Chapter 1: What confrontation occurred between Brian Armstrong and Jamie Dimon?
In January, the CEO of Coinbase, Brian Armstrong, went to Davos, the famous conference in Switzerland where bigwigs schmooze and give talks. But at least one person there was not happy to see him. At one point, when Armstrong was sitting in a lounge, having coffee with former British Prime Minister Tony Blair... Jamie Dimon walked over and interrupted and he said, you are full of shit.
And he pointed his finger in his face and told him he needed to stop lying on TV. That is just like not something you see every day. The CEO of JPMorgan Chase, the biggest bank in America, getting in somebody's face like that.
It was a unique scene in a public setting also where lots of people witnessed this encounter because it was sort of out in the open in Davos and it spoke to how the gloves have totally come off between both sides. How did Brian Armstrong respond? We're told Brian Armstrong sort of kept his cool largely. That's our colleague Amrith Ramkumar. He covers tech and regulation.
He says that the Jamie Dimon, Brian Armstrong confrontation was about how Armstrong had been saying publicly that banks were trying to sabotage some crypto legislation. Legislation that has banks and crypto firms pitted against each other. This fight is really about the future of finance in a lot of ways. It's about how quickly the crypto economy will be embedded in our financial systems.
So the future of these discussions will probably shape how every single crypto product will be regulated. And that will have a massive impact on the financial system of the future. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson. It's Tuesday, March 17th. Coming up on the show, the showdown between the crypto and banking industries.
The tension between banks and crypto comes down to regulation. Specifically, regulation about a reward that crypto companies like to offer their customers. A reward that to banks looks a lot like paying interest on savings accounts. For banks, paying interest is a core part of their business model.
You give a bank your savings, it pays you a little interest, and then the bank loans your money out to other people at a higher interest rate. Everybody wins. You earn some cash, the bank makes some money, and someone gets a loan. In the past decade, crypto companies have started doing something similar with stablecoins, which are pegged to real-world currencies like US dollars.
Companies that offered stablecoins started paying interest-like rewards to people who bought them. And in 2018, Coinbase, the largest US-based crypto company, started doing that too. So Coinbase has a partnership with the stablecoin issuers Circle, where Coinbase shares a lot of the revenue with Circle and gets to offer Circle's stablecoin on the Coinbase platform.
And as part of that, Coinbase offers holders essentially yields, annual payments, steady rewards payments that translate to about three to four percent a year. Coinbase CEO Brian Armstrong has made no secret that he wants to give banks a run for their money. Armstrong's open about this and has talked about it in interviews.
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Chapter 2: How does the CLARITY Act affect the relationship between banks and crypto companies?
Now the banks really are coming and trying to undermine the president's crypto agenda. I mean, these are the same banks that, you know, debanked him and his family, right? And they want to come in and say that Americans should not be able to actually earn more money on their money. They're trying to protect their own profit margins.
And he basically became convinced there was no path that would be workable to keep rewards in the markup. And he was very worried that if it cleared the markup with a bad solution in their eyes that wasn't favorable to them, that they wouldn't have time to get it back.
Basically that it would go forward to the full Senate and there would be so much momentum to get it done and that he was worried it would become a runaway train and he wanted to sort of stop that in its tracks. So Armstrong fired off a post on X saying, we can't support this bill. There are too many problems with it. The rewards aspect is one aspect.
There are other aspects that crypto executives have issues with that were essentially concessions given to Democrats to sort of tighten the rules in some places. But the rewards piece was a big piece of it. And I mean, that X post essentially went off like crazy. a bomb, essentially, in the sector. I mean, it had all sorts of ripple effects, and it was the week before Davos.
This is what had gotten the attention of Jamie Dimon, the CEO of JPMorgan Chase, and led to that confrontation with Armstrong and Davos. After Armstrong's post, the Senate Banking Committee postponed the markup and the vote. And it threw the whole future of the bill in jeopardy.
So then he went to Davos, essentially, to smooth things over with the banks and try to do some damage control after he had alienated them and a lot of people in Washington. Why is the rewards issue so important for Armstrong? Armstrong is essentially weighing the long-term benefits of clarity to the crypto ecosystems to Coinbase. And there are a lot.
You would have presumably more trading in these assets, more investor confidence, and all of that would flow through to the bottom line versus the short-term importance of stablecoins and their profits from rewards to Coinbase's business in the next, let's call it two to four years, which matter a lot to investors.
And again, we're talking about billions of dollars over several years that these rewards are worth. So losing those in the short term is a very big hit.
And it's also a symbolic one because that, again, would show that maybe Coinbase isn't as powerful in Washington as they think they are or that others have said they are if they are to take on this fight with banks and then lose and lose these rewards. It's incredible that Brian Armstrong, this one man's opinion, had such a big impact on this piece of legislation.
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Chapter 3: What role do stablecoins play in the competition between banks and crypto?
What do you think it'll mean for the crypto industry if this act is not able to be passed in the foreseeable future? If this doesn't pass, it's a huge blow to the crypto industry as a whole. If you lose that and that gets taken off the table, I mean, that has a huge impact, I think, on how investors and others view the sector from a big picture perspective moving forward.
A lot of the excitement last year was predicated on the idea that this bill would pass. So if it doesn't, it could, again, raise questions about how legitimate crypto is and its sort of long-term staying power. That's all for today, Tuesday, March 17th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Dylan Tokar and Gina He.
If you like the show and want to connect with us behind the scenes, follow me on Instagram at Ryan underscore Knutson. Thanks for listening. See you tomorrow.