Crypto Corner: Mined in America Act & Quantum Computing Risk

Welcome to this week's Crypto Corner. I'm Jenny Horn, and this week I'm joined by Adam

Lynch from the Schwab Equity Research Team. So Adam, let's start with the Mind and America

Act that is being proposed in the Senate. What is the bill in the chances of this bill actually

passing at this point? Yeah, this was a pretty interesting development which personally caught me

a bit off guard. We've been waiting to hear from Washington regarding progress on the Clarity Act,

but I guess we'll take whatever sort of legislation related progress we were given at this point.

So this week, Senators, Republican Senators, Cynthia Lumens from Wyoming, Bill Cassidy from Louisiana

introduced a bill to bolster digital asset mining in the U.S., as well as codify President

Trump's executive order to establish that strategic bitcoin reserve. The Mind and America Act was

unveiled on Monday and is supposed to expand cryptocurrency mining's role in the U.S. economy.

Now with everything that's been happening lately, you may or may not remember campaign season

before the most recent presidential election, but on the trail, Trump pledged to make America the

digital asset capital of the planet. And last March, he signed that executive order to establish

the bitcoin reserve. So what this bill actually does is direct the Commerce Department to create a

voluntary certification program for mining pools and mining facilities. Now, it would also require

these certified facilities to transition away from mining equipment, which is manufactured by

companies tied to foreign adversaries. We'll keep an eye on this one, but remember crypto

legislation has stalled a bit in DC. Lumens has been pushing for several crypto bills, the market

structure one, crypto tax reform, and now this one. But unfortunately, she's also mentioned that she

will not be seeking reelection and her term ends in January 2027. So there may be limits to what a

lame duck senator can accomplish in such a short time. Okay, and going off of that, could crypto

really abandon the overalls market? And what is really the rationale behind that?

Yeah, those comments certainly caught my attention, and they seem to have struck a nerve with some

of our clients as well, because I heard from a few of our client facing reps yesterday.

Lately, the focus has been on the fight between banks and crypto firms, mostly related to their

ability to pay a yield on stablecoins held in your account, like a bank pays you an interest rate

on your deposits. But what may be an even bigger and more consequential battle looms between the

digital asset industry and traditional finance firms? So this week, SEC Chairman Paul Akkin said

the agency would release an innovation exemption next month, which allows crypto firms to temporarily

issue and trade tokenized stocks without full registration that's required by brokers or exchanges.

This proposal would make it much easier for firms like Coinbase to offer these types of services

without needing to comply with the same regulations as other market participants. The idea here is

to give these firms a couple of years to experiment before either coming into compliance with the

traditional rules or approving why they do not need to comply. The SEC is also expected to include

asset caps or other limits on this exemption. Now, traditional finance firms and their main trade

group, the securities industries and financial markets association, or SIFMA, has spent several

months fighting to make sure that this exemption is as limited as possible. They've argued that it

may put investors at risk as they're not given the same sort of protections that are found in the

regulated stock market. For example, in a regulated market, there is a guarantee that brokers will attempt

to get their clients the best prices on stocks bought and sold. There's no guarantee like that found

here. What else may be making these traditional finance firms not like the idea is well to the extent

that stock trading moves from traditional markets to the blockchain, these firms could start to see

their profits erode. Now, this is just the latest clash between the digital asset industry and

more traditional finance and banking firms. The crypto industry has long argued stocks on the

blockchain would have several benefits like 24 or 7 trading, instant settlement, easier use of stocks

is collateral for loans and fewer intermediaries. The tokenized stocks exist today to an extent.

Now, cryptocurrency platform Kraken offers trading in them outside of the US, but rather than

equity ownership with actual voting rights and traditional regulatory protections, the Kraken

product is essentially a synthetic token that's backed by a stock. These other firms want to put

actual stocks directly on chain. Okay, so we did see some increased chatter around quantum and

computing, really, and it's ability to crack Bitcoin. And so Google did even put out a report

calling for a timeline of it by 2029. So what can you really tell us about now this added risk?

Yeah, I think it's still a little hard to get a read on this one, just given the varying viewpoints

out there. Some in the crypto industry are warning that the threat is now, it is immediate,

and it is urgent. While others are arguing everything's fine, and these issues can be managed and

solved in the future with technological upgrades. But just yesterday, Google Quantum AI research

published a pretty significant paper which seems to have reignited the debate across the crypto

industry about whether or not crypto computing could one day threaten Bitcoin and other blockchains

and how soon crypto needs to react. The paper explained that most blockchain technologies and

cryptocurrencies rely on what's called the 256-bit elliptic curve discrete logarithm problem,

or ECDLP256. And they rely upon it to secure these wallets and transactions. I won't go into the

details here, but the team has found that the necessary quantum computing resources required to

break the protocol have decreased significantly. In fact, they claim to have accomplished a 20-fold

reduction. Now this reduction in execution time could allow quantum computers to conduct real-time

attacks within Bitcoin's average block time of 10 minutes or so. This enables what's called

on-spend attacks, which target active cryptocurrency transactions. Earlier this month, they did give a

timeline and mentioned that 2029 date for full migration to PQC or post-quantum cryptography.

Now what does this mean for Bitcoin investors? Well, I guess it depends on what you think will happen.

If you believe it will be happening to be upgrades, then probably not much. In fact,

CZ from finances said more computing power is always good. Crypto will stay post-quantum.

On the other hand, this potential threat has been cited as one of the major reasons some long-term

Bitcoin investors have left the crypto market. One example is that in January, Christopher Wood,

who's the global head of equity strategy at Jeffries, eliminated a 10% allocation from his

model portfolio, citing these quantum computing risks. And I think we're going to have to see if

others in the industry follow suit. Absolutely. In a space we'll continue to keep on our radar,

of course. Adam Lynch, though, so appreciate you for joining us. And that's going to wrap up

this edition of Crypto Corner. To catch all of our episodes, subscribe to the Schwab Network YouTube

channel. I'm Jenny Horn. We'll see you again next time.