Ep. 154 - Bitcoin and The U.S. Government
Is the USA paving the way to formal Bitcoin adoption? 🇺🇸
In this episode, Mattimore explores how the US is approaching Bitcoin and other cryptocurrencies in the 2021 Infrastructure bill and beyond...
Topics Discussed:
The infrastructure bill
The crypto provision
The crypto voting block
Wyden-Toomey-Lummis amendment
Portman-Warner-Sinema amendment
Jack Dorsey’s proposed amendment
The case for formal Bitcoin adoption
Future Scenarios:
Worst case scenario
Best case scenario
Most likely scenario
Thanks for tuning in 🔭
Episode 154 Transcript
Mattimore (00:13):
Welcome to Hence The Future podcast. I'm Mattimore Cronin. And today we're discussing Bitcoin and the U.S. Government - Specifically, whether the U.S. Government is paving the way to formally adopt Bitcoin, given the recent events that have just unfolded surrounding the infrastructure bill.
Mattimore (00:28):
And if you haven't been following the fierce debates about the infrastructure bill and how Bitcoin and other cryptocurrencies should or shouldn't be treated within that bill, that's okay, because I'm going to outline the exact sequence of events as they've unfolded. After that, we'll explore what these recent revelations reveal about the future of Bitcoin, the future of America, and the future of the global crypto economy as a whole. Let's start with the sequence of events as they've unfolded.
Mattimore (00:53):
You're probably aware that the infrastructure bill has been debated on the Senate floor for weeks now. It's gone back and forth between Republicans and Democrats, as they try to agree on the right infrastructure bill to sign into law. And on Wednesday of last week, August 4th, the time had finally come for the Senate to vote on this bill.
Mattimore (01:12):
On that day around 2:30 PM, a red alert went out on crypto Twitter once people realized that there was a provision within this bill seeking to regulate cryptocurrencies. Specifically, the original bill would require crypto brokers to report customer information to the IRS. And they're broadly defining a broker as "any person who is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person." So this wouldn't exclude miners, it wouldn't exclude software developers, or stakers, or any individual peers in the crypto economy who don't even have customers. They're just participating in the network. So this bill in its original form would potentially kneecap the United States' ability to compete with the rest of the world, especially countries that embrace Bitcoin and the crypto economy more fully, like El Salvador.
Mattimore (02:04):
And it's worth noting that the U.S. couldn't totally stomp out Bitcoin or cryptocurrencies. All they have the ability to do is to kneecap America's position within the larger crypto economy. It's also worth noting that the IRS could already make new rules about how to report cryptocurrency transactions as a broker. The reason it's in this infrastructure bill is so they can claim some of those future tax revenues and apply that to the infrastructure bill. It's really an accounting trick so that it doesn't seem like the Democrats or the Republicans are running up spending to a degree that wouldn't be acceptable to the American public or the future voters. And there's a tweet that specifically mentions this, where someone quotes the bill and it says, "rather than granting treasury new authority, the crypto provision in the infrastructure bill would allow the projected revenues from heightened crypto tax compliance to help pay for increased infrastructure spending."
Mattimore (03:01):
So that's the reason why the crypto provision was in this bill originally. It's to pay for some of the infrastructure spending that the government has planned. The good news is that almost as soon as this crypto provision became publicly known, crypto Twitter jumped into action.
Mattimore (03:15):
Fight For The Future put out a tweet saying "Cryptocurrency red alert! There is a crypto provision hidden in a must pass bill that will allow mass surveillance of the crypto economy. Call your Senator ASAP." And as soon as they put this out, senators' phone lines got totally flooded with calls. People started writing letters to senators. People started sending them emails, and really, it just exploded as a huge movement. It was really the first major political movement of the Bitcoin crypto community as a voting block. And you had people like Brian Armstrong, Elon Musk, Jack Dorsey, all coming out against this bill and offering solutions.
Mattimore (03:59):
For instance, Brian Armstrong tweeted out, "There are a few key moments that define our future. One is happening now in the Senate with the infrastructure bill. At the 11th hour, Mark Warner has proposed an amendment that would decide which foundational technologies are okay, and which are not in crypto. This is disastrous." Elon Musk responded saying, "Agreed. This is not the time to pick technology winners or losers in cryptocurrency technology. There is no crisis that compels hasty legislation."
Mattimore (04:20):
So what they're referring to are two competing amendments to this bill that seek to fix the initial provision that was so problematic for so many people. The first amendment is the Wyden-Toomey-Lummis amendment. And this would exclude miners, developers, and validators from the definition of "broker." Here's what Senator Toomey has to say about it, "Our amendment will ensure non-financial intermediaries like miners, network validators, and other service providers, many of whom don't even have the personal identifying information needed to file a 1099 with the IRS, are not subject to the reporting requirements specified in the bipartisan infrastructure package."
Mattimore (05:00):
This amendment is much more aligned with what crypto proponents want, because anyone will tell you that, yes, a crypto exchange for Fiat currencies should be treated the same way as a stock exchange for Fiat currencies. That makes sense. If you're Coinbase, if you're Gemini, if you're Kraken, you should have to file some paperwork with the IRS. That is just a good way to do business in America. But when you try to put that same kind of onus on people that are just nodes in the network, that is super counterproductive. And so many of the crypto community members came out in support of the Wyden-Toomey-Lummis amendment. Pretty much everyone I've seen is in support of the Wyden-Toomey-Lummis amendment.
Mattimore (05:41):
The second amendment is the Portman-Warner-Sinema amendment. And this has not been favorably viewed by crypto proponents. I've heard crypto members call it "disastrous" and "worse than useless." And here's why...
Mattimore (05:53):
The Portman-Warner-Sinema amendment would only protect proof of work miners from the definition of broker. In other words, it would only protect people who work in the Bitcoin blockchain, not people who work in other blockchains, such as Ethereum or Dogecoin or Litecoin or any of these other cryptocurrencies. And interestingly, the White House officially endorsed this amendment once it was introduced, leading many to believe that maybe the U.S. is signaling that it favors Bitcoin more so than any of the other altcoins.
Mattimore (06:28):
And initially there were some Bitcoiners who actually liked this because... Hey! It doesn't affect us. And it may actually be a competitive advantage for Bitcoin, if other cryptocurrencies have to file all this onerous paperwork. But after thinking about it and talking it over on Twitter, pretty much every Bitcoiner, and every crypto proponent, came out against the Portman-Warner-Sinema amendment.
Mattimore (06:50):
And here's what Senator pat Toomey had to say about it. "While I appreciate that my colleagues in the White House have acknowledged their original crypto tax had flaws, the Warner Portman amendment picks winners and losers based on the type of technology employed. That's horrible for innovation."
Mattimore (07:05):
And when you take a step back and think about the game theory of this on an international level, Senator Toomey makes a great point. We are in the very early innings of the crypto economy. So for us to specifically choose one type of technology as the winner and the other ones as the loser is terrible for innovation and it hampers our ability to be flexible in the future.
Mattimore (07:27):
I believe that Bitcoin will continue to be the most valuable cryptocurrency of them all for the next 10 or 100 years, but it's quite possible that Ethereum could surpass Bitcoin. Ethereum may end up being a better source of validation as a proof of stake system compared to Bitcoin's proof of work system. But really there's no reason to choose winners and losers at this stage. Instead, we should allow the space to develop organically, develop openly, and not have any artificial restrictions on the technologies that are being leveraged.
Mattimore (07:59):
Now, this brings us to my favorite proposal, which comes from Jack Dorsey. And this is not an official amendment. It hasn't been put into the infrastructure bill yet. But this is, in my view, the best solution that's been proposed so far. Jack said on Twitter, "If we can't strike the entire provision so we can have proper hearings and deliberation, then let's simplify the definition of broker to what really matters, where digital assets are exchanged for Fiat currency. Broker = Fiat to crypto exchange."
Mattimore (08:29):
Now it's too soon to say which amendment will be the winner and what is likely to come, but let's explore what's possible in the future scenarios...
Mattimore (08:37):
Let's start with the worst case scenario.
Mattimore (08:51):
The worst case scenario would be if the infrastructure bill passed without any amendments at all. So essentially, it would be passed with those initial vague definition of what a broker is. But even if that happened, the law wouldn't go into effect until 2023. So there would still be time to sign a new bill into law to fix any issues with this original bill. And the reason they might go this route is because it gives the SEC the most flexibility to be able to determine who they should prosecute, who they want to prosecute, and who they're okay turning a blind eye to.
Mattimore (09:22):
The other worst case scenario would be if the Portman-Warner-Sinema amendment gets signed into law, which only excludes proof of work miners and not proof of stake miners or any type of other crypto network members. I think it's very unlikely that either of these two worst case scenarios will happen because of the amount of backlash that politicians have seen from the general public, and from people who are in positions of power, like Elon Musk, Jack Dorsey, and other central figures.
Mattimore (09:52):
And just for the sake of argument, let's say the unthinkable happens the U.S. bans Bitcoin altogether, or makes reporting so onerous that it no longer makes sense to run your mining operation in the United States.
Mattimore (10:04):
If that were to happen, much of the developer talent would move outside the U.S. Much of the capital would move outside the U.S. And the U.S. would be put at a serious disadvantage compared to other countries that fully embrace Bitcoin and cryptocurrencies.
Mattimore (10:19):
So there's really two ways that I see the U.S. Adopting Bitcoin: As an offensive measure, or as a defensive measure. The offensive measure would be the U.S. embracing Bitcoin before other global powers themselves embrace Bitcoin. And this would give the USA first mover advantage. A lot of developer talent would move to the U.S. A lot of capital would flow to the U.S. And we would position ourselves as the epicenter of Bitcoin mining and decentralized finance innovation as a whole.
Mattimore (10:48):
The defensive scenario would be if the U.S. decided to ban Bitcoin or overly regulate it, which would likely coincide with other countries adopting Bitcoin.
Mattimore (10:58):
And if enough countries adopt Bitcoin and cease using the U.S. dollar as their global means of exchange, that could lead to rapid devaluation of the dollar, which would put the U.S. in a really precarious situation. And at that point, the U.S. may not have any other option but to adopt Bitcoin, because the dollar essentially would become worthless at that point. So I see it as fairly inevitable that the U.S. will eventually adopt Bitcoin, whether they do it offensively or defensively is an open question. However, I tend to think that the smart people in the room have already figured out that it makes more sense to go on the offensive in regards to Bitcoin, rather than the defensive.
Mattimore (11:37):
Now let's get into the best case scenario.
Mattimore (11:46):
The best case scenario is that this bill passes with an amendment similar to what Jack Dorsey is proposing. In other words, Bitcoin gets treated as more of a commodity than a security. And Bitcoin really should be considered a commodity, because there is no centralized agent that controls Bitcoin. Now, if you're an altcoin and the supply can be increased at the whims of a few people who are in charge, that should be treated as a security. But if you truly have a decentralized currency like Bitcoin, and I would also argue with Ethereum should fall in that category, that should not be overly regulated and overly taxed. And it looks like the U.S. is coming to this realization, and they're realizing how important this is for the future... that if we open the gates to the decentralized finance ecosystem, we can have some of the most incredible startups right here in America.
Mattimore (12:39):
We can have incredible flow of talent of capital, and we become much more competitive on the world stage. There would be incredible prosperity to come. We really are assembling the building blocks of the next generation of the global monetary system. It's similar to what the internet was like in the 1990s and how many of the incredible internet companies started right here in the United States. The same thing is available to the United States if they choose the path of Bitcoin and open ecosystems that improve the system for everyone, not just for the few people at the top. And I'm happy to say that I think this is pretty close to what the most likely scenario is. It looks like America is on the right course, and I'm incredibly optimistic about what we're going to see in the future.
Mattimore (13:26):
Now let's get into the most likely scenario
Mattimore (13:37):
The most likely scenario, in my view, is that the U.S. will officially adopt Bitcoin as legal tender within the next 12 months. So by this time next year, August of 2022, Bitcoin will be legal tender in America. And I'm going to lay out the arguments for why I think this is the case.
Mattimore (13:55):
First of all, the White House appointed Gary Gensler to the SEC. Gary Gensler is a notable Bitcoin proponent who reveres Satoshi. He has said publicly that many cryptocurrencies should be considered securities and regulated as such, but that he believes Bitcoin is better defined as a commodity like gold or corn or oil, and thus wouldn't be subject to the same sort of stringent regulations as securities.
Mattimore (14:20):
The second reason is that the white house embraced a proof of work favored system when they officially endorsed the Portman-Warner-Sinema amendment. And even though many crypto proponents did not like that amendment because it favored Bitcoin over other cryptocurrencies, it's an incredible nod to the fact that the government does seem to favor Bitcoin over other alt coins. This is especially telling given the fact that there had been a lot of criticisms against the proof of work system, as it requires more energy than proof of stake. People like Elizabeth Warren had come out against Bitcoin because of the environmental impact of proof of work. Now that the Biden administration endorses proof of work, specifically, is very telling.
Mattimore (15:02):
Elizabeth Warren is another telling sign because she was one of the most vocal critics of Bitcoin throughout the last six months. And she recently walked back her stance on Bitcoin. Now, rather than telling people about all the dangers of Bitcoin and why they shouldn't use it, she's saying, "Investors need to have confidence if they are going to invest in crypto."
Mattimore (15:28):
It seems to me like the only reason we would have all of these Democrats coalesce around proof of work and around crypto being a positive development for America would be if there was coordination from the top. I wouldn't be surprised if the Biden administration had put together a Bitcoin task force six months ago, and the experts saw that 1). We can't squash it. 2). If we did try to squash it, it would only help out other countries because all of the money, talent, and entrepreneurial energy would move to those countries. And 3). if that happened, we'd probably have to acopt Bitcoin anyways. So if you can't beat them, join them.
Mattimore (15:57):
I think that's essentially where the U.S. is at. And given the fact that China has banned Bitcoin altogether, that China no longer allows any Bitcoin mining to occur within their country's borders... Makes the decision a lot easier for America. This solution is literally sitting in the lap of president Biden and the Senate. All they have to do is allow it to flourish. It's also amazing to me that neither Republicans nor Democrats have come out against crypto or Bitcoin. If one of the parties had taken a stance against it, and one party had taken a stance for it, we could very well be in a deadlock and not get anywhere.
Mattimore (16:40):
And yet, Ted Cruz recently came out in support of cryptocurrencies. So when you have people like Ted Cruz and Biden, and Elizabeth Warren, and Gary Gensler, and all these people arguing for cryptocurrencies and keeping the ecosystem open, that is a very telling sign. And as it turns out, there really isn't much U.S. government opposition.
Mattimore (16:56):
Another reason the U.S. should adopt the Bitcoin standard, is because Bitcoin fixes the Triffin Dilemma for the United States. The Triffin Dilemma points out that any country that holds the world's reserve currency will get the benefit of being able to spend a lot, and have the majority of the devaluation get absorbed by the rest of the world in the form of inflation; but, they will also have the downside of having a trade deficit, because there'll be so much demand for that currency that they'll have to export a significant amount of currency to other countries. And therefore there's going to be out of a trade deficit with regard to their imports. So this, in some ways, creates more inequality for the country that has the global reserve currency, because people who are at the top, who are close to the money printers that go brrr, they're going to be just fine. They have a lot of advantages. But people who suffer from the trade deficit, such as small time American manufacturers, they are going to be hurt by it.
Mattimore (17:55):
And so while it's been a great run for the U.S., and we've certainly benefited by having dollars as the global reserve currency, the people in power know that clock is ticking. It can't go on like this forever. You cannot print money endlessly and not have the value eventually go to zero. So there haven't been many ways out of this Triffin Dilemma until Bitcoin was introduced.
Mattimore (18:17):
Now, the solution is right there. And my guess is that the process of transitioning from the Dollar system to the Bitcoin system will happen somewhat gradually. I think the Biden administration will give more and more hints about how citizens should start to embrace Bitcoin. And perhaps they should start to take some of their money out of alt coins and put it into Bitcoin. And they don't want to do anything too sudden because that could crash the altcoin market, and that could have broader effects on the whole economy.
Mattimore (18:46):
So they're going to be careful about this. But I bet, within the next 12 months, the Biden administration and the political class as a whole is going to see how important this decision is. And they're also going to see how important the Bitcoin voting block has become.
Mattimore (19:02):
I've seen people on Twitter talk about how, "I don't vote red. I don't vote blue. I vote orange." And I would consider myself part of that Bitcoin voting block. For a long time, I have not considered myself a Democrat or Republican. I consider myself an Independent. And I value freedom and open systems above all else. And that is precisely what Bitcoin and the crypto economy represent. So I will support any system that gives people more freedom and removes constraints so that the entire collective can grow and flourish uninhibited.
Mattimore (19:37):
Thank you for tuning in. I hope you enjoyed today's episode. And I'll see you next time.