The Latest on the US's Approach to Crypto

This is the first or the strongest announcement or pronouncement that we've seen from President Biden in terms of crypto regulation. We've never seen this kind of action come out of the White House. We're now into that time to report back window, and the White House, along with other agencies, have started providing updates on their findings. On the White House end, for instance, policy record meundations include suggestions focused

on better consumer and investor protections. But what about the big guys, the agencies like the Securities and Exchange Commission or the Commodity Futures Trading Commission, both of whom have a stake in crypto regulation. Here to break down the latest developments is Bloomberg report to Alison ver Spill. I think in terms of kind of government speak it is still very new. I think they're still kind of wrapping their arms around the technology and they don't want to

move too fast and do something that has repercussions. Allison, welcome back to the podcast. Thanks for having me. I can't decide if it's like technically busy right now in regulation or not busy. We're in a weird place. The last time we chatted, the last time you won the show, we were anxiously awaiting the arrival of various reports that were tied to, you know, the big White House Executive

Order on crypto that happened back in March. He gave various federal agencies, both financial regulators and some non financial regulators, mandates to look at different issues, to look at some of the concerns we have with the space, but also some of the benefits that the crypto industry and sector could provide, and come up with recommendations about what types of regulation are needed going forward. Were now in the period when they're starting to release those what's the content

of those been, like? Is there anything in there that you've been surprised by? Is anything groundbreaking? What's the reception? You know? I was talking to someone about these reports, and I think the word that was used was unsatisfying. You know, the reports do they talk about a lot of the potential benefits Actually mostly focused though on the risks of digital assets, and you know, they kind of

indicate areas of further study. For instance, Treasury has been tasked with, you know, studying the illicit financed risk of decentralized finance as well as non fungible tokens and we should be seeing those reports next year. But there was really not a lot of clear you know, we need regulation on X y Z or we're solving the question of whether digital assets are securities or commodities. So really these main questions that the industry has are are still

an answered. I know the Crypto Council for Innovation, which is one of these big DC based trade groups, did say that the reports basically just kicked the can down the road and they said that it showed an outdated and unbalanced understanding of the technology. So I can think it's safe to say that the industry is not too happy with where these landed. So did they want regulation? Is it? The usual cry of clarity is what we

desperately seek, like what what's the unsatisfactory part. You know, I don't know if I'm in the head of exactly what the industy he's going with here. They always say that they want clarity. I know, some especially some of the former you know, government officials that I'll talk to us say well, they want clarity, but they basically just say they want rules different from other industries. They want

easier rules to follow. So it's hard to it's hard to say what the real motivation is, but I can say that I feel like a lot of the questions, at least that they had were not answered by these reports. Now, Avid, listeners of this podcast will have recently heard an episode that we did based on a Twitter spaces just for a maximum multimedia integration, but based on a Twitter spaces that you and our colleague David Pan conducted with someone

who is advising the White House on crypto policy. The climate elements of this does seem to be one area where there were a few more specifics. Yes, I think the climate report, you know, offered more insight into where the White White House stands more some of them, maybe some of these other reports, you know, they did indicate that they were worried about out some forms of crypto mining, in particular, you know, proof of work, which is used

to verify and mind transactions on the bitcoin blockchain. They also said that they think, you know, there needs to be more information disclosures so that they want more information from miners. They also would like the federal government to work with states to establish standards, and then if that doesn't work, they said, White House maybe consider executive actions or Congress maybe consider legislation. So there was some interesting

aspects to it. I think again, it does still fall a little short of you know, here are the exact information disclosure requirements we're going to impose, and we're doing that by X time, you know, like there were not really any time frames in the report. So interesting, but still not not a lot of concrete information or timetables.

There is it unusual for there to not have been any kind of concreteness or timelines just for people who don't avidly read reports from government agencies as their job. Was anything about this surprising? I don't know that it was surprising. You know. I did talk to someone who used to work in the government, and the person did kind of suggest that a lot of these times, these executive orders are sort of pencil pushing exercises is I

think the other person described it. And then they also kind of gave the example of a lot of times we were seeing these requests for comments on on the reports that were about to come out about a month before the report was actually supposed to be released, or maybe two months, which isn't really a lot of time to kind of take in comments and digest them and

then put something out. And so this person was sort of suggesting, without at the time knowing what was in the reports, was sort of suggesting like, I don't know how much we're actually going to get out of this. And from my understanding and talking with this person, it's not it's not abnormal for that kind of executive orders to result in these kinds of reports of you know,

let's do more research. I think the interesting aspect is like it does show that the administration is still looking at this, that they do care about this subject, that it's probably not going away, that regulators and agencies are going to be interested in digital assets. But it does kind of show like we hadn't come to any conclusions on anything. It's funny that you say, you know, like a decision to do more homework. It's like it's almost

like never ending academia. We invite you to study this additional proposal, um, I mean request comment on the reports? Are they continue to come. So we're going to have a report in October from the Financial Stability Oversight Council, which is led by Treasury, and that is going to be on financial stability risks and potential gaps and it's supposed to offer recommendations on how to close those gaps. So we were not done with the EO reports either.

There's there's gonna be more so, so we'll see, we'll see what's in them. Can you talk a little bit about what the sec and the CFTC have been up to here? Sure? So the Securities and Exchange Commission, the chair there, Gary Gensler, has been really clear and I feel like he's, you know, only gotten more a little bit louder on this messaging that he thinks, you know, a lot of these exchanges should be registered with his agency.

They're illegally offering securities. So he's been pretty clear in that, and he's been pretty clear that we should likely expect some enforcement in this area. I think one thing that's interesting is that a lot of folks I talked to were expecting this month to be very, very busy when it comes to crypto enforcement. And we've seen some cases and some cases that are pretty interesting, but that are

hitting kind of smaller fish. You know, we haven't really seen a big company, you know, like a coin base or an f t X or something like that that would make a splashy headline that would say, you know, we're really going after the industry. We've we aren't afraid to go after big players. So it'll be interesting to see that how that develops and if if we start to see more action there over the rest of the year.

Have there been more comments from folks like Ginsler in terms of the specificity of the things that he's thinking about to worried about, and has any of this evolved over time, Like are we seeing more focus on areas like stable coins compared to the earlier part of the year, or the stable coins still the thing that everyone's spoking about, like what's the trend right now? So I you know, on the sec side, he's talked a lot about the

top issue of are you illegally offering securities? But then he's also talked a lot about companies needing to separate sort of their their custody functions, so you know, they're holding assets for customers from their market making functions, from basically just segregating these different parts of their businesses so that there's not a conflict of interest in how they're operating. So, I mean, that's that's been something he's been talking about lot.

It started back in the spring, and it's kind of escalated from there. So, you know, in an area that we probably should be watching. When you say it's an area that we probably should be watching, do you have a sense is it even possible to have a sense going into three of what some of those priorities might be.

It's hard to say. I mean, the EO reports, I guess one of the things that was interesting that came out of it was that the administration did encourage the SEC, and you know, it's sister organization that or sister agency, the CFTC, the Commodity features Trading Commission to continue using their existing authorities to take enforcement actions to carry out investigations.

So it's clear there's some blessing there. So I think, you know, I think we could definitely watch to see if these agencies are are continuing to be more aggressive on the crypto space. On the central bank digital currency front, you know, the US has not come to any conclusions on whether or not it wants to move forward with its own CBDC. These reports did show that it's still a high priority to continue looking into this, but Treasury, I believe, said, you know, the research alone could take

several years, so more more studying to happen. And I think actually interesting too is that you can see some sort of people walking back earlier estimates of how soon we might get a US CBDC um. Some strategist at Bank of America had originally predicted, you know, we're going to see one between now. In a recent report they said, okay, we think that might have been too optimistic. We're going to dial that back. They actually didn't even give a new time frame, but they just said that we don't

know if it's going to come before now. I think that's another area to watch is as these other countries do start making a lot more progress, do we start seeing a lot more pressure on the U S side to do more. We'll be right back with boomboog reports of Alison Versprill on the leasest as it relates to the White House and crypto regulation. One I've spoken to folks in the past. One of the things that they've said is there's a lot of interest in the national

security community for you know, a digital dollar. They're they're framing it as this is an important thing to maintain the integrity of US borders. They worry about the you know, like the rising influence of stable coins. They worry just kind of competitively about being left behind, as you've mentioned by other countries who might be further ahead. Are they still the loudest voices in the room on this or is that tenor changing at all? I think that's right.

I think the national security folks, you know, and and Athon the White House National Security Council, you know, that's kind of top of mind when they think about the cbdc um And there was actually a recent hearing where a lot of what was talked about was you know, the national security concerns or you know, maintaining the prominence of the US dollars. So I think we'll start to hear more and more of that. I think it will

probably get louder. And I think another thing to think about is you know, the US likes to be first on these kinds of things. They like to be the standard setters. So if they feel like these other countries are moving forward without them, I can imagine that's not sitting well with with some folks in the administration. So you might see some kind of internal pressures as well, and you know, I think I think we definitely should

be keeping an eye on that. So this is kind of the tension between the let's do more homework and the let's get this done contingents. Yes, yeah, it's I mean, it's they're very interesting dynamics. I think part of this is this is all still very new. I mean, I know the crypto industry would say we've been around for a while now, but I think in terms of kind

of government speak, it is still very new. I think they're still kind of wrapping their arms around the technology g and they don't want to, you know, move too fast and do something that has repercussions. And then you obviously look at they're facing some pushback on the CBDC front from the banking sector, which is a pretty strong

lobby in the US. I would say, because the banking sector has said, you know, we think this is going to make commercial deposits less you know, desirable to us consumers, and then what's how's that going to affect us and the amount of credit that's out in the market. All right, so we gotta we gotta do like a nerd step back for two seconds, gause. I'm a bank, you're a customer.

You currently have an accounted like Bank of s m I tons of money because you know, why not, why would the existence of a central bank digital currency compete with your desire to deposit money at the Bank of s m I. What people would say is, well, if it's the government is backing these tokens, that obviously is a much more desirable asset to have than having to

rely on these private sector banks. So that's that's kind of the main concern I hear, and banks really feel like they don't have an opportunity to compete in in that kind of instance, which is why there are many ways that folks are looking at doing a central act digital currency. And as much as I might laugh about homework as a person who loves homework, you know, in in kind of the details of some of these proposals or things like well, one of the things that banks offer.

You know, one of the things that I would offer to you to incentivize you to maintain that account is interest, right, you know, it's like you, I mean, in this current environment, you're you're getting better interest rates on your deposits than

you might have been a while ago. I also potentially offer a suite of different services, like maybe I offer you credit cards or you know, the ability to get a home loan or an also loan, which are not necessarily things that the government might offer to somebody who's banking with them. So this is definitely a devil in the details thing, but it's it's not so clear to me at least that the bank lobby is going to be as vulnerable as they're making it out to be.

You know, in the letters that I've read from the banking industry, they've talked about, you know, even if the government or to not offer interest on people's CBDC holdings, or even if the government were to put a cap on how much CBDC people could actually have in their accounts, they continue to kind of make the argument that it

would still have a very negative effect on banking. So they've kind of taken to consideration maybe the things that the government would do to sort of help out the banking sector and there, and they're still you know, pushing back a bit on this. I'm definitely going to be

watching to see how this whole dynamic plays out going forward. Well, I can't promise that we will still be talking about backing regulation on the podcast in or whenever USCBDC actually happens, but hopefully some of the other proposed changes will go from proposed to possible in the not too distant future, and we will absolutely be having you back for an update then. Alright, I look forward to it. All right, terrific. Thank you again for coming on the show. Thanks for

having me. You can find more of Allison's reporting on the Bloomberg Terminal on Bloomberg dot com and on Twitter. On Twitter, she's at ali verse brill. That's a l L y V E R s P R I L L E. On the next episode of Bloomberg Crypto, one of the more or maybe less unexpected side effects of this crypto winter has been an absolute outbreak of CEOs rushing for the exit. We'll be talking crypto ceo succession. This is Bloomberg Crypto, a 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 podcast. Send us your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net or find us on Twitter. We're at Crypto. The supervising producer of Bloomberg Crypto is Vicky Verglina. Our senior producer is Janet Babin. Our producer is Sharon Barrero. Associate producer is Ty Butler. Desta wonder At is our engineer. Original

music by Leo Sidrin. I'm Stacy Marieml. We'll be back tomorrow