Crypto Update | McHenry: No Market Structure Bill Means Election Victory Wasted

Summary

Markets Daily Crypto Roundup: Detailed Summary of "Crypto Update | McHenry: No Market Structure Bill Means Election Victory Wasted"

Release Date: March 12, 2025

Introduction

In this episode of Markets Daily Crypto Roundup, hosted by CoinDesk, Jen welcomes Patrick McHenry, former chairman of the House Financial Services Committee, who has transitioned to the private sector. McHenry now serves as Vice Chairman at Ondo Finance and holds an advisory role at crypto investment firm A16Z. The discussion centers around recent developments in the crypto industry, particularly the implications of the White House Crypto Summit, legislative initiatives, market structure, and the future of crypto regulation in the United States.

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White House Crypto Summit: A Sign of Change

Jen opens the conversation by referencing the first White House Crypto Summit. She inquires about the current discussions in Washington, D.C., and what the summit signifies for the crypto industry as 2025 progresses.

Patrick McHenry responds enthusiastically, highlighting the summit as a tangible acknowledgment of crypto's legitimacy. "This is real. It's not just electioneering... it is in fact going to be policy and the policy will unlock American innovation and unlock digital asset, the whole digital asset ecosystem for the United States" (02:03).

McHenry contrasts the current administration's supportive stance with the previous Gensler regime, which he describes as "attacking the world's crypto and threatening prison time" (02:03). The participation of crypto leaders at the White House signals a significant shift towards fostering innovation and capital formation within the crypto sector.

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Market Reaction and Legislative Process

Jen points out that despite the summit's significance, the markets remained largely unchanged. She seeks McHenry's insight into this muted reaction.

McHenry explains that the positive developments were largely anticipated, especially following breakthroughs in November, leading to market expectations already accounting for such progress. "Now Washington actually has to deliver... making law will take more time" (03:25). He emphasizes that substantial legislative changes cannot occur overnight and that the market is likely awaiting more concrete legislative actions beyond symbolic events.

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Market Structure Bill vs. Stablecoin Bill

Jen delves into legislative priorities, specifically the debate between advancing a stablecoin-focused bill versus a comprehensive market structure bill. She references advice from former CFTC chair Tim Massad, who suggested prioritizing stablecoin regulation.

McHenry vehemently disagrees with Massad's stance. "That is absurd. It's a stupid idea... We need clarity for consumer protection, for investor protection" (05:02). He argues that a market structure law is essential for defining digital assets and establishing a stable regulatory framework, which has been lacking for over a decade. McHenry underscores the importance of federal legislation over fragmented state regulations, stating, "without a market structure bill, this election was not worth it for crypto" (05:02).

When pressed about Massad's recommendation, McHenry attributes it to differing perspectives between regulators and lawmakers. "Regulators see it from week to week and year to year... Congress has to step in, be very clear of the role of the CFTC, the SEC" (06:49). He maintains that comprehensive federal legislation is paramount for the sustained growth and stability of the crypto market.

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Tokenization of Equities

Jen shifts the focus to the tokenization of equities, a field McHenry is now involved in through Ondo Finance. She inquires about the future of equity tokenization and potential regulatory challenges.

McHenry expresses optimism about tokenization as part of a broader market structure initiative. "Regulation can change in a very small and subtle way and unlock the tokenization of real world assets around securities" (08:41). He highlights Ondo Finance's efforts in tokenizing Treasuries as a proof of concept, aiming to demonstrate the viability and benefits of using blockchain technology for real-world assets. McHenry believes that minor regulatory adjustments can facilitate the integration of traditional securities with crypto infrastructure, fostering greater innovation and accessibility.

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Federal vs. State Regulation

Jen raises concerns about the interplay between federal and state regulations, especially in light of the SEC retracting some enforcement actions while state regulators continue to pursue cases.

McHenry acknowledges the complexities of American federalism in this context. "Absent the federal government having law and clear Regulation, the states will take broad action" (10:50). He argues that without clear federal legislation defining digital assets and allocating regulatory authority, states will continue to act independently, creating a fragmented and potentially confusing regulatory landscape. McHenry emphasizes the necessity of federal clarity to prevent regulatory inconsistencies and to provide a stable environment for investors and innovators.

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McHenry’s Transition to the Private Sector

Jen explores McHenry's move from public service to the private sector, focusing on his roles at Ondo Finance and A16Z.

McHenry outlines his motivation to support and facilitate crypto innovation from the industry side. "Now I want to work with firms that are doing this, that actually carrying it out" (12:07). He praises A16Z for its leadership in crypto investment and commends Ondo Finance for pioneering tokenization in a regulatory-positive environment. McHenry expresses enthusiasm about collaborating with innovators to advance the crypto ecosystem, noting the mutual benefits of bridging legislative insights with practical industry applications.

When asked if his advisory roles provide a competitive advantage in influencing Washington, McHenry humbly responds, "I'm pretty good, but I think the specifics do matter... I'm going to be deeply engaged as much as I can in shaping that conversation" (13:34). He affirms his commitment to contributing substantively to the legislative process rather than relying solely on his credentials.

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Strategic Bitcoin Reserve

Jen brings up the recent announcement of a strategic Bitcoin reserve by the government, noting that no additional Bitcoin purchases are planned at this time.

McHenry views the reserve as a prudent step towards legitimizing Bitcoin's role in the national financial strategy. "I think the safest place here is bitcoin... We do this in the securities realm. We should do that with bitcoin and other digital assets as well" (14:33). He suggests that rationalizing the government's existing Bitcoin holdings can provide market clarity and stability, reinforcing Bitcoin's position as a foundational digital asset within the broader crypto ecosystem.

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President’s Remarks on American Cryptos

Jen references the President's comments on prioritizing American cryptocurrencies, listing projects like Ether, Cardano, XRP, and Solana, and asks McHenry about the rationale behind spotlighting these projects.

McHenry interprets the President's remarks as an effort to attract global crypto innovators to the United States. "Innovators that are from around the globe that want to be here in the United States and innovate... America is back and open for business" (15:30). He sees this as an invitation for international projects to establish themselves in the U.S., benefiting from a more supportive regulatory environment compared to previous administrations. McHenry emphasizes the broader message of embracing crypto innovation rather than focusing solely on specific projects.

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Exciting Innovations in the Crypto Industry

As the conversation nears its conclusion, Jen asks McHenry to highlight some of the most exciting innovations in the crypto space that listeners should watch for.

McHenry reiterates the critical importance of the market structure bill. "I think you have to have a market structure bill... it's imperative to ensure that American innovation can last and persist" (16:40). He identifies two main areas of focus:

1. Decentralization in the Market Structure Bill: Ensuring that the legislation accommodates decentralized finance (DeFi) principles.
2. Clear Classification of Tokens: Defining digital assets clearly within the legal framework to avoid ambiguity.

McHenry warns that without these legislative measures, long-term investment and innovation in the U.S. crypto market could be jeopardized. He urges industry participants to prioritize supporting comprehensive and sound federal legislation to foster a robust and sustainable crypto ecosystem.

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Conclusion

Jen wraps up the episode by thanking Patrick McHenry for his insights and participation. McHenry expresses his appreciation for the discussion, reaffirming his dedication to advancing crypto innovation through both legislative advocacy and industry collaboration.

Final Thoughts: The episode underscores the pivotal role of federal legislation in shaping the future of the crypto industry in the United States. Patrick McHenry emphasizes the necessity of a comprehensive market structure bill to provide clarity, protect investors, and foster innovation. His transition to the private sector aims to bridge the gap between legislative frameworks and practical industry applications, ensuring that the crypto ecosystem can thrive under clear and supportive regulations.

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Notable Quotes

• Patrick McHenry [02:03]: "This is real. It's not just electioneering... it is in fact going to be policy and the policy will unlock American innovation and unlock digital asset, the whole digital asset ecosystem for the United States."

• Patrick McHenry [05:02]: "That is absurd. It's a stupid idea... We need clarity for consumer protection, for investor protection."

• Patrick McHenry [06:49]: "Regulators see it from week to week and year to year... Congress has to step in, be very clear of the role of the CFTC, the SEC."

• Patrick McHenry [08:41]: "Regulation can change in a very small and subtle way and unlock the tokenization of real world assets around securities."

• Patrick McHenry [10:50]: "Absent the federal government having law and clear Regulation, the states will take broad action."

• Patrick McHenry [14:33]: "I think the safest place here is bitcoin... We do this in the securities realm. We should do that with bitcoin and other digital assets as well."

• Patrick McHenry [15:30]: "Innovators that are from around the globe that want to be here in the United States and innovate... America is back and open for business."

• Patrick McHenry [16:40]: "I think you have to have a market structure bill... it's imperative to ensure that American innovation can last and persist."

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This comprehensive summary encapsulates the key discussions and insights from the episode, providing listeners and readers with a clear understanding of the current state and future directions of the crypto industry as discussed by Patrick McHenry on Markets Daily Crypto Roundup.

Transcript

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[Patrick McHenry]

To make sound law around what is a digital asset and give it market structure. That is what we have needed for the last decade. The last four years been proof that allowing the regulators to do this will lead to a reign of terror, not of innovation and capital formation.

[Jen]

Former chairman of the House Financial Services Committee, Patrick McHenry has now joined the private sector where he hopes to move the needle when it comes to crypto innovation in the United States. It was recently announced that he joined Ondo Finance as Vice Chairman and also took an advisory role at crypto investment firm A16Z. He's here to weigh in on crypto in Washington and the impact he hopes to make on the industry. Patrick, welcome to Markets Daily.

[Patrick McHenry]

Hey, thanks, Jen. Thanks for having me back.

[Jen]

Of course. Thanks for being here. Now, I gotta ask you. We had a big event at the end of last week. We had the first White House crypto summit. Last time you and I spoke, we spoke about the changing conversations that are happening down in D.C. but give me an update here. What are people Talking about in D.C. what did the crypto summit signal for you as we head deeper into 2025?

[Patrick McHenry]

This is real. I mean, I think that's what it signals is. This is real. It's not just electioneering, the difference in approaches to crypto. It is in fact going to be policy and the policy will unlock American innovation and unlock digital asset, the whole digital asset ecosystem for the United States. So it was a welcome sign that the President made this a priority, spent significant amount of time with leaders and digital assets and had them at the White House. It was a very, very big difference from the, the Gensler regime of attacking the world's crypto and threatening prison time and then for, for them to go from, from crypto to go from that to being at The White House, welcomed by the President, is a, is such a breath mint and a fresh birth of, you know, a massive boom of fresh air.

[Jen]

You know, I asked Kevin O'Leary this on yesterday's episode. I'm going to ask you because maybe you'll have a different perspective here. But the markets didn't really react to this moment. And, and as you said, it is a really big moment for the crypto industry. It signals a big change. If you look at, you know, how the previous industry interacted with crypto folks, why do you think that the markets didn't really do anything?

[Patrick McHenry]

Well, because November was such a game changer. A lot of that's baked in. It's already baked into the market and the assumption that things are going to be fantastic. Now Washington actually has to deliver. There is the statement by the White House, the show of White House attention to this, number one. Number two, the regulators, the appointment of the regulators have to be Senate confirmed before they can get to get to work and changing the regulatory landscape in a significant way. And then three, you have to have a lasting law to ensure that we cannot, we won't go back to what we had for the last four years of attacking the world of crypto. And making law will take more time. And so I think what the market is seeing is that this takes more time than just one event at the White House. And I think it's just realistic, frankly.

[Jen]

You are the person to comment on how long it takes to make law. You and I spoke about it at the Ondo Summit. I believe it was last month. But all the time just kind of melts together for me these days. But it was recently. So let's just go get back to that conversation. We have the potential for a stable coin Bill. It sounds like that could happen sometime soon. We had former CFTC chair Tim Massad advise the Senate that, you know, the market structure bill should be put aside. We should just focus on stablecoins and let the regulators kind of figure out what's going on before they address market structure. Bill, what's your opinion there?

[Patrick McHenry]

Let me start there. That is absurd. It's a stupid idea. We have to make sound law around what is a digital asset and, and give it market structure. That is what we've needed for the last decade. It is proof that the last four years been proof that allowing the regulators to do this will lead to a reign of terror, not of innovation and capital formation. So we need clarity for consumer protection, for investor protection. We need clarity for investors and innovators to do it here in the United States. And the only way to have that is through a market structure law. That's number one. Number two, we have regulated stablecoins here in the United States. They're done through the states, the various states. The states have been the incubators here around innovation and what the federal government needs to do is catch up. Here this week, the House Financial Services Committee, in fact today the House Financial Services Committee has their first hearing on stablecoins which will start the legislative process in earnest. I think we'll see a stablecoins bill move first in the House, but then followed quickly thereafter in the House by a market structure bill. But without a market structure bill, this election was not worth it for crypto. It will not have lasting and in fact deep change and will lead to elections determining the state of crypto for the foreseeable future absent sound law. So we do need a market structure law and we would benefit from a stablecoins law as well.

[Jen]

Now I'm asking for your opinion here. I'm asking you to speculate and if you're not comfortable, you just tell me that. But why do you think that massive would advise the Senate to go this way if like, I mean what you're saying makes sense if you feel so strongly that we need the market structure bill first before we can advance?

[Patrick McHenry]

Well, look, I think Tim is a very, very smart, capable person but the fact is he is a regulator. I'm a lawmaker. I see the benefit from law and I see the benefit from law on a 20 year horizon, 30 year horizon and regulators see it from week to week and year to year. And so I think stepping back, my perspective is the one more effective for the marketplace. His is more effective for the regulators to regulate and have more power. Congress has to step in, be very clear of the role of the cftc, the role of the sec, the role of the banking regulators and only Congress can can sift through that that state of competitive forces among the regulators. Congress has to do that.

[Jen]

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[Patrick McHenry]

Well, I think that's exactly right. Right. And as I said, we benefit from a market structure law that will unlock digital assets writ large. Regulation can change in a very small and subtle way and unlock the tokenization of real world assets around securities. Primarily. Ondo is doing this first with the Treasuries market, but this is to show the technology works and use that as an opportunity for global markets to be able to participate with American securities using the best technology available on crypto Rails. And so this is a subtle software change, frankly, and a subtle regulatory change that can unlock tokenization of real world assets that can be done through the regulators and that can be done very quickly in the next couple of weeks, in fact, where market structure may take as long as a year to enact into law to help crypto writ large. And so I think all these things can, can exist and different market participants are excited about different pieces, but that's also quite frankly their book. I'm excited about all of this for the state of crypto because the global perspective here that the, really the, the unlocking of technology is going to require a stable coin regime, a market structure bill, and then the regulators doing the rational things at the, at the, in their agencies to implement this in a digital first, digital native regulatory regime around crypto. It's all very exciting.

[Jen]

Now, Patrick, help me make sense of something. I had some legal analysts on the show last week and we were talking about the SEC walking back some of the crypto enforcement cases that were brought by the previous administration. But now we see state level regulators and attorneys general bringing about similar cases. And so how, how will regulation work? Once we have clear legislation, we have federal regulators, but then we have state regulators who may not agree with how the federal regulators are interpreting the legislation.

[Patrick McHenry]

Sure. I mean, this is the complicated notion of American federalism. You have states that have certain powers, the federal government has other powers. And absent the federal government having law and clear Regulation, the states will take broad action. That's what you're seeing here. So in the absence of a clear law defining a digital asset and giving it primary regulators at the federal level, you're going to see more state action like this that will sow more confusion than we need here in the United States and market participants and, and investors need. And so this is in the nature of the vacuum being filled by the states when the federal government doesn't act. And so that's another imperative to get clear law done at the federal level.

[Jen]

Now I want to talk about you. You have now gone from the public sector to the private sector. I know that you're advising a few different crypto related or crypto companies, I guess we can call them. Ondo Finance is one. I know you're an advisor at a 16Z now. What's your hope? What kind of impact do you hope to make, I guess on this side of the coin now?

[Patrick McHenry]

Well, look, I, I, I, my, my views were pretty well established on crypto when I was in public office. Now I want to work with, with firms that are, they're doing this, that actually carrying it out. A16Z is the, the biggest crypto investor in the world and you know, the mightiest venture capital firm on the planet. There are a lot of great actors obviously as well, but I chose to affiliate with a 16Z based off the quality of their people, the talent there. And then for Ondo, they're doing something that I think is the first wave of crypto innovation in a regulatory neutral environment. We're in a regulatory positive environment right now, so it makes this even more exciting. And for Ando to have real examples of tokenizing real world assets, it makes it exciting to see these things happen in lifetime and to work with innovators. So it's been a lot of fun, a lot to learn, a lot more to do as well.

[Jen]

I got to ask you, do you think that the firms who have you as an advisor have a competitive advantage when it comes to influencing the conversation in Washington? But you know, as you and I have been talking, I feel like that that's not really needed anymore. It feels like Washington doesn't need to be influenced. It feels like things are moving much faster. But I'd love to get your perspective there. Are you almost like the golden ticket to making things happen?

[Patrick McHenry]

I'd love to be able to tout myself that by hiring me I can unlock all things Washington. I think I'm pretty good, but I think the winds in our sales with crypto the specifics do matter, and the specifics of law and regulation getting it right really does matter. And so, yes, the wind is broadly in our sails, but the substance of the legislation, the regulations, still can be refined. And I'm going to be deeply engaged as much as I can in shaping that conversation so we can unlock the greatest potential possible. But thank you. Thank you for the sales pitch on hiring me. I still have. Right. I stopped asking time for other, other innovators and would love to work with them.

[Jen]

Well, there you go. I mean, maybe I should get a commission, but we could talk about that later. I want to. I want to come back to the strategic bitcoin reserve that was announced on Friday. We now know that the government has created a reserve, but they're not going to be buying more bitcoin. Do you think that's something we'll see in the future?

[Patrick McHenry]

Look, the president's made this a major statement, and I think, I think the safest place here is bitcoin. The federal government owns a substantial trove of seized bitcoin, and we need to rationalize the ownership of that and when it's going to be, when and if it's going to be sold. That's a clear thing for the markets. We do this in the securities realm. We should do that with bitcoin and other digital assets as well. So I view as a welcome signature that crypto's here and crypto's here to stay.

[Jen]

I have to ask you about the president's remarks about all American cryptos. And I may have asked you this the last time we spoke, but we have a little bit more clarity at the ones that he's looking at. Ether, Cardano, xrp, Solana. What do you think is behind coining these projects? American.

[Patrick McHenry]

Look, it's a present style, a present statement. He wants people to do business here in the United States and he wants the country to be great. And so you see innovators that are from around the globe that want to be here in the United States and innovate. For the last four years, they. They ran away from the United States and tried to set up shop elsewhere where innovators were welcome in crypto. Now they're back. And I think he's trying to make that a really a feel, right. The vibe that America is back and open for business. And, and I think that's how it needs to be viewed rather than around the specifics of what's in, what's out. The broader statement that you went from a, an administration and regulators that were anti crypto to a pro crypto president who is leading the way. I think that's the big statement.

[Jen]

Now, as we've talked about, you're working with a few different projects. But before we wrap up here, what are some of the most exciting innovations you're seeing in the industry? Now the people who watch the show really try to make sense of the news headlines and apply that to what they're watching. What would you tell them to keep their eye out for?

[Patrick McHenry]

I think to keep their eye out on the state of the market structure bill. I think you have to have a market structure bill. I think it's an imperative to ensure that American innovation can last and can persist. Right. I think that matters. And so the key thing here is whether or not decentralization is a central part of the market structure Bill, number one. Number two, how we classify tokens and whether or not that is clearly outlined in law. That's number two. And I think those are the two biggest issues related to market structure. I think everyone needs to keep their eye on that. And without a market structure bill, it's going to be hard to Invest for a 10 year time frame in the United States. So I think that needs to be the deep focus of the industry is making sure that we make sound law.

[Jen]

Patrick, thanks so much for joining the show.

[Patrick McHenry]

Jen, always great.