Crypto spent years and hundreds of millions of dollars fighting for legislative clarity. On Tuesday, that effort hit a brick wall as the Clarity Act failed in the Senate. Now, in his first public comments since the vote, Coinbase CEO Brian Armstrong reveals what killed the bill, whether regulators can deliver what Congress could not, and what likely happens next. A special extended edition of The Daily Wolf starts now. Let's go.
What is up everybody? Welcome to the Daily Wolf on Yahoo Finance. I am your host Scott Melker, also known as the wolf of all streets. Now, as I mentioned in the intro, we have a very special edition today of the Daily Wolf. It's going to run a bit longer and we have CEO of Coinbase, Brian Armstrong, here to discuss the Clarity Act and hopefully a lot of other topics more optimistically about what's coming for the crypto industry. Brian, thank you so much for joining.
Yeah, thanks for having me.
So, you famously said in January that we'd rather have no bill than a bad bill. Was the Clarity Act that failed the other day what you would define as a good bill?
Yes, I think the most recent draft that failed was a good bill. I was proud in January to stand up for our customers. That initial draft that came out did have a number of problems with it, which I outlined at that time. We felt like it had a de facto ban on tokenized equities and too many penalties for DeFi developers and CFTC spot market authority and stable coin rewards. And so those were kind of some of our what we felt would be must-haves for the industry in that negotiation. So I'm proud that we stood up for the industry in that moment. And to their credit the Senate actually took a lot of that as feedback and iterated on it and all four of those things were fixed in this most recent draft. So, there were other issues which caused it to fail, I think, yesterday and that was really a missed opportunity for the US to lead. But there's another path luckily with the regulators, the SEC and the CFTC and we can talk about that when you want.
Yeah, I want to dive into all of that. So, there are several I think competing explanations for the bill's failure. Obviously, Democrats point to President Trump's involvement in crypto. I think Republicans point to the Democrats not being willing to come to the table in an honest manner. There was a fight over the stable coin rewards, opposition from the banks. What do you think ultimately actually killed Clarity?
Yeah. Well, obviously it's a nuanced process, but from where I'm sitting, if I were to oversimplify it, I think the ethics deal is what killed it. I think that there was a real offer on the table from the White House and it had real restrictions on the president and elected officials for issuing and promoting tokens or memecoins. It would have required them to put that into a blind trust. It gave real authority to the state AGs to go enforce that, something I thought that they would never agree to. But I think some of the Democrats that I spoke to they wanted something more. And it's a bit of a shame because this was really about politics at the end of the day. It had nothing to do with the actual underlying fundamentals of the bill in terms of market structure and how we protect consumers, the new tools for law enforcement, the new powers that it was going to give to banks. And we wanted banks to succeed as part of this as well. And 95% of what both sides wanted was all agreed to in the bill. And it was kind of frustrating that we let politics get in the way, I guess. This kind of issue that I don't think will matter in a few years. This bill could have had the ability to affect America for generations to come. But unfortunately, it didn't happen due to politics and that's a real shame. I'd say it's an abdication of responsibility. Now luckily, like we talked about, there is a path forward for getting clear rules for crypto. And the SEC and the CFTC have really stepped up already in their public communications to say that they're not going to wait for Congress. They're going to put out rules under their existing authority and that's starting now.
And we're going to dive into that in a minute. But what blows my mind is the unintended consequences of blocking ethics. So in my mind rationally, the Democrats didn't want to give President Trump a win. So they obviously didn't come to the table genuinely to discuss ethics. But what happens now is that Trump and Hunter Biden and any other politician can continue doing exactly what Trump did that they were attempting to prevent. Isn't that true? Now there's no ethics clause and everybody can just do what they want.
That's the point I made to several of them as well is a vote against this bill is basically saying there should be no ethics restrictions whatsoever. So what does that even accomplish? And I think some of them were kind of worried about the optics of giving a win to the president, but you're right, by not voting for it, they arguably gave him an even bigger win. So, it really makes no sense to me.
And none of them ended up voting for it. I mean, this went 49-50. Maybe they realized it wasn't going to pass and didn't want to stick their heads up and play whack-a-mole with the crypto lobby, but it seems like at least one of them who even proposed this bill in the first place might have stood up and said, 'Yes, we should at least pass closure so that we can discuss this further.'
Yeah, that's important to remember. This was just a motion to proceed. It was not the final bill. There would have been opportunities to put in further amendments to continue negotiating in pieces of it if they wanted. And so they really voted, the votes who voted no said we don't even want to proceed at all even discussing it. Which is a real disappointment from my point of view. And you're right they did, they all voted as a block. I think nobody wanted to stick their head up and they voted as it was either going to be 14 or so votes yes or 14 or so votes no. And nobody wanted to stick their hand up and say actually we think there should be clear rules in America.
Yeah. I was watching it when I saw Jill Brand vote no. I just shook my head.
That was shocking. That was shocking to me as well. Yeah.
In really in disbelief. So now do you view this as entirely dead? A lot of people are saying, 'Hey, it could come back around.' Lummis, of course, saying it's over for many, many years. Do we proceed now as if this is not going to be a thing in the future?
Well, my understanding is that there are some members of the Senate that are trying to revive it and have another bite at the apple, like Senator Tillis. I commend them for doing that. I don't really know what the chances are of that happening. I would just at this point assume it's dead. Unless I hear otherwise and then I'm pleasantly surprised. So, I think we can't really wait at this point for the Senate to act and we need to go to the regulators. In a way, this is a feature, not a bug, of American democracy. We have three branches of government to do checks and balances. And so if one branch of government is not going to deliver on a solution for the American people, another branch can step up. And I think that's what we're seeing here. So, credit to the founding fathers for having some diversity of branches at the top.
Is there a world where we have regime change at midterms and we get a version of crypto legislation that's much more contentious and written by the people who oppose this?
I don't know. I mean, I think we'll have to see what happens in the midterms, but my sense is that people again, you'd have to have both the Senate and the House agree on a draft, right? And then, of course, also the president for it to become law. So, it's hard for me to imagine that they would come back together for some different draft. I think what's more likely is at this point is yeah the rules get published and they do rulemaking under SEC and CFTC which arguably are going to be more permissive in certain ways than we would have seen from the Clarity Act. And so I personally I just think it would have been good for America to see it in legislation and have that bipartisan process. But honestly in the short term it's probably better for us in certain ways. It's a little bit more permissive to have the SEC and CFTC do it.
Well, we sort of laughed at the unintended consequences of not passing an ethics clause. The banks pushed back heavily against the rewards that Coinbase, for example, already offers to their customers, and that's allowed by Genius Act. So, didn't the banks effectively just shoot themselves in the foot by blocking Clarity, which could have actually put more restrictions on Coinbase and others on rewards?
Yeah, I mean, I couldn't have said it better myself. We're happy to work with anybody in this process. We listened to the concerns of the banks. We went and talked to some of the community banks. We started providing services to community banks, along with the big banks in terms of how they could integrate stable coins. We wanted really all of them to win. But somehow the bank lobby got really spun up on this issue of stable coin rewards. I think because some of the big banks just didn't want the competition and they wanted to use the government to kind of squash their competition. But you're right. At the end of the day, I made this point to several of them. I said, 'Well, if you don't want to come to the table and work on an iteration of this bill, then Genius Act is already the law of the land.' That's what we basically fall back to at this point where we can continue to pay rewards in an unfettered way on stable coins. And I think that's good for American consumers. We were in the interest of getting something done. We made some concessions in Clarity in negotiations with the banks that the Senate facilitated, but I guess we don't have to do that now. It's a little unclear to me why they fought so hard against it if they were so worried about stable coin rewards. They're in a worse position now.
Yeah. Yeah. Yeah. It's just really really confusing to me. But you keep alluding to the fact that now we can get rulemaking from the SEC and CFTC. And I think everybody agrees that we have very favorable regulators and heads at both of those agencies. Atkins and Quintenz deeply understand the industry. They've made it very clear even before Clarity failed that they intended to write rules that would allow the industry to move forward. So let's talk more deeply about what they can and can't do, what you're expecting from the SEC and CFTC in the short term now that Clarity is effectively dead.
Yeah. Well, Chair Atkins at the SEC has come out and said that there's an innovation exemption that they're expecting soon. This would allow things like tokenized equities to come to the US. We can talk about that because I'm very excited about that product. I think that we could also see things like perpetual futures for single stocks and pre-IPO shares. These are trading products that our customers love. They're only available outside the US right now. These things could start to come to the US. And then more broadly I would say just crypto has a really important role to potentially play in updating how capital formation works or basically the ability for people to raise money whether that's a new company that they're trying to create or a real estate project or a podcast or anything. Today those are securities and we think that in many cases it's too difficult for them to raise money. Fees are too high working through the traditional system. And so long term, I think that's an exciting area where this rulemaking could actually allow us to make it much more democratized access to capital formation. And that would be good for everyone around the world.
I was blown away by Regulation A+ for crypto when Atkins proposed it. I mean, effectively, it said you could raise up to $5 million. The investors wouldn't even necessarily need to be accredited, so it could be from your friends. More favorable than capital formation for other companies. And that it could be done effectively on a white paper with a three to four year safe harbor to become sufficiently decentralized. It really actually seems more favorable than fundraising in other industries if it becomes a rule.
Yeah, that's right. I mean, this is something I've been passionate about for a while now is that in the US we have these accredited investor rules which basically means you can't invest in private companies unless you're already rich. It's actually kind of one of the most regressive taxes out there, if you want to call it that. It's basically saying you can't get rich unless you're already rich. I mean, how is that fair? There's a lot of really smart aspiring people earlier in their career that maybe they don't have a huge net worth, but why shouldn't they be able to go and make these investments to try to grow their own wealth and have a level playing field? I've long been in favor of you could basically make a financial literacy test or competence test. It shouldn't be a test of means like what's your income, what's your net worth. That's inherently unfair. It should be a test of your literacy around finance if we want to make sure that people aren't getting tricked into some scam or something like that. So yeah, that's another kind of policy angle that would be fun to go push on. And I think that the SEC is moving in that direction already with these kind of exemptions.
Do you have any idea what the CFTC may propose? I think Atkins obviously has been out in front of this and I think that's largely because Hester Peirce has been there for years. She had already proposed safe harbor and I think a lot of this builds on the ideas that she had even during the Gensler, you know, when he was head of the SEC. Do you have any inside baseball on what we might see from the CFTC or what you would hope to see?
Yeah. Well, actually, some of those products that I just mentioned, obviously I can't speak for the CFTC or SEC, but just looking at their public comments, the CFTC chair just recently put out that they're locked in and ready to ship. So, he looks like he's intending to put out these rules as well. And some of those products that I mentioned like single stock perpetual futures that actually requires both the CFTC and the SEC. So they've been working hand in hand which in itself is actually a breath of fresh air because often in the past we would see the heads of the two agencies have kind of a turf war and try to claim their space but this is one of the first times that I can remember where the heads of the two agencies are actually very collaborative and trying to get sensible rules out there to help America win.
Yeah. I think it's easy to focus on the negative of the Clarity Act failing. But you look back at what you dealt with in the previous administration, the 'come in and register' nonsense from Gensler and when you try to do that, you basically just get threatened with litigation or actual litigation. So I think people should actually view or understand that this is probably the best it's ever been, even with the Clarity Act failing in my opinion.
Yeah. Glad you agree. So the SEC and CFTC obviously are going to write rules, but that doesn't necessarily mean that those rules will be lasting, right? So I think if we're being intellectually honest, there is some downside to the Clarity Act not passing because legislation would have really put this on the books somewhat indefinitely. What problems do you think that the CFTC and SEC could face with their rulemaking? Be it regime change and those rules being reversed? Obviously, we had Loper Bright, which kind of reduces the power that regulatory agencies have to write rules. I mean, do you think that they could get sued if they write these rules? What concerns do you have?
Yeah. Well, you're right that having legislation can be more durable and that's part of the reason why we were advocating for something there. But I actually think that the rulemaking process can be quite durable also. And the reason is that we have a lot of laws in the US that are already on the books. I think that one of these people refer to as the Administrative Procedures Act which essentially is a fancy way of saying how the agencies go through the rulemaking process and they have a notice and comment period and they can accept input from all the relevant parties, treasury and industry and consumer groups and all kinds of folks. And so once they go through that process and actually put rules out it does have some durability. I think it would be, and by the way, they may get sued on some of these. The courts may have to opine about where exactly the line is, but that's good. It actually creates a legal precedent which can stand the test of time. And so, I think they've been very mindful of this of wanting to make sure that they have enough time, say, in the next few years to get through any sort of potential litigation. Now, could a future administration come in and try to create a different rule? Yes. But they would have to go through a similar rulemaking process under the Administrative Procedures Act. And if they tried to undo rules that were already established and had court precedent, it could create more litigation. So, my hope is at any point in the future if someone were to try that. I think we have to make the political calculus that look, they just have bigger fish to fry at that point. They're going to have to go worry about AI or something else. And once these rules are out and well established and courts have opined on them, the political calculus of why to go try to challenge it again and spend all your time and resources on that, we just need to make sure it doesn't make sense.
AI is going to kill us all in three months apparently anyways. So, I'm not sure we're going to get far enough to care down the road. But yeah, listen, if we actually have litigation and that drags out, I assume Coinbase, you're a behemoth. So, I assume you're going to continue to launch products and continue to plow forward as if it's the law of the land. But there's a lot of probably smaller builders or companies that have still been waiting for some sort of clarity in the United States who may be scared to continue innovating or launching products here while we don't have that legislative clarity. I mean, would you launch a meaningful, sizable product while there's litigation over the rule that is allowing you to launch that product?
