Regulating Crypto with MP Michelle Rempel Garner

GM. After a break to edit this interview, I'm back!

I spoke with the Conservative Member of Parliament for Calgary Nose Hill, Michelle Rempel Garner, on her crypto bill, C-249, and why Canada needs to look at regulations now (I wrote about the bill previously), plus some actual useful real-life use cases (a rarity).

It's long and nerdy, but worth your time. The interview has been edited for length and clarity.

Today's newsletter is a whopping 3200 words or a 25-minute read.

- Erin, @erin_gee

Erin Gee: You introduced your bill in February, Encouraging Growth of the Cryptoasset Sector Act, what was the impetus behind that?

Michelle Rempel Garner: The whole notion of Web3 decentralization has been on my policy radar for some time as a driver of economic growth as well as around the intersection of the sector and public policy. The best example is when you think of Uber or Airbnb, [companies] that really disrupted one narrow traditional industry and how slow governments were to react. Web3 and cryptoassets have the potential to disrupt virtually everything.

The question of what the role of government should be is something that has come into mainstream public policy thought over the last two-and-a-half years, but a lot of policymakers have no idea what it is. The whole notion of the bill was to start a discussion knowing that I could have gone in with a very prescriptive, narrow regulatory framework for cryptocurrency. But, I knew that wouldn’t be productive for a lot of reasons.

I think in the last year, that question of what the role of public policy is, even if we just narrow it down to the scope of cryptocurrency, has actually become more mainstream as a policy question because of things like the QuadrigaCX scandal, because of the convoy and questions around the government’s role in cryptocurrency, as well as the Bitcoin crash. A lot of people investing in crypto assume the government regulates it in the same way as traditional securities, preventing pump-and-dump type activities, and they don't.

I was trying to take a very optimistic perspective and ensure that innovators in the space are leading the discussions and that government isn't just reacting in a negative, punitive way; that we're saying this is an economic driver, so let's try to not screw this up on either side.

EG: I was reading [about the bill] in Hansard and I was quite struck that a number of your colleagues in the House were like, ‘I think this is interesting, but I actually don't know anything about this.’ Meanwhile, this is during the height of the convoy, when the Emergencies Act was imminently going to be invoked and there were already conversations around the convoy using cryptocurrency to fund its operations, so it was interesting that despite this conversation happening in a very real-world context, ostensibly where these MPs live part-time, it was something that they still hadn't considered.

MRG: I feel the conversation you and I are having today, 10 years from now it's going to be this Cassandra moment, where we're telling people what's about to happen, but nobody's listening to it. Blockchain-based technologies have the potential to, and are currently, decentralizing a lot of processes that have traditionally been managed by some centralized system that our entire government and—to a large extent—commerce system are based around. So, whenever you have long-standing processes that are disrupted, there's concern about change because of control shifts. Our existing government systems are not built to necessarily overlay directly with something like decentralized finance, but that doesn't mean that the rule of law and the principles we use to govern society aren't congruent with that. It means that we need to think about what our values and principles are as a society, and then on a like-equals-like basis.

There's a public good in ensuring people don't get duped out of hundreds of millions of dollars or that grandma doesn't lose her pension savings. I think we are at this point now where you've got governments looking at this and going, ‘Oh my God, we have to over-regulate and go crazy.’ And on the other hand, you've got disruptors being like, ‘No, it needs to be anarchy.’ Over the next 10 years, I think our systems will meet in the middle.

EG: I think the crypto winter is a huge issue right now. You introduced your bill at a time when it was still considered a bull market. January 2022 was the highest trading month of NFTs ever, and it was billions of dollars. Now, people have lost tens of thousands of dollars, millions of dollars. People are losing lots of money and then there’s someone like Elon Musk pumping up Dogecoin and then acting blase about it causing people to lose a lot of money. It's really just glorified gambling at this rate, even with NFTs, and we do regulate gambling.

MRG: I had a conversation with several colleagues where I talked about why I wanted to introduce this bill and why I was thinking about it. I made the following points: one, in periods of high inflation, investors get jittery no matter what the trade is; the crypto market was probably due for a correction, even just looking at that investment perspective. Two, there were a lot of assumptions that something like Bitcoin, designed to become more scarce, would be an inflationary hedge. But if something hasn't proven its sustainable value over periods of sustained high inflation during many previous cycles, you can't call it an inflationary hedge. Three, you have what you just said, essentially pump-and-dump stuff happening with certain coins. I think a lot of amateur investors assumed there was a regulatory framework that applies in the same way as securities. So, you start looking at all these factors and it just made sense to me that a correction was inevitable, so I was not surprised that this crash happened. What's interesting is that industry and innovators are talking about the need for a framework and getting major pushback from other parts of the community. But at least there's now some recognition that we probably need to have some standardized framework to stabilize the investment market, protect innovators and investors, and also protect consumers so that this doesn't just blow up.

EG: I think a big question from the user perspective is what are you using the crypto for? Are you using it as an investment, in which case you have to assume a high degree of risk. Are you using it as a way to interact with other Web3 tech, like NFTs or the metaverse? Or, are you using it to send money to people in developing nations who don't have stable banking sectors? The highest risk is obviously viewing it as an investment, and I think the people who view crypto as a means to get rich quick are the ones who are the least interested in regulations because it affects them; they don't want to have to pay capital gains, et cetera.

MRG: That is such a brilliant observation, but I don't think that's something that's in public discourse or in legislators' minds. There's this very narrow perception of what crypto is and what it's used for, and we have to talk about that more. So, my bill asks the federal government to use its convening power to meet with industry leaders, innovators, consumers, and provincial regulators and develop a framework that provinces could opt into. There are no prescriptive regulations in it, but it's saying go to the community because the community understands how it works. This way regulators and policymakers can be in an informed position to look 10, 20, and 30 years out and come up with a framework that actually incents growth in a safe way in our country.

I think that's a far better approach than letting things be the wild west because I believe that will disincentivize growth and investment over time because the instability and misuse will drive away investment. I hope that what you just said, which is such a unique and important perspective, could be embedded into a type of conversation that my bill enables, rather than this all happening behind closed doors, where consumers, investors, and innovators don't really have any say.

EG: I was at Collision Conference a couple of weeks ago and I heard the wildest thing: a crypto CEO said, ‘People should buy into crypto because when you have cash and there's a wildfire in California, the wildfire’s going to burn all of your cash so it's good to have crypto.’ Who's stuffing all of their cash in their mattress and not having it in a bank, because right now if you have all of your money in Celsius, you can't withdraw it, so it's useless anyway.

MRG: Exactly, and on the other side you have El Salvador's decision to make Bitcoin legal tender. As a policymaker, I'm like, ‘Is it the best idea to allow a low-income person to be paid in something that fluctuates in value by double-digit percentages over the course of several days?’ El Salvador, when the first decline started about a month and a half ago, they were openly musing about whether or not they were going to default as a country. There's rationality in here that can be achieved if we just tone down the hype and the rhetoric on both poles between crypto being the devil or crypto being the way to abolish all government and develop an anarchist society. I think the 97% between those poles is where a lot of people are and that's where the public policy focus needs to be.

EG: There was a survey released a couple of weeks ago and conducted in April, so before all of the Terra and Luna stuff happened. I imagine the numbers might be different now, but 60% of Canadians are in favour of crypto regulation. The two highest concerns people have about cryptoassets are, one, they don't know anything about it; and two, scams, fraud, Ponzi schemes, and that type of thing.

MRG: I will say this, there are scams, frauds, and Ponzi schemes in traditional securities and things too.

EG: In every industry.

MRG: In every industry. The first step is actually broader financial and investment literacy programming in our country. The more resources available to people so they understand before they invest, I think that's good for everyone. The second thing is that we can take a like-equals-like approach to regulation, but the processes look slightly different. Third, the federal government should use its convening role to bring the provinces together and come up with a draft framework so that we're not behind the eight ball like we have been with traditional securities. Finally, we don’t need to shy away from smart regulations, but we also don't need to overregulate either. Alberta MLA Doug Schweitzer, Minister of Jobs, Economy and Innovation, is really hot on this approach too. He's done a lot of work to get the conversation going in my province. It's a pro-growth approach, but it's also pro-consumer and pro-investment protection too.

EG: Speaking of which, the Financial Innovation Act received Royal Assent this spring in Alberta and it seeks to diversify Alberta’s economy by fostering innovation and attracting new investment in fintech. Is there anything in this legislation that you would like to see in a potential federal framework?

MRG: The approach to developing that bill was to provide certainty on where the province was going in its role as a regulator to companies or investors that might be looking at investing in projects in Alberta. I think that's what the federal government needs to do: outline the principles in terms of rules that might be within our jurisdiction, share the approach for a consultation, and emphasize that we don’t want to deter investment in our country. When you talk about economic diversification, particularly beyond natural resources-based investment in Canada—which is a significant portion of our GDP—this industry is a no-brainer. We have the talent, the tech, the resources, and the human capital to attract investment here. Now we just need stability on the political side, and it does concern me.

What I don't want to see is people looking at the political climate, all the bad actors, and the negative media stories and knee-jerking to overregulate. Establishing those principles, even just hearing out the words out of the Government of Canada's mouth, that's the start I would like to see. That's what I think the Alberta bill did well on a macro level, it was a very good start, and other provinces have followed suit.

EG: Vancouver is considered the Web3 capital of the world and I know that BC's quite bullish on all of this, or at least open to it. I think that there's a risk of the federal government not moving quickly enough and then provinces moving forward without them, and then trying to shoehorn everything together.

MRG: The thing I hope that the liberal government will shy away from is politically polarizing the industry as opposed to talking about their partisan lens on policy. What I mean by that is, that I've seen in more left-of-center political and academic communities, there's less uptake of Web3 technologies. It's becoming this view of Web3 as a tool of far-right extremists, but it’s missing the point. Blockchain as a technology is not evil or good, it's a technology. What matters is how you use it. With a pro-growth approach, the federal government can still address some of the concerns around protections in a pragmatic way that isn't polarizing. Because British Columbia is more bullish, they've been promoting the economic growth side and the ability to attract tech talent and that type of capital to the province. To me, that's the right approach.

EG: With more and more workers working remotely, Vancouver and Calgary are increasingly attractive places for people to move to whose jobs might be elsewhere. Plus, Canada’s immigration system has fewer hoops to jump through than the US, really making Vancouver a Silicon Valley North. Not engaging them early risks losing support in BC, a place where residents generally feel forgotten about by the federal government.

MRG: I also look at it beyond crypto regs. It’s also about how could decentralization positively disrupt systems that are inefficient right now? The possibilities are really endless. There’s the delivery of international aid. Maybe as a government, you don't want to be worried that funds could be disrupted by a terrorist organization so you want to get it directly to aid organizations on the ground and have less leakage. Web3 has a role to play in that supply chain management, healthcare delivery, and even challenges like the government being unable to deal with big tech’s oligopoly on big data. We're totally struggling with how to address that question and privacy and I think Web3 has a really interesting role to play in that. Even looking at reforms of how the government disperses grants and contributions or even my job. Should the role of a member of parliament be obsolete in 20 years? Web3 provides the technology to, in theory, have a direct democracy. That's a different conversation, but I want to show that this is a foundational, transformative technological platform as some of our existing systems have probably reached their maximum utility in our current economic climate. We, as policymakers, need to acknowledge that.

EG: Those are some good examples of use cases because all you end up seeing online are these crypto evangelists who haven’t fully thought through the real world functionality. There was a clip going around of Packy McCormick saying that you could make your house into an NFT and have a public record of the mortgage. The whole process basically recreated the existing home buying process but because it was “on the blockchain” it was suddenly special. I think there's a high risk of us replicating things in the real world on the blockchain for no reason, other than the fact that we can do it, but it doesn't actually make sense. So aid and grants and contributions are good real life examples that innovators don't really know the ins and outs of.

MRG: Or they using a very Western centric perspective. In the housing example, if you've got a despotic government in some other part of the world, having your title to property be located on the blockchain prevents the government from essentially saying, you no longer have title to this property, because there is a record.

EG: One of the things that I think is interesting is music NFTs and how they interact with the Copyright Act. Because there is a story in The Hill Times that said, basically Canadian music creators are being left behind by the Copyright Act because they can't really get royalties in the way that non-Canadians can because of the definition of sound recording. And so music NFTs in theory, you would get royalties from any use of them. So are those in direct conflict with each other? I don't know.

MRG: Yes, domestic copyright law, intellectual property protection law, and data law is concerning. But what I'm really questioning is some of the recent trade deals that we've promulgated. For example, CUSMA. We spent so much time looking at the provisions around widgets, auto parts, and stuff like that, but very little time looking at intangibles, and how that trade agreement actually imported a lot of American law, particularly around data privacy, around intellectual property protection, through a trade agreement, essentially into Canadian law. So a lot of people that are in the NFT community, they're talking about what you just said from a Canadian perspective, but they're not really thinking about what would happen in terms of how that issue would be treated if it was held up against some of our trade agreements. Other countries' investors and lobbyists are ahead of us and they're using trade agreements as a way of defining where the best investment jurisdictions are to protect their own investments.

This area of public policy is so important to our country and it's just not being given the voice. Policymakers need to be educated on this stuff, they need to be smart, they need to be nuanced, and they need to be looking at it from a non-polarized perspective.