US 'way behind' on crypto regulation: Dragonfly partner

Bloomberg

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00:00So Crypto Week itself is really more about Trump's agenda than it is about the industry

00:05itself.

00:06I think that the idea is that Trump has seen that a lot of this legislation he wanted to

00:09get passed much earlier, it's kind of gotten stuck in committee, people are infighting

00:13between the House and the Senate, so there's a little bit of push and pull happening right

00:16now, specifically around the Clarity Act, which is the market structure bill that decides

00:20is it the SEC, is it the CFTC, how are these things actually regulated?

00:23That one's the tricky one.

00:25The other two bills are actually much less contentious and I think almost certainly going

00:28to pass.

00:29The market structure bill is the one that in the industry we're the most concerned

00:32about.

00:33Is this thing going to pass?

00:34Because there's so many degrees of freedom of how does the CFTC handle this?

00:38What's a security?

00:39What's not a security?

00:40It's the one that historically has been the hardest to get consensus on.

00:43And what's interesting about your fund in particular is you're kind of an east and west one and

00:47ultimately therefore I go to you and say what does the regulatory landscape look like it

00:51could be here in the US vis-a-vis Singapore, vis-a-vis what's happening in the Middle East

00:55or indeed in the UK?

00:56That's right.

00:57What's happening is that we're way behind the rest of the world on this.

00:59Right.

01:00The only country that is more inimical to digital assets is China.

01:03Right.

01:04So America has a big opening and we've now decided.

01:06We don't compete with China.

01:07Look, we've decided that we want to be friendly to digital assets but we're a little bit schizophrenic

01:10about what exactly does that mean.

01:12So in the last six months there's a clear mandate from the US government that we want to be

01:16friendly to digital assets but actually creating a clear regulatory regime, many other countries

01:20have done it.

01:21The vast majority of large countries in the world know what is a security, what is a commodity,

01:26where do these things get traded, how do they get regulated.

01:29The US is the last one to basically say look we don't know, we have no laws, right.

01:33Bitcoin has been around for almost 20 years.

01:35We have not passed a single law, not a single law.

01:39We have some rules, we have some, we have some vibes that have shifted but actually putting

01:43this stuff down on pen and paper and making it really legible to people, what are they

01:47supposed to be doing if they want to build neutrally and legally in the US.

01:51Right now it's all kind of, you know, finger in the air.

01:53A dumb question and a loaded question.

01:55Yeah.

01:56But isn't this sort of no law, this lawlessness, Wild West era, is that not more beneficial

02:02to the crypto sphere right now as opposed to actually having something actually set

02:06in stone in terms of laws and regulations?

02:07No.

02:08Look, I think once upon a time it was very wise to say, hey, it's too early.

02:11We don't know what this is going to be.

02:13We don't know how it's going to work.

02:14Crypto has now been around for such a long time that, I mean, this is one thing people

02:17talk about, oh, crypto is so new.

02:19Like I said, Bitcoin has been around since 2008.

02:23It's actually quite old now.

02:24You know, it's basically, you know, it's ready to go to high school.

02:27That also means that people who are in their early 20s, they don't remember a time before

02:31Bitcoin existed that the stark reality of how long this stuff has been around and how

02:37uncertain we are about how it's going to fit into the legal regime.

02:40That's a problem.

02:41Well, to follow up on my loaded question, it's also this idea that we've seen a lot more

02:44corporations start to add Bitcoin and some other crypto assets to their balance sheets.

02:51This was very controversial when folks first started to do it.

02:53And it was really just a couple of folks, including now strategy.

02:57But we've seen this really start to broaden out to a lot of companies that really had

03:01no real connection at all to the crypto sphere.

03:03Is that healthy in your opinion?

03:04Well, I mean, Tesla was the first to do this.

03:06Yeah.

03:07And back in 2020, 2021, look, I think the mania that we're seeing around some of these

03:12treasury companies that are just taking a bucket full of Bitcoin and taking it public

03:17and hoping that it trades at a premium, I think eventually the music on that has to

03:20stop at some point because otherwise all the world's assets will be put into treasury

03:24companies and taken public.

03:25Obviously, that has to stop somewhere.

03:27So you're not investing in those types of companies?

03:29We're currently not investing in any of the currently existing ones.

03:32It's plausible to me that you'll have one or two of these vehicles for a couple of assets

03:36for which people are secularly bullish.

03:38And there are these long term trends, I think for Bitcoin, it's pretty obvious that there's

03:41a long term secular trend in favor of Bitcoin.

03:44Is that true for every single asset under the sun?

03:47Probably not.

03:48And so I think the universe of investable assets for which this kind of structure makes sense,

03:51and it only makes sense for a period of time, right?

03:55Will it be still true in 20 years?

03:57The strategy is going to trade at a significant premium to NAV.

03:59That sounds probably not true.

04:00And look, we're already seeing Bitmine Immersion Technologies, Thomas Lee's on the board.

04:05They've fallen after they said that they were going to be selling some equity to buy more

04:08ETH, Sharp Link Gaming's just been doing the same thing.

04:10I'm interested where else we're expanding to which crosses into TradFi a little bit more

04:15is the tokenization of equities.

04:17Yeah.

04:18What do you make of what Vlad is trying to push at Robin Hood, what that means in Europe?

04:21He's trying to push it forward first, but are we suddenly going to have more tokenization

04:24of equities?

04:25Do we no longer have IPOs in the stock market, but crypto companies start IPO-ing via tokenization?

04:29OK, so what Vlad is trying to do is very simple, which is say, hey, the market structure of

04:33the way that we trade equities is suboptimal.

04:35That's not to say that, OK, nobody should be trading equities.

04:37We want to do it on the weekends.

04:38We want to do it on the weekends.

04:39We want to do it on the weekends.

04:40We want to do it 24-7.

04:41I do.

04:42Well, OK, you might not.

04:43But look, Robin Hood has a very specific profile of customers.

04:45Yeah.

04:46And that profile of customers, they tend to be young.

04:47They tend to be maybe somewhat more impulsive than the average trader.

04:50What's that?

04:51You're trying to say I'm not young.

04:52No, I'm not.

04:53I'm sorry.

04:54Like, young to the point where you're a little crazy.

04:56I'm not young.

04:57It's totally fine.

04:58OK, let's say a little crazy.

04:59And that kind of trader, they want different things that institutions want.

05:03They want different things that maybe you and I want, right?

05:04I'm also not somebody who's YOLO-ing into a stock at 3 AM.

05:08But if there are some people who want to do that, creating a market structure that enables

05:12that, like, one question you ask is, why does this even need a blockchain?

05:16The answer is that it actually doesn't, right?

05:18There's nothing that stops a stock market from operating 24-7.

05:21Obviously, we have markets that do operate 24-7.

05:23Some would argue that part of the benefit is that the settlement would be faster.

05:28You would need less collateral for the market makers, the idea that it would make it more

05:32efficient.

05:33That's their argument, not mine.

05:34Look, my argument is that simply you can do all of these things in traditional markets

05:39in principle.

05:40In practice, you can't, right?

05:42In practice, you can't.

05:43And if I ask somebody in traditional finance, why can't you settle in real time?

05:47Why can't you put money in and out of these markets without having to wait a single day

05:50for things to clear?

05:52And nobody can really answer the question.

05:54They know what you mean.

05:55And obviously, it's true that, okay, well, internet technology already moves at the speed

05:58of light.

05:59Why is it that it takes so long?

06:01Nobody can really explain to you.

06:02They just know that it does.

06:03And if you put this stuff into a blockchain, because a blockchain is transparent, it's open,

06:06it's permissionless, you can just rebuild a new system that is much faster and people

06:10can instantly see, aha, I see how this thing works.

06:12That is largely the virtue.

06:14It's not that you couldn't do it with traditional rails.

06:16It's that nobody can explain to you why you can't undo the spaghetti that is the traditional

06:21financial system.

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