A Wiser Retirement®

301. Crypto Update: Clarity Act, GENIUS Act, and Stablecoins

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In this episode of the A Wiser Retirement® Podcast, Casey Smith sits down with Robert Swarthout, founder and CEO of Teton Crypto Capital, to discuss how fast cryptocurrency is evolving and how banks are getting involved.

- Ep 296: Crypto Update: Big Beautiful Bill, GENIUS Act, & Crypto Company IPOs
- Ep 286: How can I evaluate crypto as a potential investment?

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Crypto's Quick Advancement Period

Speaker 1

So it's just interesting to kind of see this stuff play out and it's happening so quickly. I think if we look at, say, a year out from now, we're going to look back at this time and be like, man, things were changing so quickly and be excited about it and kind of see where we're at. You know, we're still a ways away from a digital deed or, you know, car title.

Speaker 2

Yeah.

Speaker 1

But I don't think we're as far away as it probably feels right now.

Speaker 2

at the same time, I think it's just kind of this weird period of quick advancement. Welcome to the Rise of Retirement podcast. Are you curious about the latest news in the world of cryptocurrency? I'm Casey Smith. Today, I'm joined with Robert Swarthout, founder, ceo and portfolio manager at Teton Crypto Capital. Each week, we bring you practical advice on retirement, investing and planning for your financial future. Don't forget to subscribe to the podcast wherever you're listening. Let's get started. Hey, robert, good morning. There's been a lot of things happening in the world of crypto.

Speaker 1

What's Bitcoin at right now? I don't even know. Bitcoin is down a little bit. Right now it's at 114.

Speaker 2

It's been all the way up to 123, 124. Okay, I saw 112 last, so I'm pleased with 114.

Speaker 1

Yeah, it's either the last call it last week, or really the month of August. It's been pretty volatile. July was pretty good, but it's yeah, it's just.

Speaker 2

I have a advisor group that I meet with once a month on on, uh, monday, and you should have been at the last one. Uh, the whole crypto thing came up and it's like all these conspiracy theories and everything else out there. But, uh, you know, and I should have known the answer, but the genius act which is now law.

Speaker 1

Yeah, tell me, tell me about that so the genius act is um the, the law that specifically talks about stable coins, like how they have to be constructed, that they cannot pay holders interest is part of that, that it has to be backed by dollar-based products, so cash treasuries, those kind of things.

Speaker 2

And the whole point of a stable coin in my mind is that you have a world of crypto Instead of moving out into your cash. You can easily move into a stable coin.

Speaker 1

Correct it's a holding mechanism tied to the dollar, in theory, right.

Speaker 4

It's stable right.

Speaker 1

It doesn't change in value when you have it and they generally are very good about that. But I would say a use case that we haven't really talked about tons on this podcast really gets into the acronym DeFi, which we may have mentioned. But it's this whole decentralized finance um, and it could be like you were part of a computer software system that you want to trade from one exotic coin to another. You might use stable coin to get into that. Um, you're not going to be able to take your dollars from your bank account and get into defy directly. Coinbase is working on that right now. It is it's kind of a step removed from the normal crypto that people might be buying on a Coinbase or Kraken or something like that yeah.

Speaker 1

So you know that that future's coming and it could be that you want to take your stable coin and buy an NFT. Well, you're probably not going to do that on Coinbase or something like that. So Coinbase stable coins have their use case for retail and then I think they have a use case for in commercial cases. So you know, I think we've mentioned in the past that Starlink is using stable coins to get their subscription fees back from foreign markets back into dollars. They were tired of dealing with wires and more exotic currencies.

Speaker 2

Yeah.

Genius Act and Stablecoin Regulations

Speaker 1

Because I think they're in like 120 countries now. They're covering a lot of different places, which I don't think it's 120 different fiat currencies, but it's something up there I'm sure, and they were basically converting local currency into stable coins and then bringing those back to the US.

Speaker 2

Okay.

Speaker 1

Basically instantly, versus the days or weeks that it might take to set up a wire transfer. And the banks you think would be very this Um banks are I don't know if the word angry, they're hesitant, they're, I think, threatened. I think there's probably a lot of you might use emotional words there. Um, you know, part of me says they should have seen this coming. Um, they had four years really underneath the Biden administration to get ready because, everything in crypto was being held back.

Speaker 2

Right.

Speaker 1

Um, it wasn't gonna be held back forever because the rest of the world was moving on. It would. The writing was on the wall, whether they wanted to realize it or not, which, like it, didn't make it in our notes today. But, like ripple and circle, both have separately filed for bank charters with the OCC. It's a big deal.

Speaker 2

It is a big deal.

Speaker 1

Um and and the American Bankers Association, I guess, has the ability to kind of speak up and say something, and they're suggesting that they pause those applications while the banks figure out what they need to do. Well, the banks should have already figured out what they need to do, in my opinion. They've had time. It should not be penalizing Ripple and Circle for their inability to plan ahead, plan ahead.

Speaker 4

Yeah.

Speaker 1

So, but yes, I think that you know.

Speaker 2

So the genius that was basically putting guidelines for all Guidelines.

Speaker 1

It's the most basic of basic guidelines. Stable coins are the most basic thing of crypto. Right, they can be on different networks. You can bridge them across from one network to another if it's the same stable coin, but at the end of the day, we needed to get that done. Other if it's the same stable coin, but at the end of the day, we needed to get that done.

Speaker 1

And then, as part of the House, was the final portion of Congress to kind of vote that in. They also voted on the Clarity Act and a third bill about anti-CBDCs for the US, so they passed all three of those. So now it's back to the Senate. The Senate is on recess in August or most of August, and when they come back, they're going to supposedly be working on the clarity act, which is the market structure bill which the rest of crypto really cares about. Yeah, that will, I guess, take it up a notch on the regulation for the rest of crypto, or actually add regulation for the rest of crypto, and I think that's when things get exciting. A lot of the things we've talked about. Goodness started this talking about crypto three years ago, four years ago, on this podcast, right, um, a lot of those potential concepts would be allowed to be um attempted once we have clarity around this, so you end up with regulators that aren't going crazy around you.

Speaker 2

So and then what was the oh?

Speaker 1

so that's where the clarity act, clarity act comes in, absolutely yeah yeah, so the clarity act in, just you know, rules of the road effectively, yeah, um, and it's for all of crypto, um, and you know it helps define things. That um should make things easier and I have a note here the clarity act. So part of what people want to understand in crypto is is something a security and non-security. That's the big debate all the time.

Speaker 2

Which is the ripple lawsuit is all based off of that.

Speaker 1

Yeah, the SEC was attempting to, you know, go after them about, which was proved not to be true. But and I think really it comes down to the way the SEC has handled crypto in the past made it seem like no one wanted to be a security because you would have to deal with the SEC and they weren't willing to deal with anybody. Right, um, so everyone's like, oh, I want to be a commodity. Well, in the CFTC has seemingly been friendly. Um, bitcoin is viewed as a commodity.

Speaker 1

Um, under Paul Atkins, um, they haven't made it a clear declaration, but he has been on CNBC and say that um, ethereumereum is not a security. I don't remember him going as far as saying it's a commodity. It basically implies that. Um, but the clarity act would help clean all this murkiness up. Um, and if a blockchain is decentralized in under this act, it would be a commodity full stop. Yeah, if it's not, it's a security. It's a very clear and like what does um? What makes it decentralized? Well, they're trying to work about rules around that. Um, so I I think that there's a lot more to go um, but I've even seen timelines from david zack's the cryptos are yeah, um saying how, by the end of september. He feels like they should be at a committee, and potentially in the senate, voting on this, which seems like basically only a month and a half from now. Right, um, which would fly by, but you know, I would um welcome it with open arms.

Speaker 2

So, All right, so let's move on to crypto IPOs and filings.

Speaker 1

Yeah, this is, um getting a little bit more into your wheelhouse here. Um, so circle has been um public for probably two months now months, now, two and a half months. They've had a crazy run up that I did not see coming, admittedly, and what did they do? Circle is an issuer of the stablecoin USDC, and that is 100% of their business. Yeah, it's an interesting contractual thing that they have. So I guess, as part of trying to get usage of their stable coin, years ago, they ended up in a partnership with Coinbase. Coinbase contractually received roughly 50% of Circle's revenue as a fee. So in a world where we're in, you know the interest rates are at, you know, 6%, 5%. Um, stable coin is a good business to be in because, legally, you cannot be paying interest to the holders of it, so you get to keep it yourself. Yeah, um, and when you're sitting on a $50 billion, um, uh, worth of treasuries and cash, that throws off some good money.

Speaker 2

Yeah.

Speaker 1

Um. Over time, I think, obviously interest rates, in my opinion, come down so that those margins get squeezed and then Coinbase takes some of it. So to see where Circle's been trading still blows my mind. It's a crazy high PE multiple. Again, no financial advice here, just kind of interesting to watch this thing go up. It was almost the only way outside of Coinbase for traditional investors to get exposure via a stock to the crypto market. I think there's a premium being paid there, um, for doing that, or the price has been run up for that um. But even more recently, bullish, which was a much smaller company. It's a peter thiel backed um vc backed company that went public and they they had like a almost a hundred percent pop in their first day of trading too. So it's like the market seems to want more of these. There's some coming down the pipe Grayscale, which was the issue of a lot of those publicly traded trust that before we had ETFs of Bitcoin and Ethereum.

Speaker 2

Yeah.

Speaker 1

You could get exposure that way for accredited investors. And then BitGo is another company. They're a custodian, institutional grade custodian. They custody some of the Bitcoin and Ethereum for some of the ETFs, so you know, well-respected. So we're going to see more of these. I just think it's interesting to watch how the market's been receiving them at first.

Speaker 1

I was like oh well, I'm not sure how this will go. And now I'm like man does the market really seem to have an appetite for? For these? And running up the price? And heck, just circles been out of the market. In the market, what three months? And they, just the other day did a secondary offering, get more shares out.

Speaker 3

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Speaker 2

And then uh, moving on to uh, banks are now allowed to custody crypto.

Speaker 1

Yes.

Speaker 2

Um, so I know, for there was a while where Bank of America was going to be able to hold Bitcoin, but that that never really happened, I guess, and so now banks are now coming in full circle.

Speaker 1

Well, I think the banks it's probably only certain crypto not, not like Coinbase, yeah, otherwise that's.

Speaker 2

That's the direct competitor to Coinbase. Yeah.

Speaker 1

You know, if we fast forward years down the road, I think that we're in a world where you can't tell the difference between a Coinbase custody solution for crypto and Bank of America B of A or, excuse me, Wells, or whoever, but it probably forced Coinbase to get more exotic. Potentially, or you might see Coinbase drift more towards the traditional side of finance too.

Speaker 2

I think there's going to be an mortgages and uh financial planning, but but with the twist of that, it's all on chain.

Speaker 1

I think yeah I think they'll okay they'll continue to use a technology shift or a perspective on it, um, but in this case, the I think the all banks um that have been interested in crypto have been basically held back and because they didn't have guidance or were basically allowing them to. But in this case, the fed, fdic and the occ issued a joint guidance allowing banks to custody crypto. That was like when I saw this headline I did a double take. I'm like whoa, what? Um I? I did not have this on my 2025 bingo card. Um, I would have figured we had to have legislation in place. We have some with stable coins. We don't have market clarity, like. It just feels a little bit interestingly early, but happy to see it. But I guess the gist of the press release in guidance was basically stressing strict risk management and the banks have full liability if they hold the customers crypto. So basically they put them on notice.

Speaker 2

I think it's an easy way to say this so now, now it doesn't mean that you walk down the bank today and you're gonna hold your crypto.

Speaker 1

They their own board has to decide if they want to take yeah, I mean, it's a business decision at that point if they want to go down that route. Um, I don't know of any banks yet even talking about it. Um, talking about doing custody, yeah, I think the closest I've seen banks and or brokerage houses talk about it is they're starting to set up their own exchanges, right, I mean, charles Schwab has been relatively public about setting up and building their own system versus using or white labing Coinbase. Right, but custody, I think, is a good ways away. Another example is JP Morgan recently said that they're willing to take and hold Bitcoin and Ethereum as collateral for loans. So you know, this is the same company that jamie diamond works at, the. You know he for years said that bitcoin was rat poison right but here they are, they can figure out how to make money.

Speaker 1

Right, they'll show up to the party. That's funny, um, but yes, this is a you know again a headline. Before we started recording, I had mentioned about how, certainly in the last six months, but really more three months the shift in the news cycle around crypto has gone from oh my gosh, here's some negative news, where's the positive in it? To a bunch of positive or like you're not really worried about. Every time you see news you're trying to figure out what's negative about it, or like what the government is trying to do?

Speaker 2

Are people being hauled off?

Speaker 1

to jail it, um, or like what the government is trying to do. Are people being hauled off the jail? Well, admittedly, the people being hauled off the jail probably may have earned that, um, uh, that privilege, um, but at least the accusation wise, the sec was a little bit challenging for a long period of time. So, yeah, but yeah, they've cleaned that up and, um, you know, like we kind of touched on last time the ripple and sec case, that is officially done, done at this point, we don't have to talk about that anymore. So it feels like a new chapter and pages been turned to crypto for sure.

SEC Standards for Crypto ETFs

Speaker 2

Tell me more about this topic. Sec listing standards for crypto spot ETFs.

Speaker 1

Yes, so obviously we have Bitcoin and Ethereum and those have been in some ways bespoke in the sense that they've approved them kind of on the SEC's timeline but like no one understood why it got approved when it got approved, um, I I would imagine there was some political pressure to get the Bitcoin one done. Um the SC, the Ethereum one just kind of felt a little out of place. Um, but now you have last I looked there's over 80 different applications for different kinds, whether it's spot ones or maybe some spot index ones sitting out there. So the SEC's got this pile of paperwork on their desk and it's only going to grow. So I think the cool thing about this in particular is the SEC is being forward thinking and they're trying to figure out how we streamline this process. So they've talked about a standard where and it's not fully realized yet, but a standard where they're going to require futures for six months, whether it's on Coinbase or this CBOE for a particular crypto, so you have a futures product out there and then, if that happens, then it's a much quicker process to get a ETF approved for a

Speaker 1

spot crypto. I think the index ones are a little bit more complicated, obviously, but I think it follows the same path. And if it doesn't fit into that path, then it has to go through the standard 1940s, I believe. Process yeah, which I think is normal. But at the end of the day we are getting closer to having a bunch of products, just I think yesterday, Um. So there's a bunch of Solana and XRP ones kind of stacked up. They seem to be the most, I guess, desired ones to come to market next, um and the XRP ones.

Speaker 1

Um, the sec seems to want to take their full process and this is still the 1940s style process. They are basically kick the can until middle of October. So I don't think that we see anything and at that point it seems likely that it might be that kind of timing might be right for it. So we'll see here in the next couple of podcasts about this. But we're getting close. It'll be interesting to see the demand. You know Bitcoin, I think was kind of obvious, it was the first one and at the end of the day, the um. You know the whole digital narrative. Ethereum has done okay the last month and a half. It's up, but you know it's still, I think, struggles with the narrative about what's, what's the use case for it. Solana may fight something similar. Xrp, I think at least has a company around it and a, a narrative that is for payments, it's for cross-border like. I think that it can build a narrative that is easily digestible and understandable by the traditional finance folks. Um, so that may help sell it. So we'll see.

Speaker 2

Um, it'll be an interesting fall, I think so uh, you also noted here the SEC speaking of them. We're going to treat stable coins as cash equivalents. Yeah, so that's interesting. I guess it's really not much different than a money market. You just have to make sure it doesn't break a dollar, right? If it breaks a dollar, that's really a bad thing.

Stablecoins as Cash Equivalents

Speaker 1

Right, and you know, rewind, three years ago there was some stable coin issues and you know, rewind, three years ago there was some stablecoin issues and I think that's where a lot of those fears came from about kind of setting up the Genius Act the way it was, yeah, but yeah, the guidance, because before they had to carry literally stablecoins if a company wanted to hold it on their balance sheet as a liability, which is just bonkers it's, it's functionally cash, just in a digital form.

Speaker 1

So now it is literally treated as um, uh, you know, cash equivalent. So I think that it helps starting to clean it up. You're going to see more of these, um, you know the whole mark to market thing, um, I think, will come in and you know that that helps. You know, people like um micro strategy and the ones that want to have these um different, uh, digital asset, um treasuries, right, kind of helps the rules around that and, admittedly, I think, cleans it up, because it's some of this stuff is like it had to do what you kind of how many stable coins do we need?

Speaker 1

Oh boy, um, it seems like everybody, and their brother, um, yeah, because I get like a 5% yield.

Speaker 2

I don't have to pay you anything as the holder. Yeah, and I don't know what my cost of operating is, but I'm guessing it's fairly low Right.

Speaker 1

I think that, and just like with the early use of any technology, it goes from no one using it to a bunch of people trying to use it, to some consolidation. Yeah.

Speaker 2

Or interest rates at 2%. That might consolidate, right. It'll get people less interested in having to deal with it, right?

Speaker 1

And 2% is a good ways away from where we're at, but that's the direction I think they generally head personally, but at the end of the day, I think that I don't get upset about the idea that we have a lot of stable coins. It does potentially create some friction in the system. Yeah, because it's like is my dollar the same as your dollar if we have two different stable coins?

Speaker 2

Or are there other things that can be offered to make it more appealing? To get one stable coin over another.

Speaker 1

Right now it's all the same. It's all the same and I think you know some of the banks that want to issue stable coins are doing it because they want branding on it. So there's the marketing angle, there's the oh, it's not on this chain. So I need to make a stable coin. That's on this particular blockchain, right. But you end up in a world where you have a universe of, you know, dozens potentially of decent sized stable coins by market cap and it's like, do you all of a sudden start creating markets for those to be able to interchange? It's? It's just interesting to kind of see this stuff play out and it's it's happening so quickly. I think if we look at, say, a year out from now, we're going to look back at this time and be like, man, things were changing so quickly and be excited about it, and to kind of see where we're at. I, you know we're. We're still a ways away from a digital deed or, you know, car title.

Speaker 2

Yeah.

Future Applications of Blockchain Technology

Speaker 1

But I don't think we're as far away as it probably feels right now. At the same time, I think it's it's it's just kind of this weird period of quick advancement.

Speaker 2

We talked about uses at one of our very first podcasts that we did on cryptocurrency, and a lot of those uses have not come to fruition at this point, but but I think this lays all the groundwork for it all to make sense right and we need market structure built.

Speaker 1

We would like we need some of these other building blocks and then the, the innovators can go and try to innovate right now they're a little hamstrung.

Speaker 1

Um, in kind of a cool example of some of the technology might be used is the sec is reviewing how kyc is done, like it is an old process. Um, admittedly it's kind of was reworked during the patriot act and all that kind of stuff, but they're potentially there's a, I think, a subcommittee that is looking at using blockchain technology as the kyc process, so you may end up with a digital idea on a blockchain. Okay, say that happens. Yeah, um, you know, privacy issues aside, just put that away because I think that can be solved.

Speaker 1

But the idea is called zero knowledge proofs. So zero knowledge proofs is really like a system where I have all my identities verified in a blockchain. It exists, but outsiders can't see it. And you say you are a mortgage company. You want to know that I am at least 25 years old and what my street address is. You ask the system those two data points, I quote unquote sign a transaction, approving it, and it shows it to you. It doesn't show you. Like it's not like me handing you my driver's license. You can see my weight.

Speaker 1

You can see my eyes, all the things that are not pertinent but also are exposed and as zero knowledge proof. All they get back is if they ask is he 25? It's not. You don't get my birthday back, you get yes or no, or those kinds of possibilities start to become a reality, and I think that's really cool, cause we live in a world where, I think, people want more privacy. This is the systems is rigged against them right now to allow that, and I think over time we kind of get back to a little bit more of you know feeling like your data and your stuff is your, your, you own it, so interesting, very interesting.

Speaker 2

I saw a report recently this is not on a cryptocurrency, but um of how some people are becoming so dependent on uh uh chat bots, basically AIpt. Yeah, so much so that they're they spend 12 hours a day talking to chat gpt.

Speaker 1

Isn't that crazy that I mean you start to wonder about the emotional side of it.

Speaker 2

Well, they probably had some weird tendency, which is non-technical term not a clinical term before that. But yeah, we're just like moving to this digital age so fast. On a recent podcast I was talking with William how AI misdiagnosed where the engine coolant was in my car. I was trying to figure out where it was.

Speaker 2

So, but it told me with confidence, very wrongly, where it was. I had another conversation with a client about just the US deficit and what happens if we keep doing this. I said you know, I had this conversation with Chad GPT and basically we can keep carrying deficits forever as long as you control inflation. And that's somewhat textbook, you know, but it confirmed my thinking. He said well, that's funny, I had the same conversation with chad gbt and it said that the us would be bankrupt and we'd go out of business and everything else. And so it's like, well, there are biases in gbt that it like wants to agree with you.

Speaker 2

right, correct, yes, yeah, so you had to be very careful of technology and how we use it and cryptocurrency and hopefully there's really smart people that are going to put the right guidelines to to make all this to make sense. But I can't imagine like an 80 year old person right now and trying to comprehend stable coin and not going to happen.

Speaker 1

Yeah, the I don't remember if this made one of the previous podcasts has been six months ago but somebody had let an AI launch a meme coin and within seven days it had like a $30 million market cap. And cause it like the AI just kind of made all the marketing materials you know different socials and stuff and it's kind of like, well, cool, but I'm not sure if we want it doing that.

Speaker 2

Exactly, yeah, so anyway it's. I'm sure it was doing some fibbing along the way.

Speaker 1

Absolutely, and meme coins, you know that's. That's largely just a bunch of fibbing but who knows?

Speaker 2

So that's true. Yeah, that's hilarious. All right, well, thanks, robert for the update. Thank you for listening to today's episode. If you're interested in learning more about Teton Crypto Capital, you can follow the link in our show notes here. You can reach out to Robert directly. If you want to learn more about Wiser Wealth Management and it's going to schedule a consultation to meet with one of our fiduciary financial advisors you can do so by going to wiserinvestorcom or follow the show notes as well. See you guys next week.

Speaker 4

Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestorcom and reach out. This podcast is strictly for informational purposes only and is not to be considered as investment advice or solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles or a basis to make any financial decisions. Thank you.