The Last Trade E018: Bitcoin's Custodial Landscape Through a Legal Lens with Gavin Feary
Sep 22, 2023
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Legal expert Gavin Feary discusses Bitcoin's custodial landscape, including qualified custodians, definitions surrounding custody, custodian competency, and the future of state charter banks. They also touch on Bitcoin short squeeze, free banking, self-regulation, accounting, recognition of Bitcoin as property, Texas and mining, and the importance of audits and financial health in the digital asset space.
Qualified custodians must have the necessary skills to securely handle digital assets like Bitcoin and develop custody solutions that leverage the technology of the asset itself.
Reputation and self-regulation are crucial in the digital asset industry, as companies that prioritize security and proper custodial practices build trust and emerge as winners.
The Bitcoin industry is gradually evolving, with regulations and standards still catching up, but the gradual growth and maturation of the industry are positive signs for the future.
Deep dives
The Challenges of Custody in the Digital Asset Industry
The podcast episode discusses the challenges and complexities surrounding custody in the digital asset industry. One of the main points highlighted is the need for qualified custodians who have the necessary skills and competencies to securely handle digital assets. It is also emphasized that custodians must understand the unique properties of digital assets, such as Bitcoin, and develop custody solutions that leverage the technology of the asset itself. The episode mentions the importance of segregation, multi-signature wallets, and the role of technology companies in providing custody services. The need for regulatory clarity and a unified approach to custody rules is also discussed, especially as the industry grapples with evolving regulations and attempts to strike a balance between existing rules and the innovative nature of digital assets.
The Role of Reputation and Self-regulation
The episode highlights the role of reputation and self-regulation in the digital asset industry. Due to the slow pace of regulatory developments, the onus of regulation has fallen on the industry itself. Building trust and reputation through reliable and secure practices has become crucial for companies operating in the space. The discussion focuses on how companies that prioritize security and proper custodial practices emerge as winners, while those that fail in maintaining the necessary standards face negative consequences. The importance of self-regulation and educating consumers about reliable custodians is emphasized, as it contributes to building trust and promoting responsible custody practices.
The Gradual and Sudden Evolution of the Bitcoin Industry
The episode reflects on the gradual and sudden evolution of the Bitcoin industry. It acknowledges the significant changes that have taken place since the early days of Bitcoin, with companies rising and falling in the space. The discussion underscores the need for time and gradual progress in the industry, as regulations and standards are still catching up. The conversation also touches on the potential for spot Bitcoin ETFs and the hesitancy of regulators due to concerns about market and price impacts. The gradual growth and maturation of the industry are perceived as positive signs, even though the timing of significant developments remains uncertain.
Accounting Standards and the Future of Custody
The episode delves into the importance of accounting standards in the digital asset industry and their impact on custody practices. It emphasizes the need for accounting standards that embrace the unique properties of digital assets like Bitcoin, such as order stability and native segregation. The discussion highlights the progress made with new laws and regulations, such as the recent Texas legislation that addresses proper custody practices, wallet segregation, and auditability. The episode also touches on ongoing challenges, including the extension of custody rules to different types of assets and the necessity of a comprehensive regulatory regime for custodians. Overall, the importance of honesty, accountability, and sound financial practices is emphasized for the future of custody in the digital asset industry.
The Importance of Bitcoin as Property
The podcast episode discusses the significance of the UCC ruling that recognizes Bitcoin as property. The ruling provided clarity and certainty for custodians and asset managers who wanted to secure their Bitcoin holdings. Wyoming played a key role in recognizing Bitcoin as property, as the state prioritizes property rights and wanted to ensure certainty in financial transactions. The podcast explains how Wyoming went against the Uniform Law Commission and other entities to establish its own law regarding Bitcoin as property. The episode also highlights the need for clear regulations to facilitate transactions involving Bitcoin and other digital assets.
States Leading the Way in Cryptocurrency Regulation
The podcast episode emphasizes the role of states, particularly Texas, in taking the lead in cryptocurrency regulation. Texas understands energy and has its own independent energy grid, making it more inclined to embrace Bitcoin mining as a solution for grid stabilization. The episode discusses how Texas has created tax incentives for using flared gas in Bitcoin mining, incentivizing this solution for grid stabilization. The state's favorable regulations and understanding of the energy sector have attracted large mining operations and other cryptocurrency-related businesses. States like Texas and Wyoming are setting precedents for cryptocurrency regulation, paving the way for innovation and economic growth in the industry.
The Last Trade: a weekly, bitcoin native, interactive podcast covering where Bitcoin and traditional finance meet on a macro scale. Hosted by Marty Bent, Jesse Myers (Croesus), Michael Tanguma, and a special weekly guest host.
Join us as we dive into what Bitcoin means for how individuals & institutions save, invest, and propagate their purchasing power through time. It's not just another asset - in the digital age, it's the Last Trade that investors will ever need to make.
0:00 - Intro0:30 - Welcoming Gavin Feary11:08 - 2019 paper22:47 - Qualified custodians29:09 - Definitions surrounding custody35:57 - Custodian competency42:01 - Bitcoin short squeeze45:48 - Gavin’s view on the current market52:05 - Free banking and self regulation59:28 - Accounting1:05:06 - Recognition of Bitcoin as property1:10:31 - Future of state charter banks vs the fed1:17:22 - Texas and mining1:29:09 - Back to regulating Bitcoin1:35:03 - Last thoughts before wrapping
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