Crypto, Blockchain, and the Future of the Regulatory Landscape John Collins

this is the first time i've been in nightclub in the morning where i think i'm going to remember actually leaving uh this is a pretty cool venue um i'm uh i can't remember the exact name of the talk that is in the program but what we're going to try and do here is go through the policy landscape uh for crypto in like 20 minutes uh so we're gonna hit the highlights maybe low lights depending on your perspective and uh talk a little bit about maybe what the macro outlook is uh for the next year six months whatever um and then maybe have some time for questions for folks that um that uh have them i know government is not everyone's favorite uh uh thing usually at a crypto conference uh my background is i studied in government i worked for uh the u.s senate homeland security committee back in 2009 to 2013 and did some early work into what we call digital currencies at the time that was when mount gox was still very much up and running and so was silk road and razzle con wasn't rapping so they were very simpler more beautiful times but after that i went to lead policy for coinbase uh and then spent some time working with some big international banks doing some some uh bigger picture fintech blockchain work and now my firm fs vector uh we work with uh fintech companies across the board but predominantly i work with crypto companies on all issues related to licensing and regulatory and political so we're going to get into it uh this is my kind of self-created title uh to hopefully accomplish this that's our good friend ryan selkiss uh who who loves talking about regulatory issues uh and has um definitely his own perspectives on it which some of which i i don't not share but i also want to thank whoever zerox sat is who i stole these pictures from i don't know if anybody else had this come across their algorithm this past week uh i just thought that was like one of the i have no idea where this who this man is or where he came from and i don't want to know because i think it's very pure but hopefully 0x sat thank you for for that uh all right i covered this um the here's the meta outlook and i took meat space for my friend kristen stone who i don't think kristin's here anymore but we used to work together at coinbase and she gave a talk earlier today um because i like the term meat space because it's kind of gross uh but it's a good way to talk about the real world perhaps especially these days but look i i this is a very very obvious point but it's very clear to people in the regulatory world whether it's in the us or abroad that the future of money is very much here uh or very very close to being here and you know we'll talk mostly about sort of the financial applications again we only have 20 minutes and there's a lot of stuff going on in the world and from just the the bit of time that i've been able to spend at some of the sessions so far like just seemingly innumerable different applications and products uh that that folks here are building and working on so we're going to try and cover probably mostly the financial stuff sorry can you hear me now is that a little better sorry i'll talk more into the mic so we're going to talk a bit about like the financial pieces of this but obviously there are others and we'll probably dig into it as we can so so this is good we're getting the attention that we wanted the bad part is that we're getting the attention that like we wanted uh and if it's not informed correctly if the decisions if the the the vantage points being taken by regulators whether here in the us or abroad then we're going to be in for a world of trouble uh and we're starting to see signs on both sides that i think uh the right message and right information is getting through uh but a lot of indications that we are maybe not directionally headed where we as an industry want to be and where where we'll really truly be able to like do really cool stuff for the world uh if if it goes the other way so um you know i i think for folks that even just sort of pay like a little bit of attention to this it's been pretty clear that over the past year even uh i think over the past year we had more attention than we had the remaining years like after the bitcoin white paper was launched uh in terms of regulatory pronouncements attention it's just not even comparable uh you know crypto regulation i borrowed this from my friends at elliptic uh you know this was the world of crypto regulation 2015 mostly just like shoulder shrug like i don't care is essentially i think how i would have taken how i took the regulatory stances at the time and this is 2021 right lots of different people coming out with lots of different thoughts and positions some of which good some of which of which bad um this is just uh you know a pretty basic google search trend from 2017 about cryptocurrency regulation i didn't map this to the market uh price market for you know name your coin uh but you know having been in this industry long enough like i feel like i know it it feels very similar to this um and as you can see probably that really large bump there that was the infrastructure bill that um many of you were probably very familiar with because it really lit the world on fire or at least crypto twitter on fire and we'll talk a bit about that in a second too so here are the three pieces that i want to touch on uh as it pertains to the regulatory landscape one is because we're here in the us we're going to talk about the us and it does obviously affect any number of other different jurisdictions because many countries do look to the u.s and many international bodies look to the us for leadership on this stuff we'll talk a bit about some specific international jurisdictions and then we'll talk a bit about what's happening in the industry and what's happened in the industry maybe the past year um some of you many of you i know are probably involved in some of these initiatives already some of you may not and just hear about it so um want to talk a bit about that so in the united states we've got three pieces here actually four pieces but the last piece of states we'll cover really quickly so i think the big thing to watch out for uh over the next few weeks is going to be the executive order that is expected out of the white house so we've been expecting this executive order for two weeks for the past six months uh but it really apparently is going to happen uh in the next two weeks the current reporting and this is and you know everything that we understand is is maps to what's being reported out publicly now is that there is a bit of a drama between uh secretary of the treasury janet yellen and the white house staff regarding what should be in this executive order if anything an executive order sounds really important and it is really important but i think the expectations for this is that we are not it is not that the white house is going to say there is now a brand new law for how crypto assets are going to be regulated by the sec that's not what this is going to be the expectation is going to be the president saying look agencies show us your work show us what you've done share more information they may appoint a crypto czar the term tsar is often used it is not an official position an appointed position in any formal way where like the senate has to confirm it's usually just somebody to say hey this is the line of responsibility person x is now going to be the czar of the pandemic or the czar of healthcare.gov or whatever it is so i think there is an expectation that there will be a a cryptozar um and it's going to be probably mostly focused around the issues with stable coins um the presidential working group that president biden put together which a presidential working group it's just a bunch of different agencies coming together to talk about issues share research they issued a report about stable coins a few months ago there's several congressional hearings about it i think this is going to be a carry-on of a lot of that work but when this happens it's going to get a lot of attention and we are going to get uh at least another uh a sense of what the next steps forward for this administration will be um the sec some of you there's obviously so many different things going on at the sec at any given given time especially with the current um chair uh gary gensler and and his treatment and attention to the industry which is high uh but more recently uh probably about a month ago uh the sec issued uh amendments proposed amendments to alternative trading system regulations the you can do your own research on this and i'm happy to provide some some good uh references and and things that frankly my firm's put together in terms of like background documents on it but the problem for the crypto industry is one piece of it in particular which essentially would call all communication protocols exchanges if they are facilitating trades so that's super problematic for folks that are building d5 applications it's super problematic frankly for people who like run bloomberg terminals too right there it's it's broader implications than just crypto but because the language in there is so broad it seemingly could capture a lot of different things so um it was one of these big i think it was 800 some pages that was dropped and you had 30 days to comment on it which usually indicates they don't really want you to comment on it or you know they probably have a good idea of what the final one's going to be but i think that comment period is actually wrapping very soon within the next few days i know a number of folks in industry are are putting together comments for it um and we'll see what the final looks like but that'll be expected the next few months um with congress i don't think i need to tell folks even that just pay like a little bit of attention to the political landscape of the united states that congress is um broken in a lot of very very serious ways in terms of how we're able to get legislation done or not done having said that congress does still play a really really important role in passing budgets for the united states in doing oversight hearings uh and investigations and all kinds of other different things and so where congress has been spending its time and its its power is really on that oversight function over the past few months and again i should know the exact number of hearings over the past year versus the past 10 years prior but you know seemingly every week there's been another crypto hearing when there were four years even when the industry was really growing and people were raising tons and tons and tons of money um there just weren't hearings people just didn't care so that is where congress spending most of its time right now and then in terms of legislation look the infrastructure bill in in how it helped pay for itself had a provision that essentially you know clarified the definition according to the language of like what a broker would be thus like requiring certain information to be reported uh to the irs so that they could capture tax gains from people that they believe are trading crypto but not reporting it on their taxes okay that got a lot of attention uh it kind of came out of nowhere um and we'll talk a bit about some of the so the after effects of that but in terms of other pieces of legislation you know uh 35 bills were introduced in 2021 i think we're expecting probably double that this this year i think they're going to be really important to watch i think it's going to be very unlikely any of them pass um at least in whole uh there's some really important ones um that uh congressman soto just came out with one regarding stable coins um token taxonomy act that warren congressman warren davidson has has offered for a number of years now these are really important and they're discussion pieces but i don't i think it's important that every time there's a bill that comes out that you know the the community just sort of understand that like there is a process here um and usually that is just the beginning of a multi-year process when a bill like that comes out um on the international side of things again the the canada i don't think we need to i'm merely highlighting it because this is very timely i think what's going on in ottawa and this is not a political statement one way or the other it really isn't it's but it is very it is showing the ability and the interest in governments to um to uh impact censorship resistant digital payments uh i'll put it that way and i think it's a i don't know if it's a wake-up call for folks but i think it's certainly um uh of concern to a lot of people in crypto and out of crypto uh and i think it's not necessarily probably the last time we're going to see you know actions like this i don't know if we would see something we've seen similar things in the u.s not i think to the degree that we've seen in canada but i think there's going to be massive repercussions and ripple effects from from this both in terms i think of how this community builds and where they build various applications and just generally what i think the tact um of of political positioning will be um even with folks that aren't let's just say crypto radicals i think this is pretty pretty um surprising um in europe europe takes forever to do everything seemingly so they they have something called mica which is markets and in crypto asset regulation and uh that really aims to harmonize regulatory frameworks between the eu countries um that's sort of ongoing i think there's an expectation that that be put into like full impact by end of 2023 if i remember correctly um but uh the only other pieces that i would say are most active in europe right now are just continued discussions around digital euros you know as many countries are talking about central bank digital currencies that's a huge focus to to europe and then recent um recently i think the end of last year they formally said that the travel rule should apply to cryptocurrency transactions this was a long time coming uh not necessarily surprising but probably the most important action that you saw and then in terms of like just supranational stuff it really has been cbdc focused if you look at like the the basel committee you look at imf you look at some of these big international bodies they've been very very very focused on cbdc research um they've left sort of these market participant regulators and and that sort of thing to the end to the individual countries and i think you're going to continue to see that spare what i would say sorry the basel committee has very focused on financial stability um in terms of the industry look i i think it has been really amazing you know as someone who has spent every day of their life since 2009 on cryptocurrency public policy um it uh has been really awesome to see the amount of activity and excitement and investment and interest in this space from folks who are even just a little bit of casual crypto connoisseurs to some of the biggest investors and companies in the space it's been incredible uh and i think the three things that that are worth pointing out are from the policy perspective you're seeing really substantive thoughtful policy proposals from the industry both trade associations and individual groups and companies that's great i'm not endorsing any of them but it's good to finally start having something to work from rather than sort of constantly sort of responding to things that are being given to you there's been a proactivity that has been really really really refreshing and awesome to say i think we're going to continue to see that and i think backing that up you're seeing enormous amounts of political investment being made in new political action committees um and by individual companies and investors specifically i think you're going to see that continue to grow and then sort of just generally a more more activity on behalf of coalitions of companies or trade associations um you know the blockchain association and coin center in particular you know have been around for a while and have done tremendous work they're doing more and more work um so those are those are things you're going to continue to see i think bubble up over the past uh over the next year okay yeah yeah um so real quick in terms of like why does this matter i mean look the stable coins piece of it affects this industry in all the ways that you understand it to affect this industry and it very much is on the minds of regulators and they're really trying to figure out how to deal with it and there is an assumption that it needs to be dealt with in some way which is not a great place to be i think the problem is going to be you're not going to have something that comes from the white house tomorrow that says okay this is exactly how it needs to be just like uh fill out your application and stand in line and you know you guys can go off to the races and run a stable coin project it's going to be really really messy for for a while i think the the best hope we can have is that there just isn't continued regulation by enforcement you're going to see more enforcement actions but that hopefully that is not the only way in which we're getting clarity on on things uh and i think it would behoove the industry to really push uh to make sure that doesn't occur um defy you know look it it's we i i have so much respect for the folks that are building stuff in this space uh because there is a lot the lack of clarity is not just sort of a business like commercial issue it's an issue of real personal liability for people and their families and so how do we get to a place where we don't whether you know maybe you like living under a mask and having a handle on an avatar that's cool but maybe you don't and so if you don't you should be able to you know make products and companies and work for products and companies and not have to feel that you have to do that um dao's admittedly i and god i mean there's there's so much amazing stuff that i've seen at this event on dallas already there's been very little attention paid really from um from regulators in a meaningful way to the applications that i think many dals are are working on that needs to change um and then i think the biggest thing is like finding the political will and i think the industry's finding that and has found it over the past few months um but that needs to increase and and so you know if i could just leave you with one or two things you know this is a really really really really pivotal moment in history in terms of politics in terms of where the technology is you guys are building really cool stuff and you're some of the smartest people in the world but keep doing it like build stuff that people actually want to use and that like real people want to use and they can use it really easily and i think with the political stuff it is exciting to see all the investment and things that are happening but like anything whenever there's a bubble of investment or interest you can have people that don't necessarily have the industry's best uh interest in in mind so as you personally or your organization look to how you guys want to enact your political vision or will as it relates to regulatory landscape just make sure you do your research on who you're working with and what they're about and that they have your interest in mind when you do that so thanks very much i really appreciate your time and have a great rest of time in denver