plus, Sheila Warren from the Crypto Council for Innovation will join us with the latest on regulations and the bill advancing through Congress and to access all of the latest data and news on crypto, check out our whip. Go on the terminal.
This is Bloomberg. As we're starting to look at Fed now, this is going to be a brand new payment really coming in. And and we expect it to increase consumer choice, increase competition, increase optionality.
Many cryptocurrency companies are likely to use Fed now as a funding mechanism or the funding rail and to move money into, for example, a cryptocurrency exchange. They still have to fund that account. And so the reality is, I expect these two to interplay well. I expect these two to to end up living harmoniously together. That's the CEO of Plaid on Bloomberg Technology last week and this is Bloomberg Crypto Optionality Basic in New York with Kailey Leinz in Washington.
We're going to talk more about Fed now and its impact on the financial system and crypto at large. Aaron Klein is a senior fellow at the Brookings Institution Center on Regulation and Markets. When you think about the impact that Fed now could have both on the banking system and the crypto industry at large, what is the most significant impact that you see? How does this kind of go along the next couple of years? Well, look, the real potential of Fed now is significant. America has lacked a real time payment system that any bank could operate into. We had one in the real time payments network that the private banks built. It had limited usage, in part because
the Fed announced they were going to build their own system. So the Fed kind of put a chilling effect. Most of the rest of the world has real time payments.
When people come from Europe, from the U.K., from Asia, they're shocked at how slow things take to settle on the back end in America. Fed now is a tool that could make that happen. So it's interesting. This is really about settlements here
and payments. But how do you rope in the conversation around central bank digital currencies as it pertains to Fed now? Well, so central bank digital currencies that to be a digital currency, we have digital currency, we have commercial bank, digital currency. The question is, should we swap the first commercial bank for a new C central bank? A lot of other countries are thinking about this in part because they're concerned about disintermediation from crypto and other digital currencies that don't have a B in them bank. I'm skeptical of the case for central bank digital currency, particularly in the United States, but also more so globally. And I think there's been a lot of rumors and falsehoods propagated primarily online that Fed now is somehow some linkage in going to start a central bank, digital currency. In reality, central bank, digital
currencies pretty far away in the United States, if at all. Okay, so you're skeptical on Cbdcs. Erin And hello, it's Kaylee from from Washington. But I've heard a lot of skepticism on Fed now as well. The idea that you would have to have so many different banks buying into this that this is actually a much harder feat to accomplish and kind of scale. So how aggressively does the Fed need to ramp this up in order for it to actually work? So, Kelly, I share those concerns. I think Fed now has a real danger of
being a flop, a bust, particularly if you look at the original, you know, there's only a handful of banks, I think in the in the upper thirties that signed up there, about 20 more providers. I think it could be a bigger boon for things like Plaid and other fintechs that are intermediaries. In order for the Fed to really make Fed now or faster payments a reality in America, they're going to have to use their regulatory authority to make to give people access to their money faster. Why banks make a lot of money sitting on people's money.
So it's not necessarily in the bank's best interest to be an early adopter and to give people access to their money faster, particularly when you consider such unique American things like overdraft fees, which are, you know, multibillion dollar sources of profit in the banking industry. Okay. So, Aaron, is this another way of saying that, at least for the time being, unless we see that aggressive ramp up happening happening in some of these incentives to get banks on board put into place, that this isn't any real danger to crypto in terms of being a payments mechanism? Yeah, look, I think there's a real the danger is that Fed now is an overhyped solution that the Fed fails to follow through with and then draws the wrong inference that there isn't demand for faster payments. The rest of the world moved to faster payments years ago, right? England's had this system since the first iPhone came out. You know, as it relates to crypto, it's
a little confusing. Crypto is long hype that they were going to be this real time payment system. And the reality is blockchain is slow. So fed now is much faster. And in fact, Visa maintains to be the fastest in the class, far faster than any crypto that I'm aware of beyond technology. You were mentioning the slowness of blockchain, at least when it comes to the traditional financial system.
You've brought up this idea that the government doesn't really want to facilitate the creation of a cbdc either. What is that tension between the Department of Justice and the idea that a cbdc could see the light of day? Yeah, so it's a great point. People think about the government is one entity, but they're really multiple power centers struggling, right? The Federal Reserve, I think is quite intrigued by the idea of a central bank digital currency.
Sometimes I think the Federal Reserve reminds me of the Will Ferrell and that Mt. More cowbell skit on SNL. Like the Fed sees a problem and the answer is always more fed, right? But other parts of the federal government aren't as clear. President Biden, in his executive order, said the Department of Justice is the arbiter. Whether or not existing law allows the
Fed to issue a central bank digital currency. Prior to that, the Fed said it was the arbiter of whether the law allowed gave it that authority or not. Rumors in DC Our DOJ has been very clear The Fed lacks existing legal authority. Members of Congress have asked to see a memo required under an executive order produced by DOJ.
The White House doesn't share that memo. So, you know, it's not entirely clear that the government is all on the same page of this. And the Department of Justice is flexing its muscle and other areas in financial regulation. Here at Brookings, we hosted DOJ's, so said General Kanter, who spoke at Brookings and put a little cold water on bank mergers, something that historically the regulators have handled and DOJ has just kind of stamped along. And now he's saying DOJ could flex its
authority in that area to. All right. Well, something I'll continue to monitor here in Washington and we'll look forward to hearing more from you on in the future. Aaron Klein from the Brookings Institution, thank you very much for joining us. Coming up, we have more to go. We'll have part of my recent conversation with the chair of the FCC, Gary Gensler, on what qualifies as a security and the regulatory puzzle.
This is Bloomberg Crypto. This is bloomberg crypto. I'm Kailey Leinz in washington with Sonali Basak in new york. Well, the regulatory strife between the crypto industry and the fcc is intensifying with one fundamental question When is a digital asset a security? I spoke to FCC chair Gary Gensler about that last week in an exclusive interview. The securities laws are clear. And if you're. If the public is investing in your project because they're anticipating profits based upon the efforts of that project. Or there's entrepreneurs Congress
painted with a broad brush. And I would ask you, this is like when you look at a token, you can find a website, you can find a CEO, you can find a Twitter or X feed, whatever it's called these days. And there are entrepreneurs behind many of these projects without, again, prejudging any one of them.
Elsewhere in the crypto space, I'd like to discuss the spot ETF because we have seen a wave of filings recently, recently from BlackRock and others trying to finally achieve this. One has never been approved in the U.S., just a futures ETF. It seems like everyone thinks there has been a tone shift that something is different this time around.
What do you make of that wave of recent filings? Does anything actually change for the FCC? Kelly probably won't surprise you. Those filings do ultimately come up to a five member commission, so I can't prejudge any filing. But back to your colleague, as I said, this is a field that there's a lot of noncompliance in this field and that the platforms themselves where trading is occurring of various crypto tokens. Though some of it comes under the securities laws currently, they're not necessarily compliant with those time tested protections against fraud and manipulation. That was our exclusive interview with SEC chair Gary Gensler.
And joining us now to continue more of this regulatory conversation is Sheila Warren, the CEO of the Crypto Council for Innovation. So, Sheila, I was having that conversation with Chair Gensler after the case had come down before the judge ruled yesterday to not make the distinction between institutional and retail investors in the case of Tara, created even more uncertainty perhaps about securities laws and what is and is not. Where do you think we go from here, especially in light of the moves Congress is trying to make? Well, I think that's exactly the point now, is that we are seeing Congress really try to get moving forward with this and try to basically take a steer around this. And I want to just contest what chair Gensler said in your interview, which is that it's not the case. It's not the case that there is ultimate clarity on which agency regulates which asset. And that's exactly why the Congress has
acted. We saw last week historic moves in a bipartisan way out of the House with two different bills designed to focus on exactly this topic that are now ready to go to the floor. It's interesting to watch these bills go to the floor, but at the same time, you're watching this play out in courts. And so which moves first, the courts or Congress? Well, generally such a great question.
United States or Italy, I would say, you know, Congress is going to move first. But as we've seen here in the United States right now, this has nothing to do with crypto. We're at a time where there's a lot of challenge in getting anything to move through Congress for political reasons. So the courts tend to take we're looking at another year really for this trial to play out before an appeal could even be filed, you know, in the Ripple case specifically. That's not that's a long time.
It's a pretty long time horizon. But we're also looking at moving into an election year. So whether any piece of legislation, especially something as complicated as these piece of legislation, the CIT bill alone is 200 pages, write drafted is drafted, whether any of those things actually move and don't get kind of stuck in the bogged down we generally see in an election cycle here when everybody starts to go out and campaign. It remains to be seen. It's it's really a bit of a coin toss, I'd say, to be honest. But I think the fact that you've got
Congress making such big giant moves in this bipartisan way really indicates that it's not obvious what what the frame is here and how digital assets are and should be regulated. United States. Sheila, we only have about a minute left. But while there was more bipartisanship, perhaps on this market structure legislation, there was a rift between Patrick McHenry and MAXINE Waters on the Financial Services Committee when it comes to Stablecoins.
How much cold water has been thrown on the idea of stablecoin legislation advancing? Well, it's interesting. You just had Aaron on to talk about the Fed now and Cbdcs. And I do think all of that is somewhat related. And I think you're seeing a little bit of hesitation on the part of some of the Democrats led by the administration in terms of whether we need to move on this right now. The issues remain the same as they ever were. The ended the relationship between the feds and the states. We have a robust network of fed and
state regulation of the same spaces in this country. This would not be new. My hope is that that will continue to progress. We think we have the votes in the House to move that forward. But, yes, there definitely was a sort of last minute flag on the play there that that came down.
And as we know well, the House is one thing, the Senate is another. This is a Washington divided. So we'll continue to hope that you come back to us as this conversation moves forward. Thank you so much for joining us, Sheila Warren of the Crypto Council for Innovation. We appreciate your time and thank you
very much. Additionally, Bostic, for joining me this week. Matt Miller will be back next week. We'll be catching up with Terence Yang Swan, Bitcoin managing director. Don't miss that next Tuesday at 1 p.m. Eastern time right here on Bloomberg.
2023-08-05 17:40
