Senator Pat Toomey on the Bad State of Crypto Regulation

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

Tracy, you know, one of the big, well, there is a lot of ambiguity and confusion right now, I would say, about the state of crypto regulation.

Tracy Alloway (0:27)

Just a little bit, just a tiny bit.

Joe Weisenthal (0:30)

Like, I mean, and it's understandable why, because it's, I guess, a new type of asset class.

They're not all the same. It doesn't seem to quite fit into commodity buckets. Most of them don't fit quite into, say, equity buckets. They call them cryptocurrencies in many cases, but they're not really currencies. So you could sort of see why the existing regulatory structure isn't quite up to the task.

Tracy Alloway (0:53)

Right, and often the technology or the things being made are changing all the time. So for instance, we used to have, you know, ICOs, now we have tokens and things like that. But I think what you're getting at is there has been this long running criticism of the way crypto regulation is being done, which is it's often just better to launch something and kind of ask for permission later, right? Like just launch it, see what happens. But if you're a big crypto organization, you know, a crypto company with a team of lawyers and you actually go and ask the securities regulators about what you're doing, often they just say no outright. That's the truth.

Joe Weisenthal (1:34)

That's right. So I've talked to lawyers and this is what they say. They say, look, if we try to be on the right side of the law, if we say go to the SEC and this is what we want to do, then they spend years talking to lawyers. Meanwhile, someone just launches a token without doing any of that and they're a billionaire the next day. That's gotta be kind of frustrating.

Tracy Alloway (1:49)

It's not a great incentive structure if that's what's happening.

Joe Weisenthal (1:53)

Right. So, you know, there's this problem. The regulatory agencies don't seem to quite have their hands around it. And because of how politics seems to be in DC, I don't think anyone's really holding their breath for like some really clear law to get passed. Like say, the Telecom Act in the 90s in which the internet was coming and they passed a law about certain things. Like maybe that will happen, but I don't think it's like obvious that like Congress is gonna come to the rescue with a clear solution here.

Tracy Alloway (2:17)

But also now that crypto is so big, it seems inevitable that more people are going to be looking at this and discussing whether or not it needs to change. Should you have this sort of ad hoc regulatory regime or something else?

Joe Weisenthal (2:30)

All right. Well, we have a great guest today to talk about that. And someone in DC who has taken a real interest in crypto. We are going to be speaking with Senator Pat Toomey of Pennsylvania and one of the more active elected officials with an interest in crypto regulation. So Senator, thank you so much for joining us.

Pat Toomey (2:49)

Well, thanks very much for having me.

Joe Weisenthal (2:51)

Senator, who's to blame for this sort of this confusion? I'm not sure you maybe you disagree with our characterization, but who's to blame for this confusion about crypto regulation, the lack of clarity and all of the sort of perverse incentives that that creates?

Pat Toomey (3:05)

Well, I think I agree with your discussion with Tracy about the inherent difficulty of trying to shoehorn these crypto tokens from these various projects into existing law.

You know, much of our securities law is based on 1933 and 1934 legislation, literally, and court cases that followed that, often in the 40s and 50s. Can you imagine being more far removed from crypto, right? I mean, so it doesn't fit well. There are attributes of these protocols and the corresponding tokens that are completely unlike any actual security, something that we all universally would agree as a security. There are ways in which most crypto projects are fundamentally different. So we have this new technology that came along.

And I guess you could blame Congress for not moving quickly to establish the legislative guidelines that would then make it clear exactly what buckets these assets should be in, including the possibility that it's an altogether new bucket and what the various regulators' authorities ought to be. And in the absence of Congress speaking, then you will have what we are witnessing, which is regulators kind of trying to grab authority here, whether or not they ought to. And that's no way to create an environment for a really important new technology to thrive. So that's why I'm so determined to get something done in the legislative realm, so that we can provide some certainty and hopefully a rational set of guardrails that will allow this innovation to continue.