Introduction Voiceover: Welcome to The Story of Money by YAP Cast where we explore the past, present, and future of money. I’m Samantha Yap. Intro CTA - Spotify Follow The Story of Money by YAP Cast to learn more about where money is heading. Intro CTA - YouTube Subscribe to The Story of Money by YAP Cast to learn more about where money is heading. We’re jumping back into my conversation with Nikhilesh De, managing editor for global policy and regulation at CoinDesk, a leading news and media platform covering the digital asset and blockchain space. Etched on the Genesis Bitcoin Block is a message that reads: The Times, 3rd of January 2009 ‘Chancellor on the brink of second bailout for banks. It was the front-page news story of the British newspaper the day the first ever Bitcoin block was mined. The mysterious Satoshi Nakamoto never explained why he left this there. Perhaps it was to signify the beginning of the end of people relying on banks and governments for a bailout. What this move also marked was the beginning of the tension between financial regulation and the innovation behind cryptocurrencies. While governments are still able to control the development of Fintechs - Bitcoin and other decentralised cryptocurrencies - introduced a new dimension to the financial system - one that is free from complete control of any government. Join us on this episode as we chat about how crypto regulation is unfolding and hear from Nik, the very person on the frontlines of covering regulatory developments for crypto as a journalist. Navigating Crypto Regulation and Bankruptcies Samantha Yap    28:42 Where do regulators even begin? And how do you keep up with all these different parts to what this technology has introduced? Nikhilesh De  30:13 I will say regulators have a slightly easier time of it there. Because, you know, a lot of regulators - Samantha Yap    30:18 Easy? Wouldn’t it be harder for them? Nikhilesh De  30:20 Well, easier in the sense that you have a different regulator for each aspect of this. So, the IRS taxes, you know, handles tax issues, the CFTC handles commodities. You know, we have three bank regulators at the federal level, plus Banking Finance regulators at the state level, at least in the US. So, it is slightly easier in the sense that they all have their own specific niches that they can look at, and they don't have to worry about necessarily some of those other aspects of crypto. As a reporter, I get the privilege of looking at all of these things. Samantha Yap    30:58 Yeah, it's a hard task for you to keep up. Nikhilesh De  31:00 There's so much news. And yeah, it's interesting, too, because some weeks are quieter than other but some of those busy weeks you have, you know, the different agencies coming together and saying, okay, well, we all have these different views and we're going to say or do XYZ. It's obviously gotten more difficult since the bankruptcies began, because now that's also part of what we cover and a huge part of that is you're seeing in these bankruptcy proceedings, questions about how exactly the users of the bankrupt companies, mostly crypto lenders, but couple other exchanges and stuff, you know, how are they going to get their money back? And what are they going to get back in the form of? Are they going to get back crypto, are they going to get back the US dollar equivalent, or the local currency equivalent of the amount of crypto that they had at the time the lender or exchange collapsed? And these are some ongoing questions. We're not even going to get I think, any kind of real precedent from this, because it's looking increasingly likely that each and every one of these companies is going to have a different type of resolution. So, Voyager Digital, for example, went bankrupt last July. And a judge just approved a restructuring plan in which Voyager’s assets get sold off to Binance US. And so, you know, there is a written plan that explains exactly how customers might get back their funds, what form those funds are going to look like, what percent is going to be crypto, what percent is going to be in dollars, and this resolution is probably going to look very different from how other bankruptcies are going to resolve. So, it's difficult to try and really create this kind of common consensus around that, because there is no real consensus to look at or to analyze or to, you know, well weave together. From the regulators’ perspective, they don't necessarily have to care. A lot of regulators do have, you know, they have to act within the confines of the laws that set their agency up. So, the SEC, should be in theory, sticking to securities related issues, the CFTC to commodities issues. And while they might communicate with each other, they do communicate with each other. But that's only gonna go so far. And for a crypto community, if they really wanted to change things, then they would have to talk to Congress, not just the regulators, but they have to convince Congress that, okay, you know, the state of affairs is untenable. We want XYZ, we think this makes sense. And they'd have to convince you know, enough of the legislature that their viewpoint is correct, or that it makes sense to get a bill, law passed and make that all, like, they would have to do a lot to get all that happen. And right now, I think Congress is probably not in a place where it will happen. Certainly not anytime soon. We might see a bill on stablecoins, for example, this year. I'd be surprised if we saw much beyond that. Regulators' Response to Recent Crypto Collapses Samantha Yap    33:59 So there are many layers to crypto regulation. And there's a different department or different body covering things like tax and things like commodities. Do you think because, you touched on it, but you said, you know, regulators don't necessarily have to care but do you think they're caring more now because there have been significant collapses, like there was that Terra Luna collapse, there was FTX And even the domino effect from the FTX collapse. So, I think they're caring now, right? Because people are being impacted and because of the extent or the amount of money that has been lost. Nikhilesh De  34:56 Yeah, absolutely. And I should clarify when I say like they don't necessarily care, I mean like about specific aspects that aren't perhaps relevant to what they do. So, a regulator might not care that you can build smart contracts on Ethereum, they might just care that Ethereum is issued and minted or whatever, not minted, but you know, people can acquire Ethereum through either staking protocol or through an exchange, like, they're going to look at the specific aspects that are relevant to their agencies. But yeah, definitely, I think right now, you're seeing a lot more, not just engagement but also, I mean, frankly, the events of the last year have spooked regulators. It's not just in the US, but a lot of regulators are saying, oh, wow, so many people lost money over the last year that we have to be a lot more cautious about this. You know, the crypto industry's promises have not really borne fruit over the last, what are we, it is March? Let's say June was the starting point of all the collapses because I believe that is when Celsius first suspended withdrawals, right? So over the last nine months, things have been not great for the crypto industry, things have been pretty ridiculously bad. And regulators are really not, you know, a lot of them were freaked out by that. A lot of, I think, progress on whether crypto can be used for certain things has been slowed in favour of looking at harm mitigation and reduction. And, like, okay, well, you know, turns out lending might not be an issue, and that was something that the regulators had already been looking at. We've seen settlements with lenders and regulatory agencies going past, you know, last June, over the last year and a half. But now, there's a lot more alarm, because, whoops, billions of dollars lost. People are harmed, people have lost their money. It's like ridiculous. It's pretty bad. Why do Regulators Drop News on Fridays? Samantha Yap    37:04 Actually, a side note, are your Friday afternoons really busy? Or do you end up working? Just a journalist question, but doesn't the SEC and all these regulatory bodies like to drop news on a Friday afternoon? Nikhilesh De  37:27 Yeah, they sometimes do that. Yeah. Samantha Yap    37:31 Why? Is it because they don't want to set off more of alarm or yeah, I guess because I don't know what the markets. I mean, the traditional markets, for example, the financial stock markets, I guess they close on Friday evening. And so, is it to just soften the blow of the market impact? Nikhilesh De  37:56 I think that's part of it. Part of it is to ensure that there's a full weekend between the news coming out and the reaction to the news happening. I know back during the financial crisis, banking regulators would shut down banks on a Friday and have tried to have them reopen by Monday. And the weekend gave them the opportunity to set up bridge banks and make sure that there was a continuity plan in place. So, it was easier than just trying to do it all at once. Obviously, that hasn't happened this time. We're seeing things unfold much more chaotically - a bank was shut down, like before noon on a Friday, which was, as I understand it, extremely unusual. Another bank was shut down on Sunday night, which is again, pretty unusual. So yeah, those are the norms that where you dropped news on Friday nights, and, you know, let the weekend happen. I think now, we're not really seeing that necessarily. Lot of what's come out has come out on just whatever days a week, at different times. And part of that might just be that things are moving much more quickly now. During the great financial crisis, you didn't really have the communication tools that exist now, you didn't have Twitter, you didn't have the speed at which people disseminate information. You do now. So, you know, we've seen that, especially with a Silicon Valley Bank collapse. It was fine on Tuesday. It said it needed a little bit of capital on Wednesday, people withdrew $42 billion on Thursday, and it was shut down Friday. I mean, that is staggeringly quick. Samantha Yap    39:34 Yeah. It's moving fast now. Nikhilesh De  39:37 It was hugely aided by communications. Samantha Yap    39:42 Yeah, and communications is a big part of it. Nikhilesh De  39:46 Yep. You have Telegram groups, you have Twitter chats, you have viral threads. Like none of that existed 15 years ago. Samantha Yap    39:53 But also do you think with the focus on crypto regulations, because crypto markets are also 24/7 as well, so I guess they have to react a bit faster. Nikhilesh De  40:06 Yeah. I mean, I haven't seen much in the way of regulators responding to specific crypto issues over the weekend yet. That'll probably comes sooner than later. But the fact that you do have, you know, this weekend, for example, you had USDC depegging for pretty much the entire weekend. That is the kind of thing I imagined regulators are watching and thinking, oh, well, you know, that's probably not great, do we need to do something? Regulators' Varied Priorities Samantha Yap    40:34 I know, in the UK, Prime Minister, Rishi Sunak and the Bank of England were on the phone with HSBC to buy out SVB’s UK branch for one pound. So if they had the weekend to get busy to negotiate any deals or set up bridging loans. To kind of like wrap up this conversation, I want to take this back globally. So, we've spoken a lot about US regulation, and naturally because you cover that, and you follow that daily, and you're based in the US, but crypto at the end of the day is a global currency. Even if the regulators in the US call it security. I think we're aware that there are crypto companies who have offshore entities and companies can move to Singapore or Hong Kong. So how do you think, are regulators thinking about the global aspect of crypto? Nikhilesh De  41:37 Oh, yeah, absolutely. The Financial Action Task Force, for example, is an intergovernmental body that really it sets standards for bank and finance regulations. And for years now, it's been advocating for this common approach to crypto exchanges, referred to as Virtual Assets Providers with things like travel rules, so reporting of information from one exchange to another - information about the user. So, if, for example, I were to transfer crypto from, you know, in exchange in the US, my account in the US, to you in the UK, the travel rule would mandate that certain information about both myself and you is held by both exchanges that are participating in the transaction. So that's one example. The European Union has is multinational markets and crypto assets legislation coming into effect, I believe, as soon as this year. That would allow, for example, crypto companies that are based in Germany to be able to operate in Belgium, using a common license and similar approach. So, there is some effort ongoing to create this kind of global approach. It's not 100%, not every country is willing to buy into FATF standards, for example. Some countries have their own approaches. But there is an acknowledgement, I think, of the global nature of crypto, and there is at least some effort going to addressing that and trying to ensure that you can't just jump from one jurisdiction to another to evade regulations. It's still a work in progress. We'll see how it develops. But it's not something that regulators are ignorant of. Samantha Yap    43:42 It's a good point you made about the intergovernmental organizations and the FATF, you know, group of countries that are a part of that. But yeah, like you said, it remains to be seen how effective that is. Do you think there's some sense that regulators are also wary that if they have a hardline approach to say calling Ethereum or Ether or security, that that might impact their competitiveness or the country? Nikhilesh De  44:29 I would say to regulators who are calling Ether a security are probably aware of it, but that might not be a priority for them. Samantha Yap    44:41 Right. So, there's a element of unawareness, that this is a global currency. Nikhilesh De  44:47 No, they're aware, that just might not be as important to them as other, you know, as calling Ether a security. Putting the Brakes on Innovation: A Look Ahead Samantha Yap    44:57 And the favorite question on the tension between regulating crypto and then allowing innovation of crypto to happen. Yeah. How do you think it's going to play out in the coming year and in the long term? Cuz I think that's the tension that we're seeing that there's been hardline approaches to yeah, this is what we're defining that, you know, I think, let's talk about staking as a service and how staking is treated and I think the crypto community is saying that regulators are not understanding in detail that staking is required to keep the network running. So, what do you think about that? Nikhilesh De  45:54 I wish I had an answer, I think, you know, we will see. I mean, there's just so many different ways that things could develop. Congress might pass a bill that will create certain rules. And even if Congress doesn't pass a bill that addresses crypto itself, they might create and pass a bill that addresses how regulators can approach crypto. That's one possibility. Regulators might decide, okay, well, we're not happy with the current state of affairs, we're going to publish binding guidance that companies are gonna have to abide by. I would say neither of these seems especially probable right now, they're possible, you're not especially likely. It might be that things just come to a boil. You know, again, events of the last nine months have really been kind of alarming, I think, for a lot of regulators. And going back to 2019, if you remember the Libra project, when that was first announced, that freaked everybody out, you know, we had regulators around the world all saying, wow, like, we have to really tamp this thing down. And they succeeded. Libra never launched, it rebranded as Diem- Diem ever launched. Eventually, it was sold to Silvergate. And 10 months later, Silvergate wrote down the entire acquisition of Diem. Clearly, it didn't work out. I'm sorry, it was either Silvergate or Signature, I'm blanking on which one it was specifically, it's one of them. One of the banks that starts with S that served the crypto community. Samantha Yap    47:23 Well, either-or, yeah. Nikhilesh De  47:24 Like either way, you know, regulators really didn't like that project. Samantha Yap    47:31 But it's interesting, because now they're not no longer around. Yeah, so you just think they've acquired it, wrote it down. And now we're talking about a time with Silvergate and Signature are like gone. Nikhilesh De  47:44 Exactly, yeah. But like, it just goes to show that, if there really is enough alarm, and opposition to something, regulators do have quite a bit of power, they never allowed Libra to launch. And I will say, you know, to the extent that Libra tried to go about it, there was an effort to engage with regulators and try and get their approval to launch. If they have just launched it without regulatory approval, I think things probably would have played out differently. But regulators do have some amounts of power on this. And I think part of it is, regulators are still, and even lawmakers are still just trying to come to grips with what exactly happened and how it happened. You know, why did all the lenders go down? How did FTX get to be as big as it was, have the role that it did, and then turn out to be built on a house of cards? So, I don't even know if the crypto industry really has perfectly clear answers to that. A lot of it, you know, we have fairly, I think decent understanding of the cause and effect. A lot of it does seem to have just been built on possible frauds and mismanagement. But I think regulators are going to be continuing to look at how exactly everything got built up, and then what caused it all to collapse before they really do anything. So right now, the first thing I think we should be watching for is what kind of fact-finding missions or what kind of investigations are ongoing? And what kind of results are regulators seeing from those investigations? Samantha Yap    49:29 Yeah, there's a lot to happen, I think 2023 regulation is the hot topic after the events of 2022. So, I think you have a lot of work cut out for you this year. You're playing a very important job and role. I guess you've got a lot of work to do. But what are you most excited or looking forward to seeing at the end of the year? More clarity or more dialogue? Future of Crypto Regulation in 2023 Nikhilesh De  50:10 Honestly, I'm really interested to see if we do actually get through the year with any kind of legislation, at least in the US that specifically addresses crypto explicitly addresses crypto, it's not just folding it into whatever, like at FinCEN funding bill, like, will there actually be and there's a lot of people I talk to believe that there will be, but will we actually see a bill that says, okay, this specific portion of the crypto industry has clear guidelines, has rules, has definitions, it has all these things. Is it clear and explicit, and something that the industry can actually use to either continue developing what they already have or build something new? From a regulatory perspective, I'm really interested in that. And then from the industry perspective, I'm curious if, you know, just what kind of engagement happens, you know, what, kind of, like I mentioned, the CFTC, earlier, the Tech Advisory Committee, what will that lead to? You know, there's a lot of crypto people on that, what kind of impact will they have? Will the regulators be responding to what the crypto industry says? Will the industry try to engage with regulators in a way to get them to listen? We'll see. It'll be fascinating to see how that unfolds. Samantha Yap    51:36 Yeah, I think part of your job as a journalist is you're writing history, you're on the frontlines of history. And, you know, you're saying that there hasn't been a very clear piece of regulation that's actually addressed crypto, and maybe 2023 is that year, so. Yeah, let's see. And for now, continue your good work and just making sense of everything for us. And reading those government documents. Thank you, Nik, for doing that service for us. Nikhilesh De  52:12 I mean, honestly, it is fun. So yeah. No problem. Samantha Yap    52:16 Awesome. Well, Nik, thank you so much for joining me on YAP Cast. I think we've covered a lot about regulation and crypto. And really appreciate your time. Nikhilesh De  52:27 Thanks again for having me! Outro Voiceover: That’s Nikhilesh De, managing editor at CoinDesk discussing the evolving landscape of crypto regulation and its impact on the industry. As he pointed out, the lack of clear and explicit guidelines has left many in the industry uncertain and scrambling for direction. The reality is that it’s not possible for one government to fully control and regulate crypto, and part of the challenge for regulators is accepting that and creating the right guidelines for citizens wanting to engage with crypto A special thanks to Nik for sharing his insights with us. Outro Spotify Thanks for listening to this episode of YAP Cast. I’m Samantha Yap. Rate and follow this podcast to join us for another thought-provoking episode of The Story of Money by YAP Cast. Outro YouTube Thanks for listening to this episode of YAP Cast. I’m Samantha Yap. Share this episode and subscribe to this channel to join us for another thought-provoking episode of The Story of Money by YAP Cast.