Understanding the Current Crypto Regulatory Landscape

Oh welcome to gossip about gossip. Powered by Hedera Hashgraph. And each episode will cut through the hype of blockchain promises and explore real world examples of organizations creating the next generation of decentralized applications, which will bring trust back to the internet for us all. Hello Herrera fans and welcome to the latest episode of gossip about gossip. My name is Zenobia Gottschalk and I am the SVP of communications for Hedera. I am joined by Jason Verrett from Kingsbridge advisors. Hey Jason, how are you? Great how are you, zenobia? Good, good. Thank you. So tell us a little bit about seabridge and what you guys do there. Sure so Cambridge advisors is a political affairs and regulatory Consulting Group. And what we do is we focus on clients such as Hedera in terms of helping the cryptocurrency and blockchain ecosystem, understanding the regulations. Obviously there's so much that's coming out from Washington DC the last year, but we've been doing this now since 2019. And previous to that, I worked at the Chamber of Digital commerce, where I was their head of policy. So I work with a number of clients and help them with information about what's happening in d.c. and how regulations might impact the cryptocurrency space, which, as you know, is an ongoing development. Yeah and it's I mean, it's not just the federal government level, right? It's state governments each sort of trying to find their own way and carve out their own piece of what they think the crypto world would look like. So how do you make sure that the folks who are making these decisions have the kinds of information, education that they need to feel like they really understand the issue, make thoughtful policy decisions, and not sort of just jump in without considering everything in this very sort of technical and rapidly growing space. Yeah, there's so much information that's out there. And a lot of times people can get tripped up over just basic discussion of what a blockchain is versus a distributed ledger technology. So the technology gets very complicated, very fast. But what's important to remember is this isn't the first time that we've had to do this with legislators. We did this around with the internet and trying to explain the complexities around it. What's important to understand is and this is at the federal level for sure, and also at the state level, it's sometimes the staffers, the legislative staffers working on the legislation are the ones that you want to talk to because no legislature, legislature or has the time to really consume and understand all of this information. You know, the general rule is and you've got about 15 minutes to 20 minutes with a staffer in Washington, d.c. you get 2 minutes, if you're lucky, to talk to an actual Congressman or Congresswoman about it. And they're not going to be able to go that much into the weeds. So you have to be able to find a way. And I love the Hedera community's partnership at some point with this, of finding a way to make all of this into consumable bites that can be understood as general messages for legislators. But I'd say that the secret the private key to all this is certainly talking to the staffers and recognizing they build and have a lot of influence over the actual legislation that's underneath what their bosses are introducing. Yeah I mean, they are doing the research, they are in the trenches. I think certainly some of the ones that I've spoken with have been very well versed. They are they are trying to distill these complex subjects. And so they are really having to have a broad base of knowledge to figure out what do I then go and present to my representative, whoever I am, trying to help them figure out a good way to shape policy. Yeah and it's hard to, I think for those in business who want to approach someone and are used to maybe having a business meeting that goes an hour long and really get to say everything that's on your mind. And what throws off a lot of people is sometimes the staffers will be 24, 25 years old. So there'll be this reaction of like, what am I talking to? Like a kid here? But like what's important understanding is they're very smart. Working on the Hill is no easy thing to get to, to do, and they have a lot of influence. And the more you can arm them with the facts and also understand where they're coming from with whatever their agenda is, is the right way to talk with them and work with them. And so the more people are able to engage with their legislators at the state level as well as at the federal level, the better for the cryptocurrency ecosystem. Absolutely and you have your finger on the pulse on everything that's going on. To you, what are some of the most exciting developments at both the federal and the state levels? Yeah, I'm not sure exciting is always the right word, but a lot of things happening. Interesting may you live in interesting times. Yeah what has been exciting and interesting is that the White House for the first time introduced an executive order on digital assets. That is for the first time a whole of government approach to this entire sector. Earlier in the year, the White House had designated digital assets and distributed ledger technology as two key technologies that they really needed to get ahead of and a start on and understand. And so this executive order is it kicks off a number of studies, and it doesn't actually order anything specifically. But what it does do is it engages in forces. Our entire government we're talking about from the Environmental Protection Agency to the National Security Agency to literally a bunch of agencies that all now from this executive order have about six months to return to reports that report out on what their findings are regarding digital assets, distributed ledger technologies. And the other main push from this has been this notion of the CBDC or central bank digital currency that puts a little bit more of an A pressure on that to happen. So when you and of course, it's looking at proof of work versus proof of stake cryptocurrency mining designs and what impact that might have on the environment. That's being handled by the Office of science, technology and policy, who actually introduced their own request for information that's due by this early May on specific information around potential benefits and potential issues relating to the environment, with how the proof of work and proof of stake system effects in terms of the amount of energy users from digital assets. So it really can't be understated that the fact that the White House has spoken out for the first time affects a lot of federal executives in terms of needing to understand the space and then needing to weigh in with President Biden on what direction the digital asset space should go. So right now, there's a lot on the line on the executive side. On the legislative side, it's a little bit of a impact from this executive order because we've seen a lot of senators who are starting to introduce their own legislation, sort of reminding the executive offices that were the legislators. So we're going to legislate and introduce our own bills. And we've heard a lot of discussion about Senator Gillibrand from New York, who's a democrat, working with Senator Lummis from Wyoming, who's a republican, that would introduce the first bipartisan legislation on in the Senate on how this whole space would be regulated. Currently, there aren't really a lot of regulations. And another exciting point on all of this, this actually was announced today is that Patrick McHenry, who's a representative from North Carolina, who's been the ranking member on the House Financial Services committee, and with the expectation the Republicans might take over the House and 2022, he has formally announced his interest in being the chairman of the House Financial Services committee, which is huge because he's already laid out what his agenda is, what he'd like to see happen in crypto regulation. He's made the point of he'd like to see stablecoin legislation developed over the next year or two and then get to the rest of the space. But also you mentioned about the states. He says he feels like that people should have an option. And if you think about banks, banks can be either at the federal level, the SEC or at the state level. So in this sense, what we now can follow is as a tea leaf from McHenry, possibly being the next chair of the House Financial Services committee, is we'll have cryptocurrencies regulated under that same premise that banks and credit unions are where the exchange has an option to either be regulated at the federal level or simply choose to be regulated at the state level. And I think that's an important choice that because our financial systems are so big, it leaves room for the cryptocurrency industry to grow. So I'd say that's a big development, knowing who sort of be leading the charge on the House Financial Services Committee regarding cryptocurrencies and on the state level, we're seeing a lot of action and activity from states, but from a couple of different directions. One, we're seeing states like if you look at Colorado representative polis, who is representative excuse me, in Congress and is now the governor has talked about accepting crypto payments for tax payments. And he's actually one of the original co-founders of the Congressional Blockchain Caucus when he was in. In Congress. So he's being a big supporter of looking how maybe we can accept payments. And that's really important to see how these states are starting to get very much more active. And New York has gotten very active. In fact, there's two pieces of legislation. One legislative piece that's been introduced and might be considered by the assembly soon relate to putting a moratorium on proof of work mining for two years, which is very controversial. And New York has attracted so much attention as a good benchmark for you. The blockchain association, which is a proud member of, has just opened up an office in New York because there's just so much happening there. That's the first state level office that they've opened. And there was another bill that was just introduced again today that talks about fraud in the cryptocurrency system and how they want to treat people who might be fraudsters. And it's pretty serious legislation. It talks about jail time and other things relating to what the expectations are of somebody. If you're acting like a fraudster and it even defines what a rug pull is. So, you know, the legislatures are catching up on both the way the ecosystem is growing. And what I always tell people is a natural counter effect of that is the minute something starts to get big and people start to participate in the degree to which regulators and policy makers start to worry about consumer impacts rises as well. So I think it's a natural maturity of the marketplace and crypto that you're going to see more consumer compliance issues that rise along with your traditional safety and soundness and how the marketplace might be impacted by the growth of crypto assets. And that's not even talking about NFTs. I know I've just given you a mouthful, but like NFTs are sort of the next realm that we might be looking at as far as we don't really even know how the regulators would judge what some of these NFTs are because it's just so new. So it's I mean, I don't know if you expected when you started out here that the market would move this quickly or that there would be that many facets of it. Right there is sort of the consumer protection side, but there is also, it sounds like potentially folks looking at how do we get ahead of this, and how do we use it for things like CBDCs and stablecoins that can help us, you know, further global commerce, further the use of cryptocurrencies by a broader swath of the population. You know, if you had a crystal ball, that probably moved at Warp Speed like we are moving. Where do you see us in the next year or where are you trying to focus your attention? Yeah, I'm focusing in on the idea of how the US government is really strongly considering a rapid development of a CBDC, and I think that would have enormous implications for us as a country. And I think it's a sign not just on the central bank digital currency, but in general the importance of blockchain technology. And I think you'll start to see growing recognition of how important it is and the stakes that are with us right now. Because if you look at China, China is really developed very fast with its central bank digital currency, and it's also developed its own blockchain services network. So you have a growth in blockchain from another country. And one thing we didn't have with the internet, pretty much the top 10 companies in the internet, we're always in the US. There's just no question about that. Right now it's almost like a 50/50 balance. So there really is some stakes here where if the US doesn't step up and start to embrace this technology, that we could see a lot of it go to other countries. And this would be one of the first times we'd have that happen where we wouldn't necessarily be the leader in technology. But I think a combination of policymakers are starting to pick up on that fact that, you know, whether we like it or not or however big and fast that might be moving, we have to learn how to make sure that the home base for it as the next probably global set of financial markets has to be here in the US. And you're already starting to see that with the executive order from the democrats, with what Patrick McHenry is now saying, is he might be taking over the House Financial Services Committee. I think you can expect by next year. I wouldn't call it an embrace, but I'd say you'll start to see some serious planks of actual legislation laid down and potential new regulations that cover this space. The one crystal ball moment I'll give you is I think you will see the introduction of a new regulatory agency for this space because it is just so broad. I don't think the current regulatory regulators, as they are now, can cope with, as you say, the meteoric rise of the space and the way it changes so quickly. Yeah, there's a lot to do. And I think we do. We appreciate certainly everything that you do in terms of keeping us posted, helping us educate all of the right folks of whom there are many and who are very distributed and come from both sides of the aisle. So as we wrap up here, Jason, anything else that you would love to add right now? I think I will just preempt this and say, we'd love to have you back on a regular basis because there's so much happening in the market that I think our audience would love to hear from you at a minimum quarterly. But anything that you want to leave them with now. Yeah Thank you. By the way, I'd love to come back and be a guest with you, Zenobia. I think that everyone should be really optimistic about as we're developing both with new organizations like the Bar Foundation that's looking to provide grants to help build things in the space. And I would just say to be patient with the regulators and policymakers. And if you can remember, when you first learn this space and whether it's you, Zenobia or anybody, it wasn't that easy. So it takes a while to understand it. But I think we're just keep making that efforts, keep sharing the information, you know, to teach the basics. And I think the more informed a policymaker that we can have, the better it is for the Hedera ecosystem. And that's one of the ways, I think that we're going to win this. Yeah, that's a great point. I mean, we live and breathe this all day, every day, you know, 24 seven, 365. And they have to consider this as part of their broader legislative agenda. So hopefully the more that we can do to educate them, the more that we can do to get them up to speed as quickly as possible. You know, the more we'll see some smart regulation in the space. Absolutely well, Thank you so much, Jason. We really appreciate you taking the time, and we look forward to staying in touch. Thanks a lot, Zenobia. Appreciate you.