Latest / Computer Says Maybe / Gotcha! The Crypto Grift w/ Mark Hays

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Gotcha! The Crypto Grift w/ Mark Hays · Computer Says Maybe

• Alice: [00:00:00] If you go to X, you're seeing porn, you're seeing crypto ads, you're seeing like supplements. You're seeing all of these like scam adjacent things. Mark: The defining feature of that system is basically a way for wealthy Cory: people to control their money with impunity platforms start to hemorrhage users, and then they panic, although they call it pivoting and they do all kinds of really dumb shit, Bridget: and we're taught that it. Bridget: Good because we're all, you know, doing it together Lana: looking at a history of scams is really looking at a shadow history of the economy and a shadow history of our communication systems. Alix: This is Gotcha. A four part series on scams, how they work and how technology is supercharging them. Hey friends, welcome to yet another series. Alix: Gotcha. You thought that you had escaped the series, uh, but you're wrong. Um, we're gonna keep doing these when we come across a topic that we feel like is so multifaceted, that talking to several people that look at it from different vantage points. It's interesting. Also, I'll say [00:01:00] if you have topics that you think qualify and that you're interested in pursuing, let us know. Alix: 'cause we are always looking for interesting people to talk to and interesting themes to explore. Today I'm gonna be talking to someone I was put in touch with, I don't know, almost like a year ago. And his first introduction to himself, which I love, is that he's the only full-time lobbyist against crypto in dc And that was just immediately one. Alix: Fascinating that there's only one guy and also this is the guy. So why did we choose to start with crypto? This episode kind of sits between our last series on decentralization and this series on scams. Cryptocurrencies obviously touted as a decentralized monetary instrument, so it kind of fits with the decentralization and a lot of the people that are interested in decentralization get interested in crypto, but it's also the dominant currency of scams or illegal activity on the internet. Alix: So it's kind of like a bridge episode between the two series, which is why we're starting with Mark. So with that, let's get into it. Mark: I am Mark [00:02:00] Hays. I am the Associate Director for Crypto and FinTech at Americans for Financial Reform and Demand Progress. My day-to-day is advocating on behalf of consumers and investors and communities to fight for financial justice, basically to ensure that the financial system works for everybody, not just a few folks. Mark: Mostly focused on seeking accountability and effective regulatory oversight of. Crypto industry and operators in the world of FinTech. Alix: I wanna say when we first met, and you said you are the only full-time lobbyist that works against crypto, I was intrigued in two directions. One, it made me wonder what other full-time lobbyists that work on public interest issues are alone. Alix: And I'm hoping it's like a support group of some sort. But also I was wondering like what. What does that even look like when there's probably hundreds of lobbyists that are pushing [00:03:00] crypto like down our throats in the halls of power? Mark: It's not a moniker I necessarily lead with because in fact, there are a lot of great people doing good work in this space. Mark: It's just that they are doing it in addition to other things that they might be doing, whether they're academics who actually have full-time jobs or writers or bloggers who really aren't paid to be advocates, but do that anyway. I don't like it to steal other thunder. I think it's just a representation of the disproportionate degree of power and influence that public interest voices have in this debate. Mark: And it's not unique. I mean, I think I started my career actually. Working on environmental climate issues for many years. And then I spent a long time doing corporate accountability work at the international level, look at international human rights. And unfortunately, um, even though there are a lot of really powerful movements and actors, it's almost always true. Mark: There's just not a lot of money in trying to do the right thing. But there is a lot of money in trying to kind of game the system. But it has been somewhat disproportionate in the crypto space. And since we last spoke, that's [00:04:00] changed a bit. There are a couple of. Organizations, individuals who've kind of stepped into the space, which is good, but it's still really disproportionate what it looks like. Alix: What is lobbying against crypto look like? Mark: Um, more interesting than you might imagine, less glamorous than you might hope. Um, it's a lot of time trying to parse regulatory proposals or legislative proposals to both. Understand how they might work and what the implications are, and then to translate that for different audiences. Mark: It might be for grassroots activists who are motivated by the bedrock issues, like how this is gonna affect working families or vulnerable communities of color, but who aren't experts on financial issues and need a way to understand how it really plays out. Or it might be for a policymaker who is well versed in the issues and is looking for ways they can influence the the policy debate. Mark: Or it might be for someone in the media who's trying to understand the narrative. It's talking a lot with people about strategy. Like what sort of voices need to be part of the debate? Both [00:05:00] because they have a stake in the outcome, whether it's certain consumers or let's say an example of crypto, like communities who are impacted by crypto mining or it's people who have. Mark: A strategic contribution to make, like I'm a national security expert and I'm not the usual suspect, but I'm really concerned that say this piece of crypto policy ignores what we know about how crypto is fueling national security threats or concerns. So it's trying to piece that together into some sort of plan. Mark: And sometimes it is, you're driving in a Cadillac and it's really well thought out, but a lot of times you are kind of building the road as you go, both because. Things move quickly and you have to react, and other times it means you're just working with limited resources. We know the industry, I mean, just this week there's gonna be two big votes on two problematic crypto pieces of legislation. Mark: The industry has the resources to. Send people to probably every house office to talk to members multiple times to hold briefings, et cetera. We're not gonna be able to to [00:06:00] match that. So we have to find ways to talk to the folks who we think will have the most influence, or folks who are willing to work the hardest to raise the concerns that that we share. Alix: So how did we get here? Because I get that, I feel like. It was years and years of no regulatory motion on this. And I feel like there was kind of, I mean, this is a feeling as somebody who's not an expert in this space at all, that like, give us the backstory. Like when did crypto quote unquote become a thing Mark: week ago, way, way back, or a week could sort of start in past, in history Alix: of money. Alix: No, just kidding. Yes. Mark: It began with double book accounting in Florence. Yeah. Um, I guess. There are a couple places one could start. So crypto as people understood it, right, like you have the Satoshi White paper, you have the advent of Bitcoin trundling along not a lot of interest in activity beyond some diehards and illicit actors and, and others from about 2010 till about 2017. Mark: But then around 2017 you had what was [00:07:00] called the ICO Boom or a whole bunch of firms where, uh, folks. Really attempted to sort of speed run the financial regulatory system and create what amounted to sort of securities offerings, but without really going through the motions. And what's interesting is that, you know, there is a contested narrative around how regulators have dealt with crypto. Mark: And I would say it is true that regulatory approaches have been somewhat inconsistent in patchwork. But I would contest the idea that regulators. Haven't been trying to apply rules to the crypto industry. I think instead, what is more accurate and more fair is that the industry from the get go has in different ways and different approaches, really contested how the regulatory framework can and should apply to them. Mark: And the ICOO boom is a good example because that was during the first Trump era. Not an awesome time for a lot of public interest and financial regulatory issues. But to their credit, Jay Clayton, then SEC Commissioner was like. This stuff looks and smells like security offerings. You guys aren't registering. Mark: This is a problem. [00:08:00] Can you Alix: explain Mark: what a security is? It can take different shapes and forms, but basically you're talking about, um, in this instance, an effort to raise capital by a number of individuals. Basically, when Apple sells stock, they are basically making a deal with people. It's like, buy our stock. Mark: Um, sort of a sheer ownership in the company. Give us your money. We will take your money and go do something meaningful with it. We will build our customer base, we'll build new products, and by doing that we will make money and you will make money. That is a very simplistic rendering of how a lot of different securities offerings or stock offerings work, but it's a common enterprise between the investor and the, the company that they own or help direct and a lot of crypto assets, even though the industry says otherwise. Mark: More or less look like some version of that. They're saying, we built a tool. We think we can make money off this tool, but we need money to make the tool work better or sell it to more people. So give us some money. We'll sell you a token, [00:09:00] which might be like a security a. You hold onto that, it will increase in value. Mark: Um, and meanwhile we'll have the money to go off and, and do other things with it. Alix: So, so basically the, the main advocacy from crypto is to say we're not a security, because I imagine there's rules about what you have to do Yes. If you're selling a security. Mark: Yes. Okay. So by trial and error over a hundred years, and, you know, I'm not a securities law expert, I'm a. Mark: Jack of all trades advocate, but I've learned, you know, through this work and others, right, we have built a flawed but still workable set of financial market regulations for companies that want to issue stock to people and make money through those stock offerings, through forming capital. And while my organization knows me, the first to critique that system, there are good things about it because it is built off the back of. Mark: Hard lessons learned from the Great Depression when basically anyone was issuing any kind of stock to any kind of investor with [00:10:00] very little oversight, very little disclosure, and as a result, capitalism didn't work the way it was supposed to, quote unquote, right? Markets are supposed to work when they're free affair and efficient, and everyone has enough information to make. Mark: Calculated risky investments, right? Not like super risky, but just like I'm taking a risk and all those rules, right? The, um, disclosures that an issue has to make. Say, here's who owns this company. Here's what we're offering you. Here's what you get, here's what the performance should look like over time, and here's like the worst case and the best case scenario, here are all our financial books, so you know that we're running this company on the level. Mark: Here's our management structure. Alix: It's like consumer protection for investors. Mark: It is. It is. And that's I think one of the challenging things, right, is that most of us, probably knee-jerk, think of ourselves as consumers in the financial space first and investors second. There's a lot of obfuscation around what this means, but the principles are often the same and. Mark: What's more, the crypto industry tries to straddle that line? Are the people we're working with, consumers, users, investors, [00:11:00] they're, they're all three, but the principle is the same, right? If you wanna buy this product, you need to know who you're getting into bed with, who you're doing business with, what the risks are, and what remedies are available to you. Mark: Right? It's as much for what happens when things goes wrong, who's on the hook as it is for how people can make sense of, of their investments. And it's not perfect, right? It's still gameable, but we actually do have a pretty good system, especially compared when you look at past historical models or other places. Mark: But what that means is it's very rigorous. It is not actually easy to list a stock on a publicly traded stock exchange. And the point is, if you're gonna be selling these assets. Which could depreciate in value or drop up and down to any sort of retail investor under the sun. Not only for their sake, but for the market's sake. Mark: You need to go through a rigorous pass through. But the crypto industry has resisted that they either do not want to go through that level oversight or do not believe they can really meet. [00:12:00] At that level oversight due to the nature of how their companies are run and due to the nature of the assets that they're offering. Alix: Because they're like casinos is the vibe I get. Mark: Yeah, I mean, I think I am both embracing of the cynical idea that, you know, and a lot of this is just speculative investment. The, the people are just watching the number go up and down. And I'm also more willing to say that, okay, maybe there are people attempting to create products that have real utility or are. Mark: Meant to be more meaningful investment products, but when you look under the hood, it often falls down. It's also more complex than that, and if you'll indulge me, right, like those rules don't only apply to who offers the stock, they apply to all the intermediaries. And I think getting deep into the crypto psychology, right, and the global financial crisis, a lot of us looked at what happened and said, well, clearly. Mark: We let Wall Street get away with murder. There wasn't enough oversight. There wasn't enough accountability. There weren't restrictions on certain kinds of activities. There weren't more [00:13:00] protections for the people involved in these markets, and that's what my organization, Americans for Financial Reform has focused on. Mark: That's the impetus for our creation is to try to create those rules. But as part of the crypto ethos, some of this is true, and some of this I think is maybe only part of the story. The idea was, oh, well the problem is intermediaries full stop. The problem is. There are too many rent sinking entities that are involved in how people transact and not gonna lie, like at first glance, that sounds appealing, right? Mark: Like why should we allow our financial system to be controlled by all these entities? And we'd be the first to say that these actors often have reverse incentives. They consolidate power. That's something we're fighting every day in every space of this area. But the problem is it's manifold, right? When you look at how the crypto industry operates today and has operated. Mark: It has recreated much of the same kind of intermediation, but by a different name. There are entities that act like brokers on crypto firms. There are entities that act like [00:14:00] exchanges. There are entities that help clear and settle transactions. Even in the defi space where the idea is you replace even those roles with automatic protocols, there are still people actively intervening in how those platforms operate to dictate basically. Mark: Who gets paid and when and how. And the central conceit is all that technology can substitute for the interventions by regulators, the compliance obligations by all those actors. But the reality is, is just because you introduce the technology, you don't erase those financial incentives. People are people, they're still gonna try to do the things that people do in financial markets, but the industry has built a business model based on this. Mark: So in financial markets, definitely not perfect, but. If you are involved in stock trading or other kinds of like securities oriented financial activities, if you're a broker dealer, you have one set of goals, right? You have to get the best price for your client. If you're in exchange, you have to make money off creating a place to trade. Mark: I [00:15:00] could go on and on. The regulatory framework has spaced these out, right? You can't be both, or if you are, you have to be so distanced that you really, the left hand can't know what the right is doing. And that's because the conflict of interests between those roles are too powerful. But in the crypto industry, when you log onto Coinbase. Mark: Or FTX, they are the custodian of your assets. Perhaps they are your broker trying to sell or buy your, the assets that you, you want. They're the exchange that helps create the space for the trading. And they're also doing all the backend clearing and settling, and that means they have a lot more power and insight into how that's happening more than you the retail investor. Mark: And so what they want is a regulatory framework. That legitimizes that model. They do not want a regulatory framework that would force them to disaggregate and actually play by the same rules as other people in this space. And they're using the idea of technological innovation as the justification for that change. Alix: It feels like there's been peaks and valleys of the crypto industry's expectations or desires. [00:16:00] So it feels like there was a period where they were like, just leave us alone. We're trying to make this like alternative to the monetary system that exists. And then it was like. But yeah, one of our main advocates just went to jail, so we don't really have really a leg to stand on and it costs lots of people money. Alix: And then there was this period of like, we, we want it to be grown up again. But at the same time, there was like an increasing kind of branch of all of it that was so just nakedly, corrupt and connected to Trump and connected to like kind of right wing. Swirl spaces of like nasty, nasty politics. Do you wanna say a little bit about the recent history? Alix: So let's take the last like three, four years in terms of what the regulatory fights have been and kind of how that the space of lobbying for crypto has evolved. Mark: I mean, I think you're right in identifying and, and there are factions within the crypto spaces. I think you and your audience are aware there are sort of diehard Bitcoin maxis, who, that's the only crypto. Mark: You've got folks who [00:17:00] are critical of the centralized exchanges, but are still ideological purists and you know, don't want really any government oversight intervention. Then you've got people who sort of believe crypto can integrate into the financial system and they're trying to present themselves as the kinder, friendlier version of crypto and. Mark: That's the one that this regulatory approach will help. I think leading up to the 2022 crash, the dynamic in the atmosphere in DC mostly in, in the, in the federal policymaking space was on the one hand, I think there was an awareness. Of policymakers and people on kind of the fringe of crypto policymaking as well as within the industry, that they had one thing going for them, which is that it was boom times. Mark: There was a lot of money being made. There was a lot of interest, and there was a lot of. PR around the industry and they had people's ear. I think they were looking to tap into a narrative that has really been around [00:18:00] since the nineties and, and the sort of the dot-com boom, which is sort of, you wanna be on the side of innovation, this is going to disrupt things that you know, and in fact it's going to disrupt power structures that maybe you've. Mark: Criticized, but also at the end of the day, you don't wanna be miss out on this because somebody's gonna make a lot of money on this and you could be a part of that. I think they're also aware though, that there was a critique both inside the industry and outside the industry, that regardless of how you felt about that premise, whether crypto was a wave of the future or just gambling, there was a lot of reckless speculative activity going on in the space and something needed to be done. Mark: In 2021, early 2022, what entered into that space was the sort of push for responsible crypto innovation and regulation. And the front man for that was not only Sam Bankman free, but he was certainly part of that. And at the time he was sort of golden child and in fact, he, before people. Knew [00:19:00] or were willing to admit the extent of the questions they had about his business dealings. Mark: There was still questions about whether or not he was truly invested in the crypto ethos. There were people in the defi space, others who sort of said, he's not real crypto, um, but hey, he's the biggest thing going and we're gonna ride his coattails. And so in that policymaking space in DC I think you had a set of policy makers on both sides of the aisle who were. Mark: Willing to embrace that idea that really would just need some rules of the road that maybe we need to write new rules for crypto. And then you had others, both in the administration and including us, who was like, wait a second, we've seen this show before. You can literally point to all these other places where new actors in the financial space have come to regulators saying, Hey, we have this new product, it's gonna change the world. Mark: We really don't wanna deal with these pesky regulatory standards. They're not really fit for purpose. You saw or give us Alix: time and then we'll innovate and then it'll be amazing. And [00:20:00] then you can regulate us. Mark: Yeah, yeah, exactly. Yeah, I mean, I mean it's, we've seen in the tech industry with Uber or Lyft and Airbnb and others, right, where it's sort of a. Mark: Blitz Creek style thing where you just bust into the space and then say, we're here, deal with it. When we talk about this a little bit later, that's, you know, they took a page from that playbook in 2023. So long story short, there were a number of proposals that were being advanced through Congress that would create some sort of bespoke regulatory framework for the crypto industry, all based on the idea that the current standards didn't work. Mark: You were talking earlier like. Originally the industry said, we are beyond the reach of regulation, right? Like diehards. And then they said when that sort of didn't work, when they realized that, oh, you can still get us for money laundering and it's a problem. They said, we can do it ourselves. Just let us self-regulate. Mark: And then when that didn't work, they said, okay, well we'd love to be a part of this regulatory thing. And I think this is when more political operatives came into the space and said, look, you need to show them that you're willing to play [00:21:00] ball. We just need to be able to. Craft this to our liking. And so that's really where we got to in 2021 where people were saying, we wanna come in and register. Mark: As you know, Gary Gensler said, we just can't do it because the rules don't work for us. And they were making a ton of headway even. When the industry was collapsing. Right. And I don't think people fully understood the nature of that collapse, and they still don't. Right. The industry said we are decentralized. Mark: There's not a single point of failure, like in the global financial system. The blockchain helps us understand the. How transaction is happening so we can stop problems before they start. And what actually happened was we had a deeply fragile, interconnected, incestuous, highly centralized industry. You had Tara that was backed by many of the VC firms like Andres and Horowitz and others. Mark: That was a darling until it wasn't. And it turned out that it was a complete house of cards they had borrowed money from, or lent money to a whole bunch of other, other platforms like Celsius and Voyager and Block Fi. Turns out they were [00:22:00] also playing fast and loose with people's money. Horrible mismanagement, bad trading bets, you name it. Mark: They started to go under FTX was still sort of afloat, but no one knew that they actually were hit very hard by the terror loss, and they were trying to fill that hole. What stopped that, that regulatory train from getting there was when FTX fell apart, even with, although those other collapses, that was sort of, people understood bad things were happening, but they really understood why. Mark: But when FTX collapsed. People said, okay, well we certainly can't continue with this. And it appears, you know, we're really only seeing the full fruits of this. Now, part of the reason the industry also needs some sort of, uh, regulatory imp premature from federal regulators is that for two reasons. You can say all you want about crypto going offshore, but right now in this world, most of the money and most of the capital is in the US when it comes to financial market activity. Mark: So if you, your business is investments more or less, you need access to those markets. [00:23:00] So sooner or later, you're gonna have to find a way to be compatible with what those markets expect. I'm not saying that China or Asia, other things aren't important. They certainly are, but that still remains true for now. Mark: Second, since most crypto assets really are driven by speculation, the only thing that brings. Returns in that market is more liquidity, which is basically more cash, and the only way you get more cash in those markets is by getting access to many more investors, retail investors, institutional investors, quickly. Mark: I remember when I started this job and I heard people talk about crypto as a Ponzi, and I thought it was just, I was Bridget: gonna say, that sounds an awful lot like Ponzi. Mark: But, but it's actually descriptive. It's extractive in the sense that often enough, the only way that some people can make money is to make sure that there's a lot of money sloshing through the system so you can extract value from it, whether or not others benefit. Mark: So it's not widening the pyramid, it's basically ensuring there's enough cash to keep the, they call the flywheel [00:24:00] going. So end of 2023, people had left the market or had lost all their money. Things were drying out, platforms are collapsing left and right, et cetera. And they said, well, what do we do? This isn't from me, mind you, but you look at news reporting and it's pretty clear they went to this guy named Crystal Hane who helped Airbnb and others do their PR and lobbying strategy, um, earlier in this quarter century. Mark: The industry was already blaming regulators for this. They were telling regulators to back off, but then as soon as problems started to occur, they blamed the regulators for not stepping in sooner. And Lehe said, let's double down on that. We have an opportunity. I presume that he said that the, the story is people like him said, we just need to really turn the narrative on its head. Mark: What hurt crypto investors and hurt the crypto industry was not its own double dealing, not its own. Poor management, not outright fraud. It was the fault of overzealous regulators that were simultaneously preventing good [00:25:00] actors from coming in from the cold and somehow rewarding bad actors. And that's what led to the financial crisis. Mark: And unfortunately, that narrative has at least. Taken root. And I think that stems from the fact that most folks don't really fully understand financial market regulation. It's not to say they're, they're dumb. It's just, it's complicated stuff that's not part of your day to day. And that's a really easy narrative to spin. Mark: And it's also a convenient narrative for people who wanna be both for consumer protection and for innovation. They can just say, oh, well these regulators weren't willing to be flexible and create a new set of rules. And so that's really brought us to where we are today. Which is that and boatloads of crypto money, right? Mark: I think the other thing that people took for granted was, I'm not gonna say literally the industry has been able to print its own money to fuel its financing, but there is sort of a certain truth to that, right? Like, you know, you are creating magic internet money. And so to a certain extent that creates a certain flexibility and [00:26:00] the industry also just. Mark: Poured money into the political campaigns. Molly White's a great researcher, public citizen, did some research on this and basically said that, you know, that they were the single largest super PAC spender in the 2024 elections more than any other sort of corporate or industry funded super PAC space. The only thing bigger was maybe the big ideological, like party oriented pacs. Mark: They spent 40 million or more on, uh, opposing Jared Brown's race. They really just. Even in a post Citizens United era, I think people who know that space were stunned by the amount of money and how much was poured into that and, and it was unfortunately effective. There are a lot of policy makers now who either are happy to take that money or are afraid of retribution if they go against the industry. Mark: It sounds cynical, but a lot of it is nothing more than that. This is not a policy conversation. This is not a truly about whether crypto is a wave of the future. It's [00:27:00] what can I be okay with signing up for policy wise that will at least not put a target on my back and maybe allow me to say that I tried to do something good for consumers. Mark: That's kind of the baseline for most of the policy discussion right now. Alix: It's so dark. Yeah, it's also so dark when you look at the way that crypto has basically allowed for a monetization that is direct to consumer by Trump in this way that I find so disorienting. 'cause he actually wasn't very good at monetizing. Alix: I think a lot about, uh, there's a scene in House of Cards where they talk about the conversion of power to money. Being much easier than money to power. I think a lot about, like Trump has had a lot of power, but that hasn't meant that he's actually been able to turn it into money. And sort of watching this last, like, I mean doing an ICO right before your inauguration [00:28:00] and having, do you wanna describe a little bit what the Trump coin is? Alix: 'cause I actually, I thought it was like. The value of the coin, but it's not, it's actually the transaction fee of buying the coin is where he gets like pure cash regardless of the speculative ups and downs. But do you wanna like describe how that actually works? Mark: Sure, sure. And, and with the caveat that you know, there's always something that you don't know, right? Mark: That despite the quote unquote transparency of blockchain, there's a lot of opacity in this space. So. As you know, Trump's jumped in with both feet into the crypto space. That the mean coin is actually only one of several ventures that he's been involved in. I'll get to some of them, but in various stages, both right after the election, right before it, and even before the election, Trump had dabbled in Trump based NFTs where he was basically selling likenesses or or imagery associated with the campaign as a way to generate funds and had some success with that. Mark: And I think most people saw that as sort of a flash in the pan opportunistic thing, but. When, you know, he was elected and when the crypto [00:29:00] industry sort of claimed victory, not only in terms of what happened congressionally, but in terms of how Trump was embraced by or, or became or embraced the industry, he doubled down and he issued a, uh, most people call a meme coin. Mark: And a meme coin. Lots of discourse on what that means. I think the best way to describe it is it's a crypto asset that is associated with, uh, internet trend. Maybe it's an image, maybe it's an idea, maybe it's a saying that. Really very transparently is nothing more than a speculative asset, a token that you can buy with the hope that it's value increased because other people are going to buy it. Mark: It's almost kind of in some ways, the essence of what a lot of crypto is, but the real money in crypto, and often that's true outside of the meme coin space is in the transaction fees because in order to buy and sell these things again. You could sell a peer-to-peer, but more often most people are gonna be selling it on exchanges or in places where they need intermediation. Mark: And so those exchange fees have quickly generated a lot of return [00:30:00] for the Trump family, the Trump organization, even as the value of Trump coin and the Melania coin has, has speculated wildly that I think there was A-C-N-B-C article where someone looked at the numbers and at one point in time. Upwards of 750,000 people or wallets had bought Trump coins and lost money on the value of them, and so that's bad enough. Mark: But now we've seen the meme coin being used to facilitate what looks like transparent pay-to-play politics. You had the mean coin dinner where Trump solicited basically sales or purchases of the meme coin in exchange for an opportunity to attend a, a private limited access dinner with him. There are a number of individuals. Mark: Who bought. Those tokens who you know, Justin Sun with Tron has a very checkered past. He's also one of the major investors in Trump's other crypto platform, the World Liberty Financial platform. He's been under suspicion of multiple jurisdictions for everything from fraud to money laundering. [00:31:00] But lo and behold, with his investments, the SEC has now either stayed or dropped the cases they had. Mark: Looking into his, his operations and now trying to seek an IPO. That's just one of what I think. Will likely be a number of examples where people who have bought that coin and have, are transparently seeking a return on their investment. Alix: I'm like, if I am bootstrapping a currency. Like the value is not inherently in, I'm not producing something of value with those resources. Alix: It is structurally a Ponzi scheme. My job as a person that started it is to attract other people to it, to add more cash into the pile, not to make something, which then makes me wonder if you do an ICO. Are these people just spinning up like tiny LLCs that then are the corporate structure of the ICO, or how does the, how does the beneficial ownership, or how does the corporate structure work around these things? Mark: I mean, think in general what you see [00:32:00] are individuals or entities who are associated with a coin. In some cases, there might be an LLC behind it, like I think, take the Trump meme coin. There are a couple LLCs that are named as kind of the ultimate progenitor, if you will, but I think there are. A couple ways to shine some light on it, both from a. Mark: Critical perspective and from the industry's perspective, that might help. So first of all, from a crypto industry advocate's point of view, right? They'll admit right that some of these tokens are speculative and, and mostly about people seeking quick profits with a lot of volatility and risk. They'll even say, look, we allow this kind of activity elsewhere. Mark: And you know, there's gambling and there's a kernel of truth to that. We do, but we actually have. Really strict rules about where and when that can happen. That was born out of a lot of time and hardship. But they would also say, no, no, no. You don't understand crypto. Like we put out these tokens because these tokens ha have different functions on our platforms. Mark: Right? You can stake them and earn yield. [00:33:00] It's not like a security, it's more like a, a rewards token or we're giving these tokens away for free. We just want people to interact with the token online. We're more like an internet community. Where almost like a gaming community where we're kind of engaging in the processes of the platform. Mark: And so that's why we're not a security and there is a, a logic that's been constructed there that if that's your only point of reference, can make some sense, right? Oh, I'm not actually quote buying this or getting this as an investment. I'm part of a, an online community. But when you peel that away. It's a conundrum because it both mimics those investment activities but doesn't necessarily have the fundamentals that you would need to make them valuable. Mark: So it's sort of both and neither is the conundrum. So the industry will sort of talking on both sides of the mouth, say. This is a great opportunity to fuel wealth creation and we should be able to let lots of retail investors engage with these products. But then when pressed, well, that sounds a lot like investment. Mark: Um, they're like, no, [00:34:00] no, no, no. These are collectibles. People just are, are excited about what they see online and want, want to, um, participate in them. And if they increase in value, that has nothing to do with what we're doing. That just has to do with its intrinsic value. That's the idea of it as a commodity. Alix: I think a lot about the book, seeing like a state. I don't know if you I have not. I should. Mark: Yeah. Alix: It's very good. Yeah. And it's basically if you, if you're a government trying to kind of organize its affairs Yeah. Um, you attempt to categorize and quantify everything and you have to have, or you think you have to have as much, uh, legibility and visibility in everything that happens. Alix: And I feel like when you're thinking about corruption or you're thinking about. A financial industry, you're kind of, if you think about it from the top down and like what information would I wanna have available to be able to know if bad things are happening? Like how would I think about concentration of wealth or power? Alix: Like how, how do I, how do I know what's actually happening? It feels like crypto is this like kaleidoscope of complexity that makes all of that it like frazzles everything. Yeah. And I don't like know [00:35:00] where that goes aside from just it getting fractally more and more complex. Mark: So. We talked earlier about how the narrative is crypto was born outta the financial crisis where individuals had grievances, you know, valid grievances about how the global financial system worked. Mark: The other threat of this though, is that there have always been people who, both from kind of like a left libertarian or right libertarian, have critiqued the ability of governments to intervene in people's financial affairs. I'm not an expert on the Satoshi White paper, but you know, I've, you know, read enough to know that. Mark: Part of the so-called rationale is like we want to be able to to transact freely. Right? And that there's this idea of the freedom to transact, which hopefully, I won't get on a tangent here, but when I hear that I get really well, I get really upset. Yeah. Because I spent years, yeah. In the human rights space. Mark: And I'm not a expert, but I know a thing or two. And when you look at global social movements, when you look at what people have tried to fight for over the last. 75 years. Certainly economic [00:36:00] freedom is part of that and it's important, but a big part of that fight was sort of saying. These rights are intangible and inalienable and can't be reduced to dollars and cents. Mark: Like what good is it to have a Bitcoin in your wallet if you don't have access to water in your own community and have to pay, you know, $50 a liter? There should be some things that are not for sale, and we should be able to exert those rights beyond just a narrow understanding of what civil and political rights are. Mark: And so. I get frustrated when I hear some people who advocate for some things like Bitcoin as a, as a human rights tool, both because I'm skeptical of how far that goes and we don't have to go there, but, but even if you accept that premise, it is an incredibly narrow reading of what human rights. Means or should be the Freedom 10 Act. Mark: I just, I disagree that it should be the thing that trumps all, and I think that's what's crypto a hundred percent. Yeah. Yeah. But I think there are crypto people who believe that Alix: I, I'm sure that they [00:37:00] do, and I'm sure that the idea, but it, it's usually a certain demographic that feels that any limitation on whatever they desire is somehow oppression. Alix: Yeah. But like transact for what? Like I feel like combining financial power. Mm-hmm. With ultimate freedom to purchase and transact. Anything. It's not something that we want. Mark: No. Well, and I think, I think if there is a, there's an author who sadly passed away not too long ago. His name is David Columbia, who was a, a professor at, um, Virginia Commonwealth Alix: Libertarian. Alix: Uh, right. What the, right, what is the, what is his book? The, the Politics Mark: of Bitcoin is what he wrote. And it was, it was, uh, an early entry, but he really traced some of the right wing origins of the thinking around crypto and Bitcoin. He's a great guy. I got to work with him a couple times and he and others have looked at us more or less said. Mark: Some people were looking for kind of a venue to transact free from oppressive governments. Other folks, the Peter Thiels of the world really saw this as an opportunity to [00:38:00] subvert the role of the state entirely in finance entirely. For me, that ultimately makes me think of this offshore financial world that we just talked about, because the offshore financial world is bigger than just cops and robbers and like narcotics trafficking. Mark: It is. Somewhere between two and $6 trillion go offshore from tax evasion, tax avoidance, all sorts of other vehicles. I don't know if it's every year, but it's, it's a huge amount, a huge proportion of the global GDP. And there's another author, Brooke Harrington, who does a great look at the Capital Without Borders and traces the origins of that system back to the trust that were set up in the Crusades for people Knight running off to go fight these battles and said, okay, I wanna leave my. Mark: State to so and so, but I gotta, someone's gotta take care of it until then. The defining feature of that system is basically a way for wealthy people to control their money with impunity. It doesn't matter where their money came from, it just matters that they have a way to do that outside of government [00:39:00] control. Mark: And so if you think about that existing right now, it's already a problem. And then you think about, okay, well. Sure. Maybe it would be great to have a financial system or a part of the financial system like crypto that would, I mean, right now, right? I, I'm afraid of what our current government might do. I, it would be nice to have a way to transact without someone observing that. Mark: But the fundamental conceit there, and maybe the fundamental lie, is actually what you are creating is a global virtual, always on 24 7 offshore financial system accessible to anyone. Maybe even some diehards will say, yeah, that's great. No one can control anything. It'll be wild, but it'll, you know, at least it'll be free. Mark: The problem is, is who is in the best position to exploit that? It's still the people with money. People Bridget: with money, and so Mark: and so, where we got to with all this is we're in a position where the crypto industry has sold people on the idea that somehow [00:40:00] what they're doing will provide. Financial inclusion and economic freedom and will somehow work within the existing financial system because transparency, but it's not nearly as transparent as people think it is, and in fact, it's really just a tool to reinforce current power structures. Alix: I mean, you mentioned inclusivity, which I think is interesting because you have to have a bottom rung of the pyramid in a pyramid scheme. So the only way you continue to grow these projects is by getting more people. Interested in them feeling like they're safe enough, feeling like government has like nominally regulated them enough so they can't be too bad. Alix: 'cause I know, you know, my friend or my cousin is buying them whatever, and it's framed as exclusivity, which is also part of, I feel like this big neoliberal project of like basically capitalism is really important for everyone to be able to be involved in at all times. Like the whole micro lending wave where it's like, wouldn't it be great if everyone could borrow lots of money? Alix: And it's like, I don't. I don't know, Mark: like, yeah. Yeah. And look, I mean, you know, we, [00:41:00] we, racial justice is a huge component of our work. Um, and it's certainly important to me, and I would not claim to be an expert, just someone who's listening. You know, there are people in marginalized communities who, they are not the center of the crypto industry, but there are people involved in crypto who, who, you know, and, and I'm paraphrasing, I don't wanna speak for them, but, you know, I'm, I'm filtering what I've heard. Mark: It's a variation. A couple themes, it's like. I don't care that it's scammy. What I care is that I have some degree of control over what's in front of me, right? I'll take my chances or look, the only way our community is ever gonna get out of the hole we're in is, is our own bootstrapping, right? Not someone else's bootstrapping, but our own. Mark: And crypto's not perfect, but it provides a vehicle for that. And I'm not gonna be the person to dispute that person's truth, but I think what I can respond to is. A little bit of be careful what you wish for because this stuff doesn't happen in isolation. Even if you can point to individuals or certain projects in different [00:42:00] spaces that have provided some utility or meaning for people because of how the broader industry operates, because of the risk that this kind of activity introduces into the broader financial system and because of the way in which the industry's policy, agenda and ideological orientation really is. Mark: Eroding more profound financial, regulatory standards and principles, and even democratic principles. One, even if you're okay. The people around you might not be okay as a result, whether or not they touch crypto. And two, it's sort of the nomen as an islands conceit, you think you're above water and then you get overwhelmed anyway by other things. Mark: And I think that's one of our biggest concerns with the crypto industry's current regulatory push, what they're proposing and market regulation with respect to who regulates these, these entities in the financial markets or with stable coins, like how are these coins issued are. Presented as sort of regulatory [00:43:00] reform, creating guardrails, but when you look at the details to us, it's very clear that you are actually setting up conditions for greater financial market instability. Mark: You are giving light touch approaches to regulatory solutions that will sort of reward. Current industry practices, legitimize the industry, make it seem safer to people even when it's not safe, but give them less recourse when things go bad. And when you do that, that that sort of. Basically what happened in the lead up to the global financial crisis, we deregulated a whole swath of esoteric financial instruments over the counter derivatives. Mark: We gave poultry regulatory oversight to a small agency, the CFTC, which has its role and does what it can, but wasn't then and may not be now equipped to deal with all of this. And then. Said everyone have at it. And when you combine that speculation with the subprime lending crisis and the collateralized debt obligations and the sort of toxic bumbling of those loans, [00:44:00] it was a recipe for disaster. Mark: It's, it's striking like this language is the same. Even some of the people are the same. Larry Summers was a champion for the over the counter derivatives industry. He is also a champion for the crypto industry. So unfortunately, like unless something changes, we're on a path to repeat. If those mistakes, and I hope I'm wrong, but I think odds are I'm not. Alix: So what do you think is gonna happen now? Because it feels like there's some policies that are being proposed that some Democrats are supportive of. Like, uh, Ruben Gall, is that his name? Mark: Diego? Alix: Yeah. There's like, there's like some democrats and maybe it's because of what you mentioned earlier, that they're afraid of being primaried or that having a side resourced. Alix: Well, if they stick their head above the parapet and say they actually think this stuff should be regulated. But like it does feel like there's policy momentum on certain anodyne. I would, I would guess they'd be odine policies if crypto's comfortable with them. Presuming those move ahead. Are we gonna see safer crypto? Alix: Do you think [00:45:00] regulation can control the excesses and likely harm and like speculative nature of crypto? Do you believe that there is a possibility of having crypto continue alongside a healthy financial system? Mark: You know, on that last question, I'm, I'm sort of agnostic and that's not a Dodge, right? I, I like, I think we are often accused of just being utterly anti crypto. Mark: And I, I don't think that's entirely accurate. Uh, we're certainly very skeptical of the industry. We're skeptical of it both from its core premises, right? That it works as intended and then provides the advantage as it says it does, but also because of its. Politics or a sort of, uh, you know, approach in the political space, right? Mark: They, they act like a lot of the other bad actors that, that we've had to deal with. So our. Responsibility is not necessarily to say ultimately whether this industry should exist. It's to ensure that no matter what the conditions are, we have the right tools, protections, and remedies, and that the right people are prioritized and in the driver's seat. Mark: And if crypto [00:46:00] can exist in that, maybe that's okay. I'm doubtful, but. I mean not the industry has two major piece of legislation. It is pushing through Congress right now. One is a, a stable coin bill. It creates a light touch bank-like regulatory framework for stable coins in their issuers. That is gonna be voted on in the house next week. Mark: Unfortunately, it's likely to pass. And then, um. You have a market structure bill, which basically is a bill that says, okay, for the broad swath of crypto industry players, the exchanges, the brokers, the asset issuers, what's the regulatory approach we're gonna use, and who's gonna be the regulatory hub for that? Mark: It's a whole other kettle of fish. So that bill basically creates a really light touch framework for crypto asset folks to. Use blockchain technology to classify themselves as crypto commodities, not securities to self-certify under a loose framework under the CFTC. Again, an entity that regulates trading on corn futures and deals with hedge [00:47:00] funds. Mark: It's not an investor protection agency, although they would protest that it's suddenly gonna have to deal with, you know, a couple trillion dollar crypto market and. It gives them some piecemeal investor protection tools, but not a whole lot. It's going to exempt huge swaths of the industry. So the defi industry not really covered by this bill, in fact, is exempt from most regulatory oversight. Mark: Other bills have just. Put that off. This one just says you guys aren't part of this meme coins NFTs, they'll probably not fall into the securities or commodities framework, and so beyond some minimal checks for brokers, they won't be registered. There's even a provision of the bill that exempts certain actors in the crypto space from registering as money. Mark: Transmitters, which is kind of the lowest level of financial regulation right now. A lot of crypto firms have free to Alix: transact. We can't call them transactions. Okay. Yes, Mark: exactly. All based on the idea that no one is truly responsible for. The activities that happen on these [00:48:00] platforms save for some minor administrative stuff and some broader involvement. Mark: So minimal disclosures. And the other comparison, right, is like this, you're talking about opacity and transparency. What the information you can find on the blockchain is pretty minimal, right? It's just about transactions and just about wallets. A lot of that activity happens off chain. A lot of the stuff that happens, say in a Coinbase, right, that's actually happening off books on a regular database and is only reported on the blockchain after the fact. Mark: So there's huge. Dark pools of money sloshing around in this space, and those dark pools already exist in the financial system. We already have a problem with so-called private credit, which is, you know, basically instead of investors participating in public markets, the wealthier ones are participating in private markets, in the private equity space where they might be more lucrative, but more risky opportunities, but there's less disclosure all based on the idea that those investors can manage that risk. Mark: But crypto [00:49:00] is gonna be that. But for retail and institutional investors. Um, so all that leads up to just sort of conditions for. Potential market crashes. It could be one big fire or it could be lots of little fires in different places, and it might not look like the way at first. Right? In the twenties, everyone was making money until they weren't, so that's gonna be the hard thing. Alix: Everyone's making money, but it turns out, but it's not money, it's just crypto. Mark: Yeah. Yeah. Or at least, well, the other thing we see, and this is again part of this whole like history of financial predation, like there before crypto and even during crypto, academics and economists have looked at how people participate in markets and. Mark: What the data tends to show is at least say the nineties. Since the nineties and the two thousands, you see sophisticated investors riding bubbles, right? They are in early. They have access to the information and capital to spend, and other market advantages that allow them to take advantage early of [00:50:00] when markets are going up, and they are also often not always able to cash out or consolidate their earnings. Mark: Or hedge against risk, but most retail investors and, and to a certain extent institutional investors, right? I think most of us rely on the 401k manager or something like that, and they're generally more conservative and are like professional, but are not necessarily. Aggressive in that way, and that's good and bad. Mark: It's good because they're not gonna jump into things, but they can't turn the ship quite as quickly as say, a freewheeling hedge funder. And so the retail investors, and by proxy, the institutional investors are often chasing bubbles. They're chasing waves, and you see this even in the crypto space where a lot of people bought into crypto in 20 20, 20, 21 later than insiders, and so we're buying high and selling low. Mark: There's nothing to suggest that that won't happen again. I think another one of the coits [00:51:00] about the crypto industry that is worth calling out is, again, for so long the ideological. Ethos or rationale was like, we wanna be different from that financial system. In some ways, we wanna be apart from it. But now the most exciting thing that a lot of the crypto industry leaders can talk about is the embrace of the existing financial system of it, like the BlackRock, Bitcoin, ETF. Mark: They're doing that both because I think they're using that to demonstrate legitimacy to attract other folks, but they're also sort of talking about it because they're saying more or less, hooray. We have access to the money now. This is where the money is. There's a guy who I haven't read much of, Patrick McKenzie, who used to work for Stripe. Mark: We don't know each other. We probably don't agree on a lot, but he's very smart and he is read a lot about this and he wrote a blog a couple months back about a lot of this stuff, and I think he has a. Take on crypto at least. And it was a very long piece. And I remember reading it, and again, I'm paraphrasing, I don't wanna misquote him. Mark: It was more or less saying like all the, the money for crypto here [00:52:00] is to be able to sell as much stuff to as many people as quickly as possible. Good or bad, real or not real. The holy Grail is to sort of open up the floodgates of access to that liquidity of those retail investors, those institutional investors. Mark: To sort of front run the existing financial system and either force them to play ball or get out of the way, and that will make them trillions and it may make them trillions whether or not things crash. Because there are crypto people who withstood the flood when it came to 2022. There will certainly be those people again. Mark: And that's a great irony, right? Because crypto was supposed to democratize the financial system. Crypto was supposed to make wealth accessible to everyone it was supposed to. Disrupt the rent seeking and the consolidation of power by a few key intermediaries. But from where we sit, mostly what we see is that, you know, the Coinbase, Brian Armstrong of the world, they just want to be the new JP Morgan. Mark: Folks in the crypto industry who truly believe that crypto is supposed to be different. [00:53:00] Some of them recognize that, and others I think, are all too willing to just go along with it. And I think that's a question they have to ask themselves is like, is this what you signed up for? I Alix: think that is the perfect place to end. Alix: Thank you so much. This was deeply informative and it is exactly the rabbit hole I wanted to go down, and I'm really glad that there is a full-time lobbyist working on or against crypto in dc so thank you for your work on behalf of everybody else. Mark: Oh, it was a great conversation. Thank you for having me. Alix: All right, so hopefully that whistle stop tour in cryptocurrency. It makes you feel a little bit more educated about where things are and what the implications are. Just a quick reminder that next week, next Wednesday, we're gonna be live streaming from a live show in New York at Climate Week with some amazing guests that are working locally to organize against data center expansion by Big Tech. Alix: This is not one to miss. I'll be co-hosting the show with AmBak. We'll have three guests. Marisol from Arizona who was just coming off of the victory against the [00:54:00] Project Blue site that was rejected. Um, nine to Zero by the council in Tucson will also be hosting Katie Miner, who's coming from Louisiana, who has been fighting for her community to ensure that energy affordability is top of the agenda when companies like Meta are buying up tons of land and building really energy hungry data centers and driving up costs. Alix: For everyday people. And finally, Kan Pearson will be coming in from Memphis where he has been fighting for local communities there who have been really negatively affected by the pollution, generated by the haphazard development of the XAI project that Musk has been pushing there. So with those three guests, AMBA and I will be in conversation with them about data center expansion, the implications for the environment, and it is not one to miss. Alix: We'll drop the link to RSCP to the live stream. Don't worry if you can't make it live. We'll send around a recording after. So with that, we'll see you next week. Thank you to Georgia Iacovou and Sarah Myles as ever for producing this episode and these series. And thanks also to Mark for this amazing education and cryptocurrency. Alix: In the next episode, we're gonna be talking to [00:55:00] Bridget Reed, who wrote an amazing book called Little Bosses Everywhere about the history of multi-level marketing, and we get into that history, which is super interesting. The book is very well worth the read, and also how that history has built up to this moment where our economy. Alix: Is increasingly precarious for lots and lots and lots of workers, and almost how that precarity is sold as like a good thing, like some path to salvation for the people that don't have protections in this modern economy. So we will see you next week.