(00:03:12):

They were really trying to do that at a federal level. The digital currency, the digital commodities, DCCPA, Preston, unfortunately the way Congress works is it’s sometimes an insider’s game. It’s very interesting because the chair of the CFTC, Rostin Behnam, he actually used to work for the current chair of the CFTC Ag Committee that is overseeing this bill, the DCCPA. Debbie Stabenow, senator from Michigan likes Rostin Behnam a lot. It’s very likely Behnam went to Stabenow and said, “I kind of want things the way I want them in a bill to cover how I want to regulate digital assets at the CFTC.” And so he worked with Stabenow and Boozman, John Boozman is the senator on the Republican side and he’s the ranking member of the Agriculture Committee. And because the CFTC is overseen by the Ag Committee, those two high ranking folks have been able to push the DCCPA much farther than where the Lummis Gillibrand Bill has existed so far because it only focuses on what the CFTC is going to do.

(00:04:24):

It only has to deal with one committee. The RFIA, the one from the Lummis has to go through four different committees and four different conversations with different chairs. This was sort of straight to the punch and it differs in a couple of ways. The biggest thing is, if you remember we talked about it, we had Tyler Lindholm from Lummis’s office join us last time to give us some insights into that. I remember you credited him with the fact that it was an optional regime that the CFTC would have Coinbase, all these exchanges could join. This is a mandatory exchange the way it’s written in the DCCPA, so it’s very different.

(00:05:00):

It means every single exchange in the US would have to file with the CFTC to be a digital, to be able to trade in the spot markets, and the bill specifically designates Bitcoin and Ether as digital commodities. Bitcoin’s already technically under law with the CFTC, but this would affirm it in law and give the CFTC quite some power over the way Bitcoin is traded in the marketplace. I think that it bears a lot of discussion that needs to be had before Bitcoiners. For instance… Oh sorry.

Preston Pysh (00:05:32):

Real fast, just let me recap for people, and I don’t know that this is right, so correct me if I’m wrong, but the way I’m seeing it based on how you described it is the Gillibrand Bill is kind of this overarching much larger bill, and in that, like you had said, the CFTC had the commodities piece of digital commodities which is defined in the Lummis Gillibrand Bill. Now, you have Boozman and these folks out of the agricultural side that are stepping in and saying, “All right, now, we’re really going to clearly define our space under the CFTC, which is all commodities based digital assets. We’re going to define exactly what we want this to be,” and that’s what this other, this digital Commodity Consumer Protection Act of 2022, which you were calling the DCCPA bill. Is that accurate?

Jason Brett (00:06:23):

Yeah, absolutely.

Preston Pysh (00:06:25):

Okay, I’m sorry I interrupted you. You keep going.

Jason Brett (00:06:28):

The main thing I want to say about the DCCPA that’s really important for people to understand is it has a lot more momentum than the Lummis Gillibrand Bill, and that’s because it has the two leaders of the Ag Committee, the chair and the ranking member supporting the bill. They actually have Senator Cory Booker who’s very much on the progressive side who signed up for the bill and then they also got Senator John Thune. Thune is actually a senator from South Dakota, may not have heard of him too much, but he’s actually the number two ranking Republican in the Senate. He sits right behind Mitch McConnell. He’s like the next Mitch McConnell if something happens. He’s a really big heavyweight to come in and support this bill. A lot of insiders in DC are saying the DCCPA has a real chance of becoming law.

(00:07:15):

That’s why I really asked to come on the program because I want people to be aware of that this is a fast moving bill that we might even see become law by next year. There’s been a lot of debate about DeFi in the bill. Recently, Sam Bankman-Fried on Twitter sort of came out and was trying to talk about this policies and ended up with a debate on a podcast with Voorhees about whether you need to do know your customer for DeFi. But what’s important about that debate to know is, like I said, the DCCPA, if it becomes law, Preston, it’s going to mean that the CFTC can regulate Bitcoin the way they regulate other commodities, but also regulate the spot prices. That means that they’re going to be able to get unfettered access to all of the traders to understand who the market players are so that they could even technically shut off trader, they can do with any other commodity.

(00:08:09):

It says in this bill that if let’s say they find some fraud or manipulation in the price of Bitcoin, it’s going up a little erratically or down. Now, you tell me how this would work, but they could technically shut off trading in Bitcoin among the major US exchanges for a period of a month. Maybe that means just trades in different countries or just trades in the black market. But there’s some real powers that we’re giving up to the CFTC in this bill just from purely the fact that Bitcoin is a digital commodity and we’ve always said it’s so great that Bitcoin is a commodity at the CFTC, but now that this bill is coming in to regulate the whole spot market of the industry, the question is how much regulation do we really need for Bitcoin and do we really want to open ourselves up to where Bitcoin is this commodity where we’re going to have a US federal agency that can demand maybe to know if I’m trading some Bitcoin with you, right? Who we are? That’s a big deal.

Preston Pysh (00:09:03):

Yeah, this is a really big deal. The thing that I would immediately think, if you’re a regulator and you’re listening to this and you’re all excited about this bill, what people need to realize is the Bitcoin spot is going to continue to run in every other country around the world regardless of what the US thinks that they can control. Because I mean, this has to be one of the most liquid markets on the planet. In the last 12 months, the numbers I’m hearing of how much have settled in the spot markets or in the tens of trillions if you were going to denominate it in dollars, tens of trillions in settlement in one year, just in the past year alone. We’re not talking about a small market here. And so if US exchanges get shut down because of some CFTC overlords, they need to be prepared for maybe way less supply of coins being outside of US jurisdiction, making the price explode upside, downside, whatever.

(00:10:05):

If you have derivative products that are being constructed around this that have durations that are months to years, that could wreck absolute havoc. I guess, just because they would stop and do whatever investigation and maybe it’s stopped for an hour or it’s stopped for one day or it could be up to 30 day, I think the longer that they would try to stop that, the more insanity that’s going to ensue in the global markets because there’s no way that they’re going to stop this thing from trading like they can in the equity space or something like that.

Jason Brett (00:10:43):

Yeah, that’s I think what’s interesting about this is I’m not sure that the policy makers and regulations at the table are really thinking through what this could mean. They’re thinking about it like a game stop, right? Oh, just hold trading for 30 days, let all the suckers clear out, let’s just get everything back to normal. And Bitcoin, it’s a beast. It is such a different asset. Again, I think there’s a little bit of an underestimation of what Bitcoin is and how it works. Again, the whole idea was we would be at the CFTC where digital asset is like, or Bitcoin’s a commodity in the US, meaning it’s not a security, right? We don’t have to have a broker dealer. That’s the whole point of us always not wanting Bitcoin to be a security. You don’t need a broker dealer, doesn’t need to be traded like the security.

(00:11:31):

But the question is, this is also the first time that a spot market for commodities will ever be regulated. This is a big deal. This is like cows, corn, everything else. The spot markets aren’t regulated by the CFTC only for fraud because they’re always worried about the derivatives. We’re assigning a regulator that’s not really used to regulating a day to day spot market. I don’t know about you, but beyond Bitcoin, how do you even go about regulating the entire spot market for crypto? I think that’s a huge task in and of itself and it’s a 24/7 marketplace.

Preston Pysh (00:12:08):

Yeah. It’s probably one of the most liquid marketplaces like we said on the entire planet right now. Yeah, that sounds crazy. What do you think that the… Surely, the rationale isn’t because they’re just empire building, government empire building on the regulatory side, or is that what this is?

Jason Brett (00:12:28):

Well, I think what you’re seeing is this bill isn’t really constructed with anyone really who’s an advocate for Bitcoin at the table. What the big deal with the DCCPA is and also a little bit of the Lummis Gillibrand Bill, is to create a way for all of these tokens to not be securities. We always, the ICOs and everything, not wanting to be under Gensler. The idea is let’s move away from this SEC and let’s find another regulator that the other tokens and blockchain projects feel like they can trust. That’s been this natural move to, hey, let’s go to the CFTC. This whole bill is built around how do we have and how can we regulate the Coinbases, the FTXs, all these major just in a way that’s constructive where we don’t have to say the tokens are securities.

(00:13:17):

It is a little bit of maybe empire building in that they want a federal regime because it is going to exclude all state laws and to the degree that this is interstate commerce that does make sense. Look, maybe there’s some positive aspects of it, but I think first and foremost, the point I think to discuss is when we talk with Tyler is, do we want to have a mandatory regime at all? What that means is to make it mandatory and then I’m raising that the prospect of the maybe stopping Bitcoin, maybe Bitcoin is so liquid, they would never see it as being manipulated. But no one’s really evaluating or talking about what powers we might be getting up in the bill regarding what it means to hold Bitcoin or trade Bitcoin. I think what you’re seeing with this is it’s a little bit of a list of an empire building and more of the way regulators are trying to grab authority because they want to be able to have that authority over digital assets. It’s a big prize.

Preston Pysh (00:14:11):

I guess what I’m hearing at, is the bill being opened up for comments to the public or talk us through how… If a person’s listening to this, we have a lot of smart people listen to the show and they might be hearing this and saying, “Oh, I’ve got a comment for them or I would like to weigh in with my two cents.” How would they do that in this particular bill? Because I know on the Lummis Gillibrand Bill, they did have a comment period where they were very open to hearing what people thought. Is something like that happening here or are they just trying to jam it through?

Jason Brett (00:14:43):

I think for the most part, jamming it through is probably the right way to describe it. You have really key senators that involved Stabenow and Boozman kind of created what they want and she really believes this is the answer to regulate crypto. They have listened to industry and taken a lot of comments from the industry, but they haven’t really created it more broadly. To be honest, the way Lummis and Gillibrand did it is very admirable. It’s not usually the way bills are made in the US. They don’t usually get opened up to the public the way they did. This is actually more following the traditional path of the way a bill would be created. It isn’t really for public consumption, it just sort is introduced in. It’s really just the lobbying interests that are discussing the different points.

Preston Pysh (00:15:29):

Do you see the Lummis Gillibrand Bill still working its way through? You said it has to go through four different types of committees and a much larger process. Do you see them still continuing forward with it or do you see it just dying because of this DCCPA bill?

Jason Brett (00:15:47):

I think there might be other parts of the Lummis Gillibrand Bill that’s able to continue on, but this is one of the four committees is the Ag Committee. If the Lummis Gillibrand Bill goes before Boozman and Stabenow, they’re going to be like, “Well, we’ve already chosen sort of the DCCPA to deal with it.” This is one of the peculiarities of the American system because we have the CFTC that’s regulated by the Agriculture Committees and the SEC that’s regulated by the House Financial Services or Senate Banking Committees. In a sense, there’s almost two different committees with two different jurisdictions that some want it maybe to be in commodities and someone want it be in securities and it isn’t really a holistic way of looking at maybe what the best way is simply to regulate digital assets. As a good example of that, Patrick McHenry, congressman and ranking member of the House Financial Services Committee. By the way, he’s a really good Bitcoiner. If you ever hear him on CNBC, he’s very supportive of it.

(00:16:47):

He was quick to point out just today in POLITICO Pro, he’s like, “Look, they can do whatever they want with the DCCPA.” He was commenting on what Ag was doing. “But at the end of the day, we’re the House Financial Services Committee, so we’re ultimately going to have to say because we have securities and we’re going to dictate what’s going to happen with this.” That was sort of a shot across the bow to say, look, you can move all you want on the Ag side for commodities, but I’m still going to run from sort of what is the security with the SEC and dictate how the market should be. You almost have two different camps within Congress pushing back and forth at each other.

Preston Pysh (00:17:21):

They’re basically saying, we’ll define what a security is, and anything that’s outside of that definition is yours commodities. You’re not going to define what a commodity is, we’re going to define what a security is and you get what’s left over. I would think that the exchanges are going to push, let’s say this thing gets jammed through, it gets passed, it becomes law. I would think that the exchanges that are then going to lawyer up and go to battle over this being defined so differently than how all other commodities are being defined.

Jason Brett (00:17:52):

Actually, Sam Bankman-Fried, who’s been really an FTX kind of been all over DC in a way, actually to be honest, it’s almost never been seen to have a CEO so involved in the politics. I think that he’s pushing…

Preston Pysh (00:18:06):

That doesn’t surprise me at all. It doesn’t surprise me at all.

Jason Brett (00:18:10):

Yeah, but I think at least his goal it seems to be is so FTX has “a home in the US”. I think they see the regulation as a way. They have an operating procedure and I think that’s why they want it. I don’t think, Coinbase wouldn’t object to it either, Preston, remember it isn’t just Coinbase. All of the exchanges are still under investigation by Gary Gensler at the SEC. A good way to think about this is I’ll go to my Jewish heritage is everyone’s trying to cross the Red Sea right now to get away from Gensler. It’s not so much, no one’s really thinking what’s necessarily on the other side, but as far as Coinbase is concerned, they do back flips if this DCCPA was passed because then there’d be a structure they could work with and they’d be registered with the CFTC.

(00:18:52):

That’s why Gensler actually has been ramping up a little bit of rhetoric saying, “There’s lots of these major organizations or banks that have registrations with different organizations,” which is his way of saying, “Yeah, you could be registered with the CFTC but you should still register with me for whatever security tokens you’re trading.” The main takeaway on the DCPA I think and what the exchanges want is, yes, it would be a novelty to have the spot market of crypto regulated, but it would actually give the regulatory clarity that the overall industry is looking for and would believe that a lot of institutional money from the sidelines would come off and start to really make the market grow much larger than it is today.

Preston Pysh (00:19:36):

What were your thoughts on Sam and Erik’s debate?

Jason Brett (00:19:41):

I appreciated Erik’s perspective, which is I guess to not really deal with regulation. As an ex regulator, it’s hard to look at that and be like, well, that’s me. To me, there’s a little bit of a lack of realistic expectations. I think it’s a debate that was eventually going to happen and I think the reason you saw the debate, believe it or not, the debate was listened to by a lot of people in DC too. They really tuned in, which they usually don’t, because it showed the industry’s really divided over this KYC thing. I think that to me it’s an example listening to that debate of I don’t know that the industry will ever really be able to agree on anything. There’s so many different facets to it. Sam’s obviously interested, it seems like creating a bit of a regulatory moat in terms of DeFi did really well and now he’s saying, well, now we have to do KYC because he wants to get the approval of the CFTC.

(00:20:40):

Although ostensibly, he’s talking about he wants to bring all the assets on shore to the US. I think Erik, it’s very good, noble approach, and I think it’s important because I don’t know if I know anymore, and I love your thoughts of how we get to a point where we can say how we can operate anonymously in this world without the government either thinking we’re doing something wrong or how we still track the bad guys if the good guys still want to have privacy with their finances. To me, the DCCPA and this debate that flared up, A, shows me why the DCCPA is getting closer to being law. The fact that there’s a lot of pressure. Why Sam’s in there? Because they’re trying to get this law through. But at the same time, there’re still this division in the industry I think. I think that debate represented it well and a lot of Bitcoiners, people like it’s about not having the KYC, not keeping that where we can.

(00:21:39):

That’s where it’s maybe we don’t need the legitimacy of this major bill or the federal agency. I mean, Bitcoin’s doing just fine as it is now and that’s why I raise this bill is because it seems like the pressures of other coins and other projects are bringing on perhaps more stringent regulations and concepts to Bitcoiners that we need to be aware of as this bill progresses too. But yeah, no, I think that I like Erik’s position, I think it’s a good one. But I think Sam is going with the political expediency of the day and he sees the direction of his bill is going in, that it’s picking up momentum and is trying to find a way to clear a path because he knows he needs to really get the industry united behind it for the bill to succeed.

Preston Pysh (00:22:26):

There was some big news recently, I know Michael Saylor was really big on trying to get the tax ramifications for how having Bitcoin on your balance sheet and the unrealized capital gains or losses have been reported. Talk to us a little bit about that and how that was received on the hill or thoughts on the hill on what that might mean moving forward.

Jason Brett (00:22:53):

One of the things that Saylor and Saylor CPA has been bringing to the attention of the SEC for some time is this idea of how they want to consider going to be this intangible asset. As he’s been losing the value, the idea would be then you have to accept that there’s an unrealized loss, the new GAAP accounting guidance. It hasn’t really been talked about too much on the hill, but I would think for industry that opens up a lot of opportunities for companies who maybe are thinking about holding Bitcoin on their balance sheet because the approach that was originally taken was kind of draconian really, because it means you have to keep taking the loss, but you can never see a gain if Bitcoin were to rebound in price.

(00:23:37):

I think that’s a major lesson in general that maybe at some point the SEC and Gary Gensler needs to start accepting the fact that Bitcoin is acting like a rational market player like any other investment and that we can’t just keep considering it somehow different than others, or the assumption that it may go to zero. I mean, there’s stocks that have more of a chance of going to zero, than Bitcoin could ever go to zero. There needs to be a fairer approach. I think that was a sign finally, at least on the GAAP accounting side of having a fairer approach to the way Bitcoin should be considered on the balance sheets of companies.

Preston Pysh (00:24:17):

Jason, recently, the White House Climate and Energy Implications of Crypto-Assets in the United States is a paper that the White House recently published just for people who are interested and maybe reading through that, I would strongly encourage you to go find Nic Carter’s annotated response to this document that was published because he puts it in some really important points that I think maybe weren’t covered. One of them particularly that Nic highlights is the Office of Science and Technology policy acknowledge in the White House report that came out on this energy climate report, they acknowledge that proof of work and proof of stake may not grant identical assurances and the remains uncertainty as to whether proof of stake might be a perfect substitute for proof of work. Bitcoin obviously is what we’re talking about when we say proof of work.

(00:25:10):

When I look at Ethereum and you’re saying that it’s going to be covered as a commodity under this new bill that’s being introduced, there are people that are staking coins through exchanges and they have no assurance that they’ll ever be able to withdraw those coins. There’s nothing in these protocols that allow these people to withdraw the coins. If you talk to a person who’s an Ethereum person, they’ll say, “Oh, well, you can still have access through this StiB,” which is basically another token that has created liquidity for the ones that are staked. When we look at the battle to basically gain the highest market share in this space for digital assets, the people that are governing, whoever is governing this protocol, this Ethereum protocol, the few people that are able to call the shots and update the code, they’re incentivized to not allow people to unstake their coins because those coins can never go back on the market.

(00:26:12):

Well, the price is going to bid because there’s less of them to sell, right? I’m looking at this and I’m saying, how is this being viewed in the same light as Bitcoin? Which is completely open for anybody to buy, sell the coins, or what you run on your full node, you can audit the entire number of coins that are there. This is much mushier, and I’d be very concerned if I had Ethereum staked as to whether it would ever even be, and I’m not trying to drum up fear and all that kind of stuff, but there’s no assurance that you’re ever going to be able to unstake the coins and yet here they are listening in as a commodity. Our conversations like that happening on the hill is the technical competence of people that are making these bills, writing these bills to potentially become laws. Do they understand that type of nuance?

Jason Brett (00:27:09):

Well, I think and what you’re referring to with the report from the White House, I think it’s an important distinction to make about what the White House wants and does want for the digital asset industry. I don’t believe it’s necessarily a lack of understanding the way the mechanics of the token work that I’d say there is an improvement in that. However, what you just raised about the potential for consumer loss and consumer protection is really important. I will tell you for instance that in September 16th the White House came out with its framework for digital assets in the United States’ states.

Preston Pysh (00:27:49):

What would that be, 21?

Jason Brett (00:27:51):

Of this year. Of this year. Oh, September 16th of this year.

Preston Pysh (00:27:54):

This September. I’m sorry, I thought I heard you say December. Okay, September.

Jason Brett (00:27:57):

I’m sorry, September 16th. And so what’s important about that is that report you mentioned about energy, if you look at the statement from the OSTP, the Office of Science and Technology Policy at the time, acting director Alondra Nelson, she actually said how great it was that Ethereum changed to proof of stake because it was showing that what they were doing was working. But in other words, they believe that their convincing the industry to switch from proof of work to proof of stake. Yeah.

Preston Pysh (00:28:27):

Oh my lord.

Jason Brett (00:28:28):

Let’s talk for just a quick second back to the CFTC. Remember I was mentioning Rostin Behnam who’s like would be the overseer of Bitcoin and all these other digital commodities. He has publicly said he is upset with the proof of work community and he wants everyone to go to proof of stake. He thinks that they believe that needs to happen for the sake of the environment. But White House is pushing a policy and so they’re almost blinded because Biden has made it so clear the importance of stopping global warming. I think if we look… We can talk through the framework if we have time in your show, but the framework, the White House is introduced on September 16th is really significant. It almost doesn’t matter some of the things you’re raising.

(00:29:17):

The way the White House works when they don’t actually rely on legislation and they just start dictating policy is to say, well, the rules and regulations are already on the book. Even though Nic Carter shredded the report, the report still stands, the White House is like, “Oh yeah, Nic Carter’s right, we should throw this out.” They’re still using that to make policy. And so this one point I’ll read you from the framework is this is the takeaway from that report, which is they’re pushing now for the Department of Energy, the Environmental Protection Agency and other agencies to consider further tracking digital assets, environmental impacts, developing performance standards as appropriate, meaning performance standards as how much energy is being used and providing local authorities with the tools, resources, and expertise to mitigate environmental harms.

(00:30:03):

Then it says, power and crypto assets can take a large amount of electricity which can emit greenhouse gases, strain electric goods and harm local communities, opportunities exist too, and here you go, press and align the development of digital assets with transitioning to a net zero emissions economy and improving environmental justice. [inaudible 00:30:25].

Preston Pysh (00:30:25):

People aren’t having it. People aren’t having it. I mean, some people are having that conversation and they’re all for it. Then I would say the other side, the half of the population, maybe even more now based on everything that’s happening over in Europe and everyone seeing the disasters of some of these strategic policies are coming to their senses and saying, “Holy moly, we’re about to be shivering all winner because of some of these policies.” But one other thing that I think was highlighted in the report that, not that I’m trying to counter argue, which you’re saying was in the report, but one of the things that Nic Carter that highlights as a bright spot in the report was this comment. He says, “The OSTP acknowledges the interesting developments in mining with otherwise-flared or stranded natural gas, often released as an unsaleable byproduct of oil extraction.”

(00:31:17):

They’re acknowledging that from a flaring standpoint, which is hugely important when we’re talking about these environmental goals, makes that way more, way more, I’ll just use the word green, trying to get to those targets because you’re not having the inefficiencies of flaring taking place. If we have policy people listening to this, this is my two cents real fast. You cannot expect to have efficiency and optimization in the consumption and the production of goods when you’re dealing with a fiat currency. When you’re dealing with a currency that’s debasing at the rate that this is debasing, and I would argue that the M2 growth rate of the money supply is your debasement rate, which is in excess of 10%. When you are having debasement at that level, and on a global scale, how in the world can we possibly expect global cooperation of consumption to take place in an optimized kind of way?

(00:32:22):

When you are dealing with a new monetary standard that doesn’t have that debasement rate, you actually get a free and open cost of capital, which then puts an expense to doing business on the producers that is free and open. What it does is it naturally optimizes production and consumption between two parties. That is captured nowhere. That is captured nowhere. In any of this analysis is the efficiency of the global economy to be able to function between net producers and net consumers around the world because you can actually agree on the settlement layer, which I think should be something that actually is tethered to physical reality, which is energy. It has to be tethered to physical energy in order to create a unit of account that does that. I have a bias, I think Bitcoin solves that and I think it does it in a decentralized way. But sorry to go off on a tangent. I just get so frustrated on this particular topic and no matter how hard I try to have this discussion, I can’t find a person that can counterargue it.

Jason Brett (00:33:35):

Yeah, no, and trust me, I’m not trying to say that I agree with it. I’m trying to give you the political realities of the way the report is taken. But I will say, there has been some voices coming from this report of the possibilities of what Bitcoin could do, and they are considering that. I think what happens unfortunately is for instance the head of the National Economic Council, Brian Deese, when he is given two minutes to basically explain, well, what does all this mean for digital assets?

(00:34:07):

Because to them it’s like just a two minute soundbite. His two minute soundbite is, “Well, the takeaways from all these reports, because they’re nine reports, there’s like over 500 pages in them is, the US has to figure out how we’re going to do research and development to create our own central bank digital currency. We have to mitigate economic harms to consumers and environmental harms and we’ve got to do more research and development on digital assets in general and stop illicit financing.” I mean, that’s like the quick sound bite is, oh, we just got to mitigate the environmental benefit. All the stuff you explain…

Preston Pysh (00:34:40):

Everybody around them is chirping the same thing as what you just said.

Jason Brett (00:34:43):

Yeah. The thing that you said that’s most interesting that I thought about for a long time, Preston, that I think needs to be done with Bitcoin is there needs to be almost, and I’m serious like a Bitcoin advisor at the White House because the problem is the report is being done by our top scientists about Bitcoin where they’re really just looking at the equation about energy. You just talk about all the economic realities of it. Nobody from the fed is part of that. There’s no economist sitting there saying, “Well, what about the economic benefits?” We’re just looking at one side of Bitcoin, which is this multifaceted thing that we need a broad array of economists, energy folks, everyone at the table to really capture what the possibilities are. Until we do that, we’re not going to get there. We’re going to still be limited in the way Bitcoin viewed by our government.

Preston Pysh (00:35:37):

Here’s the thing policy makers need to understand, in the grand scheme of things, if you’re looking at it from a global lens, it doesn’t matter if the United States gets it right or wrong, it really doesn’t. Because there’s other countries in this world that are rich in natural resources that want to be paid in something that is tethered to physical reality, which is Bitcoin, and they’re going to mine the living heck out of this. If you think that you’re going to want their goods and services, the molecules that they’re net exporting, if you think you’re going to get those and pay in something other than Bitcoin, you’re going to find out a hard truth real fast. You’re going to find out a real hard truth. Whatever the policy ends up being, it’s going to eventually go back to this idea that if you want to over consume more than you actually produce, you better be ready to pay for it in a hard money.

(00:36:34):

There’s no harder money than Bitcoin because these other things, the Ethereum, the proof of stake that has no tethered to physical reality, they’re not going to take it. They’re not going to take some StiB token because whoever the 10 people that are controlling the proof of stake protocol, that’s going to hit their net whatever goals by 2030, they’re not going to take that coin. They’re not going to take that third tier token because it’s locked up in doing “validations” and paying a 10% to somebody who just happened to be on the scene when it was initially launched. They’re not going to take those clown coins. I guess, I’m getting frustrated because I can see how hard it is for policy makers that have sat at the lap of luxury of owning and controlling the global settlement layer for decades on end and why they can’t see this.

(00:37:36):

But when we look at the global macro situation that’s playing out in the world right now, Jason, it comes down to this simple truth. There’s people with molecules that are net exporters, they do not want more paper promises, they do not want a proof of stake paper promise, they refuse to take it. That’s why the whole world’s in chaos right now. Boy, if we’ve got policy makers that are listening, I would highly encourage you to challenge whatever belief structure you got around proof of stake. All right, this should not be me blabbing about it [inaudible 00:38:15].

Jason Brett (00:38:14):

No, no, no, it’s great. I love it for bringing the fire today. What I’ll say is beyond the proof of stake, I think what you’re seeing though is, and that what’s that expression in the end, it was all kind of inevitable. This is the year like that’s why I’m glad to be on your show really as we get to the end of 2022. Because to me 2022 is the first year we’ve seen the White House really engage with digital assets, I mean, think about it, we haven’t heard of Pete, I mean, Trump did one tweet, “Oh, I think the Bitcoin is full of thin air.” This is the first time they’ve really taken a comprehensive approach looking at the stable coins in the market, the DeFi, all the other noise and Bitcoin, and what did they come up with? What’s their big answer? What are the big takeaways from this?

(00:39:05):

It’s that they need to urgently create a central bank digital currency that, that’s going to solve it. In other words, they want to take all this technology, all the stuff you’re talking about and in a sense find a way to preserve it in the digital realm to have it be basically a liability on the Fed balance sheet and for the people at the Fed and the White House. When you look at what Russia’s doing, what all these other countries are doing, the way they’re looking at these assets, that’s like what they always say about the British Empire when it started falling apart but they couldn’t change their ways. They were just stuck on that, their Navy would dominate. It’s like let’s build more ships. Well, let’s build the CBDC. There isn’t yet that creativity. Again, that’s why, I mean, people probably think it’s like sounds odd, I’m trying to say it should be El Salvador or something. But I really do think there needs to be a Bitcoin advisor at the table to try to help explain where all this is going.

Preston Pysh (00:40:02):

They are missing it on the finance side. I saw a post today where some representative was talking about reintroducing a backing of gold, and as soon as I read that, it’s the biggest for a person like me and I’m looking at it, I’m saying that’s the biggest eye roll ever. And here’s why, because it doesn’t solve the fiscal situation. It doesn’t solve the problem that’s upstream of the money itself, which is we’re outspending reality. As long as you’re outspending reality, you can create whatever digital central bank digital token you want. But if you think you can force a peg on something that you’re controlling the ledger as the government, you’re kidding yourself. If you think you’re going to put some gold bars and say that, “Oh, well, now, it’s 10 gold bars for this many thousands of dollars,” and if that peg can hold without changing the fiscal spending, you’re kidding yourself.

(00:40:57):

All the gold is going to fly out of the vault and you’ll be off the gold standard in four months. It’s not solving the fundamental critical variable that’s upstream, which is the fiscal spending. That’s the whole thing with Bitcoin is you have something that’s tethered to physical reality through energy that is going to force upon the world a peg, that you either learn to deal with it and get your fiscal spending under control or you experience the pain that’s associated with not doing that. The Central Bank Digital Currency for me, it’s laughable. You still control the ledger from the government’s point of view and nobody’s going to force austerity. It’s not politically popular. Everybody knows that. It’s an impossible. History has suggested that’s how it’ll never be solved. It’s through austerity. They might try for a couple months, but I’d say we’re trying it right now with monetary policy and everybody knows, I mean, you heard Powell today talk about, well, we have tools to solve this if it gets too austere, right? It’s crazy.

Jason Brett (00:42:06):

Yeah, and I think that ultimately we’re going to have to make a choice to recognize that perhaps the US dollar to the degree of the way it’s designed today is going extinct. In other words, it’s not going to be able to carry and to look at the history of no money can last that long, right? There’s always evolutions in money and so it’s kind of shocking to think that we’re this advanced nation that we’re not going to take a step back and actually analyze possible other outcomes. But instead what you’re seeing is just a real underestimation of Bitcoin.

Preston Pysh (00:42:47):

Yes.

Jason Brett (00:42:48):

I mean, if some of the things you were talking about, if you’re talking to policy makers, I have to bring you there, Preston, and you left the room and then they’d like take me aside, say, “Hey Jason, what’s that guy smoking? Hey, can I get some?” They think you’re nuts, and that’s the problem is, there’s just this real underestimation of what you’re seeing. Like you said, there has to be the ability at some point to take Bitcoin seriously. Maybe it’s good that they’re not taking it that seriously right now because they’re kind of leaving alone for the most part. They’re just trying to invent their own CBDC. But like you said, if you care about the US being the leader for digital assets and us being able to have a home here where Bitcoin can be huddled and we can use it and benefit it, individually and this country, we’re missing the boat.

(00:43:38):

Look, again, this is the first shot, right? This is 2022, I mean look, it took 14 years for the White House to finally get involved in this stuff and they missed the mark in a lot of ways because of the overfocus on the energy use and not really considering the whole thing. It’s going to require a… Unfortunately, the way our government works, something probably bad to happen, really bad economically for them to wake up and say, “Okay, wait a minute, we got to look at this Bitcoin thing.” But then it might be too late. It’s like we can sound the alarm all we want, but it’s like until something bad happens, no one really does anything.

Preston Pysh (00:44:12):

Tons of people miss the fact that the innovation is the injection of energy into the token. They miss it. Big time, they miss it. Before we started, you had told me that the White House was working off of three principles or three rules of thumb as they’re thinking about this space. Walk us through what those three things are.

Jason Brett (00:44:36):

Sure. Really, before the executive order came out, the White House, Federal Reserve and Treasury had been having meetings trying to determine what to do about digital assets. It was a concern because of things like ransomware, colonial pipeline, story about the illicit asset side of things. They really came up with this, they kind of looked at the whole space and they just said, “At the end of the day, the US government can’t let the technology wag the dog,” this odd digital asset technology, somehow because it’s different. We need to conform our laws around it. The laws need to be enforced on this industry. What they evaluated, looking at all the different products and ideas going on in digital assets, the first three principles they really wanted to keep, and they’ve really accomplished this, a lot of this without legislation is to maintain that the US government be able to set monetary policy that not occur somehow in the private sector or through something, let’s say, Bitcoin.

(00:45:39):

The second one is to be able to regulate financial markets and enforce consumer protection. What that has to do with is this concept of same activity, same risk, same regulation. A lot of these DeFi products or loans or whatever they’re saying, look, these are still financial products. The laws we have on the books, we need to just enforce those. The second principle is we got to make sure we’re always monitoring and regulating our financial markets and protecting consumers and investors that play in that market. Third one is really illicit finance, ways of mitigating concerns around illicit finance, particularly with ransomware, colonial pipeline. I mean, the US convened 40 countries here in the US to talk about the concept of ransomware and the danger of people using ransomware and asking for Bitcoin to hold up major supply chain issues in the US.

(00:46:39):

That’s where the illicit assets come in. Really, when you think about things like you’ve seen recently with Tornado Cash, which is on the Ethereum protocol and this spooky DAO where they’re saying we don’t have to do know your customer protocols, but the CFTC shut them down, and everyone’s wondering, what does it mean if you have a governance token? It’s not so much about the governance token and it’s not so much about the anonymizing effect of Tornado Cash. What you’re seeing is a coordinated government effort to try to stop the illicit use of digital assets in any way. If that’s the Tornado Cash turning out money for Korea, North Korea, excuse me, or if that’s us seeing this spooky DAO that doesn’t want to do know your customer, this is where you’re starting to see the government enforce these principles that they’d be able to regulate monetary policy.

(00:47:34):

If you take those three principles, you look at what they’re doing, I mean, the way they’re looking to make sure they can regulate monetary policy is again your favorite, Preston, and everyone’s favorite in space. Just kidding, it’s CBDCs, right? Because they see CBDCs, they can introduce it, they can do negative at the low end of like they can create negative interest rates with CBDCs, force people to spend them, keep limits on it. I mean the CBDC to them is the way of weaponizing through the digital space, monetary policy for the US, the way we have [inaudible 00:48:08].

Preston Pysh (00:48:08):

It’s crazy.

Jason Brett (00:48:08):

Yeah, the way we have Powell announcing the interest rate today is to do it at a mass retail levels. That’s like, so the US can continue to set monetary policy through CBDC, I think, the financial markets, you’re just seeing regulate everything the way the banks regulate these things, so you don’t have DeFi and all these things existing on the edges, bring them under the financial system. Then finally, the illicit assets, they’re not going to let terrorist financing happen. Even though there’s not a lot of record of it happening yet, but it’s like the colonial pipeline thing really spook them.

Preston Pysh (00:48:42):

I just don’t know how anybody could think that you can create currencies that act this way and that you can be a net consumer at the level that this country and a whole lot of other countries that are in debt up to their eyeballs that are also net consumers think that they’re going to be able to do business with other countries in the world that are net producers and they’re going to accept that stuff as payment. They’re not going to accept it as payment. They’re going to literally shut off their lines and they’re going to say, “You know what? Just going to have to be cold or you’re just not going to get that because we’re not accepting that as payment.” The whole global macro situation has come down to is that exact scenario and we’re going to mutilate the currency even worse than it already is. We’re in fantasy land. We’re in fantasy land.

Jason Brett (00:49:37):

Yeah. It’s like we have this really good idea comes out Bitcoin or a different way of looking at the way economics can play out and all these things. Then, I mean, going to the Avengers movie thing, and then it’s like you have Thanos that comes in with a plan. Like here’s the plan, we’re going to do this instead. You kind of want to say, I mean, maybe we just need to issue 1984 to all the policy people developing CBDC to understand where this could go. Maybe not what their intent is, right? Just like, if maybe not the original intent, but down the road somebody picks this up and they’re like, control people’s money.

Preston Pysh (00:50:18):

You know what, Jason? I think that the reason why they’re going down that path is because they don’t see any other solution. They don’t see Bitcoin as a solution. They see it as this weird, okay, so they did something technologically that now we can leverage some of that technology to put another bandaid on this bleeding patient. They don’t see a real solution to stop the hemorrhaging.

Jason Brett (00:50:45):

It was interesting there a few years ago, NIST, which is the computer scientist agency of the US Government, National Institute of Standards, they actually produced a white paper and I thought it was really invented at the time, and it was really to be honest, before the Federal Reserve started getting involved, before we even called the CBDC. And they actually did, and it’s still, I think on GitHub, they did a fork of Bitcoin and they actually explained how Bitcoin could be used to help with monetary policy in the US, and it was really creative. It wasn’t like the way Bitcoin is, it was more conforming to having a federal reserve, but having different users and administrators who could help put controls in. You don’t just have one person like Powell saying, “Hey, the interest rate’s going here,” other people could have votes, maybe states.

(00:51:34):

It was this really inventive way of looking at it, of saying maybe Bitcoin could be used in this fashion. It just got filed in the archives, like the Indiana Jones pushing the covenant way in the back. No one talks about this anymore ever since we started talking about CBDCs. But I mean, that was a really interesting look and that was some computer scientists in the government who were being really creative saying, “This has some merit.” I think it’s there, it’s just, I don’t know. Maybe it’s just when you get into the powers of the White House and it’s the leading country, there’s these blind spots. They’re used to the way things are and they try to recreate that in the digital world. They’re seeing this simply as an analog to digital move that we can do when there just needs to be more open mindedness about the possibilities.

(00:52:33):

Maybe we can have that with the right research and development and a little bit of a change of agenda with the White House. You almost need a president who can understand Bitcoin to really start because the direction right now, the policies is nothing to do. It’s not even positive for Bitcoin or negative for Bitcoin. It’s just worried about the energy. Let’s develop our own coin. It’s very much first inning type maneuvers where they’re just going to need more time hopefully to understand it. Like you said, hopefully before it’s not too late or other countries just get the jump on us. I think you’re already starting to see a little bit of that too, particularly with Russia, when you saw what Binance is doing. Binance talking about still possibly engaging with Russian customers. The US actually is a very small part of the whole crypto asset space. We do really have to be cautious about what we’re going to give up to other countries.

Preston Pysh (00:53:30):

Yeah, thinking that they can turn off their exchanges and the rest of the world not continuing to move out is just pure hubris. Hey, so who are some of the key personalities? If people are hearing this and they want to start pinging key influencers on the hill on all these matters, who do you think are some of the key influencers that are really from a political standpoint, having an impact on the shaping of these bills and potentially laws in the future?

Jason Brett (00:54:02):

Well, I think a good place to start, it’s usually the staffers, the joke is the staffers do a lot of the work in DC, but I think reaching out to either Senator Lummis’s office in Wyoming kind of reaffirm what they’re doing with their bill. Nothing wrong at all with reaching out to the DCCPA, folks like Stabenow and Boozman’s office and giving them your opinions to run Bitcoin. You do see some of the folks really pushing the envelope I think is great. One is an advisor for the BPI, Bitcoin Policy Institute. David Zell has really been on fire as of late in helping with these kinds of issues. I think he would be a good person to reach out to see what efforts they might get involved with. Yeah, I think that’s a good start reaching out to Patrick McHenry’s office since he’s ultimately… We’re probably going to see the Republicans win the house.

(00:55:00):

He’s going to be the chair of the House Financial Services Committee. He’s a big Bitcoiner. I mean, you go back and look, I mean, I saw him, he would go around and do a podcast, go on other congress people’s podcasts with another congressman or congresswoman and basically [inaudible 00:55:15]. I mean, I’m really happy about his positioning. I think he’s a good one to remind as we deal with all the other aspects of the digital asset industry where we’ve gotten all fancy, right? We have DeFi, NFTs, we have DAOs. Let’s just remember the basics of this instrument and how it works and what it means and how its fundamentally different. I think that would be a good office to pursue the concern you’re saying with the Eth, and again, I’ve seen that too, whatever the five letter word is for the new [inaudible 00:55:44] kind of thing, and the dangers from a consumer protection aspect to it, I think that’s important to raise.

(00:55:51):

Remember the hill’s never going to really pick sides. They’re going to be like, “Oh, Ethereum bad, Bitcoin good.” That’s not really their role. They just see it as two different opportunities in the ecosystem. It’s not really their place to say, “Well, this is a scammy thing or whatever.” If it breaks a law and it’s illegal, that’s quite another story and that’s where an agency can step in. They’re never going to really try to pick a winner in that regard. But certainly just from the perspective, I think for me is right now my focus with Bitcoiners is I feel like there needs to be protections possibly even placed in the constitution at some point, but in laws about protecting our privacy, protecting our property, and protecting our ability to simply transact in Bitcoin because I think those are the things with wallets that aren’t on exchanges. Those are the things I think they’re in most jeopardy right now.

Preston Pysh (00:56:45):

Was there anything in the DCCPA, the new bill that related to a person running their own node and conducting transactions over the lightning network that would impact that person?

Jason Brett (00:56:59):

Yes. That’s where it’s tricky, right? Because it doesn’t directly talk about that. But the question would be, do you fit into one of the categories of the DCCPA’s definition of are you a digital commodities broker or are you an exchange? If it’s mandatory for all exchange to register with the CFTC, what if I am that person that you’re talking about and I’ve spun out my own node and I’m monitoring transactions, does that make me like Coinbase? Do I have to also register? Those are unanswered questions and I think that’s where there still needs to be a little more exploration into what this bill really means down the line. I think lightning and others sometimes are… Believe it or not, I actually heard someone one time talk about lightning. I know how hard you’re going to laugh when I say this, so I’m preparing myself for your reaction.

(00:57:52):

But literally said, lightning was like this way of doing off balance sheet maneuvers. In other words, because it’s not on the blockchain and it’s not visible, it’s like the way they used to do these credit default swaps that led us to the first financial crisis.

Preston Pysh (00:58:10):

Oh my God.

Jason Brett (00:58:11):

I mean, literally, and I’m not kidding, it was one of the people that was running to be the OCC chair. I can’t remember her name but I’ll find the quote and send it to you too so you can look at it. But I mean, literally, her paper discussed the notion that the lightning network of Bitcoin could maybe create the next financial crisis because it was taking stuff off the balance sheet and off the visibility of the blockchain. It’s amazing what people will kind of conflate.

Preston Pysh (00:58:37):

This is crazy. I mean, that’s so dangerous and it’s dangerous for the country in which a person like that is able to construct laws. It’s not dangerous to Bitcoin. I think that’s the thing a lot of these policy makers don’t understand. This is not dangerous to Bitcoin whatsoever. This is dangerous to their local jurisdiction and whoever falls inside of it because they’re going to be in the back of the pack because this thing’s moving out. It does not care whether you understand it or not.

Jason Brett (00:59:12):

It reveals a lot, I think too, Preston, about what their intent is by the mere fact that their immediate concern is it wouldn’t be visible on a blockchain ledger what’s happening with the transactions, it means they like that the Bitcoin blockchain is visible to the degree that they can at least surveil all the transactions. Second, you maybe take that visibility away it’s like, but I think that ultimately like that with how that’s going to impact it, that’s the big question and that’s what we haven’t yet seen.

(00:59:42):

This bill is an opportunity to maybe create that kind of carve out to protect those that are doing lightning notes. My personal belief, and it’s funny this is coming up right now, is I think ultimately they’re going to do all this like spend millions of dollars of our taxpayer money exploring a CBDC, Preston, and they’re going to come to the conclusion that the lightning network is actually how they need to be doing it. Because it’s going to provide the anonymity that you want if you’re going to want somebody to have digital cash. Anyway, I think they’ll eventually spend millions and millions dollars to come back and say, “Gee, maybe we could just use the lightning network.”

Preston Pysh (01:00:18):

I think that’s how it’s all going to go down. I think that you’re going to have all this consternation and even if they do create laws, the market for Bitcoin is so massive. The amount of transactional throughput that’s happening on a daily basis is so massive that they can’t afford to stop a spot market and it’s just ballooning in size. I think what they’re going to find is their inability to really do anything might have been their greatest asset. It might have been their greatest asset because if they would’ve passed something, it would’ve constrained them and then it would’ve put them further back in the pack relative to all these other countries that are understanding it and are passing laws. Like Wyoming’s a perfect example of a state at the state level that just totally got this. I think they’re going to have, when you look at it compared to other states, they literally got it a decade before other states even understood what was happening.

(01:01:15):

It just goes to leadership and technical competence and kind of understanding the inherent problem that’s being solved for in the first place, which is when you start talking about all these proof of stake tokens, proof of stake tokens. I think that’s my biggest pet peeve is like what are you fundamentally solving that’s broke here, right? I can go into my stocks exchange account and look at stocks that are there and I don’t have a concern with buying, selling, holding. Now, do other people in the world have that problem? Yes. And I think that, that’s probably where they’re going to solve or where they’re trying to solve that issue.

(01:01:58):

But when I think about the scale of what’s being solved of a global settlement layer that can’t be manipulated by any individual country, that’s tethered to physical reality through energy and has a scarce amount that can serve as that settlement layer so that we can come to agreement between net consumers and net producers, that is a massive thing that is being solved for and it’s very different than what a lot of these proof of stake tokens are trying to do and what they’re solving for. People on the hill and all over do not understand the magnitude of what it is we’re talking about here. It’s insane. It’s insane.

Jason Brett (01:02:44):

I think there’s a good opportunity. We never like to say it’s more of a progressive or republican concept, but I will say with the Republicans taking over in the midterms, people like Patrick McHenry on the hill, one thing that is a big policy push for them is always about the cross border nature and how to improve cross-border transactions. That could be something that could be really flushed out with them to really explain the value proposition of Bitcoin in that regard. I have heard a couple of folks like Congressman Tom Emmer talk about that before. It could be interesting, right? Because you’re talking about how do we do these cross border transactions? And we’re hearing CBDC, CBDC from the White House, but maybe from the legislature, we could hear a little bit of a pushback and start to develop. Maybe I’m too optimistic, but I believe maybe our leaders will be able to pick this up at some point and be able to pivot the way they have with other technologies to make sure the US stays in the lead.

Preston Pysh (01:03:42):

What’s the most useful thing that a plebe who’s listening to this can do in what I would describe is a battle of knowledge in sharing knowledge to people as to what this thing is?

Jason Brett (01:03:58):

Just like there’s this top down approach from the White House that I mentioned earlier about informing local authorities about potential environmental impacts of Bitcoin, let’s just call it kind of misinformation, right? Talk to your local folks, even a state rep, even a town supervisor, help explain what Bitcoin is, explain what the value proposition is and show how on a local and state level, there can be that influence and let that become a grassroots movement that maybe can be formulated one day into something like maybe an NRA or something along those lines where there’s certain principles that we stick to about what Bitcoin is.

(01:04:42):

It doesn’t have to necessarily be organized, but you must have those conversations with the politicians that are accessible to you because we’re getting top down information that is misinforming a lot of our local and state authorities. The least you can do is to help correct that, help them understand why Bitcoin might make sense, why the Bitcoin miner is trying to open up in your community. It shouldn’t be disallowed because of environmental concerns, things like that.

Preston Pysh (01:05:08):

Give people a handoff to your Twitter and anything else your organization that you work with, give people something that they can check out in the show notes, Jason.

Jason Brett (01:05:19):

Sure. You can find me at @RegulatoryJason on Twitter and DM me. I’m happy to share information. Then the nonprofit that provides education on this to a lot of departments like Department of State and others is the Value Technology Foundation, and we’re at Tech Foundation, so just that @TechFdn on Twitter and you can find it more about the Value Technology Foundation and what we’re doing to try to educate federal agencies about Bitcoin, this industry.

Preston Pysh (01:05:53):

Awesome. Jason, I really enjoy these chats and you’re just so gracious with your time. You always come on whenever I ask and this was no different. So thank you so much for coming on today.

Jason Brett (01:06:04):

Thanks for having me, Preston. Really appreciate it.

Preston Pysh (01:06:07):

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, and it’s something that helps others find the interview in the search algorithm. 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 (01:06:39):

Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permissions must be granted before syndication or rebroadcasting.