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Welcome to this week's Crypto Corner. I'm Jenny Horn, and this week I'm joined by Adam
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Lynch from the Schwab Equity Research Team. So Adam, let's start with the Mind and America
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Act that is being proposed in the Senate. What is the bill in the chances of this bill actually
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passing at this point? Yeah, this was a pretty interesting development which personally caught me
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a bit off guard. We've been waiting to hear from Washington regarding progress on the Clarity Act,
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but I guess we'll take whatever sort of legislation related progress we were given at this point.
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So this week, Senators, Republican Senators, Cynthia Lumens from Wyoming, Bill Cassidy from Louisiana
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introduced a bill to bolster digital asset mining in the U.S., as well as codify President
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Trump's executive order to establish that strategic bitcoin reserve. The Mind and America Act was
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unveiled on Monday and is supposed to expand cryptocurrency mining's role in the U.S. economy.
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Now with everything that's been happening lately, you may or may not remember campaign season
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before the most recent presidential election, but on the trail, Trump pledged to make America the
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digital asset capital of the planet. And last March, he signed that executive order to establish
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the bitcoin reserve. So what this bill actually does is direct the Commerce Department to create a
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voluntary certification program for mining pools and mining facilities. Now, it would also require
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these certified facilities to transition away from mining equipment, which is manufactured by
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companies tied to foreign adversaries. We'll keep an eye on this one, but remember crypto
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legislation has stalled a bit in DC. Lumens has been pushing for several crypto bills, the market
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structure one, crypto tax reform, and now this one. But unfortunately, she's also mentioned that she
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will not be seeking reelection and her term ends in January 2027. So there may be limits to what a
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lame duck senator can accomplish in such a short time. Okay, and going off of that, could crypto
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really abandon the overalls market? And what is really the rationale behind that?
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Yeah, those comments certainly caught my attention, and they seem to have struck a nerve with some
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of our clients as well, because I heard from a few of our client facing reps yesterday.
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Lately, the focus has been on the fight between banks and crypto firms, mostly related to their
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ability to pay a yield on stablecoins held in your account, like a bank pays you an interest rate
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on your deposits. But what may be an even bigger and more consequential battle looms between the
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digital asset industry and traditional finance firms? So this week, SEC Chairman Paul Akkin said
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the agency would release an innovation exemption next month, which allows crypto firms to temporarily
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issue and trade tokenized stocks without full registration that's required by brokers or exchanges.
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This proposal would make it much easier for firms like Coinbase to offer these types of services
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without needing to comply with the same regulations as other market participants. The idea here is
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to give these firms a couple of years to experiment before either coming into compliance with the
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traditional rules or approving why they do not need to comply. The SEC is also expected to include
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asset caps or other limits on this exemption. Now, traditional finance firms and their main trade
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group, the securities industries and financial markets association, or SIFMA, has spent several
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months fighting to make sure that this exemption is as limited as possible. They've argued that it
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may put investors at risk as they're not given the same sort of protections that are found in the
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regulated stock market. For example, in a regulated market, there is a guarantee that brokers will attempt
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to get their clients the best prices on stocks bought and sold. There's no guarantee like that found
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here. What else may be making these traditional finance firms not like the idea is well to the extent
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that stock trading moves from traditional markets to the blockchain, these firms could start to see
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their profits erode. Now, this is just the latest clash between the digital asset industry and
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more traditional finance and banking firms. The crypto industry has long argued stocks on the
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blockchain would have several benefits like 24 or 7 trading, instant settlement, easier use of stocks
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is collateral for loans and fewer intermediaries. The tokenized stocks exist today to an extent.
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Now, cryptocurrency platform Kraken offers trading in them outside of the US, but rather than
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equity ownership with actual voting rights and traditional regulatory protections, the Kraken
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product is essentially a synthetic token that's backed by a stock. These other firms want to put
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actual stocks directly on chain. Okay, so we did see some increased chatter around quantum and
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computing, really, and it's ability to crack Bitcoin. And so Google did even put out a report
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calling for a timeline of it by 2029. So what can you really tell us about now this added risk?
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Yeah, I think it's still a little hard to get a read on this one, just given the varying viewpoints
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out there. Some in the crypto industry are warning that the threat is now, it is immediate,
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and it is urgent. While others are arguing everything's fine, and these issues can be managed and
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solved in the future with technological upgrades. But just yesterday, Google Quantum AI research
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published a pretty significant paper which seems to have reignited the debate across the crypto
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industry about whether or not crypto computing could one day threaten Bitcoin and other blockchains
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and how soon crypto needs to react. The paper explained that most blockchain technologies and
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cryptocurrencies rely on what's called the 256-bit elliptic curve discrete logarithm problem,
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or ECDLP256. And they rely upon it to secure these wallets and transactions. I won't go into the
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details here, but the team has found that the necessary quantum computing resources required to
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break the protocol have decreased significantly. In fact, they claim to have accomplished a 20-fold
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reduction. Now this reduction in execution time could allow quantum computers to conduct real-time
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attacks within Bitcoin's average block time of 10 minutes or so. This enables what's called
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on-spend attacks, which target active cryptocurrency transactions. Earlier this month, they did give a
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timeline and mentioned that 2029 date for full migration to PQC or post-quantum cryptography.
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Now what does this mean for Bitcoin investors? Well, I guess it depends on what you think will happen.
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If you believe it will be happening to be upgrades, then probably not much. In fact,
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CZ from finances said more computing power is always good. Crypto will stay post-quantum.
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On the other hand, this potential threat has been cited as one of the major reasons some long-term
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Bitcoin investors have left the crypto market. One example is that in January, Christopher Wood,
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who's the global head of equity strategy at Jeffries, eliminated a 10% allocation from his
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model portfolio, citing these quantum computing risks. And I think we're going to have to see if
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others in the industry follow suit. Absolutely. In a space we'll continue to keep on our radar,
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of course. Adam Lynch, though, so appreciate you for joining us. And that's going to wrap up
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this edition of Crypto Corner. To catch all of our episodes, subscribe to the Schwab Network YouTube
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channel. I'm Jenny Horn. We'll see you again next time.