Meet Caitlin Long, a brilliant 22-year corporate finance veteran of Wall Street financial institutions including Morgan Stanley, Credit Suisse, and Salomon Brothers. Armed with a Juris Doctorate from Harvard Law School, Caitlin was voted (2015) by Institutional Investor as one of the most influential people in the pension industry; named one of the ten business leaders who is changing the world through technology by Inc. (2016); awarded the Women in Finance Award for Excellence in Blockchain by MarketsMedia (2016); and served as Chairman and President of enterprise blockchain company, Symbiont, between 2016 – 2018 when that company was named FinTech Company of the Year (2017) by CustodyRisk.
Caitlin has also had numerous speaking engagements and appeared in numerous publications and media including the Wall Street Journal, Financial Times, and CNBC.
Additionally, Caitlin served on Morgan Stanley’s internal blockchain working group and most recently was named a gubernatorial appointee to the US state of Wyoming’s Blockchain Task Force.
In this second part of a three-part interview about Wyoming’s precedent-setting advancements in the blockchain industry in the United States, JJ Smith speaks with Caitlin about the cannabis industry, other states’ efforts to mimic Wyoming’s approach to blockchain, settlement risk, and Bitcoin ETFs.
Catch up on the first part here.
CryptoDaily: A controversial topic in the United States is the marijuana and cannabis industry and how blockchain and cryptocurrency could potentially allow some industry participants to become banked. Is this a reality in Wyoming?
Caitlin: In Wyoming, no, because “HB74” requires that the activity of the business be legal in the jurisdiction of the customer and in Wyoming marijuana is not yet legal. There were a number of legislators who were concerned that Colorado businesses would be flocking to Wyoming for that reason. Until either Wyoming legalizes it or until it’s legalized at the federal level, special purpose depository institutions cannot be used to bank the cannabis industry. The state of Nevada contacted Wyoming for our legislative language and obviously we know they’re grappling with the same issue as Colorado (that because of federal laws none of the banks are banking that industry). Participants are therefore having to stash cash in mattresses to handle their basic cash management needs and pay their employees.
CryptoDaily: Have Wyoming’s achievements in cryptocurrency and blockchain created a little bit of a crypto arms race, per se, with other US states?
Caitlin: Sure, and Wyoming has definitely got the lead. There are nine states that have either proposed or already enacted Wyoming’s utility token law, and at least a dozen more are in the process of enacting others of Wyoming’s laws. Interestingly the most active states are within the Rocky Mountain region. It’s Wyoming; it’s Montana; it’s Colorado; it’s Arizona; and it’s Utah. Now, no state is ever going to enact all thirteen laws in one session when another state has already claimed the first mover advantage. That’s too heavy a lift for legislatures. But they have picked and chosen the best Wyoming bills to enact. South Carolina is a standout too. They took the best Wyoming bills from 2019 (with the exception of the special purpose depository institution bill) and proposed them in one package so Wyoming’s “SF125,” the FinTech Sandbox, the utility token exemption - all of that is in one bill in South Carolina right now.
CryptoDaily: South Carolina’s legislative aggressiveness in this industry is interesting, given some of their policy actions a couple of years ago.
Caitlin: Yes, as you imply South Carolina was actually pretty early to take enforcement actions against a few blockchain startups with cease and desist orders. Their neighbor to the north, North Carolina, has almost a BitLicense-light approach, requiring all crypto businesses to register as money transmitters. Most other states are going in the opposite direction and exempting crypto-to-crypto from money transmission laws, and South Carolina is proposing to do that. Utah literally just did that. Iowa, Rhode Island, Missouri, Oklahoma are proposing this as well – it’s an eclectic group of states that have all proposed to exempt crypto-to-crypto from money transmission licenses. We’re seeing this interesting competition among states and I think that’s a really healthy thing for the industry.
CryptoDaily: What is it about the fabric and ethos of Wyoming and the DNA of Wyomingites that really stimulated a lot of this focus and attention on the blockchain industry?
Caitlin: It’s a combination of things. I think there’s significant overlap between the ethos of the crypto industry, which believes in freedom, privacy, personal responsibility and property rights, and the ethos of Wyoming, which is known for its “rugged individualism.” Wyoming is definitely a “good fences make good neighbors” state, so clear boundaries and clear property rights are accepted and respected. Wyoming has a strong commitment to privacy as well. When you register an LLC in Wyoming, the Secretary of State collects very little information from you—and that’s by design. Wyoming invented the LLC in 1977 so it has a history of innovation in this area in the first place, and it just surpassed Nevada as number two behind Delaware for new business entity registrations. On top of that ethos, Wyoming has a practical need for economic development. It’s a coal-dependent state where a significant portion of its tax revenues come from extractive industries. It looks like the coal industry may continue to be declining for years, so there is pressure on the state to find other industries to come in. Blockchain is an industry where first-mover advantage was available, and Wyoming grabbed it. Lastly, I would say there’s a group of legislators who really understood this, one of whom is Rep. Tyler Lindholm. He received a campaign donation in Bitcoin in 2015, and so he had to learn about it.
Of course, the legislators are the people who really made these laws happen. I’ve just been the idea person who has funneled ideas from the industry into Wyoming’s legislature. The execution team on the ground was led by Rep. Lindholm, who’s now the Majority Whip in the House. Then we have the Vice President of the Senate, Sen. Ogden Driskill, who was also a key execution person in the Senate. It really does matter to have senior legislators who are committed to doing this, because leadership in legislatures steers which bills are heard, and which aren’t.
CryptoDaily: Has Governor Mark Gordon become an enthusiastic supporter of the industry?
Caitlin: Yes, of course he has. Governor Gordon praised the blockchain industry and praised our effort in his inauguration speech in January. He signed all eight of the bills that reached his desk this year, rather than choosing to let them become law without his signature (which is an option in Wyoming). The previous governor, Matt Mead, also signed all five of the previous bills enacted last year.
CryptoDaily: In an industry piece, you referenced the famous Ghostbusters movie quotation about “crossing the streams” with reference to how mainstream settlement systems operate and how a settlement system that was crypto-ready would have to work. You also shared some thoughts about exchange-traded products such as the proposed Bitcoin ETFs.
Caitlin: Yes, it’s dangerous to cross the streams between old and new settlement systems, and that’s what Bitcoin ETFs do. They’re at best neutral to the crypto industry—they do bring in new buyers, but they also run the risk of massive divergence between the ETF price and bitcoin itself (to a much greater degree than we’ve seen with traditional ETFs). Remember, securities settle T+2 days after the trade date, while Bitcoin settles in about 10 minutes. That’s just a recipe for mismatches, and even the best risk management programs won’t always be able to keep them in sync. I think the SEC may eventually approve Bitcoin ETFs once risk disclosures are massively beefed up, but that doesn’t mean that they’re going to end well for investors. If you think about how ETFs work, they de facto have assets and liabilities just like a company does, and they can become de facto insolvent just like a company does—when they’ve issued more shares than they have assets backing them. If you know how to read an ETF prospectus, most of them explicitly enable such insolvency! This is supposed to be temporary, of course, but history shows it’s not always temporary. Search for ETF prospectuses for the term “operational shorting” – which means market makers can issue more shares than the underlying assets that are supposed to back them.
Additionally, there are rules allowing market makers to “fail to deliver” but there are no limits on how often they can do this—they can just keep failing to deliver and keep failing to deliver again and again. I saw an interesting analysis that now almost half of failures to deliver in US stock markets are actually ETF market makers that keep failing to deliver. This is another way to create an uncovered short position. There are myriad other ways—none of them good. Typically I would guess there’s a 3% to 5% slippage in the securities settlement system on any given day, and that’s normal. But in the crypto world, failure to deliver is default! How do you cross those streams? Moreover, there is no lender of last resort in crypto. I do believe that the differences in the two settlement systems are so great that it’s going to cause problems in trying to cross the streams.
