00:00Joining us now for more is Galaxy Digital head of firm wide research Alex Thorne. He's here on set. Alex,
00:05I just want to start big basic and just just get the lay of the land from you about where
00:09you stand on this bill. You've got a ton of experience in this industry. Is this good? Yeah. Hey, Tim.
00:14Hey, Scarlett. Thanks for having me back. I think it is great. I think we made a lot of progress
00:17last week with the two senators Ruben Diego and Angela Osselbrooks crossing the aisle. They took big political risk, I
00:24should say, in joining Republicans to advance it out of the Senate Banking Committee on a bipartisan basis. I think
00:29this is a great
00:29bill that sets up the U.S. to be the leader in digital assets for decades to come. In some
00:34ways, the pair of genius and clarity is similar and frankly looks a little bit like the 1933 and 1934
00:41acts, the Securities and the Exchange Act that set the stage for American capital markets dominance for decades to come.
00:46I think the integration of blockchains and U.S. capital markets that could stem from genius and clarity would look
00:52a little similar.
00:53So you actually believe, galaxy that is, that the clarity act has a 75% chance of becoming law after
01:00it cleared the Senate Banking Committee. What are the odds that we're going to get this done before the August
01:04recess?
01:04I think that's probably the only time you get it done this year. I think it needs to be done
01:08before then. You've got about nine weeks of workable congressional floor time to do that work. We think it'll take
01:15about six to seven weeks for each of the steps, including Senate consideration, ultimately the reconciliation with the House bill,
01:21and then passing again by the House.
01:23To get it to the president's desk. I think the odds are pretty good. That's why we raised it from
01:27a coin flip just three weeks ago now to 75%, partly because crossing the aisle, these Democrats have preserved the
01:33bipartisan momentum for the bill.
01:35There are pitfalls and potential potholes still that could derail the bill, but I think the fact they were able
01:40to agree in the Banking Committee raises the likelihood they can solve those two.
01:43Is one of the pitfalls what you see as financial surveillance? You've talked about this in the past, saying essentially
01:49that the fine print could make it the largest expansion of financial surveillance going back to the Patriot Act.
01:54Yeah, I mean, I think there are some really tight needles to thread here, right?
01:58One of them is this tension between protecting developers and DeFi and the wishes from law enforcement. I would tell
02:07those in the law enforcement community, the state's attorneys general who've written about this, the National Sheriff's Association, this bill
02:14does have some of the biggest power expansions for surveillance and law enforcement in illicit finance of anything we've seen.
02:20So the final text has not fixed, in your view, the surveillance problem?
02:24I think this is one of the best bills for, I mean, Treasury, OFAC. You've got Special Measures Authority.
02:30Wait, best for who, though?
02:32Well, I think it's a good mix, but I think it's really good for law enforcement. Law enforcement and the
02:37Treasury Department are getting a lot of powers they do not currently have.
02:40Without this bill, they would not have Special Measures Authority. You wouldn't have temporary hold authority for intermediaries to make
02:47it easier to freeze illicit transactions.
02:49There's a variety of positive things here that I think the crypto industry is giving up or willing to do
02:55in order to improve the tracking and interdiction of illicit finance that they wouldn't otherwise have.
03:00You concede also that the Clarity Act will result in banks, some banks, feeling pressure on their deposits, on their
03:07profitability as well.
03:09Which kinds of banks stand to prevail and which are at most risk of lagging behind?
03:14Yeah, well, one of our biggest criticisms of the banking lobby's position on Clarity, they say that this will cause
03:20deposit flight.
03:21And the reality in our research shows that actually for every dollar of interbank domestic deposit migration, which can occur,
03:29you'll see $2 of foreign inflows into the U.S. banking system.
03:33And for every dollar of a yield-bearing stablecoin, which this bill doesn't really allow, you will see net 31
03:39cents of new credit creation capability.
03:40So I don't really agree with their arguments. But look, every change in the law that involves finance and banking
03:47can create winners and losers.
03:48Banks need to be technology for it.
03:50Why are you so convinced that this will attract foreign capital?
03:53Well, I mean, U.S. dollar stablecoins are dominant. They're already dominant today. This will make them more dominant.
03:58People yearn for access to dollars worldwide. This creates a more robust environment for the issuance of digital dollars.
04:05It creates safety guardrails, prudential standards, oversight. And it makes the dollar, frankly, extremely more powerful.
04:12I want to shift gears a little bit because you have a really interesting background. A dozen years at Fidelity,
04:16you worked in blockchain research for a long period of time.
04:19We're going to talk digitization of stocks in just a few minutes because the SEC reportedly could be getting ready
04:26to unveil some new rules there.
04:28I'm curious about what you think this does for the crypto industry. And the reason I ask it from the
04:32crypto context is because if that opens the door to 24-7 trading of equities,
04:38then that's something that's only been able to be done with crypto at this point.
04:42So does that move interest away from crypto on sort of like weekends and nights?
04:47I think it probably does put pressure on crypto to become more than pure speculation.
04:52And this is something, by the way, we think there's great value in a lot of crypto, specifically Bitcoin, some
04:57of these layer ones, DeFi applications that is not reliant on solely being the weekend day trader's vehicle to speculate
05:04on geopolitical events.
05:05There is a lot of value to Bitcoin as a store of value.
05:07But it's true. I think, you know, tokenization of equities is a major area.
05:12We tokenized Galaxy stock as an issuer-sponsored security.
05:15And we're waiting to see this innovation exemption that Bloomberg reported on yesterday.
05:20But I think it's fair. I mean, look, the rails and technology that we've sort of dogfooded in crypto with
05:27native crypto assets have a lot of value to offer the world.
05:30That's why you see things like oil futures and on-chain equities already being traded a lot.
05:35But we'd like to see higher quality assets brought on-chain, and I think this will help that happen.
05:39What do you do from your end, from your perspective, where you sit to make sure that happens then, that
05:44crypto doesn't remain the domain of speculators?
05:46Well, it's OK. Speculation is OK. But I think there's a lot of value beyond only speculation.
05:51Obviously, Bitcoin is widely owned, and people love to own Bitcoin as a store of value or whatever reason.
05:56It's a $1.5 trillion asset.
05:59You know, stablecoins obviously came from crypto.
06:01They run on native blockchains.
06:03They're powered by native digital assets like Ether and Solana.
06:06And then DeFi. I mean, it has repeatedly shown itself to be resilient in the face of market disruption.
06:11Think back to 2022 when all of these centralized entities went under.
06:15DeFi performed admirably. It continues to.
06:17You can reduce the transparency and automated nature, can reduce credit risk for those who use it.
06:22It has its own risks as well.
06:23But I think, again, if we've shown already a lot of value that can be brought, I think this is
06:28what we're hoping from this innovation exemption, by the way.
06:30Not that they'll come down from their ivory tower and tell the market how to do stocks on-chain,
06:35but that they'll give actors and issuers a sandbox-type environment.
06:40So we can test, does the market want to use these in DeFi and how can the rules be rewritten
06:46to allow it?
Comments