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Transcript: The Evolution of Money: Cryptocurrency Regulation

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MS. CORATTI KELLY: Hi. Good morning, everyone. Thank you.

My name is Kris Coratti. I am chief communications officer at The Washington Post and general manager of Washington Post Live. Welcome. I'm so thrilled. We've got some old friends I see in the audience and some new faces. So thank you all for being here with us as we dive into the world of cryptocurrency and its regulation.

I'd like to think about the democratization of money, the elimination of a central banking system, immediate access to funds. These are some of the promises of cryptocurrency, but we've seen in recent weeks that crypto may not always be stable or reliable, and questions remain as to how we best protect consumers in this new world order of digitized money. Should these assets be regulated, and if so, by whom?

We begin today by hearing from Rostin Benham, chair of the Commodity Futures Trading Commission, which is one of the main bodies that could be tasked with regulating cryptocurrency.

Next, Senators Lummis and Gillibrand join us to talk about their joint legislation, which was just unveiled yesterday, and it proposes establishing guardrails around digital currencies.

Finally, we're joined by two experts in the industry, Dante Disparte, who is the chief strategy officer and head of Global Policy at Circle, and Tomicah Tillemann, global chief policy officer at Haun Ventures. We'll hear their perspective on how digital assets should be regulated and what they think about crypto's impact on the larger financial system and the economy.

I'd like to thank our presenting sponsor, Grayscale, who you will hear from later in this program.

And now I'd like to hand it off to my colleague, Leigh Ann Caldwell, who is amazing. She'll be out with our first guest right after this video.

Thank you again for joining us.

[Video plays]

MS. CALDWELL: Good morning, everyone. I'm Leigh Ann Caldwell. I am an anchor here at Washington Post Live, and I'm also coauthor of the Early 202 Newsletter here at The Washington Post. Thank you, everyone, so much for joining us. We are thrilled today to welcome the chair of the Commodity Futures Trading Commission, Rostin Benham, today to talk about the future of crypto. It's such a timely conversation, and I want to tell our audience that if you have any questions, go to Twitter and tweet those questions at @PostLive, and we will try to get to them.

Chair, thanks so much for joining us.

MR. BENHAM: Thanks for having me. It's great to be here.

MS. CALDWELL: The timing is incredible. As we know, there has been new legislation that has been introduced yesterday by Senator Lummis and Senator Gillibrand attempting to, for the first time, regulate the crypto marketplace, the industry, and they gave you a lot of power, the CFTC chair. So are you thrilled with how they wrote that legislation?

MR. BENHAM: Well, I'm excited about the fact that we have members of Congress, and certainly credit to Senators Lummis and Gillibrand for taking a leadership role. I know there are several others who are thinking about these issues, but I am thrilled about the fact that we're taking steps towards regulating and putting guardrails around this technology.

You know, I've said this multiple times. We saw some clips earlier. There's a lot of retail exposure. There's a lot of speculation, and there's a lot of volatility, as we've seen in the price movements over the past couple months and years. And I think smart, sensible regulation will protect customers, will bring credibility to the marketplace, and as we see this technology emerge and develop over the years, I think, you know, in our securities markets and our derivatives market‑‑I say this often. We have the strongest, deepest markets in the world because of the regulation we have, and I think we can replicate that same model in the crypto space.

MS. CALDWELL: Well, part of the reasons they decided to put a lot of the regulation under the CFTC is because they defined a lot of these as a commodity, and so do you agree with that, that a lot of these digital currencies are, in fact, commodities and should be regulated that way?

MR. BENHAM: I do, and I think it's important for all of us collectively to think about the two market regulators that we have in the U.S. government, the SEC, of course, and the CFTC, and the purpose of each of the laws that have been developing over many decades, nearly a hundred years.

And starting with the SEC and just‑‑I don't want to generalize too much, but what we're trying to accomplish with our securities laws is to bridge a gap, an information gap, an information asymmetry between an issuer of a security and an investor of a security, and this manifests itself in the form of 8‑Ks and 10‑Ks and 10‑Qs, these forms that we see out of public reporting companies.

On the commodities side, you know, typically‑‑and just thinking about traditional commodities, whether it's agricultural commodities, energy commodities, or metals commodities‑‑you're not going to have that same disclosure requirement. These are decentralized stores of value that end users use, obviously consumers use in many different ways, and from a digital asset perspective, it's pretty clear that many of the digital assets themselves replicate or look like commodities. They're more like stores of value than they are securities.

And we have precedent and common law, you know, going back many decades to sort of define how we view securities versus commodities, but I think it's really important to just go back and take stock of what's the purpose of the securities laws, what's the purpose of the commodities laws, and where do these digital assets fit.

MS. CALDWELL: Well, the chair of the SEC would most likely disagree with you. He said recently, just in April, I believe, that the digital currency marketplace has a lot of similarities to the current traditional marketplace, and they should be regulated similarly. Why should‑‑why is that not the case?

MR. BENHAM: Well, Chairman Gensler and I agree on many things. We disagree on many things. I think the most important thing for everyone and the viewers is to know that we share the same values and in what we want to accomplish, right? It's customer protections and a regulatory structure around this market.

But there are thousands of coins, and I certainly agree that many of them and probably hundreds of them replicate security coins and should be regulated as securities. But there are also many commodity coins, and we could start with the two biggest coins within the market capitalization of digital assets, Bitcoin and Ether, and if you look at the market cap of digital assets, it's obviously fluctuated a lot in the past 6 to 12 months, peaking at about $3 trillion back in November, probably now just over a trillion dollars. But what hasn't changed is the correlation in terms of the size of Bitcoin and Ether relative to the total market capitalization, and these are two of the biggest coins that are commodities, look like commodities, and I think should be regulated by a commodity regulator.

MS. CALDWELL: A lot of the industry wants the CFTC to regulate them. Does that mean that the CFTC is a weaker regulator than the SEC?

MR. BENHAM: No. It‑‑no. It's just a missed understanding of the securities laws and the commodities laws, and it's‑‑you know, it's what I said earlier. It doesn't make sense for us to issue information disclosures on a commodity. What we're trying to accomplish is provide risk disclosures to investors, make sure that investors understand the risks that they're taking in terms of capital allocation, but on a periodic basis and using Bitcoin as an example, as a commodity, it doesn't make sense to have an 8‑K, an S‑1, a 10‑K, or a 10‑Q. It is a store value. It acts like a commodity, and we need to treat it like that.

The CFTC‑‑I've said this before‑‑we are one of the toughest cops on the beat. We have a strong enforcement program, and we are very, very strong in terms of our market oversight and surveillance. We have some of the best experts across the commodity space and especially across the digital asset space as well.

MS. CALDWELL: Well, what should‑‑what should regulation look like? Do you need to regulate the exchange? Do you need to regulate the transaction? A combination of both? Can you lay out what your vision would be if you had ultimate authority?

MR. BENHAM: Sure, sure. I mean, it wouldn't be very different than what we see in the traditional commodity space, which is we have direct oversight over exchanges. To the extent that the products and the trades would be cleared through a clearinghouse, we have direct oversight over the clearinghouses. We have oversight over the intermediaries, which essentially act as the brokers who are facilitating the purchase and sale of the asset, so the commodities, and then on a more granular level, I would say on a more boots‑on‑the‑ground level, we're making sure that investment advisors and individuals that are introducing retail customers to these assets are registered. We're doing background checks, whether it's AML and KYC, and ensuring, above all else, that information disclosures are made to investors so that when they make a choice about how to allocate their capital, they know exactly all the information they need to do before they make that decision.

MS. CALDWELL: We have a question from Twitter from Emma Manny. She or he says I'd be curious to know whether the present‑use cases are for cryptocurrencies that are meaningful improvement over non‑crypto systems. So why does crypto matter?

MR. BENHAM: Yeah. I think from a regulatory perspective‑‑and I think about this question a lot. It's an excellent question. But what we've seen over the past decade and I would say specifically even over the past five years while I've been at the commission, both as a commissioner and as chair, is a marketplace has developed, it has evolved, and it has grown. And it moves very quickly in directions that we often can't predict, and as a regulator of markets, as a regulator of commodities, I believe I have both an interest and a responsibility to oversee these markets to protect customers.

I would suggest to not‑‑you know, you don't have to look any further than a list of our enforcement cases. We've brought over 15 enforcement cases in the past six or seven years, ranging up to $100 million for fraud and manipulation. These are individuals across the country who are, unbeknownst to them, investing their money in fraudulent schemes.

So, regardless of what the future of the technology may be, I have to at least, in my sort of view, view this as one scenario, the development of this technology, the evolution of this technology, and use cases potentially emerging and growing, but regardless, I have to think about the marketplace. I have to think about the trading platforms that exist and the millions of individuals who invest their money into digital assets.

MS. CALDWELL: But, you know, digital currencies have lost a trillion dollars this year, I think $400 billion just in the past month. You yourself even said, I think, last month that a large portion of these are frauds, are going to collapse. You had Terra collapse. So how are you going to protect consumers, and should there be confidence in digital currencies?

MR. BENHAM: So this in lies the problem, right, because right now our enforcement program, which is really the only mechanism we have into this digital asset space, because we don't have regulatory authority over the trading platforms or the exchanges. We don't have regulatory authority over the brokers that we traditionally do in a traditional marketplace, in a commodity marketplace. So what we've had to rely on over the past five, six, or seven years is essentially whistleblower tips from the public saying, "Hey, I think we had a scam here" or "I lost my money here. Can you help?" And then we pursue this through our enforcement authority, which is limited to fraud and manipulation.

So, in the gamut of a rate regulatory oversight, we have this very limited authority to pursue bad actors, and what I've been arguing for and really goes to this point is we need more extensive, more exhaustive, inclusive regulatory authority so that we can surveil markets before fraud occurs, so that we can review individuals and institutions who are participating in this market, selling these products to investors, so that we can do the regular checks that we do in the marketplace and develop resilient, safe markets.

I'll add as well is, yes, we've seen a huge decrease in the size of markets over the past couple months, but another issue or discussion I'm having with my colleagues, both domestically and across the globe, is if this market returns and grows and grows over time, what market resiliency and financial stability issues start to rise because the market is so large?

MS. CALDWELL: And so you need Congress to give you more authority to do more regulatory actions?

MR. BENHAM: A hundred percent.

MS. CALDWELL: Okay. Well, currently, CFTC has some authority as it stands now. There's some in the industry who are begging to be regulated. Should you approve licenses faster, or should you move forward in the powers you have right now as it‑‑

MR. BENHAM: I think we are doing everything, and I could say this with a hundred percent confidence to share with the viewers. We are doing everything we can with the resources we have to protect investors and to police the market.

But I'm going to just take 30 seconds to give an example because I think it will clarify some things. As you pointed out, we regulate derivatives contracts, which are financial contracts whose price is derived from an underlying commodity, anything from wheat, natural gas, or gold. We do not surveil, we do not oversee cash markets, which is the actual transaction of the underlying commodity. However, Congress did provide us this very limited authority, which I mentioned earlier, over fraud and manipulation in the cash market. So, for decades, we've been policing fraud and manipulation in cash markets, and the reason Congress did this is because, you can imagine, there is a correlation between the cash market transaction and the derivatives market transaction. If there is a dislocation in those prices, then something is wrong with our markets.

So we have that policing authority in the cash market under very limited circumstances. It's a very powerful tool. We use it when we can and with the resources we have, but I will just emphasize, it is limited, given the scope and size of this market, and the fact that we can only essentially bring cases when we get tips from people from the outside. We don't have the traditional surveillance tools that we do in regulated markets to surveil markets and to anticipate fraud or manipulation or to anticipate bad actors.

MS. CALDWELL: And kind of a clarifying follow‑up, what do you think that the biggest‑‑the biggest thing is that needs to have oversight? Is it fraud? Is it manipulation? Is it something else? Is it illicit activity from international organizations? Like, what do you think needs to be cracked down on the most?

MR. BENHAM: Sure. I mean, it's a great question and one that I don't want to put any weight to any one over another because it's really hard to tell right now. I know Treasury is doing a great job on the illicit activity, given the authority that they have, but I'm a market regulator. I think about markets, and I think about the trading platforms, many of which we know, across the U.S. and globally, and these are, at this moment, largely regulated by state money transmitter licenses, which just as a little bit of information is essentially a Western Union‑era license that states have been issuing for decades.

So, as a market regulator, it doesn't make me feel very comfortable that these trading platforms, what we know as essentially exchanges, are only being regulated by state money transmitter licenses.

There is regulation around illicit money activity, AML, KYC, but from a markets perspective, conflicts of interest, the way that, you know, traditional trading occurs and avoiding disruptive trading practices, pre‑trading agreements, these are typical types of conduct, illicit or, you know, illegal conduct in the trading markets that we need authority to pursue if it's occurring.

MS. CALDWELL: And does this Gillibrand and Lummis legislation give you the authority that you need, or do you need more?

MR. BENHAM: No, it does. It does a very good job in, I think, identifying, and, you know, one of the trickiest things we're going to have to do‑‑and this has been an issue, and I think they addressed this very well‑‑is deciphering between commodity and security. But, in terms of giving us authority within what we call "core principles," it would give the CFTC authority to write rules and regulate these stakeholders within the financial ecosystem.

MS. CALDWELL: We have another Twitter question from Alex Allaire. Do you believe that a sound industrial policy for crypto and Blockchain technology is critical for national security?

MR. BENHAM: You know, it depends on where the technology is going, and I think it is‑‑it would be‑‑it's important for the U.S. government to be thinking about this technology under a scenario analysis, and this is something that is very, you know‑‑everything in terms of market risk, I look under scenario analysis, and there could be a scenario where this technology goes away. There could be a scenario where this technology just sort of ebbs and flows over time, but there certainly could be a scenario where this technology scales and grows, and this becomes sort of ubiquitous within our economy and within commerce and within foreign transactions, and in that case, I think this question is very pertinent and the reason why we need to get ahead of a possible scenario where this technology develops and evolves, because naturally it could become a baseline for payments and for payment processing. It could be‑‑obviously, we're seeing with the Ukraine crisis, at least rumors of using cryptocurrency or digital assets as a way to move money around illicitly. These are the types of scenarios that I think we collectively need to think about as a possibility and therefore get ahead of it from a policy perspective so that we know what's happening, we can trace illicit and bad activity, and we can stop bad actors, obviously, before they do something that is illegal.

MS. CALDWELL: How do you get ahead of it?

MR. BENHAM: We have‑‑it's the first step. It's the Lummis and Gillibrand bill. It's starting to write policy. It's to get bipartisan support. It's to start to talk to regulators, talk to stakeholders, and build an infrastructure over this technology, because in many respects, there are common elements of it to our traditional financial system, but in most respects, it's so unique that we have to rethink what the financial system might look like, how commerce is going to be conducted, and what the economy will look like.

MS. CALDWELL: Ultimately, what is‑‑for consumer protection, I know Senator Elizabeth Warren is huge on this, and there's others as well who are very concerned about this. What is the biggest tool that you need in order to protect consumers? You know, we touched on this earlier, but just to put a finer point on it?

MR. BENHAM: Yeah. You know, from a traditional markets perspective, it's about disclosures, and it's about information flow, and it's knowing what risks are at stake when an investor, whether on an individual basis or through an institution that they invest their retirement money or their pension money, understands the risks involved. You know, it's a very fine line to tell an individual how they can allocate their capital.

But, at a minimum, I think I have a responsibility to ensure that information is being shared with that individual about what risks are involved, what is the history with that sort of asset, and what they might expect in terms of returns or loss. And we do a very good job of that at the CFTC, given we have leveraged markets. We have some of the best investment disclosures in terms of risk disclosures.

What we don't have‑‑and I mentioned this earlier‑‑is these periodic reporting requirements, which again doesn't make sense for commodity markets. It doesn't make sense for securities. But this is the type of information that I think we need to get out to investors.

The other element of it and the more important element is just having regulatory guardrails around the infrastructure of the market, having the exchanges, the platforms regulated, having the intermediaries and the brokers regulated, having conduct requirements so that individuals and institutions can report information, and that we have a better sense of what's going on in the marketplace so that we can make more informed decisions and ultimately root out bad actors and fraud, because that's the biggest problem, right, is‑‑is the price representative of supply and demand? Are there trades and conduct occurring off exchange that we don't know about? Are there two individuals sort of colluding to set a price that is not representative, again, of supply and demand? These are the things that market regulators and market rules provide, and again, another reason why we have the best markets in the world, because we have the strongest, most transparent rules in the world.

MS. CALDWELL: Well, how do you maintain that U.S. advantage in this? There's a lot of competition out there.

MR. BENHAM: There is, and I think it's a balance because‑‑this is a frequent argument I hear is that if you don't move quick enough, we're just going to go overseas. And I get that, right? But it's balance because, you know, preserving American exceptionalism is obviously important. I think it's important for economic growth, the labor market, for national security purposes, but also, I think we have the greatest markets in the world. We have the strongest economy in the world because we move through things thoughtfully and deliberatively and we think about things before we move too quickly.

And, you know, you could probably get a sense or think that some jurisdictions may have moved too quickly in this space. This should not be a race to the bottom. This should be about preserving market integrity and market resiliency and making sure that we're moving forward. I understand that many, many people, stakeholders think maybe we've moved too slow, but quite frankly, I think we're moving at a good clip. And the fact that we have legislation being introduced by two Senators today, there's been several bills on the House side and the Senate side, I believe there's more coming from the chair and ranking member of the Agriculture Committee, these are the types of things that I think will preserve American exceptionalism, will preserve the market in the U.S., and keep this conversation moving forward in a thoughtful way so that we can have very exhaustive discussions about what this technology does, what risks it poses, and what opportunities there are for the economy in the country.

MS. CALDWELL: There is also an environmental component to this.


MS. CALDWELL: Bitcoin is extremely energy‑intensive. What sort of oversight needs to happen with that? Is there anything that can be done, and are there alternatives?

MR. BENHAM: Yeah. If I recall correctly, the Lummis‑Gillibrand bill does require a report conducted by FERC, the Federal Energy Regulatory Commission, and the CFTC, but I couldn't agree with you more.

You know, at this point‑‑and this goes back to the, I think, first Twitter question about the use cases‑‑certainly, there's a lot of opportunity. We don't know how that's going to change and evolve over time, but in terms of the relationship between the current use case and the energy usage and energy consumption from mining, I think there's a pretty significant dislocation right now, and we need to remove that dislocation. And that either is through technology, a term, proof of work or proof of stake. I know some of the miners are thinking about transitioning the way they mine so that they can reduce energy consumption.

But the one thing that I've thought about and I've had a few conversations with members is at a minimum‑‑and I think this is what the report will start to accomplish. Perhaps we need to think more about it is, what information flow is getting to investors and customers about this issue, about this fact? Because on the one hand, we need the industry to transition and change and understand that the energy consumption is too big, but we also need consumers to understand and appreciate what's at stake so that through essentially economic incentives, they can steer their choice away from the more energy consumptive behavior. And that, you know, is a sort of age‑old economic, I think, theory that if we create that information flow, incentives and disincentives will move the market in the right direction, and given the climate crisis, given the issues around climate change, I think with the right and accurate disclosures, incentives will move people away from that energy‑consuming behavior.

MS. CALDWELL: In the last 20 seconds we have, what is the one thing that the CFTC needs to do now to show that they are serious regulators in this space before any legislation is passed?

MR. BENHAM: We have to keep doing what we're doing, and I would‑‑again, there's nothing more we need to do. We are one of the strongest enforcement agencies. We have the best folks in the world in terms of expertise. One important thing‑‑and I know the bill mentioned this‑‑is increasing our funding. That will have to change, and the bill does provide a user fee for us so that we can leverage a fee against stakeholders or the industry to raise our funding so that we can hire the right people, have the resources to regulate the market in an appropriate way.

MS. CALDWELL: Great. Mr. Chairman, thank you so much for joining us.

MR. BENHAM: Thank you.

MS. CALDWELL: I really appreciate it.

MR. BENHAM: Thank you.


[Video plays]

MR. NEWMYER: Good morning. I'm Tory Newmyer, a business reporter here at The Washington Post, and I am delighted to be joined today by two Senators who made major news yesterday with the introduction of a widely anticipated bill that is proposing a comprehensive regulatory framework for cryptocurrencies, the first of its kind and is already setting off a lot of debate. So I'd like to welcome both of you here to The Washington Post, Senator Gillibrand and Senator Lummis.

SEN. LUMMIS: Thank you. Thanks for having us.

SEN. GILLIBRAND: Yeah. Thanks for having us.

MR. NEWMYER: Thanks. Thanks for being with us.

And a reminder to our guests, we want to hear from you. So tweet us your questions using the handle @WashingtonPostLive, and we will try to work them in to the conversation today.

So we're going to get to your bill in a moment here. There's a lot to discuss, but I just‑‑I kind of want to start by scene‑setting a little bit.

Senator Lummis, you started working on this bill last year. Since then, we've seen a lot happen in this industry and in this space. The total value of digital assets has fallen roughly by half, I think, since when you started working on this in December‑‑or it was reported that you were working on this from about $2.5 trillion to $1.2 trillion, roughly, today.

Digital thieves are on track for a record‑breaking year, having stolen $1.3 billion worth of crypto in the first quarter of this year, including more than $600 million in the biggest hack of its kind perpetrated by a state‑backed‑‑North Korean state‑backed group that is using the proceeds to fund their weapons program.

Terra, a so‑called algorithmic stablecoin, and its associated ecosystem collapsed last month, erasing roughly $45 billion in market value with it. Just last week, the FTC said crypto has become the payment method of choice for scammers, accounting for more than a billion in consumer losses since the start of 2021 or one out of every four dollars lost to such fraud. That's obviously a grab bag of a lot of bad news. It doesn't paint the complete picture, but I point to all of those things to say a casual observer of this space could be forgiven for thinking maybe despite all of this hype I've heard over the last year, crypto isn't the next big thing.

And, you know, both of you all are here because you are believers in the potential of this technology, and I'm curious if the developments that we've seen over the last weeks and months have changed your view of that at all, just as a starting point.

SEN. LUMMIS: Well, I think the developments of the last few months simply illustrate that it's time‑‑in fact, past time for this piece of legislation. That stablecoins, algorithmic stablecoins that are backed by nothing, perhaps don't have a place, that stablecoins should be backed either by 100 percent hard assets or by financial institution that is insured by the FDIC, and so that's what our bill provides.

It also is true that there are certain cyber-attacks that we want to send to the committee of jurisdiction that can address the consequences of cyber, and we also believe that because there is fraud among the more than 10,000‑‑some people say up to 19,000 cryptocurrencies. Yes, some of them are fraudulent. That's why the disclosure capabilities of the SEC are so important, and we want to make sure that those that are securities are subject to disclosure requirements by the SEC.

So we recognize some of the issues that you've pointed out, and we want to make sure that this piece of legislation is capable of putting us on a regulatory sound footing, so the good guys can continue to operate and flourish and the bad guys are meted out.

MR. NEWMYER: Senator Gillibrand, did any of the‑‑we talked to‑‑Senator Lummis mentioned stablecoins.


MR. NEWMYER: Did the collapse of Terra inform the stablecoin provision in the bill?

SEN. GILLIBRAND: Absolutely. As did a lot of people in this room, this bill is a comprehensive approach to how to create safety and soundness in this industry, how to create transparency, accountability, and how to create consumer protections, because of everything that's happened in the last several weeks.

And what's so interesting about this process is the realization that we have a huge opportunity with Web3. If we get Web3 right, we can set innovation and democratization of finance and decentralized finance on a path that can solve really big problems and make a huge difference for people across the globe.

So we need to act now to place this regulatory framework, basic rules of the road in place, so we don't make the mistakes we made with Web 2.0. We never regulated Web 2.0. We never looked at the platforms and said what is the privacy harm. We never looked at requirements about who owns someone's data. We never looked at the question of surveillance capitalism. We never made decisions about any of these very hard issues that unfortunately are harming our children, are harming our economy, are harming our nation with division. And so, if we get Web3 right, we can then maybe go back and look at Web 2.0 and say what would a data protection agency look like, to begin to look at that.

But that's why Cynthia and I are so passionate about taking this moment to do the right thing by Web3 to set safety and soundness up.

And specific to the cybersecurity issue, in our bill, we have a requirement that the CFTC, the SEC work directly with Treasury and NIST to come up with basic cyber standards.

We also have a self‑funding mechanisms within the CFTC so that resources go directly there. So, if they are required to do the oversight and accountability for Bitcoin and Ether and spot markets and futures markets, that they have the resources to hire more lawyers, more cybersecurity experts, and build that cyber capability to handle that aspect of digital assets.

MR. NEWMYER: So you mentioned that the CFTC is going to be the primary regulator under your bill, which seems like there's a lot in here, but that seems like one of the main pillars.

You also do something in this bill where you are creating, I think, a new designation for cryptocurrencies, and you're calling them "ancillary assets." Can you describe that for us?

SEN. GILLIBRAND: Do you want to go first?

SEN. LUMMIS: Well, that would certainly be like non‑fungible tokens and other digital assets that don't have the characteristics of either a store of value or a means of payment.

SEN. GILLIBRAND: And I would‑‑I think you've overstated. I don't think CFTC is the primary regulator. They just have the obligation to regulate Bitcoin and Ether, the majority of cryptocurrencies today. But the SEC has an enormous responsibility, and it's going to have to take many of these other cryptocurrencies. They're going to have to take anything that looks like a security.

We use the Howey Test as the base, but we further refine the definition of a security. And I can tell you there's businesses throughout New York City that are desperate to be actually given the ability to be broker‑dealers, given the ability to be regulated by the SEC.

We have players who are asking the SEC to allow them to have an ETF, waiting for the response, and so we are giving the clarity that the SEC needs so they can actually do the job of regulating a lot of businesses that are asking for that regulation now.

And so we refined the Howey Test, and we really draw out exactly what's a security. If a token conveys with respect to issuing entity, voting rights, rights of interest, dividend payments or profits, debtor equity interest, liquidation rights, profit revenue share derived solely from managerial effects of others, and any other financial interest would, therefore, be a security.

And so we aren't minimizing the role of the SEC, but we are empowering both regulatory agencies to begin to take this market and give it safety and soundness.

SEN. LUMMIS: And I suspect that the CFTC, although it will have the lion's share by market cap, the majority of the digital assets, the cryptocurrencies, because there are so many, have characteristics of securities that will require the SEC's disclosure capabilities. So one has most of the market cap; the other has most of the small tokens that are going to be the larger perpetrators of fraud. So the SEC's role in this is absolutely critical.

MR. NEWMYER: So you agree, then, with Chair Gensler when he says most cryptos are securities under the Howey Test. Is that right?

SEN. LUMMIS: I agree with him.


SEN. LUMMIS: But now, if you're looking at the sheer numbers, I agree with him.

SEN. GILLIBRAND: Yeah. And Chairman Gensler also said that Bitcoin is definitely a commodity.

SEN. LUMMIS: Yes, he did.

SEN. GILLIBRAND: So the public statements, the few public statements he's made about some of these definition issues, we're in agreement, and so we think this framework is the sweet spot of getting most aspects of digital assets and most aspects of blockchain technology into the right regulator without overregulating, because you have to also recognize people are using tokens for democratization and for community organizing. They're issuing tokens in Oakland, California, so that they can offer different kinds of access to voting, access to social services, access to organizing. So we don't want those token providers to be somehow required to register with the SEC as broker‑dealers because they're not. They're community organizers, and so if you don't understand the full breadth of how blockchain technologies are being used, you're going to overstep.

And so the other thing that we create in this bill that we really like is a commission‑‑a committee. Excuse me. It's a committee that will look at issues of first impression, because many of these digital assets might change over time. They might have multiple characteristics, and we specify in the bill who should be on this commission, a person from the SEC, a person from the CFTC, a person from academia, a person from industry. Like, it is‑‑it is going to be a body that can take these harder questions and give recommendations to Congress and regulators.

MR. NEWMYER: Under your bill, a new‑‑an issuer or a new coin gets the privilege of determining for themselves whether they're going to‑‑whether what they're issuing is, in fact, a commodity or a security and where they should disclose. Is that right?

SEN. GILLIBRAND: Well, it depends on their purpose, and so if their purpose fits the Howey Test‑‑for example, if they're saying this token, we are going to sell, so we raise money for our business, that's the same as a stock offering. That would absolutely be a security.

But if you're like Bitcoin and creating a proof of work or a proof of stake type of token, you may well be a commodity. It just depends on the purpose, and the legislation lays that out. And so you as an issuer is going to look and say what purpose do I have here, and then that will dictate where‑‑which regulator you will go to.

But each regulator is going to require disclosures and registration and the proper work of our economic foundations, and the regulators will let them know. If they've got the wrong regulator, it will be clear.

SEN. LUMMIS: We went through every circuit case that has interpreted the Howey Test to see how the cases continued to provide guidance in the determination of what is a security and what is a commodity, and so we think we've incorporated the most current, up‑to‑date court iteration of the Howey Test language into this bill and then codify it so it becomes law.

MR. NEWMYER: Senator Lummis, you said you met with Chair Gensler yesterday.


MR. NEWMYER: Can you tell us anything about what you discussed, how it went, and how he feels about what you've produced?

SEN. LUMMIS: Well, he hasn't‑‑this‑‑he hasn't read it. We're looking forward to his reading it. I think some of the staff at the SEC have taken a look at it. I asked him for his feedback. I assured him that Senator Gillibrand‑‑are very anxious for his feedback, and we feel that way about the CFTC, the OCC, every regulatory agency as well as the regulated community. And so we can get different perspectives on this bill.

Now we've come to step one. We have the working draft. It is filed. Everyone can see it. We want your feedback. We want to know what you have thought of or that you anticipate that we have not anticipated so we can make sure that this is the very best product that we can move through the Senate process.

There are probably four committees of jurisdiction over this bill. Ag is certainly one because of CFTC. That's where Senator Gillibrand serves. I'm on Banking. That's SEC. You're on Intelligence, right? Okay. So that would be where the cyber components.

SEN. GILLIBRAND: Cybersecurity.

SEN. LUMMIS: And Finance is the taxation component, and of course, Ron Wyden has been working with us since last summer on this bill as well as Senator Toomey, who is on Finance, very, very knowledgeable about especially the stablecoin aspects of this.

So we've been working throughout this year to garner bipartisan, informed people, and then also using the year to inform non‑informed members of the Senate about what we're doing, our approach, and then asking for their assistance on their various committees to put out the very best product we can.

SEN. GILLIBRAND: Yeah. And we've been taking feedback for the last three months intensively. We've worked with the SEC staff. They would not‑‑they declined to give us written feedback, but they gave us a lot of verbal feedback. We've been working with the CFTC on the bill from the very beginning. I've had the oversight ability to ask questions in hearings to the chairman, and we've incorporated all those ideas and thoughts in this.

And in terms of Senator Wyden's committee, we incorporated all the tax provisions that he had drafted and had worked on to date.

So we are trying to make sure that we really listen and that we understand what are the needs of creating safety and soundness and consumer protection and actually putting that in this draft. So we're in a great place to start, and as Cynthia said, we hope that all committees if jurisdiction will take up our draft and mark it up so that this legislation can move forward, maybe even by the end of the year. But if not, we'll just keep working until we can get an up or down floor vote or to at least get these sections through the committees.

MR. NEWMYER: Senator Gillibrand, advocates of stricter financial regulation and investor protection have had some criticisms of the bill. They think that giving special status to cryptocurrencies provides investors with less information than they would have under current law.

Todd Phillips from the Center for American Progress had this to say. He said, "The status quo would be better than this bill. So many of these tokens or securities need to comply with the regular, usual securities laws, and this bill tries to create a special crypto‑specific disclosure regime that I don't think discloses all the information investors need to fully evaluate whether to purchase a security." What do you have to say to that?

SEN. GILLIBRAND: I think he's wrong, and I don't think he's spent enough time with the bill or the industry or the regulators, and we have. And so we believe that, as we've said, a great deal of this is going to the SEC. Most cryptocurrencies go to the SEC. The particular Bitcoin and Ether would be certainly commodities, and that's agreed upon. That's agreed with Chairman Gensler as well as the chairman of the CFTC.

And so we think we are exactly where we need to be, and I would just urge him to spend more time with the industry and spend more time with regulators to fully comprehend what this lays out.

The places where we have created more definitions is to increase oversight and to increase and specify which assets are, indeed, securities, and so that's why we've added the ones that I came out early with, the five different provisions of what defines a security. And that's all built on the Howey Test and all the case law.

So we've done a lot of due diligence here, and we can certainly talk to advocates and talk to those who think it is unhelpful. But we know the status quo is a complete failure. So this is definitely improvement on the status quo.

MR. NEWMYER: Senator Gillibrand, there seems to be more skepticism generally on the progressive wing and among Democrats, especially in the Senate, towards crypto, the industry, all of this stuff. It seems like it's especially concentrated on the Senate Banking Committee with the chair, Sherrod Brown, with Elizabeth Warren, and a number of other skeptics. What is the progressive case for this technology that you make to them?

SEN. GILLIBRAND: So a lot of Senators haven't really spent time with the legislation yet. We just introduced it yesterday. So now is their opportunity for their staffs to dig in and really analyze it and understand it. So that's going to take time. I will also take time with each Senate office to socialize them about what this bill does and why.

But the progressive case is this is a democratization of access to capital and financial services. You don't need to have a bank or a broker to have access.

It also really affects immigrant communities because the ability to send money across the globe is instantaneous. It is not something that, again, you need to go into a place for remittances that is going to charge you 10 percent of the money you're sending. So it is a democratization of finance.

Also, decentralized finance provides just an avenue for access. We were able to send millions of dollars to the Ukraine instantaneously through cryptocurrencies because it was a way to help people when the entire financial services industry of a country was blacked out, and so there's opportunities here.

The other thing that's so exciting in my‑‑from my perspective is the use of blockchain. It is creating industries and opportunities across so many sectors. The NFT market is a growing art market. You have the ability to use block chain for community organizing, for any type of community‑based advocacy and conversation and membership, and it is unlimited in its applications. And so I think people need to learn more about the industry. They only know the bad examples, and they're uninformed. You know, someone will typically say, "Oh, I would never want to do crypto. It's where all the criminals and drug dealers and terrorists focus their efforts, and the truth is cryptocurrency is 100 percent transparent, and you just need to talk to any person in the FBI or CIA or NSA to understand it's 100 percent transparent. And that means it's harder to hide what you've done than sending a bag of cash somewhere, and so I think there's a lot of information to know and to learn.

The other criticism of the progressive movement is the fact that proof of work uses a great deal of energy, and Cynthia will give some examples as well, but we know that it can also be a participant for good. You can have industry players who are using not only green energy but creating markets for green energy to increase investments in green energy, but you can also help‑‑you give the flare example because it's your state. But there's way to make it additive, to help use unused energy that otherwise would harm the environment.

And last, what our bill provides is it asks FERC to actually do a deep dive on how can we create a disclosure framework for energy use and to make recommendations for positive green energy use, because they do that, and the CFTC has never had a disclosure regime for environmental impacts, and so they're going to work to create what that would look like so that the CFTC could ultimately‑‑and the SEC ultimately have disclosure requirements for where to get your energy, what kind of energy is it, what is the impact of the energy you're using.

MR. NEWMYER: Senator Lummis‑‑

SEN. GILLIBRAND: But let Lummis give her example because it's a good one.

MR. NEWMYER: Well, actually, I wanted to‑‑


MR. NEWMYER: ‑‑change topics a little bit and talk about the politics of this, if you don't mind.

You've been a Bitcoin enthusiast for nearly a decade. You were here in this space before a lot of your other colleagues were. In the last year or so, the industry has made a big splash in Washington. They spent $5 million lobbying last year. Since the beginning of this campaign election cycle, they have plowed $26 million into campaign accounts. According to one recent analysis, that is bigger than what's been contributed by big tech or the pharma industry to defense contractors. How is that making a difference on the Hill?

SEN. LUMMIS: Oh, I don't know because I had no idea that was happening, and so it will be interesting to talk to members as we're beginning to share discussions with our colleagues about this bill to see whether those same industries have contributed information, have sat down with staff to explain it, and worked through the substance of what we're trying to do as opposed to just the political activism.

MR. NEWMYER: As a Bitcoin enthusiast, you've also talked about its virtues as a store of value, and you've called it a "digital gold."

SEN. LUMMIS: Mm‑hmm.

MR. NEWMYER: I'm curious, at a time of historic inflation, why hasn't it acted‑‑why hasn't the market treated it more like an inflation hedge, and when are we going to see a trade, do you think, less like a tech stock and more like something that investors view as a hedge against inflation?

SEN. LUMMIS: Well, that's a great question. I would have expected it to decouple from the stock market. It has not done that.

Every four years, Bitcoin is‑‑the hedge rate is halved, and so, usually, what you see is about a year after the halving of a hedge rate, it goes up in value because half the number of Bitcoin are being minable every four years. So it makes it a scarcer resource among a finite resource. Only 21 million Bitcoin will ever be mined, and so that behavior, we've started to see does replicate itself.

Why Bitcoin has mimicked the stock market, it is a surprise to me. Nevertheless, I still consider it a tremendous store of value. I firmly believe in the term "HODLer," hang on for dear life. I'm a HODLer. I just bought it, and I'm going to hold on to it. I did put it in a blind trust because I was getting, you know, hounded by press about why I owned Bitcoin. So I just put all of my sticks and Bitcoin in a blind trust. So now I can say I don't know what's happening with it.

But it's‑‑it truly is a solid store of value, but if you're going to treat it like a day trader, you're going to be really unhappy. That is not what hard money is about.

MR. NEWMYER: Senator Lummis, thank you so much for that, and with that, we are just about out of time. So I want to thank both of you, Senators Gillibrand and Lummis, for joining us here today. Thanks to our audience and those watching online, and I'll be back up here in just a few minutes with our next panel. Thank you, guys, so much.


SEN. LUMMIS: Thank you.

[Video plays]

MS. LABOTT: Good morning. I'm Elise Labott, and today we're talking about spot‑Bitcoin ETFs.

Now, a large number of investors believe that digital currencies, as we've been talking about this morning, will transform our future. Today 16 percent of Americans‑‑that's nearly 40 million Americans‑‑have invested, traded, or using cryptocurrencies, and one of the ways that crypto is going mainstream is through new investment products like exchange trade funds, ETFs, which give retail investors exposure to Bitcoin.

And to talk about the landscape for these type of digital currency assets and the future of ETFs, I'm joined by Michael Sonnenshein. He is the CEO of Grayscale Investments. Michael, great to have you.

MR. SONNENSHEIN: Thanks for having me. Great to be here.

MS. LABOTT: Okay. So we know that Grayscale is a leader in crypto investing, but I think, you know, as we've been kind of diving into this, this morning, I think people are still confused a little bit or, you know, curious about the range of digital currencies available to the retail investor. So give us a 30,000‑foot overview of what you're doing at Grayscale and the types of investments that you're working in.

MR. SONNENSHEIN: Well, today I would say that the digital currency market has evolved to be as healthy as it's ever been in the decade‑plus it's been around. You have a two‑sided market. You have derivatives, lending and borrowing, and really the development of infrastructure that has really led this to be an investable asset class that has a tremendous amount of staying power in the investor community.

At Grayscale, our mission has always been to make investing in digital assets as accessible and as, you know, low barrier as possible. So we've developed an entire family of investment vehicles that give investors the appropriate protections to be able to invest in Bitcoin, in invest in Ethereum, and invest in a whole range of digital assets. We now have about 17 different investment products that allow investors to access these new and innovative technologies, much the same way that they access gold or other parts of the market through investment vehicles as well.

And, you know, over the last eight years, emerging as the largest digital asset manager globally, we've always been an ask for permission, not for forgiveness kind of an organization, and have been proponents of not only increased regulation but increased investor protections and wanting to give people that familiar experience as they're navigating what's, of course, a new asset class.

MS. LABOTT: So, basically, you're lowering the entry point for these retail investors to get into this kind of brave new world of cryptocurrencies, but let's‑‑you know, we've been talking about it this morning. Let's just acknowledge the elephant in the room. There's been a lot of market volatility recently, particularly in these cryptocurrencies. So why do you think investors should be still considering them right now?

MR. SONNENSHEIN: What's unbelievable about investing in crypto is that it actually means something different to everybody. The Senators were just talking about it potentially decoupling from the stock market. Some investors will view it as a store of value, an inflation hedge. Other investors are more excited about the underlying blockchain technology.

Ultimately, we don't know what the killer use cases are going to be for any number of cryptocurrencies, and today the landscape of cryptos if very, very robust, and over time, we do think that will consolidate down to a handful of digital assets that will coexist. And they'll each have addressable markets and use cases.

MS. LABOTT: So these ETFs, these exchange‑traded funds, are super hot right now, and there are two types that are being brought to market. We have the spot and the futures‑based. So let's talk about the difference between the two and how they work.

MR. SONNENSHEIN: So I think we have to first examine the investing public and today how prevalent the use of ETFs are. ETFs are being used by institutions. They're being used by retail investors. They're providing access to, you know, in some cases, thematic investing, sometimes commodities, sometimes certain subsectors of the market, and have only continued to gain momentum.

When it comes to providing access to Bitcoin today, there have been countless applications that have been submitted to the SEC, and some of them have been offering exposure to Bitcoin futures contracts, and some of them have been offering exposure to the actual underlying Bitcoin or spot Bitcoin itself. And what we've seen is a real evolution in the thinking that we've seen from the SEC.

Historically, there were no ETFs around Bitcoin allowed to come to market, and a couple of months ago, they allowed for the first Bitcoin futures product to enter into the market. Historically, the SEC had said they had concerns over the underlying Bitcoin market. Was there a fraud? Was there manipulation? Was there enough surveillance of it?

MS. LABOTT: Yeah. Well, the head of the SEC recently said it doesn't offer investors enough protection and referred to it as the "Wild West."

MR. SONNENSHEIN: Indeed, he did, and I think that thinking has evolved because when the SEC approved the first Bitcoin futures product, they actually have now opened the doorway for any investor with access to the U.S. securities market to access Bitcoin but through a Bitcoin futures‑based ETF, which does provide a different kind of exposure than a spot Bitcoin ETF.

And that thinking continued to evolve because there's really two sets of legislation that underpin the way these products come to market. The 1940 act is what governed most of the Bitcoin futures products that came to market, and the SEC actually felt that there were additional protections built into that that were good for investors, and while we certainly would agree with them, it never were the kinds of protections that would solve for their underlying concerns about Bitcoin, about market manipulation or surveillance.

And recently, that thinking has further evolved, and now the SEC has approved Bitcoin spot ETFs under the '33 Act, which is what other spot Bitcoin applications would come to market under, and so as we think about the way the evolution of this has gone, the next natural step for the SEC is to approve a spot Bitcoin ETF.

MS. LABOTT: They haven't‑‑let's just be clear. They haven't approved a spot Bitcoin ETF, and that's what you're launching, a spot‑based ETF versus the futures one. Now, tell us why. Why?

MR. SONNENSHEIN: So, at Grayscale in 2013, we launched a long‑only passive Bitcoin vehicle, and it was always envisioned to eventually be an ETF. It actually has the same legal structure as a lot of commodity ETFs on the market today.

It has grown to become the largest Bitcoin ETF‑‑the largest Bitcoin product in the world. It trades, you know, millions and millions of dollars every day, and we feel that investors deserve additional protections, additional disclosure, and we have worked over the last, call it, five or six years with the SEC to become SEC reporting, to file 10‑Ks, to file 10‑Qs, to file 8‑Ks, to really move the needle, working collaboratively with them to define all of the different elements that would underpin this kind of a product.

And where we find ourselves today is asking for more regulation to bring this product into an ETF format that would bring it closer into the SEC's regulatory perimeter, and so at the moment, we kind of ask ourselves, well, who is the SEC protecting by not approving this product? It's very rare that you see asset managers in companies asking a regulator to even further bring their products under their purview.

MS. LABOTT: So, basically, this ETF that you're looking to, you're seeking approval to convert your‑‑it's a $20 billion flagship fund. This is the Grayscale Bitcoin Trust, GBTC for short, into‑‑

MR. SONNENSHEIN: Well, that's the symbol, yes.

MS. LABOTT: Right. Into a spot Bitcoin.

So, essentially, this is an investment fund whose shares would trade on the New York Stock Exchange, just like, you know, any other‑‑

MR. SONNENSHEIN: Correct. And today and actually since 2015, for that matter, any investor with access to the U.S. securities market has been buying and selling shares of GBTC. It's been the vehicle of choice for getting Bitcoin exposure in a brokerage account, retirement account, inside ETFs, inside mutual funds, and investors have been really patient. Investors want to see the spot Bitcoin ETF approved. They've seen it done in other countries around the world. They've functioned quite well. They've been very well received, and here in the U.S., you know, now coming on stage and having, you know, seen U.S. Senators talking about Bitcoin having, seeing the White House executive order, seeing the landscape around crypto, the conversation around crypto that's transpiring in Washington, we really believe that investors deserve these additional protections that the ETF wrapper offers to them, and that's it‑‑you know, the time is now. The market has evolved, and investors have been very patient.

MS. LABOTT: So, if you feel‑‑you're asking for‑‑it sounds like you're asking for more regulation, and the SEC doesn't want to approve this type of fund. Why do you think that is?

MR. SONNENSHEIN: The SEC has really created this disparity between allowing Bitcoin futures products who, you know, the CFTC chair said earlier this morning, quite astutely, you know, those are derivatives. They derive their value from that underlying market. That same underlying market, that's the Bitcoin market, and so it's very tough to imagine how the SEC is, you know, unfortunately treating favorable, you know, the futures products as opposed to spot products, and quite frankly, I can't see a reason why they would look at these two issues differently.

In fact, one of the things we've talked about is that it potentially could be a violation of the Administrative Procedure Act, where regulators looking at two like issues and looking at them disparately.

MS. LABOTT: So we talked earlier about how a couple of the approvals of the Teucrium and the Valkyrie Bitcoin futures strengthens your hand, but those are futures. So why do you think it strengthens?

MR. SONNENSHEIN: Well, it goes back to that evolved thinking. It looks at the different sets of legislation that underpin hundreds of ETFs in the market today and the fact that the SEC had been comfortable with one set of legislation and is now comfortable with a Bitcoin futures product under another set of legislation that would also underpin what GBTC's conversion to an ETF or other spot Bitcoin products would be registered under as well.

MS. LABOTT: So let's say it gets SEC approval. What does that do for investors?

MR. SONNENSHEIN: It opens the opportunity to all investors to access Bitcoin in a way that is safe, transparent, and is as regulated as can be done within the U.S. securities market. And when we're talking about the U.S. wanting to put its best foot forward in terms of technological competitiveness, fostering innovation, these are the types of actions that we need to take before we start seeing other jurisdictions which are already out‑competing the U.S. in terms of their evolved thinking around regulation of crypto and crypto markets.

MS. LABOTT: And so it sounds like you feel this lack of approval is a barrier. Is it a barrier to investors?

MR. SONNENSHEIN: It certainly is. At the same time, though, I'll go back to what I said before. GBTC is trading every single day in this market, and investors are accessing it, you know, in every which way, in small size as retail investors, in large size as institutions, retirement accounts, et cetera. So, by not allowing that product to come even further into the regulatory perimeter, we all have to ask ourselves, who is the SEC protecting by now allowing this product to approve and convert to an ETF?

MS. LABOTT: Well, just to go back to what you were saying, I mean, they're saying they're protecting the investor because they feel as if it's‑‑they‑‑again, like back to the Wild West analogy, it's just volatile right now, and it needs‑‑it needs more production. Maybe it needs more study. I mean, do you think that that thinking is going to evolve as they learn more about it?

MR. SONNENSHEIN: I think it certainly has to, and again, we've been an educational partner to regulators for years.

MS. LABOTT: Yes. Talk about‑‑talk about that. Talk about your education program.

MR. SONNENSHEIN: Well, I think the conversation and the level of knowledge that we've experienced being down in D.C. over the last few years has really evolved, right? We went from having to spend a lot of time educating about the fundamentals of this asset class to today having really informed conversations about protocols, about developments within the ecosystem, and that's really allowed to have a much more robust dialogue. It's made its way in to staffers, to everybody on the Hill, and now you're seeing bipartisan support from moving forward regulation around this asset class. And that's not something that was happening even, you know, six, seven, eight months ago. So the momentum is there, and we think it's a really, really important time for crypto in Washington.

MS. LABOTT: So talk to me about the ETF and, you know, this fund that you're looking to convert which, again, would put you on the New York Stock Exchange. Compare this to a mutual fund for like retail investors who are looking to invest.

MR. SONNENSHEIN: So, as an investor today, actually the best comparison would probably be a gold product, right?


MR. SONNENSHEIN: If an investor decides they want to put exposure to gold in their portfolio, they'd go and buy a gold ETF.

MS. LABOTT: And that's easy, right?

MR. SONNENSHEIN: And that's easy. They don't have to call a gold broker. They don't have to buy gold. They don't have to figure out where to store gold. They can instead buy a liquid security that buys and sells the underlying gold as they buy and sell shares of the ETF.

The same is true here. This would bring the opportunity to invest in Bitcoin on to a national securities exchange with market surveillance, under the SEC's purview, and it's important to remember that this product already is an SEC reporting company and has been for two and a half years already. So we've been working proactively to move the thinking, to evolve the thinking, and this last step would be allowing the product to convert and move up to the New York Stock Exchange.

MS. LABOTT: Okay. Education. And I see that you just announced former U.S. Solicitor General Don Verrilli who defended Obamacare and same‑sex marriage in front of the Supreme Court is joining your legal team to help guide this strategy. So we'll see how the plot thickens on that.

Michael Sonnenshein, CEO of Grayscale Investments, thank you so much for joining us.



[Video plays]

MR. NEWMYER: Welcome back. For those of you who are just joining us, I am Tory Newmyer, business reporter here at The Washington Post.

My guests seated across from me now are here to help us wrap up everything we've been discussing today, drawing from their work in the private sector. So joining me is Dante Disparte, chief strategy officer and head of Global Policy at Circle, and Tomicah Tillemann. He is the global chief policy officer at Haun Ventures. Welcome to you both.

MR. DISPARTE: Thank you.

MR. TILLEMANN: Thank you, Tory.

MR. NEWMYER: And I want to just provide a quick disclosure here. Today's sponsor, Grayscale, holds a small stake in Circle, and a reminder to our guests in the audience here with us live and also watching, that we want to hear from you. You can submit questions via Twitter to the handle @WashingtonPostLive, and we will‑‑@PostLive‑‑excuse me‑‑and we will try to get them into our conversation.

So, to start, I want to ask you both about your impressions of this bill that was unveiled yesterday, and we just heard from Senators Lummis and Gillibrand about it. Dante, what do you think the bill does well, and where do you think it needs to be improved?

MR. DISPARTE: Sure. Well, first of all, as trial balloons go, I think the bill that Senators Lummis and Gillibrand released is ambitious. It is comprehensive, and it sort of looks at the entire asset class where until now much of the policy conversation has been dominated by the stablecoin segment, and this bill starts to really get into ideas around a deeper whole‑of‑government approach and a model that's much more responsive to all of the avenues in which the innovations are being used.

And like anything, you know, the bill is also‑‑I should point out we should welcome the fact that it is nonpartisan because that's something we haven't seen in Washington in quite some time, but there's an acknowledgement of the CFTC's central role in overseeing this industry. That, in my mind, is already a de facto operating reality since 2018 with Bitcoin futures having first been released. So it's just starting to acknowledge what are the natural swim lanes for oversight of this industry in the United States.

The other quick point I would make, it relates to U.S. economic competitiveness. The Europeans, by contrast, have a very broad markets and crypto assets framework, which unanswered would be like GDPR was to privacy, this new framework will be to crypto. And so I think in its ambition, this bill also starts to create a framework that can start to rival what we're seeing from other major countries and economies around the world.

MR. NEWMYER: Where do you think it needs to be improved? You said trial balloon.

MR. DISPARTE: Well, like all things, you know, I think even the Senators would acknowledge that in its current form, its likelihood of passage is not high. I mean, I think there's a lot of work yet to be done.

Some areas that need to be addressed in the bill, as I see it, are the way money movement is regulated in the United States today is at the state level. Companies like Circle, for example, live in a same level playing field as companies like PayPal, and so there are questions about the boundaries of where‑‑where stablecoins, for example, live in the banking framework, or do they continue to exist under electronic stored value or money movement or what another jurisdiction is electronic money. So I think some of those boundaries need to be deeper and better understood.

There's also some questions about ideas around fungibility of stablecoins in circulation and provisions that would have banks have to redeem stablecoins interchangeably. I think we learned with the Terra Luna collapse that not all stablecoins are created equal. So some of those provisions need to be back‑tested to the prudential standards of the tokens that are in circulation.

MR. NEWMYER: Tomicah, I'd like your impressions generally, but also I'd like your thoughts on what seem to be kind of the general thrust of the bill, which is settling this jurisdictional dispute between the CFTC and the SEC. Do you think it makes sense to hand the CFTC the authority that this bill does and in the way that it does?

MR. TILLEMANN: Well, if we zoom out at a macro level, I'd agree with Dante. This is a very important and, in many ways, admirable first effort. It fixes many of the very clear deficiencies that exist in our existing regulatory framework, and it does a good job of plugging some holes that the industry has been concerned about for quite some time.

Where I think there's some work to be done and an opportunity, frankly, is to take a step back and reimagine what a fit‑for‑purpose regulatory framework should look like in the 21st century.

We have right now in the CFTC and the SEC, two bodies with pretty storied histories as regulators, but in the case of the SEC, for example, that history goes back to the Great Depression. And it doesn't make a whole lot of sense to regulate some of the most important technology breakthroughs of the 21st century with frameworks that date back to orange groves in the aftermath of the Second World War.

And so I think there is an opportunity to think at a broader level about what a reimagining of this space should look like, what type of consolidation could occur among our regulatory bodies. Dante raised the point that we have a number of different actors and a number of different countries that are coming up with better, more efficient regulatory frameworks. The United States is the only country with this degree of fragmentation among its financial regulators, and that is becoming a liability. And so we should start to think about what a better, smarter system that's fit for purpose should look like.

MR. NEWMYER: In your previous gig, you were at Andreessen Horowitz. In the fall, you guys came out with a proposal for what that might look like. It sounds like you've got something in mind here. Can you speak to that?

MR. TILLEMANN: Well, we definitely think looking at the broad and very fragmented regulatory landscape that is the United States right now, we need to start thinking long term about consolidation. I think the bill is a good first step, and again, it fixes a lot of really critical burning platform challenges that need to be addressed urgently. But I also feel that the bigger goal for those of us that are trying to get this right over the long term should be thinking through what issues like disclosure look like in the 21st century and what the right institutional architecture would be in order to bring those ideas forward.

MR. NEWMYER: Are we talking about merging the existing regulators, or are you talking about creating a new one?

MR. TILLEMANN: There is a real question as to why we need 15 different agencies involved in these processes, and nobody that I've been able to talk to in Washington has been able to provide a compelling answer for why we have so many agencies engaged.

So, ultimately, long term, in my mind, there is a real argument for considering consolidation of the regulatory architecture.

MR. NEWMYER: Is this something that you are going to be spelling out? Is Haun Ventures going to be articulating this in any way, or is that something we're going to expect to see?

MR. TILLEMANN: It's certainly a set of ideas that we will be talking about in months to come.

MR. NEWMYER: I'm curious about‑‑we talked about what's happening in the digital asset space broadly, the sell‑off. The Terra collapse, you mentioned. I'm curious, as you talk to regulators, if you're sending a new urgency to act, to get some rules in place here so that people aren't jostling each other over jurisdiction and there's some clear lines of authority, you know, in the immediate term.


MR. DISPARTE: Yeah. I was just going to say, I mean, on the one hand, yes, it does lend urgency, and the crypto correction lends urgency to a lot of the issues that regulators and policymakers have spoken of.

On the other, I do think it also underscores this‑‑the gap of regulatory capture, that the type of stablecoin that blew up‑‑and it was a very large unfunded loss, probably the largest‑‑was the type of stablecoin that wasn't really contemplated in a lot of the policy conversation.

Since 2019, we've been having global and domestic policy conversations on what are the right prudential frameworks for stablecoins.

But here is my point. Had Terra abided by even the minimum state money transmission regulations, which would have had clear guardrails around reserve management, investor protection, and a segregation of payment systems risk from bank‑like risks, there would ostensibly be some money there.

The other important question‑‑and this is true, I think, across any novel space or any novel asset class‑‑is the Jerry Maguire question. If you cannot answer the "show me the money" question, then you're likely engaging in something that may not have intrinsic value and may not have some very basic protections in place. Those rules exist, and so we don't have to wait for Washington necessarily to come up with new pronouncements and new legislative proposals to have those basic protections in place.

So I liken that to a fintech constitutional crisis. While we're jostling for a national posture, we actually have some pretty decent frameworks in place at the state level that a lot of these innovations are not necessarily living under.

MR. NEWMYER: I've heard from Treasury that they are not necessarily going to wait for Congress to act on stablecoins. They are very eager to get something done, and they're thinking in terms of the next few months. What is your sense of what statutory authority the regulators have, if they can do this on their own or if they need Congress to act first?

MR. DISPARTE: Yeah. Well, this is‑‑I liken it to a little bit of a game of regulatory thrones. Tomicah hinted, of course, the swim lanes between CFTC and the SEC, but I think the prudential regulators have some pretty clear standards.

I don't know if unless the United States eventually evolves to have a payment systems charter with national oversight at the OCC that we're going to actually be able to do something this side of the room in calendar.

In the interim, there is a flight to quality. There is a flight to safety. We have seen just in the growth of USDC, Circle stablecoin. You know, the ability to withstand trust, transparency, auditability, disclosure, and these basic "show me the money" principles have created a flight to quality. That kind of market correction will correct the market faster than any regulatory action will, and so I'm hopeful that model can prevail without having to create a one‑size‑fit‑all framework at the federal level.

MR. NEWMYER: So, Dante, you‑‑Circle has talked since August about applying for a bank charter. As far as that, have you submitted that application yet?

MR. DISPARTE: We have not, no. We're still in, you know, the longest pre‑licensing phase, you could argue. In fact, one of the companies in this industry has had to sue the Fed. Custodia Bank from Wyoming has had to sue the Fed for its master account application.

So we're in this strange position of a regulatory limbo where, on the one hand, as a company, we want to pursue a federal charter. We think it's an important evolution of our company. On the other hand, a lot of the federal regulators are waiting for guidance to come from the Hill and the legislative response to the president's working group on financial markets to come out from the Hill. So it's a hurry‑up‑and‑wait posture, not a great model.

In the interim, we are happily and very well regulated at the state level, and if the sheer number of licenses held is a proxy for being well regulated, then we're amongst the most‑‑the most and best regulated company on the planet.

MR. NEWMYER: Tomicah, can you talk about how the sort of temperature has changed for you as an investor in crypto startups? What has the shakeout over the last several weeks meant for you, and how has it changed how Haun Ventures looks at‑‑considers its strategy for investing?

MR. TILLEMANN: Well, we are very long‑term investors, and I think that's the first point to make. Those of us who have been in this space a while have seen similar price cycles before. We've experienced similar volatility.

Ultimately, in our view, there are a few key drivers of long‑term value creation. One is the pipeline of talent coming into the ecosystem. You need to ensure that you've got very high‑quality developers if you want to solve the incredibly complex challenges that need to be addressed in order to scale these new tools to population size. That fortunately is‑‑that pipeline is as strong as it's ever been. So we're seeing a lot of encouraging signs there.

The second area where I think a lot of investors take a hard look and we especially take a hard look is policy and what's happening at a policy level, and the policy dynamics, honestly, are very encouraging, and in some ways, the market correction makes it more likely that we will get good, constructive regulation in the near term, which is something that we and many others have been asking for, begging for, for a long time.

MR. NEWMYER: Why do you say that? What makes it more likely?

MR. TILLEMANN: Because I think you now have a dynamic where we recognize things can go wrong, and what we saw with Terra Luna is a realization that we do need to be more conscientious, more thoughtful in designing some of these systems and ensuring that there are regulatory safeguards in place.

MR. NEWMYER: Dante, you've written about the potential for crypto to promote economic mobility. I'm curious, you know, as we sit here today and we don't have clear federal guidelines in place, do you think the industry has a greater responsibility to self‑police? And I'm thinking here, for example, of exchanges. Do you think exchanges should take on a greater responsibility in determining, say, which coins they list, the number of coins they list, and doing sort of their own due diligence on behalf of their customers?

MR. DISPARTE: Yeah. Well, first, I am, indeed, a very big believer in the economic mobility opportunity here, and that's‑‑if you ask me what makes me get out of bed in the morning, it is that motivation, that if to be banked depends on brick and mortar, I think there's a lot of humanity that is deeply, deeply in trouble.

And the other thing that dies in darkness other than democracy is your ability to walk into a brick‑and‑mortar bank and transact, and so I think this concept of safe, sound, device‑centric banking payments and software‑intermediated capital markets are just powerful drivers of economic mobility across the board.

Now, having said that, the industry in the era of enforcement and regulation being the only other two options, the responsible actors in the industry also have an outsized role to play in getting it right, and one of the issues that I find very challenging right now is this notion of token agnosticism.

A company like Circle can break its back building the strongest and most, you know, prudentially sound stablecoin in circulation, but if it enjoys exactly the same shelf space as a stablecoin like Terra, stable in name only, or rat poison, it would be the equivalent of a supermarket listing two things on the same shelf, without having any appropriate disclosure, standard, and regime.

I believe people‑‑this industry may not be right for everyone, but all of our rights should be protected as we engage in it. One of the fundamental pathways for better disclosure and consumer protection is at the exchange level. Those are the supermarkets that allow you to engage with digital assets, and there's a lot we could do there, without having to wait for Washington or new regulators. It's just a matter of having a consumer protection and a market conduct standard that's about disclosure.

MR. NEWMYER: And that's a standard that the industry would take on itself?

MR. DISPARTE: My hope is, and I do think you genuinely are starting to see this acknowledgement that, you know, list everything as a token standard is increasingly under pressure. Some jurisdictions, for example, like the UAE, have taken a token‑by‑token approach to preauthorizing what gets listed on exchanges.

We don't want to overcorrect because the proliferation, the Cambrian Explosion in crypto assets is the innovation you ultimately want to protect in the long run, but not all of these instruments are created equal. And so some countries are taking a token‑by‑token regime in terms of authorizing at the token level. Other exchanges are taking models around disclosure and sort of a risk‑based approach.

MR. NEWMYER: So we're behind the UAE right now?

MR. DISPARTE: We're behind‑‑you know, so I don't subscribe to the idea that the United States is losing this digital currency space. I think we're winning it in no small measure because of the free market activity that's driving it.

Where we are behind is we don't have representation internationally. The states are not enjoying a seat at the Bank for International Settlements, the Financial Stability Board, the Financial Action Task Force that are harmonizing global policy, but if ever there is an advantage in taking it slow, this is one of those spaces where the United States has won by default perhaps, not by design.

MR. NEWMYER: I want to switch gears a little bit and talk about national security for a second. Both of you have a global view; Tomicah, you in a previous life at the State Department and on Foreign Affairs. I mentioned in the previous panel that digital thieves are on track for a record‑breaking year. I spoke recently to a veteran National Security hand, who had this to say about the ability of cyber criminals to outpace U.S. authorities. He said, "The bad guys are so far ahead. We can barely see the smoke from their shoes as they run off." Do you agree with that assessment, and what do you think we should be doing about it?

MR. TILLEMANN: Well, I think at a macro level, it's important to recognize that the digital systems that countries adopt in the 21st century will be as consequential in determining their geopolitical orientation as membership in NATO or the Warsaw Pact was in the 20th century. So these are issues that have monumental, almost existential importance for the future of democracy and the future of our alliances.

We need to do everything we can to design architecture that is going to be secure and give not only Americans but the countries that we engage with confidence in the underlying systems and the underlying assets that are moving through these platforms.

The good news is in the form of the Biden Executive Order that was issued in March, we finally have a shot at getting this right. Previously, there was no focused effort within the U.S. government to address these challenges. Now from our intelligence agencies to our financial agencies, people are waking up to the challenge, and we're building, I hope, a policy framework that will get us where we need to go.

MR. NEWMYER: Do you have a view of this, Dante?

MR. DISPARTE: Yeah. Look, I think, candidly, I spent the last several years on FEMA's National Advisory Council. The United States had to move trillions of dollars of taxpayer‑funded money through leaky, antiquated analog pipes, and the voice of domestic real‑time payment systems aka public Bitcoin‑based financial services, open digital law and financial services, is a domestic vulnerability. Payment systems optionality and the United States winning‑‑and the United States and the dollar effectively becoming the currency of the internet are broadly in our geo‑economic interest. It may not be right for everyone, but again, there's a lot of things you and I cannot do with our money. Is it yours if you have to ask someone to spend it, and is it yours if you have to pay someone to custody it for you?

The digital assets revolution is really broadly about payment systems optionality, has massive implications domestically and certainly massive implications in the long range.

MR. NEWMYER: As we wrap up here, I want to get your very quick takes as political prognosticators, if I can ask you to wear those hats for a second. When do you think we're going to see a comprehensive regulatory framework in place in federal law?

MR. TILLEMANN: Well, the status quo is neither desirable nor sustainable, and to just piggyback on Dante's point, when you look at the CARES Act money that went out the door during the pandemic, the estimates are that the U.S. taxpayer lost between 70‑ and $400 billion to foreign criminal gangs that were able to take advantage of failings in our existing system. Nobody in this town should be satisfied with that result.

So we need a better set of solutions. My assumption is that the bill that was introduced yesterday is going to touch off a conversation that will culminate in Q1 or Q2 of next year in the new Congress, and we will see some serious work coming to bear to start solving these problems.

MR. DISPARTE: I share that optimism.

MR. NEWMYER: Great. Okay.


MR. NEWMYER: Well, we will hold you do it, and we're going to leave it there. But I want to thank both Dante Disparte and Tomicah Tillemann for being our guest today and the audience here in the room and at home for joining us.

Please visit us for more at, and thanks for being with us.


[End recorded session]