Just as it took the British government a century to catch up to Jonathan Swift’s innovative person-to-person loan program, the U.S. government has been slow to react to crypto, creating bureaucratic and legal hurdles to growth in the industry. But with a new administration and a new Congress, the industry now feels there’s reason to be optimistic that regulatory clarity, and a new chapter in the story of crypto in America, is beginning.
Financial innovation often outpaces regulators’ ability to keep up. This was the case in the 1700s, when the Irish satirist Jonathan Swift decided to give away no-interest, peer-to-peer loans which immediately bore fruit, spawned imitators, and provided liquidity to parts of Ireland where there had been none. Despite these benefits, it took more than a hundred years for Parliament to formalize the network that had sprung up. A similar phenomenon has happened recently in the U.S., where crypto’s rise caught regulators unprepared. But now, as a pro-crypto President and Congress reshape Washington, the industry is hopeful that it can finally achieve what it needs for sustainable flourishing: regulatory clarity.
We’ll explore Swift’s innovation before turning our attention to the regulatory and legal issues that have plagued the current crypto space, learning why America has had a uniquely difficult path to regulatory clarity, what’s changing now that there’s a new administration, and the many opportunities — for investors, businesses, and consumers — that regulatory clarity will unlock.
Maggie: It’s been nearly 15 years since a computer programmer named Laszlo Hanyecz famously spent 10,000 Bitcoin for two Papa John’s pizzas. The first-ever purchase using Bitcoin.
At the time, those 10,000 coins were worth only forty-one dollars.
Since that landmark moment, the digital currency has traveled an uncertain road. Which isn’t unexpected. When new financial practices gain traction, regulation is usually slow to catch up with the new reality. As a result, throughout its short history, the crypto market has been plagued by regulatory uncertainty.
But last year, things started to shift.
One of the first big breakthroughs came when federal regulators approved an ETF that tracks Bitcoin. Then came Election Day, which was a game-changer. A record number of pro-crypto candidates - on both sides of the aisle - won at the state and federal levels. With the most pro-crypto Congress ever on its way to Washington, on December 17, Bitcoin closed above the one hundred thousand dollar mark for the first time ever.
At that moment, the amount of Bitcoin that Laszlo Hanyecz used to buy his two pizzas back in 2010 was worth one billion dollars. That’s a lot of pizza, no matter how you slice it.
It seems clear that crypto is entering a new era… but what will that new era actually look like?
Welcome back to Evolving Money, from Coinbase and Bloomberg Media Studios. I’m your host, Maggie Lake.
On this podcast, we take a different look at cryptocurrency. It’s been cast as a radical departure for the monetary system. But what if it isn’t radical at all – just the next logical evolution of how we pay for things and store long-term value? Along the way, we’ll explore how money has changed over the centuries, and look for lessons that might predict its next evolution.
As investors finally begin to see a path toward regulatory clarity for crypto, what new opportunities are about to be unlocked for investors and consumers?
I’ll pose those questions to Kara Calvert, Head of US Policy at Coinbase, and hear how a clear regulatory framework could build even more momentum behind crypto, and usher in the next wave of money’s evolution.
But first, we’ll speak with historian Daniel Carey about a moment three centuries ago, when a radical new way of lending money was born… and why it took another hundred years for the government to catch up to this innovation.
In 1726, a new book was making waves across Europe. Gulliver’s Travels. You probably read it in high school — but did you know that the author, Jonathan Swift, was also deeply involved in Irish politics?
Daniel: He's a controversialist. He's a satirist. A very patriotic supporter of Ireland.
That’s Daniel Carey, Professor at the University of Galway in Ireland, where his work focuses on money and the economy in the Enlightenment.
With the success of Gulliver’s Travels, Swift became newly rich. With his now-substantial personal wealth, Swift decided, “Hey, why not try to do some good?”
Daniel: Swift clearly has a sympathy with those who are trying to get by. Dealing with, you know, what we would call liquidity issues.
They've got debts that they have to call in, they have bills that they need being repaid.
He decides to make person-to-person loans.
He approached farmers, builders, and entrepreneurs he knew, offering loans of 5 to 10 pounds - roughly thirteen hundred to twenty-six hundred dollars in today’s money. And Swift didn’t ask for a cent of interest on these loans.
Swift’s idea was a smashing success. Soon, networks of peer-to-peer loans began popping up across Ireland: an unofficial system providing crucial liquidity and startup funds to people who had no access to financial institutions.
Daniel: It is significant in terms of enfranchising people and giving them a little bit of a sense of reward for what Swift thinks of as their honesty and their commitment and diligence as tradespeople.
Even as this informal system spread, and its benefits became clear, the British Parliament didn’t formalize or ban these peer-to-peer networks — and that lack of structure limited the scale of their growth. It wasn’t until 78 years after Swift’s death that Parliament passed legislation to formalize what he created.
Daniel: The legacy for Swift is probably in systems of microcredit, which for most people are relatively recent in terms of their thinking about what can be achieved through supporting industrious but impoverished people.
Fast forward to the late 1990s, when online technologies began to inspire a resurgence in the kind of peer-to-peer lending that Swift made popular centuries earlier. Instead of a wealthy merchant going to a farm to lend a worker a few pounds, now online platforms could match individual lenders with borrowers.
It took nearly a decade for the Securities and Exchanges Commission to regulate P2P lending services. Once it did, the system flourished. And today, the P2P market is valued at over 26 billion dollars.
Daniel: These are just evolving systems. It takes a long time to evolve that and to develop systems of trust.
Taken to extremes, government regulation can be the enemy of innovation, stifling change. But as the history of peer-to-peer lending shows– not once but twice– instituting the appropriate regulation can also normalize new kinds of financial practices. Innovation can accelerate, and even more opportunities open up.
For crypto. . . it appears that breakthrough moment has arrived.
Kara: I got my start in crypto about a decade ago and had started working for Coinbase here in Washington, DC, and was really one of the few lobbyists on the ground that was working on digital asset issues, crypto issues, blockchain technology.
This is Kara Calvert, Vice President for U.S. Policy at Coinbase. As an advocate for financial innovation on Capitol Hill, Kara has seen how slow regulators and institutional investors can be when it comes to embracing something new, like crypto.
Kara: When I first started working on these issues, it was much more viewed through the lens of technology. And really, it was so new and nascent that nobody really knew what to think.
As the crypto industry’s grown, the S.E.C. has sent mixed and often confusing signals. Rather than regulating crypto through new rules that treat it as the financial innovation it is, the S.E.C. has insisted crypto fits its existing set of rules.
That approach has led to some murky and seemingly arbitrary classifications. The S.E.C., for example, considers most digital assets as securities, but not Bitcoin and Ethereum. Back in 2018, the S.E.C. ruled that Bitcoin and Ethereum — the two most popular and widely-held digital currencies out there — weren’t digital assets at all, but quote “replacements for sovereign currencies.”
The S.E.C.’s selective regulations have resulted in a “regulation by enforcement” approach, leading to a slew of lawsuits against crypto companies, including Coinbase. In 2023, the S.E.C. alleged that Coinbase had been acting as an unregistered broker. That’s consistent with its view that most crypto products are no different from stocks, bonds and other securities.
But Coinbase - and other crypto companies targeted by the S.E.C. - have argued in court that digital assets are different, and that it doesn’t make sense for them to be treated the same as existing financial instruments.
Kara: We have been working and really tried to work with regulators from the beginning. When Brian Armstrong founded this company, it was to be the most trusted and safe and secure way to transact in digital assets. And in order to do that, you have to work with regulators.
And so I think the SEC over the course of the last four years had very much a, “Yes, you can come talk to us. But we'll listen… we may not give you anything in return.”
Kara says that the absence of clear rules has stifled industry-wide progress.
Kara: That created a real depression, I think, on innovation here in the United States and ultimately resulted in a lot of startups and, and more importantly, the investors in those startups saying, let's go overseas. There's a better way to do this in one of these jurisdictions --not a deregulated jurisdiction, a regulated jurisdiction.
There have been signs that the legal tide might be turning. In 2023, the S.E.C. sued Ripple, a firm which provides digital asset infrastructure to financial services companies, for violating securities laws. But the judge sided with Ripple, ruling that it didn’t break the law when the currency it created, XRP, was sold on public exchanges.
The industry’s momentum continued when the S.E.C. approved an ETF that tracks the price of Bitcoin. That was a big win for crypto custodians like Coinbase, which provides custody, trading and financing for ETF issuers, as well as investors around the world.
Kara: I do think it paved the way for retail investors, other investors around the world to have access to our very deep and liquid markets in the United States. And I think that was very much a turning point for many people.
As for Coinbase’s battle with the S.E.C. — in March 2024, a Manhattan federal judge found, quote, “the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years,” setting the stage for a jury trial. But then in January, she granted Coinbase’s request for a pre-trial review of her March order by the Second Circuit. Those sorts of interlocutory appeals are rarely granted — a promising sign for the industry.
In the meantime, it can still feel like the US is in the dark ages when it comes to crypto.
Kara: You have seen now Europe is ahead of the United States in innovative technology, which doesn't happen that often. And we’re actually very excited about the work in the EU and working with our counterparts and with regulators in the EU. They developed a very clear framework, and they're going to be implementing that soon.
You have the UK, Singapore, Australia, there are so many different countries — roughly 80 percent of G20 and other financial hubs — already have rules that they're putting in place to deal with this asset class.
So why has the U.S. government in comparison been slow to create a federal framework?
Kara: The foundational regulatory framework that we're working with in the United States, is frankly more complicated.
We have a bifurcated system where we determine what is a security and then what is a non security or a commodity. And in the rest of the world, they don't really have that type of differentiation. And that I think has allowed them to move more quickly.
State regulators, you know market regulators, two different market regulators that are in a tug of war, they just don't have that in most international jurisdictions.
Crypto is not asking for a deregulated environment. Instead, we're asking for consistent rules that actually address both the benefits of crypto and of blockchain technology and the risks.
Today, there’s more hope than ever that the industry will finally get the regulatory clarity that will pave the way for wide-scale adoption, with wide-spread benefits for consumers and investors alike.
While the SEC remained reluctant to regulate crypto, and LEGAL proceedings ground on in the courts, the crypto industry turned its attention to the third branch of government: Congress.
Ahead of the 2024 Election, knowing what was at stake, the industry mobilized to support pro-crypto candidates — contributing more than a hundred and thirty million dollars to election coffers. Industry advocacy groups such as Stand With Crypto mobilized as well, organizing more than 2 million crypto advocates through grassroots efforts.
And come November? Twice as many crypto supporters were elected to the House of Representatives as anti-crypto candidates.
The market’s response was emphatic.
In December, Bitcoin hit the one hundred thousand dollar milestone - a remarkable moment, considering that just two years ago, the price had dipped below seventeen thousand dollars.
Kara: It's been a complete 180.
You've got the most pro crypto Congress. You have a president, you have Republicans and Democrats all saying, alright, now we know more about this industry. It is maturing. We understand what the future might hold and why it's important.
So I would certainly say the narrative has evolved. It's matured. You have more people at the table, and I think that's the exciting part now.
With a new, pro-crypto administration in the White House, new leadership at the SEC gives the industry hope for change.
Kara: Now I think the SEC really has an opportunity to write the rules that, these are not rules that are deregulatory in nature.
It needs to be tailored because the asset is not identical to what we traditionally see in an equities market. It has different characteristics. It evolves.
Kara: We are really eager and we are very optimistic that the regulators will work together to actually come up with a framework that looks at both the role of the SEC with the digital asset securities and the role of the CFTC with digital asset commodities.
The CFTC is the US Commodity Futures Trading Commission, a government agency that’s always been overshadowed by the SEC. But under the Trump administration the CFTC is positioned to play a bigger role in regulation, working alongside the SEC. For starters, Congress could empower the CFTC to regulate digital assets as commodities rather than as securities.
Kara: Congress has a really important role here to ensure the CFTC has the federal authority to regulate these spot markets for digital assets. But also that the SEC continues to tailor and move in the right direction. And so the work of the Congress to really make sure that we have something in law that can withstand the test of time, it can move through administration to administration, regulator to a regulator.
Among the topics the crypto industry hopes Congress and regulators will address is the status of stablecoins. The discussion around stablecoins has only intensified with the growing possibility of legislation that would facilitate their trading.
Kara: There are a lot of really important characteristics of stablecoins that need to be captured in a federal framework. How we create a framework at the federal level to ensure that folks who are issuing digital assets as stablecoins are safely protecting their reserves, are putting those, um reserves in a one for one bank account, or in an equivalent of a treasury or cash — that they're holding that in a bankruptcy remote way, that they are accounting for that, and they are demonstrating that in a transparent way.
Another simmering subject the industry hopes Congress takes on is “debanking” — the practice of lenders dropping crypto companies and founders as clients.
Kara: If you can't get a bank account, it's pretty hard to start a new business. Stand with Crypto has brought more than a hundred founders to Washington to meet with lawmakers. And a really interesting piece of the puzzle for them is their banking services. And in almost every meeting they went into, they expressed concern that they couldn't have access to payroll or checking accounts.
And we said, “Well, would you be willing to go raise your hand in public?” And a lot of them said, “Well, I actually don't feel comfortable raising my hand in public because I'm still trying to get that bank account. I'm still trying to find somebody who will give me those services. And if I say right now that I can't be trusted to get a bank account, nobody else is gonna give it to me.”
And so what we saw was this inability for people to really voice their concerns and raise the issues.
But, less than a month into the new administration, that’s already changing. Just a few days into his term, President Trump issued an executive order that fundamentally changed the federal government’s approach to crypto, fulfilling a promise he made on the campaign trail.
Kara: The executive order really encapsulated those campaign promises, everything from ensuring that you can continue to self custody your assets, to ensuring that there's no central bank digital currency to creating a working group to ensure that we stop the turf war between the different agencies and instead have them work together.
The new administration also moved quickly to counteract SAB 121, an SEC bulletin that prevented a lot of financial institutions from entering the crypto space.
Kara: SAB 121 represents the Staff Accounting Bulletin number 121… think about what that represents, it is a staff letter. It is not a rule, it did not go through the proper rulemaking process with notice and comment. It was bureaucrats inside the SEC who decided to write an accounting bulletin that then imposed a new framework on the entire industry.
SAB 121 was a barrier that cut off access to banking services for crypto companies, and kept banks out of the crypto business.
Kara: Coinbase has always prided ourselves on being one of those access points. But when we think about the rescission of SAB 121, it really allows other banks, other financial institutions to engage as well.
Within days of being appointed, the acting director of the SEC countermanded SAB121. Just like that, one of the major obstacles preventing banks from taking on crypto clients vanished.
Kara says it’s a crucial step in allowing banks the security they need to serve clients who hold or deal in crypto.
Kara: Nobody is telling the banks that they need to not engage in risk analysis and make sure that the companies that they're banking make sense for their own risk profiles. But ultimately, we are saying that you shouldn't punish an entire industry or an entire class of people because of what they do.
We will continue to advocate for the industry. We will continue to try to lead from the front. And, and honestly try to make sure that everybody can have banking services.
The industry is optimistic this newfound clarity will break down barriers and allow Americans to understand the promise of crypto.
Kara: So right now there are about 52 million Americans who own crypto.
So I think that there are investors and consumers, really, the consumption I think is what people are excited about. The ability to say, alright, I want to get into this because I think it's a new industry. It's a new way to transact.
wanting to know more about this technology, wanting to make sure it thrives in the US, wanting to make sure that we can grow jobs here because we're seeing thousands of small startups come to the market now with really interesting ideas of how to use this technology.
And that I think, that was the secret sauce over the course of the last year and working with policymakers is showing that this was more than a handful of individuals who were, you know, getting rich off Bitcoin and really a much broader based industry.
Crypto has proven that it’s pretty much impossible to predict the future. But the industry is optimistic that a new era is beginning.
Kara: When we start to educate policymakers, they realize, eventually, this will be ubiquitous like the Internet.
But in order to get there, we have to create the framework and that generally starts in the regulatory environment.
That disruption isn't scary. It needs to be embraced. And we can, in fact, find a way forward that enables really new economic opportunities. We're very optimistic.
Just as the growth of peer-to-peer lending in Ireland far outstripped the pace of royal regulation, crypto has burst onto the scene so fast we’re only now seeing American regulators catch up.
But now there’s a clear path for regulatory clarity, unlocking a new future for companies, investors, and consumers — and accelerating the next wave of money’s evolution.
Maggie: Thank you to Kara Calvert and Daniel Carey
This is “Evolving Money,” a podcast from Coinbase and Bloomberg Media Studios.
If you like what you hear, subscribe and leave us a review.
I’m Maggie Lake, thanks for listening.