Crypto's top VC is playing the long game

A: Actually, China has made a similar move before, in 2017. It outlawed trading of Bitcoin on exchanges that were based in China. The price of Bitcoin at that time had been hovering around $4,000, but on that news, it took a downward price turn.

I’m surprised it didn’t happen sooner. Xi Jinping and China have made no secret of the fact that they consider crypto and blockchain a top-five national priority for China in the next decade. They’ve publicly stated this, and they are developing their own version of cryptocurrency, a digital renminbi. We know that they plan to export this, to tie trade to it, to incentivize people around the world, not just in China, to use it.

Q: What happens if Bitcoin is shut down in China completely? Is that market for Bitcoin off the table?

A: The best analog for this is the Great Firewall of China, with the internet. Of course, this will be harder for China to just completely ban. They can do things like control on- and off-ramps, which they’ve done before. If you look back to that 2017 news, it actually shows the tremendous staying power of a decentralized, open system like Bitcoin.

Q: Peter Thiel has argued that China would love to see Bitcoin and other cryptocurrencies rise as a strategic effort to destabilize the U.S. dollar. Do you agree?

A: I don’t agree with that. I think China would like to keep control over its version of a digital yuan. And I think that they are developing what is effectively a closed permission system. Fundamentally they want control and surveillance over everything.

I do agree that they would very much like to see the U.S. dollar upset as the global reserve currency. I just disagree in the way in which they would go about doing it. It’s far more likely we would see them export their version, by tying incentives to their digital currency to get individuals around the world to use it.

Q: Back here in the U.S., do you think crypto will be regulated?

A: There’s this myth that crypto founders want the Wild West. They’re really kind of desperate for regulators to say what the rules are. It takes so much time, money and resources — specialty resources — to figure out how to navigate the morass of agencies ranging from the CFTC to Treasury, let alone the regulators in 50 different states.

SEC Commissioner Hester Peirce has called for a regulatory sandbox, but I’m not sure that goes far enough because it only solves issues for projects that are clearly securities. What I would like to see is at a federal level in the U.S., a regulatory sandbox that has federal preemption. And in order to do that, you need legislation.

Q: How would that work?

A: It would allow projects to launch with some rules, but it would provide an important test ground to see how they behave in the wild. And at the same time, it would serve a really important function to regulators and to people in the government by helping to train them on these new technologies. There is really no easy way to keep up. I’m full time in the industry with experts all around, and I can’t keep up with the pace of this technology that’s changing so fast.

Q: But how do you protect consumers? The broader public is clearly not being sandboxed or protected while this is taking place.

A: Consumer protection is really important. However, people want access to these products and services. And just saying, well, we’re not going to allow them in the U.S. is not the answer because anyone today with an internet connection and a VPN can pretty easily go access products and services that are offered in other countries. It’s incredibly hard, if not almost impossible, for the U.S. to police what’s happening overseas on offshore platforms.

Q: As a former prosecutor, how do you think about crypto being used in so many ransomware attacks like the one on Colonial Pipeline? Why do criminals love Bitcoin so much?

A: Criminals are early adopters, and in some ways they make great beta testers for new technology. They’re always looking for a way around the system. Frankly, law enforcement officials actually really like when payment is made in Bitcoin as opposed to fiat. I think it’s funny because as a former prosecutor, I take this for granted.

There’s a real false sense of security where wires are used or traditional financial services are used. People think, “Oh, we know everything about that. So we’ll just go subpoena.

The bank will give us these records and we’ll just go get the money.” That is just so far from the reality of the situation.

Q: So you don’t believe that these ransomware attacks are a function of crypto?

A: I think you are asking if crypto is the cause of ransomware, and it’s absolutely not. I prosecuted many of the Justice Department’s largest online money laundering schemes. In fiat systems, 99.9% of money laundering claims succeed. Actually, the thing that really stands out about the ransomware attacks — the Colonial Pipeline is a great example of this. It is unprecedented that the Justice Department would be able to recover the proceeds from international criminal activity so quickly. That timeline is usually years, if ever.

Q: When you think about risks in crypto, how much leverage do you think is in the crypto system?

A: Just like in traditional financial services, of course, there’s leverage, I’m not going to deny that. But people can get a lot more leverage with platforms overseas. So I think it’s in U.S. regulators' and consumers’ interests to foster responsible innovation here in this country. So don’t say you can’t have any leverage, but let’s talk about what limits are, what are some good rules of the road that we could agree on.

One of the only things that unites Congress lately is China, and I think U.S. policymakers and lawmakers are starting to realize that China and other countries are moving forward, recognizing that crypto and blockchain is a real priority, and that we are behind, unlike in the internet, where DARPA and the U.S. government had a hand in helping create it.

Q: What do you make of the memeification of crypto? When you see Elon Musk tweeting about Dogecoin, do you say this is great or terrible?

A: Somewhere in between. There’s something fundamental going on right now with the internet and culture, and I think crypto is at the epicenter. It’s easy to dismiss things as games or memes. I myself was kind of guilty of that a few years ago. And, you know, I’ve been proven wrong a couple of times. So one of the things I’ve tried to learn is to keep an open mind.

Q: You’ve raised $2 billion for this crypto fund amid this almost euphoria over the past couple of months around crypto and the future of crypto, NFTs, the price of Bitcoin going to 60-plus thousand dollars. This week a lot of the air has come out. Can you contextualize the fund and fundraising in this environment?

A: We started talking about raising this third fund long before what you just described, the euphoria. We’re making seven- to 10-year bets.

One great category we’re interested in is infrastructure and scalability — UX, picks and shovels, you know, to enable more mainstream consumers to be able to use crypto products and services. Look for us to double down on that area.

The second category is NFTs and gaming. A lot of people that I talk to about NFTs think, “Oh, yeah, digital art.” I think it’s so much more than just about art. It’s about much more than gaming, it’s about much more than goods. It’s about this new business model for creators and bringing entirely new audiences to crypto, entirely new types like creators, sports fans and media types.

Then the third category is DeFi, or decentralized finance.

Q: This fund is magnitudes larger than funds one and two. What does that say about where we are?

A: It’s about four times larger than our last fund. We were oversubscribed. We could have quite easily raised a lot larger fund without any issue at all from our existing limited partners, without even going to new limited partners. But we didn’t want to raise a larger fund, just for the sake of a bigger number.

I almost think about it as raising funds for the internet a couple of decades ago. Now we don’t think anything of it — we have separate funds for consumer, for infrastructure, for enterprise, for things like that, for gaming. With crypto, we think that its potential for growth is as big as the potential for the internet.