Crypto Legislation Is Stalling. Here’s Why DC May Not Deliver in 2025

Transcript

There's some still some really big issues to tackle. I'm bearish. Uh I don't think it gets done this year. >> Chris, you were in Washington earlier. Um you were talking to folks about the Clarity Act and what's going on down in DC. And I will remind everybody the Clarity Act was one of two big pieces of legislation that Congress has been working on in crypto. It's more general market structure legislation covering both centralized exchanges and elements of DeFi. So unlike Genius, which is already law, the Senate is still chewing on clarity. Chris, where do you think we're at on that one?

>> Yeah. So, we've got a couple of things going on. The Clarity Act actually came out of the House. We also have thing I think something we're calling the RFIA out of the Senate. Um, it's a really when you go to DC and I I went down last week, uh, everyone you talk to, the White House, Senate, House, Democrats, Republicans, they all really want to get something done, it seems. Um, but I mean I had a very interesting conversation with one of the senior senators who's really focusing on getting it done on the Democratic side and there's really two issues that that are going to be tough to overcome. One is that if you're a Democrat, um, it's really the conflicts with Trump. They're just so upset that he's involved in even though I guess we said it earlier in 60 Minutes

he didn't remember who CZ was, but they're so upset that he's profiting off of crypto and he's got world liberty and and his family and his kids are involved. They just can't get over that. And so they're very focused on addressing that conflict issue. That's issue number one. Issue number two is national security. And we're seeing that that's the vector of attack that Senator Warren and folks are are pursuing. Why? Because if you want, it's very hard to um criticize innovation unless that innovation is impacting national security. National security is over the always the trump card. And so those are the two main issues that are that need to be addressed. I personally think it's going to be really freaking hard to get

done. Um we're we have so much going on in the government right now. The government shutdown, right? you have time is everything. And even though I think Boseman who is the chairman of the a committee said that you know we're going to have this you know we're going to have a vote on this before Thanksgiving. I just we we know we saw how hard it was for genius. This is so much more complex. Aside from those two issues you're really dealing with a fundamental reshape of power. Like in our country we have the a committee we have financial services or banking. And like when you're shifting power of an asset class, that's why Gary Gendler was so obsessed with his asset. He saw it as a huge power grab and look where that left him. And so the issues are much

bigger here. I don't know how they get over conflicts. Like what what my advice is is like look, we've got conflicts in crypto for sure, but we also have a lot of conflicts in equities and other asset classes. And so like the answer is not banning people from using crypto. To the contrary, you want people to be able to use and familiarize and like where do you draw the line now between equities and crypto? What what happens when you tokenize it? Like why don't we just have an overall conflicts discussion guys and then on national security you know I've been pushing this policy solution for a really long time. I I think we need privateeers. I think we need at least a private sector to go on offense but that's just Marine speaking and our birthday's coming up. Um but anyway the story is like those are there's some

everyone's positive. there's some still some really big issues to tackle. I'm bearish. Uh I don't think it gets done this year. >> So I'm gonna say something that both agrees with Chris and then maybe takes a left turn on that, which is that I am bearish on clarity getting done this year. Both for many of the reasons Chris just said, but also I think people have I'll politely say underestimated how much of an educational lift it's going to be in the Senate to get moving with a bill that also includes DeFi. I think if they want to get something done this year, you're probably taking clarity and chopping it up into smaller dishes and maybe pushing a few of the pieces through as opposed to getting the whole thing. But the other thing is I would say it may be long-term bullish for the

space for this not to happen. And what I mean by that is having Congress take this seriously, take their time on it, think about it, try to fit this into call it a bigger revamp of US capital markets writ large probably increases the long-term odds of success for the space, right? You've already got companies like Bitwise who are integrating these products into traditional capital markets and doing a very good job of that. So the work is being done brick by brick day by day to move these things and what we need is like constructive tools to continue that process because right now we've got ETFs but like can I clear an interest rate derivative on chain right now to get rid

of a clearing house just bilaterally post collateral? No, it's not possible. And so Chris, I think it may be a good thing if that doesn't move. I don't disagree. Like we are in a really amazing environment net right now where we have the CFTC and the SEC. Once we get Seelig in there, I mean it's off to the races. We're going to see coordination and principalbased partnership. The other issue that nobody talks about is Chevron. And so let's just step back. There used to be this thing called the Chevron doctrine. And it was actually came out in the in the Reagan era. And what it said was that the tie goes to the regulator. And what it did was it allow regulators freedom to fill in the gaps because generally speaking markets move much faster uh

than laws. And so you kind of refer to your subject matter expert regulators to to move with the markets and fill things in. The problem that we had and Austin and I have talked about this a lot is that certain regulators overstepped their bounds and we know who they are and they ruined it for everyone because that's kind of probably the ideal solution and now you're left in a spot where if it's not in the law the tie doesn't go to the runner it doesn't go to the regulator. So you have to get more prescriptive on those laws. It makes it even harder and so honestly right now I like the idea of of collaboration regulators working together for principles based outcomes.

The thing that people don't like though is this whole idea of of states. Uh and and the issue is is that for commodities, we don't regulate commodities and essentially they're they're regulated for fraud, manipulation, and abuse at at the federal level. And that's great. But if you're an exchange and you're getting some heat from some states right now, you want what's known as federal preeemption where there's one federal law. It makes it a lot easier. And so that's the drawback is like if you're an exchange, you know, or other folks, maybe it's a little bit more challenging. But I do think we're going to be in this kind of golden age of coordination once once uh chairman appointing gets in position.

>> Chris's point on Chevron is is an excellent one. You know, in the banking sector, there are hundreds of rules, interpretive guidance that can be challenged judicially. And if you look at where we've been in the last two years, Coinbase and others have successfully litigated with regulators. This is a relatively novel and modern phenomena. you're not supposed to sue your regulator. It's like you work it out in the back and you move on. And there are all sorts of really odd and strange rulings. For example, a certificate of deposit is not deemed a security, but if a wealth manager picks which CD is best in a pool of CDs, somehow it magically becomes a security.

It's just a weird thing. No one no one ever I know Austin appreciates that one, but no one no one ever litigated that. They're like, "Okay, regulator, we you got us. We'll go on to the next one. But there like barnacles on a ship. There are so many of these Byzantine rules that do need to be cleaved away. The trade-off though is that Congress actually needs to act and Congress would rather delegate it to the regulator to get stuff done. I'm not sure whether Congress wants to actually establish a clear view and have every politician being held accountable to that view.

There's also less freedom in ter you can't you don't have the flexibility. you you have less flexibility to deal with edge cases that inevitably come up in the administering of regulation. >> But just to to pull on Chris's thread a little bit, I know Chris is very plugged in on this topic. So I think if we don't get it done this year, Chris, how does that change if at all your outlook for what happens in Q126 or the first half of next year? >> I have no idea. I I I perhaps we go more modular like like Austin suggests. Look, I don't want to I know there's a lot of good work going into getting something done. Um I hope that that it gets done and I hope that it gets done right. I

have seen some the one thing like the other thing that I talked about that's really important is DeFi. Um people are really really struggling policy makers and getting their heads around DeFi. Even though to many of us it's pretty simple. This is technology. go after the behaviors and the activities, but leave the technology out of it. They're just like, "But what? I don't I don't understand what decentralized means." Like, and and that that seems to be another real hot spot when I'm talking about national security. So, I don't personally mind slowing down to make sure we get it right. Maybe that's modular as Austin states. Um, but I just know in the current form, it's going to be tough, but there's a lot of people working hard despite the fact that some of their staffs have been furled in certain cases.

>> Now, that's definitely true, Teddy. as somebody who is like actively in the capital markets plus crypto space daily here, what are the things you most want out of clarity? Like what what do you think would be wins for both the industry and America on that front? >> Yeah, I I think it's I think it's it's DeFi. It's can't right now a very difficult thing about operating a regulated business which is what all of the the the [clears throat] things that Bitwise does are is how how do we participate in DeFi? How do you comply with the existing rules in DeFi?

There there are some people many of our competitors who say that you you just do your best and hope that the forthcoming legislation will will clear it up for you. Um but it's been very difficult to navigate that path. We think that these tools are out there are so powerful. We want to offer these solutions to our clients and potential clients. But what's the way that you do that? And so I think that my understanding of things is that the existing entrenched powers that be are now attempting to slow down the DeFi uh path to having clarity as it were. And that's where we would really like to see uh a sand a regulatory sandbox, the

ability to experiment, the ability to do things with um with some at least basic guidelines. But we we see every day a lot of our clients who are in this zone of crossing over between trady regulated etc. and having the understanding and the ability to do things in DeFi as clients and users of crypto assets, we see how powerful DeFi is, how much better it is than what the existing infrastructure gives you. And the question is, how do we truly make it so that that can flourish here at home in America? And I think that we need clarity in order to give entrepreneurs and businesses the ability to actually

carry out and conduct that experimentation and to develop those businesses. So that's that's what I think is the most important. >> I'll pile in off the back of that and say to bring it all the way back around to our previous discussion on Bitcoin as well. It might not even be the necessity of using those things at all times so much as the possibility to use them. Because once you have the ability to do things that are permissionless or peer-to-peer or essentially uninterdicted, it forces the behavior of all of the people in the system to improve because now your client who was previously completely locked in has the option to be like, screw you, man. I'm going to go with that thing. And it's

like, >> yeah, it's it's the credible threat of like I'll take my business elsewhere in a system where you can move assets around and there are permissionless like elements that I think really ironically has the potential to greatly up the game of the traditional financial space. Like Chris, I know you and I talk about 2008 a lot, but I think having a lot of this technology and the transparency around it and the ability to automate some of these things and in a 247 fashion would have made that a lot less painful. Not just because we have some solutions, but some of the conduct would have been less egregious going into it as well.

>> Yeah. Look, we hyper centralized everything after the crisis. Everything $700 trillion and because we didn't have a technology that could allow us to do something else. And like if you think about it, I'd probably rather decentralize risk than centralize it. It's probably for makes a much more robust system. >> All right, so we'll drop the mic right there. I want to stop and say Teddy, thank you so much for coming on. This has been really nice to have you aboard. And for everybody else, we're going to continue to do this show going forward. So, this has been Bits and Bips. We'll be back in one week to discuss more about how the worlds of crypto and macro are [music] colliding. So, until then, take care everyone.