This Is What the Crypto Industry Actually Wants From Trump

0:00Your best bottling plant employs 3 ,300 people. How do you get 3 ,300 people working at peak efficiency? Your best store has reduced waste, water, and energy usage. How do you make every store like your best store? Your best property has every guest raving. How do you make every property like your best property? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. How many vendors does it take to meet all your organization's food needs? Just one. EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor.

0:45In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. EasyCater, your business tool for food. To learn more, visit EasyCater.com slash podcast. Hey there, OddLots listeners. We have a very special announcement. Joe and I are hosting our annual Fraught Lots Pub Quiz on Thursday, February 13th in New York City, and it's going to feature some very special guests and prizes. So come test your wits in finance, markets, and economics for a chance to win the ultimate Odd Lots glory and hang out with your fellow listeners.

1:30Tickets are on sale now at events.bloomberglive.com slash oddlotspubtrivia. You can also find links on our Twitter feeds or in the newsletter, and you can find the link also on our show notes. We hope to see you there.

1:47Bloomberg Audio Studios. Podcasts. Radio. News.

2:03Hello, and welcome to another episode of the Odd Lots podcast. I'm Jill Weisenthal. And I'm Tracy Alloway. Tracy, here's two things that I know, or I think that I know. One is that a lot of people in the crypto industry are excited about the new Trump administration and perhaps regulatory changes that may come about. And it also seems like a lot of people affiliated with the Trump administration have an affinity for the crypto industry. But beyond that, I don't know what any of that means. It's one thing for different groups of people to like each other, have some affinity. But what it means in terms of substantive changes in the world, or at least in regulation, I don't have a clear idea.

2:45Yeah, there's definitely been a vibe shift. Yeah, the vibes, yeah. But in terms of what that means concretely in the real world. I am also unclear. I will say I'm looking at a chart of Bitcoin right now. And I mean, you can see like beginning of November, it shoots up. And obviously there have been some things that are sort of happening already. So for instance, you know, Gary Gensler is out at the SEC and he's going to be replaced by Paul Atkins, who is a, I think he's generally considered a crypto proponent. So that's one thing. Crypto kind hated Gensler. So there's that expectation. But beyond that, there's talk of like a strategic Bitcoin reserve and all these other things.

3:27And I guess the difficulty is crypto is never a unified body. Everyone wants different things and there's all this infighting. And so I'm just curious, what is it that the different factions are basically after at the moment? Yeah, that's a really great way to put it. And it's clear, even as you described, there is a range of ideas that are sort of some seem more perhaps realistic or in the short term some strike me as sort of fantastical but i would never count out anything if we one day have a strategic bitcoin reserve in the u.s like i don't know it's 2025 anything could happen but there is possible but there is like a range right there's a range of what's pursued maybe is it more regulatory clarity on certain sort of like token projects?

4:13Is it a way so that some sort of stable coin regulation can be resolved in some way that expands their ability to be a source of payments? Many big questions, many interesting possibilities. So as you know, with the new administration, I think we should get a better sense of what people in the industry are actually substantively looking for. Absolutely. Let's do it. Well, I'm really excited to say we have, I believe, the perfect guest, someone we've had on the podcast before. And I said at the time, we were talking about stable coins specifically that time. But I think I said at the time, this guest should really be the crypto industry only.

4:49You said the crypto industry should shove everyone else in a broom closet. Yeah, that's right. And just have this guest be their spokesperson, at least when talking to the mainstream media like us, maybe like on crypto podcasts, they can have other people. But when they sort of dress someone up for the mainstream media and want to be presentable, I really think this is the only guest that they should have. Very excited. We're going to be speaking with Austin Campbell. He is an adjunct professor at the NYU Stern School of Business, and he is also the CEO of WSPN USA, where he does stablecoin stuff.

5:20So Austin, thank you so much for coming back on the show. Yeah, well, I'm glad I'm not stuck in the broom closet. Thank you for coming out. I think the WSPN job is new since the last time we talked to you. What's going on there? Yeah, it is new. So WSPN is an up and coming stablecoin issuer. I think one of my observations about the industry right now, and the way I sort of try to say it to people who are not deep into it is we've got a whole lot of MySpace and very little Facebook when it comes to stablecoins, which is to say, I do have immense respect for the work people have done so far with things like, you know, Tether, Circle, et cetera.

5:59But the reality is none of these are, in my opinion, in fully formed implementations yet. I think the industry still has a long way to go to get genuinely professionalized. So WSPN is an effort started out of Singapore, really, and expanding globally to take a run at that problem. So knock on wood, hopefully we'll be a little bit more Facebook, but time will tell. Okay. So let's talk about what's, I don't know, what crypto is excited about? Because it does seem to be very excited and a bunch of different coins have been rallying off the back of Trump's win. What's going on here other than the vibes?

6:38So I think some of this is just the expectation that people can do business potentially with some degree of clarity. So Trump coming in, and keep in mind the Trump administration in particular is just one piece of this puzzle, has the industry pretty hopeful that we're going to get a significantly greater degree of regulatory clarity around what you're allowed to do in the United States without breaking the rules, which is something that it transparently has not had. And like a good example of this is the SEC. So recently Coinbase in their case against the SEC was just granted an appeal, which is going up to the Second Circuit now.

7:14And if you read the judge's ruling, a lot of the reason for that is, well, you know, we have my case and then there's a case against Kraken and a case against Binance and a case against Ripple. And hopefully, multiple federal judges are all coming to different conclusions on what the law is and what you're allowed to do here. So if people were saying there's regulatory clarity, you have at least four federal judges who disagree with you on that point right now. And it looks like, honestly, if you understand how circuit splits work, a fast track to SCOTUS to get some clarity on this, which could be exciting.

7:47But I think the idea is that with turnover in the leadership of the SEC, there's at least a nonzero probability that they'll like write the rules down before going after people for not obeying them, which would be helpful. There's probably going to be significantly more access, as in maybe any access, to banking services in the United States for crypto companies, which would be particularly helpful. And then the other part of the puzzle is beyond the admin, having the Republicans take the House and the Senate means that you have a much more friendly environment for actually passing legislation.

8:21And I would say even more than the Biden administration, if you want to know why we're currently in the case we're in, it's the inability of Congress to pass laws. Because if you're trying to use the 40 Act to regulate crypto, I will remind people that was written closer to the Civil War than the current day and before the creation of the Internet. Certainly before the creation of Bitcoin. Correct. So I can see why that may be a little bit complicated. So this really gets into a core thing, which is that it might be nice to have some sort of clarity on, say, what constitutes a security in the crypto age.

8:56And because of how hard it is to pass laws, period, in this country, especially on big things, let alone sort of smaller, more controversial things, basically been gridlock. So maybe there is a chance of getting legislation. If I recall, the issue with Coinbase and the SEC is basically like the SEC said you're selling or you're a platform for the dealing, the trading of unregistered securities, right? So it's one thing – and I guess this gets to the question about legislation. It's one thing to say, OK, regulatory clarity is good. But what does that regulatory clarity look like in the good version?

9:32So I'll say to echo something Tracy said earlier, there is never one opinion out of the crypto industry. But I would say if you talk to like the mainstream exchanges and some of the more, call it regulated, call it non-libertarian maximalist people in the space, here is fundamentally what they want. They want to know what the rubric is for understanding when a token is a security and when it is not. Because the reality is there's been an overwhelming focus on the use of ledger technology, which if you step back and leave crypto is kind of transparently insane. right? Because if I'm at JP Morgan and I'm trading a book and it's got securities in it, and I just move my backend ledger from like Microsoft Excel to Microsoft Access, that shouldn't change whether those things are securities or not.

10:18It's an economic substance test. And the theories promulgated around this have been overly focused on the ledger. And you need to ask, tokenized gold is pretty obviously not a security, but tokenized Apple stock pretty obviously is. And where is the dividing line between these two sorts of things as you start mixing stuff? That question we need answered. Then the second question you need answered is crypto dispenses with some of the traditional functions of a securities market. Like we don't need a clearing agency when we have a blockchain. The blockchain does the clearing. So how does that work?

10:52Can somebody just write it down? Which is a problem similar to like when the ABS market came into existence. A lot of the original securities issue where things are kind of meaningless. Like, who is the senior management of an SPV becomes like a sort of weird question. And so the SEC, helpfully at the time, and they are totally capable of doing this if they want, created a whole rubric for registering asset-backed securities. And that's gone from not existing to like a trillion dollar market because of that. So I think what the industry wants in a responsible way is just like, listen, any vaguely reasonable set of rules are fine.

11:29Just what are they? Can we write them down? Is there any concern there that when you get regulatory clarity, it might not be the regulatory clarity that you want, right? Like it might go the other way. And in particular, I kind of I always think of, you know, elderly politicians gathered in rooms trying to wrap their heads around blockchain and all this new technology. It seems like there's a risk there. Well, the good news is most of this stuff is going to be written by 20 to 30 year old staffers instead of the elderly politicians, right? Just talking about how the sausage is really made. But you make a good point, which is, you know, always be careful what you wish for with Washington.

12:10I would say in the current situation where you've had an administration trying to just wipe out the industry and make it illegal. Almost any regulatory framework is better on a forward basis. I think there's also at least some degree of hope with the current crop of Republicans that they won't make the mistake of over-specifying a particular approach or technology, because that's the way you could really get into trouble here. Like, I was talking to somebody who was a staffer recently, and my caution on this is imagine if the United States in the mid-90s canonized AOL, right, as the tool for accessing the internet and using email, right?

12:46That would have been a big mistake. So principles-based regulation focused on economic substance is probably the best outcome. If you get something worse than that, there will at least hopefully be enough attention on it that you could start chipping away. Sometimes when I think about alternative histories of the internet, like I wonder if there could have been a situation in in which it's still largely like the DARPA net. And there are like furious debates, like should we allow commercial access to the internet in the year 2025? It's like, oh no. It's kind of actually easy to imagine these other versions.

13:19What's wrong with the Howey test? When we're talking about like a rubric or something to determine what is a security, you know, it looks to me like many things that are tokens that get traded. There's an investment contract, expectation of profit, that common enterprise. A lot of these things, I don't know. I'm like, guess I'm not convinced that it's so ambiguous that these are, oh, these are securities. Like they kind of look like they are in many cases. Yeah. So I would say my personal view, again, there are some tokens that to me are pretty obviously not securities and some tokens that are pretty obviously securities.

13:56Well, other than Bitcoin, what are some tokens that are obviously not securities? Well, great example, like dollar backed stable coins that don't pay interest. Like somebody helped me out with that one. Tokenized gold, the things that purely do governance and have no expectation of cash flows. What about a governance token for a decentralized crypto trading platform? So here becomes the question, what are the underlying economic characteristics that it might give you access to? And you've gotten to the place I was going, which is the annoying part is a lot of these tokens do exist at the gray area of Howie in general.

14:28Because again, let's zoom out from crypto and create one that I think actually sort of reveals the problem is, let's say that I buy some sort of collectible shoes, right? Jordans or something like that. Okay. So if I'm purely a buyer of the shoe, I'm probably not in a collective enterprise with Nike. But the ecosystem theory from the SEC that they've raised is, well, hold on. If there's a whole network of brokers and promoters and Nike is sponsoring events and all of this hype around that you are buying with the expectation of profit, like where really is the boundary between that and formally owning a share of Nike stock?

15:07If you're genuinely buying hundreds of thousands of dollars of Jordans a year to resell them with an expectation of profit, are you not in a sort of collective enterprise? And I would say you can take that principle and pretty transparently port it onto DeFi. And I think the problem that people in crypto have had, if you talk to the really savvy lawyers in the space, like for instance, Lewis Cohen, who's in New York, wrote a paper about this called interlockable modality of securities law. And what you run into is there are things in traditional markets where they haven't gone after this, but they did go after essentially the same activity in crypto.

15:43So now one, where is the dividing line? And then two, even if you agree that what I just said might be a securities arrangement, does that make the Jordans themselves a security? Not necessarily, right? To go back to Howie, the oranges are not the security. So one of the big dividing lines is take the Ripple case. XRP may have been sold as part of an investment contract, but it does not necessarily follow from that that XRP itself is a security.

16:28Your best bottling plant employs 3 ,300 people. How do you get 3 ,300 people working at peak efficiency? Your best store has reduced waste, water, and energy usage. How do you make every store like your best store? Your best property has every guest raving. How do you make every property like your best property? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. For enterprise organizations, managing all your food needs is a tall order. But with EasyCater, you get a single workplace food vendor with the tools and resources to make it easy.

17:09Giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform. All while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. Can I ask a provocative question? And crypto people on Twitter slash X, please don't come at me for this. But was Gensler really that bad for crypto? Like, I know he went after Coinbase and, like, prosecuted a bunch of other frauds, but he also approved the ETFs.

17:48And it's not like the crypto industry necessarily shrunk under his tenor. Crypto seems to be doing pretty well. So I'll answer that question in two ways. I do think Gensler intended to be quite bad for crypto. And the things I would point out about the SEC at the time and the heart of my past critiques of them are, one, you somehow managed to go after preemptively like Coinbase and Kraken and MetaMask and people like that, but you missed all of FTX, Celsius, Terraform Labs, BlockFi. Like basically, if you were a fraud, they didn't preemptively enforce. And if you weren't, they did. And that's a pretty poor track record.

18:29And then number two is that complete inability to just write the rules down. I think even if crypto didn't like the rules, if they had just written them down and said, this is what you do, they would have been at least tolerable. Because I would tell you that's where the CFTC is. People in crypto don't love the CFTC, but don't feel like they're being treated unfairly because they'll at least just tell you what they mean to a much greater extent. And again, when we're in a point where four federal judges who are all individually very bright people can't agree with each other on the rules, that's kind of a problem.

19:01Now, to answer your question And literally, actually, I think Gensler might have been good for crypto. And the reason I say that is that sort of by swinging the pendulum that far, it brought a lot more public attention to this sort of thing than you otherwise would have had he not. Like the Barbra Streisand. It's the Streisand principle. Yeah, like his trying so hard to kill the industry ironically may have won Trump the election. Right. If you look at it. So Stand With Crypto mobilized literally over 100 ,000 people to go vote and was pushing them to the polls. And if you look at the margins in some of the swing states, it's entirely possible, especially because, I mean, remember, it looks like men under the age of 30 just straight voted Republican.

19:47And a shocking number of those are registered with Stand With Crypto. So I have questions. I kind of buy it. I kind of buy it, actually. Talk a little bit more about stablecoin regulation. When we had you on last time, and I'm like kind of a stablecoin convert at this point, or at least potentially, because just the idea that this could be like a very like powerful, like unified software rail or payment rail that could not be done under traditional legacy rails because you couldn't coordinate the different parties. I find that actually pretty compelling. I'm still a little not sure. I'm not sold how big the use case will be, but that's for other people to argue about.

20:26But what regulatory ambiguity today, in your view, holds back stablecoin growth? So there's kind of two parts to that. One has been the banking regulators, primarily led by the FDIC, but to a lesser extent, the OCC and the Federal Reserve, kind of saying, you just can't do these things, right? There was a note in the Federal Register in early 2023 where they essentially said public blockchains are not compatible with safe and sound banking practices, which is kind of a blocker, if we're being totally honest, and I think has really inhibited the United States' ability to approach new technology.

21:01And to be clear, this kind of rides on the back of the technophobia of banking regulators in general, because I don't think in their case they're singling out, you know, crypto so much as they're singling out any new use of technology, because they're still angry with the traditional fintechs as well. The other thing that's really held it back is the complete lack of any federal legislation. So I'm dealing with 50 states on a state-by-state basis that kind of all vaguely disagree with each other about how to do things. And one of the things I'm most optimistic about in 2025 is federal legislation on stable coins moving.

21:34And part of that is back to just how the sausage is made in Washington. We've had McHenry Waters in the House, Lummis Gillibrand in the Senate, and Senate Banking is working on a draft of something. Like there's legislation that people know that they're reasonably comfortable with where the Venn diagram overlap is pretty significant. Like, it's not perfect. There's things they're fighting about, but it's majority agreed. That's something you can pass, unlike, say, market structure, where I don't think if you look at that bill, there's majority consensus even on how it should work or what they should do with it.

22:08Could you ever envision a future where the big banks get on board with stable coins? Because I think generally, like right now, they're kind of considered competition in terms of payments technology. But on the other hand, they could, as you've laid out in a previous episode, allow them to make payments more efficiently. I do think so. And I think banks in general need a path forward where they can do something new. You know, we talked about last time how it's hard to take a current bank balance sheet and create a stable coin with it because they're not fungible between each other in terms of assets and liabilities.

22:43But in theory, like Legally, there would be nothing stopping people with federal legislation, a J.P. Morgan, a Wells Fargo, a B of A, from starting a segregated trust company and just using that to launch a stablecoin. They can totally do that. And you know what the banks do have is a ton of distribution. Chase has a lot of customers. I don't think that's news to anybody. And so to answer your question, could there be an effort like that? Yes. And also, it could take many forms. Joe, to your earlier point, I think I'm very pro stablecoin technology. winning in the long run, I am not yet convinced on the exact form that's going to take commercially because could it be that each bank has their own stable coin and they're roughly fungible and they all accept them?

23:25Sure. Could it also be the case that they do something like DTCC where there's a repository of all the securities and everybody uses it? Sure. Could that even be bigger than banks and you get asset managers and insurance companies in there? Sure. I don't know. Well, you know, I think, by the way, it was just a few weeks after we recorded our last episode, Stripe made a$1.1 billion acquisition of a stablecoin startup called Bridge, which I hadn't been familiar with. But I was familiar with Stripe. And that strikes me as a pretty big endorsement. Maybe two parts. Can you just sort of give a 20-second description of what that deal is all about for Stripe?

24:01But also, more importantly, I certainly get stablecoins for the purpose of crypto trading. Okay, I get that. Like, that's pretty obvious. And then you'd sort of like, all right, there's probably some like cross-border stuff where stable coins are better, faster, cheaper than other rails. But how big are we talking about? Beyond that, I guess this is the part I'm not totally sold on yet in terms of how big this market gets out of a couple of fairly obvious niches. All right. So I'll give you my super hot take, which is I think over the next, call it 20-ish years, probably the entire euro dollar market is moving to stable coins.