What Trump’s crypto embrace means for the U.S.

CHAKRABARTI: That doesn’t mean it’s not a pyramid scheme, though. You can be right about a pyramid scheme.

FAUX: Yes. Yeah. I don’t think that because prices move, that means you’re right.

I think in the end, something has to be useful for it to be valuable. And that if these cryptocurrencies don’t find widespread acceptance, eventually people will lose interest in gambling on them. But as you pointed out with the election, Bitcoiners, some of the richest, most powerful Bitcoin advocates got together.

They gave quite a lot of money to Donald Trump, and they got him to come to the 2024 version of this Bitcoin convention, and for him to give this speech talking about how the U.S. government would get behind Bitcoin. And since then, the price of Bitcoin is way up.

CHAKRABARTI: So that’s why I wanted all this background, Zeke.

And I really appreciate you holding my hand through crypto 101 again, because to your point, with the incoming Trump administration, the crypto industry does feel like it has the most crypto president of all time, definitely with a different perspective now than the current Biden administration.

And that could shake loose some positive things, positive for the crypto industry in terms of their desires for less regulation and things like that. So that’s what we’re going to discuss when we come back. But quick question before we have to take this break, Zeke. Is there a Zekecoin yet?

FAUX: No, I really, I dropped the ball on that. I should make one.

CHAKRABARTI: I believe, Zeke, it’s going to have a lot of value. There you go. So everyone, when Zekecoin gets out there on the market, give it a 200x bump. We’ll be right back. This is On Point.

Part II

CHAKRABARTI: Zeke, so let’s get specific on some of the things that the president-elect has said. So this is from the end of that speech in Nashville, Tennessee in July of 2024 at the Bitcoin Conference, where he promises the crowd he will establish, Trump will establish a federal reserve, a government strategic reserve of Bitcoin.

TRUMP: For too long, our government has violated the cardinal rule that every Bitcoiner knows. By heart, never sell your Bitcoin, right? If I am elected, it will be the policy of my administration, United States of America, to keep 100% of all the Bitcoin the U.S. government currently holds or acquires into the future.

We’ll keep 100%. I hope you do well, please. This will serve an effect as the core of the strategic national Bitcoin stockpile.

CHAKRABARTI: Donald Trump in July of 2024. So Zeke, a potential Bitcoin national strategic stockpile. What’s your take on this?

FAUX: I was in the audience, and I was shocked. I am a pretty cynical person, but I didn’t think that the Bitcoiners for the low price of $25 million in donations would be able to get Donald Trump to adopt their position so fully. This is a crazy idea. And Senator Cynthia Lummis from Wisconsin, she has laid out a more specific plan of how this would work. It would involve the U.S. government spending a $100 billion dollars to buy Bitcoins. Now, obviously if you have Bitcoins, this sounds great, because this will, the price of Bitcoin has gotten really high, right?

So to keep it going, we need big pools of money coming in. We already had the Bitcoin ETFs approved, which brought in a new set of people who could trade Bitcoin more easily. Now it’s, let’s get the U.S. Government buying bitcoin. I mean I’d heard for years, I’d heard Bitcoiners talk about this possibility.

I had frankly laughed at them. I thought there was no chance. They had gotten the president of El Salvador, Nayib Bukele, a much smaller country, to adopt kind of a version of this plan. And their pitch was like, if the country starts doing it once, if the U.S. is doing it, then China won’t want to be left behind.

They’ll start their reserve and pretty soon, there’ll be countries competing to buy Bitcoin and the price is going to go up to a million. I thought this was like a fantasy, and now they’ve got Trump saying it.

CHAKRABARTI: Zeke, though, okay it’s clear how if the United States government pours billions of taxpayer dollars into a Bitcoin strategic reserve.

It’s obvious how that would enrich holders of Bitcoin, but what is it that they say, or Trump has said, or Lummis has said, any one of them has said. What is their argument about why that would be good for the United States.

FAUX: Well, what they would say is that look how much the price of Bitcoin has increased.

It’s going to keep going up at that rate. The U.S. needs to get in now before China establishes their strategic Bitcoin reserve. And we’re left behind and we don’t have our Bitcoin reserve. We have to buy at higher prices. They’re basically saying that the price is going to go, continue going up exponentially, well into the future, and that the returns will be so amazing that we might even be able to sell some of the bitcoins to pay down the national debt.

Trump actually said after this conference that maybe this would be a strategy for paying off the debt.

CHAKRABARTI: Zeke, actually, it’s almost like we planned this. I have that cut, exactly, of Trump saying that. Here he is on Fox News over the summer.

TRUMP: Who knows, maybe we’ll pay off our $35 trillion, hand them a little crypto check, right? We’ll hand them a little Bitcoin.

CHAKRABARTI: I just don’t understand how this is actually a real plan, right?

FAUX: Yeah it’s not a real plan. It doesn’t make, it doesn’t make any sense. And in this scenario where Bitcoin went up so much that it could pay off the national debt, of course the guys, the Bitcoiners promoting it like it. Because they would be so rich, they’d be like the emperors of the world.

Like there’s no scenario where this works out, but Bitcoin, it’s been around for 15 years. And as we were talking about in the beginning, people don’t really use it for much, it’s as old as WhatsApp or Uber, but people are not using it to buy things. And to make transactions.

That was like the original pitch. And so the Bitcoiners, I think rightly realized they need to just keep bringing in money to keep the price going up, to keep it going.

CHAKRABARTI: Okay. So Zeke, to get down to the potential, real downsides to this, let’s say that Trump goes through with his plan to create a national Bitcoin strategic stockpile.

The money may come from something like what Lummis has said, $100 billion dollars of taxpayer funds. The United States also, what, seizes Bitcoins as assets in criminal investigations, right? The DOJ does that. So maybe that would be part of the reserve. But nevertheless, to your point, its growing value requires more and more money being pumped into these cryptocurrencies or Bitcoin specifically, whether from the United States or from around the world, this sounds like a 2008 financial market crash, but on steroids.

FAUX: I think that the good thing is that $100 billion is a lot for Bitcoin. It would be great for pumping up the price, but the U.S. Government has so, so much money. It’s that even if they lose money on this strategic reserve, they would be able to afford it. And so far, we haven’t seen banks hedge funds like mainstream Wall Street adopting this strategy and buying up huge pools of Bitcoin for themselves.

So a crash, when crypto crashed in 2022, we saw a lot of crypto companies fail, like Sam Beckman-Fried’s FTX, but we didn’t see a huge impact on the mainstream financial system.

CHAKRABARTI: Don’t you think they would go value chasing now after a while, if it keeps going up? You just said that there’s a crypto ETF now.

FAUX: Yeah. Definitely Wall Street is making moves to create more ways where they can offer crypto to their clients, and make a profit from the listeners who want to trade crypto. They’re like, let’s not let the crypto companies earn those fees. We want to earn them ourselves. But in general, they haven’t placed huge bets of their own reserves on Bitcoin or other cryptocurrencies.

But yeah, the more it’s deregulated, the more links between the mainstream and the crypto world will develop.

CHAKRABARTI: Yeah, so we’ll talk about regulation in just a second here. But there is another wrinkle to this. And by the way, before we get there, let me just say that, okay, strictly speaking, if indeed the United States had a strategic stockpile of Bitcoin, and its potential benefit to the American people would be its ever-increasing value, maybe that is something. I want to leave part of my mind open to that possibility, right?

Having a highly valuable source of some kind of funding in the future, but it seems like there’s a lot of ifs. And wishful thinking that goes into making that future possible. Meanwhile, we also have a president-elect whose companies are involved in the crypto world. Because his son, Donald Trump Jr. is involved in the family’s new crypto venture, World Liberty Financial. He was part of an event that streamed from Mar-a-Lago on X slash Twitter Spaces just a couple months ago. In September of 2024, and here’s what Donald Trump Jr. said about the new company.

DONALD TRUMP JR.: What I think we’re doing here is really a game changer. This is the start, I think, of a financial revolution.

I hope that we can help simplify so much of this for a lot of people who, you know, love the idea of it. But just they look at the complexities and they look at just, it can be overwhelming. But I think there’s a lot of people that, you know, frankly, like me, have lost a lot of faith in the traditional institutions and they realize it’s all one big Ponzi scheme.

CHAKRABARTI: Zeke, talk to me about World Liberty Financial.

FAUX: So this was wild. With weeks left in the campaign, Donald Trump himself and his son started promoting their own cryptocurrency. Because they realized what is something that’s true about crypto. If you want to definitely make money on it, the best way is to start your own crypto so you can make up the coins and sell them to regular people for real money.

So World Liberty, they still haven’t made it exactly clear what it’s going to be, but it sounds like it’s going to be a platform where people can borrow money against their crypto holdings or lend crypto to other people. There’s many of these that already exist. And in fact, they’re going to copy some existing technology.

But of course, they started selling their own coin called, also called World Liberty. And it’s a really crazy sounding investment. You can’t, the coins cost a penny and a half each. You can’t sell them. You don’t receive any revenue of this future trading platform. And you get voting rights on what happens on this platform, but the platform is generally controlled by the founders like Trump.

So it’s really unclear what you get for your penny and a half to buy these World Liberty coins, but yeah, just after the assassination attempt on Trump at Mar-a-Lago, he did this live stream where he was promoting it.

CHAKRABARTI: Yeah, but you know what you get? You get to be part of an enterprise that is headed by the incoming president of the United States.

That, okay. Here’s another way of putting it. I will let one of Trump’s own picks for his future administration describe it. Because his pick to lead the Securities and Exchange Commission is a gentleman named Paul Atkins, and he appeared as a guest on the Libertarian Kibbe on Liberty podcast in February of last year, and the episode was called Keep Your Government Hands Off My Crypto.

In that interview, Atkins said that the SEC has lots of what he called, quote-unquote, creaky regulations around the financial services industry that, in his view, impede innovation.

PAUL ATKINS: That’s one reason why the SEC should be there, with its ear to the ground to figure out, okay, which way are things moving?

And let’s try to accommodate activity that’s not criminal, enable markets to flourish because if it challenges incumbents, and it helps to bring down costs for investors, and for people who are trying to raise capital, that’s the reason why we have financial markets. People take risks, and they may lose all the money by investing in something, but that’s their right.

CHAKRABARTI: Okay, so let’s introduce Eswar Prasad into the conversation. He’s a professor of economics at Cornell University and author of “The Future of Money, How the Digital Revolution is Transforming Currencies and Finance.” Professor Prasad, welcome to On Point.

ESWAR PRASAD: Hi, Meghna. Good to be on your show.

CHAKRABARTI: Okay, so just straight question to you here about the World Liberty financial part of this, a very pro crypto Paul Atkins could be the next head of the SEC.

So how is it anything other than a conflict of interest or just straight up corruption for the future president of the United States to be appointing people who are going to be regulating an industry that he has an active interest in?

PAUL ATKINS: The World Liberty Financial website has been changed recently to say that it’s just a venture inspired by Donald Trump, although he will get 75% of the net revenues. The broader context here is the interesting thing, Meghna, because the crypto industry is really getting what it had been dreaming about, what the crypto promoters, exchanges and so on wanted is the legitimacy of government oversight, while actually being subject to minimal regulation.

And they’re going to get that. Because, as you pointed out, the gentleman who’s probably going to head the Securities and Exchange Commission, which so far has been a key thorn in the sides of the cryptocurrency industry. The possible head of the Treasury Department. The cryptos are all very forceful advocates for the crypto industry.

And of course, under a Trump administration, we’re going to see much lax regulation very broadly, but especially of the financial sector and particularly of crypto. Now, the fact that the government seems to be backing crypto is going to give retail investors the sense of security that after all, the government is behind this.

So it must be relatively safe. Because after all, these are going to be regulated products. While at the same time, there are going to be no significant constraints on what crypto promoters, exchanges can do. And it’s going to make it much easier for retail investors as well as institutional investors like commercial banks to hold on to crypto, which is why I think the crypto industry is so much behind Donald Trump, because he’s going to give them everything they want.

CHAKRABARTI: OK, so we’re going to come back to the commercial banks question here, but Zeke, I just wanted to get your take on Atkins and on the possible pro crypto deregulation that could happen under the next Trump presidency. And its benefit to his own cryptocurrency.

FAUX: Yeah, for my book, Number Go Up, I spent like years looking into the crypto world, and what I found was no shortage of scams, fraud.

Some of the biggest players in the industry turned out to be stealing investors’ money. And the response to that from the crypto industry has been to push for less regulation. Traditionally, the SEC’s role has been to keep an eye on financial markets, and to try and prevent people, promoters from coming in and scamming investors.

If they loosen these rules, it’s going to make it easier for people to get scammed. So I’m worried that with these, it seems quite clear that Trump would benefit from the looser rules. He needs them to, it would enable him to promote World Liberty more widely. Right now, it’s been restricted to sales to international investors and accredited investors who are people who have a certain amount of income or money.

So it seems like it’s in his interest to let it rip. I can’t imagine anything else is going to happen.

Part III

CHAKRABARTI: So just one more quick little bit of sound here from someone associated with World Liberty Financial. That is the Trump family’s new crypto project. You’re about to hear Chase Hero. He’s describing the crypto industry in a 2018 YouTube video. He is one of the men behind World Liberty Financial, I should say, specifically.

And in this YouTube video, he recorded it while driving in a Rolls.

CHASE HERO: You can literally sell [expletive] in a can, wrapped in [expletive], covered in human skin, for a billion dollars if the story’s right. Because people will buy it, and that is what is going on in the crypto space. Like I said in my other video, I’m not gonna question the right and wrong of all that.

All I’m saying is, as a human being, you have the ability to make a [expletive] ton of money right now.

CHAKRABARTI: Sell the right story. And you can make a ton of money. That’s what’s going on in the crypto space, according to Chase Hero, who is one of the men behind Trump’s World Liberty Financial. Professor Prasad, so let’s get down to the really important sort of policy questions here.

Right now, how is crypto regulated, right? Like how do the government’s regulatory agencies look upon crypto and how it can limit it?

PRASAD: So it’s worth adding a bit of color to where the value of cryptocurrencies comes from, which is where you began the show, Meghna. So the technology is really cool.

If you think about being able to conduct transactions between you and me without using a trusted third party, like a credit card provider or so on, that’s fantastic. Now, the real value of Bitcoin, according to its proponents, comes from the fact that it is scarce. There is a hard coded element in the algorithm that creates Bitcoin that says that they will ultimately be only 21 million bitcoins ever created, of which about 20 million have been created so far.

And that seems to be the value proposition that something scarce must have value compared to something like the U.S. dollar, which can be created essentially in infinite amounts. And that, to me, is a very dubious proposition. So ultimately, it’s become a purely speculative financial asset, and that raises the question that you just brought up. How does one regulate what is essentially a purely speculative financial asset with no intrinsic value.

CHAKRABARTI: Can I just jump in for one second? Because I’m glad you explained the sort of mathematical or computational limitations around Bitcoin, because that’s really important to understand. Whether the scarcity feature of that driving its value because of human emotions, we’ll come back to that in a second.

But to be clear, do the other cryptocurrencies have a say a similar mathematically or computationally imposed limitation to them or no?

PRASAD: Some don’t. So right now, there is a wide world of cryptocurrencies. As the granddaddy of cryptocurrencies, Bitcoin is still the biggest, the baddest, and is the one that is most subject to this scarcity constraint.

CHAKRABARTI: Got it. Okay. So in that case, you were saying that’s a really dubious value proposition for any financial investment, which leads us to this. How do you regulate it?

PRASAD: Go ahead. Yeah. So if one thought about it as a commodity like gold, which gets most of its value from scarcity, although gold at least has some value in industrial uses, and maybe in tooth fillings and so on.

Bitcoin is really not working well at what it was supposed to do, which is serve as a medium of exchange. So there is some logic to having it regulated as a commodity, but there are other cryptocurrencies where there are features built into the cryptocurrencies that make it seem like a security.

Now, there is, of course, a tough battle between security agencies with the regulatory agencies, with the Securities and Exchange Commission, having taken it upon itself to regulate cryptocurrencies and related products. Because to them, it looks like securities. Now, from the cryptocurrency industries point of view, there is a preferred outcome.

They would definitely like to be regulated by the Commodities and Futures Trading Commission. Largely because that has traditionally been a much weaker regulator. It has much less personnel and expertise, and it would probably give them a much freer pass. But whether or not a particular cryptocurrency should be regulated as a commodity, or as a security, is actually not an entirely clear proposition, and it turns out to depend on the cryptocurrency.

CHAKRABARTI: Okay. For the sake of being proud of admitting when I’m not entirely clear on something, right? We all have to learn. How would you define what the difference is for people who aren’t economists, between a security and a commodity?

PRASAD: So let’s take Bitcoin. I argued that most of its value comes from scarcity.

There are other cryptocurrencies, which are a little weird. They’re called stablecoins, and they get their stable value, unlike Bitcoin, which is very volatile value. So stable coins get their stable value from being backed up by fiat currencies like the U.S. dollar. So every unit of something called USD coin, for instance, is backed up by unit of a dollar.

So it has stable value, and it does what Bitcoin was supposed to do, which is to service a medium of exchange. And that does have many properties that look like a security, does potentially allow you to undertake a variety of transactions that it can be used as collateral for a variety of purposes.

Whereas Bitcoin, on the other hand, is something that looks like a commodity, because it has no intrinsic function, but it is a pure speculative play. So the real question is whether something has underlying value. So security, like a stock or a bond, gets value from the fact that it is providing some utility, or it is linked to the profits, as you mentioned earlier, of a company, or something of the sort.

Whereas if it’s a pure speculative asset, then it’s not clear that it is a security in the traditional sense.

CHAKRABARTI: Okay, thank you for that clarification. With that in mind, Zeke, hang on for one second, because I want to play some of the thoughts from Zack Shapiro. He is the head of policy at the thinktank Bitcoin Policy Institute.

He’s also a managing partner at the law firm Rains LLC, and Shapiro says he and other Bitcoiners would like clearer federal rules on which crypto products are legally considered, as the professor has been walking us through, securities and which are commodities.

ZACK SHAPIRO: The status quo just isn’t tenable where the SEC, frankly, has been playing hide the ball on where the line is.

It’s bad for people creating companies in the crypto space. It drives a lot of companies offshore to use foundations in the Cayman or the BVI. That deprives the United States government of a lot of tax revenue, potentially. It leads people to not add features to their product that their customers want, out of fear that those features would turn their network or turn their token into a security.

I think it’s a great thing that we’re going to hopefully get some regulatory clarity here.

CHAKRABARTI: Okay. So Zeke, I’m actually somewhat partial to this argument from Shapiro. Because he’s saying, look, it’s the regulatory agencies that are not like clearly defining what a crypto should be. And if they did, then we would at least have, always that needed stability to move forward as an industry.

FAUX: Yeah. I think it can be confusing to talk about this stuff hypothetically. And what’s actually happening is that right now. If you want to trade crypto, you probably go on an app like Coinbase, and you’re presented with a list of tons and tons of cryptocurrencies that you can easily buy and sell on your phone.

The securities and exchange commission is suing Coinbase. And what they’re saying is that many of these investments that you are marketing to people right now fall into our purview, and that you have not come to be registered with the SEC. You’re offering these investments without all the safeguards that a stockbroker would have.

And so the crypto industry, they’re trying to present it as, Oh, we don’t know. Why won’t you tell us which ones are securities? And the SEC is saying, Hey, you have offered like a menu of investments against our rules. Many of these have turned out to be scams and frauds. We want you to follow our existing hundred-year-old rules that other people who market investments already follow.

You don’t get special rules just because you’re marketing a different, new kind of investments.

CHAKRABARTI: Okay. Professor Prasad, let me offer this idea, that even though clearly, I look with more than a little skepticism upon the crypto industry, there is a very strong argument to be made for the need for financial innovation.

Because as we’ve seen in the past, that financial innovation can be good in terms of freeing up actual capital, human capital, to further develop an economy. It can be great until it’s not, right? I keep thinking of the housing crisis from 2007, 2008, and the era of credit default swaps that we all had to suffer through.

But nevertheless, that doesn’t mean that we should just write off an entire industry simply because it’s new and potentially innovative. And shouldn’t we look upon crypto as such?

PRASAD: Absolutely, Meghna. I think there are two key legacies that crypto is going to leave us with, no matter what happens to the price of Bitcoin, which may either go to a million or it might go to zero.

One is that the technology that has been bequeathed was by the creator of Bitcoin. We still don’t know who that is. This blockchain technology of it is underpinning this world of decentralized finance, which doesn’t require traditional institutions. That is quite remarkable, and it will have some uses.

But more importantly, I think crypto has really shown a very harsh light on the inefficiencies in the existing financial system. First of all, there are many people, low income, low net worth individuals That are just not served by the traditional banking system because they don’t make profits off those individuals, because they just don’t have enough money.

Second, even basic banking products and services for managing credit savings risk are not easily accessible. Then there are issues related to payments, especially international payments, which are very expensive, time consuming, difficult to track in real time. And each of these is amenable to technology.

And we should have better payment systems. We should have everybody having easy access to digital payments. And what the crypto revolution has shown us is that you can use digital technologies to accomplish all of these objectives. Now, my view is that crypto is not going to be the answer. The promise of decentralized finance, so to speak, democratizing finance so that everybody, no matter what your income level would have very easy access to these basic banking products and services, digital payments, and so on.

That promise has not been worn out. What we are seeing is a lot of financial engineering. Rampant speculation fraud and so on that has overtaken the crypto industry. It’s not delivering on its real promise, but it is forcing traditional financial institutions to up their game. It is causing central banks to start thinking about improving payment systems, possibly introducing digital payments of their own.

So I think we’re going to leap, go to a better place in terms of financial markets working better. Although that may not be because crypto is what delivers the promise, but it’s leading us there.

CHAKRABARTI: Okay, quickly, though, Zeke had reminded us about the crypto crash that happened not that long ago.

And for now, again, big asterisks there, for now, it seems like banks and other financial firms on Wall Street aren’t pouring a lot of their own assets into crypto. Own assets into crypto, but if it does head in that to-the-moon direction, at least for a little while, isn’t it possible that the conventional financial system could get more wrapped up in crypto and therefore introduce another terrible systemic vulnerability in our financial system?

PRASAD: We’re certainly not at that scale yet, but it’s coming. As we see regulations becoming laxer, it’s going to be a lot easier for retail investors to buy a lot of products that allow them to, so to speak, bet on crypto. And it’s also going to make it much easier for investment managers, commercial banks and so on, not only to offer these products to their clients, but also hold them on their own account.

So that’s going to expose parts of the traditional financial system. And those risks are quite moderate. But if the regulators basically back off, that’s going to make it very hard, especially at a time when the government has become a booster of crypto for these institutions to stand aside. And then, if the day of reckoning does come, and who knows whether it will come or not, but it’s likely that one day the day of reckoning will come, that will have serious implications for unsophisticated investors who’ve gone all in on this, because they think they have government protection.

It’s going to affect traditional financial institutions and could spill over into the traditional financial system. Yes. There are big risks ahead.

CHAKRABARTI: Yes, to put it bluntly, that would be very bad. We’ve already seen what happens when there’s systemic risks that spills over across the entire financial system.

Zeke, I want to wrap up with this thought and question, because I’ve heard Professor Prasad say very clearly that there’s promise in the kinds of opportunities in a technologically driven, decentralized financial system, and I get that. And he’s also pointed out that the cryptocurrency world is not fulfilling on that promise, but decentralized finance.

And I heard Donald Trump Jr. in that tape we played earlier saying, he’s lost faith in institutions. And we’re talking about crypto, and it’s a purely speculative item right now. It’s not linked to anything meaningful in the United States. So when Trump Jr. says he’s lost faith in the institutions, those are the institutions that back the dollar.

He’s saying he’s lost faith in the institutions of the United States, so therefore he wants to embrace crypto. That seems to be a very anti America First attitude, right?

It’s not America First to say, forget the institutions of this country, I’m going to embrace a decentralized, technologically driven, purely speculative Ponzi scheme.

FAUX: Yeah, it’s pretty wild. We heard Trump say, back in 2021, he feels like Bitcoin is a scam on the dollar and that he believes in having a strong dollar as part of the success of the United States. And it’s very strange to see the government now endorsing this alternative financial system that sort of sold as anti-regulation, anti-government.

It’s pretty strange, but when he, when Donald Trump Jr. is talking about World Liberty, he’s saying, don’t trust the government, trust me and my new crypto company. And that’s very much in line with his message from his first inaugural, I alone can solve everything.