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Intro:

[music plays]

Niki: I’m Niki Christoff and welcome to Tech’ed Up.

 

My guest today is Washington Post reporter Tory Newmyer, and we’re talking about crypto as a political force. Look. I know we’re doing a lot of crypto episodes (plus my other favorite topic, the CCP), but digital assets are a fixation for regulators and staffers on Capitol Hill right now.

 

I do promise to mix it up a little bit in our next show. 

 

Transcript 

 

Niki: Today in the studio, I have Tory Newmeyer, Washington Post reporter. Welcome. [Tory: Thank you] Thank you for coming in and up all these stairs to come chat about your beat and your reporting. 

Tory: Thank you for letting me catch my breath. I'm very happy to be here. [Niki: chuckles] 

Niki: So, okay, let's talk, I wanna talk about a bunch of stuff, but you have sort of found yourself down the rabbit hole of becoming someone who reports on crypto. Give me a little bit of your background on how you ended up doing this. 

Tory: It was really, it wasn't my choice in the spirit of radical transparency.  [Niki: chuckles] I came back from paternity leave a year ago; almost exactly, it was right after Labor Day. And crypto had kind of blown up as a consideration in Washington, and our editors were looking for someone to start tracking this. 

And it was sort of handed to me. And at that point, I knew nothing about it. Although I have a history covering where Wall Street meets Washington and financial regulators, and I mean, I'm sort of fluent in the powers that were going to, that were starting to look at overseeing this.

And I thought it was really gonna be a sub-beat and maybe something that I did for a few months, and then they were gonna lose interest while I was working on other stuff. And it quickly became very clear to me that the preconceptions I had about the space, which were basically, y'know, Miami bros showing off their Lamborghini online was totally one-dimensional and that this was really fascinating and potentially hugely consequential and properly had become a major preoccupation for regulators and people on the Hill, on the committees of jurisdiction. 

And there are, y'know, really profound, philosophical questions at play here, deep policy considerations. And it needed my full-time attention. And probably more than that. And we have since dedicated more reporters to this; I am the guy who kind of is the point person for where crypto meets Washington.

Niki: I've had not a dissimilar experience. I hung out a shingle two years ago. One of my first clients was a DeFi protocol, which I was like, “I don't know what any, I don't know what any of that means.” They were designed as a permissionless holacracy, which was like a mind-bending concept. And so I started to learn the subject matter, and I had the same conception you did.

Obviously, I had heard about crypto, certainly Bitcoin, but you're right. I think it's one of the things for us that's probably interesting that we share is: We're in Washington and Washington is existential to this industry. Like how they get it right or wrong is completely gonna impact the technology, the way the U.S. plays in this technology, the companies that are built. And so I'm really curious from your perspective, what are they getting right? 

Tory: What's the industry getting right? Or what's, or what's Washington getting right?

Niki: Oooh, great! Let's do both! [Tory: Okay] Let's start with the, let's start with the industry.

Tory: We'll see where this ends up, but if you had to press pause right now and say, and do a kind of action report on where they stand, I think the industry has matured and gotten sophisticated about Washington at a speed and a scale that I, I think is without precedent in modern lobbying.

I mean, I've never seen anything like this. I've covered lobbying in one form or another for the better part of two decades. I've never seen an industry start from basically scratch a year ago. And the starting gun was really the fight over the tax provision in the infrastructure bill last August.

And that is what made, it woke crypto up to this idea that Washington did, does present an existential threat. And you may not care about Washington. But Washington cares about you. And that is a realization that waves of the tech industry, I think have kind of gone through over the last 20 years. But crypto got it so fast.

And in part, because it had scaled up so quickly and went from being barely a blip in the minds of the people in Washington who are looking at this to something that's taking up, y'know, a majority of their attention. So they had to get sophisticated, fast. And I wrote about this recently, but I think the proof of the industry's maturation is, I mean, you can sort of look at the, the scoreboard, the regulators right now, arguably are getting more aggressive.

But there isn't a single bill on the Hill where the industry's really playing defense. All of the legislation right now is in the industry's favor. There are three bipartisan bills that hand primary jurisdiction to the industry's preferred regulator, the CFTC, and a whole host of other bills that do smaller things but are also all on the industry's wish list.

And so I think, y'know, to, for an industry that remains very controversial, that as we speak is in the middle of. this, y'know, a crypto winter, and there's been a real reckoning for investors and people are getting washed out and main street people have gotten devastated. It does not feel like that on the Hill right now.

And I think that is totally a testament to what the industry has been able to marshal in a kind of shockingly short period of time. 

Niki: I think that's absolutely right. And much like you and I had to get up to speed really quickly, staffers have as well. So I remember. About a year and a half ago, I was speaking to a senior staffer on the Hill who referred to Bitcoin as a company, which makes sense because CNBC has that ticker of Bitcoin.

And you compare that to where staffers are now - extremely sophisticated. And I mean, you and I have both sat through, I guess I hate the term web2 [chuckling], but web2 hearings, thinking like this is like an IT call, “What is happening?” That is not the case with crypto in what I'm seeing now. Like, staffers are really sophisticated, and the ones who aren't are eager to become more sophisticated.

Tory: And y'know, that, that's also a testament to the industry as a juggernaut. I mean, it has broken through in such a major way, has become a cultural phenomenon. Everybody you talk to when I talk to people and tell them, y'know, who aren't in my world, that I'm now covering crypto, everyone is one degree removed from somebody who has touched it somehow. Whether they're investing or working in it, or, y'know, in some way exposed to it. Y'know, there's nobody anymore who has no idea what I'm talking about. And I think that's, y'know, that's a remarkable statement in itself.

Niki: This is my hot take: This went from a $3 trillion industry; I think it's now a $1 trillion industry, right? [Tory: Yup] Major contraction. I almost think it takes the pressure off of the Senator Warrens of the world who are talking all about consumer protection when you've got a cooling by consumers themselves, right? They're not investing as much.

So it's harder to say that they're on the brink of losing all their savings, cuz people are pulling back. So I feel like it takes away some of the urgency. Do you disagree with that? 

Tory: No, I don't know. It's been in a question I've been asking all summer, and I think, y'know, for it, it, I think people are, have looked at what's happened this summer and it, and depending on where you sit, y'know, it, it's confirming people's priors.

So, if you were regulation inclined, y'know, look at the hundreds of thousands of people invested with Celsius or Voyager who now have their accounts frozen. A lot of those people were in, had more money than they could afford to lose on those platforms, and are in terrible shape. And they have no idea what's gonna happen to those funds.

That's a very compelling human retail, y'know, main street case for the wreckage that can be done here. If there aren't the proper controls in place, which there really. I mean, y'know, this, I know the industry likes to say they're regulated. They're, they're not at the federal level. They are not! There are not rules in place to protect investors the way there are for traditional financial tools.

But I, y'know, you could, you could also, I've seen the argument, and I think there are certain people who are, y'know, pro-crypto or anti, a big regulatory crackdown who say, “Well, the air's gone out of the balloon a little bit. It reduces the urgency,” and we, we'll see. 

Niki:  Yeah. I mean, I think it gives the industry a moment to regroup.

Although there's some metrics around how many people have crypto, we don't really know what percentage of wealth, we don't have good data on that. [Tory: Yup]

So we don't really know. We know there are individuals who've been devastated by some of these issues, and frankly, there are a lot of bad actors who are now it's like separating the wheat from the chaff, maybe in this moment of contraction of that market. 

This is a moment that's gonna actually strengthen the credibility of the industry or could if things are done right. 

Okay! You and I disagree on something. I have said publicly, which I got trolled for on Twitter. I said, “People should start treating regulators with respect. Stop calling them vampires, be less belligerent.” And you were like, “I disagree. I have a hot take on this.”

Tory: Well, [pause] on the face of it, you're obviously right. [chuckle] If you're, y'know, if you want to curry favor with a certain group of people that you're also in the process of introducing yourself to, it's just human psychology. You should be nice to them and not call them awful names, but, um, 

[both laugh]

Niki: Or at least be respectful. You don't have to be nice, but I think you should at least be respectful; but maybe I'm this old-school Beltway-type. 

Tory: No, I, I think within the parameters that you're talking about, like conceiving in this, that's like, obviously true and y'know, I can't, you can't dispute that. My, my hot take on this [chuckling] was people really, there was a lot of like tut-tut about the way that the industry has talked about Gensler in particular. I think the, the like kind of the big example of this was what Brian Armstrong did on Twitter after the SEC sent him the Wells notice and rejected the, threatened to sue over the Coinbase Lend program. And he called them, he called Gensler shady, I think. And, and people were, there's just pearl-clutching in Washington about this.

And I was thinking my, my feeling about this is if the idea, if the implication there is there, there's going to be a policy consequence for this company because they didn't, y'know, approach the regulator on bended knee and, y'know, prostrate themselves. That's, that's corruption, that's corrupt. That would be, y'know, to expect that there would be retribution for not being nice enough in public, as opposed to the regulator, making a decision on the merits, would suggest there's something deeply wrong with the decision being made and with the agency. 

So, and, y'know, and, and it may be, I don't know but I just think in this country, it's important [chuckles] that people be able to talk openly and, y'know, critically and in some cases, y'know, in a rude way about the people that are, hold positions of public trust and are making decisions about public policy.

Niki: I’m completely against people being rude to people in [both laughing] positions of public trust. However! That said, the reason I feel this way is partly strategic, and it's not just to curry favor, but I think the industry has a terrible stereotype of who works in it, and it's not even related to who I actually work with.

So, I work with a lot of women who are in crypto. I work with former law enforcement types who've joined some of these companies, like TRM Labs, and are actually working on complying with different laws. And so, I think there's a stereotype. You said this, like, the Lambo Miami Bro. And I think being like an Edgelord on Twitter, sort of, it kind of feeds into that unlikable industry which is not my experience at all. 

Like, I find people who are extremely thoughtful and really thinking of power structures and not just thinking about America first, but why cryptocurrency is so valuable to people in countries where they might be leaving that country, or their economy is collapsing, or their currency is collapsing. So I actually think it's a really thoughtful industry that comes across as immature. 

Tory: [interrupts] No, that’s, that’s totally true. That is totally true! And y'know, if you're in the midst of a charm campaign, like [Niki: Be charming!], be charming. [Niki: laughing]

That's that should be like the first thing you don't, you shouldn't have to say that. And I, and I agree. I think the way that the. Like, a lot of people in the industry, y'know, it's, they confirm a lot of the worst stereotypes about themselves, but I, I'm just defending the right to be able to do this and to, and, I'm just made uncomfortable, maybe as a reporter.

Niki: I remember I was at Google a million years ago saying things like, “Please, let's not wear Crocs to the New York Times editorial board meeting. Let's not wear a hoodie to the Hill.” It got some pushback. Right? And then you see that industry has sort of obviously gone from peacetime to wartime and is now just like this extremely sophisticated operation. And it's kind of the same. It's like you're seeing people who are brand new to the Beltway coming into Washington and figuring out the ropes.

But one of the other things that you and I have talked about, and I think you're doing some reporting o, is the idea that you just said this, the federal government is sort of stuck. Like they haven't actually regulated this industry in a way that constrains it. But I don't wanna put in your words, in your mouth, what are you looking at now?

Tory: Well, the knock from the industry on Gary Gensler as the kind of, y'know, 600-pound force in the room in the space has been that he is pursuing regulation by enforcement. That's the refrain you always hear. I think increasing really since the spring, and some of the shakeout in the market and the high profile collapse of some of these big platforms that we've talked about.

You're starting to hear a little bit more from people who are more inclined to defend Gensler and pro-regulation about the fact that the SEC wasn't there when these platforms were emerging, and there was no secret really about what they were offering and how they were offering it.

And the proof of that is in the fact that the states, state securities regulators, were all over these platforms months and months ago. So, and there's a handful of states that are particularly on the ball in this regard and have been pushing, I think, have sort of formed a vanguard of, of state regulators that are looking to call out these platforms and get them registered and hold them to account. 

And I'm thinking here primarily of Texas and Alabama, Vermont, New Jersey, and Kentucky. It's a weird group of states. These are not, I mean, y'know, a, a few of those that I mentioned are deeply red. You would not necessarily think that these are regulation-forward states, but it's really personality driven.

The people who happen to be the state securities regulators in these places who have been in the job for a long time, think this is sort of, y'know, these are typical financial products or they, they have the same consumer risk, even though they're dressed up in new clothing and started calling out BlockFi and then issued cease and desist orders to Celsius and then Voyager saying, “You guys are all offering unregistered securities. We have no idea how you're hypothecating these deposits. Where, where you're invested, neither do consumers who are investing with you guys.” And there's not, not only is there insufficient disclosure, there's basically no disclosure.

And the fact that these guys were there months and months, really a year ago with Celsius earlier than that with BlockFi and the SEC wasn't, I. think, for a certain group of people in Washington and elsewhere paying attention is a kind of quiet indictment of the SEC's approach, which has been, y'know, it's been much more haphazard, and maybe in a weird way, the regulation advocates have now something in common with the industry in saying that there is something inherently inconsistent about the SEC's approach here because there aren't, y'know, there, there hasn't been rulemaking. 

And som the SEC sort of picks its spots. We don't really understand the decision making that goes into how they're, y'know, where they're deciding to enforce they're threatening to, to sue Coinbase, cuz Coinbase did what they, what Gensler has been telling everybody to do, which has come in the front door and, y'know, basically ask us for permission. And Coinbase pointed this out at the time. They said, “Look, there are other platforms that, that are out there that are already doing this. We want it to be above board and do and do this the right way.”  

They got punished for it and meanwhile, I think the, the real, y'know, the victims here are, the victims [Niki: Right] are the investors who didn't understand, y'know, thought maybe that there were, that these platforms had FDIC insurance. Voyager looks like it was representing that to its investors falsely. But there was, certainly, I think if you look at what the states did, there was an opportunity for the SEC to at least follow suit immediately and as the national regulator step in and say, “Wait a second, these are dangerous,” and do something about it. 

Niki: It's, it is confounding because you're right. There's been a lot of talk. And then you've, you do find sort of action after the fact at the federal level, you also see Chairman Gensler giving speeches, and people are sort of like trying to decipher what, what he's saying about what that means for their products.

And I think it's so interesting that you're looking at what the states are doing. And again, this goes to what's old is new again. When I was at Google, we expected that eventually the, we sort of knew that eventually we would be talking antitrust and competition at the federal level, but who moved quickly on that were states.

And it was states like Mississippi. And it was just because the Attorney General there had a particular, I mean, there was actually a lot of complexity around it, which, uh, Eric Lipton at the New York Times wrote about, but it was the movement was in the states. 

And you can see that on privacy as well. Right? All of a sudden, you'll be like, wait, “North Dakota has a privacy law that we have to comply with?” And so I think it's really interesting that the same thing seems to be playing out at, in crypto where the agency with so much power who could regulate this and protect everyone, no matter their zip codes seems to kind of be sitting back and doing ad hoc enforcement.

Tory: Yeah. I  mean, y'know, I. You could defend what's happened here by citing a couple advantages that the states have. As I mentioned, we, there are regulators in these jobs who have been there for 20 or 30 years, in some cases, [chuckles], in Alabama, y'know, Joe Borg has been in that office since 1994. So he’s seen a lot come and go. He's also, he's been on the job for that long. He's not, you're not talking about the kind of churn you see with the leadership of an agency that changes leadership with its, with an administration. 

And Gensler's only been on the job for, y'know, now a year plus. And has had to, he's got a very ambitious agenda. He's doing a lot. Some people would say too much. Maybe spread too thin. He's under-resourced, and the states also have an advantage cuz I think in a lot of ways they're closer to the retail market. But none of that, I don't think really accounts for, it doesn't it, doesn't answer the, the key complaint here, which is the SEC saw this stuff happening. And it certainly saw what the states were doing. The states were very public about going [chuckles], y'know, these were, these were public orders that they issued, and they're also in constant communication with each other.

So what explains the SEC's failure to move faster to protect investors? And I don't know that there's a good answer for that right now.

Niki: But you'll keep digging. You'll find out, and you'll let us know.

Tory:  I will do my best. [Niki: laughs] 

Niki: Okay. Let's end on the midterms! It's midterm season in Washington, lot of money coming outta the crypto industry, going into political giving. I don't know if you have any thoughts on this. 

Tory: I mean, it's another arm of what the industry has done to build influence in Washington. They've, you've seen the lobbying spending go from very little; I think the industry spent $2 million a couple years ago. They've spent $9 million through the first half of this year.

But I think the, the less told story may be about where the industry is splashing out is in campaigns. They've spent $61 million already this cycle. And it is overwhelmingly a story about Sam Bankman-Fried because FTX executives; Sam Bankman-Fried is obviously leading the pack, have given 98% of that money at last count. And he has talked about giving, y'know, an order of magnitude more than that. He's already the fourth; he came from nowhere. I mean, y'know, he's, he's a brand new person. 

Niki: Yeah! Who lives with like 10 roommates!  

Tory: Yes. And he is already given close to 40 million dollars. He's the fourth biggest donor in the country. Period!

Niki: That's extraordinary! 

Tory: Yes. And he's talking about giving a lot more. So I think when people say, “This guy is going to be the next George Soros.” He’s got the resources, he’s got the interest, and he is young enough to be around for a long time. I think that's something to take really seriously. It's been fascinating to see how he's given money.

I think there have been some, y'know, there have been some ways that he's fallen on his face. Thinking primarily here of the Oregon primary, where he spent $11 million backing a candidate who just got crushed and lost by 18 points, and his giving became an issue in that race. His candidate became the Sam Bankman-Fried candidate.

So I think, but he's, y'know, I think a lot of this is kind of, I think he's probably gathering a lot of data, and there are other things that he's doing that are very sophisticated. Like he is only playing, he's only playing in primaries. He has said he's only interested in primaries and seats that are not gonna be necessarily competitive in the general election.

And I think we're maybe not gonna see him spend so much in the general election that gives him the advantage of, holding himself becoming, holding himself back from becoming a majority maker. I think that is a very smart strategy to make sure that crypto doesn't get politicized. And he isn't made to seem more of a partisan actor than he is. We know he is a Democrat. [Niki: Right]  But y'know, his organization FTX, they're giving a lot to both sides. 

Niki: We know that incumbents win 95 plus percent of the time. [Tory: Yup] Is it a great use of money to seem like you're a kingmaker in a competitive primary where the incumbent is almost certainly going to win? And I think from my perspective, and again, like a Beltway, been here for a million years, the advantage to political giving, which I know makes a lot of people feel sort of [pause] people think it's icky, but the advantage is you get a moment to tell your story to the office holder. 

And I think there's an educational component to giving and giving on both sides, I think is really smart, but I would advise them to start giving to incumbents and use that time to be, to educate on the issues as opposed to picking the crypto maximalist who's y'know, this young upstart in a primary who's not gonna win!

It just seems like a bad use of money to me strategically. 

Tory: They are, he is, he has been giving to people who don't have a defined position on crypto. And there have been some people who have been on the receiving end of this largesse who have said, “I don't know why I got this money. I don't really know anything about crypto.” And so I'm not entirely sure what's going on there, but I do think, part of it is an effort to, I mean, there might be some district selection and some other things that are going on that are not so candidate-specific, but I also think it's clearly an effort to get in front of people, like before they even get to Washington [Niki: Right!] and, make a good impression and clearly get in the, get in the door with these people very early and explain, y'know, people who are starting from scratch. 

You get to explain it to 'em [Niki: Right!] and explain it to them on your terms [chuckles]. That can be a very powerful thing. [Niki: Yeah] If you're taking a long view, which he, which he clearly is. The, there's another thing about his giving that's really noteworthy, and I don't quite know what to make of it, but I'll discuss it. I'll mention it. ‘Cause I, I haven't seen it discussed elsewhere. 

He's got two channels for giving. One; he's got two Super PACS, one is called Web3 Forward, and it is the, it is the pot of money that he gives to candidates that he thinks are gonna be crypto friendly, or that is, that's the crypto channel. There's another one called Protect Our Future, which is his, which is his fund for giving to people that are supportive of more federal spending on pandemic preparedness. This is his effective altruism channel. Those would seem to be two totally distinct efforts and priorities, but there's a huge overlap between the, the candidates who are getting money from both of these, there are a lot of candidates who are getting money from both funds.

And I can't, I, I can't believe that these are people that they have identified as both receptive audiences for the crypto pitch [Niki:chuckles] and also supportive of more money for federal pandemic preparedness. [Niki: Right] So there's clearly a mixing of things there. And I don't, I just think it's interesting, but there's so much, I think, part of the proof of the effectiveness of this giving already is that there are a lot of candidates who haven't gotten this money, who know that it's out there and it's, y'know, these are again, people who are coming to crypto without a defined position, and they're thinking “Well, if I just say some nice things about crypto, maybe I can get some of that, that money.” And I think that he's already established that kind of myth, and that is enormously powerful. 

Niki:And the fact that we've just sat here talking about him and he's, he's taken up all the air in the room on this political, I mean, other people have given money, but he's given so much money in such a fascinating way for someone who's so early in his career. It's a power move in, in the Beltway. And so he's, that's why he's getting so much coverage. [Tory: And he's also here all the time.]  He's here all the time! 

He's here all the time.

Tory: I mean, he is really for a guy who, y'know, I think there's, there's just, we talked about waves of tech, not wanting to bother with Washington until Washington bothers with them. He does not fit that characterization. This is a guy who showed up, who show up early and often to develop relationships with people on the hill, at the regulatory agencies, different people in the sort of, in the other power structure downtown at some of the consumer groups that are naturally aligned against Wall Street, that he has tried to court.

I mean, he has pierced the kind of fortress of Washington and found all of these potential points of leverage and influence in a remarkably short period of time. And for a guy who was really young too, and thinking about, I mean, I can't imagine he loves spending time here. 

Niki: No, he lives in The Bahamas!

Tory: Yeah. I mean, he's a, yeah, he's a flip flops and shorts guy. [Niki: laughs] So, I mean, putting on a suit to show up here is probably something of a chore for him, but he, you wouldn't know it by the amount of time he spent here. 

Niki: It's sophisticated. Okay. You're gonna keep reporting on all of this.

It's I feel like you and I, again, my client roster's now mostly crypto, which I fell sort of like bass-ackward into [chuckling], but it's become such a big deal in Washington. Is there anything you wanna end on that you're really focused on that you wanna get to the bottom of? 

Tory: I mean, I'm, I'm gonna be on the whole story.

So, I mean, the midterms are gonna be fascinating, I think, to see how this shakes out and then. y'know, I feel like we've, I've spent a year asking questions about, y'know, what is the legislative response gonna look like? What is the regulatory response gonna look like? When are these people gonna stop pointing fingers past each other and actually start making some decisions?

Maybe we're entering a phase after a lot of hearings and, y'know, kind of fact-finding, its stuff where we'll get a little bit more certainty on that stuff and y'know, some decisions to chew on, but, maybe not, I don't know. We'll see. [Niki:All right!] That's why I'm fascinated.

Niki: Tory Newmeyer, Washington Post, follow his work. He's not tweeting very much, so people have to go directly to

Tory: [interrupts] Washingtonpost.com. 

Niki: They gotta go to Washington post.com to find your reporting. Thank you for taking the time to come in. 

Tory: Thank you for having me.

Outro:

[music plays] 

Niki: Last week I bumped into a loyal Tech’ed Up listener, Paul, and asked him if bi-weekly means every other week, or is it semi-monthly? He suggested “fortnightly.” [chuckling] 

 

So [pause] just a reminder that the show is now on a fortnightly schedule. We’ll be back the week after next. And, as always, thank you for listening.