Clarity Act Would Have Prevented FTX Collapse: Coinbase's Grewal

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00:00Tell us a little bit about you, how you view the coordination between the CFTC and the SEC

00:05in terms of figuring out crypto, because up until now, as Nicola was reminding us,

00:11it's been a bit of a turf battle. Are they now completely on the same page?

00:15Well, I think what we're seeing is a new era in the cooperation between the SEC and the CFTC.

00:21You know, the turf battle that Nicola referenced earlier wasn't just between the agencies themselves.

00:26Unfortunately, over the years, Congress, which has oversight authority with respect to each of these agencies,

00:31has also, I think, fought over who has the primary role in regulating crypto.

00:36Is it, for example, the Financial Services Committee? Is it the Ag Committee?

00:40Banking and the Senate and its Ag Committee?

00:42So these turf battles, I think, have unfortunately dominated,

00:44but we're now seeing real cooperation at the agency level.

00:47And I think a lot of the credit for that goes to SEC Chair Paul Atkins and Acting Chair Pham.

00:51Is there a country that we can look to or that you look to right now that does this the right way,

00:57that does this really well, that the U.S. can model itself on?

01:00Well, I think the U.S. has actually now become the model.

01:02For many years, under the previous administration, the SEC in particular was behind.

01:08You saw Europe and Asia race ahead in adopting sensible crypto rules and sensible crypto standards.

01:14But under the new administration, I think we're seeing real leadership from the SEC,

01:17not only from Chairman Atkins, but also from Commissioner Hester Peirce.

01:20And I think the U.S. is now once again serving as a model for the rest of the world that we can all be proud of.

01:25So as the two agencies start to coordinate more and more and start to work from the same rulebook here,

01:31how does this fit in with the crypto market structure bill that's still working its way through Congress?

01:35There's still a lot of questions tied to that.

01:37Well, the market structure bill is critical.

01:39The Congress made excellent progress early this year when it passed a stablecoin bill,

01:44but it's critical that Congress finish the job.

01:46And that's what the market structure bill will do.

01:48The House has already passed the Clarity Act, its version of this legislation.

01:52And now it's time for the Senate to do the same.

01:54In the meantime, the SEC is not wasting time and is racing ahead to implement standards

02:01and erect a framework for crypto regulation so that it's ready on day one once this legislation passes.

02:06And we think, again, that's a real credit to SEC Chairman Paul Atkins and his leadership

02:10and the attitude of the SEC that this is a market, this is an industry that has been long overlooked

02:15and needs to be addressed.

02:17Have you spoken with Paul Atkins since he's become chair of the SEC?

02:21I have.

02:22And what struck me most about Chairman Atkins is that he not only understands these issues

02:26at a technical level, but he appreciates the urgency with which the U.S. needs to act.

02:31I think Chairman Atkins understands, as the full SEC does,

02:34that if the U.S. allows other countries to continue to enjoy this advantage or lead,

02:39it really puts U.S. competitiveness at risk.

02:41Have you seen either of these agencies in any way say no to anything the crypto industry has proposed?

02:48Well, I think there are certainly important cases involving fraud and misconduct the SEC will continue to address.

02:56And I think even as recently as today, we have seen the SEC continue to make clear

03:00that it will not tolerate fraud or misconduct or abuse in this market any more than it would in any other.

03:05But at the same time, there is a level of cooperation and partnership from the SEC on writing the rules

03:11together with the industry and, frankly, critics of the industry

03:14so that we all understand what standards apply

03:16and we all understand what rules are going to be enforced if someone chooses to cross that line.

03:20In your view, is there a role for consumer protections here?

03:23Is there a need for consumer protection or does the market take care of that itself?

03:26Consumer protections are critically important.

03:28What consumer protections specifically?

03:30Well, I think the most fundamental protection that consumers need to continue to enjoy with respect to crypto,

03:33as they do with any other asset class, is to understand what it is they're investing,

03:39what they're getting into when they choose to make an investment in this particular technology.

03:44Disclosures at the SEC have always been critically important for that understanding to take root.

03:49And we think that that same model can apply with respect to crypto

03:51as it has successfully and effectively with many other asset classes.

03:55Speaking of seeking disclosure, you've put in some freedom of information requests to the SEC.

04:00Talk a little bit about what you hope to get out of that.

04:02Well, the SEC, unfortunately, the prior administration was quite opaque in sharing with the public

04:09why it was targeting certain crypto assets over others

04:13and why it was targeting crypto as a whole while seemingly tolerating similar practices and other asset classes.

04:20Coinbase filed a FOIA lawsuit against the SEC to get at the deliberations behind the scenes

04:26to understand why the former chair, for example, was taking a certain view of certain assets.

04:31And unfortunately, what we came to learn through the release of an inspector general's report and our own efforts

04:36was that many of those messages, many of those text records from Gary Gensler himself, as well as others, were destroyed.

04:43We think that's a real blight on the agency and its reputation.

04:47We think it's critically important for transparency, but also accountability,

04:50that we complete the record and that we get to the bottom of this.

04:52We're pleased that the federal district court in which we filed our lawsuit is taking an active interest in this,

04:56and we think we're going to see justice done in the end.

04:58The text messages that you refer to are from a period of time that cover the collapse of FTX,

05:04the lawsuits against Binance and Coinbase as well.

05:07On the FTX meltdown, the crypto winter that was associated with that,

05:13how do you protect investors or ensure that people are protected

05:16if we did see some sort of other decline, widespread decline in crypto asset prices,

05:22and prevent another FTX from happening?

05:24The single most important and effective thing Congress can do to protect investors

05:28from another FTX is to pass legislation.

05:31How does that protect them, though?

05:33Well, because it provides real standards for, for example,

05:36defining which assets are subject to the jurisdiction of the SEC

05:40and the rules that would follow from that and what disclosures would follow.

05:43So are you saying that had those been in place prior to the launch and meltdown of FTX,

05:49that wouldn't have happened?

05:50I am very confident that if Congress had enacted sensible legislation such as the Clarity Act,

05:55as FTX could have been prevented.

05:57Who should have oversight over the bad players?

06:00I mean, should it be the SEC?

06:01Should it be the CFTC?

06:02Does that need to be clearly delineated?

06:04Well, I think each of these agencies has an important role to play

06:07because for now many decades, the U.S. has divided jurisdiction over financial services more generally

06:13between the two agencies.

06:14In each case, though, it's critically important that there not only be standards

06:17that are laid out and then applied fairly and equally across the industry,

06:22but that there also be resources dedicated to enforcing those standards.

06:27We, for one, believe that it's critically important that fraud and abuse and misconduct

06:31be addressed where it exists, in crypto and also across all financial services.

06:35So now that you think we're in an environment that is much more favorable to

06:40cryptocurrency companies and to companies that are operating in the space,

06:45what is your attention turned to now that a lot of what you wanted to see accomplished

06:49has actually been accomplished?

06:50What do you prioritize?

06:51What's your next move?

06:52Well, we are grateful for the progress we've made thus far,

06:56but there's a lot of work that remains.

06:57I would put at the very top of the list, sensible tax policy and standards for crypto and digital assets.

07:02What does that look like?

07:03Well, we need to see, again, rules enacted that consider, for example,

07:08whether unique features of blockchain networks and the underlying technology beneath crypto

07:13require a different approach to establishing, for example, capital gains treatment

07:17and capital requirements.

07:19Fortunately, the Senate is already moving to address this issue.

07:23As early as tomorrow, for example, we're going to be seeing a hearing in the Senate Finance Committee

07:27addressing crypto tax issues.

07:29Coinbase will be there testifying along with other witnesses.

07:31And we think that the Senate can address or at least begin to address those concerns

07:34even as it finally passes the market structure bill that we all need.

07:38Going back to what Tim had asked you earlier,

07:39is there a country or jurisdiction where that is clearly laid out and can serve as a model?

07:44Well, certainly Europe has, I think, moved faster in enacting digital crypto standards.

07:50And I think in jurisdictions all over the world,

07:52we're seeing a crypto tax issues finally receive their due.

07:55But again, I underscore the point that the United States has a real opportunity to lead here

08:00and serve as a model for other countries rather than simply looking to other countries for its inspiration.

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