It was a remarkable week for the blockchain technology community last week: there were conferences where blockchain was top of mind, congressional and regulatory superstars were involved and engaged, and even some humble pie was served.
The Bi-Partisan Slay
In a country starved for something-we-can-all-agree-upon, along comes blockchain technology guided by its community and successful in its appeal across gender, race and both sides of the U.S. Congressional aisle. In the process, and appearing in one conference, Congressmen Soto (D, FL) and Emmer (R, MN), Senators Lummis (R, WY) and Gillibrand (D, NY), and Senators Daines (R, MT) and Booker (D, NJ) have dashed to the blockchain rooftop like Santa’s strongest reindeer.
Can you imagine this in 2017? How about 2020? Me neither. And yet it’s happening in 2022. The bi-partisan/non-partisan rhetoric achieved new heights at the DC Blockchain Summit with Senator Cory Booker saying emphatically that he sees an opportunity to close the wealth gap in minority communities with the growing blockchain technology industry.
This bipartisan, non-partisan thing is the secret sauce for the blockchain community.
DC vs Davos
Blockchain dollars flowed into Davos, Switzerland, and the World Economic Forum for its delayed annual gathering last week. Given the event’s unspoken positioning as a watering hole for global elites – Davos gives attending companies and organizations a branding element that says they’re global players, too.
No doubt there were meaningful conversations to be had – I wasn’t there – but given reports from Davos and on-the-ground observations in D.C., D.C. felt like the place to be for blockchain community members no matter your origin.
After all, the biggest beachhead for blockchain to conquer is the U.S. with its power stemming from the almighty U.S. dollar. If regulatory challenges can be addressed, if champions can be discovered or encouraged across Congressional and regulatory bodies, blockchain will become a part of the American economy sooner rather than later. How will a decentralized, more transparent ethos interact with democracy? Seems like we’re going to find out. Franklin, Jefferson, Hamilton, Washington and Adams are no doubt enthralled as they watch via their heaven-bound Netflix subscription.
The Chamber of Digital Commerce ably harnessed a community and the importance of blockchain tech last week with an informative 850-person event and significant congressional participation. More DC-focused events like these are hopefully in the future across a range of blockchain-focused companies and media organizations. The more the better.
We The Regulation People
Do the SEC and CFTC stand a chance currently?
I get it that the SEC’s Hester Peirce and everyone at the CFTC are on the same page. (my words)
But, what about the rest of the SEC? Let’s put the popular SEC Chair Gary Gensler piñata aside for a second.
Unspoken, or at least rarely discussed, is the extreme disadvantage at which the SEC (and the CFTC, the OCC, DOJ, etc) operates due to recruitment and retention in competition with the private sector. How many lawyers have gone to the SEC and received their SEC bona fides only to move on in a couple of years to a hot venture capital firm or blockchain tech startup job? And, I actually can’t blame anyone who does this. Thank you for serving your country however briefly. That’s America. But, we’re going to need an SEC – to name one part of the government – that has strength to manage the huge transition ahead due to blockchain tech.
And in the SEC’s case, I have a feeling we’re going to need automation and technology which – for starters – replaces the lawyers at the scale of what is about to happen.
The SEC isn’t the only place. At the summit, many of the featured government employees were impressive including the Justice Department’s Eun Young Choi, who is the Director of the National Cryptocurrency Enforcement Team at the Department of Justice … but, how long is she going to stay in government given the private sector opportunities which will be availed to her?
The transparency which LabCFTC’s Jason Somensatto offered last week about a separate crypto regulator was telling: “Who is dying to join a regulator focused on crypto? We have enough talent trouble to think about some of these issues as it is.” (Congressman Patrick McHenry may feel differently.)
So how does a regulatory body prepare itself for the world of innovation and blockchain technology? I’m happy to help:
- Might need to increase compensation! At least, for a few key roles in the near term (the next 10-20 years).
- Evolve public-private partnership to a new level. Companies like Chainalysis offer certain nascent AML and KYC services to the government today. What can Silicon Valley or the wider global Digital Valley create to provide effective regulatory tools? Can venture capital firms such as Andreessen Horowitz (a16z) fund tech companies that are focused on facilitating regulation, consumer protection and so on. Of course… how do VC investors get compensated for that? Is there an equivalent to the growth of railroads back in the day -give the railroads land to extend the rail network which will drive the country’s overall economy?
- Self-regulation – The SEC and CFTC both seem adept at using self-regulatory bodies such as the National Futures Association and the Financial Industry Regulatory Authority in order to ensure market participants act within certain boundaries and in good faith. Scale and technology complexity would appear to accelerate this need in the financial blockchain space in particular. For example, stablecoins could be heading toward self-regulatory principles with clear rules for using the US dollar as the back on the stablecoin front. Of course, there are a bunch of bills pulsing in Congress that want to be in this conversation, too.
The Bitcoin Spot ETF
Why is a Bitcoin Spot ETF not getting approved? Here’s an unpopular “take”: because the SEC is worried they will be overwhelmed if blockchain-technology-infused finance (i.e. crypto) takes off. Spot ETF’s will be buying Bitcoin for their funds and “number will go up” bigger than ever. The public will be rabid for their own crypto bags. And so will the opportunity for consumers to lose more money than ever through volatility or scams due to an understaffed regulator.
Crypto could become a key pillar of financial markets so quickly that a negative crypto event could easily impact global financial markets via dreaded contagion.
One thing seems true about taxes beyond its similarity to death – as long as there are tax rules, then the accounting pretty much flows easily from there. Last week’s DC Blockchain Summit had a panel filled with accountants complaining about “clarity.” I feel for them. <hugs> And, I’m glad I’m not an accountant. Some might think that the gray areas represent opportunities for intrepid accounting firms. But, no accounting firm wants to get dragged in front of the IRS or U.S. Treasury Department.
The discussions about bitcoin mining and energy are kinda falling flat.
There needs to be a bigger idea or a new way of framing it. Yes, “sustainability” themes are good, but feels kind of fraught with radioactivity considering today’s storm around ESG investing.
Marathon CEO Fred Thiel and MicroStrategy CEO Michael Saymor are great advocates for the power of Bitcoin, but there needs to be someone or some company that stakes out why blockchain is great for energy and visa versa. There’s gotta be more than sticking bitcoin miners or data centers on an unused gas flare.
Nevertheless, I get it – bitcoin mining and specifically, Proof of Work, are looking for a stable energy solution. In New York state, there is a well-publicized battle between big Bitcoin miners and gatekeepers to local energy supply which may serve to instruct other states let alone the federal government.
The Hype Hammer
One other observation from last week’s DC summit: acting Director Michael Hsu from the Office of the Comptroller of the Currency had the most riveting presentation. Working from prepared remarks which were also simultaneously made available on the OCC’s website, Hsu did not mince words by telling the audience that the blockchain industry needs to get its act together due to disaster’s such as the TerraUSD algorithmic stablecoin:
“What has become clearer to me since then is that these developments are indicative of the crypto economy’s dependency on hype. Hype is needed to generate the interest and investment that are key to creating the ‘flywheel’ of growth that crypto projects seem to need to get off the ground. “
There was no standing ovation at the end – just a stunned clap.