The Future of Crypto Regulation | Sarah Milby (Blockchain Assn) & Kevin Wysocki (Anchorage Digital)

hi everyone thank you all for joining us this afternoon to talk about the future of crypto regulation my name is Sarah Milby I'm head of policy at blockchain Association it's a trade Association based in Washington DC we represent about 100 companies who are all in the crypto space basically representing their interests in Washington DC in front of regulators and lawmakers and I'm joined here today by Kevin hi everyone I'm Kevin Waki with Anchorage digital we're a crypto platform that provides custody staking trading settlement uh and governance Services we're also um known as the first and only federally chartered digital asset Bank in the United States States and we recently announced a un hosted wallet called Porto for institutions I feel like we'll just dive into the conversation sounds good it might be helpful to give a little bit of a landscape of how to date the crypto industry has interacted with the government I think there are three main facets the way that the industry is really trying to put forward a good amount of Education we're trying to highlight use cases um and we're even trying to do continued engagement by meeting with different staff and members of Congress themselves I think the most important part of our job is education this is a very complicated space I think people don't really understand blockchain let alone crypto so it's our job to try to go in especially when there's new legislation being crafted to try to explain what that legislation's effect would be on the industry particularly through the lens of how the technology works the other part is use cases so in part through the education it's highlighting what use cases would be affected but it's also I think trying to Show members of Congress why they need to care about the space I think right now a lot of people on the hill kind of give a shoulder shrug when we talk about crypto and see it as something that bad actors use for nefarious purposes they see it as like a fraud scheme they can you know connect it with FTX so it's interesting to see too how when we bring really interesting use cases to the light in front of these Congress people how it can change their minds about their approach to regulating the space and then the last one is just continued engagement we're having conversations with the staff on and the members themselves really trying to make sure that when it comes time to vote or write pieces of legislation that they're in a good position to do so so I'm curious Kevin why you think there hasn't really been any crypto regulation or legislation written to date yeah that's a really good question Sarah um you know honestly it's it's really difficult to move legislation in Congress many times it takes many years four to five years to move it um and then when you're talking about crypto you're talking about new technology and a lot of existing laws whether it's security banking elicit Finance uh that are all uh part of the conversation here so members want to get it right um but they they also want to make sure that it's going to work for the long term so I think you've seen a number of bills that have been put out there and there's been a lot of work done over the last few years and we're making progress um but there's there's still more that needs to be done in the near future um really quickly I just want to say nine years ago when I was on the hill I remember a couple of members put together some meetings with industry and you know they invite other members to start the education process on blockchain now on Capitol Hill we have hearings almost every week sometimes multiple hearings per week um we have multiple digital asset subcommittees in Congress there is Staff exclusively focused on crypto in Congress um things have really changed and it's starting to bear fruit yeah definitely and I think one thing that that everyone talks about in DC's Clarity especially when it comes to crypto some people wonder whether or not there is already Clarity trying to fit crypto into Old laws trying to figure out new laws in order to kind of bridge the gap in different kinds of jurisdictional issues between agencies like the SEC and cftc basically deciding whether a coin is a security or commodity has a lot of ramifications for how it's traded how it's custody Etc so I'm curious how you're viewing the future outlook on on legislation and what are some things we can see coming down the line yeah I think um there are a couple of major categories for crypto legislation um that are being talked about in DC right now um maybe we could start with Sab 121 today because there was actually a vote uh in the house Financial Services committee and maybe sir do do you want to talk a little bit more about what that exactly is yeah so the SEC which is a Securities regulator basically put out guidance about a year and a half ago two years ago and and what it does is it changes the accounting of crypto assets that are held in custody by Banks and other institutions and essentially makes them liabilities instead of assets on the balance sheet this in in essence just makes it really expensive for banks to custody crypto and so it creates a disincentive for them to participate in the ecosystem yeah and as I mentioned earlier there was a vote today um it was a bipartisan vote all the Republicans voted for it three of the Democrats did um I think later this year uh it's very likely that both the House and Senate will vote on that legislation um I think most people think though that this particular legislation that repeals sa21 will not be enacted in the law because the vehicle that's used is something called uh Congressional review act resolution which is typically used when an outgoing Administration uh issued regulation and then a new Administration comes in and the new Administration wants to get rid of it with Congress so this this vehicle is considered a bit more partisan um but there is a lot of under underlying support for changing Sab 121 and potentially repealing it as well and what about Market structure it was so Sab 121 was voted out of committee today but there were two bills earlier this Summer that were also written and then voted out of committee that's kind of the first step in legislation to going to a floor vote and eventually making its way to the president's desk so curious what you're thinking about that bill why it's needed um and what its future is yeah so um Market structure reform is is huge um there's there's a need for clarity within the industry um about exactly who's regulating digital asset Securities who's regulating digital asset Commodities um and there are a whole H host of like parallels within traditional finance that if if you were to take some of those principles and obligations that these financial institutions have it arguably would make the system uh safer um and honestly more invis inviting for people to participate in the marketplace um so that particular Bill uh with it's called the fit for the 21st century act um was passed last year in committee um with bipartisan support and it will likely be on the house floor sometime around March 31st now I have to caveat that um there's a lot going on with Congress right now um it's it's likely that it'll get pushed back a little bit but I do know it's a priority of the House Republicans to move forward with that bill um in the near future what do you think the Senate is doing on it well obviously there's been a lot of good work work uh in the Senate lumus and joil brand have their own bill um but I I think that particular bill um will not get a standalone V vote I think with most of these bills I think there's going to have to be a big package of crypto uh various policy crypto and legislation V various crypto legislations that are combined together that may pass either later this year um even though there's a low chance or sometime in the next few years it's interesting it's there's often pairings in different bills in order to make them more palatable if you will for different members of Congress and one of the biggest issues that we've seen on the hill is like money laundering and the belief that crypto is being used for illicit Finance purposes often we talk about a kind of compromise in which people on the hill really want to pair AML policy with fit policy like the fit for the 21st century act or even stable coin legislation because they're quite concerned that criminals are running rampant on blockchains that they're using it to fund nuclear weapons programs Etc a lot of these conversations I think that scare members of Congress are happening behind closed doors with the intelligence Community think CIA FBI Etc but I do think Congress also learns a lot through headlines and after Hamas uh was claimed to have used quite a bit of crypto last fall in October there's a Wall Street Journal article that came out that's really shifted a lot of the dialogue subsequently in leg legislation so I'm curious What legislation you see coming as a result of this kind of headline reading and the kind of Scare Tactics that might be used in Congress yeah in the Senate there are two prominent bills damla and can c um both of those bills are kind of a a tone Center I think in DC right now of like the fact that it's very clear that Congress wants to do something on illicit Finance related to crypto um but I I also anticipate in the near future that um there should be a a bipartisan elicit finance bill coming out of the house Financial Services committee um and then there there's also likely to be um kind of a a treasury uh guided um Bill introduced by leaders in both the Senate and possibly the house uh where they they ask for where they Grant treasury maybe some extra territorial jurisdiction over non us uh stable coin issuers and these and these are stable coins that are backed by US Dollars um and then also um giving secondary sanctions or giving them more authority to do more with uh secondary sanctions so I think both of these both the treasury Le initiative and what's going to happen in the financial services committee are going to add to the debate to the other bills that are already out there what do you think are the misconceptions around AML and crypto that is really being talked about on the hill well I think it goes back to some of the education that we were talking about earlier um I think there's a lot of data out there and when you dive more deeply into the data um it provides a clear picture a as to the extent that this there's like to the extent that there the extent of the problem um you know we're uh an OCC Bank we are subject to the bank secrecy act we have like over 50 compliance uh offic uh workers on at our bank um working on all these issues it's something that I think the industry needs to take very seriously um but it's it's something that's it's again it's developing there are going to be more bills um and I think if if any of it's going to get enacted into law I think it's Pro probably going to have to be paired again with um one of these other bills maybe stable coin legislation which we have not yet spoken about yeah so stable coins was the other Bill besides the fit for the 21st century act um that was passed out of the committee the financial services committee uh last last July and essentially what it does is it sets up a framework for the federal government and state governments to allow different companies to issue stable coins those that are backed by reserves usually will be custody in Banks so it doesn't touch anything like d like a decentralized stable coin it's really focused on centralized issuers and giving them different options and Pathways to create a federal framework and not go state byst state and collect licenses and hopefully that you know if you're in Iowa and you're compliant in Iowa that if you're using the same stable coin and New Jersey that you don't have to worry about a whole another set of regulations obtaining a second license it's just a tedious task to do all 50 states so hopefully this will provide a better pathway and I'm curious what you think the chances are of it passing this year yeah so this is something that the ranking member of the financial services committee Maxine Waters and then the chairman Patrick McKenry have been working on for the last two years um they marked up a bill last July um it didn't get as much bipartisan support as originally anticipated um they've been working on this bill since then ranking member Waters has has said that they're getting closer uh secretary Yellen has said that she would like to see a stable coin bill um I think this is probably the best candidate to be paired with maybe elicit Finance legislation to move in the near future there there are still differences between Republicans and Democrats over the state and federal pathway uh pathways for issuers of stable coins um but I don't think those differences are insurmountable the upcoming election do you think that will play into the success like potential success of the bill so I actually think that regardless of who's in the white house um you're going to have to have bipartisan support for legislation I know some people might say well what what happens if like Republicans control the presidency the Senate and the house or Democrats do um I think what you really need to move any legislation you want as a party in Congress is you need those three things but you need a super majority in the Senate which is 60 votes and I think it's highly unlikely almost impossible for um any party to get that and also have the majority in the house and the White House so you're going to need at least probably five or six uh the minority members of the Senate to vote for crypto legislation so I I don't necessarily think for legislation that a different president really changes anything yeah that's interesting I'm curious how you're thinking about whether there's a divided Congress or not so I don't know if you want to explain what a divided Congress is and what it means for you somewhat explained what it means for legislation but just elaborate on that for the audience yeah um a divided Congress uh is is when like you you have like the Senate and it's controlled by one party and then the house is controlled by another party um you could just say divided government in general and you would mean that like the White House is one party and there's at least one other party controlling one of the other chambers of Congress um and I personally think that it is true that there are a number of Democrats and Republicans that want to see more clarity in this space um whether it's the chairman of the Banking Committee who's a Democrat whether it's the chairman of the financial services committee which is a republican um their staff and these members are working hard on this so we've talked a lot about a few bills that like of anything that's most likely to happen it's the repeal of Sab 121 stable coins elicit finance and Market structure with fit what one are you most excited about or is there some new legislation that you think is really needed that no one's really discussing yet you know I talked a lot about elicit Finance earlier and these the potential for these new bills coming I think that's something that uh the audience would be interested in because there are ramifications potentially for defi for unhost wallets for infrastructure um with and how that like debate over elicit Finance plays out could have Ram ramifications for all the people that are here today um talking about the great things that they're building yeah I think there's a lot of concern on the elicit Finance front for sure I one thing I'm really excited about and it's not the most sexy topic but it's tax I think tax is really important in our space especially because crypto right now is treated as property and for that reason anytime you're switching coins technically you're supposed to be taxed on the transaction and keep track of what price you bought that coin at what price you you know exchanged it at or sold it for um and I think right now there's a lot of questions in taxs on what's the best way to report your taxes why is it so difficult Etc and I think Congress can do a lot to step up there um I'm just curious what other thoughts you have for for developers in particular and how they should be thinking about what's happening in DC as they start to build or think about creative new ideas yeah I I I would say like another policy are area that's that's quite fascinating that has like huge implications that uh I think developers should think about are everything with stable coins um the ability of stable coins to potentially export US Dollars throughout the world is is huge and I think people at the highest levels of our government whether it's the federal res Reserve treasury White House are thinking through all the um implications of that um so any projects associated with that um I think is of particular interest to the the government right now um because controlling the US money supply is is something that the government obviously cares a whole lot about um did you have anything else you want to say for the develop well I'm curious on stable coins there are a lot of other countries that are working on it ious how you think the US's position just generally in legislation and thinking about crypto compared to some foreign jurisdictions yeah good question uh I think you could definitely argue that we're behind some of the other countries on stable coin um legislation however I think it's really important that we get it right that's the most important thing and I think because our leaders in Congress have already done so much work on this and we are that close um I don't think it's going to hurt us um so long as we in the next couple years can get a stable coin Bill through Congress that makes a lot of sense if you are a developer what would you say is the one agency you might not know about that you should know about H that's a good question um you know everyone in the government is talking about crypto the the IRS hired two people just the other day that are focusing on crypto so um you you would be surprised then there are blockchain projects going on throughout the government um but yeah it can be anyone from the IRS to the National Economic Council um you know the oversight Committee in Congress like there are a lot of people engaged in government on this now it's funny every once in a while a new agency comes out of the woodwork that I'd never heard of before and I feel like I've been in DC for a while and we've seen them all but recently the eia which is a part of the Department of energy basically is a collection of data it's like that's what its main purpose is they put out a request for all Bitcoin minor ERS to submit information about their energy use Etc and it's just interesting how every part of the government to your point is starting to think about crypto so I know we're almost out of time I'm curious for what you think will happen in five years I think all the bills that were just mentioned I I think some form of them will be enacted uh will have much more clarity and I think the United States will be in a very good position for all the financial Innovation and technological innovation that is is being worked on here at eth Denver and talked about amazing well I think that concludes our panel really appreciate everyone for coming here today and feel free to ask us questions [Applause] afterwards