EGA Blog Post : Industry Experts and Policymakers collaborate on Digital Asset Regulation at Bloomberg Crypto Summit
The Bloomberg Crypto Summit convened last week with notable players in the digital assets space coming together to discuss the issues shaping the industry. During the Summit, time was devoted to discussing the regulatory and policy outlook, ways digital assets can improve environmental impacts within the ecosystem, as well as Web3 and the future of the internet, among other interesting topics.
While this recap does not capture all the topics discussed at the Summit, below are a few items of note – including some of the conversations with policymakers and industry experts, in case you missed it.
Policy and Political Perspectives
There are growing questions, and much-needed answers, around potential regulations and consumer protections given the volatile market conditions in the digital assets space. What is clear is that the industry and policymakers are actively working together for a path forward that provides some level of clarity around a regulatory framework.
Continuing collaboration and transparency between business and government to achieve a workable regulatory framework is imperative when attempting to strengthen trust between the public and private sector. This foundation of trust matters because nearly half of retail investors believe that the crypto market needs additional regulations according to a recent report by Edelman.
One of the important policy conversations at the Summit surrounded the latest on S.4356, the Responsible Financial Innovation Act. This much anticipated bill would aim to address the regulatory and tax policy of digital assets. Senators Kirsten Gillibrand (D-New York) and Cynthia Lummis (R-Wyoming), who introduced the bill, have begun circulating it with colleagues.
While the bill is groundbreaking, it is unlikely to move as a standalone bill this Congress. Many at the Summit, and our policy experts at Edelman Global Advisory and across the Edelman network, anticipate that smaller portions of the bill are likely to move this year, while the comprehensive bill may be deferred until next year under a new Congress.
Both Senators Gillibrand and Lummis were at the Summit and spoke about their legislation. Below are key excerpts from the two lawmakers:
Sen. Kirsten Gillibrand
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“I think for those who have begun to study the issue, there seems to be some serious common ground forming.”
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“Senator Wyden’s staff, and his committee, wrote a good part of the tax provisions in our bill. So, they had already been spending time and effort clarifying what the tax oversight would be. And so, that’s always something that could possibly move forward on its own timeline as well.”
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“The other piece is the cybersecurity pieces. Our bill just creates a study with NIST and CFTC and SEC to come up with cyber standards. That’s something that could move forward in and of itself as well.”
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“[Senator] Cory Booker has spent a lot of time on [the bill] and he’s going to be one of the leads for the Agriculture portion of the bill.”
Sen. Cynthia Lummis
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“Senator Pat Toomey, from Pennsylvania, has a bill that would address how non-banks could issue [stablecoins] and what requirements would be made of them – should they choose to issue stablecoins. So that's something that could go through the Banking Committee this year.”
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“I think both Kirsten and I believe that the bill in one piece, as a total bill, is more likely to be deferred until next year.”
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“People can see that if our bill were in effect today, that there would be a way to address some of the problems that were created and that failed to protect consumers when this market is running without a statutory framework or regulation.”
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“We can expect regulators to look at our bill through the eyes of their current challenges in regulating traditional assets, just to make sure there are no unintended consequences that would thwart their ability to regulate traditional assets that they are dealing with.”
Industry Perspective on Regulatory Environment
Kara Calvert, Head of US Policy at Coinbase, and Jay Clayton, former SEC Chairman, had a robust conversation about the need for regulatory consistency, clarity, and transparency. The panelists echoed Senators Gillibrand and Lummis about how stablecoins could be an area for bipartisanship. The matter of regulatory jurisdiction across markets, however, is a challenge as governments across the globe establish their own rules for digital assets. This is particularly true when you distinguish across digital asset types, networks, and home markets.
Kara Calvert
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“If we could create a regulatory framework, that actually provides some consistency, whether it's disclosures, whether it's understanding what kind of assets or businesses are being looked at and being built, that it would give not only customers but give other businesses, other investors more certainty on what's happening, and I think that that transparency is really important.”
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“How can you create a system that affords the benefits of blockchain technology and crypto and it doesn't kind of limit that in its infancy but can really afford the benefits… we have to figure out a way to regulate it in a way that affords those benefits while still protecting the legacy consumer protections that we've done for years through the regulators in the United States.”
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“It's actually just a bifurcated system for regulation [in the United States] and we also have states that are involved… we have regulators at the federal level. So, it's not just about harmonizing globally, but it's also about creating consistency in the United States and determining how best to achieve that new regulation.”
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I think stablecoins is actually an area where there is agreement is coming together and I think that really interesting about crypto but stable stablecoins in particular is the bipartisan nature of stablecoins. It's something that I think Republicans and Democrats could understand the value and the benefit of having a payment system that is really efficient, is again immutable, is good for consumers. And so, I think we could see both a legislative approach and potentially even further administrative action on this in terms of regulatory efforts. So, I think that is, that is one area where I’m very optimistic.”
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“Enforcement is going to have to go hand-in-hand with regulatory clarity, transparency and rulemaking and really a cooperation and open dialogue.”
Jay Clayton
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“I think the bill that was dropped is an extremely responsible effort by both Senators [Gillibrand and Lummis], because they're focusing on some of these key issues. Like custody resolution, those things that are fundamental to the regulation of any market.”
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“Digital assets are global and largely retail, that has presented a regulatory challenge. That we really haven't encountered before which is trying to have global coordination across a new type of asset class at the retail level.”
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“On stablecoin, that is a very safe space for regulation and for regulation to accommodate new technology. It’s demonstrably effective.”
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“I do think that the most important thing will be legislation that unleashes the technology or clarity from regulators, or realistically, a combination of both that unleashes the technology across the spectrum of products.”
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“I say if you're going in [to meet with regulators] and saying… look this technology is so powerful. It's so efficient. It does so many things that you should loosen your regulation to accommodate it. That's a losing argument, okay?”
Perspectives on Environmental Impacts
There has been much conversation around the growing climate related concerns from crypto mining. In fact, a recent congressional investigation showed that crypto mining in the United States has surged and leading to real consumer impacts.
Chris Larsen, Co-founder and Executive Chairman of Ripple, and Brittany Kaiser, Chair of the Board of Directors at Gryphon Digital Mining, discussed different types of incentives for miners and what that could like. As well, later in the day, the summit featured an interview with Jack Mallers, Founder and CEO of Strike, who noted that some of the technologies powering crypto are inherently environmentally unfriendly, but should not be discounted for that fact.
Chris Larsen
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“So we just can't ignore what's going on in our own industry, and in crypto, and in particular with bitcoin mining. It's a problem. The climate is, we're in crisis and we've got to address it.”
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“What if you could incent [miners] with a change in the code that says hey work in proof of work is not burning energy for all these guesses, but rather maybe creating renewable energy you're pushing into the grid. And based on you know how many joules of renewable energy you make, you get a higher chance of getting that reward...”
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“The bitcoin community should see the biggest risk to bitcoin is climate is getting worse… and bitcoin is contributing to that.”
Brittany Kaiser
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“I prefer other types of incentive changes… we're starting to see you now other states around the U.S. that are passing crypto laws. And we're seeing mining incentives or mining disincentives that are being passed. For instance, in the state of Kentucky, we now have mining incentives but it has nothing to do with renewable mining, just mining in general… whereas you see the opposite in the state of New York. They have completely banned any non 100% renewable bitcoin mining.”
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“I really think we should find a happy medium and find a way for there to be incentives. Whether that be tax incentives or something else to make sure that miners have a reason to choose renewable.”
Jack Mallers
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“Using energy is not a bad thing – next time you want to go to Europe you use a kayak and I’ll use United, it’s absolutely asinine and ridiculous, since when was using energy a bad thing?”
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He also applauded those blockchain operations which have converted to sustainable and renewable energy sources, asking: “You know what an airplane can’t do? Make use of the excess energy of a waterfall. This energy conversation is such an asinine thing, have you lost your mind? Creating money cannot be an energy-free thing.”
Web3, Gaming and Building the Metaverse
The metaverse and other Web3 topics have been at the heart of many social, economic and policy discussions, as companies in the space work to build their licenses to operate, engage potential customers, and help policymakers create informed regulations. The summit concluded with an extended discussion on the potential impacts of Web3 and the metaverse.
Kevin Beauregard, Founder & CEO, Atmos Labs; Sarojini McKenna, Co-Founder & CEO of Dacoco, Co-Founder Alien World; and William E. Quigley, Co-Founder of Tether and Co-Founder of WAX each contributed to this discussion.
Kevin Beauregard
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“The metaverse is really just the next evolution of the internet. A series of interconnected digital worlds. Blockchain’s what facilitates that, that is fundamental to its existence. You’re never going to have 1:1 parity in terms of interoperability where one asset in one world is exactly the same as it is somewhere else. But if somebody owns a Bored Ape and they want to show it off in a different game, then that’s part of their identity. It’s not only doable today, it should be the kind of portability we’re building towards.”
Sarojini McKenna
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“Adoption [of metaverse games] hasn’t tracked prices – you would’ve expected to see closer correlation and actually that hasn’t been the case. For me, what I look to is community. Community is one of the stickiest layers between people. Once people feel that they’re members of something together, that is something they’re willing to invest time in across cycles and iterations of the technology… Then you unleash this massive amount of innovation.”
William Quigley
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“When you have a token to mine and that becomes the principle object, that’s where the gameplay gets compromised. That’s why we need a new method or approach to blockchain-based gaming.”
So what’s the takeaway?
Building trust with key stakeholders is now more important than ever in the digital asset space. Collaboration across business, government and society will be key to building a regulatory framework that works for industry and investors alike. For companies in this space, consider these approaches:
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Double down on proactive communications regarding governance and security.
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Ensure investors have the resources they need to transact with confidence, including the appropriate educational resources, particularly in periods of market turmoil.
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Build a credentialed team that can help provide assurance to investors, regulators, among other key constituents.
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Recognize that more oversight is here to stay – prepare to thoughtfully articulate a POV so your customers know where you stand and maintain a dialogue with the parties that matter most.
We Can Help
At Edelman Global Advisory and across the Edelman network, we have a team of policy experts who can help answer your questions and help you navigate the policy environment in Washington, D.C. and capitols across the globe. Please reach out to your partners at Edelman Global Advisory and Edelman for a consultation today.
Contributors include Rosie Gillam, Meredith Hoing, Rachel Millard, Adam Ontiveros Oberg, Brett Philbin, and Hyun Shin.
