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visit MIT OpenCourseWare at ocw.mit.edu. GARY GENSLER:
Welcome, hello again. Yeah, Yeah. I put my jacket back on. I figured I was doing public
policy today, had to look a little official. So let's talk a little
bit about public policy and some of the challenges
that we're going to do. And the overview of today-- we're going to chat a little bit
about the readings, of course. And then I want to set it up
a bit on crypto finance, just a simple term of this $200
or $250 billion dollar space, because a lot of the public
policy is about crypto finance, though there are some public
policy about underlying blockchain technology. It's both, but most of it's
about the financial markets around cryptocurrencies
and crypto tokens. Give an overall public
policy framework, talk about the three
guardrails, the big rails of illicit activity, financial
stability, and the public. And then I'm going
to share a little bit of some slides and some thoughts
on public policy development. As many of you know,
I've spent the last 20 years kicking around
politics and public policy. And as two or three of you know,
in this spring, Simon Johnson and I stood up a course
called Public Policy and the Private Sector. So it's maybe my little
advertisement for next spring, because we're going to
stand it up again as well. So the study questions which was
basically around public policy, as you remember these questions. And I'm sorry, because Talita
didn't give me my friendly list as to who hasn't spoken up yet. So that's Talita. So you're saved, you're
saved, because now I can't remember anybody that's not-- AUDIENCE: I can send
it to a printer. GARY GENSLER: What's that? AUDIENCE: I can send
it to a printer. GARY GENSLER: Yeah, you
can send it to a printer. It's hard to remember with
85 registered students as to who hasn't spoken
and who has spoken. But you're all
going, here now, he's going to do cold calling now. But the main study questions
that we're going through are basically around the
public policy framework and how it relates to
blockchain technology. But Catalina, what did you
take from the readings? AUDIENCE: What I took
from the readings is that for blockchain
to further develop, it has to be embedded
in the regulatory system and in the policy system. In that way, for example,
investors will be better off. They will have
protections, they will feel better because they will
have some degree of certainty that someone is
taking care of them. GARY GENSLER: And so
Catalina is saying she took from the readings
that for further adoption, investor protection, and the
confidence in the markets are important. Lauren, did I see that you're-- AUDIENCE: Sorry, yeah. So I was going to say-- I mean, one of the
readings was a little bit the opposite of this. But to build on that, the
mention of regulations and validating
blockchain a little bit will help the players that
are already in the markets explore in that space, just
because they tend to be a little more risk averse. So they haven't really
dabbled in startups and things that have the advantage. GARY GENSLER: So in
essence, that some people were risk averse, the incumbents
are a bit risk averse. And why would incumbent,
big-- oh, this is my fun list. It's not your fun list. But really, there's still
35 of you that have not even spoken up in this class. Don't be so shy. Watch this. Watch this. Ariel Brito. Not even here. Even better, even better. Talita, we have a sign up
sheet, too, that's going around? AUDIENCE: Yeah. GARY GENSLER: All
right, that's fun. Watch, I'll just say David, and
then see which David speaks up. This is going to be
a really interesting. So you mean there's
no David Martin here. Right here. Oh. AUDIENCE: So to
your first question, this relates to the current
public policy frameworks in my mind in two ways. One, this technology
sits, in some ways, in gaps in the current
regulatory framework. It's not clear, for
example, that the CFTC-- because this could
be a commodity-- has as broad regulatory
authority as the SEC does, for example, with respect
to the securities markets. It's in a gap. But the second thing is, even
if those gaps were closed, for certain kinds of
blockchain technology, the anonymity and secrecy of
it just prevents regulation almost entirely. So there's two things. There's a gap question, and then
there's the impact of secrecy and whether regulation
can find it. GARY GENSLER: All right. So there's a gap because
of the technology. But are there other gaps also-- and your first name is? AUDIENCE: James. GARY GENSLER: Jim. AUDIENCE: James, yeah. So I think that another problem
with regulating blockchain technology in general is because
the lack of intermediaries. The way that traditional
regulation works is that they try to have more
close access to intermediaries, so that they can control
the intermediaries. But now, there's
no intermediary. So it's very hard
for you to control. GARY GENSLER: So
what James is raising is there might be a whole change
in this ecosystem, a little bit of the business model that
there's fewer intermediaries. And a lot of
regulation, whether that be tax, or investor
protection, or even around illicit activity,
centers around intermediaries. Why do you think it is
that so much of the law centers around intermediaries? It wasn't specific
in the readings. But just why do you
think that that-- Isabella? AUDIENCE: Well, I would
assume that if intermediaries are going to be eliminated
by this technology, then a lot of those
players would not really want this technology
to be pushed forward. So that's-- GARY GENSLER: All
right, so Isabella's raising a point that
maybe intermediaries would be threatened about
this technology. But I'm also asking, why do you
think the law historically-- Adian? Why the law has attached
requirements on intermediaries. AUDIENCE: I think
it's just easier to manage a group of
intermediaries that are regulated by law,
so you can actually look at the
transactions that happen at the intermediary level. GARY GENSLER: So
Adian's saying-- and in the red
jersey in the back, I can't remember your name. Dan. AUDIENCE: So I just think that
if any of these intermediaries experience something
that caused them to fail, then you're bringing
down a lot more than just that institution. GARY GENSLER: So two ideas. One is this
attachment point that has some leverage
to it in the system. You can exert some
public policy influence. And one is that there
might be a point of failure and you need to protect
the system from failure. Other reasons back here? AUDIENCE: The
government just doesn't have the manpower or the
resources to look at everyone. And these
intermediaries actually make money by
collecting this data. And so the government
can just use that. GARY GENSLER: So Jake's
raising a variation of the force multiplying. It's not only a node to apply,
but they have the resources. So you're tapping into
JP Morgan's back office, so to speak. And back here, I'll take. Sorry, your first name? AUDIENCE: Adam. GARY GENSLER: Adam. AUDIENCE: So the
intermediaries are also-- they're a mechanism for trust to
allow trading between parties. So the regulation then would
be placed in like a consumer protection role to ensure
that those intermediaries are someone to trust. GARY GENSLER: So it's for
a collection of reasons that public policy
officials around the globe often attach requirements
to intermediaries, because it's a node to get
it done, it's a resource, they have deep
pockets sometimes. Sometimes, it's because
they might fail. And one thing that
wasn't mentioned is sometimes
actually institutions want to be regulated over time,
because it creates barriers to entry. It's usually not
in an early stage. But later on, it's actually
the incumbents that often-- it creates some
barriers to entry and they collect
some economic rents. Hugo? AUDIENCE: You can see that
starting now with the OG's in the crypto space, like
Coinbase or like the Bittrex, like the American
institutions that started their exchange early on. And now, they're
working with regulators to see how they can
capture the market to be the easy place to go. GARY GENSLER: So what
were the letters you said? OD? AUDIENCE: OG. GARY GENSLER: OG. AUDIENCE: I don't know. GARY GENSLER: Does OG
stand for something? AUDIENCE: Original gangster. GARY GENSLER: Original gangster. Thank you, thank you. My daughters will be
glad I know this now. That's very good. So it's moving from
the disruptor phase to the near-incumbent phase. And where is a firm Hugo's
raised like Coinbase or others? Are they now the
incumbent in this only six or 10-year-old
field, in essence? We're going to talk a
lot about tax and bank secrecy and the Howey Test. And I'm going to save you from
the cold calls on the Howey Test yet, but be prepared
when we get to that slide. We'll talk a little bit more. And then, of course, my
favorite, the Duck Test. So anybody know who
the American poet-- AUDIENCE: W. Riley? GARY GENSLER: Oh, really good. Where's he from? Didn't say? Anybody where Riley's from? No, it's not in-- I don't think it's in the--
is it in the testimony? AUDIENCE: Indiana. GARY GENSLER: Indiana, good. You're right. Seems like a good
Midwestern saying, you know? AUDIENCE: If it walks like
a duck, talks like a duck, and quacks like a
duck, it's a damn duck. GARY GENSLER: There
you go, there you go. No, no-- AUDIENCE: What if it's a
robotic duck or a computer screen walking and
talking like a duck? GARY GENSLER: So Christopher's
raising the question, if it's a robotic duck,
a robotic duck that's walking like a duck,
quacking like a duck, and waddling like a
duck, is it a darn duck? For purposes of public
policy, maybe it is, right? If it's a smart contract
that's waddling like a duck and quacking like a
duck, maybe it still has the influence over
society like a duck. And this Duck Test-- I didn't originated it,
Riley did 100 plus years ago. But it is something that
regulators and public policy people actually talk about. It's one of those things,
if you're in Washington. Well, other people might call it
different things, but the Duck Test. It's use common sense, and
then answer the question. Oh my gosh, I assigned one of
my own writings as a reading. So we'll skip over that. So crypto, the world
of crypto finance, you've seen this
slide before, but it's been quite volatile, about $220
billion in the last few days. And a little over
50%, 54% is Bitcoin and the other big
currencies right now on market value, Ethereum,
Ripple, and the like. We'll talk a lot about
initial coin offerings. And are they securities
or are they not? But I would note, in
terms of market value, probably three
quarters of this space has already been determined
by the Securities and Exchange Commission not to be a security. Bitcoin's 54%, Ether's about 15
points or something like that. So you're all of a sudden
up to about 70 points, and then there's a bunch of
other things that add up. So about three quarters
of the market value right now is what one might
call a cash, or a commodity, but not a security
in this world. And that's just relevant for
some of the debates that go on. We talked about
this a little bit. Like the lioness the
corner, incumbents are starting to
eye crypto finance. So it's raising some
of the challenges. Why are they interested in this? Why are incumbents interested
in getting into this place? EG Wang? Oh, come on. I can't be this bad off. Am I? Really, all these people
haven't even said a word, huh. Is EG here. No, so look at this. This is even easier. Now, I'll find out if somebody's
signing in for other people. How about Nikita? AUDIENCE: Yes? GARY GENSLER: Why do you think
incumbents want to get in? AUDIENCE: It's a
risky transaction. From the viewpoint
[INAUDIBLE] it's difficult to do
this crypto finance. GARY GENSLER: You said
it's difficult to do? AUDIENCE: For incumbents. GARY GENSLER: Yeah,
but why did they want to get into this space? Why do they want to
be in crypto finance? AUDIENCE: Part of it is
that it's highly volatile. And how do you make money
largely off of volatility? And then there's also
a lot of people-- I think it's what, like 20
million Coinbase accounts. GARY GENSLER: Right, right. So when I was at
Goldman Sachs for years, we used to have a saying. Volatility is our friend. It's often not the friend of
many people in the markets. But if you're in
the world of finance or you're in the world of inter
mediating risk and holding risks-- so volatility is a form of risk. So volatility was
always our friend. It was also our
friend, because often if it was really
volatile, sometimes some of our competitors would not
manage that risk as well. And they would
lose market share, and we would gain market share. In fact, maybe they went
out of business, too. But people like the volatility. Startups can beg for
forgiveness afterwards. Incumbents feel more
often, not always, that they need to
ask for permission. And so there's a little bit of
an asymmetric reputational risk that goes on business-wise. Now, once you're
at a big incumbent, if you work for one
of the big places, you'll feel that little bit
more constraint, a little bit more compliance officers. You're more lawyered, you
have more accountants. But you should still
have the same values. I say this sincerely. Don't break the law. No, no, sincerely. But when you're at a
startup, you tend-- there's always some ambiguity,
and you take a little bit more reputational risk. You tend to. So there's a bunch
of incumbents that are trying to get in the Chicago
Mercantile Exchange, Eurex, Intercontinental Exchange,
which owns the New York Stock Exchange. We'll do a whole class
on what they're doing there later in the semester. Fidelity, that's spending
significant amount of money looking
at it and others. So the framework that
we've talked about, about guarding against
illicit activity, stability, and the investing public-- I'm going to sort
through each of these, but it's tax compliance. No government wants to
shrink their tax base. Now, some governments
want to attract activity that shrinks the other
jurisdiction's tax base, but it's not about shrinking
your own tax base usually. I mean, you might
by law lower taxes, but you're not
really looking to-- generally,
governments don't want to promote whatever the
definition of illicit activity. We don't need to define
that in this class. It's a normative thing that
happens culture by culture, jurisdiction by jurisdiction. But there tends to be
something that's prohibited-- drug running, for instance,
child trafficking. I mean, there are certain
things that are broadly defined as illicit,
and then there's some that changes depending
upon the culture and the society and the times we're living in. Terrorism financing, clearly. And then sanctions, it's
a tool of foreign policy that countries like our own,
but Europe and elsewhere often use sanctions to try to-- it's centuries old. It's called blockades in an
earlier century with the ships. But now, we do it
more electronically and commercially. Financial stability tends
to be about the stability of the overall economy
or the Fiat currency. Or I put a little
second picture there, the stability of the
commercial banking system. So financial stability can
mean a lot of different things, but it's usually about
the currency, the economy, or the central bank system
and commercial bank system. But to some countries,
not a majority, some countries'
financial stability is about capital controls. If a country is controlling
somewhere the valuation of their Fiat
currency-- remember, we talked a lot about money. But if some don't
want to flood and they want to control the value
of their Fiat currency, then they often have
capital controls. And for those countries, this
whole world of crypto finance touches on that. And then the investing
public, the consuming public, we'll talk about investor
protection and consumer protection are not
exactly the same. The two words market
integrity means basically we promote economic activity
if you can have confidence in central market structures. Whether that's the
pricing of apples or the pricing of
Apple stock, it's in essence that there's
not fraud and manipulation in that market. And the more
transparent the prices are both before you do a
transaction and after-- what's called
pre-trade transparency and post-trade transparency--
the more transparent and the more you can root
out manipulation and fraud, there's more integrity. Usually very simply-- and this
is a lot of economic study goes into it-- you lower the risk
premium in that market. In essence, you can have more
confidence in that market. And secondly, you
have more competition in the price discovery function. Aline? AUDIENCE: It's really
a very silly question. But you said pre-transaction
transparency. So how does that relate
to the United States when you go to
the doctor and you have no idea how much
you're going to pay? It seems like there's no
pre-transaction transparency when you go to the doctor. GARY GENSLER: I tend to
agree with you that there are many markets,
not just health care, but there are many
markets where there's limited pre-transaction
transparency. I feel there's only limited
pre-transaction transparency when I take my car
in to get worked on. Now, of course, then they
give you some pricing and the car is already
up on the platform. And they're telling you
need your new brakes. So yes, that's true. Lots of different markets
operate in different ways. And health care is
probably less transparent, partly because it's
such a hybrid market where we have third party
payment providers, insurance companies, and governments
providing and paying for a lot of our health care. So economic activity
has a range. In the financial
markets, market integrity is boosted by a lot of
pre-trade transparency. Does that help a little? So Mark Carney--
what did you all take from Mark Carney's paper? Anybody wants to volunteer, or
I can keep going down my list. Rahim? Did I get your name right? What's that? Riham. AUDIENCE: I'm talking
about the [INAUDIBLE].. GARY GENSLER: So one
thing that Mark Carney said is he didn't
really consider cryptocurrencies currencies,
but they were an asset. What else did Mark say? AUDIENCE: My name's
Matt Doherty. GARY GENSLER: Thalita, Matt. AUDIENCE: One of
the reasons he said it wasn't a currency was because
of the extreme volatility that meant it had no intrinsic
value, which I disagreed with. I didn't think that
volatility should equate to a lack of intrinsic value. GARY GENSLER: All right. So Matt's raising that Mark
Carney says, well, volatility can't be a currency. I tend to agree with Matt. And if Mark were here, I'd
say it to him directly. AUDIENCE: [INAUDIBLE]
stocks that are extremely
volatile, but yet still haven't been
devalued [INAUDIBLE].. GARY GENSLER: I
would say there's even some Fiat currencies that
have been pretty volatile. AUDIENCE: So I think that it
does have intrinsic value, but maybe not necessarily
be a currency if it's not a dependable unit of account,
if it's always fluctuating. And that was my take anyway. So I agree, but it's just a
different line of reasoning why I don't think-- GARY GENSLER: So you think
it's a different reason that it has intrinsic value. AUDIENCE: Yeah, I think
it has intrinsic value, I just think that it should
be called a digital asset, not because it doesn't
have intrinsic value, but because it's not a
dependable unit of account. GARY GENSLER: And
your first name? I'm sorry. AUDIENCE: Kyle. GARY GENSLER: Kyle. So Kyle's saying that
it's because it's not a dependable unit of account. And very few places have
used it as a unit of account at this point in time. Matt-- it's good, we're
going to have a debate here. AUDIENCE: But the fact
that places have used it as a unit of account should make
it so that it is a currency. It has been used as a
currency in the past. And whether five people use
it or a million people use it, shouldn't the fact
that it can be used qualify it to be a
currency, whether it's to a certain amount of people
shouldn't necessarily matter. GARY GENSLER: And so
who wants to arbitrate between Matt and Kyle? Leonardo. AUDIENCE: Yeah, I wanted to
give an example of countries where there is super
high inflation, where their domestic currencies
lose what it's really worth. So people actually
automatically start to use dollars, for example,
as their reference account. So it can be
functional in the sense that people can still
exchange, but you can't really measure until you peg
to something else. And actually, Bitcoin's pegged
to the value of something else today. And that's where I think
the value of accounts-- I'll be on the left side camp. GARY GENSLER: So it depends. And if it's in a country with
hyperinflation, and I don't-- I hope not-- have
any of you lived in a country with hyperinflation
in your lifetimes? So five or six of you have. So you know what it is like
when you go into a restaurant there's one set of pricing. But if you eat for too long
and linger at the table, it's different level of pricing. Literally, right? AUDIENCE: You get
your paycheck one day, then you have to spend it
as fast as you can, because in a week, that's basically a
fraction of what you were paid. GARY GENSLER: But from the
view from the top, what Mark-- one quote from the paper that
I took was that authorities, thinking about-- this is from a public
policy perspective. Authorities need
to decide, are you going to isolate this world,
regulate it, integrate it? Now, some countries--
I don't think anybody's fully isolated it. But some countries,
in a sense, have said, let's ban a
lot of this activity. And Kelly? AUDIENCE: Can I
ask to what extent are other countries looking
to comments like this to decide what stance
they're going to take? GARY GENSLER:
Kelly's question is, so to what extent to comments
from a Mark Carney who's the governor of the
Bank of England, but heads the Financial
Stability Board-- how much does that influence the rest of
the official sector community? And it's a great question. I think that it all
goes into the mix. I think that there's probably
in any public policy sphere six to a dozen
countries that really take the lead, not legally. They're not taking
the lead legally, they're just taking
the lead because others follow that which is said in the
US, the European Union, China, Japan. I mean, we know the usual
and the normal countries. But part of it is because
the depth and breadth of their economies,
part of it in this world the depth and breadth of
their financial markets. But it's also because
often their opinion leaders and their opinions
are somewhat respected. But we have 180
or 190 countries. And each one of them
has a different culture, and each has a different
political system, and a different history, and
different economic well-being. So I went into the international
arena doing regulation thinking it would it is a dystopian
view that there's going to be one worldwide regime
for almost any public policy issue. I mean, I don't know if it
exists in almost any place. But when you get to
financial services, it's pretty unlikely because
of all those different cultures and histories and political
systems and economies clashing up against each other. Yes? AUDIENCE: I was just wondering
if you can explain more about what you mean by
China leading the effort-- GARY GENSLER: China's-- AUDIENCE: Is leading the effort
in regulating the blockchain, because China has banned
the exchange of Fiat money [INAUDIBLE]. GARY GENSLER: So the
question is China. So how many in the room think
China would be in the isolate-- dominantly in the isolate
category rather than the integrate category? So a quarter or a third. It's interesting. It's really a hybrid. China came pretty strongly
saying no to a lot of activity. And yet, two of the biggest
mining poles for Bitcoin are in China. Some of the crypto
exchanges left China, but those miners are the
biggest sellers of Bitcoin, because they're
collecting the Bitcoin and need to sell them, have
to find some crypto exchange somewhere that is
no longer in China. I'm going to mispronounce
the name of the exchange. But Huobi, H-U-O-B-I, is still
very much a Chinese crypto exchange. I think it's now
registered in Malta if I'm not mistaken maybe. So there's a love-hate hybrid. The Central Bank of China
has very active projects with regard to
blockchain technology. And they have a whole
lab and it's public. That which is public is public. That which is private
probably is bigger and we just don't know about it. So there's a bit of a mixed
approach even in China, if that answers your question. So let me just go-- I've spent a lot of time
in the last six months traveling around the
globe and speaking at different conferences, OECD,
in Japan, and here in the US. What I see-- guarding
against illicit activity, broad consensus. 180-190 countries, yeah,
we've got to do it. Really choppy performance
on implementation, and sometimes a little bit of a
head fake from one jurisdiction to another, because
some actually are fine with tax
evasion as long as it's tax evasion in the other
person's jurisdiction. Usually, low
population centers are more comfortable promoting
being tax havens, trying to take economic
activity from elsewhere. But there's general
broad consensus and it's usually centered
on finance ministries and central bank authorities
and the equivalent of law enforcement,
our Justice Department. Think of those. That's where the nexus is
happening country by country. Financial stability, general
consensus to monitor-- there's not a deep
worry right now, because the space is only a
quarter of a trillion dollars. And the worldwide
capital markets-- the worldwide debt
markets are $250 trillion, nearly 1,000 times bigger. And the worldwide equity
markets are about $90 trillion. And even the worldwide stock
of gold, at $7 trillion, is nearly 30 times as large. It just gives you a sense of
the relationship right now why let's monitor, but it's probably
not systemic destabilizing. However, there's
different perspectives, particularly in countries
that have capital controls, because it could be
destabilizing to a currency in that way. And then thirdly, the
investing public-- protecting investing
public, I would say the views are wide ranging. In the US and
Canada, more forward leaning, more a
lot of this stuff-- maybe these initial
coin offerings are securities that
need to be protected. And in a bunch of
other countries, it's like let 1,000
flowers bloom. Let's promote
innovation and so forth. And it's a pretty wide view. My personal view is, and I've
said this at some conferences, if this grew from a quarter of
a to five and 10 and 20 times the size, or if the ICO
marketplace, which has raised about $20 to $25 billion
today, kept raising that but went to like $100
billion a year raise, then a bunch of
countries would probably want more investor protection. I think-- this is just
my personal view-- we will never have uniform
jurisdiction, uniform laws. But part of what's going
on is this is so new and it's still relatively small
versus the capital markets. If it grew, I think
more countries would want some protection. AUDIENCE: I have a question
regarding the illicit equities and financial stability. As you traveled
to other country, what metrics were they using
to measure their success or monitor on those fronts? GARY GENSLER: So the question
is what are countries doing to measure for success. I'm going to use one
example, and then we'll keep going into the details. Japan had some of the
earliest crypto exchanges, Mt. Gox, G-O-X. Mt. Gox was an early exchange
that the promoters, the owners moved to Tokyo, even though
they weren't Japanese nationals. So it was it was
centered in Tokyo. And it went down when about
half a billion dollars of value was lost. It was supposedly a
hack, stolen crypto. It was aan interesting case. It was actually being
stolen over many months. It wasn't one specific hack. So Japan in 2017 finally got
around and changed their laws. And they put in a whole regime
to regulate crypto exchanges, particularly around this
customer protection custody issue and around
illicit activity. And they actually have
gone in and asked exchanges to register. They go in and actually
do examinations. And earlier this
year, of the, I think, 30 some registered
exchanges, five or 10 had to cease operations. How do they measure
success or failure? Another exchange in
January of this year lost another half a
billion dollars to a hack. Their principal executive,
their prime minister, got a question in
a news conference. If you're a regulator,
that's not a good thing. So sometimes, you measure
success or failure as to whether your boss gets a
question in a news conference about why it's not working. The Japanese have been
terrific, by the way, in terms of what they're doing. But I'm just using that as
an example of sometimes. So let me just chat about a
deep dive into each of these in probably five
or 10 minutes each, which you could do a whole
course on each of these. But let me just deep
dive a little bit. Guarding against
illicit activity-- so tax compliance and
reporting, what do you think the first big question
that the US government or any government--
this sounds US-centric. And Kelly, I thank
you for your paper, because Kelly-- is
it all right if I call you out-- wrote a paper
for today, which I happen to read earlier today and
said Gensler's work was too US-centric. I thought it was gutsy. I thought it was gutsy. But you're right. It was US-centric. I was speaking to
the US Congress. So that was this thing you
learn in politics, too. You try to gauge your audience. But you were right. But what do you
think the first thing whether it's the US government
or any government's got to figure out in terms of this
world came along in 2010, 2011, 2012-- what was that
first question, which you may have teased
out of the readings, but as a policy question? Anybody want to take a guess? AUDIENCE: How do you
treat it for tax purposes? GARY GENSLER: How do you
treat it for tax purposes? How do you treat Bitcoin at
the time for tax purposes? And so that central
question was the first thing that really came up. Is it a currency? Is it a form of property? Is it something else? What did the US government say
back in, I think it was 2013? But it would it be
in the testimony. What is it? Is it a currency or property? AUDIENCE: Property. GARY GENSLER: Property. AUDIENCE: It makes
for a pain when you're filling out your taxes
and you do any sort of trading. GARY GENSLER: That's right. So the result of that is--
you want to say it again? AUDIENCE: You have
to-- basically, every time you exchange
to another currency or you spend it, you have
to record the cost basis. And yeah, if you do any
sort of my tax return, was 600 pages this year. it's pretty brutal. So any time it changes at
all, you can't consolidate-- I think it's like with
stocks you can consolidate. If it's the same security
being traded over the year, you can consolidate to show
your beginning and ending and just pay tax on the delta. But you have to report
every single trade. GARY GENSLER: So these
types of questions were not known in 2008
when Satoshi Nakamoto wrote his paper. But 10 years later, is it
currency, is it property? Some jurisdictions around
the globe, very few but some, have said its currency. But almost dominantly
around the globe, it's some form of property,
and then within the laws triggers, like it
does in the US, capital gains and
so forth like that. The next quote set
of questions was, what's the tax treatment of
mining, exchanges, and forks? Anybody want to tell me-- if you're mining and you receive
Bitcoin or any other crypto, Ether, and so forth-- anybody want to take a guess? It's not a guess. I think it was even in
the testimony I wrote. You had 600 pages. AUDIENCE: I know
with a fork anyway, you basically pay tax
on the whole thing. So a Bitcoin cash fork,
basically the cost basis is zero, and whatever its
value at the time you sell it. GARY GENSLER: You're
saying you had to pay taxes on both sides of the fork? AUDIENCE: Yeah. GARY GENSLER: So that's
rougher than a stock split. A stock split, you
just carryover basis. How about Bitcoin mining? Anybody? Zan, you want to take it? AUDIENCE: I actually
don't know this one, but I would assume they
treat it like income. GARY GENSLER: Income. Zan's right. It's income. You mine, you get income. So each of these had to be
addressed in the tax law. The next thing is something
called the Bank Secrecy Act. Anybody want to tell me what
the Bank Secrecy Act is? Is it Nicholas? See, I can read your name
there and see how that worked. AUDIENCE: I'm not
sure what it is. GARY GENSLER: OK,
that's all right. Bank Secrecy Act was passed
a few decades ago so probably before most of us in this room-- after I was born, but
most of you were born. Anybody want to say what
the Bank Secrecy Act is? Daniel? AUDIENCE: Is it the Bank Secrecy
Act that deals with KYC and AML and essentially
knowing the parties that you're interacting with? GARY GENSLER: Correct. That's correct. It's really trying to protect
against secret transactions or what's often called
money laundering. And behind the money
laundering laws is knowing who the
customer is of a bank. So you'll hear these letters,
KYC, know your customer; AML, anti-money laundering. And the Bank Secrecy
Act, underneath it then, has reporting
obligations that anyone who has to report under
the Bank Secrecy Act has to report when there's
large transactions. If you go into the bank and
you ask them, can you please-- I want to take a withdraw
of $11,000 of US currency. They have to fill out
a report, because I believe the triggers $10,000. You walk in and you
get $500, no report. But there's various
suspicious activity reporting and other large
transaction reporting that gets triggered in
the US Bank Secrecy Act. But you will hear
over and over again-- even if you never invest or
work in a blockchain company, you will hear something
called KYC and AML. And it's these two
regimes that kind of work. They're not the best,
but they do their job to give the official sector
and the banking sector a sense of who owns the
accounts and when there's suspicious activity that
there's a reporting obligation into the authorities. Aline? AUDIENCE: So how do anonymous
cryptocurrencies fit in here? I suppose at the exchange
level you do KYC and AML. GARY GENSLER: So Aline is asking
how does everything fit in. So how does money transmission
laws-- money transmission laws are the laws that were
just mentioned by Daniel, the anti-money laundering. CTF is counter-terrorism
finance. I mean, Washington is a
world full of these letters and jargon and everything. So how does it fit in? It first is one of the things in
the US Department of Treasury-- but again, to
internationalize it-- other departments of treasury
and so forth around the globe define when do you come
under the similar laws. When are you just a
user of this property, because it's not a currency? But to confuse matters, the
US Department of treasury said it was a virtual currency,
a virtual currency which happens to be
property for tax law. This is two parts of
the same department. The US Department of
treasury said it's property not currency. Another part of the US Treasury
said it's virtual currency. And the reason they had to
say it was virtual currency is they wanted it to come under
this law, the Bank Secrecy Act, without going probably to
Congress to have it be amended. Hugo? AUDIENCE: So
cryptocurrency is given a bad rap for money
laundering, but what about [INAUDIBLE]
this year, I think some bank was fined for money
laundering over $200 billion. And the amount of money going
through crypto exchanges is in the maybe $10 million. GARY GENSLER: So Hugo's
asking the question, well, wait, crypto is getting
a bad rap for money laundering, what about everything else? And I'd say, yes, what
Hugo is reminding us of is criminals don't change,
just the technologies they use do change. But they're still using bags
of cash in some jurisdictions and there's still suitcases and
cast drops around the globe. I'm told that there's even now
some trafficking between crypto and physical cash
where couriers can be paid a certain percentage
to take suitcases of cash from, let's say, drug
runners on the one hand and exchange them a thumb drive
or a private key with Bitcoin on the other, so just
new means and methods. Sorry? AUDIENCE: I would
just reply that I would say that the amount
that that bank was charged was probably a
small portion of it, whereas there is probably a
higher proportion potentially of cryptocurrency
that has illicit uses. GARY GENSLER: So
Christopher is saying maybe there's a higher
percentage of crypto that's being used for illicit
than the percent of Fiat. That may well be correct,
because the world's stock of Fiat is measured in
the tens of trillions. But that may be, but it's
still something that concerns, because like water wants
to find the lowest level and will drain up
wherever the leak is, illicit activity will flow
to wherever the lowest level. So the challenges, the
key challenges-- you all have raised many of these, so
I'm not going to ask questions. But the pseudonymous
addresses, that is a real challenge for law
enforcement around the globe. Privacy coins, like what we
talked about Zcash and Monaro and so forth, that have
a cryptographic method to make it harder to track. And then compliance
and reporting, there just isn't a lot
of-- even well meaning people don't often comply
and put in the 600 pages. The US government. Thanks you. AUDIENCE: I'm waiting
for my audit to come. GARY GENSLER: What's that? You're waiting for
your audit to come. I would say the other
challenges are also-- these are the things that
the regulators and law enforcement talk about. Crypto to crypto
transactions are a little bit more challenging
than crypto to Fiat. Does anybody want to-- Zan, why? AUDIENCE: It seems to me that,
from a regulator perspective, it's fairly easy to regulate
and monitor the on-ramps and off-ramps, right? So when you're dealing with
financial intermediaries, you're essentially
bringing Fiat into crypto and you can monitor
a transaction or if it's coming out. But what happens within the
ecosystem, especially when you bring in Monaro and some
of these privacy coins, regulators have no idea. So it's really hard. GARY GENSLER: So this term,
on-ramps and off-ramps I've heard a lot, not
just from Zan, but that's how law enforcement
thinks about it. Because they're regulating
the intermediary caught-backs, back to the discussion we
had about 30 minutes ago, regulated intermediaries
give the official sector a node to influence behavior. They have the banks, the JP
Morgans and the small community banks, in this system of
Bank Secrecy Act compliance. And even though some are doing
sloppy work, as Hugo pointed out, they're in the system. And so crypto to crypto is
harder for the official sector, because they don't need
any commercial bank. Or in a sense,
crypto to crypto is easier for somebody that wants
to stay off the tax base, because there's not
the same reporting. So it depends on which side
of the lens you're on as well. Decentralized exchanges
we're going to talk about in about five or six classes. But trust me, they're harder
for the official sector. Decentralized exchanges
are basically-- think of an algorithm
that is decentralized, no central intermediary. But through an
algorithm, Ilan and I could trade Bitcoin versus
Ether, Ether versus Bitcoin. And this decentralized
exchange allows it to happen. Most of them right now are
between two tokens that are on Ethereum, so Ethereum
token into Ethereum, token two ICO tokens. But they're a real challenge
and we'll get to them later. Anybody know what
a dark market is? I'm not going to ask if
anybody's used a dark market. Don't worry. Does anybody know? AUDIENCE: I think
like the Silk Road. GARY GENSLER: Silk Road. It is Silk Road. But what is Silk Road? AUDIENCE: It was somebody
using the deep web. The guy's in jail right now. And he had the
idea of free trade and it was used
for drugs mainly. GARY GENSLER: So it's
basically a website where you can buy and
sell illegal things, not just drugs but
primarily drugs. And the payments were
generally in Bitcoin, even though some have
moved on from Bitcoin now. And the technology
they were using was a TOR, T-O-R, which
is a way that you could do communications on the
web and not be tracked, I mean broadly speaking. So that was Silk Road. And dark markets exist. Again, before Bitcoin,
dark markets exist. They might have been
called black markets. So they have a new name. They're a new technology. And then state actors-- and no one should doubt
that state actors are always in some competition
with each other. And even if we're
not in a hot war, sometimes you're in other
types of competition. And so state actors
are also using-- and not just like the Mueller
investigation saw that-- they alleged that Russians
were using Bitcoin to mess in our elections. But in a more broad
sense, state actors could play in this space. I just thought this
chart was interesting. I found it on a website. Diar did a report. But this is US Agency Contracts
for Blockchain Analysis. There's companies out there
that will go in and do the forensics and analysis. And here is the
highest agencies. These numbers aren't
terribly relevant that it's $2 million or $2.5
million, but it's interesting. It's the IRS, it's the customs,
FBI, and the Fiscal Services, and the Drug Enforcement Agency. That's the parts of the
US that have publicly done requests for contracts
so this outside service could track it. But it just gives a
flavor for who's chasing after Bitcoin usage in the US. It's wonderful transparency. That's illicit activity. Let me move on to
financial stability, because we're going
to run out of time. Financial stability--
the initial assessment of the Financial Stability
Board is not big enough yet. I would say though, again,
capital control companies are worried about
maintaining stability. That's if it could undermine
your currency value. In essence, a capital
control country, where China has some capital
controls for instance, you can't get a lot
of the currency out. But if you can go Renminbi to
Bitcoin, Bitcoin to dollar, then it's basically
a bridge currency to avoid capital controls. And one of the things I
understand the Bank of China is focused on is that with
the big miners in China that, in essence, the
mining operations are a way to get around capital controls. It's a way to change Renminbi
into electricity, electricity into Bitcoin, Bitcoin
into dollars or euros. But it may also be why some
local officials in China apparently are allowing
the mining to continue. And while I don't have
any documented proof, it's why some people think
that there's probably some arrangements with
these local officials. I mentioned three other
areas in the testimony that I think are on the horizon
that are worth thinking about. Crypto leverage-- a lot
of the crypto exchanges provide a lot of leverage. You can buy Bitcoin, in
some cases 100 to 1 levered. Most or not at 100 to 1, but
almost all are at least 10 to 1 says our trader, right? So leverage often
is where you can get more acceleration
of a crisis if it's already happening,
more systemic risk. This still is a
rather small market, but the leverages,
probably something could propagate any crisis
if it were to happen. The market
infrastructure itself, like Australia is using
blockchain technology to do their clearing and
settlement of stocks. They haven't adopted
it yet, but they're rolling it out next
year and into 2020, so just making sure the
infrastructure works. And then central bank
digital currency-- so we're going to do two
lectures on central bank digital currencies. And I probably should've
just skip this slide. But here are some of the
concerns around central bank digital currencies. It could be pro cyclical. A central bank
digital currency means the central bank
says Joaquin does not have to deposit at a
bank to have US dollars. He can deposit straight
with the Federal Reserve. Or in Sweden, it's
close enough to do it. You can deposit straight with
the Swedish central bank. We'll talk about this
more in a couple of weeks. But that could lead to runs
away from commercial banks to central banks. AUDIENCE: I think my key
question is, if you do so, you run the central bank
digital currency on parallel to its Fiat currency. And that would
jeopardize the ability that the central bank
would be able to carry out monetary policy, especially
if you use Bitcoin in a way that the supply is rigid, the
ability for you to actually carry out for the
likes of [INAUDIBLE]?? GARY GENSLER: Remind
me your first name? Sean. So Sean, I agree with Sean. Can you hold that
for about two weeks when we're going to go deep-- we're going to do a deep
dive on all of these. But basically, Sean's point
is if a central bank issues currency directly to
the public digitally, could it also undermine
monetary policy? And there's a bunch of
neat trade-offs there. I leave it for you
just to say we're going to come back to that. The investing public--
so we've talked about that the markets are
readily susceptible to fraud manipulation. And we're going to spend
a couple of lectures on crypto exchanges. But they're not regulated
for market integrity. So a simple thing like-- remind me your first name. AUDIENCE: Michael. GARY GENSLER: Michael. Michael has trades. And I'm assuming some of
those are on crypto exchanges? AUDIENCE: Yes. GARY GENSLER: All right. So when Michael puts an
order on a crypto exchange, there's currently no
rules in the rule books, no law in the law that
says that exchange can't front-run Michael. So Michael says he wants
to buy Bitcoin at $6,400 and the crypto exchange could
buy some in front of him at $6,490-- or $6,390. Yeah, sorry. That's called front running. So there are many,
many ways to make money on Michael's order that
can just be goofed around. Kyle, is that a question? AUDIENCE: I thought that
front-running [INAUDIBLE] were criminal activities
if they weren't covered in a particular
law or regulation by FINRA. Is that not correct? GARY GENSLER: So
Kyle is raising-- well, maybe if it's not covered
by investor protection laws, might it be covered
by other laws? You mentioned FINRA. FINRA, which is the
self-regulatory organization in the US for investments,
would be investment law. But Kyle, you're right. Certain things are still
against consumer laws. I don't think front-running
is one of them, but you might be
right about that. I would contend-- I'm an advocate that
Western societies early on and many developing
countries in Asia, elsewhere benefited by
layering investor protection over consumer protection. That consumer protection is
about transacting and the fraud that can happen in a
transaction-- selling an automobile,
selling a baby's crib, and so forth, selling
a bottle of milk. Investor protection also layers
on something else which has to do with issuers having
information asymmetries, that the issuer
knows something-- the person raising money-- and the purchaser does
not know that information. There's a lot of
information asymmetries that you're trying to
address in the market. And then secondly
around exchanges the concepts of
pre-trade transparency, post-trade transparency,
trying to bring transparency and saying we're going to
promote economic activity. So in the US, there were
two laws passed in 1933 and '34, the Exchange Act and-- sorry, I'm going to have to
remember-- the Securities Act and the Exchange Act. But one was for issuers,
which was the first one, and the second was for
exchanges in '33 and '34. And I think those
are the key things. Let me just mention--
the key question, the definition that
we will be wrestling with for the next
several weeks is when is something is security,
when is it a commodity, when is it a derivative. We don't have to answer these
today, but those will be-- is it a security? Is it a commodity? Is it a derivative? Not only are there
different laws for each, but there's different
public policies and different normative
behavior that's implicated. Securities are when
there is an issuer. And fundamentally, just from
a public policy point of view, there's an
information asymmetry. That person raising money
knows more information than the person investing,
they probably always will. So you get to, what's the
fair exchange of information? I'm going to skip
a couple of things just to say why investor
protection to Kyle's question. It goes beyond. And here are what are the Gary
Gensler four bullet points. This you will not see
in a textbook somewhere. But these are the key things
I think investor protection layers on top of
consumer protection. One, investors get full
and fair disclosure. You can debate what full
and fair disclosure is, but it's something
more than I'm selling you this carton of milk. Fraud and deceptive
practices are prohibited. Now, fraud is supposedly
prohibited even when you buy a carton
of milk, but there's some added bits to it. And then this thing I said
about the secondary markets, promoting price transparency. And then lastly one that
I hadn't talked about, that the advisors usually
have a lot of conflicts in the financial markets. There's almost always,
in most countries, some additional responsibilities
around the advisors, whether it's what's called
a fiduciary responsibility or some other responsibility. Sometimes, it's
just a best efforts, but there's usually some
additional responsibilities on advisors. And those four bullet points-- I don't mean to teach
a whole securities law course in three minutes
or less, but those are how I quite summarize it. Tom? AUDIENCE: That first
bullet, is that from insurers or from issuers? GARY GENSLER: Issuers. Thank you. Issuers, yes. Sorry. Emily? AUDIENCE: Is there
any consideration for how to prioritize
between investor and consumer protection versus,
say, tax enforcement? In that I can imagine that if
there was increased protection, it would incentivize
more investment, which then could, without
prior tax coverage, make it so that [INAUDIBLE]. GARY GENSLER: Is that
word tax or hacks? AUDIENCE: Tax. GARY GENSLER: T-A-X. AUDIENCE: Yeah. So I would imagine that more
protection would encourage more investment, but then
more people potentially would be evading taxes
if there wasn't already that tax framework in place. GARY GENSLER: So Emily
raises the question, how does any
society, in a sense, make some trade-offs between
tax and investor protection regimes? And ultimately, if I can
take it one step back, that's what some
countries are doing now, but they've been doing it
for a couple of centuries. How do you promote
innovation that might promote economic activity? So I'm broadening your question. How do you promote
economic activity while in the midst still
promoting whatever social goods you're trying to achieve in
some regulatory framework? Investor protection,
so I made it the broadest, because that's
what you'll hear often around blockchain and Bitcoin. But it was true when the
railroads came along. It was true more recently
when the internet came along, how to promote
this new technology of the internet while actually
still promoting broadly the social goods that
we're trying to achieve. I'm one in the camp
that says protecting against illicit activity,
financial stability of investor protection
do, in and of themselves, promote society and
economic well-being. I don't think-- this
is Gary Gensler. I don't think they're
necessarily in conflict. There are others who
say no, no, no, no, you can't promote economic
activity or taxes and also promote
investor protection. I believe that's
more short sighted. I think the regimes and reforms
of the 1930s in this country and other decades
in other countries are part of why we have had
such a prosperous last 70 or 80 years. That investor
protection actually lowers the risk to issuers. Thank you for
correcting, issuers. It lowers the risk of issuers
and lowers the cost of capital. If you have good
investor protection, I believe ultimately it
lowers the cost of capital, which is what I said and
those two bullet points. So US securities
law, did anybody want to tell me what
the Howey test was? What are those
arches right there? Well, we'll take somebody new. First name? AUDIENCE: Actually,
the Howey Test is coming from a Supreme
Court case which was in 1946. And at that time,
the Supreme Court was about to make a decision
on, as far as I remember, citrus groves. And at the end of the day,
they decided that citrus groves are securities. And right after that,
there's a kind of agreement to be able to define
something as a security. It has to meet four criteria. GARY GENSLER: Let's
pause you there. All right. So citrus groves
in Florida somehow are securities,
absolutely right. A man named William Howey,
he ran for governor actually in Florida a couple
of times and lost, but he had a real estate
venture and he had those arches by his real estate venture. And he figured he could
sell part of his land as citrus groves. So the question was, when he
was selling that land could that be, actually technically
an investment contract? Because in 1933, the
Congress of the United States included in the
definition of security these two words,
investment contract. It said equity, stock, options. It kept having a
bunch of commas. There was a comma,
investment contract, comma, and it kept going. So the real legal question
that went to the Supreme Court was not whether Bill Howey's
citrus groves were securities. It was whether Bill Howey's
citrus groves were investment contracts, because
Congress had already decided by putting the two
words and a couple of columns that it was a security. And that separates us
from the European Union and many other jurisdictions,
because Congress put those two words in there,
investment contracts, which had to do with a lot
of scams and frauds from the 1890s to the 1920s. And to meet the
investment contract test is this for part test. Is it an investment
of money or assets? Basically, the SEC has said
that if you're giving Ether-- or you're giving
Bitcoin to buy Ether, you're giving Bitcoin to buy
some Amanda token, all right? That's an investment
of money or assets. That's what the SEC has said. And most lawyers kind
of agree with that. Is it an investment in
a common enterprise? So is there a group
of developers that-- or is this like a
common enterprise? Some people debate that. Some people say, well,
we weren't-- really, it's an open source. If you're an open
source software, that's not going to
be enough to get away from being a common enterprise. Is there a reasonable
expectation of profits? Most people think of profits
coming from dividends or interest on your bond. The SEC has said, and
there's relevant court cases that say profits could
be just the expectation of the appreciation
of the asset. So I buy a token
today for six Ether and tomorrow I think it
might be worth 10 Eth. That's a reasonable
expectation of profits. And the efforts of
others, is it reliant on the efforts of other? This four part test. Jay Clayton, the head of the
SEC said earlier this year, in essence, he hadn't
met an ICO that he didn't think was a security. His words were a little
bit cleaner than that, but it was basically saying this
initial coin offering market is probably mostly securities. Again, it's probably
less than a quarter of the whole crypto
finance market. It's a very relevant
issue if any of you are trying to do a startup. But I would contend it's not
the largest public policy issue. But borders and boundaries
make a difference. The Duck Test, this is
basically how I think about it. Christopher, you
want to say it again? AUDIENCE: If you see a bird
that walks like a duck, swims like a duck, and
quacks like a duck, I think that's a damn duck. GARY GENSLER: So if you have
a public policy question, like, do I have to file
under the Bank Secrecy Act? Do I have to be a security? Do I have to be that? And before you pay that law
firm $1,000 or $1,500 an hour-- and there are many lawyers
that, I guess, are worth that-- ask yourself this question. And I'm trying to impart a value
judgment to all of you, too, not only to save you
legal fees, but there are many lawyers who
are going to try to help you solve your problems. But when you feel
like they're just trying to get between the
wallpaper and the wall with the narrowness and
the thinness of the slice of their legal judgment,
remember how Christopher just gave us the Duck Test. And then step away and
say, well, maybe there's another business solution
to what you're trying to do, because if it
doesn't pass the Duck Test at some point in
time, you're probably going to have your
friends from the IRS, or your friends from
the Justice Department, or the friends from the
SEC knocking on your door. And those are the
friends you usually don't want to have
knocking on your door. There's still 200
to 300 ICOs a month. I just wanted to say that
the market has not gone away. And the Initial Coin
Offering Market, which we're going to talk
about in a couple weeks, has all these attributes
of the Howey Test. They're raising proceeds
and they're usually trying to be functional. I want to skip ahead a
little bit to something on public policy. And we're going to
do crypto exchanges, so I apologize I'm
running tight on time. But I want to do something
that Lauren and Tom have seen. Well, let me pause here. This is regulatory arbitrage. And Kelly, given your
paper, you'll like this. But this is the list of where
cryptocurrency exchanges were. It's from a Morgan
Stanley research paper earlier this year. But if you can see the
little slices on the left, that's Malta, Belize,
and Seychelles, three really deep
capital markets. Well, not really, not really. But a bunch of exchanges from
South Korea, Hong Kong and Asia reincorporated in Malta,
the Seychelles, and Belize. And so it's just
there is a whole bunch of regulatory arbitrage
going on right now. Public policy development--
this is only five minutes, but I just wanted to mention
how public policy actually comes together. And Tom, you going
to help me here? You got it? AUDIENCE: Analysis. GARY GENSLER: Analysis. Tom starts with analysis. Who thinks analysis
is at the top of what happens in public policy? Any show of hands? Tom, no. What's number one? What do you think happens first? What's that? AUDIENCE: Panic. GARY GENSLER: Panic. Public policy, huh? Panic? Lauren? AUDIENCE: I thought
this was going to be a plug for your
personnel as policy. GARY GENSLER: Personnel as
policy is going to be in here, but messaging. If you don't get
your message right, you're never going to
get to your analysis. But there's one other thing
between messaging and analysis. AUDIENCE: Coalition. GARY GENSLER: Coalition
building or politics. So messaging-- with
your messaging, you can build a coalition,
which is called politics. And if you get your
politics right, you can actually get
to your analysis. This hierarchy, not
written in textbooks, comes from an old, wonderful
political lawyer from Texas who shared it with
me some 20 years ago when I went to Washington. He said, young man, you know
nothing about this town. You don't get your
message right, you're not going to
get to your politics. If you don't get
your politics right, you'll never get to your
analysis and your policy. And that's how it's
all made, kind of. And so what do I
mean by messaging? So let's have a
little bit of fun. Does anybody remember this? What's that? What is that? Messaging, right? It's messaging from 2016. Does anybody want
to go back to 2008 and tell me what was the message
for 2008 to have some fun? AUDIENCE: Hope and change. GARY GENSLER: Change. AUDIENCE: Change we believe in. GARY GENSLER: You want
to go back to 2000? Harder, harder I know. It's almost-- it's not
in the history books yet. No? Compassionate conservative. That's W. He was
compassionate, he was conservative,
but compassionate, a nod to that moderate side. '92? This is going to be hard, huh? It's the economy, stupid. That's Bill Clinton, by the way. It's the economy, stupid. So messaging. Coalition building,
that just basically means, unless you can
really bring folks together. So in the blockchain
Bitcoin space, right now, there's
not a broad coalition. It's not a deep well of
people investing in blockchain and Bitcoin in America. But if you were to try
to address yourselves to legislative change
or regulatory change, you'd need some coalition. You probably can't just
be a bunch of miners, or a bunch of incumbents, or
startups, or crypto exchanges. There would have to be some
form of coalition building that goes along with it. Analysis does matter. I'm not going to say,
Tom, it doesn't matter. It's just-- no, no, it's
just to get to the analysis-- if you are sitting down with
somebody in Congress right now, you probably also need,
as James says, the crisis. My sense is legislative
bodies around the globe, by and large, are not engaged
in blockchain Bitcoin yet. Gibraltar passed something. Malta's passed something. The Russian Duma,
thank you, has been working on something
for six straight months and can't come to a
coalition around it. Some state legislative
bodies in the US have passed some modest things. There was a bill in
Arizona actually promoted to allow Bitcoin for
payment of taxes. It failed in committee,
but it's interesting. Question? No. And yes, Lauren, you're right. Personnel is policy. Ultimately, who sits
in the jobs matters. And I would just close on it. Think of those several layers. There's the political layer. Those are either
elected or appointed by the people that are elected. There's the political layer. And their risk
appetites are different than the senior career level
and the day-to-day career level. And the day-to-day
career level is usually that person with whom
we are all interfacing. But as we all know, if you walk
into the Department of Motor Vehicles, that
day-to-day person, that bureaucrat really
has a very narrow range of decision making. The senior career person
who's in their 40s or 50s has a broader range of
decision making, but also always remember they live in
a world of asymmetric risk. There's not much
upside to saying yes to something new, and funky,
and hard, and difficult, but they could be getting
a host of downside risk if it blows up on their watch. So there's asymmetric risk. And Bitcoin and
blockchain gives that. So that's everything. Thursday is permissioned
versus permissionless systems. So we'll dive into some of that. If you've got more questions
on public policy, just ask. We'll be talking about
the rest of the semester. And the conclusions, basically,
are public policy matters. Thank you. [APPLAUSE]
