March 6, 2023 • 44 mins
Crypto is facing two distinct, yet related problems. First, a bunch of people have lost money due to the decline in coin prices and the collapse of major firms, such as FTX. At the same time, regulatory scrutiny is also increasing. And of course, the reason that scrutiny is increasing is in part due all the lost money. So how is the industry dealing with all this? On this episode of the podcast, we speak with Brian Armstrong, the co-founder and CEO of Coinbase, the biggest crypto exchange in the US. He talks about the trajectory of the industry, where he sees it going, the impediments it faces, and much more.
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Episode Transcript
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Speaker 1 (00:10):
Hello, and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, obviously
a lot going on in crypto, but I would say
the two big things are, like, I guess the crypto winter,
there's been some recovery, but obviously all the coin prices
are way lower than they used to be. And then
(00:31):
there's just everything going on on the regulatory side. Yeah,
it's sort of a double whammy for the industry. And
I guess it's hard. It's hard to determine causality when
it comes to price and extra regulation coming in. But yeah,
it is not a great time for crypto. Well, I
would say that the historical patterns would suggest the regulators
(00:52):
like to come in after people have lost money. After
people have lost money and scams, their investments go down.
So it kind of makes sense that you see the
uptick in regulation right after, just like the lines have
been going down for a while, right, But it does
prompt these big questions about should the regulators have been
more proactive, should they have been doing things before people
lost money? And then what should they do now? Anyway,
(01:15):
we have the perfect guest to talk about this because
we are going to be speaking with Brian Armstrong, CEO
and co founder of coin Base right in the middle
of all this, the pre eminent American crypto exchange. So, Brian,
thank you so much for coming on odd Lots. Yeah,
thanks for having me. I want to ask you a question.
We've actually asked other executives in the crypto space this
(01:38):
question before, but I'd love to get your take on it.
What is yield farming and where does the return of
it come from? Well, I mean, yield farming has a
little bit of a bad name, I think in this environment.
There was obviously with the collapse of Tera, Luna and
block Fi and some other firms like that. I think
that's a very valid question to be asking, and I'm
(02:01):
not sure I couldn't even answer it on their behalf.
But you know, I think there's a lot of other
pieces of crypto that people are still excited about, and
you know, there's lots of things we can build beyond that.
So one of the things we've talked about on the
show quite a bit is this idea of crypto as
kind of the ultimate momentum asset and when money is
flowing in prices go up and everything is great. When
(02:23):
money flows out, prices collapse quite quickly, which would seem
to make the business of being a crypto exchange extremely cyclical.
But one of the things that stood out from your
most recent results you just reported relatively recently, you talked
about how you want to be profitable through the cycle,
through the upturns and the downturns. Can you talk a
(02:44):
little bit more about how you plan on doing that. Yeah, Well,
historically most of our revenue has been from trading fees,
which you're absolutely right, it is cyclical, and crypto has
been a fairly volatile asset class goes up and down. Now,
what we've done is we've started shifting more and more
of our revenue to what we call subscription and services
in our financials and our earnings calls. And basically what
(03:06):
that means is things like usd coin, a stable coin
that's been a nice growth mechanism for us, even in
a down crypto market. Things like custody fees, fees that
we earn on coin base card. People are you know,
using it for spending in merchant commerce activity, So these
things are I wouldn't say there's zero percent correlated with
overall market in crypto, but there are certainly a lot
(03:27):
less than trading fees, and that's allowing us to build
a more predictable business. So we started in the industry
also talk about the regulatory side, and that one whom
you know will definitely talk a lot about that. But
in particular, I think yesterday I saw that coin base
you had some new program I think it was called
the four thirty five program about you know, call your congressman,
(03:49):
like let people know that you care about crypto policy.
And of course like Uber sort of famously started the
strategy like telling people on the app, like tell your
local regulators you want to drive an Uber. And I'm
going to try to ask this in the most like
diplomatic way possible. And I have many friends who are
into crypto, and I like many of them. But when
(04:09):
it comes to crypto, do you want the type the
type of person who would call their congressmen to tell
them to do better crypto policy? Is that really the
type of person that you want sort of being the
voice of cryptoregulation. Well, I think the average person in crypto,
and by the way, there's a lot of them, you know,
one true one in five households now have used crypto,
(04:31):
about fifty million Americans. This is a this is becoming
a major constituent of you know, lobbying group and everything
that's gonna have shape future elections. They want to you know,
these average people. They may not have the exact solution
for what the legislation should say around regulation of crypto,
but they do know that they want elected representatives who
are going to ensure that this industry comes within the
(04:51):
regulatory perimeter, offers consumer protection, but also you know, allows
this innovation to flourish so that it can we can
update the financial system. You know, eighty percent of a
Americans now believe that the financial system doesn't work for them.
It's either too slow, it has too higher fees, it
doesn't you know, nobody has equal access or not. Everyone
has equal access to it. And it's not surprising that's
(05:12):
the case. I mean, the technology behind the financial system
is sometimes forty years old. It's written in cobalt, and
these mainframe computers and the laws for it are sometimes
one hundred years old. They were created before the Internet
even existed, right, so it's time to update the financial system.
We I think the average voter in America is now
realizing that crypto is one of the great technologies that
can help me update that and they want their elected
(05:34):
representatives to bring that legislation and clarity to the US.
Just on the political side. I mean, Joe and I
kind of alluded to this in the intro, this idea
that now that we have losses and we have big
scandals in the industry, regulators seem to be becoming more
active in the space. Can you talk to us a
little bit about from your perspective, what is it like
(05:55):
dealing with Washington now versus say, in twenty twenty or
twenty twenty one. Yeah, well, I would say compared to
twenty twenty, many more people that I meet with in
Washington are actually pretty knowledgeable about crypto now. It's no
longer a niche thing. Some of the conversations I had
five years ago, you know, they were very basic. But
(06:15):
most people that I speak with now actually have a
reasonable understanding of crypto. They there. I think there's two camps.
One camp is saying, hey, in the wake of FTX,
I'm afraid of being associated with crypto, and I'm just
going to kind of wait and see what happens because
it's too dicey to even go near it. The other
half of the folks I speak with are saying, you
know what, this is an opportunity. I'm actually I want
(06:38):
to be one of the people who helps bring this
within the regulatory perimeter. And and we can see how
important that is now with the collapse of FTX, and
so they're actually drafting legislation, they're trying to gather bipartisan
support to get some clarity going. And you know, I'm
personally much more in favor of that ladder group. So
actually I want to ask you, you know you talk
about this impulse is like okay, in the wake of
(07:00):
bring it inside the regulatory perimeter, And part of my
question is like why because I look at FTX collapse
and one of the biggest like sort of like crucial
exchanges in the industry, and nothing bad happened after that.
There was no fallout or no bailouts, It didn't have
any spillover. So part of my thing is like, I
don't want this in any perimeter because that seems to
(07:21):
work pretty well in terms of the lessons of two
thousand and eight avoiding too big to fail. What about
the argument that it's like from a sort of like
structural like yeah, like financial contagion standpoint, regulators have done
a pretty good, pretty good job not letting this volatile product,
this volatile industry create problems for the financial system. Let
(07:43):
it burns strategy. Yeah, well, you know, I would disagree
with the idea that nothing bad happened. I mean, a
lot of people lost money, that's absolutely And I'm glad
you say that because I did not. You're right, people
lost their like, yes, yeah, so there was certainly some
activity there, and I think that's the kind of consumer
protection we're talking about. I don't I don't think there
(08:04):
should have been bailouts or anything like that. Nothing in
crypto is too big to fail. And it's kind of
antithetical to crypto frankly, to you know, have a bailout
or something like that. If you the first bitcoin block
that was mind right had a message in it about that,
you know, Chancellor on the braink of bailout. So crypto
was kind of founded almost a bitcoin was founded as
a result of reaction to the two thousand and eight
(08:25):
financial crisis. But I think those two ideas can come
into unity. I mean, we can have and again I'm
talking about for the centralized actors in crypto, you know,
the custodian's exchanges, companies like coin base. It's pretty clear
everybody generally, there's broad consensus those should be regulated. It
applies some of the best practices and standards, so we
don't have fraud and corruption and things, you know, wash
trading or email issues. But the decentralized pieces of crypto
(08:48):
that's different. I mean, we need to have decentralized protocols
so that we can have a global, more global and
fair and free financial system, and that piece. You know,
I don't think those are going to be regulated because
there is no central authority for bitcoin or them. For instance,
what should consumer protections look like in crypto? In your opinion,
and especially you know, when I think of something like
doge coin, you know, it's hard for me to come
(09:10):
up with an economical use case for it, and so
it's like, well, you can put all the disclosures that
you want on there, but it seems highly likely that
people will be losing money on that product at some
point in time. Yeah, So again I would say, you know,
the regulation and the customer protection probably should happen with
the centralized actors, the custodian, the exchange, not necessarily dodge coin,
which would be another decentralized coin, right, But yeah, I
(09:34):
mean I think the exchanges and the firms that are
being built around you know, custody or trading of things
like that, they are going to have to have, um,
some of these best practices from the traditional financial services world.
So you know, let's have audited financials, let's make make
sure customer funds are segregated from corporate funds, um, let's
make sure that there's MLKYC programs and avoid avoiding wash trading,
(09:57):
and yeah, appropriate disclosures are important as well. So those
are all just kind of good general best best practices.
But again it's focused on the centralized players as opposed
to the decentralized pieces. It's interesting you make this distinction
obviously between you know, there's sort of centralized players and
then decentralized DeFi stuff. You're kind of becoming a hybrid,
and you recently launched a layer to roll up to
(10:20):
help scale ethereum. And I'm curious, as a regulated entity
and one that has to abide by like finsend and
anti money laundering laws, can you explain if the tension
or is there any tension between I believe these sort
of like a you know, roll up layer twos have
some sort of centralized sequencer so that the transactions made
(10:42):
out of them then get back to the main ethereum chain.
Are you responsible for that and do you hate? How
do you deal with that as an regulated entity? What
if someone wanted to or try to launder money through
this layer two are you facilitating that by putting those
transactions onto the main ethereum chain. Yeah, so earlier, you know,
(11:04):
I mentioned that the centralized players like coin base should
be regulated and I and I was really referring to like,
you know, our primary revenue stream today csodia in exchange.
But you're absolutely right. We are embracing decentralization. At coin Base.
We have a number of different products and legal entities
and different ones working in various areas. So we did
launch this really exciting thing, a layer two solution called
Base and our goal with that is really to help
provide more scalability and better usability for layer two solutions.
(11:28):
So we want to get transactions and ethereum down to
you a penny or less and help that scale to
hopefully a billion or more people someday. I think I
guess the core of your question was really around the
responsibility from a centralized decentralized pease and I think, you know,
so base is it has some centralized components today, but
it's it's going to be more and more decentralized over
(11:48):
time as as it grows, and so you know, I
think we have responsibility in terms of you know, transaction
monitoring things like that that we have to look at
in the early days, but as it decentralizes, I think
that again, the centralized actors are the ones that are
probably going to have the most responsibility there to avoid
money laundering issues and having transaction monitoring programs things like that.
(12:26):
So speaking of responsibility, Um, you know, there are thousands
I think of coins and tokens listed on coin base now,
dred Okay, I didn't flip through all the pages, but
there's a lot um And you guys say that you
never actually list securities, but it feels like nowadays there's
(12:48):
so much uncertainty over you know, you could wake up
tomorrow and the SEC says this is a security or
that's a security. I mean just a little while ago,
for instance, they were um, I think there was an
inforcement action on Kim Kardashian for unlawfully touting a crypto security.
So how can you say with confidence that you don't
(13:09):
list any securities when it feels like that's a very
fluid thing at the moment. Yeah, So I think, look,
the best thing for us and for the whole industry
would be, here's a clear rule book. Everybody has to
follow it, you know, and if the rules change, give
us a new rulebook, we'll follow that one. Right. We've
actually been requesting that, and we've we've filed a petition
(13:30):
with the SEC on this. People can read it on
their website, and we sort of enumerated, Look, these are
the ways that the current securities laws don't really address
some of these underlying questions in crypto, like if there
is no common enterprise or centralized entity behind this thing,
who who publishes the disclosures? You know, So there's there's
questions like that. Now, what we've done in the absence
(13:51):
of that clarity, which again would be the best case scenario,
is that we have created our own internal process to
review assets, and we developed something I think it has
like seventy seventy two points in the legal analysis and
kind of one area it looks at is securities law.
It also looks at compliance risk, you know, cybersecurity risk,
things like that. And we've evaluated probably roughly a thousand
(14:12):
assets through this process, about eight hundred of them we
have rejected and for various reasons, whether securities or compliance
or cyber about you know, two hundred two and fifty
or something like that, we've decided to list. So, you know,
I guess the heart of your question is what happens
if the sec comes out and says okay. So if
they come out and they and they again we're asking,
(14:33):
we're asking for more clear rules. Right, So if they
come out and say, you know, we think this asset
is a security, that's great. Okay, now we have clarity
and assuming you know, it's not, if it meets the
legal definition, it's not going too far. We would be
happy to sort of update our process in our system
based on that that new information. Now, ultimately, if they
(14:53):
publish something and they say, well, we think all these
assets are securities, well that's not really our understanding of
the law. And the third party is an external council
we've worked with, and so there is a line here
where I think as an industry, and it's not just us,
it's these asset issuers which are even more primarily affected.
You know, they would have to say, okay, well, let's
let a court decide that, because you know, we have
to follow a rule of law. So does the sec right.
(15:15):
And so if they put out, you know, their opinion
about something, that doesn't necessarily mean it's true. It just
means the court ultimately has to be the decider on that.
Can you give an example not necessarily of a specific coin,
but of something that you have seen in tokens that
you've rejected that to your mind said no, we cannot
(15:35):
list this because this is a characteristic of a security. Yeah,
I mean, there's so there's a variety of I mean,
there's many prongs of the Howie test, right, I mean,
and I don't want to get into like an in
depth legal analysis here, but you know we've never done
a Howie Test episode, and so this could be it,
but no, go ahead. Yeah, So you know there's multiple
(15:58):
prongs there, right. I think you know, if if people
are buying it primarily with this expectation of profit, and
it's there's you know, there's a common enterprise and and
and right. So, but if there's something in the like
speaking in terms of patterns that you see within crypto
projects that when you look at it's like, no, this team,
like the type of things the teams do that would say,
(16:20):
you know what, this token is not going to be
kosher from coin base. Are there things that you see
in the industry where you think teams are crossing that
line into I don't know whether it's the common enterprise
aspect that preclude them from at least your judgment being
safe to list. Yeah, I mean so I'll give you
a security example, but there's others in cyber security and others. Um.
(16:42):
So you know, look, if you're if you're legitimately just
trying to raise money for your company or for some
project like an apartment comment X or something like that,
that is a security. That's the point of security's law.
There has to be an investment of money into this thing,
and for you know, in a common enterprise with an
expectation of profit you know, based on the others. So
that should exist, by the way, and we want that
(17:03):
to exist in the world. Um, we've acquired a broker
deal license. We were a stormant right now. We we'd
like to activate it. We're working with the sec to
hopefully make that happen. Crypto is a technology that could
make you know, crypto securities could offer benefits and update
the financial system and improve all kinds of things to
you know, time to settlement and various things like that.
So that's an example. Um, you know, if people are
(17:25):
out there kind of really hyping these things like on
YouTube and um and the tokenomicxer look sketchy and um,
you know there's really low float and the insiders are
selling it. These are all bad fact patterns and those
are the things we try to avoid for consumer protection. UM.
You know, there's other ways. There's other reasons we may
reject assets too, I mean an initiation. Another example would
be cybersecurity risk. So we often will um evaluate the
(17:49):
smart contracts for you know, is there some exploit in
this or there's an ability you know, if if the
the acid issue is not even like a malicious thing
but an accidental thing. If they lose the key, everyone's
phones could be swept or something like that, that that's
not secure enough right to meet our standards. So that
those are examples. Is crypto shooting itself in the foot
(18:09):
in some respects by like resisting the security designation, Like
is that a tacit admission that maybe there isn't a
reasonable expectation of profits here? Question? Yeah? Yeah, I mean
we want actually crypto securities to exist. So we're not
saying none of these things are securities. But on the
(18:30):
flip side, is not true either. It's not that all
of these are securities. Both of those are inaccurate statements.
And I guess the thing I would say too, is
that just an expectation of profit alone does not make
something a security. It has to be meet every prong
of the how he test is my understanding. So an example,
you know, people might buy a Picasso painting hoping it
goes up in value, or buy gold or something like that.
(18:51):
So those aren't securities. So yeah, I mean basically, Bitcoin
ethereum and the assets that we trade on our platform day,
we believe our crypto commodity, and it's you know, people
trade those. Some of them they want to go up
in value, just like they buy gold. Other other times
they're using it for various utility aspects. You know, this
is sort of I want to get back to the
regulatory question. But before I forget, can you talk for
(19:15):
a second about how you view bitcoin specifically, because it
feels like the crypto industry in many respects has moved
on from Bitcoin. And I'm sure your mentions on Twitter
are filled every day with angry, laser eyed people that
think you hate bitcoin. But it is also true that
you know you launched you launched an ethereum layer two.
(19:35):
I don't know if do you have a light do
you is there a coin based lightning note or we'd
like to do more with lightning pleasure havin pro lightning
so but haven't yet. Yeah, and you know there's all
these issues with like funding for core bitcoin devs, like
frustration that they don't get enough and can't maintain it.
What is your view towards bitcoin? I mean, I love bitcoin.
(19:58):
I honestly, I don't really understand why, Um, anybody might
think the opposite. I'd kind of like dedicated people do, right,
I mean, I'm not wrong that you, um, there is
kind of all abused by bitcoin maxis at one time
or another. I think that's unfortunate. Um, I don't know
how seriously to take that. I mean I do see
people say this on Twitter sometimes but I don't know
if it's like a widely believed thing. I mean, it
(20:19):
would sort of defy credulity, right. I mean I've kind
of almost dedicated my life too like bitcoin and helping
it grow. I mean literally I read the Bitcoin white
paper and then decided to quit my job and found
this company. Um. Now, of course the industry has evolved
into many things, right, I mean, there's lots of new
innovations coming out in crypto. But yeah, I'm very pro bitcoin,
and I think, look, I think there's a very simple
(20:41):
base case for for bitcoin, which is that it's the
gold standard in the crypto economy. And I think that
I'll probably always be true and it'll keep growing. Now
if things like lightning continue to get traction, I think
it could also become like a settlement layer. There's um,
there's people now creating NFTs in bitcoin, and so it's evolving.
I'm as as an operator of an exchange in custodian
(21:04):
I try to just be agnostic. I don't. My job
is to say, is not to tell our customers which
coin they should use. It is to list and make
available every coin that meets our standards, the legal tests.
I discussed and then we need to be agnostics. I
think some people, because I'm not pro one coin or another,
they sort of take that as like you must hate
(21:25):
this thing, But those are two different things. Just going
back to the SEC for a second, you know, we
talked about how it does seem like SEC is sort
of an enforcement mode and there's a chance that you
wake up tomorrow and there's a bunch of new announcements.
Wouldn't you think the ultimate goal is for the SEC
when it comes to crypto. Do they just want it
to go away entirely? Or are they aiming for, you know,
(21:49):
the industry to still exist but maybe in a different
in a different way, or a JP Morgan in City
instead of coin base. And yes, Unice law Well, I
mean I always want to be hesitant to kind of
speculate on the motives of people within the SEC. I mean,
I think we have a pretty good relationship with different
people on staff and commissioners, and I guess the real
(22:14):
answers I don't know. I suspect that there are different
people with different views inside the SEC. I think it
wouldn't surprise me if some people their view they actually
just wanted to go away they wish this whole thing
would go away. I think I don't think I would
hope that that's not a majority of view. I know
it's not the majority of view of Americans, and I
don't see how would be in the interests of America
or are you know, protecting consumers to wish it would
(22:36):
go away, because clearly it's not. One in five households
in the US are using this stuff and they're just
going to use unregulated things off shore if if we
don't get our act together in the US. So I
think the majority view is more like, we know that
this is going to exist, we just need to bring
it within the regulatory perimeter. I wish that they were
doing that by just again publishing a clear rule book
and going through a rulemaking process with industry, but it
(23:00):
hasn't happened as much to date. And so you know,
if it needs to be more enforcement based and then
some of this stuff gets figured out via case law,
I mean that's okay too, it'll just take a little longer.
Why do you think that regulatory response has so far
been kind of disjointed. I think it's fair to say,
like maybe disjointed or unclear. Was it a lack of
resources or regulators just didn't understand the space. What was it?
(23:25):
Maybe can clarify what do you mean disjointed? Well, I
guess um, slow maybe and unclear? You know, to your
point this idea that we go in and ask them
questions and they don't give you answer, right, Oh man?
I frankly I I you know, I'm spending a lot
more time in DC. I'm trying to figure this out too.
Perhaps I was a little naive coming in. I kind
(23:45):
of assumed that, you know, when you're running a business,
that the regulators just give you the rules and then
you just follow them, and that would have been like
how I assumed it would work. But it seems to
be more complicated than that. Maybe it's like there's various
political motivations. There's different factions within the government who have
different goals. You know, people who've gotten legislation past, they've
(24:10):
told me it's kind of like a small miracle. Whenever
it happens, you have to kind of get the House
and the Senate and the President all aligned and the
you know, there has to be a real impetus for
it to happen. I kind of believe this thing with
FDx is maybe that impetus. Maybe this is our moment
to finally get some clarity in the next year, at
least give another regulatory question, though not about not SEC related.
(24:31):
It seems like some banks are de banking crypto companies,
but it does I do not get the impression that
that is a risk for coin base. Do you perceive
that to be a regulatory advantage for you, that smaller
exchanges may have a harder time getting a banking partner
in this environment? Well, look, I mean I'd hate to
consider that to be an advantage. You know, we haven't
(24:54):
had any issue with any of our bank partners. I
do think that there's a there's a general moment in
the wake of FTX where, you know, reasonably so bank
regulators are asking tough questions and they're and they're basically
coming in and saying, what are the liquidity risks if
you're gonna take crypto deposits? Um? You know, is it
(25:16):
is it okay to be making loans against those deposits?
Or are they too risky? And um? I think those
are totally fair questions to ask. So, yeah, I don't
think that we would have any kind of major crackdown
and say, well, you can't bank crypto companies. I haven't.
I haven't heard that from any anybody. And by the way,
that that would be probably exceeding their authority because Congress
has to make those kinds of decisions about what is
(25:36):
allowed in the economy. Um. But if they're coming in
and asking questions about liquidity, I think that's probably reasonable
quick to follow up on that. Um, would you or
have you put any lobbying or any of your DC
effort towards guaranteeing or making sure that anyone provided you know,
provided other basic checks that like that crypto can't be
(25:57):
I guess discriminated again within the banking system. Is that
an effort you've made it? Well, I'm certainly in our
messaging and in our conversations with members of Congress and
the Senate, we have made that point to them, which is,
we want to just be treated on a level playing field. Right,
don't unfairly penalize crypto versus traditional financial services. But um,
(26:18):
you know you shouldn't like allow us to have a
lighter weight system or anything like that either. So it's
it's a balance. Um. You know, we've mentioned this a
couple of times, But I'd be curious to get your
take on what happened to FTX, Like when when you
know that one week in November I think was shocking
for a lot of people for very different reasons depending
(26:39):
on who you are. But what was it like for
you when when you saw, you know, it happens so
quickly you had the Twitter exchanges and then you had
a bankruptcy file I think filing within like seven or
ten days. Yeah, I mean that that was a wild week. Um.
I was actually in Japan at that time, meeting with
our team there and talking with regulators and government folks
in Japan, and I got a call from somebody who
(27:01):
said it's bad, like we think FTX is going to
go down in the next forty hours and Sam might
go to jail. And I was like, okay, tell me
more what happened. And I kind of started to piece
it all together. You know. I had a chance to
chat just briefly with Sam actually and cz during that
whole thing, and I was just doom scrolling Twitter, I
suppose like a lot of people, and I mean, really
(27:24):
that's not true. I Mean the first thing that I
really thought about was, Okay, what is our exposure any
of this. So we immediately went and you know, underwrote
any of our counterparties, including FTX itself, but any that
might have secondary effects. And then we started to think about, Okay, well,
this is actually quite validating of our strategy over the
last ten years of being built in US, trying to
(27:46):
embrace compliance, not trying to cut any corners. How can
we make sure that people understand that coin base is
it's not like FTX. And I basically thought about it
as there's gonna be a it's gonna be a black
eye for the industry, but this is ultimately coin stands
to be a huge net beneficiary of this because it's
going to bring an increased focus on compliance and trust,
(28:08):
which is what we've been doing for the last ten years.
I want to ask a little bit about you know,
(28:30):
start the price crypto winter, and obviously there's been a
bit of a bounce, but the bounce has basically just
been like because the Nasdaq has bounced two and it
looks many of these coins sort of looked pretty highly
correlated to other risk assets, and for years I feel
like there was this case to investors that they should
buy crypto for two reasons. One it was this new
(28:51):
uncorrelated asset class, and two, in the case of bitcoins specifically,
it was really good as an inflation protection thing, and
that league it just got, you know, the highest inflation
in forty years, and bitcoin really hasn't gone anywhere. It's
flat over the last several years, and the coins all
seemed to buy and large at this point seemed to
(29:11):
more or less be correlated with like the NASDAC or
QQQ or whatever. What is the case and what do
you feel about, like, so, what's the new case to
be made? After people have seen narratives, these old narratives
that the industry was pretty loud about making. I'm not
saying you I don't know, but many in the industry
definitely were have not held up in terms of like
(29:32):
the case for investing in it. Yeah, well, I guess
I'm just sort of laughing a little bit, because, you know,
crypto being has been roughly as volatile as the stock
market recently. And I can tell you there's many years
coin base where people would constantly ask me, it's so volatile,
no one'll ever use it. And so now that it's
just on part with volatility of the stock market. I'll
take that as a slight win at least a step
(29:52):
in the way testa shares to buy coffee either. Yeah. Yeah,
but anyway, well, okay, so obviously we have stable coins
for commerce now, which which is a good piece of
the puzzle. But let's go back to your question about
in an inflation hedge. So you know, I think there
certainly was this belief and I, frankly I shared this
belief too, which was that crypto bitcoin specifically. Actually, this
(30:17):
is where people hopefully the bitquin Maxie's kind of aligned
with my thinking is that that that is sort of
the new gold standard in the crypto economy, and it
would be something that people flee to in times of uncertainty,
with guaranteed scarcity and things like that. Just you know,
similar to like real estate has a you can't make
more of it, so at least the land part of it.
So there is sort of a guaranteed scarcity component. It's
(30:38):
a nice insulation hedge. Now. I think what happened is
I was frankly surprised to see how quickly crypto came
down in an environment of high inflation, where I thought,
maybe the world is shifted, maybe we're ready now where
this would be considered an inflation hedge. It turns out
we were way too early for that. Now, I think,
I guess my current updated thinking on that is that
(30:59):
we still need Probably crypto is still too smaller percentage
of the global economy to it's being treated more like
a growth you know, asset or something as opposed to
like a true like a gold standard or something. And
so I mean we probably rely need the cryptoconomy to
grow ten x, twenty x or something from here to
start to have that sort of a role in the
broader macro environment. You know, you mentioned stable coins there,
(31:22):
and I just remembered once upon a time, I guess
a few years ago we had Sam Bankman freed on
and we asked him to explain to us what would
happen if tether just suddenly collapsed? And I'd be curious
to get your I guess in retrospect respect, we should
have asked SPF what would happen if FTX actually collapsed?
But in retrospect, can you talk to us about your
(31:46):
impression of Tether's role in the crypto ecosystem? Um, well, look,
I'm not here to sort of criticize anybody in the ecosystem.
I don't. I don't really. You know, we've utilized Tether
in various ways, is on our platform in different times.
I know, they've been investigated by various parties and they
reached settlements and they sort of had they got comfortable
with various ways. You know. Look, our focus at this
(32:09):
point has been on USD coin. We have a partnership
with Circle on that, and I think that's been a
that I feel very comfortable saying. I you know, I
understand more about it, and it feels it's well backed,
it's one to one backed, and it's audited and all
these things. I just don't have as much information on Tether,
but I don't have anything negative to say. Certainly they
don't have no no beef with them, let me ask you.
(32:30):
You know, look, obviously, after all this time and even
well before the FTX, as you know, there's been there's
there's just a lot of skepticism still to this day
about crypto, and I think many people say, yeah, it's
not it's not going to go away, but like it's
still it's just speculations. People are just in it for
the money and there's no real use case outside of
(32:50):
maybe some niches, but like Web three isn't really a
thing yet, and I'm curious, like a lot of people
in crypto have done faint stastically well and you know,
like you know, made an extraordinary amount of money despite
the fact that buy and large, these coins aren't really
used for much outside of making money. And there's not
(33:13):
a you know, decentralized Facebook that exists. You know, there's
a there's a good reason why it would be nice
to have one, because it's sort of scary to think about,
like how much power is in the hands of Elon
Musk or Mark Zuckerberg and all these people, but by
and large, like nothing exists. Like when does that happen?
Because there's like tons of money has been made, but
(33:33):
when do we get like this sort of like okay,
now there's a thing that's been delivered that people will
use for non speculative purposes. Yeah, so I guess, you know,
I'll disagree a little bit with this idea that, um,
it's it's all speculation, right. I think that was probably
a fair thing to say five years ago or so.
But and there's not going to be some moment where
it all flips. It's it's a gradual thing. And so
(33:56):
we've actually tracked this inside coin base. You know, what
percent of our active customers are doing something other than
trading with crypto and it's now over fifty percent. What's
an example of that, like buying an NFT something other
than trading. Yeah, that's an example, and there's lots of
other examples. I'll kind of give you a framework for
how I think about how it's evolved over time. But
(34:19):
you know, obviously those people doing commerce, they're doing borrowing
and lending, they're you know, earning money, they are doing
things like staking. And here's how to think about it
over time. Right, So, the first use case of crypto
was really a new form of money or this new
asset class that got created, and a lot of the
activity early on was speculative. Although just I don't want
(34:42):
to undersell that first point, because by having a new
form of money that is global and decentralized and guaranteed
to be scarce, that that is no small thing, right.
I Mean, we sort of take it for granted in
the US that our currency is relatively stable, even though
it inflates more recently. Most people in the world, that
is a luxury. They do not have and it would
be an incredib will benefit to humanity if only the
only thing crypto ever did was have a form of
(35:04):
sound money for the world that anybody could have as
long as they have a smartphone. That that's a that
is a game changer. Okay, so let's not undersell that.
But beyond crypto being just a new form of money,
it also became a new type of financial services, right defy.
And we saw different ways for people to do borrowing
and lending and you know, commerce payments and staking and
various things like this, and so that that was all
(35:25):
very good. Now the third realm is kind of what
you touched on, is being you know about decentralized social
and everything. We call it Web three. It's it's not
only new type of money and new type of financial services,
but a new application platform even things that have nothing
to do with financial services. And you know, I'm pretty
excited about, for instance, decentralized identity with EANs. That's a
foundational component, so people's identity doesn't have to be sort
(35:48):
of owned by a big tech company. Once you have
decentralized identities, you can connect them in a social graph.
You can make decentralized social networks. You can have public
profile pages with badges and accreditation and know your badge,
you know, accessing to buildings like proof of attendance, concert tickets,
like all these kind of things, um new business models
for you know, the music industry and like like YouTube, Spotify.
(36:11):
You can imagine all these things being built in a
new way. We can imagine them to. I guess the
question is why why hasn't it happened yet? You know,
we're talking It's been like a decade, more than a
decade since the White Paper, So why why if this
is such revolutionary technology and it's so much better than
the way we've been doing things, why hasn't the adoption
been quicker? Yeah? Well, I think one reason is, um,
(36:33):
the scalability of the blockchains has been one thing that
we could unlock that would help it move even faster.
I think the usability needs to get a lot simpler, right.
The average person doesn't really know what a private key is.
They don't want to, you know, install Chrome extension to
understand some thing like they It needs to be just
simpler for the average person. And I guess, you know,
(36:54):
look at the Internet as an example, right, I think
like the very foundational pieces of the Internet might even
go back to like the sixties or something. But you know,
you started to see um tell net and like these
very early you know types of things come together, like
in the eighties, I think it was um so we
think of the Internet as really happening from like the
year two thousand or something like that. And that again
(37:16):
that's by the way, you know, twenty three years now,
but it took a lot of foundational work to happen
before that. You know, broad scalability, broadband had to happen, right.
Another thing another Internet at now, crypto as well. I
mean people are working on hashcash and all those for
decades in some case. I mean the prehistory of bigcoin
just pretty long as well. Well those were like research papers,
(37:37):
I mean they you know, tell net was like a
real thing that had I don't know how many people,
maybe a million people using it or something. But um
or like that first you know, fiber that had to
get laid in the ground and everything. But um yeah, look,
I would love it to happen faster. I mean, let's
be honest, Like the regulatory environment has not helped either.
It's like there's a there's a fear in this in
(37:57):
the United States that if you start a company in
this space, like you're just going to be have a
bunch of legal bills and you know, subpoenas in your
inbox or whatever. So that's not helping either. But we
can't blame it entirely on that. It's the technology needs
to be more scalable, more usable, and it's all happening,
it's just taking a while. And I want to ask
(38:17):
I have one last question, and it's a coin Base
specific question and is inspired by another guest that we've
had on in the past, Jim Chanos, who has been critical.
I don't know if he's ever short coin Base, but
he's certainly been critical the company. And he says two things.
He's like, Hey, how is it that in like these
most incredible some of the most incredible bull markets ever
(38:38):
for crypto company hasn't been profitable. But also that so
much of the revenue you do make is because of
the huge gap between what institutional traders on coin base
pro pay versus the commissions on regular coinbase. And it's
pretty easy, or at least was, to switch back and forth.
But maybe people didn't realize how much cheaper one could
(39:01):
trade just by like a few clicks on the website
to get over to the pro side, Like how much
compression is there going to be? And have you know
what do you say that to the argument that retail
investors have sort of gotten a raw deal compared to
the more more professional ones. Yeah, um, so I'm not
sorry I caught the first part exactly, but I think
(39:22):
I mean, is profitable during this csane bull market? Right,
That's what I thought I heard you said. But in
twenty twenty one we were actually okay, very profitable. UM
did about four billion dollars of EBNA in groups revenue
SWY twenty two we were not okay because the market
came down quite a lot, and we've made some really
some cuts and adjustments to try to get to an
(39:42):
environment where we can generate even a hopefully in any
market environment. But I guess the core your question is
really around feed compression. Yeah, yeah, um, okay. So there's
a there's a number of pieces to this. So the
first is that it's true there are difference in pricing
amongst our customers UM if they want to trade through
more of a pro interfew base or a simple interface
there's also a difference in pricing, of course, based on
(40:03):
how much trading volume they do. There's tiers, there's tiers
of that, and so I think what we've seen is
there's a willingness for customers to pay basically for ease
of use and simplicity and trust. And so I don't think,
by the way, our fees are not really out of
line with the rest of the market. I mean, there's
sometimes there's firms that kind of advertise like zero fees
or whatever, and you know they're payment order flow or
(40:24):
there's like different things that you're paying a fee one
way or another. It's sometimes not always obvious, right. One
of the thing I'll mention is that we actually we
actually launched something called coin Base one, which is like
an Amazon Prime type subscription, and for customers who pay
for that, I mean, they get a number of things
like a million dollar acount protection and all these kind
of things, but one of the things they get is
(40:45):
you know, reduced fee trading basically, and that's something we're
sensitive to as well for our power users. Basically, all right, Armstrong,
CEO coin Basis, thank you so much for coming on avelots.
We've wanted to have you for a long time. I'm
thrilled we finally made it happen. Yeah, this is great.
One of the best set of questions I've had in well, Tracy.
(41:17):
That was a lot of fun. I really enjoyed that. Yeah,
I'm glad we were finally able to do it. And
I guess kudos Bryan for coming on and answering our
questions in the midst of a deep crypto winter. Yeah,
it is interesting. There's just the myriad regulatory things right now,
and I have to say I do have sympathy and
I've heard it from other people in the industry, particularly
(41:40):
with this idea, because it's one thing to like go
to the SEC and laut and clear five rules around
security is not getting any answers. But then you also
hear entities in the industry and they're like, no, we
didn't even want to launch until we were sure we'd
be on the right side of the law. And then
like they're still in like pre launch phase three years later,
while other people have made you get punished for engage
(42:02):
an whereas if you don't ask questions and just launch,
sometimes that's better. Yeah, And then the only thing that
you know they do go after things like the Kim
Kardashian token, which was not that big, and so it's like,
you know, I have some sympathy I feel like for
entrepreneurs on this particular point within the industry. I mean,
I do think the lack of regulatory clarity is worth discussing.
(42:24):
But the argument for why a regulator might want to
do that is because well, if you start imposing all
these rules or unveiling all these new rules, then you
de facto legitimize it, And maybe maybe they don't want
to do that, but you know, if they don't want
to do that, then they should also maybe come out
and say that because it isn't But like I said,
(42:46):
and it is definitely true that a lot of people
lost money, Like I do think there is perhaps in
this view that we should take it more as a
win that the collapse of FTX didn't have like a
broader macro contagion, especially you know, given what we saw
in two thousand and eight when the collapse of what
Shadow Banks then had this huge impact. And so like
(43:07):
this idea of bringing it in the perimeter, like maybe
there are some perimeters we want to keep it out of.
I don't know, people are lost money, but at least
the financial system to collapse. That's like the best we
can hope for nowadays. It's not terrible, all right? Shall
we leave it there? Let's leave it there. This has
been another episode of the Old Thoughts podcast. I'm Tracy Alloway.
You can follow me on Twitter at Tracy Alloway and
I'm Joe wi Isn't All. You can follow me on
(43:28):
Twitter at the Stalwart. Follow our guest Brian Armstrong. He's
at Brian Underscore Armstrong. Follow our producers Kerman Rodriguez at
Kerman Arman and Dash Bennett at Dashbot. And check out
all of our podcasts at Bloomberg under the handle at podcasts,
and for more odd Lots content, go to Bloomberg dot
com slash odd Lots, where we post transcripts. Tracy my blog,
(43:50):
and we have a newsletter comes out every Friday. Thanks
for listening.
Hello, and welcome to another episode of the Odd Lots Podcast.
I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, obviously
a lot going on in crypto, but I would say
the two big things are, like, I guess the crypto winter,
there's been some recovery, but obviously all the coin prices
are way lower than they used to be. And then
(00:31):
there's just everything going on on the regulatory side. Yeah,
it's sort of a double whammy for the industry. And
I guess it's hard. It's hard to determine causality when
it comes to price and extra regulation coming in. But yeah,
it is not a great time for crypto. Well, I
would say that the historical patterns would suggest the regulators
(00:52):
like to come in after people have lost money. After
people have lost money and scams, their investments go down.
So it kind of makes sense that you see the
uptick in regulation right after, just like the lines have
been going down for a while, right, But it does
prompt these big questions about should the regulators have been
more proactive, should they have been doing things before people
lost money? And then what should they do now? Anyway,
(01:15):
we have the perfect guest to talk about this because
we are going to be speaking with Brian Armstrong, CEO
and co founder of coin Base right in the middle
of all this, the pre eminent American crypto exchange. So, Brian,
thank you so much for coming on odd Lots. Yeah,
thanks for having me. I want to ask you a question.
We've actually asked other executives in the crypto space this
(01:38):
question before, but I'd love to get your take on it.
What is yield farming and where does the return of
it come from? Well, I mean, yield farming has a
little bit of a bad name, I think in this environment.
There was obviously with the collapse of Tera, Luna and
block Fi and some other firms like that. I think
that's a very valid question to be asking, and I'm
(02:01):
not sure I couldn't even answer it on their behalf.
But you know, I think there's a lot of other
pieces of crypto that people are still excited about, and
you know, there's lots of things we can build beyond that.
So one of the things we've talked about on the
show quite a bit is this idea of crypto as
kind of the ultimate momentum asset and when money is
flowing in prices go up and everything is great. When
(02:23):
money flows out, prices collapse quite quickly, which would seem
to make the business of being a crypto exchange extremely cyclical.
But one of the things that stood out from your
most recent results you just reported relatively recently, you talked
about how you want to be profitable through the cycle,
through the upturns and the downturns. Can you talk a
(02:44):
little bit more about how you plan on doing that. Yeah, Well,
historically most of our revenue has been from trading fees,
which you're absolutely right, it is cyclical, and crypto has
been a fairly volatile asset class goes up and down. Now,
what we've done is we've started shifting more and more
of our revenue to what we call subscription and services
in our financials and our earnings calls. And basically what
(03:06):
that means is things like usd coin, a stable coin
that's been a nice growth mechanism for us, even in
a down crypto market. Things like custody fees, fees that
we earn on coin base card. People are you know,
using it for spending in merchant commerce activity, So these
things are I wouldn't say there's zero percent correlated with
overall market in crypto, but there are certainly a lot
(03:27):
less than trading fees, and that's allowing us to build
a more predictable business. So we started in the industry
also talk about the regulatory side, and that one whom
you know will definitely talk a lot about that. But
in particular, I think yesterday I saw that coin base
you had some new program I think it was called
the four thirty five program about you know, call your congressman,
(03:49):
like let people know that you care about crypto policy.
And of course like Uber sort of famously started the
strategy like telling people on the app, like tell your
local regulators you want to drive an Uber. And I'm
going to try to ask this in the most like
diplomatic way possible. And I have many friends who are
into crypto, and I like many of them. But when
(04:09):
it comes to crypto, do you want the type the
type of person who would call their congressmen to tell
them to do better crypto policy? Is that really the
type of person that you want sort of being the
voice of cryptoregulation. Well, I think the average person in crypto,
and by the way, there's a lot of them, you know,
one true one in five households now have used crypto,
(04:31):
about fifty million Americans. This is a this is becoming
a major constituent of you know, lobbying group and everything
that's gonna have shape future elections. They want to you know,
these average people. They may not have the exact solution
for what the legislation should say around regulation of crypto,
but they do know that they want elected representatives who
are going to ensure that this industry comes within the
(04:51):
regulatory perimeter, offers consumer protection, but also you know, allows
this innovation to flourish so that it can we can
update the financial system. You know, eighty percent of a
Americans now believe that the financial system doesn't work for them.
It's either too slow, it has too higher fees, it
doesn't you know, nobody has equal access or not. Everyone
has equal access to it. And it's not surprising that's
(05:12):
the case. I mean, the technology behind the financial system
is sometimes forty years old. It's written in cobalt, and
these mainframe computers and the laws for it are sometimes
one hundred years old. They were created before the Internet
even existed, right, so it's time to update the financial system.
We I think the average voter in America is now
realizing that crypto is one of the great technologies that
can help me update that and they want their elected
(05:34):
representatives to bring that legislation and clarity to the US.
Just on the political side. I mean, Joe and I
kind of alluded to this in the intro, this idea
that now that we have losses and we have big
scandals in the industry, regulators seem to be becoming more
active in the space. Can you talk to us a
little bit about from your perspective, what is it like
(05:55):
dealing with Washington now versus say, in twenty twenty or
twenty twenty one. Yeah, well, I would say compared to
twenty twenty, many more people that I meet with in
Washington are actually pretty knowledgeable about crypto now. It's no
longer a niche thing. Some of the conversations I had
five years ago, you know, they were very basic. But
(06:15):
most people that I speak with now actually have a
reasonable understanding of crypto. They there. I think there's two camps.
One camp is saying, hey, in the wake of FTX,
I'm afraid of being associated with crypto, and I'm just
going to kind of wait and see what happens because
it's too dicey to even go near it. The other
half of the folks I speak with are saying, you
know what, this is an opportunity. I'm actually I want
(06:38):
to be one of the people who helps bring this
within the regulatory perimeter. And and we can see how
important that is now with the collapse of FTX, and
so they're actually drafting legislation, they're trying to gather bipartisan
support to get some clarity going. And you know, I'm
personally much more in favor of that ladder group. So
actually I want to ask you, you know you talk
about this impulse is like okay, in the wake of
(07:00):
bring it inside the regulatory perimeter, And part of my
question is like why because I look at FTX collapse
and one of the biggest like sort of like crucial
exchanges in the industry, and nothing bad happened after that.
There was no fallout or no bailouts, It didn't have
any spillover. So part of my thing is like, I
don't want this in any perimeter because that seems to
(07:21):
work pretty well in terms of the lessons of two
thousand and eight avoiding too big to fail. What about
the argument that it's like from a sort of like
structural like yeah, like financial contagion standpoint, regulators have done
a pretty good, pretty good job not letting this volatile product,
this volatile industry create problems for the financial system. Let
(07:43):
it burns strategy. Yeah, well, you know, I would disagree
with the idea that nothing bad happened. I mean, a
lot of people lost money, that's absolutely And I'm glad
you say that because I did not. You're right, people
lost their like, yes, yeah, so there was certainly some
activity there, and I think that's the kind of consumer
protection we're talking about. I don't I don't think there
(08:04):
should have been bailouts or anything like that. Nothing in
crypto is too big to fail. And it's kind of
antithetical to crypto frankly, to you know, have a bailout
or something like that. If you the first bitcoin block
that was mind right had a message in it about that,
you know, Chancellor on the braink of bailout. So crypto
was kind of founded almost a bitcoin was founded as
a result of reaction to the two thousand and eight
(08:25):
financial crisis. But I think those two ideas can come
into unity. I mean, we can have and again I'm
talking about for the centralized actors in crypto, you know,
the custodian's exchanges, companies like coin base. It's pretty clear
everybody generally, there's broad consensus those should be regulated. It
applies some of the best practices and standards, so we
don't have fraud and corruption and things, you know, wash
trading or email issues. But the decentralized pieces of crypto
(08:48):
that's different. I mean, we need to have decentralized protocols
so that we can have a global, more global and
fair and free financial system, and that piece. You know,
I don't think those are going to be regulated because
there is no central authority for bitcoin or them. For instance,
what should consumer protections look like in crypto? In your opinion,
and especially you know, when I think of something like
doge coin, you know, it's hard for me to come
(09:10):
up with an economical use case for it, and so
it's like, well, you can put all the disclosures that
you want on there, but it seems highly likely that
people will be losing money on that product at some
point in time. Yeah, So again I would say, you know,
the regulation and the customer protection probably should happen with
the centralized actors, the custodian, the exchange, not necessarily dodge coin,
which would be another decentralized coin, right, But yeah, I
(09:34):
mean I think the exchanges and the firms that are
being built around you know, custody or trading of things
like that, they are going to have to have, um,
some of these best practices from the traditional financial services world.
So you know, let's have audited financials, let's make make
sure customer funds are segregated from corporate funds, um, let's
make sure that there's MLKYC programs and avoid avoiding wash trading,
(09:57):
and yeah, appropriate disclosures are important as well. So those
are all just kind of good general best best practices.
But again it's focused on the centralized players as opposed
to the decentralized pieces. It's interesting you make this distinction
obviously between you know, there's sort of centralized players and
then decentralized DeFi stuff. You're kind of becoming a hybrid,
and you recently launched a layer to roll up to
(10:20):
help scale ethereum. And I'm curious, as a regulated entity
and one that has to abide by like finsend and
anti money laundering laws, can you explain if the tension
or is there any tension between I believe these sort
of like a you know, roll up layer twos have
some sort of centralized sequencer so that the transactions made
(10:42):
out of them then get back to the main ethereum chain.
Are you responsible for that and do you hate? How
do you deal with that as an regulated entity? What
if someone wanted to or try to launder money through
this layer two are you facilitating that by putting those
transactions onto the main ethereum chain. Yeah, so earlier, you know,
(11:04):
I mentioned that the centralized players like coin base should
be regulated and I and I was really referring to like,
you know, our primary revenue stream today csodia in exchange.
But you're absolutely right. We are embracing decentralization. At coin Base.
We have a number of different products and legal entities
and different ones working in various areas. So we did
launch this really exciting thing, a layer two solution called
Base and our goal with that is really to help
provide more scalability and better usability for layer two solutions.
(11:28):
So we want to get transactions and ethereum down to
you a penny or less and help that scale to
hopefully a billion or more people someday. I think I
guess the core of your question was really around the
responsibility from a centralized decentralized pease and I think, you know,
so base is it has some centralized components today, but
it's it's going to be more and more decentralized over
(11:48):
time as as it grows, and so you know, I
think we have responsibility in terms of you know, transaction
monitoring things like that that we have to look at
in the early days, but as it decentralizes, I think
that again, the centralized actors are the ones that are
probably going to have the most responsibility there to avoid
money laundering issues and having transaction monitoring programs things like that.
(12:26):
So speaking of responsibility, Um, you know, there are thousands
I think of coins and tokens listed on coin base now,
dred Okay, I didn't flip through all the pages, but
there's a lot um And you guys say that you
never actually list securities, but it feels like nowadays there's
(12:48):
so much uncertainty over you know, you could wake up
tomorrow and the SEC says this is a security or
that's a security. I mean just a little while ago,
for instance, they were um, I think there was an
inforcement action on Kim Kardashian for unlawfully touting a crypto security.
So how can you say with confidence that you don't
(13:09):
list any securities when it feels like that's a very
fluid thing at the moment. Yeah, So I think, look,
the best thing for us and for the whole industry
would be, here's a clear rule book. Everybody has to
follow it, you know, and if the rules change, give
us a new rulebook, we'll follow that one. Right. We've
actually been requesting that, and we've we've filed a petition
(13:30):
with the SEC on this. People can read it on
their website, and we sort of enumerated, Look, these are
the ways that the current securities laws don't really address
some of these underlying questions in crypto, like if there
is no common enterprise or centralized entity behind this thing,
who who publishes the disclosures? You know, So there's there's
questions like that. Now, what we've done in the absence
(13:51):
of that clarity, which again would be the best case scenario,
is that we have created our own internal process to
review assets, and we developed something I think it has
like seventy seventy two points in the legal analysis and
kind of one area it looks at is securities law.
It also looks at compliance risk, you know, cybersecurity risk,
things like that. And we've evaluated probably roughly a thousand
(14:12):
assets through this process, about eight hundred of them we
have rejected and for various reasons, whether securities or compliance
or cyber about you know, two hundred two and fifty
or something like that, we've decided to list. So, you know,
I guess the heart of your question is what happens
if the sec comes out and says okay. So if
they come out and they and they again we're asking,
(14:33):
we're asking for more clear rules. Right, So if they
come out and say, you know, we think this asset
is a security, that's great. Okay, now we have clarity
and assuming you know, it's not, if it meets the
legal definition, it's not going too far. We would be
happy to sort of update our process in our system
based on that that new information. Now, ultimately, if they
(14:53):
publish something and they say, well, we think all these
assets are securities, well that's not really our understanding of
the law. And the third party is an external council
we've worked with, and so there is a line here
where I think as an industry, and it's not just us,
it's these asset issuers which are even more primarily affected.
You know, they would have to say, okay, well, let's
let a court decide that, because you know, we have
to follow a rule of law. So does the sec right.
(15:15):
And so if they put out, you know, their opinion
about something, that doesn't necessarily mean it's true. It just
means the court ultimately has to be the decider on that.
Can you give an example not necessarily of a specific coin,
but of something that you have seen in tokens that
you've rejected that to your mind said no, we cannot
(15:35):
list this because this is a characteristic of a security. Yeah,
I mean, there's so there's a variety of I mean,
there's many prongs of the Howie test, right, I mean,
and I don't want to get into like an in
depth legal analysis here, but you know we've never done
a Howie Test episode, and so this could be it,
but no, go ahead. Yeah, So you know there's multiple
(15:58):
prongs there, right. I think you know, if if people
are buying it primarily with this expectation of profit, and
it's there's you know, there's a common enterprise and and
and right. So, but if there's something in the like
speaking in terms of patterns that you see within crypto
projects that when you look at it's like, no, this team,
like the type of things the teams do that would say,
(16:20):
you know what, this token is not going to be
kosher from coin base. Are there things that you see
in the industry where you think teams are crossing that
line into I don't know whether it's the common enterprise
aspect that preclude them from at least your judgment being
safe to list. Yeah, I mean so I'll give you
a security example, but there's others in cyber security and others. Um.
(16:42):
So you know, look, if you're if you're legitimately just
trying to raise money for your company or for some
project like an apartment comment X or something like that,
that is a security. That's the point of security's law.
There has to be an investment of money into this thing,
and for you know, in a common enterprise with an
expectation of profit you know, based on the others. So
that should exist, by the way, and we want that
(17:03):
to exist in the world. Um, we've acquired a broker
deal license. We were a stormant right now. We we'd
like to activate it. We're working with the sec to
hopefully make that happen. Crypto is a technology that could
make you know, crypto securities could offer benefits and update
the financial system and improve all kinds of things to
you know, time to settlement and various things like that.
So that's an example. Um, you know, if people are
(17:25):
out there kind of really hyping these things like on
YouTube and um and the tokenomicxer look sketchy and um,
you know there's really low float and the insiders are
selling it. These are all bad fact patterns and those
are the things we try to avoid for consumer protection. UM.
You know, there's other ways. There's other reasons we may
reject assets too, I mean an initiation. Another example would
be cybersecurity risk. So we often will um evaluate the
(17:49):
smart contracts for you know, is there some exploit in
this or there's an ability you know, if if the
the acid issue is not even like a malicious thing
but an accidental thing. If they lose the key, everyone's
phones could be swept or something like that, that that's
not secure enough right to meet our standards. So that
those are examples. Is crypto shooting itself in the foot
(18:09):
in some respects by like resisting the security designation, Like
is that a tacit admission that maybe there isn't a
reasonable expectation of profits here? Question? Yeah? Yeah, I mean
we want actually crypto securities to exist. So we're not
saying none of these things are securities. But on the
(18:30):
flip side, is not true either. It's not that all
of these are securities. Both of those are inaccurate statements.
And I guess the thing I would say too, is
that just an expectation of profit alone does not make
something a security. It has to be meet every prong
of the how he test is my understanding. So an example,
you know, people might buy a Picasso painting hoping it
goes up in value, or buy gold or something like that.
(18:51):
So those aren't securities. So yeah, I mean basically, Bitcoin
ethereum and the assets that we trade on our platform day,
we believe our crypto commodity, and it's you know, people
trade those. Some of them they want to go up
in value, just like they buy gold. Other other times
they're using it for various utility aspects. You know, this
is sort of I want to get back to the
regulatory question. But before I forget, can you talk for
(19:15):
a second about how you view bitcoin specifically, because it
feels like the crypto industry in many respects has moved
on from Bitcoin. And I'm sure your mentions on Twitter
are filled every day with angry, laser eyed people that
think you hate bitcoin. But it is also true that
you know you launched you launched an ethereum layer two.
(19:35):
I don't know if do you have a light do
you is there a coin based lightning note or we'd
like to do more with lightning pleasure havin pro lightning
so but haven't yet. Yeah, and you know there's all
these issues with like funding for core bitcoin devs, like
frustration that they don't get enough and can't maintain it.
What is your view towards bitcoin? I mean, I love bitcoin.
(19:58):
I honestly, I don't really understand why, Um, anybody might
think the opposite. I'd kind of like dedicated people do, right,
I mean, I'm not wrong that you, um, there is
kind of all abused by bitcoin maxis at one time
or another. I think that's unfortunate. Um, I don't know
how seriously to take that. I mean I do see
people say this on Twitter sometimes but I don't know
if it's like a widely believed thing. I mean, it
(20:19):
would sort of defy credulity, right. I mean I've kind
of almost dedicated my life too like bitcoin and helping
it grow. I mean literally I read the Bitcoin white
paper and then decided to quit my job and found
this company. Um. Now, of course the industry has evolved
into many things, right, I mean, there's lots of new
innovations coming out in crypto. But yeah, I'm very pro bitcoin,
and I think, look, I think there's a very simple
(20:41):
base case for for bitcoin, which is that it's the
gold standard in the crypto economy. And I think that
I'll probably always be true and it'll keep growing. Now
if things like lightning continue to get traction, I think
it could also become like a settlement layer. There's um,
there's people now creating NFTs in bitcoin, and so it's evolving.
I'm as as an operator of an exchange in custodian
(21:04):
I try to just be agnostic. I don't. My job
is to say, is not to tell our customers which
coin they should use. It is to list and make
available every coin that meets our standards, the legal tests.
I discussed and then we need to be agnostics. I
think some people, because I'm not pro one coin or another,
they sort of take that as like you must hate
(21:25):
this thing, But those are two different things. Just going
back to the SEC for a second, you know, we
talked about how it does seem like SEC is sort
of an enforcement mode and there's a chance that you
wake up tomorrow and there's a bunch of new announcements.
Wouldn't you think the ultimate goal is for the SEC
when it comes to crypto. Do they just want it
to go away entirely? Or are they aiming for, you know,
(21:49):
the industry to still exist but maybe in a different
in a different way, or a JP Morgan in City
instead of coin base. And yes, Unice law Well, I
mean I always want to be hesitant to kind of
speculate on the motives of people within the SEC. I mean,
I think we have a pretty good relationship with different
people on staff and commissioners, and I guess the real
(22:14):
answers I don't know. I suspect that there are different
people with different views inside the SEC. I think it
wouldn't surprise me if some people their view they actually
just wanted to go away they wish this whole thing
would go away. I think I don't think I would
hope that that's not a majority of view. I know
it's not the majority of view of Americans, and I
don't see how would be in the interests of America
or are you know, protecting consumers to wish it would
(22:36):
go away, because clearly it's not. One in five households
in the US are using this stuff and they're just
going to use unregulated things off shore if if we
don't get our act together in the US. So I
think the majority view is more like, we know that
this is going to exist, we just need to bring
it within the regulatory perimeter. I wish that they were
doing that by just again publishing a clear rule book
and going through a rulemaking process with industry, but it
(23:00):
hasn't happened as much to date. And so you know,
if it needs to be more enforcement based and then
some of this stuff gets figured out via case law,
I mean that's okay too, it'll just take a little longer.
Why do you think that regulatory response has so far
been kind of disjointed. I think it's fair to say,
like maybe disjointed or unclear. Was it a lack of
resources or regulators just didn't understand the space. What was it?
(23:25):
Maybe can clarify what do you mean disjointed? Well, I
guess um, slow maybe and unclear? You know, to your
point this idea that we go in and ask them
questions and they don't give you answer, right, Oh man?
I frankly I I you know, I'm spending a lot
more time in DC. I'm trying to figure this out too.
Perhaps I was a little naive coming in. I kind
(23:45):
of assumed that, you know, when you're running a business,
that the regulators just give you the rules and then
you just follow them, and that would have been like
how I assumed it would work. But it seems to
be more complicated than that. Maybe it's like there's various
political motivations. There's different factions within the government who have
different goals. You know, people who've gotten legislation past, they've
(24:10):
told me it's kind of like a small miracle. Whenever
it happens, you have to kind of get the House
and the Senate and the President all aligned and the
you know, there has to be a real impetus for
it to happen. I kind of believe this thing with
FDx is maybe that impetus. Maybe this is our moment
to finally get some clarity in the next year, at
least give another regulatory question, though not about not SEC related.
(24:31):
It seems like some banks are de banking crypto companies,
but it does I do not get the impression that
that is a risk for coin base. Do you perceive
that to be a regulatory advantage for you, that smaller
exchanges may have a harder time getting a banking partner
in this environment? Well, look, I mean I'd hate to
consider that to be an advantage. You know, we haven't
(24:54):
had any issue with any of our bank partners. I
do think that there's a there's a general moment in
the wake of FTX where, you know, reasonably so bank
regulators are asking tough questions and they're and they're basically
coming in and saying, what are the liquidity risks if
you're gonna take crypto deposits? Um? You know, is it
(25:16):
is it okay to be making loans against those deposits?
Or are they too risky? And um? I think those
are totally fair questions to ask. So, yeah, I don't
think that we would have any kind of major crackdown
and say, well, you can't bank crypto companies. I haven't.
I haven't heard that from any anybody. And by the way,
that that would be probably exceeding their authority because Congress
has to make those kinds of decisions about what is
(25:36):
allowed in the economy. Um. But if they're coming in
and asking questions about liquidity, I think that's probably reasonable
quick to follow up on that. Um, would you or
have you put any lobbying or any of your DC
effort towards guaranteeing or making sure that anyone provided you know,
provided other basic checks that like that crypto can't be
(25:57):
I guess discriminated again within the banking system. Is that
an effort you've made it? Well, I'm certainly in our
messaging and in our conversations with members of Congress and
the Senate, we have made that point to them, which is,
we want to just be treated on a level playing field. Right,
don't unfairly penalize crypto versus traditional financial services. But um,
(26:18):
you know you shouldn't like allow us to have a
lighter weight system or anything like that either. So it's
it's a balance. Um. You know, we've mentioned this a
couple of times, But I'd be curious to get your
take on what happened to FTX, Like when when you
know that one week in November I think was shocking
for a lot of people for very different reasons depending
(26:39):
on who you are. But what was it like for
you when when you saw, you know, it happens so
quickly you had the Twitter exchanges and then you had
a bankruptcy file I think filing within like seven or
ten days. Yeah, I mean that that was a wild week. Um.
I was actually in Japan at that time, meeting with
our team there and talking with regulators and government folks
in Japan, and I got a call from somebody who
(27:01):
said it's bad, like we think FTX is going to
go down in the next forty hours and Sam might
go to jail. And I was like, okay, tell me
more what happened. And I kind of started to piece
it all together. You know. I had a chance to
chat just briefly with Sam actually and cz during that
whole thing, and I was just doom scrolling Twitter, I
suppose like a lot of people, and I mean, really
(27:24):
that's not true. I Mean the first thing that I
really thought about was, Okay, what is our exposure any
of this. So we immediately went and you know, underwrote
any of our counterparties, including FTX itself, but any that
might have secondary effects. And then we started to think about, Okay, well,
this is actually quite validating of our strategy over the
last ten years of being built in US, trying to
(27:46):
embrace compliance, not trying to cut any corners. How can
we make sure that people understand that coin base is
it's not like FTX. And I basically thought about it
as there's gonna be a it's gonna be a black
eye for the industry, but this is ultimately coin stands
to be a huge net beneficiary of this because it's
going to bring an increased focus on compliance and trust,
(28:08):
which is what we've been doing for the last ten years.
I want to ask a little bit about you know,
(28:30):
start the price crypto winter, and obviously there's been a
bit of a bounce, but the bounce has basically just
been like because the Nasdaq has bounced two and it
looks many of these coins sort of looked pretty highly
correlated to other risk assets, and for years I feel
like there was this case to investors that they should
buy crypto for two reasons. One it was this new
(28:51):
uncorrelated asset class, and two, in the case of bitcoins specifically,
it was really good as an inflation protection thing, and
that league it just got, you know, the highest inflation
in forty years, and bitcoin really hasn't gone anywhere. It's
flat over the last several years, and the coins all
seemed to buy and large at this point seemed to
(29:11):
more or less be correlated with like the NASDAC or
QQQ or whatever. What is the case and what do
you feel about, like, so, what's the new case to
be made? After people have seen narratives, these old narratives
that the industry was pretty loud about making. I'm not
saying you I don't know, but many in the industry
definitely were have not held up in terms of like
(29:32):
the case for investing in it. Yeah, well, I guess
I'm just sort of laughing a little bit, because, you know,
crypto being has been roughly as volatile as the stock
market recently. And I can tell you there's many years
coin base where people would constantly ask me, it's so volatile,
no one'll ever use it. And so now that it's
just on part with volatility of the stock market. I'll
take that as a slight win at least a step
(29:52):
in the way testa shares to buy coffee either. Yeah. Yeah,
but anyway, well, okay, so obviously we have stable coins
for commerce now, which which is a good piece of
the puzzle. But let's go back to your question about
in an inflation hedge. So you know, I think there
certainly was this belief and I, frankly I shared this
belief too, which was that crypto bitcoin specifically. Actually, this
(30:17):
is where people hopefully the bitquin Maxie's kind of aligned
with my thinking is that that that is sort of
the new gold standard in the crypto economy, and it
would be something that people flee to in times of uncertainty,
with guaranteed scarcity and things like that. Just you know,
similar to like real estate has a you can't make
more of it, so at least the land part of it.
So there is sort of a guaranteed scarcity component. It's
(30:38):
a nice insulation hedge. Now. I think what happened is
I was frankly surprised to see how quickly crypto came
down in an environment of high inflation, where I thought,
maybe the world is shifted, maybe we're ready now where
this would be considered an inflation hedge. It turns out
we were way too early for that. Now, I think,
I guess my current updated thinking on that is that
(30:59):
we still need Probably crypto is still too smaller percentage
of the global economy to it's being treated more like
a growth you know, asset or something as opposed to
like a true like a gold standard or something. And
so I mean we probably rely need the cryptoconomy to
grow ten x, twenty x or something from here to
start to have that sort of a role in the
broader macro environment. You know, you mentioned stable coins there,
(31:22):
and I just remembered once upon a time, I guess
a few years ago we had Sam Bankman freed on
and we asked him to explain to us what would
happen if tether just suddenly collapsed? And I'd be curious
to get your I guess in retrospect respect, we should
have asked SPF what would happen if FTX actually collapsed?
But in retrospect, can you talk to us about your
(31:46):
impression of Tether's role in the crypto ecosystem? Um, well, look,
I'm not here to sort of criticize anybody in the ecosystem.
I don't. I don't really. You know, we've utilized Tether
in various ways, is on our platform in different times.
I know, they've been investigated by various parties and they
reached settlements and they sort of had they got comfortable
with various ways. You know. Look, our focus at this
(32:09):
point has been on USD coin. We have a partnership
with Circle on that, and I think that's been a
that I feel very comfortable saying. I you know, I
understand more about it, and it feels it's well backed,
it's one to one backed, and it's audited and all
these things. I just don't have as much information on Tether,
but I don't have anything negative to say. Certainly they
don't have no no beef with them, let me ask you.
(32:30):
You know, look, obviously, after all this time and even
well before the FTX, as you know, there's been there's
there's just a lot of skepticism still to this day
about crypto, and I think many people say, yeah, it's
not it's not going to go away, but like it's
still it's just speculations. People are just in it for
the money and there's no real use case outside of
(32:50):
maybe some niches, but like Web three isn't really a
thing yet, and I'm curious, like a lot of people
in crypto have done faint stastically well and you know,
like you know, made an extraordinary amount of money despite
the fact that buy and large, these coins aren't really
used for much outside of making money. And there's not
(33:13):
a you know, decentralized Facebook that exists. You know, there's
a there's a good reason why it would be nice
to have one, because it's sort of scary to think about,
like how much power is in the hands of Elon
Musk or Mark Zuckerberg and all these people, but by
and large, like nothing exists. Like when does that happen?
Because there's like tons of money has been made, but
(33:33):
when do we get like this sort of like okay,
now there's a thing that's been delivered that people will
use for non speculative purposes. Yeah, so I guess, you know,
I'll disagree a little bit with this idea that, um,
it's it's all speculation, right. I think that was probably
a fair thing to say five years ago or so.
But and there's not going to be some moment where
it all flips. It's it's a gradual thing. And so
(33:56):
we've actually tracked this inside coin base. You know, what
percent of our active customers are doing something other than
trading with crypto and it's now over fifty percent. What's
an example of that, like buying an NFT something other
than trading. Yeah, that's an example, and there's lots of
other examples. I'll kind of give you a framework for
how I think about how it's evolved over time. But
(34:19):
you know, obviously those people doing commerce, they're doing borrowing
and lending, they're you know, earning money, they are doing
things like staking. And here's how to think about it
over time. Right, So, the first use case of crypto
was really a new form of money or this new
asset class that got created, and a lot of the
activity early on was speculative. Although just I don't want
(34:42):
to undersell that first point, because by having a new
form of money that is global and decentralized and guaranteed
to be scarce, that that is no small thing, right.
I Mean, we sort of take it for granted in
the US that our currency is relatively stable, even though
it inflates more recently. Most people in the world, that
is a luxury. They do not have and it would
be an incredib will benefit to humanity if only the
only thing crypto ever did was have a form of
(35:04):
sound money for the world that anybody could have as
long as they have a smartphone. That that's a that
is a game changer. Okay, so let's not undersell that.
But beyond crypto being just a new form of money,
it also became a new type of financial services, right defy.
And we saw different ways for people to do borrowing
and lending and you know, commerce payments and staking and
various things like this, and so that that was all
(35:25):
very good. Now the third realm is kind of what
you touched on, is being you know about decentralized social
and everything. We call it Web three. It's it's not
only new type of money and new type of financial services,
but a new application platform even things that have nothing
to do with financial services. And you know, I'm pretty
excited about, for instance, decentralized identity with EANs. That's a
foundational component, so people's identity doesn't have to be sort
(35:48):
of owned by a big tech company. Once you have
decentralized identities, you can connect them in a social graph.
You can make decentralized social networks. You can have public
profile pages with badges and accreditation and know your badge,
you know, accessing to buildings like proof of attendance, concert tickets,
like all these kind of things, um new business models
for you know, the music industry and like like YouTube, Spotify.
(36:11):
You can imagine all these things being built in a
new way. We can imagine them to. I guess the
question is why why hasn't it happened yet? You know,
we're talking It's been like a decade, more than a
decade since the White Paper, So why why if this
is such revolutionary technology and it's so much better than
the way we've been doing things, why hasn't the adoption
been quicker? Yeah? Well, I think one reason is, um,
(36:33):
the scalability of the blockchains has been one thing that
we could unlock that would help it move even faster.
I think the usability needs to get a lot simpler, right.
The average person doesn't really know what a private key is.
They don't want to, you know, install Chrome extension to
understand some thing like they It needs to be just
simpler for the average person. And I guess, you know,
(36:54):
look at the Internet as an example, right, I think
like the very foundational pieces of the Internet might even
go back to like the sixties or something. But you know,
you started to see um tell net and like these
very early you know types of things come together, like
in the eighties, I think it was um so we
think of the Internet as really happening from like the
year two thousand or something like that. And that again
(37:16):
that's by the way, you know, twenty three years now,
but it took a lot of foundational work to happen
before that. You know, broad scalability, broadband had to happen, right.
Another thing another Internet at now, crypto as well. I
mean people are working on hashcash and all those for
decades in some case. I mean the prehistory of bigcoin
just pretty long as well. Well those were like research papers,
(37:37):
I mean they you know, tell net was like a
real thing that had I don't know how many people,
maybe a million people using it or something. But um
or like that first you know, fiber that had to
get laid in the ground and everything. But um yeah, look,
I would love it to happen faster. I mean, let's
be honest, Like the regulatory environment has not helped either.
It's like there's a there's a fear in this in
(37:57):
the United States that if you start a company in
this space, like you're just going to be have a
bunch of legal bills and you know, subpoenas in your
inbox or whatever. So that's not helping either. But we
can't blame it entirely on that. It's the technology needs
to be more scalable, more usable, and it's all happening,
it's just taking a while. And I want to ask
(38:17):
I have one last question, and it's a coin Base
specific question and is inspired by another guest that we've
had on in the past, Jim Chanos, who has been critical.
I don't know if he's ever short coin Base, but
he's certainly been critical the company. And he says two things.
He's like, Hey, how is it that in like these
most incredible some of the most incredible bull markets ever
(38:38):
for crypto company hasn't been profitable. But also that so
much of the revenue you do make is because of
the huge gap between what institutional traders on coin base
pro pay versus the commissions on regular coinbase. And it's
pretty easy, or at least was, to switch back and forth.
But maybe people didn't realize how much cheaper one could
(39:01):
trade just by like a few clicks on the website
to get over to the pro side, Like how much
compression is there going to be? And have you know
what do you say that to the argument that retail
investors have sort of gotten a raw deal compared to
the more more professional ones. Yeah, um, so I'm not
sorry I caught the first part exactly, but I think
(39:22):
I mean, is profitable during this csane bull market? Right,
That's what I thought I heard you said. But in
twenty twenty one we were actually okay, very profitable. UM
did about four billion dollars of EBNA in groups revenue
SWY twenty two we were not okay because the market
came down quite a lot, and we've made some really
some cuts and adjustments to try to get to an
(39:42):
environment where we can generate even a hopefully in any
market environment. But I guess the core your question is
really around feed compression. Yeah, yeah, um, okay. So there's
a there's a number of pieces to this. So the
first is that it's true there are difference in pricing
amongst our customers UM if they want to trade through
more of a pro interfew base or a simple interface
there's also a difference in pricing, of course, based on
(40:03):
how much trading volume they do. There's tiers, there's tiers
of that, and so I think what we've seen is
there's a willingness for customers to pay basically for ease
of use and simplicity and trust. And so I don't think,
by the way, our fees are not really out of
line with the rest of the market. I mean, there's
sometimes there's firms that kind of advertise like zero fees
or whatever, and you know they're payment order flow or
(40:24):
there's like different things that you're paying a fee one
way or another. It's sometimes not always obvious, right. One
of the thing I'll mention is that we actually we
actually launched something called coin Base one, which is like
an Amazon Prime type subscription, and for customers who pay
for that, I mean, they get a number of things
like a million dollar acount protection and all these kind
of things, but one of the things they get is
(40:45):
you know, reduced fee trading basically, and that's something we're
sensitive to as well for our power users. Basically, all right, Armstrong,
CEO coin Basis, thank you so much for coming on avelots.
We've wanted to have you for a long time. I'm
thrilled we finally made it happen. Yeah, this is great.
One of the best set of questions I've had in well, Tracy.
(41:17):
That was a lot of fun. I really enjoyed that. Yeah,
I'm glad we were finally able to do it. And
I guess kudos Bryan for coming on and answering our
questions in the midst of a deep crypto winter. Yeah,
it is interesting. There's just the myriad regulatory things right now,
and I have to say I do have sympathy and
I've heard it from other people in the industry, particularly
(41:40):
with this idea, because it's one thing to like go
to the SEC and laut and clear five rules around
security is not getting any answers. But then you also
hear entities in the industry and they're like, no, we
didn't even want to launch until we were sure we'd
be on the right side of the law. And then
like they're still in like pre launch phase three years later,
while other people have made you get punished for engage
(42:02):
an whereas if you don't ask questions and just launch,
sometimes that's better. Yeah, And then the only thing that
you know they do go after things like the Kim
Kardashian token, which was not that big, and so it's like,
you know, I have some sympathy I feel like for
entrepreneurs on this particular point within the industry. I mean,
I do think the lack of regulatory clarity is worth discussing.
(42:24):
But the argument for why a regulator might want to
do that is because well, if you start imposing all
these rules or unveiling all these new rules, then you
de facto legitimize it, And maybe maybe they don't want
to do that, but you know, if they don't want
to do that, then they should also maybe come out
and say that because it isn't But like I said,
(42:46):
and it is definitely true that a lot of people
lost money, Like I do think there is perhaps in
this view that we should take it more as a
win that the collapse of FTX didn't have like a
broader macro contagion, especially you know, given what we saw
in two thousand and eight when the collapse of what
Shadow Banks then had this huge impact. And so like
(43:07):
this idea of bringing it in the perimeter, like maybe
there are some perimeters we want to keep it out of.
I don't know, people are lost money, but at least
the financial system to collapse. That's like the best we
can hope for nowadays. It's not terrible, all right? Shall
we leave it there? Let's leave it there. This has
been another episode of the Old Thoughts podcast. I'm Tracy Alloway.
You can follow me on Twitter at Tracy Alloway and
I'm Joe wi Isn't All. You can follow me on
(43:28):
Twitter at the Stalwart. Follow our guest Brian Armstrong. He's
at Brian Underscore Armstrong. Follow our producers Kerman Rodriguez at
Kerman Arman and Dash Bennett at Dashbot. And check out
all of our podcasts at Bloomberg under the handle at podcasts,
and for more odd Lots content, go to Bloomberg dot
com slash odd Lots, where we post transcripts. Tracy my blog,
(43:50):
and we have a newsletter comes out every Friday. Thanks
for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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