Name: Balancing the Ledger: Coinbase is “cautiously optimistic” about Biden administration
Uploaded: 2021-01-26
Duration: 17 min 1 s
Description: Coinbase’s Chief Legal Officer Paul Grewal discuses his hopes for Crypto in the next four years.

[MUSIC PLAYING] ROBERT HACKETT: Hello, and welcome to Balancing the Ledger, where tech and finance intersect. My name's Robert Hackett. JEN WIECZNER: And I'm Jen Wieczner. ROBERT HACKETT: And today we're here with Paul Grewal, the chief legal officer of Coinbase. Now, Paul, you formerly were a federal judge, and you've taken a job at Coinbase in the past year or so right around the time that Coinbase is going public. Now, I know you're probably not allowed to say that much because of the quiet period restrictions. But what can you tell us about the company's decision to go public right now? PAUL GREWAL: First of all, thank you for having me. It's a pleasure to be on here with you both. What I can say is that this next step for Coinbase is really just one of many in our journey towards building the crypto economy. And we look at Coinbase's current role in the economy as just the beginning for the company and for the industry. We're at an early stage in the evolution of crypto where the focus remains primarily on investing, buying and selling of assets, trading, those sorts of things. We're excited about the next at stage of that evolution, which is the stage where we're talking less about investing, although that will remain very, very important, and much more about the utility of crypto, and how crypto can help people do real things for real people-- buying, selling, lending, borrowing, those sorts of things. Tremendous opportunities ahead. And we think, as a public company, we'll be able to help achieve some of those goals. JEN WIECZNER: Paul, at the end of the Trump administration, we saw a number of policies rolled out or announced that could be viewed or are viewed as unfriendly to cryptocurrency. Does that potentially threaten or delay your IPO plans? PAUL GREWAL: I think it's less about threatening or delaying any public offering, much more about what this means for crypto as a whole. The most significant rule that rolled out in late December was a rule from the Treasury Department concerning self-hosted wallets and the obligations of exchanges and other intermediaries like Coinbase to collect data from people who rely upon self-hosted wallets to interact with others in the crypto economy. We think there are real issues with the way that rule is rolled out. We think there are real issues with the way that that rule would apply as it's currently drafted. So we're hopeful that in engaging with the new administration we'll be able to address some of the most serious flaws. JEN WIECZNER: And just give us a quick update on where that rule stands now, now that the bottom administration has taken over. PAUL GREWAL: Well, we learned as recently as yesterday, that along with a whole host of other rules that were rolled out in the 11th hour of the previous administration, the proposed rule on self-hosted wallets is now being paused. But we think there are still significant issues that need to be addressed. It was certainly frustrating and disappointing for the industry as a whole to have to respond to that rule over the holidays with very few days to really address the significant flaws in that rule. And so the pause is helpful in that regard. But we think the underlying issues remain. And we're eager to engage in a conversation with the Treasury Department to hopefully address them ROBERT HACKETT: Paul, were you able to enjoy your holidays, or was it just totally you were working to draft this commentary? PAUL GREWAL: Well, I did manage to enjoy the holidays a little bit, but we had over 70 or 80 pages from the Treasury that we had to grind through in order to understand what the rule would encompass. And we also had dozens of questions, specific questions that we needed to respond to over that short period of time. So it was a bit stressful for not just those of us here at Coinbase, but many in the industry. But it was important for us to try to provide that input as best we could under the circumstances. And so while we were able to do that, we look forward to a more complete opportunity with this pause in place and with the new administration in charge. ROBERT HACKETT: Aside from the tight timeline and just the generally terrible timing coming amid the holidays and during presidential transition, what were your big objections to the government's rule? There were a lot of valid concerns about money laundering and illicit financing in the cryptocurrency world. So what are your objections to the way the government is trying to get on top of this problem? PAUL GREWAL: Well, while there are a number of legitimate concerns that we share with the government about illicit activity, there were three big problems with this rule. The first problem was the burden it imposed on regular consumers and the industry as a whole. The second was the privacy issues that were implicated by the way in which this rule was drafted. And the third were the security concerns that many of us have about what the government will do with this information and how it will protect it once it's been collected. The burden here really falls on individuals who rely upon self-hosted wallets, because we now have a rule which would require exchanges like Coinbase and others to collect the names and addresses and potentially all sorts of other information about individuals who use self-hosted wallets for the very first time. That obviously raises real privacy concerns for people who rely upon self-hosted wallets in order to conduct trades and other transactions involving crypto. And the biggest concern we have are really the security questions because, as I think many who've been following the space know, the government's own ability to secure information it collects as part of these reports is something that is a topic of a lot of concern and discussion right now. So we think there are basic issues that need to be resolved and worked out. We're hopeful we can get to a place where everyone's interests are balanced and managed But as drafted, the rule doesn't do that, and we continue to have concerns about it. ROBERT HACKETT: We're certainly seeing some of the cybersecurity concerns that you mentioned with this solar winds debacle that the government is trying to get [INAUDIBLE]. PAUL GREWAL: Exactly. And the main problem is that the information that we would have to collect under this rule isn't specified. The rules talks about names and addresses, but it specifically gives the Treasury Department the discretion to require all sorts of other information be collected from these self-hosted wallets. And it's important to understand that these aren't customers of exchanges like Coinbase. These are third parties to the exchanges. These are people that are interacting with our customers. And so in many cases, we don't even know who these parties are or how we would actually collect this information. So it's a real concern. JEN WIECZNER: Coinbase, according to your CEO Brian Armstrong, is an apolitical company. But cryptocurrency has clearly become such a political issue. Besides the fence-in rule, what are your hopes for the Biden administration? And do you view it as a potential positive or negative as compared to this act going on? PAUL GREWAL: Well, we're cautiously optimistic. There's still a lot that needs to be done and a lot for us to learn about how the new administration will approach many issues. First and foremost, what we'd like to see are clear rules for the industry, so that regardless of whether or not we agree with or what we understand how to comply with it. The self-hosted wallet rule is a great example where there are still real open questions about how we would even gather this information from counter parties involving self-hosted wallets, when in many cases, there aren't individuals at all on the other sides of these transactions. They are automated or self-executing contracts that apply that don't even attach to an individual. So clarity around the rules is very important. We're also eager to see greater clarity, for example, in the definition of a security so that we can understand what crypto assets qualify as a security under the SEC's rules and which assets do not. We want to have confirmation that crypto really is understood as a force for good, even as there are legitimate concerns about money laundering and other illicit activity. The new administration has made very clear that it will focus on things like access for the unbanked and underbanked to our financial system, equity, and having access to the basic elements of a financial system like credit, for example. And we think crypto can play a very important role in addressing some of those concerns. And then just one other aspiration we have in our conversations with the new administration is to hopefully get to a greater sense of support and sense of enthusiasm for things like stablecoins that are backed by US dollars that allow individuals to get the best of both worlds to have the security and stability of a reserve currency issued by a central government with all the benefits that attach to digital assets. So we're cautiously optimistic about each of these things. But so far at least, the early signs point to the potential for real progress. JEN WIECZNER: Janet Yellen, who's Biden's pick for Treasury Secretary, said during her confirmation that she views cryptocurrency as being primarily used for legitimate transactions. What was your reaction to that? And does it scare you? ROBERT HACKETT: Well, we have a lot of respect for Secretary Yellen and obviously her incredible experience even before coming to the Treasury. We think there's an opportunity for education. Even as we sit here in 2021, in various quarters and circles of the government, there still remains a fundamental misunderstanding of what crypto is about and how prevalent illicit or illegal activity actually is. Just recently, a leading analytics company released a report indicating that less than one half of 1% of transactions involving crypto are even associated with suspicious activity, let alone criminal activity. And we think basic facts around what crypto is being used for and its potential for good still need to be understood. And we're eager to play some part in sharing what we've learned over eight or nine years of experience with crypto in ways that we think will be very helpful to the new administration. JEN WIECZNER: You've touched on the issue of whether cryptocurrencies are securities or not. I know that's a hot button issue at the center of an SEC action against Ripple. And I know their associated cryptocurrency XRP does trade on Coinbase. What does that mean for you, and is it worrisome? PAUL GREWAL: Well, I can't speak to the merits of the SEC's case. A court's going to have to sort out the various allegations and claims it makes in its complaint. We have paused our trading of XRP while this SEC case is pending. I know a number of others in the industry have done the same. And we're just hopeful and eager to see a resolution of that case and of the issues that it raises as quickly as possible so that, again, we can move forward with a clear understanding of what the rules are and fully comply with whatever the courts and/or the SEC decide. ROBERT HACKETT: Given your legal experience, having worked on cases involving some of the biggest tech companies around from Oracle to Google to Apple and Samsung, which way do you think the winds are blowing? How is this lawsuit against Ripple going to shake out? PAUL GREWAL: Well, I think that what this lawsuit shows is that crypto's time has come and in many ways. I mean, one thing I have learned over two decades or more of practicing technology law is that the government and others only take an interest in an industry once it has arrived and once it becomes material and meaningful not just to people in the industry, but to the public at large and importantly consumers. So I think that however the SEC's case gets resolved, I think it's clear that the SEC will continue to focus on this question of what crypto assets qualify as a security. And I think that it's important that as that question is debated, that everyone's views are taken into account and that there's an opportunity for a real conversation between the government, various agencies, and the industry. And again, we're very eager to be a part of that. We don't pretend that we have all the answers, but we think we have a lot of experience to share that hopefully we'll allow the government to get to the right result. JEN WIECZNER: Paul, you were at Facebook as they were launching the Libra project, which is now sort of up in the air, which has changed a lot. What's your view on that project or the potential for stable kinds of projects like it going forward? PAUL GREWAL: I'm still very bullish long-term on stablecoins. And I think that one of the real lessons from the experience Facebook had with Libra was that it was an issue whose time had come, regardless of whether or not individual regulators had particular concerns about that stablecoin. We're seeing tremendous interest in developing stablecoins in a variety of different settings. And I think that the widespread appreciation that crypto can be a force for good and help digitize currencies and allow regular people to do things like cross-border remittances to expand their access to lending, those types of things, suggests that, regardless of one project or another's challenges, stablecoins are here to stay. And the only question now is what's the right way to implement them and promote widespread adoption? ROBERT HACKETT: Stablecoins are certainly very interesting. Coinbase has one it's working on itself, USDC, which has gaining a lot of traction lately. But something that is catching a lot of investors' attention is Bitcoin. As we kind of mentioned at the start of this conversation, Bitcoin has been taking off like crazy. The price is up higher than it's ever been. What is your sense of how investors should be thinking about Bitcoin? Right before Coinbase announced that it was filing to go public, Brian, your CEO, he issued a warning to investors saying, be careful. The price of Bitcoin is extremely volatile. So anyway, I'm just wondering what guidance you can offer people who are looking at cryptocurrency maybe for the first time? PAUL GREWAL: Well, I think one of the things that our CEO Brian Armstrong has been very consistent about over the entire history of Coinbase since he founded the company has been that it's important to always take the good news and the bad news with a certain degree of skepticism. Things are never as high as they appear, and they're never as low as they appear I think is one way I would summarize Brian's perspective on this. I think that for new investors or for seasoned investors, it's important to understand that we're just at the very beginning of this journey as I mentioned. That we very much look at the interest in investing in crypto assets, including Bitcoin as an essential first step in the overall evolution of the crypto economy. But there is so much more that lies ahead. And we think that as decentralized technologies take root, as we see greater development of opportunities for people to make micropayments, cross-border remittances, and other features of the financial system really become popular using crypto, we're going to look back at this first phase with some degree of amusement at all the excitement because-- and we're very hopeful that this is just the very beginning. ROBERT HACKETT: Where do you expect the price to settle in the coming months or by the end of the year? PAUL GREWAL: Oh, gosh. I have no idea. I have no idea. I'm too busy thinking about the rules and the regulations that apply to the crypto economy as a whole to focus on Bitcoin pricing. ROBERT HACKETT: I had ask. Well, thank you so much for joining us, Paul. It's been a pleasure having you on. PAUL GREWAL: Thanks for having me. I enjoyed it. [MUSIC PLAYING] 

Balancing the Ledger: Coinbase is “cautiously optimistic” about Biden administration 

Finance

Coinbase’s top lawyer Paul Grewal discuses.

Coinbase “cautiously optimistic” about Biden administration

Coinbase’s Chief Legal Officer Paul Grewal discuses his hopes for Crypto in the next four years.