Regulating The Regulators

I'm just asking the SEC to provide some clarity. Let us know, why do you think this is a security? What are the characteristics? And Cynthia Lemus of Wyoming known to many as somewhat of a bitcoin evangelist, so I'm very confident that bitcoin will withstand the test of time. Both hold crypto investments while also considering who and how might potentially regulate this asset class. So what are the ethical implications when members of Congress buy and hold bitcoin? Today?

I speak with bloombag reports Aquila Gardner about how to regulate the regulators. Welcome with Kaela. Thank you, Stacy, Marie. Great to have you. So, first of all, you've been reporting on this, tell me a little bit about your story, what you've found so far, what's interesting. So basically, we got some data from a research organization called two i Q, and they track the trading habits of Congress members and

really compile the things that they're investing in. And so what they found is about one point eight million dollars worth of crypto related investments owned by members of Congress. And so those include stocks that are related to crypto, like coin based block which obviously offer trading, and that also includes cryptocurrencies like your bitcoin, your theory um doche coin,

and investments in crypto investment funds. And what's interesting about this is all the funds that were invested are owned by gray Scale, which is one of the biggest crypto asset managers, and there's about two or three um Congress

members who have holdings and Gray Skill investment funds. Got it. So, you said a couple of things that I find really interesting, And I want to start with a kind of a question, which is, as you were reporting this, were you surprised by either the size of the investments or you know, maybe you thought it was small, maybe you thought it was big, or even just the names of the folks

who were popping up in this data sets. I think what was interesting is just the amount there was twenty one members in total who fall under that um, eleven Democrats, ten Republicans. But more interesting perhaps was the amount of senators representatives who hold cryptocurrencies, because obviously you have to kind of go out of your way to invest in those. Some of the stocks are just a part of a four one K exact, a fun that they might have that's managed by a third party. But that number was

particularly interesting. The people that actually own bitcoin, ethereum and some even fringe names like Basic Attention Token like those investments were really interesting. And then also the investment funds because they're becoming more popular, but still they're not as widely held as your four one case, your retirement savings. Got it. So, folks in Congress own lots of things all the time. They have access to lots of information

all the time. With crypto and with some of what you're describing, some of the conflicts are perhaps less immediate. Right there's as you've identified, this is still a growing asset class. It's much less widespread but this is also an asset class that is under intense regulatory scrutiny right now, and some of these folks, some of these members may have themselves be considering sponsoring bills about regulating crypto, or you know, are on committee is that are interested in

regulating crypto. Can you tell me a little bit more about what you found on that angle. I think you bring up an interesting point, which is this debate has kind of happened for a long time, whether it's tech stocks or defense stocks. You know, there's always been questions should you serve on the Committee of Armed Services and also hold defense stocks? And the same thing goes for tech and so it's really interesting about crypto, particularly because

it's still so early in that process of regulation. And the two committees, or the two areas of committees both in the Senate in the House. Um that we looked at in this story was the Committee of Agriculture and the Committee of Banking, and those go under different names under different chambers, but those committees are particularly important because they oversee the SEC and the CFTC, the two biggest

potential regulators for crypto at the moment. There's a bit of a tug of war right now about which cryptocurrencies are considered commodities and which are considered securities. And different Congress members have different motivations for why they want one regulator to take more control than another, and so it

was definitely interesting. Seven of the members that we found in this study are part of those committees, so you have to consider how their investments might play into their decision making, because whether we like it or not, regulation does have an impact on the market and on the prices, and oftentimes when big regulatory actions come out, it can move the needle on whichever coins of the day, and

that's something that's definitely being raised with our story. So one thing we should know is none of this is technically illegal right right there. There's no rule that says you're not allowed if you're thinking about a bill that regulates bitcoin miners to hold or not hold bitcoin. I know folks are very strong opinions about whether there should in fact be more rules, but I'm interested in hearing

what are the members themselves saying about any of this. Well, some of the big names in this story was Senator Pat to Me, who owns investments in gray Scale, speaking of sensative to me. He was on CNBC recently talking about regulating crypto. Let's listen to that. I'm not in the camp that thinks that there should never be any kind of regulation over any cryptocurrency, and that saw my

position at all. But I do think there needs to be transparency and objectivity about what we're doing here, and the SEC is taking enforcement actions without first having laid out how they interpret how they apply existing securities law to this really really important and innovative new category of finance.

His spokesperson says crypto makes up less than one percent of his portfolio, but he explicitly said he does not support the kind of proposals that are out there right now that specifically ban individual investments in stocks or other categories bonds and something like crypto might fall under that as well, because he doesn't want it to deter people who could potentially run for cong Roice or for Senate.

So he sees it as there's just too much in the economy that Congress overseas to restrict any of these. But we should say some of these proposals, there's multiple out there, have support from both parties. There's bipartisan support for some of these proposals that would ban these individual investments.

But yeah, a lot of the people we spoke to, especially people who have stocks like coin Basin Block, said, you know, my portfolio is managed by someone else, but even the thought or the realization of knowing that those things could be in their portfolio could still impact their decision making. When we return, a look at another crypto enthusiast who also happens to be a sitting Senator, Wyoming's

Cynthia Lemmas, we'll be right back. Okay, So you know, in the story you mentioned in the SEC and the CFCC, the Commodity Future of Trading Commission are still figuring out this kind of regulatory context. It's it's a pretty big tug of war between the two committees that you reference, the Sundate Banking and Agriculture. Do you find that there were more members from those particular committees than you were expecting, or any like individual ones other than to me. Another

person is Senator Loomis Um. She's been a longtime investor in bitcoin. She's very outspoken about her belief that bitcoin and crypto is an avenue for freedom, and she's also putting forth a bill that would set out some guidelines for the SEC and the CFTC under which they can regulate certain spot markets, futures markets. And that's something that's really interesting because she's also partnering with somebody on AGGS.

She sits on the Banking Committee with to me as well, well, Okayla, we actually have a clip of Senator Loomis thanks to our producers. Here's what she has to say recently on Meet the Press about the need for cryptoregulation. So I'm very confident that bitcoin will withstand the test of time. I'm not confident that every other digital asset that's out there has the same qualities of permanence and complete decentralization.

So there's some fraud that's going to occur, which is why I think it's so important for the United States to create a regulatory framework that allows for innovation but still creates rules of the road that protect individual privacy, but that also have disclosure components to them, so the purchaser knows what they're getting, and you just have to wonder someone who holds bitcoin for a long time and her range that she reported is between fifty thousand and

a hundred thousand, and value of the bitcoin that she holds. So that's a pretty big number or a pretty big range at pretty big range as well. Yes, we should note that as well, that all of the representatives have to report a range in the assets that they hold, regardless of whether they're crypto or not um and so that one point eight million number is a range of

all of the things that they reported. So that's a particularly interesting one because you have someone who's outspoken about where she believes certain things should fall under, and you have to think about how that could potentially impact her holdings. Thank you. One other thing about these reports is, as you say, it represents the value of the crypto held at that moment in time. So one of the fun things fun slash challenging things about crypto as an asset

class is it's really volatile. And so if we were having this conversation two months, you could be saying that that one point eight million number is a lot bigger or a lot smaller, even if none of the members had acquired or sold any crypto as a report to do you find that covering this asset class is more or less challenging because of this volatility and the kinds of data that you have to be looking at to

really get the full story. I think that's an interesting question, especially because bitcoin right now is trading in such a tight range. It's hard to know how much their assets are really valued because they don't have to report exactly how much they hold. But the thing to know is it has to be over at least a thousand dollars. So these ranges are pretty wide, but we don't actually have a full picture of how much they're investing in,

whether it's these individual tokens or the stocks. We we don't have that full picture to see how much UM it's impacting. And so that's why we have to reach out to these members and ask them, why can you give us a better idea so we can let readers know what exactly you're holdings entail. So that's like something like Senator to me telling us that it's one percent of his asset class. It gives us a better picture. Okay,

this is how much Disco potentially impact him personally. I should say a lot of the other members gave much less detail um into those amounts, But that's something that would be great to have if we could have that data. Yeah, I would love just a list of the wallets addresses of all of the different members that would be That would be fantastic and definitely make our lives easier. So tell me who are the players and what is the

partisan or bipartisan representation that you're seeing. So we found twenty one members of Congress own crypto related investments, and so that includes stocks like coin base and block It also includes cryptocurrencies like bitcoin ethereum, and these crypto investment funds which are all under Gray Scale, which happened to be issued by Gray Skill. And we found that the breakdown of that is Democrats Republicans is eleven to ten.

Democrats were much more likely to own these stocks as a part of perhaps like a widely held fund or an education trust. Another thing to mention to. These reportings also include the holdings of their spouses, perhaps their children as well the household exactly. But the kind of differences is definitely Democrats tend to hold more of the stocks, while Republicans happened to dabble more in the cryptocurrencies and

the funds. I want to also, you know, you mentioned there's kind of both bipartisan supports and bipartisan rejection of some of these various proposals. Can you tell me a little bit more about any of the Dems that popped up in this data sets. One Democrat who invested in we call this category like cryptocurrencies or funds focused specifically on crypto So that Democrat was Marie Newman. She had

investments in a gray Scale fund. She declined to comment for this story, but yeah, again, it's interesting to see the amount of people that are specifically gravitating towards gray Scale um. That could say something about why people are choosing this. And what's interesting about Gray Scale is they have a big lobbying effort right now for the SEC to approve lots of comment letters exactly to prove a spot bitcoin et F. So they're having a really big

push for that right now. And you have to think about if members are investing in gray Skill, how does that impact their thinking when they're communicating with regulators, when regulators are coming to the House or the Senate to be questioned. And that's something important to talk about. Two

is this relationship between the regulators and Congress. While they're technically separate, Congress votes them in, they can organize hearings, They have tremendous agenda setting powers, and so even though there's a separate relationship, there's still very much communication throughout the year, and Congress members are constantly letting them know what they think is the best idea and if they should choose to make regulation, that would be law over

anything the regulators do individually. And so that's another thing is will Congress actually put legislation in place in terms of crypto or will the regulators kind of work themselves out with different actions. I talked to one lawyer who said he thinks it's less likely that we'll see legislation and more likely that regulators will just kind of come out with their own stances and kind of work it out.

There's a lot of legal implications too, so there's question exactly all of these things are kind of working themselves out, But we can't negate the fact that Congress has this tremendous agenda setting power. You can find more of a Kala gardeners reporting on Bloomberg dot Com, the Bloomberg Terminal on Twitter. A Gardener a Kala on the next episode of Bloomberg Crypto. Sometimes it's good to define our terms, even for those of us who do this for a Living.

Join me Monday for a conversation with Bloomberg's Hannahmilla and Vildana Hodrick. We'll be reviewing their handy Crypto glossary. You'll hear about terms like staking, bridges and more. I'm Stacy Marie Ishmael and this is Bloomberg Crypto Daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Email your comments, questions or suggestions to Crypto at Bloomberg dot net and you'll

find us on Twitter at Crypto. The producer and editor of this episode is Vicky Vergelina. Our engineer is Blake Maples. Original music by Leo Sidran. Bloomberg's head of Podcasts is Francesca Levi