Preston Pysh (00:03:27):

That was so cool. No, I was with you. The amount of people there, it was crazy compared to the previous year. Do you know what the numbers were? Was it like 20,000, 30,000 people? It was somewhere in that ballpark, right?

Jason Brett (00:03:46):

According to the Wall Street Journal, they said there was 25,000 people that came through, which is twice the number from last year.

Preston Pysh (00:03:54):

There was a ton, and the side rooms, I mean, there were some pretty incredible conversations. I was amazed at Aaron Rodgers, Serena Williams. I didn’t even know they were coming, and I didn’t see any type of announcements that they were coming. I just remember walking through, and seeing them on the stage. There were some others that were just mind blowing. I was like, “Wow, this is unbelievable that they’re literally coming to these events to talk about how important Bitcoin is, and the freedom that it provides to the individual and whatnot.”

Preston Pysh (00:04:29):

I mean, it was fascinating, so cool. Back to where we were at when we started, the executive order that came out of the White House, what was the impetus of this, or what were you hearing was the impetus of this?

Jason Brett (00:04:46):

There was a few things that were leading up to Biden deciding to release some information about the executive order. I think a lot of it had to do with… What really sparked it was back in October, the U.S. met with 30 other countries, and the main topic for the summit was all about ransomware. So if you think about it, ransomware happens for a lot of reasons. We all know a lot of it is not strong cyber security, and there’s lots of elements to what takes place in a ransomware. But I think one thing to maybe acknowledge is it is a new kind of crime, because usually, they’re extorting Bitcoin.

Jason Brett (00:05:26):

Because Bitcoin is what is extorted from a ransomware situation, the White House felt it was a threat to national security. What’s been a little hard to track is first, the White House was saying it’s all coming from China. Then all of a sudden when Russia was ready to invade Ukraine, they’re like, “Well, all this stuff’s coming from Russia,” so it’s sort of like, “Where is it coming from?” But if in fact the new method of warfare is through these ransomware, the attack on colonial pipeline, at least the way our country is structured, that’s National Security’s job to try to address.

Jason Brett (00:06:06):

Now, how they address it is a whole different thing. I mean, I know I don’t have to tell you after 9/11, there could be over reactions and things like that. I think generally, the narrative of somehow that it was Bitcoin’s fault was problematic. So you you had the… Then you had this idea of sanctions as soon as the Ukraine-Russia conflict started. At that point, you’ll notice very soon after that started is when the White House order was issued. That because not only do you have the ransomware issues from Russia, but in their mind, I think you now saw the sanctions. Just a few days after the White House’s executive order, OFAC, Office of Foreign Assets Control, put out that virtual currency, digital currencies, the same as Fiat currency regarding sanctions.

Jason Brett (00:06:55):

There’s all the debates about the exchanges and what kind of roles they needed to play. There was calls from the Ukraine about doing sanctions against Russian from cryptocurrencies. At that point, I think you’re seeing it where the National Security lens has caught the most focus, but there’s been others that have been leading up to it. One of which is the most concerning thing I have, and why I’m so grateful to have the opportunity to talk to you about it today, Preston, is the issues that they’re focusing on regarding the potentials for climate change as a result of using proof of work systems, and the attention that they’re paying to that angle.

Preston Pysh (00:07:36):

Did that come out after the whole Chris Larson thing? Do you think that this is something that was instigated by maybe ripple, and some of these billionaires that have been the beneficiaries of these pre-mines?

Jason Brett (00:07:54):

It could be because I think when you look at the executive order, and then a little bit after the executive order, there was a request for information that’s been issued by the White House’s Office of Science Technology Policy, OSTP, that’s asking very specific questions that I feel like somebody who maybe didn’t like Bitcoin would want to ask, because one of the areas that it’s focusing on is do we need to just move on to other consensus mechanisms? We need to… Proof of work is old, so let’s put it off to the side, and now we need to look at different ways of consensus mechanisms, which is we’re already in like the fifth or sixth inning in that thinking when we’re still…

Jason Brett (00:08:37):

We got to go all the way back to the first of which one is really providing the security that we need, but what concerns me, and again, there’s this request for information that anybody in the public can respond to this White House office. It’s part of the executive order, which is a question about, “Is it really going to have climate impacts?” It wants evidence. It does give us an opening, because it does say if you have any evidence to show that Bitcoin actually helps the environment, they want information that’s both going to refute and support that claim.

Jason Brett (00:09:12):

But look, I’m not answering your question straight. I’m sure it was Chris Larsen. I’ve seen Chris write articles in the Hill that have taken point blank aim at Bitcoin. I’ve talked about… I’m talking about Op-Ed articles that really only congressmen read that talk about when China was the dominant minors, they could just change the Bitcoin ledger anytime they wanted to, so it wouldn’t surprise me. This is public. This is not me calling out Chris Larsen. It’s right there with consistent claims.

Jason Brett (00:09:46):

I can’t think of any other blockchain protocol, Preston. It’s really sad that has taken such aim at Bitcoin the way ripple has. When you look at what they did at the SCC2 during this whole fight where they keep turning it back to comparing themselves to Bitcoin, it’s unfortunate. I mean, Ethereum’s rough. The other ones are rough, but ripple really strikes right at the heart of what Bitcoin’s about. It’s unfortunate.

Preston Pysh (00:10:11):

You just look at the lack of evidence behind this of their claims, and it’s just laughable. How can you create money without there being real work, or a pegged money without there being real work to it, so quite concerning. But back to the policy, so this timing of that came out. This was not part of the original executive order, correct? This was two days later or a couple days later after the executive order. I think you said that it came through the office of Financial Asset Control, is that right?

Jason Brett (00:10:49):

That was… That had to do with the sanctions, so it was… Literally, as we got to that weekend, we had both FinCen that made it very clear about how banks and cryptocurrency firms need to be very aware if they hold money services. Money service business license need to enforce sanctions against Russia. The OFAC made it clear. It was already listed that way, but they just reinforced… If people had questions, they said, “If you’re using virtual currency, that’s also a way of breaking sanctions, so you have to make sure.”

Jason Brett (00:11:32):

This goes all the way back to Venezuela. By the way, in 2018 with Donald Trump when he was president, we had sanctions against, if you remember, the Petro currency backed by oil, didn’t really go anywhere. But in principle, because I remember talking about that, that means if you had a Petro in your hand, on your phone, you try to spend that or use that in any way, you’re breaking sanctions. Cryptocurrencies really changed the paradigm. Bitcoin’s totally changed this paradigm now about how sanctions are enforced.

Jason Brett (00:12:02):

I mean, theoretically, if what they were saying about Venezuela is true, if El Salvador has a Fiat currency that’s technically Bitcoin, does that mean that if you and I are spending Bitcoin, are we somehow breaking sanctions if we had sanctions against El Salvador? It really opens up a lot of questions, right? Like, “How do you know if you’re sending something to somebody in Russia or not with cryptocurrency? It also assumes that people are really actively using cryptocurrency to break sanctions.

Jason Brett (00:12:29):

I don’t know that really the evidence is in yet, and that’s been one of the things, I think, that needs to be further examined, but it was very clear that with these offices, quickly after the president’s order doing these things, it was clear. There were some top-down type stuff that had it happen as a result. I’ll tell you, Preston, the executive orders usually are not like this. They’re not usually studies. I was really worried what… Sometimes the executive order might come out and say, “Hey, we’re just banning Bitcoin mining.”

Jason Brett (00:12:59):

Usually, it’s an order. So the fact that we’re getting this study is good. The question is what’s the next executive order going to look like in six months while these studies go on. That’s why everyone needs to pay attention to how all these agencies are reacting and what the direction is, because this could have really a foundation for the way the U.S. treats Bitcoin for the next 10, 15 years.

Preston Pysh (00:13:22):

All right, so back to the executive order. So in the executive order, there were three main parts to it. The first one was to develop a central bank digital currency or a CBDC. The next one was to protect against systematic risk within the global economy, and then the third one was more on the illicit finance or transactions and maybe a national security risk for some of these things. Take us through each one of these. Let’s start off with the central bank digital currency.

Preston Pysh (00:13:57):

What was it really pointing out in the executive order, and then how about just some of the thoughts on various members within the Hill and within Congress on how they’re interpreting some of this stuff?

Jason Brett (00:14:10):

Preston, I think that CBDCs right now are considered the way that Janet Yellen and Powell at the Federal Reserve want to combat Bitcoin and other cryptocurrencies. Janet Yellen just gave a speech last week that said, “We really like parts of this technology.” A lot of people in the Bitcoin space are really positive about what she said, but I think it’s like picking and choosing, because I think they want to use a distributed ledger for a CBDC, but really, it’s going to be centralized.

Jason Brett (00:14:45):

The push on this is really from the international perspective, they want to keep the dollar as a way to enforce sanctions and benefit from its status as a global reserve currency. There is the threat, right, that it could go away whether through stable coins. That’s why stable coins have gotten so much attention, because it’s the equivalent of a U.S. dollar. The bared question here is how has we moved to a digital economy that’s really been accelerated by COVID-19?

Jason Brett (00:15:17):

That’s why I think all of this is coming to fruition so fast is what do we have in the digital environment, in the digital economy that’s growing that can maintain the status of the U.S. dollar? It’s really going back playbook of the Fiat currency that we’ve used in this country to do regime change and so many things, and to try and apply it electronically. When you talk about the Hill, it’s interesting, because there’s a few different viewpoints on this. Some folks in the Republican side, Congressman Tom Emmer specifically, and now Ted Cruz have endorsed a bill that would have it CBDCs only be used the way it’s used now, meaning no direct contact from the Federal Reserve with retailers.

Jason Brett (00:15:57):

It would have to go through some, either, FinTech companies or banks, and then be dispersed after that. There was another bill that was introduced mainly by progressives that talks about ECASH or electronic currency. It was called the ECASH Act. This one actually is created to specifically not give the Federal Reserve any powers to create some anonymous aspects of cash, but in digital form, and it tests the U.S. treasury with doing that, so it’s interesting, right, because the treasury really is the one that printed notes before we have the Federal Reserve involved.

Jason Brett (00:16:33):

That has a lot to do with not wanting to… Some of that has to do with, I think, the NM tiers, the modern monetary theorists, and printing a lot of money, and being able to do that in digital form. It’s a little suspect, but it is interesting, right, that… To me, both on the Republican side, the Democratic side, the one thing that’s really being pulled out is people’s fear of the CBDC. I think the number one fear is privacy. I mean, I don’t know about you, but if I had a CBDCs on my phone…

Jason Brett (00:17:02):

I mean, I already think the government listens to everything I say anyway, but they’re going to know everything I spend money on.

Preston Pysh (00:17:08):

Exactly.

Jason Brett (00:17:08):

I mean, I just don’t think that… I think people just don’t have that. Either they don’t care or people don’t have the confidence that the government won’t actually be watching what we’re doing. That’s the biggest hurdle for a CBDC, I think.

Preston Pysh (00:17:20):

I agree with you. I think the privacy on it is extremely concerning. I think the other piece too… People might look at the dollar right now and be like, “It’s already digital. What’s the difference?” The answer would be, “Well, it’s a distributed ledger, right?” But who’s going to run the full nodes on these things? I know I’m not going to run a full node on, because it’s not like you’re actually going to be the ones validating the transactions. They’re going to still have them on their own centralized server.

Preston Pysh (00:17:50):

They’re going to still be controlling the ledger, so what’s actually different other than them consolidating the clearance to an immediate… They’re going to do immediate clearance like a lot of these different tokens, but the ledger and the processing of that isn’t going to be distributed. It’s going to be centralized, completely centralized. If I was going to go one step further, I’m sorry to talk so much here, but this is, I think, so misunderstood on the Hill. If I was going to get one step further, it doesn’t solve the issue at hand, and the issue at hand is you need a peg.

Preston Pysh (00:18:31):

The whole reason the whole world’s falling apart right now is because there’s no peg, and we’re in a race between nation states to base our currency, to engineer what appears to be GDP growth. But all that’s happening is you have a race of adding more fiat units into the system, so a central bank digital currency with the controlled central ledger doesn’t solve any of that. They’re going to be still debasing it, right? It doesn’t solve anything other than you lose your property rights, and it’s much more surveilled than the existing digital currency that’s already out there, right? It’s the worst of what’s already in existence.

Jason Brett (00:19:14):

Yeah.

Preston Pysh (00:19:14):

How, how can we educate people on The Hill about that?

Jason Brett (00:19:19):

I mean, I think it goes back to a little bit… One of my favorite sayings from Albert Einstein is if you have a more complex problem, you can’t solve it the way you solve the first problem. That’s where we’re at right now. I think that’s the right way to explain it is we have this fiat currency, and if you try to apply what worked for Bitcoin with CBDC, it’s going to be very open. You’re going to be just where you were before with the problems that we have with the Federal Reserve. I think that at this point, explaining to people on The Hill…

Jason Brett (00:19:54):

Wherever you are to your congressman or congresswoman or senator, having an opportunity to talk a little bit about Bitcoin, and just explaining what Bitcoin is and how it works and how you see it as hard money, just like gold or any other precious metal, I think explaining that notion, explaining it could literally back the U.S. dollar. I think it’s something to start to have that conversation with, because Bitcoin really has some positive momentum on its side right now. I think the more people talk about it, the one thing that’s nice about this country is we have voters that can sway the politicians.

Jason Brett (00:20:34):

That’s what I’d really encourage everybody. I’ve done that before people have asked me, and I’ve brought them to meet with congressmen or congresswoman as I typically do with policy. I help explain what the message they’re trying to get across. I also try to coach people on who the right person in the office is to talk about, because you can talk to anybody. But if you don’t talk to the person that has the portfolio around cryptocurrencies, then it’s probably not going to go anywhere. But I think that having those just basically explaining what Bitcoin is that it’s this decentralized form of money and that if the U.S. tries to create a CBDC on a central ledger, that’s really copying what China’s doing, right?

Preston Pysh (00:21:14):

Exactly. That’s exactly what it is.

Jason Brett (00:21:14):

Because China has already really done that.

Preston Pysh (00:21:15):

That’s exactly what it is.

Jason Brett (00:21:17):

That’s the danger of thinking it that way. That’s what I mean when I say we have to figure out a new solution. You have a lot of smart people on your show. I think that’s going to be a great, fascinating thing that’s going to have to be figured out over the next several years is what is it pegged to? I mean it. Is it pegged to Bitcoin? What do we peg our dollar or units of currency in this country too? It’s more substantial than… I mean, look, Fiat money decrease. We’ve proven, I think, in our life lifetime, it does not work.

Preston Pysh (00:21:50):

We’re already seeing the tech. We’re seeing some tech. I don’t know if this is rooted in good fundamentals to be quite honest with you, but I want to talk about it. Luna is buying up Bitcoin, and they’re creating a synthetic stable coin dollar that the backing instead of taking U.S. dollars, and putting them into a bank account to back each one of the tokens, they’re actually doing it synthetically. I’m not an expert on how they’re doing that synthetically, but the treasury is Bitcoin, which is fully auditable. Then they’re adjusting the issuance of the tokens for the stable coin based on the change and the price of Bitcoin, but Bitcoin is sitting there in the treasury to peg it.

Preston Pysh (00:22:34):

Now, there’s a lot of people in the Bitcoin space that are very leery of this. To be quite honest with you, I’m a little bit leery of it, because I don’t fully understand how they’re able to perform that without slippage over the long term. I’m quite suspect of it, but I do find the idea very interesting and potentially threatening to anybody trying to stop stable coins if this idea… This is possible via mathematics to implement something like this. Do you think people on the Hill are talking about any of that type of stuff? Are they aware of that type of technology for most members in the Senate, in the House?

Jason Brett (00:23:18):

No. I mean, you have a hard time differentiating Bitcoin from blockchain still. I mean, this is a small subset of 100 different issues that the congressmen and senators face. Now, I will say with things… There was a recent bill on El Salvador and their use of Bitcoin that forces them to get more knowledgeable about it, but going that deep, some of the staffers will understand that, but that’s really a little too far of a reach. People in the industry though, like you said, can analyze it.

Jason Brett (00:23:54):

The problem is the minute you start talking about a stable coin, and then you get to the type, and then you try to explain how Bitcoin could back it, it’s advanced calculus at this point. They’re still on the basic math. I think that’s one thing that people really need to recognize. In fact, Preston, one of the things that’s been happening is because Bitcoin is growing… I mean, this is a new ballgame from where we were five years ago. There are mainstream lobbyists from Brownstein and other of the top lobbyists chops in DC are going to the Hill now talking about this stuff.

Jason Brett (00:24:26):

In fact, they can’t get past what Bitcoin and blockchain are, so what they’re doing is they’re bringing the people who are the programmers with them to the meetings, and just letting them explain it. Then the programmer goes so deep, it goes right over the people’s heads. We actually need to not just educate people on the Hill, but these top paid lobbyists bring them into a class with you, and help them understand, “Look, this is just the basics.” Get some understanding around the basics of that technology, because you know better than anyone that if you start to go too deep in this stuff, you lose people.

Jason Brett (00:24:58):

You have five or 10 minutes most of the times with people who are influential in their decision making. Then they’re on the next meeting.

Preston Pysh (00:25:08):

On the systemic risk piece, what are your thoughts on the executive order on that particular part?

Jason Brett (00:25:16):

Well, I’m glad you asked me, because I get a chance to maybe tell you my Bitcoin origin story at this point-

Preston Pysh (00:25:22):

Oh, let’s hear it. Let’s hear it.

Jason Brett (00:25:23):

… since it’s all about systemic risk. I was a regulator at the FDIC in oh 08 and 09 during the financial crisis. That’s really what opened my eyes up to the idea of something maybe like Bitcoin, but I didn’t discover it until 2016. When I started working in the industry, but I was in the capital markets in finance division, starting in the summer of ’08. I saw all the banks failed. [inaudible 00:25:53] bank failure, I was on the Bloomberg machine figuring out everything with Wachovia, Washington Mutual. It was really scary.

Jason Brett (00:26:01):

I remember looking… It would look like the matrix on my Bloomberg screen with some of the banks falling, and I had this one guy take me in this office, this older guy. He sat me down and was like, “Jason, have you ever been through a financial crisis?” I’m like, “No.” He’s like, “Well, you’re in one, so just relax. Do your job. Stay focused, and we’ll get through it.” Then what really opened my eyes to the idea of systemic risk had to do with AIG, because then I started looking at AIG. We started looking at the different countries that it was exposed to, the amount of exposures of what would happen if AIG failed right after we said Lehman brothers could fail.

Jason Brett (00:26:36):

That’s when I really realized how these products, if you have a concentration of risk, it really creates a risk that can just shut down the whole system that forces the taxpayer then to bear the burden of that cost. But the reason I’m so… Then the other part of it for me was realizing that there really is nothing behind the U.S. dollar. We all come to accept that now in the Bitcoin community. But back then, it wasn’t really an original concept. I’m watching all these banks fail, and I’m realizing that the plan that everyone was going to in the government was we have to shore up what public relations look like for the U.S. dollar.

Jason Brett (00:27:17):

It wasn’t like, “Hey, here’s some gold, or here’s something reliable.” It was like, “Preston, let me convince you. Keep your money in the bank.” That’s what they sent folks out to do was these people from the great depression who had seen their grandparents lose it all showing up with a suitcase, wanting to just walk out of the bank with their life savings, and the job of the government was, “You don’t have to do that. Your money’s safe. Don’t put it under the mattress.”

Jason Brett (00:27:42):

When I realized that was the plan, and then I started tracking what the Federal Reserve was doing with this balance sheet, which was part of my job too. I just thought, “Something’s wrong here. Something’s not quite right.” That was my seed that was planted. I didn’t have the benefit of realizing the Bitcoin paper and what came out at that point. But in 2016, I learned about Bitcoin, and I haven’t looked back since I love this space so much, because now I’m accumulating Bitcoin. For me, it’s like a second life for me of listening to everybody in this space.

Preston Pysh (00:28:14):

I feel the same way.

Jason Brett (00:28:15):

[crosstalk 00:28:15] millennials learning.

Preston Pysh (00:28:16):

I’m the same way.

Jason Brett (00:28:20):

The systemic risk piece really bothers me because there’s this narrative now that somehow cryptocurrencies could be a systemic risk. This isn’t real estate, right? With people coming up with synthetic CDOs that if something happens, the whole market ceases. Who’s really going to notice if Bitcoin goes down? We’ll care, but it’s not going to cause this systemic risk. That’s a really… I mean, to me, a systemic risk should have a much higher bar than something that’s like an innovative technology. I know they’re exploring it. I know they’re worried about how it might impact the markets.

Jason Brett (00:28:56):

Listen, at some point, with the Luna stablecoin and others, we might see all of this as the new financial markets. So then it’s not a matter of what systemic risk they’ll be. Systemic risks should really be renamed like how we’re going to kick out all the incumbent banks, and we’ll be the new show. It’s not really… It’s a risk to their business, but it’s not a risk to the system.

Preston Pysh (00:29:20):

How about the illicit financial activity and the national security piece that was in the executive order? What do you think was really driving the impetus of this?

Jason Brett (00:29:31):

Chainalysis did a report, and it showed that the numbers gone quite down as far as how much is of percentage of the overall crypto economy is used for this type of illicit activity. I really struggle with a lot of this myself, because I did some reporting where I looked at what the secret service was examining, because they’re out of Department of Homeland Security. I had numbers from 1% up to 75% of the market, and the 75% number supposedly came from the FBI because someone gave it in testimony at a house hearing. But then when I went back to the FBI, and I looked at it, it said, “No one could tell me where that number came from.”

Preston Pysh (00:30:20):

Wow.

Jason Brett (00:30:21):

I was like, “We have this range of 75% to 1%.” I don’t know if Chainalysis has it right with a less than 1%, but the real question is, “Maybe it’s a few percent is part of this whole thing with the illicit finance, but I’m sorry, it’s a new kind of money. It’s a new value of money.” We don’t have the ability in our current system of stopping. We try to stop bad actors from using money, but we can’t. I don’t know what the expectation is of we’re going to have a new form of money, and maybe not the best advertisement for Bitcoin, but the idea that you can do tracing to figure out if something really bad has happened, and follow where that went should, I think, give people more comfort about it, not less.

Jason Brett (00:31:09):

But the illicit finance thing, you have to remember back in 2013, the FinCEN, financial crimes enforcement unit from treasury was the very first agency to chime in on this whole subject. Ever since then, there’s always been this lens of looking at it from the, “Well, what if a terrorist took $100 worth of Bitcoin, and rented a U-Haul truck, and ran it into a building?” We have to stop every occurrence. I think we’ve never really been able to pull away from that narrative, but with the executive order, it doesn’t just capture that part. It’s now capturing like we were saying before with the ransomware. That’s really the concern, right?

Jason Brett (00:31:49):

What if they try to do a shutdown of a colonial pipeline or anything? Obviously, any other kinds of warfare would be obviously much more scarier, so this is what they’re going to throw at us. We do have to figure out a solution to, “What do we do when we have these ransomware attacks from actors, whether it be North Korea or Russia?” How do we help the companies get out of those situations? I don’t think not letting them pay in Bitcoin is the right answer. If there’s a way out, then they need to have a way out. But right now, that’s their biggest concern.

Preston Pysh (00:32:26):

Do you think it’s fair to say that they’re much more concerned about stablecoins and central bank digital currencies than they are about Bitcoin specifically? Do you get that sense?

Jason Brett (00:32:39):

I said that a long time ago. I thought stablecoins are… Stablecoins are like the new orange. Orange is the new black. Stablecoins is the new Bitcoin, because it’s representing the U.S. dollar. It’s almost not fair when you think about the executive order when we’re talking here about that it’s maybe these three issues. I mean, Preston, this is executive order encompasses 20 different reports that over the next six months have to go to the White House, 20 different reports from 23 different federal agencies.

Jason Brett (00:33:14):

This is a whole of government approach. This is about Bitcoin and cryptocurrencies. This is about everything. So for the next… Now, it’s like five months in. There’s going to be just the most amount of reporting ever on the space from these different agencies. You’re starting to see the Hill pick up a little bit like Senator Gillibrand and Senator Lummis that was at the Bitcoin conference. Gillibrand said, “Look, I think it’s great that the White House wants to do an executive order about this stuff. But if there’s going to be real change, it’s going to be a new law, and you need law makers for that.”

Jason Brett (00:33:54):

There’s a reason the White House does what it does, but then we have legislation. She and, I think, Senator Lummis, they’re planning to introduce what… They’ve told us really just the name of the bill, which is the Responsible Financial Innovation Act. Then you had another senator, Senator Toomey that just introduced last week a bill about stablecoins and how it might have to go through OCC licensure, bank licensure. The senators are really starting to stand up and say, “It’s great you want to do all these studies, but we’re going to dual track it because we’re the ones that are actually going to make the laws, so we’re going to start introducing what we think it’s going to be.”

Jason Brett (00:34:30):

Because what you’re really seeing is when you see an executive order like this, the handwritings on the wall that the White House is probably going to get involved in the legislation they want to do. I mean, one of the biggest lobbyists on Capitol Hill is in fact the White House. So by the end of this year, we could see Biden administration saying, “This is what we want to see.” That’s why you have all these senators laying down bills, because it’s going to be a big conversation, big discussion to figure out what it might look like.

Jason Brett (00:35:01):

The prediction to your point about stablecoins, the prediction on the Hill is the most likely first bill will be about stablecoins because of the concerns that they have, and regulating stablecoins.

Preston Pysh (00:35:14):

Caitlin Long does a great job of describing why that’s such a concern where it gets into the immediate clearance versus what the traditional system can do, which is a much slower clearing system. When you’re looking at how banks manage their balance sheet with the assets and the liability mix that they’ve got to have for certain types of securities that they’re holding, real estate that they’re holding, and now dealing with digital assets that are clearing immediately, it throws off the ability for them to manage some of those ratios, and manage them in a way that is in keeping with a lot of their requirements.

Preston Pysh (00:35:59):

It seems like that’s more the driving factor of why, and obviously just the pace at which this shadow banking, and these tokens that represent U.S. dollars is taking off, I think is scaring the heck out of a whole lot of people, because we’re talking. Are we talking hundreds of billions at this point in stablecoins? I think we are. But the one question I had for you when you were talking about that as far as Senators Gillibrand and Lummis with their announcement that they’re getting ready to make with their proposal, how long is this going to take?

Preston Pysh (00:36:35):

They’re going to make that proposal. How long before you’d have the House and the Senate start voting on this stuff?

Jason Brett (00:36:42):

Oh, I mean, votes can happen very fast under certain circumstances. But I mean, you’re probably looking more at a next six-month type of timeframe, because…

Preston Pysh (00:36:56):

So it could get voted on before the executive order even. Is the studies coming out of the executive order are even completed or?

Jason Brett (00:37:04):

It could be, but that would be unlikely. I think it might be in tandem with, because the leading Democrats in the House and the Senate aren’t really going to want to push forward with legislation if they’re getting signals from the white house to hold off. Because remember, right now we have the tri control. We still have the Democrat House, Senate, and presidents, all Democrats. Until they’re sure they’re going to get what they want, they’re also not want to do something against the Biden administration. I think you’ll like… What I think you’ll see is you’ll see these reductions.

Jason Brett (00:37:40):

You’ll see that they’re going to really push to get the bill passed, but it might be a two year, three-year thing. Sometimes, this is how long it takes. The important thing about the Gilibrand, Lummis bill is when you have a negotiation, that’s like they’re laying out all their cards, and I hear it’s a massive bill. It’s like, “This is what we think we want. It’s bipartisan.” Then it’s everyone moving toward that. You ultimately need Mitch McConnell to say, “Okay, let’s go through with this, with Schumer, and then you need Pelosi to give the green light on it also for it really to reach that point where they’re going to get a vote.”

Preston Pysh (00:38:21):

I remember the last time we talked, there was another… I believe it was a Senator who who was laying out a bill that really went into the definition of digital asset, securities, digital asset. I think it was just digital asset, which was basically Bitcoin and then everything else. What happened with that? Did that just go away or?

Jason Brett (00:38:46):

That’s Representative Don Beyer.

Preston Pysh (00:38:46):

That’s right. That’s who it was.

Jason Brett (00:38:49):

He similarly introduced that right after the Infrastructure Bill, right?

Preston Pysh (00:38:53):

Yes.

Jason Brett (00:38:53):

That was his way of introducing something that was very comprehensive, but it’s a little hard because what he’s doing is he’s introducing a bill that really has to get voted on in a committee that he doesn’t even sit on, right? He’s not in the House Financial Services Committee. It’s very hard to… You have to get it at a committee, so it’s really like the… So the bill hasn’t gone anywhere. He hasn’t added any co-sponsors to it. Most bills don’t get passed.

Jason Brett (00:39:24):

The vast majority of bills don’t ever become law, but what they can do is when you actually get the bill that could be legislation that we’re now starting to look like because of this executive order, and because of all this attention on the digital asset space is people will pick and choose. They’ll look to the Beyer Bill. They’ll look to this Lummis, Gilibrand. Okay, how are they doing things with Bitcoin versus the shitcoins? How are they going to figure that market space out?

Jason Brett (00:39:51):

These ideas are important because they can collectively end up being what the ultimate law will look like.

Preston Pysh (00:39:58):

Lyn Alden had a comment, and I’m going to paraphrase. I don’t think this is exactly how she said it, but she implied that there’s a sea of money that’s waiting to get into this space, and it can’t get into the space until it gets bigger. I think there’s also a lot of money that can’t get into this until there’s better definition of the policies and having bills in place that really clearly define what this is and what this isn’t. I think the one thing that has been very clear is that Bitcoin is treated as a commodity at least from a tax implication standpoint.

Preston Pysh (00:40:34):

That seems to be really sticking and not changing anytime soon or with any of the bills that are getting ready to be introduced. I’m curious to hear your thoughts on that idea though.

Jason Brett (00:40:49):

I think the clarity of regulation is what any business craves. Remember, I mean, I’m an ex-regulator, but as a regulator, it’s not really about what you want the rules to be. It’s about where is the market and what is the financial market going to look like. So if it’s going to look like this, you have to move toward understanding this marketplace and coming up with regulations that can work. One of the things that has hurt the U.S. is not having these clear regulations. A really interesting paper that I read was from the Federal Reserve Bank of Dallas.

Jason Brett (00:41:26):

They did a study with Bank of International Settlements in Europe, and they looked at whenever there’s a news article that talks about the regulation coming, and that there’s going to be clearer regulations for Bitcoin, that the price of Bitcoin went up. Whenever there was an article in the paper that talked about terrorist activities or listed activities, the price would go down, and it was basically correlating news articles. This isn’t a trading strategy, by the way, but I’ve actually looked at it, and it is really true.

Jason Brett (00:41:53):

Anytime you talk about regulation, you actually start to see the price of Bitcoin go up. But anytime you start to see big news about, oh, a terrorist threat or ransomware, it starts to come down. I think that goes to Lyn Alden’s point is that there’s money on the sidelines, but they’re not going to fully commit to it, and they feel like they have the regulatory clarity that they need. I think that that’s really… Bitcoin is definitely a commodity. It’s been decided by the courts. The CFTC holds that. The SEC is not interested in Bitcoin anymore. That ship has sailed.

Jason Brett (00:42:25):

I mean, if you look at what Gary [crosstalk 00:42:28].

Preston Pysh (00:42:27):

Really? Really?

Jason Brett (00:42:28):

Yeah. I think if you look at what the SEC chair, Gary Gensler, said in the very was he said… I’m trying to remember what it was exactly, but basically paraphrase that Satoshi’s invention is real. I think we have to remember what that means. In other words, he’s saying the fact that it created this distributed ledger system, the fact that it has this money that’s used on it through cryptographic proof is a real invention, and that’s the end of it. It’s a real invention. It’s not something that’s a security. It’s decentralized.

Jason Brett (00:43:04):

He made a joke during this asking, “If anyone was Satoshi Nakamoto to stand up.” I don’t know. But in a sense, it’s given… To me and Brian Brooks, the former OCC comptroller, who’s now the CEO of Bitfury, followed up in a hearing soon after that. What he said was when someone asked him, “What is all this cryptocurrency stuff about?” He said, “Look, there’s Bitcoin, and then there’s everything else.” Bitcoin is an asset. A lot of people who believe in Bitcoin think it’s a really good hedge against inflation, but it’s an asset class in and of itself.

Jason Brett (00:43:40):

After Bitcoin, the way he described it was, which you and I all think of as shitcoins, but he said it politely to Congress, is a bunch of networks that people are betting on. You think this network might do well, or that network might do well, and people are taking bets at that point. Michael Saylor says it all the time. He thinks most of the other stuff are securities, and that’s the way the law is built, but I’m very secure that Bitcoin’s going to remain as a commodity for pretty much the rest of my lifetime in the U.S.

Preston Pysh (00:44:11):

Do you think that most of them understand that if they overregulate this, that they’re just shooting themselves in the foot on a global scale? Do you think most elected officials view it that way at this point?

Jason Brett (00:44:24):

I don’t think they worry about that too much. What they worry about the theme is always not on my watch. The modus operandi is, “What can I do in my job today to make sure I don’t end up on the front page of the Washington posts for something blowing up?” Regulators are very risk averse, so they’re not necessarily going to overregulate, but if you look at how things are moving in the banking system with taking cryptocurrency, and you need special permission to do stuff. It’s always…

Jason Brett (00:44:59):

Putting lots of investor protection notes out from the SEC and enforcement, it’s all just not wanting anything to blow up. That’s the first step.

Preston Pysh (00:45:10):

Where one of my biggest frustrations are in this space from a regulatory standpoint and from a policy standpoint is when you look at a lot of the lending platforms, they’re not treating overcollateralization the same for retail customers as they are for institutional customers, and so they’ll have a person with one Bitcoin that can then go out and borrow against that that’s overcollateralized in a market that is marked to market instantaneously. And if the price goes down, they’re immediately liquidated in that loan, and there’s no risk, right?

Preston Pysh (00:45:52):

There’s no risk because it’s traded 24/7, and it’s overcollateralized. But you have these institutions who have massive balance sheets that have a whole lot of exposure to traditional markets that are also marked to market, and they’re under collateralized. To me, it’s just like this total recipe for disaster for retail that this is allowed, that in this space in particular, that’s a 24/7 market that’s trading over the weekend, and you have these institutions that have all these other assets on their books, on their balance sheets that are not traded 24/7.

Preston Pysh (00:46:36):

I think it’s a disaster waiting to happen. I’m just shocked that nobody’s talking about that, and they’re talking about all these other things. It’s almost like they don’t understand that that’s happening, or they don’t care that it’s happening because it’s such a small amount of the space. I’m curious if any of this has ever come up in some of the conversations that you’ve seen, and whether you even agree with my complaint.

Jason Brett (00:47:04):

Actually, it’s interesting. You should tune into a hearing that’s going to come up in mid-May in the Agriculture Committee, because the chairman, Congressman Scott from Georgia, brought this up with what FTX is applying for at the CFTC. So FTX US, the bot LedgerX, they’re trying to get a real-time clearing for the 24/7, 365 derivatives. It’d be directly with customers. I think it’d be every 30 seconds, they check your position, and knock it down 10%. It would be that way for everybody on their platform.

Jason Brett (00:47:43):

The people that are objecting to it are folks like ICE, and CME, and all the traditional players that have these things saying, “No, we need to stick to having the FCM model, have the Futures Commissions Merchant aggregate everybody’s assets into one. Then we’ll figure out in three days what needs to be liquidated, so you can have a nice Monday morning.” What I think is great is that in this case, you actually have a regulator that’s really very forward looking. It’s the chairman, Rostin Behnam, of the CFTC that agreed to look at FTX US’s proposal.

Jason Brett (00:48:24):

He’s changed it from 30 days to 90 days, because it is very rare that you have these changes in the way you do margin requirements. It’d actually be pretty historic. If you think about it now, I think it’s about 97% of all Bitcoin derivatives are overseas, right? They’re all Binance and everything. That’s a huge market. To your point, not only is it these larger players that have this different standard for collateralization, but to bring some of that to the U.S. shore, and have that marketplace, it’s going to be so big, and it’s just only going to get bigger.

Jason Brett (00:48:59):

It’s going to be really important. It’s really important to have those hedges available in the marketplace too, because that’s what’s going to help Bitcoin flourish in the U.S.

Preston Pysh (00:49:07):

The irony of what you said with the LedgerX piece is from what I understand, LedgerX has their collateral requirements for all their options contracts. At least from what I’ve seen personally is that everything is posted. If you’re going to write an options contract, the Bitcoin that you are putting up there actually has to be posted into an escrow. It’s fully sitting there, right? So for them to turn that off, and try to do the CME model, where it’s not happening on the way to me is introducing more risk, which is a little bit different than what I was describing earlier with some of these institutions on the lending side being under collateralized.

Preston Pysh (00:49:52):

It just seems like there are so many perverse incentive structures around derivatives in this space altogether that if you’re a big giant institution, you just get treated a little bit differently than a small person who’s actually probably way less riskier, because of the way that they’re posting things. It just seems like somebody needs to take a much closer look at it, because my concern, to be quite honest with you, on the risk here, my concern is actually on a melt up. If Bitcoin starts blowing up and going to the moon, it probably means that traditional markets are blowing up.

Preston Pysh (00:50:35):

And if these institutions are under collateralized, and they’ve got all these other counterparty risk type things on their balance sheet in traditional finance, and it’s blowing up while Bitcoin’s going to the moon, it tells me that their under collateralization is going to be a major risk for anybody that’s not long. That’s where I think that if the market has a downturn, and Bitcoin’s going down with it, like what we’re seeing right now, I’m not nearly as concerned about the risk there.

Preston Pysh (00:51:07):

But I think if it starts separating, and you get the correlation to separate between the traditional markets and these markets, it’s going to be a really bad situation for a lot of people that have things lent out, retail specifically having things lent out. But anyway, sorry, we went in a very different direction.

Jason Brett (00:51:29):

No. No. No. Well, hey, the positive side is Bitcoin would be very large, and maybe a little bit of the Bitcoin could be used to bail out some of these really large institutions. Kidding. That’s not what this is about, right?

Preston Pysh (00:51:42):

No.

Jason Brett (00:51:42):

It’s about managing your risk, being the sovereign individual, understanding that. Look, that whole problem, the whole premise of the 2008 crisis that’s got us to where we are today are these large institutions that took on much more risk than they should have, and playing games with other people’s money. It’s not okay, so we got to change the system.

Preston Pysh (00:52:06):

People say to me like, “Oh, the government’s going to do this and that and everything else.” One of the responses that I’ll often provide to people is I say there are states currently in the United States like Wyoming and Texas that have already gone out and aggressively set up policy, and passed law in their states that have enormous protections to Bitcoin and digital assets that if the federal government would start to overreach on some of the restrictions, and set up things… You’re seeing exchanges like Kraken relocate into or locate themselves in states like Wyoming because of the state policies that are there.

Preston Pysh (00:52:52):

Do you see this becoming a states versus federal government battle, and maybe that forcing the hand for the federal government to take a much more lenient take on the regulation of a lot of this stuff, because if they don’t, they’re going to find themselves in a battle that they can’t win against certain states? Do you see other states pulling the Wyoming and the Texas model as a template into their own states to try to attract as much of this into their local domains?

Jason Brett (00:53:24):

Absolutely. Whoever said states are laboratories for democracy is absolutely right. I mean, thank goodness there’s folks like Caitlin Long and others leading the charge, and Jesse Powell of Kraken, because they’re making more headway than you realize. It might be something that seems really, really insignificant. But with Wyoming, they have Kraken Bank now, and we have Caitlin’s bank. I think it was Avanti, and now it’s Custodia Bank. Kraken just got its first routing number with the Federal Reserve to work on ACH payments.

Jason Brett (00:54:03):

That’s a huge tectonic, because Kraken applied for and got a Federal Reserve membership, right? You automatically become a fed member, but then the Federal Reserve then takes a step back and says, “Well, we’ll let you be a member, but we’re not going to let you use our wire. We’re not going to let you use our ACH until we decide the risk is clear.” It’s like, “You can join this country club, but don’t swim in the pool, and eat in the dining room. Just hang out in the front there, and smile.”

Jason Brett (00:54:31):

With that though, that’s really important because that’s affecting a federal regulator, the Federal Reserve, and how it’s going to impact a lot of these companies as we move on to using maybe the ACH and wire systems as part of cryptocurrency more broadly. That’s big. That’s when you see a state has created its own type of bank, and now what’s even more important is that that states is now being reflected in probably what we’re going to see in this federal bill from Lummis, because she’s from Wyoming. The states are absolutely critical, and look… I mean, Texas is the best place on earth, I think, if you’re going to be a Bitcoin miner, and the way the governor’s embraced it.

Jason Brett (00:55:13):

They’re setting up laws that it really disincentivizes the federal government from coming down too hard. It won’t mean that they won’t do it, but you’re going to have enough states that are finding the benefits of this technology and why they’re leaning in. Absolutely, there’s states like Kentucky and others that are trying to do much more support where there’s big growth in Bitcoin mining. In my home state in Pennsylvania, we have Senator Toomey, and there’s lots of mining happening across this state. It’s really…

Jason Brett (00:55:45):

It’s a great moment, and I think that’s what it is going to help us right now, because it does seem like we’re a little too federally focused. The truth is when we look at something like Bitcoin and Bitcoin mining, you’re talking about adding jobs, economies, real impacts to families. That’s what the most important thing is that the federal government sometimes loses sight of. I mean, we are a state and federal government, so absolutely, the states are right now really leading the charge.

Preston Pysh (00:56:17):

The last question I got for you, you and I had chatted previously about this idea that when are we going to have the CFTC actually step in and defend Bitcoiners against these scam tokens that we know are out there? Talk to us a little bit about this idea, because you brought this up to me, and I really liked how you were explaining this.

Jason Brett (00:56:43):

So if we decide that the CFTC is correct, which it’s already been verified by law that Bitcoin is a commodity, that means that for once, instead of the uphill battle where maybe we have a little bit of the underdog syndrome always as Bitcoiners, what we have to realize is that Bitcoin actually deserves some protections of its own. So instead of always just thinking, “Oh, Bitcoin’s going to be banned, or Bitcoin’s going to be this,” the truth is if Bitcoin’s a commodity, the CFTC regulates the options in the future markets around commodities and also if there’s fraud or anything that would relate to specifically affinity marketing.

Jason Brett (00:57:26):

They speak to that. The CFTC talks about the dangers of if you try to pass one product onto another, and they have a lot of great safety tips on their websites for people whether it’s emails that you don’t know, or things that are really basic. What that should tell you in a sense is that there’s a Bitcoin options in futures marketplace right now, right? They don’t actually regulate Bitcoin itself. But if there are people who are creating things that pretend to be like Bitcoin, or perhaps say it’s Bitcoin and shitcoin together, and they’re benefiting from that, and that confuses investors or if you’ve lost money as the result, it very well could be considered a fraudulent scheme.

Jason Brett (00:58:10):

I know the altcoin community, I’ll be polite, thinks that that’s not okay to talk about stuff like this, but I’m not talking about it that you’re a security or that with the SEC. Do whatever you want. Pretend to be a token. But when you associate it with Bitcoin, that’s where bitcoiners realize that CFTC actually has a role to protect it just the way they would with cows, right? If I was selling you 100 cows, they’re all healthy, there’s no problem with that. But if I’m trading futures and options, contracts, and there’s cows that are sick, or they’re fake cows, whatever we want to call them, that’s a problem.

Jason Brett (00:58:48):

That’s fraud, and that shouldn’t be taken lightly. I think at some point, we actually have a really good chance with the CFTC chairman right now, Benham, with the way he defended the FTX proposal of realizing, “Yeah, we have a role to also protect Bitcoin, not just the investors, but the commodity itself.”

Preston Pysh (00:59:08):

Hey, give people a handoff on… You had mentioned earlier that on the ESG part, that they opened it up to the public, that people can go in there and make comments. Can you provide us a link, and also describe to people who are listening where they would be able to do something like that? I’m sure there’s many people listening to this that would like to make comments or make referrals of important articles or content that’s already there that goes into an enormous amount of depth. I know Nick Carter alone probably has how many articles on this particular topic. But where can people find out more to make those contributions?

Jason Brett (00:59:49):

Sure. It’s in our federal register. What that means is it’s a public notice from the White House. I can send the link later so everyone can check it out. It’s White House looking for information about digital assets, the energy implications of digital assets, and how climate change might happen as a result. Anyone can reply by May 9th. It gives you an email of who to reply to at the White House. You can write up to 10 pages with 11 plus size font or larger with one or any of variety of subjects, including the protocol.

Jason Brett (01:00:30):

Meaning the type of protocol, is it proof of work versus something else, and what your opinion would be on that? They’re looking for evidence from a scientific standpoint of the impacts potentially of what we always hear, which is the FUD that we now see in this order, but it’s your chance to respond. What I tell people is you have till May 9th to do it, and you should respond yourself or get together with a group of friends, talk about it, and write in a response, because this is one of those if it was Brexit, or if you’re deciding who the next president is, and you want to vote, this is your chance to get on the public record with the White House, how you feel about whether Bitcoin uses too much energy or not, and how it might influence their public policy.

Jason Brett (01:01:14):

So if you don’t take the time when we actually have this country that doesn’t just ban cryptocurrency mining or ban Bitcoin, but actually says, “Hey, we’re giving it a chance. We want science to rise to the top,” you need to provide them that notice. So it’s the White House opening its door for people everywhere to provide any kind of data that they want to provide. I think people should take advantage of it. This is your chance to do that.

Preston Pysh (01:01:40):

Jason, I know you’re active on Twitter, and you do Twitter spaces and things like that, so we’ll have a link to that in the show notes. Is there anything else that you’d like to highlight or point people towards?

Jason Brett (01:01:52):

No. I think that that’s… I mean, just continuing to follow the space with what’s happening in legislation. I’ll be putting out some information soon.I’m going to release on a website to really try to consolidate all the issues that are happening in Bitcoin, so people just have one place to go. Maybe I’ll share that the next time I’m on your show as I have that more developed. Because there’s just so much happening, and to keep track of everything is hard, so I’m going to try to make at least one location on the web for people to go to to really keep up with regulations and the law.

Preston Pysh (01:02:29):

I love that. For people that are listening to this, we have a lot of listeners from the future that that will probably be up on… That’ll be an active website by the time a lot of people are going to listen to this, and so what I would tell you is put the… On your Twitter handle, you have the ability to put a link in your bio. So whenever you do get it up, Jason, put that link in there, and so when people look you up on Twitter… Somebody listening to this six months from now or three months from now, go to Jason’s bio, and just click on that link, and you’ll be able to see.

Preston Pysh (01:03:04):

I will be a visitor of that, because I find the information that you consolidate and put out on this particular topic to be very interesting. Thank you for your time to do this. We’ve got to do this once a quarter, twice a year or whatever, but I really find this valuable to just level set and see where everything’s moving with respect to policy. Thanks, Jason.

Jason Brett (01:03:25):

Thanks a lot, Preston.

Preston Pysh (01:03:28):

If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener. If you enjoyed the show, or you learned something new, or you found it valuable, if you can leave a review, we would really appreciate that. It’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. With that, thanks for listening, and I’ll catch you again next week.

Outro (01:04:00):

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