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Jeremy Owens: Hello and welcome to On Watch by MarketWatch. I’m Jeremy Owens.
After the cryptocurrency boom crashed in 2022, many critics declared crypto was dead. But so far this year we’ve seen a resurgence. Prices have rebounded, while regulators and politicians have shown a fresh willingness to establish laws friendlier to the industry. Today, we’ll talk to two market watchers about why crypto is back. From Washington. D.C., reporter, Chris Matthews will tell us why politicians have changed their tune, and our crypto reporter, Frances Yue, will tell us why the crypto community is feeling a little bit happier and much more bullish after spending a week at a major industry conference in Austin, Texas.
Plus we’ll take a quick look at the news stories we’re watching right now and how they’ll affect your wallet. Now let’s talk about a new era for crypto.
I’m going to be honest here. When the crypto crash happened, I was actually happy. And all my friends who tried to turn every conversation toward cryptocurrency for years were suddenly very happy to talk about any other topic. But that wasn’t the case for everyone, especially those who have to win an election every few years to keep their job. Crypto groups have been lobbying politicians extensively in recent years, and that work is starting to show fruit. Recently the House of Representatives passed a bill that would keep regulation of the industry away from the Securities and Exchange Commission, and its leader, Gary Gensler, an enemy in many crypto fans’ eyes.
An industry friendly crypto bill would not have lasted long on Capitol Hill a few years ago, but this one had bipartisan support. So what’s changed?
Well, I called up Chris Matthews who covers the SEC for MarketWatch to ask him that question to discuss this topic more fully.
Chris, we recently saw the most important crypto legislation probably hit Congress, that we’ve seen so far. Talk to me about that, what it would do and what the chances are that it’s going to actually become law?
Chris Matthews: Yeah, so this was a law that was passed by the House of Representatives that would remake the way in which crypto is regulated in the U.S. It would put the Commodity Futures Trading Commission as the primary regulator at the expense of the Securities Exchange Commission.
Jeremy Owens: Basically turning crypto into a commodity instead of a security, which has been what they’ve treated it as so far, especially at the SEC.
Chris Matthews: Right? The SEC has taken the position that pretty much every single crypto, aside from Bitcoin and Ether, are securities. This would put the industry in the position to basically certify that their tokens are commodities and therefore under the CFTC’s purview. The industry likes the CFTC a lot more. For a number of reasons, they’ve been more friendly to much less well-funded agency, although this bill would increase their funding somewhat. So the industry is pretty happy about that. It got passed with significant bipartisan support. Almost all the Republicans voted for it, and more than 70 Democrats including some big names like former Speaker Nancy Pelosi. So that is seen as a turning of the tide in terms of this becoming a more bipartisan issue, and Democrats more embracing crypto as a valid industry.
Jeremy Owens: It doesn’t seem like this bill is going to become law in its current state. I mean, the Senate’s not just going to pick this up and run with it. That’s not how Congress works. There are senators that have their own ideas for crypto legislation, so we’re probably not going to see this just sail through Senate even though it was popular within the House.
Chris Matthews: Yeah, that’s exactly right. I mean, passing a law in the U.S. is very difficult. There’s a lot of veto points. The Senate is very independent, they hardly ever just take up House legislation and pass it as is. But it was significant that this passed the House at all. I mean, it is a major milestone.
Jeremy Owens: It feels like it shows a big change in the way that politicians are addressing crypto and seeing crypto. What has spurred that change? What has made this, both Republicans and Democrats wanting to see a more crypto-friendly law come through?
Chris Matthews: That’s the big question. I think another key event from last week was that the Biden administration put out a statement saying that while they oppose this version of the law, they’re very eager to work with the Senate and the industry to craft legislation somewhat along those lines. And so that was a big pivot, whereas the Biden administration before had been pretty critical on most fronts. And so why the change? It’s not entirely clear, but it does appear that politics is playing some role.
Jeremy Owens: Right. This is not policy, it’s politics at this point. And crypto has already jumped into politics. Let me give you an example. Out here in the recent Senate race in California, the Senate primaries, a bunch of crypto concerns decided they wanted to go after Katie Porter. And Katie Porter was a member of the House who was going for Dianne Feinstein’s Senate seat against Adam Schiff, and a Republican, and another Democrat. And crypto picked her out. And it’s not like Katie Porter was making crypto an issue in the race. It’s more because she’s close with Elizabeth Warren, and they know Elizabeth Warren does not like crypto and wants more regulation of finance, and did not want to put an ally of Warren in the Senate. They dumped millions of dollars in attack ads on Katie Porter. Well, lo and behold, Katie Porter did not make it through that primary. She’s not in the general election. They won that fight. And I think it gives them a template for how to go, moving forward.
Chris Matthews: Right, exactly. I think it’s obvious that while the vast majority of Americans don’t own crypto, don’t really care, there is a very, very dedicated minority that is well-funded, that is really vocal, very vocal on social media. And I think a lot of Democrats are asking themselves, “Is this really the hill I want to die on? Do I want to take on this well-funded, well-motivated minority?” It may not end up being decisive in any elections, but politicians are risk averse people, and I think we’re seeing that play out now.
Jeremy Owens: Well my big question here is if in the end we end up with a super industry-friendly law, or a law that is harder on the industry, or somewhere in between, and I know Chris, you don’t have a crystal ball. But where do you see this headed? Is it going to stay in this, we’re going to do what the industry wants? Is there going to be more scrutiny coming from the Senate or elsewhere? Where do you see this heading in the end?
Chris Matthews: Well I think one thing to consider, there was a lot of jubilation last week about this law. But there are corners of crypto world that are skeptical of even this legislation. I mean, there is a leap of faith that the CFTC is going to be industry-friendly. But once there, the people in charge of making sure there isn’t fraud in this space, and once they get more funding to oversee the spot markets, it’s not entirely clear to me that they’re going to be necessarily any easier on the industry than the SEC is. And also has a lot to do with what personnel are in at any given time.
First of all, Gary Gensler, who runs the SEC, who’s public enemy number one for the crypto industry, used to be the CFTC chairman. So it really remains to be seen how this all shakes out. You can never really count on financial regulators being necessarily industry-friendly or not. It’s a lot of facts and circumstances. These people take their jobs seriously. They don’t want fraud to be happening on their watch.
Jeremy Owens: And the other thing that we got was the beginning stages of an Ethereum ETF, Ether ETF getting along in the SEC. Is that going to make it through at this point? And is this going to be the last one? What is the SEC doing? Is this step two of many steps? Are they going to have a lot more ETFs that track cryptocurrency, or is this and Bitcoin really going to be it?
Chris Matthews: I think it’s pretty much a foregone conclusion that an Ether spot ETF will be eventually approved. They have to go through a few more months, going the through disclosures that the issuers are going to have to provide. After that, I think it’s really hard to see they’re approving another one. I think Bitcoin and Ether are pretty unique in the way that they were initially distributed to the world. They’re very decentralized. There’s not a lot of chance that an insider in either of those ecosystems is going to be able to manipulate those markets, and that’s not really the case for a lot of the other coins. Of course, those could develop and become more decentralized. But I think for the time being, those are going to be the two that you’ll have.
Also, there’s just a question of whether there’s an investor demand for some of these smaller coins. These coins tend to move in tandem with each other. And so if you are an investor who wants to have 5% of their money in crypto just to get that diversification, why do you need a third token when you already have Bitcoin and Ether?
Jeremy Owens: Right. And the decentralization is actually an incredibly important part of this. To be a commodity, it really needs to be decentralized, and that’s what they’re looking at. That’s what they’re really trying to prove before they move along with this. Right?
Chris Matthews: Exactly. Yeah. If you think about a standard commodity like wheat, there’s nobody in the wheat factory controlling all the wheat that’s made. Individual farmers, distributors, there’s not a lot of chance for them to be able to manipulate the market.
Now with security, when you have a company issuing a stock or a bond, there’s a lot of chance that those people could manipulate information and other things that could change the price of the security. And so that’s the argument. Or some of these smaller tokens which are run by a team of entrepreneurs with a website who have interest in these tokens gaining in value, do we need stock-like disclosures from them? And that’s the debate that’s going on right now.
Jeremy Owens: It seems like commodity is winning at this point, which I would not have bet on a couple of years ago. But it does seem like that’s the way it’s headed. And even if we do get a different bill or some such, it does seem like it’s headed that way to defining especially Bitcoin and Ether as a commodity. The question is, can you define all cryptos as a commodity? And I think there’s still a lot of debate to be had there, to be honest.
Chris Matthews: Yeah, lots of debate to be had. And frankly, a lot of debate with this legislation in terms of how those determinations are going to be made on a case-by-case basis. Right now the bill gives the SEC, 60 days to sort of contest this commodity classification. Now there’s 20,000 cryptos out there. Can the SEC contest all those within a 60-day period? These are the details that need to be worked out.
Jeremy Owens: Well, we’ll see this definitely play out in the coming months and on the campaign trail. Chris Matthews, thank you so much for joining us.
Chris Matthews: Thanks for having me.
Jeremy Owens: We’re going to take a quick break. Coming up, the view from inside the crypto community. Stay with us.
Welcome back to On Watch by MarketWatch. Before the break, we talked with Chris Matthews about what’s been happening with crypto on Capitol Hill. Now we turn to Frances Yue for some insights from the cryptocurrency community.
Frances spent last week at Consensus, a large crypto-focused event in Austin, Texas. The event happened in the wake of the House approving the bill that Chris and I spoke about. So we wanted to check in with her to see how this new era of crypto is being digested by traders who look well beyond Bitcoin, and Ether, and ETFs, to the entire universe of cryptocurrency such as altcoins. So here’s Frances.
Frances Yue: I feel like overall the sentiment is we are back in a bull market again. But I guess the general consensus is the institutions are back and they’re showing strength. With Bitcoin near all-time high, there are a lot of institutions coming into the space and now we have Bitcoin ETFs trading, and then the Ether ETFs might also start trading sometime this year.
Jeremy Owens: And those are two big things to have ETFs available for Bitcoin now, and potentially Ether in the future. And this is an alternative way for people to invest in these cryptos, and it seems like it’s had pretty big uptake, right?
Frances Yue: Yeah, for sure. I guess the main point here is that now investors could just do that via their retirement accounts. That’s the main appealing for a lot of people. And also the institutions could invest in those to bypass some regulatory restrictions because a lot of institutions are not allowed to directly invest in crypto.
Jeremy Owens: You mentioned the crypto conference was very much institutional driven. Are the institutions that really like the ETFs and those more investable vehicles at odds at all with retail, which seems to be more interested in the smaller coins, the altcoins, and other things?
Frances Yue: I don’t think it’s necessary a retail versus institutions thing. It’s more like a crypto focused institutions versus Wall Street giants thing. For example, for some institutions that are not super familiar with crypto or they just tap into the space, maybe a lot of them do not want to get too deep into the rabbit hole to invest in those altcoins or DeFi. DeFi would mean decentralized finance. But for people who has been in the space for a long time, they might be looking at those space for more yields, and for more trading opportunities.
Jeremy Owens: We talked to Chris about politicians coming more on the side of crypto. Did you get a feel for that at the conference? Were there politicians or others there who were making themselves known as a crypto candidate?
Frances Yue: Yeah, actually, Robert Kennedy Jr. was at one of the panels at Consensus, and crypto people loved it. We saw a lot of enthusiasm there. And when he talked about stuff, the crowd were cheering and we saw them clapping even though Robert Kennedy Jr. was mostly talking about vaccines instead of crypto.
Jeremy Owens: And these guys want to have a good time. I mean, let’s just be honest about it. The crypto community is one that tries to have these conferences so they can get together and feel that energy, that may have been missing over the last couple of years. What did you see them doing? Where did they have some fun, and how was the feel in general?
Frances Yue: Yeah, I think the overall sentiment is really bullish. And we saw crazy crypto ads back again. I saw some people wearing the masks featuring Jamie Dimon, because he always spoke bad about Bitcoin. He doesn’t really like Bitcoin
Jeremy Owens: Another enemy along with Gary Gensler. Those two might be on the Mount Rushmore of crypto enemies, right?
Frances Yue: Yeah, yeah, for sure. They’re just making fun of them.
Jeremy Owens: I want to talk about the retail traders and how they factor in here. Because a lot of people got burnt in the crypto crash. They may have gotten their money locked up in the FTX scandal. They may have lost a lot of money, and so it’s going to be hard to attract some of those traders back that have already been burnt here once before. Is there a path there? What do they think is going to actually lure these people back?
Frances Yue: Yeah, I think that’s a totally valid point. That’s a very interesting question. For a lot of people that are burned by FTX and Celsius, I guess it takes time for them to rebuild this confidence into the crypto market. For example, we’re seeing more institutions coming in, we’re seeing more regulation in place, so maybe over time that could attract them back in. But also there’s the liquidity issue because a lot of people are still looking forward to whether the Fed will cut interest rates this year. A lot of people do expect that once the Fed starts cutting, we may see some retail investors coming back to the crypto market.
Jeremy Owens: And if they do jump back in, are they probably going to jump back into Bitcoin and Ether? I mean, it just seems like those two have really separated themselves with ETFs now backing them, that a lot of people jumped into small altcoins, and all of these things during the last bull market. Are they going to be going into those again, or are they going to just say, “I know what’s going to win here?” And going with the two biggest names?
Frances Yue: From the historical evidence, we’ve seen that the altcoins or the smaller coins often outperform Bitcoin and Ether during a bull market, and underperform Bitcoin and Ether in the bear market. So if we see the bull market continues, I guess it’s possible that a lot of people will actually diverse their investment into altcoins.
Jeremy Owens: You said the funding environment is not that great. Are there sections of this where the funding environment is good? Are there certain kinds of coins that are sparking interest among retail?
Frances Yue: I think from the venture capital perspective, I’ve talked to some VC people. And they’ve been noticing that this year, those crypto startups that also has a touching AI has been getting a lot of attention and get most of the money. In comparison, some other crypto startups focusing on other perspectives such as payments, infrastructure, or just stable coins are not doing that well.
Jeremy Owens: Well, this again takes me back to the last bull market when everybody was trying to create crypto that related to the metaverse. Which was the last big tech hype cycle before AI, and I don’t believe those have done that well. Is this going to be a section of finance which is always chasing the latest thing? And if so, can it ever really succeed, or is it just going to be continual, this bull market, bear market loop that do not last as long as we tend to see in something like stocks?
Frances Yue: I think it’s for sure that crypto come cycles. I guess some people would be surprised that Bitcoin is still here today and it’s trading near all time high. But we’ll have to wait and see to see which ones are really winning the game.
Jeremy Owens: And again, it just seems to me that Bitcoin and Ether have won at this point, and I will be surprised to see many more ETFs get approved at this point. Maybe one or two more, the ones you mentioned, Solana, some of the more popular ones. But I wonder if we are actually going to see widespread acceptance, especially until we get some regulation that determines whether this is a security or a commodity.
Frances Yue: I think one argument a lot of people has is the SEC doesn’t have too much ground to reject other ETF applications investing other crypto. Because most of them follows the same consensus mechanism as Ether, which is proof of stake. But also it goes back to a demand and supply thing. Because if there’s not enough demand for those ETFs, there’s not much necessity to get them approved. And also some people are looking forward to the ETFs that track a basket of crypto, just like the S&P 500. I’ve heard that some asset managers are trying to file applications for those index funds that track maybe the top 20 cryptocurrencies.
Jeremy Owens: Yeah, and it’ll be interesting to watch that as it goes forward. We still have a ways to go until the Ether ETF is actually approved and we can see how it trades. We’ll talk to you again at that point, Frances. Thanks so much for joining us.
Frances Yue: Thank you, Jeremy.
Jeremy Owens: Before we go, it’s time for what we are watching, a look at the news you need to know for the rest of the week and beyond.
Crypto isn’t the only pandemic era investing phenomenon that is suddenly back in vogue. Meme stocks are roaring again, thanks to the return of the trader known as Roaring Kitty, who originally launched GameStop stock into the stratosphere. In a Reddit post last weekend, the account known to belong to Keith Gill, the man behind the Roaring Kitty moniker, announced a large new position in GameStop options and shares. GameStop stock price jumped more than 20% on Monday, and many other meme stocks were rallying right behind. Social media is abuzz about what might happen next.
On Friday, we’ll find out if the recent cool down in the jobs market is getting any worse. After job growth fell lower than 200,000 in April, the May report is expected to be similar. A miss to either side could cause action in the market, a stronger-than-expected showing would suggest that the Federal Reserve does not need to lower interest rates. While a sudden unexpected downturn could prompt fed action. Follow MarketWatch’s live coverage Friday morning to see what happens.
In the past year, artificial intelligence has been all the talk among the tech giants, except for the biggest one. Apple, the most viable public U.S. company has been largely quiet about its plans to incorporate generative AI that’s expected to change. On Monday when the iPhone maker kicks off its annual developers’ conference known as WWDC. Chief executive, Tim Cook is expected to use his annual keynote address to discuss Apple’s plans in the AI realm, which could include confirmation of a deal with OpenAI. The keynote is scheduled to kick off at 1:00 PM Eastern on Monday, leaving plenty of time for the market to move on whatever Cook has to say.
And that’s it for this episode. Thanks to Chris Matthews and Frances Yue for joining us. To keep following their reporting on cryptocurrency, head to marketwatch.com. You can subscribe to the show wherever you get your podcasts, and please do. If you like what you heard, please leave us a rating or review. It really helps others discover the show. And let us know what you want to hear from us. You can reach us at onwatch@marketwatch.com.
The show is hosted by me, Jeremy Owens, and produced by Jackson Cantrell, Isaac Gaines mixed this episode, Melissa Haggerty is the executive producer. We’ll be back next week with a new episode, and until then, we’ll be on watch.
