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Senator Cynthia Lummis On The Ideal Crypto Future

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The following is the unofficial transcript of a CNBC interview with Senator Cynthia Lummis from the CNBC Financial Advisor Summit, which took place today, Tuesday, June 29th. Video from the interview will be available at cnbc.com/fa100.

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Interview With Senator Cynthia Lummis

Ylan Mui: Senator Lummis, thank you so much for taking some time to talk with me today, and for joining CNBC’s Financial Advisor Summit. We really appreciate it.

Senator Cynthia Lummis: It’s my pleasure, Ylan.

Mui: So, you have been representing Wyoming in Washington for a very long time. You were a congresswoman, now you're the first female senator from the state, and you recently founded something called the financial innovation caucus. Tell us what that is and who the members are.

Senator Lummis: Well, I founded it because Wyoming has been a leader in developing financial institutions to work with cryptocurrency. And because Wyoming was the first state to establish a set of laws that are now being used to charter new banks in cryptocurrency and take them through the Federal Reserve process and integrate them into the traditional fiat currency world, I took an interest in this issue. So along with Kyrsten Sinema, the senator from Arizona, we have founded the innovation caucus and it's bipartisan. There are members from all over the country including people like Mike Braun, Marsha Blackburn, John Hickenlooper, Bill Cassidy and many others who have an interest in financial innovation. Not just in terms of cryptocurrency, although that's a big focus, but also things like same day settlement, next day settlement, which saves lots of individuals overdraft fees, different banking fees that can really add up for individuals. So we want to make sure that it serves the financial institutions that are growing around the cryptocurrency world, but also serves regular customers of traditional banking.

Mui: So this is the innovation caucus and I would say that in this industry we're seeing so much growth right now. We're seeing a tremendous amount of energy, not just in cryptocurrencies in particular – though, I feel like I hear about a new crypto every single day – but also in the fintech space overall. So, I guess the question for you is what is Washington's role here? Because I think a lot of players in this field worry that there's so much enthusiasm right now for some of these assets that Washington could actually ruin the party.

Senator Lummis: Well, people are concerned that Washington could mess this up. Even occasionally I hear from people who work in cryptocurrency, some are concerned that we could ban it.

Mui: Are you going to ban it?

Senator Lummis: Oh, heavens no.

Mui: Okay.

Senator Lummis: So, the interesting conversations are occurring among people that are in our caucus with financial regulators because the regulators, too, are beginning to grapple with how to make a level playing field – we call it a sandbox – that can still be a place where innovators can continue to innovate and create new products and new opportunities for consumers with safety, with privacy and assure people that it's not going to be used for crime and purposes other than good straight up financial management by individuals and institutions. And so, it involves a lot of the regulator community. The Office of the Comptroller of the Currency, the SEC, the Commodities Futures Trading Commission –

Mui: The CFTC.

Senator Lummis: The CFTC and many other entities, even the FDIC. So we've been making the rounds, talking to the regulators to see what their thoughts are about regulation. And then we're trying to figure out what direction they're heading to see if Congress needs to weigh in, or whether Congress should use this opportunity, simply to learn more in the forum itself, about how to integrate non-fiat currency with fiat currency.

Mui: So what are some of the principles that you are trying to establish as you look to decide, you know, what good regulation, smart regulation should look like that will actually help provide the industry certainty without sort of getting in the way of all of that innovation that's already happening on the ground?

Senator Lummis: Well, we certainly want to comply with things like the anti-money laundering laws. We want to comply with the Bank Secrecy Act, but we also want to make sure that we're not stifling innovation in the way it's implemented. We don't want to over regulate or differently regulate traditional banking and non-fiat currency banking because we want them to have a level playing field. We don't want to pick winners and losers. By the same token, privacy is going to be a big issue. We want to assure people that while China, for example, will have a non-private cryptocurrency – central bank digital currency, the digital Yuan – that we want to have a digital dollar, but that has the same kind of privacy that we would expect from things like Bitcoin.

Mui: So I want to talk about China in just a little bit, but how do you make this happen? I mean you guys, as you said, did this already in Wyoming. How do you take a cryptocurrency and turn it into a digital asset that can be sort of managed and handled through a banking system?

Senator Lummis: Well, among the things that Wyoming has done is charter to special purpose depository institutions. One is Kraken and the other is Avanti. The State of Wyoming through its banking division, created a bank examination manual for these types of banks that can be used as, quite frankly, a national prototype, a national model. So right now, the Federal Reserve Bank of Kansas City is looking at these charters to see if they can receive master accounts that they can participate with ABA bank routing numbers, and thereby, begin to integrate with traditional banking. We're waiting. We think we've got about 45 days I would say to wait to see what the Federal Reserve Bank of Kansas City says about Wyoming's work to examine these kinds of banks, these special purpose depository institutions. So that can become sort of the model, the template for other institutions of its kind. We know that states like Texas and Nebraska are looking at Wyoming’s laws to perhaps get in on the same kind of opportunity. And so, we think we're leading the way in a very responsible way that looks out for consumer protection, as well as privacy, but also ensures that the uses don't encourage money laundering and the kind of ransomware use that we saw in the Colonial Pipeline incident.

Mui: What do you see is the end goal here? Could you describe your ideal crypto future? What does that look like?

Senator Lummis: Okay well, I would like to see cryptocurrency, like Bitcoin, become part of a diversified asset allocation that are used in retirement funds and other opportunities for people to save for the future. So whether you're an employee that has a retirement fund – I'd like to see those retirement funds invested in bitcoin and other cryptocurrencies that are good stores of value – but I'd also like to see individuals be able to use bitcoin and cryptocurrencies of their preference that are safe, that have met the hurdles of anti-money laundering and Bank Secrecy Act. But that allow people to use their cell phones to send stores of value, bitcoin, to each other. Now, for example, El Salvador just decided to make bitcoin legal tender in El Salvador. The reason they did that is because 22% of El Salvador's economy comes from payments made by people working in the United States and elsewhere to their relatives in El Salvador. Now, if a son is sending his mother in El Salvador, money that has to be sent through Western Union, there's a steep fee. The mother in El Salvador, may encounter gangs or other thieves. And it's risky. But if the son can take a cell phone and send $100 in bitcoin to his mother and she receives $100 in bitcoin, no fees, no concerns about theft or the high fees associated with those kinds of transmission. So, I see it as a way to help everyday consumers and to make sure that they're not having fees interfere with their ability to transact with each other, as well as just make it very seamless and easy, and same day

Mui: Though, I think one of the things that maybe scares off some retail investors from the cryptocurrency space is that the value can be so volatile. So how would you recommend financial advisors talk to their clients about the best way to get into this asset class and how to incorporate it into their portfolios?

Senator Lummis: For me, I see bitcoin as a great store of value. I buy bitcoin and I hold bitcoin.

Mui: You buy bitcoin?

Senator Lummis: Oh, yes.

Mui: You have bitcoin?

Senator Lummis:  I do.

Mui: How much bitcoin do you have?

Senator Lummis: Well I only have, I think, five bitcoin.

Mui: Well, that's a lot these days.

Senator Lummis: Well, it is these days. My first bitcoin I paid $330 for.

Mui: Oh my goodness.

Senator Lummis: Yeah, but I think that was in 2013.

Mui: And you held on to it.

Senator Lummis: Absolutely. So, I see it is a great store of value, but I don't see it right now, for me anyway, as a means of exchange. So, I want to buy and hold. I encourage people to buy and hold. I encourage them to save bitcoin for their retirement, for their future. And that's because, as the Congress spends trillions and trillions of dollars, and is flooding our economy and the world economy with U.S. dollars, there's no way that we cannot debase the value of the U.S. dollar. So, I worry about having all of our retirement monies denominated in U.S. dollars. So as part of diversification, having a very diverse asset allocation, so you don't have all your eggs in one basket, I think one of the strongest stores of value for the long run is bitcoin.

Mui: So I want to ask you about that, but first I have to say – are you invested in any other cryptocurrencies, or is it just bitcoin?

Senator Lummis: For me, it's just bitcoin. That’s the only one.

Mui: No ethereum, no –

Senator Lummis: Correct. The only one I really understand is bitcoin. Now that doesn't mean that ethereum might not have benefits as well.

Mui: But you also then, by believing that this should be part of a long-term hold, be part of people's retirement portfolios, you think bitcoins going to be around in 20, 30, 40 years when some of these millennials who are investing in it now actually look to retire, and possibly be more stable than the dollar itself?

Senator Lummis: I do. And again, I don't want everybody putting all their money in bitcoin just like I don't want everybody putting it in dollars and putting it under a mattress. I like diversification. But to me, since there's only going to be 21 million bitcoin ever mined, it's a good store of value because it has defined scarcity. And the way that it was set up, so it unlocked some bitcoin every 10 minutes, fewer and fewer over time until all 21 million have been produced, it's easy to see, conceptually, why it's such a good store of value.

Mui: You mentioned the central bank and the Federal Reserve a couple of times. How do you see the central bank contributing to the digital currency, I guess, marketplace? How should the central bank be thinking about this right now?

Senator Lummis: Well, it's really important to me that the U.S. dollar remain the world reserve currency. So, one of the ways we can do that and continue to compete with currencies like the digital yuan is to have our own central bank digital currency. The benefits of having the dollar as a digital currency is privacy because we know that China is going to want to know where their digital wallets go, where the digital Yuan is being spent. Perhaps, for example, if it's being spent in China by the Chinese to give a contribution to a religious organization that is frowned upon in China, the Chinese government's going to know that and they can crack down on an individual who used their digital yuan in a non-government approved way. We want to make sure that that is not the case with the US dollar, and that the digital version of the U.S. dollar becomes the digital reserve currency around the world, as well as the traditional U.S. dollar.

Mui: There are a lot of applications for some of these technologies beyond even just the traditional financial space. You've done a lot of work around, for example, blockchain in the agricultural industry. Tell us a little bit about that work.

Senator Lummis: Well there's a long way to go in that area because it's expensive, but we have to begin to innovate in that area to drive the cost down. So for example, if I wanted to make a contract with you and make sure that contract wasn't abrogated or changed over time, we could put the contract on the blockchain. And that version of the contract would remain inviolate. So if there were ever a dispute about what that contract said, you and I, as the author and the recipient – the people who signed it – would have the very same version and we could refer to it on the blockchain. So there are – it memorializes all kinds of transactions and it can memorialize documents for use on the blockchain. So I think that we're going to find that the  potential uses for blockchain technology and distributed ledger are as varied as the individuals who are thinking about how to use it.

Mui: How much work have you had to do to explain some of these concepts to your colleagues in Congress?

Senator Lummis: You know, I've had to do a lot of work to understand these concepts even to this point.

Mui: You and me both.

Senator Lummis: And then, but I finally understand them at least well enough that I can see where I think my colleagues have a different understanding, and I can begin to sort out where our differences in conclusions have arisen and try to address those. So among the things we want to do with financial innovation caucus is invite members of the Senate and their staff and have conversations among those to educate them, to use regulators to help educate them, to use innovators to help educate them, and then begin to share with each other what is the appropriate regulatory sandbox. What is the appropriate platform –  regulatory platform or statutory platform – so this industry can continue to innovate, but still have the safeguards that we want the American people, and indeed the world, to understand underpins and shores up the regulatory regime that we're using.

Mui: Switching gears just a little bit. There's also been a lot of discussion and controversy on the hill over sort of the gamification of trading and all these meme stocks. We saw the CEO of Robin Hood testifying before Congress as well and what you sort of heard out of that hearing was lawmakers feeling like something needed to be done but not sure exactly what they needed to do. Have you given much thought to that and where do you fall on Congress's role in sort of regulating this gamification that we are seeing?

Senator Lummis: Well one of the things I noticed about those hearings is that you frequently have members of Congress reading questions off a pad that were written by someone else, because the member of Congress really doesn't understand what they're asking. And sometimes what they're asking is not the right question, because even the people that are helping them don't understand this issue. So I absolutely think that we have to start with education. I think that's way more important than having a hearing that doesn't yield a good give and take about how and whether Congress should be involved in these issues.

Mui: I want to make sure that we ask you some questions that are coming in from some of our viewers in the audience, some of the firm's on CNBC’s FA 100 list. I have one from George Farra at Woodley Farra Manion Portfolio Management in Indianapolis. And he asked if the SEC will declare bitcoin a security, and regulated as such, or does the U.S. prefer to leave it, so that it can track down criminal transactions? And he brings up the recovery of bitcoin paid in ransom by Colonial Pipeline, which you mentioned as well.

Senator Lummis: Yeah, he made a good point. You know, 85% of the money that was paid in the Colonial Pipeline ransomware case was recovered within less than a week. And that's because there are companies like Chainalysis that can track these transactions and it has sometimes recovered them. So there is that infrastructure and it's a growing infrastructure and a more innovative infrastructure. So we have to make sure that that industry grows and is nurtured and used. Will the SEC regulate? Maybe if it becomes a security, but right now, of course, bitcoin and other cryptocurrencies are considered commodities. So the commodities future trading commission would seem to be the current, go-to regulatory platform. But if bitcoin and other cryptocurrencies are bundled into securities and become securities, then Gary Gensler and the SEC will become involved. And that's why we want to keep the OCC, the SEC and other regulatory agencies involved in this discussion because they're going to morph. They are going to become not just commodities, but they're going to be wrapped in different wrapping paper that will cause them to change into securities and involve other regulatory agencies.  Mui: Keep everybody playing in the sandbox. I have one last question for you from Michelle Perry-Higgins of California Financial Advisors. And she asked – this is a really hot topic right now – can we expect to see new laws to regulate cryptocurrency mining in hopes of reducing the carbon footprint? How sustainable will Bitcoin be for future use given a strain on the environment?

Senator Lummis: You know, I know that there's a lot of talk about that. We know there was research at the University of Cambridge, that showed that bitcoin mining uses about 40% renewable energy. And in the non-bitcoin mining economy, it's only 12%. So bitcoin mining is already more environmentally adapted to non-carbon emitting energy sources. But in addition to that, we're seeing some real innovation in that field. For example, in my state of Wyoming, where oil and gas is produced. When you drill an oil well, a gas well for a while it's not hooked up to a pipeline. So the product, especially gas is being vented into the air. Well, now these bitcoin miners are pulling in a trailer, hooking it up to that vented gas and using it to mine bitcoin.

Mui: Mining to help mining.

Senator Lummis: Exactly. And doing it in a way that keeps carbon out of the air and uses it to produce another product bitcoin. So there's a lot of innovation that's happening behind the scenes. So I would say, don't judge bitcoin mining as an energy bad guy. There are a lot of things going on that prove otherwise.

Mui: Senator Lummis, thank you again so much for your time and for the really interesting conversation today. We hope to keep it going in the future.

Senator Lummis: Let's do. My pleasure, thank you so much. Thank you.

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