Crypto faced an assault of critics on Thursday. Though it also had many supporters. (Photo by �� … [+]
On September 7 I had the opportunity to attend the 7th annual Philly Fintech Summit hosted by the Federal Reserve of Philadelphia. The event featured a terrific lineup of speakers, including many crypto luminaries that I’ve covered and interviewed for this newsletter in recent years such as former OCC Comptroller Brian Brooks, former CFTC Chair Christopher Giancarlo, Circle Chief Strategy Officer Dante Disparte, Coinbase Chief Legal Officer Paul Grewal and former Senator Pat Toomey among many others.
A common theme that permeated the first of the two-day event was the role of stablecoins or central bank digital currency in a modern monetary system. This should not be too surprising given the venue, after all I was at a branch of the Fed. What was surprising to me however, was the level of disagreement that showed up on the stage. I always try to be honest with you about the virtues and benefits of crypto and stablecoins while acknowledging the work that still needs to be done. None of this is a panacea for what ails the world economy, but they are certainly tools that can help. Of course, we don’t usually see this type of commentary in trade publications, in podcast interviews or on stages at events.
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By design the Philly Fed chose to have participants lock horns, and the outcomes were revealing. What do I mean when I say lock horns? There were multiple sessions that purposely placed crypto skeptics and advocates side by side. By far the most cantankerous was a panel discussion in the morning titled “The Future of Payments, Cryptocurrencies and Stablecoins” that featured prominent crypto skeptics Hilary Allen from American University and Stephen Diehl of the Center for Emerging Tech Policy alongside Grewal and Disparte.
Paul Growl and Dante Disparte had to evade a barrage of criticism from skeptical panelists about … [+]
Allen and Diehl did not mince words, more or less advocating for a total ban of crypto, disregarding stablecoins as nothing more than a tool for speculators, and suggesting that there was zero value to any of this. Things even got a little uncomfortable when Diehl said that stablecoins were nothing more than “Venmo for ISIS” or when Allen pointed out how stablecoins are not stable because Circle had to be bailed out to the tune of $3 billion by the federal government when Silicon Valley Bank collapsed. They also pushed back on the idea that the industry needed “regulatory clarity.” Diehl made a point of saying that such clarity already existed in the form of securities laws that have been on the books for 90 years. On the opposite side, Grewal and Disparte relied on many of the common talking points that we have grown accustomed to hearing, how stablecoins offer exposure to the U.S. dollar in countries with exorbitant inflation, the antiquated plumbing of our financial system, etc. It was also pointed out that sometimes a perspective can depend on where one sits—be it ] a comfy chair at a branch of the central bank in the wealthiest country in the world or a remote village in an emerging economy.
Similar arguments were made again in an afternoon session when prominent crypto skeptic John Reed Stark, a former senior official with the SEC clashed with Columbia University Professor Austin Campbell and Anchorage Digital COO Rachel Anderika. Everyone in the audience could see Stark fidgeting when one of his fellow panelists said something that he wanted to retort, such as when Campbell noted that “no criminal should want to commit a crime on a blockchain.” Reed would push back saying something like “Ransomware would not exist without crypto.”
A question that you may be asking now is whether anything came from this? Were these panelists just speaking past each other yet again? There was a certain degree of that and when I spoke to some of these individuals during the networking periods between sessions I definitely got a sense of exasperation with each other. To be fair, each of these individuals was at least familiar with each other before the session. So there were no surprises.
But were they trying to convince each other or the audience, which consisted of a very influential group of policymakers and industry leaders?
It was definitely the latter, and when I went around speaking to people I found an audience, or a jury, that had not yet come out with a verdict. Not a hung jury, just one still in deliberations. On the one hand, there is no denying that criminals have misappropriated crypto, though arguing as Diehl did during his session that using crypto is basically funding North Korea’s nuclear weapons program is too reductive. At the same time, crypto critics were not very anxious to defend our current financial pipes and more than one expressed exasperation at the slow uptake of the Fed’s new instant payment system FedNow.
So, what are the takeaways?
First, it is important to understand the level of skepticism that exists towards crypto. The burden of proof is extremely high and the standard probably got raised even higher than before following the collapse of FTX. The phrase “post-FTX world” came up several times. Sessions like this should help keep everyone grounded.
Second, we must never lose sight of what crypto is supposed to accomplish. Yes, this is an investment newsletter, and you subscribe with the hope and expectation that this would help you grow your wealth. To that end speculation, which was very much used as a four-letter word at this event, is probably useless and may be even counterproductive, even if it is sometimes useful to us. However, speculation can only go so far. There needs to be real users, real transactions and real economic activity tied to those transactions for this industry to succeed. We are still working towards that goal.
Third, this session made it clear to me, yet again, that crypto is not going away. The toothpaste is 100% out of the tube and it cannot be put back in. Think about it. Yes, this was a fintech conference, not the Kansas City Annual Symposium in Jackson Hole, but the entire first day focused on crypto and digital assets despite so many questions before the Fed and other important topics that relate to fintech, most prominently artificial intelligence.
The nation’s central bank is taking this very seriously even if it has no plans, and as stated by Senator Toomey, lacks the statutory authority to launch a CBDC, and we should all be encouraged by that fact.
