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Ep 17: Congressman Flood and the Regulatory Crawl
170 Plays1 year ago
Congressman Mike Flood delves into the latest crypto policy developments in Washington, sharing his perspective on the Fintech Flyover event and the evolving crypto regulatory landscape. He contrasts the House’s innovation-friendly stance with the Senate’s more cautious approach and offers his predictions for the future of U.S. crypto regulation. Key highlights include the importance of industry engagement with policymakers and the growing consensus on the need for regulatory frameworks. This episode is a must-listen for anyone seeking a deeper understanding of the direction of crypto policy in the United States.
Find out more in our explainers at owlexplains.com
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Transcript
Introduction to Owl Explains Hootenanny
00:00:06
Speaker
Hello and welcome to this Owl Explains Hootenanny, our podcast series where you can wise up on blockchain and web3 as we talk to the people seeking to build a better internet. Owl Explains is powered by Avalabs, a blockchain software company and participant in the avalanche ecosystem. My name is Silvia Sanchez, project manager of Owl Explains and with that I'll hand it over to today's amazing speakers.
00:00:34
Speaker
All right, welcome back to another episode here of the Owl Explains Hootenanny.
Special Guest: Congressman Mike Flood
00:00:38
Speaker
We are excited today to have our guest, Congressman Mike Flood, joining us from Nebraska number one. I think that's right, right? The first district. So we're excited to have a congressman on with us today. Thank you so much. Taking time in between votes to jump on the podcast with us. My pleasure to be here. Thank you so much for inviting me. Yeah, absolutely.
Crypto Regulations and FIT21 Legislation
00:01:00
Speaker
So
00:01:00
Speaker
You know, our chairman and CEO, he spoke before Congress, before the Health Financial Services Committee gave a great testimony on sort of the state of the state. And we've heard, of course, various reports on sort of where crypto is today. We know that FIT21 is in the works, but how would you sort of capture or summarize for us just the state of
00:01:28
Speaker
crypto regulations in the United States, where they stand at the moment? Well, sadly, you know, America is an innovator. We are known for being out front, especially in technology. And look at the wealth we've created in the United States since Web 1.0, Web 2.0. We're at a spot now where the world's looking to the United States for leadership. We have the world's reserve currency for a reason.
00:01:56
Speaker
And I am very proud that the House Financial Services Committee has taken the steps that we have, specifically with the FIT21 digital assets legislation. After the SBB collapse and the banking crisis earlier this year, I think there were a lot of people that doubted whether the House Financial Services Committee would be able to produce such a thoughtful piece of legislation. That's exactly what we've done.
00:02:21
Speaker
We've found a way to provide pathways for digital asset issuers and exchanges. So, that bell you hear in the background is just the voting system reminding us that they're about to take a recess. So, there are no nuclear weapons being formed at this time.
Critique of SEC's Bulletin 121
00:02:36
Speaker
But, you know, when I think about our digital assets legislation, the bill includes language that would undo the disastrous staff accounting bulletin 121.
00:02:45
Speaker
I had no idea how much time we would spend fighting this ridiculous effort from the SEC. This is an issue that I've taken up personally. I'm going to be introducing a standalone bill on this issue in the coming days with bipartisan support. But that's just one example of what this comprehensive, thoughtful legislation does with an issue like Staff Accounting Bulletin 121.
Impact of SEC Custody Rules on Banks
00:03:21
Speaker
Well, we're talking about Stafford County Bolton 121, which the SEC under Gary Gensler issued. It basically took this idea of custody. You know, we have some of the largest banks in the United States or in the world that are headquartered here in our country. And it basically said that if you hold one of these digital assets, you're going to have to hold it on balance sheet.
00:03:46
Speaker
on balance sheet. Now think about that. That totally disturbs the entire construct of the concept of custody. Banks, when you put your money in a bank, they hold it as a custodian for you. And what that demonstrated to me is that the SEC was so focused on trying to put the brakes on this industry that they were willing to do something as reckless as Staff of County Bolton 121.
00:04:15
Speaker
It doesn't matter who in the industry is looking at this. The SEC is not a bank regulator. That is not their mission. They're outside of their lane. And they've made a decision here with this as Saab 121 that I think makes the case that Congress absolutely needs to act. And with this fit 121 or 21 language, what I've, you know, we start as simple as what is the security
00:04:41
Speaker
and what is a commodity. And that sounds simple. I have to credit the committee staff and chairman McHenry and subcommittee chairman French Hill. They have put an enormous amount of work into this, setting up kind of the basics for an exchange, what is custody, giving the CFTC spot market authority.
Nebraska's Fintech Ambitions
00:05:01
Speaker
I mean, there's a lot of wrestling here between two legislative committees, AG and financial services, and all of this work has been done.
00:05:09
Speaker
And so I'm hopeful that the Senate sees what we've been able to produce as a work product on a bipartisan basis, and we can make progress this Congress.
00:05:21
Speaker
enormously helpful, I think, for the entire industry. There's obviously some pent-up pressure there. But besides the work that you're doing in Washington, you also have been active in turning Nebraska from a corn state into a coin state, perhaps. And you have hosted what has been called the flyover fintech, right? Fintech flyover, there we go.
00:05:48
Speaker
And we were, as a company, privileged to participate and be there with you. But we'd love to just get some of the highlights that you felt like came out of that. And what is your vision there of what you're trying to do in your own district? Well, thank you for that.
State-Chartered Banks and Digital Assets in Nebraska
00:06:05
Speaker
It was absolutely wonderful. We were lucky to have Ava's Lydia Chu on our panel, the promise and potential of blockchain. She did a wonderful job.
00:06:13
Speaker
You know, I'm a lifelong Nebraskan, Warren Buffett, thanks to him in the 60s, we started accumulating insurance companies and now we're one of the largest states in the nation with 110 dialed, domiciled insurance companies. And we have a very robust financial services economy right here in the middle of the nation.
00:06:32
Speaker
And as a member of the Nebraska Legislatures Banking Committee, I was successful in getting our state legislature and governor to adopt rules that let Nebraska be the second state in the nation to have state chartered banks take custody of digital assets.
00:06:48
Speaker
And for me, I see this as an opportunity to grow and diversify our economy. We have these exceptionally smart farm kids that are raised all over the state. Some are schooled in small schools where they excel beyond belief, others in our larger communities. But we want to attract as many of those folks to stay in Nebraska as possible.
00:07:10
Speaker
And if you walk into the business school at the University of Nebraska, you're going to find a bunch of 20 year olds that are very invested in the idea of digital assets. They are all about blockchain. They're thinking about crypto.
Fintech Flyover Event Highlights
00:07:22
Speaker
They're thinking about stablecoins. They're thinking about payment systems and how to move money around the world.
00:07:30
Speaker
And so FinTech flyover for me was an opportunity to showcase the industry, not just introduce students from Nebraska to it, but introduce folks from Robin Hood and all these other companies to the magic that happens in the middle of the country in a town like Lincoln, Nebraska. And we had over 250 attendees, speakers, congressional staff. French Hill was a keynote. Warren Davidson led a panel. I led a panel.
00:07:57
Speaker
For me personally, I love showing off Lincoln and the Silicon Prairie as a great place to live, work and do business. And, you know, there's a lot of opportunity in the middle of America that people don't think exists. They think it's all in San Jose and Austin and Boston. Not true. Not true. There's a reason Warren Buffett lives in Nebraska.
00:08:18
Speaker
It's great. It's great. I've only heard great things, so it's very positive. And not just from internally, but also across the industry. I mean, as you were sort of scanning headlines throughout the day and in the following weeks, it seemed to generate quite a decent amount of coverage and press and things like that. So congratulations on that. And thank you for doing that work.
Stablecoin Legislation and National Security
00:08:44
Speaker
You have also been pretty vocal on stablecoins and have talked much about that perhaps the stablecoin legislation is at a crossroads, I think was the word that you used. Would you just help us understand how you see stablecoins, what is their potential role in our economy, and what's the right way to regulate them?
00:09:09
Speaker
Well, you know, this is really how I got into the entire issue. Stablecoins are the digital asset that bankers and traditional fiat currency folks understand the best because $1 equals one stablecoin. And the reality is that in the next 20 years, if America is not in stablecoins, another country will be, and maybe one that's not as friendly to us. And that stablecoin will become the world's reserve currency.
00:09:39
Speaker
And we, as Americans, need to be the world reserve currency so that we know who the nefarious actors are in third world countries that are exchanging money for arms or whatever else. For me, the world is looking to the United States for leadership here.
Global Role of Stablecoins and U.S. Leadership
00:09:58
Speaker
We have a situation where the SEC is pretty much, for whatever reason, become the de facto authority speaking for the United States government, and they have no idea, in my opinion, how badly we are missing out on the world stage when United Kingdom, the UAE, and all these other countries, I just visited a bunch of Indo-Pacific countries, and they tell me, we're waiting for the US government to act.
00:10:25
Speaker
And it's as simple as the word custody, you know, like a custodian, we, you know, think about the Mellon bank, think about how they have held, you know, $27 trillion in assets, you know, safely for the world economy. They need these rules to be able to protect people's assets and people whether, whether
00:10:50
Speaker
Gary Gensler believes it or not, stablecoins are here. They're here to stay, and they're not going away. So I'm hopeful that the stablecoin bill, which has actually been the one I've worked on the most, gets across the finish line. And I think it's a matter of not when, but not how, but when it's going to get done, because it has to get done.
00:11:20
Speaker
People will move offshore and we will lose our influence over something that really matters. And that's what's so frustrating.
00:11:30
Speaker
I totally understand that frustration. Also, I think what exacerbates that frustration is that the reserve currency of the world, of course, is a dollar and the majority of stablecoins are backed by USD. And so what we could see is a massive offshoring.
00:11:52
Speaker
of stablecoins and US dollars away from American banks and out of the American financial system. Did you see this in not only an economic impact, but also perhaps a national security impact?
00:12:07
Speaker
I appreciate you bringing it up because as opposed to some of my other committee members, I'm probably more interested on the national security side than almost anyone else. One of my colleagues, Congressman Warren Davidson, he's in the DeFi lane and then some, which I love about him because he sees the potential of where this can go. I see the important national security implications to making sure the world's reserve currency remains a US dollar.
Senate Efforts on Stablecoin Legislation
00:12:33
Speaker
And I just got off of a trip with Representative Stefanik. We went to Tokyo and Singapore and Thailand. And I had the opportunity to talk to the Minister of the Treasury in Singapore. And they basically said, we're waiting for the United States to tell us where it's going to go. There are a lot of economies and countries in the world that are relying on our leadership. And I feel like we've been silent.
00:13:02
Speaker
gives an opening to countries like China, that gives an opening to countries that aren't allies in the United States to start making moves.
00:13:10
Speaker
We have an obligation to do this. And I think, in fact, if we don't, we will be harmed as a country. Right. Where do you think stablecoins and the regulation, I mean, what is lacking at the moment in order to close the delta that exists for companies who are issuing stablecoins?
00:13:36
Speaker
Well, here's what I would say. I'm very encouraged by the fact that we had a bipartisan bill passed out of the House Financial Services Committee. That was very important to all of us. That was important to Chairman McHenry. And that was important to me as a member of the digital asset subcommittee that our proposal resonated with enough Democrats that it is in a partisan situation because currency is not partisan.
00:13:58
Speaker
There's no Republican currency or Democrat courtesy. It is a just straight out American issue that has to be resolved. For me, the next and most important step is to see progress in the US Senate. And I think the House Financial Services Committee and our efforts with our members
00:14:21
Speaker
has lent itself to getting something done. I'm very hopeful that our colleagues in the Senate on both sides of the aisle see the need to take some serious steps here. And regardless of what they can agree on, let's just hope they can agree on something. Let's sit down at the table between the two houses and put something together. I think it's in all of our interest to get there. We may not get everything we want on the House side.
00:14:45
Speaker
The Senate certainly maybe won't get everything it wants, but let's move on the basics. It reminds me of like 1995. The internet is brand new. US Senator from Nebraska, Jim Exon, passes a bill that makes it a crime to use an electronic device to spread images of child pornography on the internet. That was such a basic first step.
00:15:13
Speaker
but it staked out a role for the United States in what's acceptable and what's not. We're talking about taking basic steps here, not overdoing it to make sure that we have a playing field that is fair and is safe for American consumers. So that's, I mean, we're not asking for the moon here, we're asking for just a basic set of base rules.
00:15:39
Speaker
When this session started, I was sort of looking at it and saying to myself, crypto could be the one issue that is bipartisan. Everything seems to be polarized at this point, and yet I was thinking crypto could be. And then as the session has unfolded, as committee hearings have unfolded, it seems that it's become much more of a partisan issue.
00:16:06
Speaker
Do you feel that internally, or is that just something that is being portrayed externally? And if so, what can be done from the industry side to help support these movements in Congress?
Young Lawmakers and Digital Assets
00:16:22
Speaker
Well, you know, I noticed that a lot of the members that are on the Democratic side that are with the House Republicans are younger. They come from states like New York. New York has a significant say in financial services and they have a really capable Department of Financial Services. A lot of times I noticed that members that are of more mature age
00:16:53
Speaker
And they've lived their entire life in the fiat currency world are more resistant to these kinds of changes and So I don't see it as a partisan issue. I see it as a comfort issue with the with the issue itself and I don't want to in any way
00:17:11
Speaker
uh, depreciate the concerns of a more mature member of Congress as it relates to these, these issues. Um, I think that's one of our biggest hurdles in the Senate that we need to just continue to educate, educate, educate. And, you know, the best, the best
00:17:29
Speaker
medicine for this issue is to send a 20-year-old business student from a senator or congressman state in to see the member and watch their face light up with all the opportunities that digital assets present for the future and wealth creation in the United States. And I think for me, that's what got me very excited about this, is that this new generation of folks that have grown up with Bitcoin in existence their entire lives
00:17:58
Speaker
are grasping this like a five-year-old takes to skiing. If you start skiing at age 48, you are very worried and nervous about hurting yourself. When you're five, you're a little bit more, you're more fearless, but you also see what everything can be. And so I think it's a matter of education and we have to do it in such a way that we inspire people to come with us and not give them a thousand more reasons to be against us, which means starting with the basics,
00:18:29
Speaker
You know, I'm reading a book right now about the election of 1896.
Historical Context of Digital Asset Debates
00:18:33
Speaker
And you know, the big issue then was should we have a gold-backed currency or a silver-backed currency or a bimetallic, you know, silver and gold currency. And these were the issues they fought for 20 years about in the late 1800s. So much so that it really determined who the nominees were in the Democratic Republican Party back in 1896.
00:18:55
Speaker
And Williams Jennings Bryan, he was a silver man, and McKinley was kind of a gold and a silver guy. He kind of straddled defense on that. So this isn't the first time we've had these kinds of debates. I don't want to liken digital assets to silverback currency, but it is important. And these are decisions that are going to last a long time.
00:19:19
Speaker
And anything that's really important is never very easy to solve. So I am hopeful we can make basic progress this Congress.
U.S. Leadership in Digital Assets and Education
00:19:29
Speaker
And I would say to the people listening to this, there are a lot of people like me in Congress that see a pathway here that is going to make America the world leader. We just have to educate folks, especially in the Senate, about why this is a priority.
00:19:44
Speaker
Right. That is a perfect, I think perfect place for us to call it a wrap here that was really well said and there is without a doubt a lot of work yet to be done and of course the pressure returned back to the Senate and so we will
00:20:01
Speaker
be doing our best to stay, stay in touch with that. But Congressman, thank you so much for your generous time today. Thank you for supporting this industry, for seeing the potential of it and making it an important part of your work. We, as an industry really, we thank you for doing that.
00:20:19
Speaker
Well, my pleasure. And tell Lydia we like seeing her in Lincoln. Definitely. We will make sure she gets on a plane again and finds her way to Lincoln next year, for sure. Thank you so much, sir. You have a good day. Thank you. Thank you. Bye bye.
Podcast Conclusion and Resources
00:20:36
Speaker
We hope you enjoyed our Hootenanny. Thank you for listening. For more Hootful and hype-free resources, visit www.owlexplanes.com. There, you will find articles, quizzes, practical explainers, suggested reading materials, and lots more. Also, follow us on Twitter and LinkedIn to continue wising up on blockchain and Web3. That's all for now on Owl Explains. Until next time!