Senator Cynthia Lummis (R-WY) and Congressman Warren Davidson (R-OH) joined moderator Allan Stevo on stage at Bitcoin Conference 2021 to discuss Bitcoin in the United States.
Sen. Lummis got into Bitcoin after being Wyoming’s State Treasurer. “I was looking for great stores of value,” the cattle rancher told the Bitcoin Conference 2021. Her son-in-law and daughter had in 2013 introduced her to Bitcoin.
“And once you buy and you have skin in the game, then you follow it,” she said. “And the more I followed it, the more I learned about the benefits of having only 21 million Bitcoin ever to be mined. So, the benefits of scarcity and some of the other qualities it had has made me a real advocate.”
Rep. Davidson first started paying attention to Bitcoin in 2013, as well, after paying attention to the payments space in the early 2000s. He worked in manufacturing, which is inherently international, and payments were a pain point. “As we would move money, you couldn’t even move it directly to some places,” he said. “For example, you would move it to Hong Kong to move it to China, which took a lot of time, a lot of friction, a lot of transaction costs, and you’re like, ‘There has to be a smarter way to do this.’”
He began looking at precursors to Bitcoin, such as DigiCash, E-gold and others. “Being a manufacturing company during the financial crisis, we were just trying to survive it and then scale like crazy afterwards, because we did survive it.” Therefore, he missed the early days of Bitcoin.
“But, I love the ability not only as a payment system, but as a store of value,” said Davidson, highlighting Bitcoin’s scarcity and appeal beyond being just a payment system. Moderator Allan Stevo asked what discussions about Bitcoin were like “in those tender moments with colleagues.” In other words, what is the partisan rancor on Bitcoin?
“The fun thing about Bitcoin is it’s very nonpartisan or bipartisan,” responded Sen. Lummis. “So, it’s a great space for those of us who are struggling with some of the other issues that are extremely divisive in Congress. Bitcoin is a great sort of a Switzerland kind of a place for us where we can work on these issues and put aside some of the other political consequences.”
Rep. Davidson agrees that Bitcoin’s fault lines don’t crack along partisan lines. “Everyone thinks of American politics as left versus right, but the reality is also a vertical libertarian-authoritarian dynamic,” he elucidated. “You see [in Congress] people that are more authoritarian, in general; people that love the Patriot Act, and want to do mass spying on American citizens or warrantless surveillance, love central authority and control, and the whole system of control that the current financial system has, and people that are more privacy-based, Fourth Amendment, civil liberties-based, who tend to dislike the Patriot Act and like crypto, and that doesn’t break along left-right party lines. But, it does break in a different way in Congress.”
Mr. Stevo asked what the two were doing to protect Bitcoiners from the more authoritarian types in the halls of power. Rep. Davidson notes that he is a Republican, not an anarchist. “Some of the people in the room are probably rooting for the anarchists to win and for us to do nothing. But, look, at the end of the year, if you think about Secretary Mnuchin talking about banning private wallets, that’s a horrible approach. If we don’t protect private wallets, someone’s going to try to ban them. I wish that people would take the threat to privacy as seriously as they take the threat to the Second Amendment, the right to keep and bear arms. If people were as vigilant about protecting privacy, we’d be in great shape.”
Sen. Lummis noted the look of disbelief she receives when she mentions Bitcoin to her colleagues. “We’re trying to create a Financial Innovation Caucus, so we can use it to educate members of the U.S. senate and their staffs about Bitcoin, its advantages, and why it is just such a fabulous asset to dovetail with the US dollar,” she said, as many in the audience applauded the notion. “It can be the underlying network worldwide to keep the dollar the global reserve currency, but still allow people to transact in a very freedom-loving way, whether you’re in Venezuela, where the inflation is outrageous, and you’re trying to get your wealth out of the country, you can get it out through Bitcoin. And, in the United States, if we get to the point where we’re experiencing the kind of inflation we began to see this year, we may want that alternative, as well.”
“Some of the people in this room, perhaps me included, don’t like the government too much,” Mr. Stevo began his next question. “We might like you guys. But, some of your colleagues we aren’t exactly big fans of and a wise man once said, ‘The nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’ Can you tell me more about why the people in this audience should put any faith in the government’s efforts to help?”
Rep. Davidson underscored that there are 535 members of Congress, 100 senators and other members representing US territories, such as Puerto Rico. “So, there are enough of us that on some level, it gives hope to somebody, right? It’s hard for me to go, ‘Gee, how could you scare 25,000 jobs out of Brooklyn, and people in your district love you for it?’ I would have to be in the witness protection program. That somehow represents their districts, right? My district, that wouldn’t work.” Rep. Davidson is referencing Alexandria Ocasio-Cortez’s opposition to Amazon opening a headquarters in New York.
Rep. Davidson points out that Bitcoin isn’t a top issue for many living in the United States, and that’s why it can be tough to put in place a healthy blockchain regulatory framework. “No one in Congress, no matter what district, would get re-elected just on financial services broadly, let alone a narrow niche in crypto or an even more narrow niche in Bitcoin alone. So the question for Congress is, How can we work together on things we agree with, and compartmentalize that, and say, ‘Alright, we’re gonna disagree on other things, but let’s at least agree to work on the things we agree on.” That’s a tough thing to do in Congress, he says.
“So I think the country has a lot at stake seeing this system work, because when it does work, that’s how we became the land of opportunity, right?” said Rep. Davidson. “People from all over the world come here legally, a million new Americans every year legally—not to mention other ways—we still do incredibly well. 4% of the world’s population, 25% of the world’s GDP, 55% of the world’s invested capital in equity markets. But, crypto isn’t nearly on that scale. And, if we don’t get it right with the regulatory clarity, the capital is going to continue to flee the United States.
Sen. Lummis then highlighted the nascent perception of a competition between the United States and China. “We know that China is putting together the digital Yuan, that they are implementing it in several provinces,” said Sen. Lummis, noting China plans to roll out the digital Yuan at the 2022 Winter Olympics and that the US must catch up.
“First we have to teach our colleagues about digital currency, what the advantages are, why it will help keep the US dollar the world reserve currency, and why it’s important that we have Bitcoin underpinning the US dollar as a store of value just like gold used to be,” said Sen. Lummis. “And once we get that point across, I think we’ll start to see things fall into place. I’m hopeful that Congress will respond in a way that will keep us competitive around the globe, and keep us the currency that you want to hold, whether you’re in Venezuela or Argentina or Eritrea or China.”
Mr. Stevo agreed with the Senator and Congressman that regulatory clarity is very much needed, so long as that regulation emphasized the free market. “I’m curious, what would it take to announce that, for the next 10 years, there’ll be no government regulation on crypto in the United States?”
Rather than announcing that, Sen. Lummis offered a suggestion. “We announce that we want to make a level playing field, so everyone understands what the sideboards are in the sandbox, and that the innovators can continue to innovate in that sandbox, at least knowing what the playing field looks like. There’s certain things we can do that would help unleash Bitcoin to reach some of its full potential, like changing the accounting rules that apply to Bitcoin. Bitcoin is a commodity, and it shouldn’t be subject to GAAP accounting rules. And if we would make that change, I think we’d see Bitcoin uplifted as a very important commodity, probably the most important commodity in the country. And that’s coming from a cattle rancher.” (Generally Accepted Accounting Principles, or GAAP, is the accounting standard adopted by the U.S. Securities and Exchange Commission.)
Rep. Davidson concurs that, over the more than one decade in Bitcoin’s existence, there has not been much regulatory clarity. He points to U.S. historical precedent. “With the Telecommunications Act of 1996, we protected innovation in the internet age, and the internet economy flourished. We still haven’t even seen all the use cases of the internet. But, we’re in the infancy of blockchain broadly. The use cases are all over the place…the architecture for this space is growing dynamically. And, if you could do what you said, at least you would stop the bad ideas. But, the reality is we need to actually protect the good ideas, as well.”
Rep. Davidson has been passionate about establishing a bright line test to say what is this security and what is not a security? This is one of the biggest challenges, why the SEC can’t move forward on any number of things. They had no action letters under Clayton.” He is optimistic about new SEC Chairman, Gary Gensler, providing more clarity on Bitcoin. “But what would really work is if Congress would actually pass a law, and then we could say there is a bright line test. People shouldn’t have to look like they’re looking at a Jackson Pollock painting to know whether it’s a security or not…We should be able to know clearly whether this is a security or it’s not a security, and that’s going to attract the capital investment.”
Sen. Lummis then interjected, noting Gensler is a good example of how bipartisan Bitcoin is in the halls of government. Gensler, a Democrat appointee of President Biden, understands Bitcoin, cryptocurrencies, distributed ledger, blockchain, and “how they can be useful and restore freedom in our country when it comes to our financial future.” So she voted for him.
Mr. Stevo then asked about the IRS. Particularly, it’s asking everyone about their involvement in the cryptocurrency industry on US tax forms. Rep. Davidson noted this was none of the government’s business. “This is the most offensive part of the 16th Amendment, which is the income tax. (They amended the constitution to pass the income tax) It’s the privacy. It’s really not the government’s business. Did you get paid a wage? Did you pay someone a wage? Did you buy or sell something? Did you make or lose money? Did somebody give you a gift? Was the gift too generous? All of it, none of your business.”
Rep. Davidson observes that the country is “unfortunately” a little ways away from agreeing to get rid of the 16th amendment, suggesting a change to a consumption-based sales tax-oriented system, because “it wouldn’t be as insidious on the privacy angle.” He also noted that the IRS clarified the question to say the question must only be answered ‘Yes’ if you profited, gained or lost money in crypto. If you bought and held on for dear life, then you don’t have to answer the question. But, that’s not how it is phrased.”
Sen. Lummis acknowledged the need for clarity, noting that Bitcoin is considered a commodity, so the Commodity Futures Trading Commission has authority over it. “We need some clarity about what is and is not a security,” said said, adding that her state of Wyoming passed the first and “best-in-the-nation state laws” to have special purpose depository institutions. Two have been charted: Avanti and Kraken.
“And now we’re trying to get approval from the Fed for them so they can get those ABA routing numbers and the master agreements,” continued Sen. Lummis. “…[S]tates are the incubators of innovation when it comes to government. You’re the incubators of innovation when it comes to business and using this. But, when you want to harness what you have, and use it, states are a great place to go.” Wyoming proved receptive, passing laws and sending examination manuals to the Federal Reserve.
“Unfortunately,” began Rep. Davidson, “Congress is mostly good at…” He paused and looked off in the distance as if to be thinking very hard. You could almost see the smoke coming out of his ears. He finished his thought.
“…They’re pretty good at preserving the status quo, which is a polite way of saying they don’t really get much done. So, we’re hoping to get our colleagues productive on this issue, because it’s not a partisan issue. It’s something we can find common ground on. And, if we can do it, it’ll be good for America, it’ll be good for a lot of people in this room, but it’ll be good for consumers.”
There have been some bad actors in this space, acknowledged Rep. Davidson. “Unfortunately, some of our colleagues have anchored in their mind the bad actors. They won’t take that action yet to say, ‘You know, we should do something to protect the investors by providing clarity.’ And that’s what states like Wyoming have done better than other states.” He is hopeful they can still get something “across the finish line” in Congress.
“In the meantime, we both share the hope because Chairman Gensler understands the issue to the point where he can teach classes at MIT for free on the topic, which is more than most people in the space—and when we get the regulatory clarity coming out of those agencies—hopefully we can get off of this regulation-by-enforcement, which probably scares off a lot of capital and a lot of innovation,” said Davidson. “So, a good system of government does that—it attracts innovation and investment. That’s part of the secret sauce that America has been able to find over the years. Hopefully, we can find that on this issue.” Mr. Stevo asks wherefore the Bitcoin community receives so much “hate” from Washington, D.C.. Sen. Lummis answered.
“It’s my personal feeling that banking is really worried about having their business model changed so dramatically by Bitcoin and other cryptocurrencies, that they’re reacting in fear,” said Sen. Lummis. “And when all of us—when we’re getting into the unknown, and we think it’s going to change our livelihoods, our existence, our business model that we’ve been comfortable with—would probably react in fear. What we need to do is work with the banks to help them understand how significantly Bitcoin can advance their ability to do same day settlements, to do more direct settlements, and make their banking lives more efficient and reduce their risk. But, in addition, for the unbanked—just think—if you have a cell phone, you can be your own banker. And that’s what Bitcoin does for unbanked communities, people on Indian reservations, people in poor neighborhoods. If they are not banked, they can be their own banker using their cell phone. And that is one of the great egalitarian, wonderful things about Bitcoin that I’m so excited about.”
Rep. Davidson believes one of the reasons innovation for the unbanked and underbanked flourishes in Africa is because they don’t have an oversized regulatory framework to hamper blockchain innovation. “And there are people even not with smartphones, just with SMS, being able to become banked, being able to establish an identity, being able to prove who they are by their payment history and transaction history. And look, data arbitrage has made a lot of billionaires over the past 20-30 years.”
Davidson went on to note the creeping surveillance state. “Bitcoin and truly distributed ledger technologies that don’t have a central authority to be able to run the spy operation, to be able to filter the transactions or other things, really offers hope to do that the right way, which is to restore some level of privacy. Not secrecy. We all know there are companies that can follow things on a distributed ledger, and get to the root of it.”
The nature of true distributed ledger must be protected, says Rep. Davidson. “…[W]e have to restore privacy to it, and then you can protect the unbanked and underbanked in a way that is a little bit outside of the current system. And that’s part of the reason that they are unbanked and underbanked is they don’t fit well with the current system. They don’t have the credit history, the payment history or the identity established that would give them access to the current system.”
Sen. Lummis echoed Rep. Davidson here, acknowledging the connection between Bitcoin and crime in the minds of many people in Washington. “…And obviously there’s so much more fraud in regular fiat currency than there is in cryptocurrency.” They have their work cut out for them, educating their colleagues in government about how criminal activity “can be ferreted out, discovered, revealed,” while preserving “the privacy and security of those of you who are using it in a non-nefarious way.”
“I hear lots of experts say that Bitcoin should be banned because criminals use it a lot,” said Mr. Stevo. “Also, it seems like some people believe Bitcoin causes narco-terrorism. And, I agree criminality is a bad thing. The data, however, indicates the number one currency for hackers, narcotics traffickers, the number one currency for human traffickers, the number one currency for terrorists, the number one currency for jaywalkers is not Bitcoin, but the Federal Reserve Note, the U.S. dollar. Can you tell me for the good of society, Is anyone in Washington DC, trying to ban the Federal Reserve?”
“Ron Paul spoke earlier,” riposted Davidson. “And obviously he had an End the Fed kind of mantra that caught on with a lot of folks. I don’t know anybody currently trying to actually End the Fed. We’re at least trying to Audit the Fed. So that’s kind of where the state of play is right now.”
“And now some people in this room know how to use cryptocurrency so well that the government would never be able to lay hands on their assets,” said Mr. Stevo. “Even Bitcoin, they know how to use that well. And when they look at Washington, D.C., they laugh because they know that technologies like Bitcoin, and 3D printing, make Washington DC irrelevant. Now, what do you say to those people?”
“I would say you’re wrong,” said Lummis. “And that’s because the job of the government is to protect your civil rights. It is to protect you, to implement the Bill of Rights, all of them, and if the government is functioning properly, it is protecting your individual rights, and that’s why it’s the best government on Earth.”
The founding documents for our country recognized that rights come not from government, said Rep. Davidson. “[O]ur founders looked at it as from our Creator, a divine gift that we have. And basically for the reason of protecting one person from another person, governments are rightly and lawfully instituted. And that’s really a very limited purpose. And what we’ve seen is this massive growth of government…”
If one truly wishes to defend freedom, they must defend sound money, said Rep. Davidson. “And that involves defending privacy, and it involves defending scarcity. And if we don’t do that, you’re looking at an anarchistic world. Some people view that as utopia. But, the reality is anarchy doesn’t work well, because somebody else uses power to attack those who don’t have power. And our government was created kind of differently as to protect the vulnerable from those who would do them harm. It really is the embodiment, in my opinion, of a non-aggression principle of saying ‘No, we’re not going to allow one aggressor to attack another person, if we get it right. I think we’re way off course as a country from that. And that’s where we find common ground and, frankly, some of our colleagues on the left, they would be more libertarian and lean to the left on some things.”
Sen. Lummis underscored how worried she and Rep. Davidson are about printing dollars backed by nothing. “The $28 going on $30 trillion in debt that has been issued, it’s, it’s,” said Lummus, pausing to gather her words. “It’s demoralizing. And, in my view, it’s anti-American to destroy our currency in that way.” The crowd cheered.
“So, while we’re going to continue to fight for fiscal sanity, and fight to save the US dollar, I am so relieved that Bitcoin came along so it can underpin the US dollar, and if we go off the rails completely, Bitcoin will be there, and it can be the standard,” she said.
Last summer, Davidson created the Sound Money Caucus. “The Fed is basically Dogecoining the US Dollars,” he explained. “There’s a benefit to scarcity that the Dogecoiners don’t apparently get…Nor does the Fed. So, that’s one of the keys that we have to get right, if we’re gonna do America right. We have to defend sound money, if we’re gonna defend freedom, and that’s what America is really supposed to be all about.
Mr. Stevo then brought up Operation Chokepoint. “In 2013, 2014, 2015, there was something that would happen constantly, and that all people who ran legit Bitcoin businesses in the United States knew about. If a bank got a hint of a customer using Bitcoin, they were relentless in shutting down accounts. Money would be stuck for weeks or even months, family members who had no Bitcoin exposure would get accounts shut down, business partners with other non-crypto businesses would get blackballed. It was a nightmare. Years later it came out that the Obama administration quietly and illegally used the FDIC to wage a war on Bitcoin. What do you tell this audience about Operation Choke Point that they might not already know?”
“You highlighted it was illegal what they did,” Rep. Davidson said. “They had a code word for it, Operation Choke Point. It was an operation for sure. It was organized. No one’s really been held accountable for it, which is a problem, in my opinion. They should, because they broke the law. They abused our system…It wasn’t just Bitcoin, it was all kinds of other things. And it really fits with the whole kind of what has evolved now to be a cancel culture.”
Rep. Davidson acknowledges a “very sad history” in the US, particularly as it relates to financial institutions, who oftentimes won’t serve certain demographics. “A lot of times in history, it was pretty racist,” he said, referencing the practice known as redlining. “But, under Operation Choke Point, it wasn’t necessarily race-based—it was, ‘We don’t like Bitcoin, we don’t like firearms, we don’t like marijuana businesses…’”
To combat such clandestine operations, Rep. Davidson worked with a Bipartisan group of colleagues to pass the Safe Banking Act in the House, which says, if marijuana is legal in your state—medically or recreationally—then the banking regulators can’t come in and backdoor make it illegal.
“You had to fight up front,” he said. “If you said, Hey, I’m totally opposed to it, fine, but you lost on the front end, you can’t go on the back end, and just try to backdoor make it illegal. And that’s essentially what they’re trying to do with Operation Choke Point. So, in that Safe Banking Act, we got through some of the protections to make sure that the Operation Choke Point isn’t replicated by bank regulators anymore anywhere in the United States of America.”
Rep. Davidson says a key component thereof is holding people–government officials included—accountable when they break the law and “infringe other American citizens civil liberties.” He says people should be not only fired, but prosecuted for criminal conduct when they do that.
“So, is the current regime going to bring back this war on bitcoin?” asks Mr. Stevo.
“At the end of the Trump administration, I think most of us in the room were very alarmed that they’re going to try to ban private wallets,” said Rep. Davidson. “Very, very bad idea…That’s why it’s so important that the senator and I get some laws that actually protect this space. You don’t want to just be vulnerable to executive action, you know, governing by a cell phone and pen, no matter how righteous the cell phone and pen are.”
Sen. Loomis believes there is a place for legislation when the regulators start making it difficult for citizens to do business. At that point, Congress steps in. “…We want to make sure that, as the regulators implement rules and regulations that affect you, that they’re not going to impair your ability to innovate. And if we have to step in to allow you to continue to innovate, I believe we will. I think there are getting to be enough members of Congress that are at least aware of the innovation that you’re providing, and that it’s going to be beneficial in the future and that we can’t stop it. Why would we want to stop it? So, I’m optimistic. I’m optimistic about the future of regulation.”
“How do we know that Washington DC won’t pass some silly bankster friendly Bitcoin legislation and turn the whole country into a Bitcoin desert by chasing the industry offshore?” asked Mr. Stevo.
“Frankly, it’s a big concern,” replied Rep. Davidson. “That’s why it was kind of a miracle in a way that the internet flourished here. It could have just as easily flourished in other places in the world. And you say, ‘Wait, what else flourished here?’ Well, pretty much everything, since the industrial age, has flourished in the United States. It’s not that other places in the world aren’t full of smart people, and frankly, a lot of the smart people around the world come to America to do their smart things, because we do have a history of getting it right—against all odds, against human nature—a lot of times against people that sometimes are malicious and trying to protect their own interests.” Davidson gave the current banking system and the deep state as examples.
“But against all odds, America has been the last best hope for innovation,” said Davidson. “We have the best markets for goods, services, capital, intellectual property. Look at all the things that have flourished here. We’re not the only country to figure out how to fly, so why does so much happen here? We are home to innovation.”
Rep. Davidson believes the US must improve its intellectual property protections. “And frankly, we have to do a good job in the global community of holding countries accountable who violate the intellectual property of others,” he said. “China, for example, comes to mind. And, if we do that, we’re gonna see this flourish here. We have to get it right. And look, the market will tell you when you get it wrong. So, if you mess it up, like BitLicense, you would hope that there’ll be enough humility to go ‘Oh, yeah, we messed that up.’ So far, that hasn’t happened in New York. Miami seems pretty popular lately, right? The capital’s going to move. Thankfully, not all of it left the country. Some of it came to Miami. A lot is going to Austin. Nashville’s doing well. I’d encourage you to come to Ohio soon.”
Sen. Lummis wanted to underscore her optimism about the future of Bitcoin. “I think it is critical what you are doing for our country, because you’re protecting freedom, the Bill of Rights, you’re protecting value, you’re protecting retirements for people who want to save and retire some day and have something of value, and you are learning of new creative way to provide services around this store of value.”
As co-chair of The Financial Innovation Caucus, Sen. Lummis outlined three components: one is to educate members of the senate and their staff about bitcoin and its potential and about what we can do to allow it to continue to advance its potential. The second is regulators participating, so they too are doing things to allow Bitcoin to reach its full potential, while still having consumer protection and nefarious uses. And thirdly, the caucus wants the innovators in the room to tell regulators when they are inadvertently making it difficult to innovate. “If we continue this dialogue, the future of bitcoin in the U.S. is extremely bright and you don’t need to look to other jurisdictions for your future,” said Sen. Lummis. “Your future is bright here.”
Mr. Stevo asked how those in the audience can help their representatives champion on behalf of Bitcoin. “Tell us what your concerns are about regulation, about legislation,” said Sen. Lummis. “And it’s not helpful if you say, ‘I am afraid you’re going to ban bitcoin.’ I’d rather hear you say, for example, ‘GAAP accounting rules don’t work for Bitcoin. Here is why it should be treated like a commodity for accounting purposes.’ I also want to hear your stories of innovation, and those of you who are good at helping to take the complicated concepts and put them in the language of mere mortals like me, it’s really helpful to us to explain to our colleagues what you are doing to innovate. We will only be as good as you help us be. At my age, the things you are doing are so cutting edge and so sophisticated that I have trouble understanding them and explaining them to others, but you can help us do that.”