Why China's crypto crackdown could be good for the U.S.

Investor Anthony Pompliano joins Yahoo Finance to discuss the latest in Bitcoin regulation.

Video Transcript

SEANA SMITH: Adam, let's turn to another closely watched mover in the market, to say the least. Bitcoin prices today holding steady just around 43,000. Here to talk about that, plus the regulatory factors and the future of crypto, we want to bring in investor Anthony Pompliano. We're also joined by Yahoo Finance's Zack Guzman, who's here to join the conversation as well. Zack, I'll turn it over to you first.

ZACK GUZMAN: Yeah, I'm happy we got Pomp here today. Pomp, it's good to be chatting with you again, man, because we've been kind of discussing the headlines around China and the fact that Bitcoin, you know, has twice tested now in the last few days, 41,000, holding that and back above the $43,000 level.

But a lot of people are asking about what it means, right? We celebrated the fact that El Salvador-- you and I both celebrated that down in Miami-- that they adopted it as legal currency. But if you take the flip side of that argument, you could maybe understand why the pressure is here now that China has said it will ban crypto transactions. So how should investors maybe digesting those latest headlines?

ANTHONY POMPLIANO: Yeah, these are a couple of different things. First is China isn't necessarily doing anything more so than what they previously said. China has banned Bitcoin and cryptocurrency so many times that I literally have forgotten how to count that high. They kicked all the miners out of the country earlier this year. And I generally think that these are all positive developments.

Now, some people may say, ah, you're just talking kind of the assets that you own. But if you really think about it, what we see is an authoritarian regime that wants control. They have a centrally planned economy. They don't like the idea of citizens having access to any sort of freedom technology or any type of technology that gives them sovereignty. And so what this technology does is antithetical to their belief system and to what they're trying to accomplish.

And so on the flip side, this is the most American technology that we have today, similar to the internet. It's a decentralized open protocol that anyone can access. And I tend to think that China is making a massive geopolitical mistake here. And now it's up to the United States. If somebody's going to benefit from this technology, we better make sure it's us. And I think that people within the United States have a huge opportunity. And hopefully we capture it.

SEANA SMITH: And talking about capturing that because there certainly has been a number of complaints, just in terms of the lack of clarity coming from the SEC, what we should expect going forward when it comes to regulation. As an investor in this space, I guess, how are you navigating this very uncertain time?

ANTHONY POMPLIANO: Yeah, look, I think that everyone is very focused on the regulatory situation. And, you know, there's good reason to focus on it. But ultimately, I look at it as kind of two different buckets of conversation. One is we know that there are certain assets and certain companies that the regulators have essentially already given a thumbs up to. So if you look at something like Bitcoin, which I spend most of my time on, they've already said this is not a security. It's this decentralized open protocol. And so I think most people generally feel like that has passed that test and kind of is on its way.

Second is, there's a number of companies that the SEC has basically said, look, as long as you operate within the existing rules that we have, you're a for-profit centralized company-- there's kind of nothing new there-- go ahead. And we've got everything from publicly traded businesses, all the way on down to small, kind of two-person startups in the private sector. And I think all of that's normal.

Where there's a lot of questions is what I call kind of the fringe of innovation. And what you see there is there's old rules that may or may not actually be applicable here. Some of that's because the technology itself doesn't allow for it. You may have some sort of decentralized protocol. You may have some sort of mechanism, like a node or a miner, which doesn't necessarily get the same amount of information that you'd get in a legacy system.

And then, also, on top of that, ultimately, I think everyone agrees that there are certain criteria that a security has to meet and certain criteria that a non-security has to meet. But the big question is what's a security and what's not. And I frankly think that there's a lot of armchair quarterbacks that are sitting around on social media, that are blogging, that are in the media, et cetera.

The short answer is none of us know. And I think that the regulators and those that are issuing these assets, ultimately, they're going to come to a resolution, whether that is through private conversation, whether that's through some sort of legislation or regulatory kind of guidance, or it's through the courts. And, you know, as an investor, I kind of sit there and just say, listen, we need rules. We need to understand what those rules are going to be. That will make sure that we keep innovation in the United States and we create jobs here.

But ultimately, I don't have the answer. And so I hope that they find the answers quickly so that we can kind of understand those rules of the road. And then let's move on and let's go build technology that makes sure that the United States continues to be the leader on the global stage.

ADAM SHAPIRO: For some of us, there's a disconnect when we look at the price of Bitcoin and what goes on with China. And if you can, what goes through the mind of a Bitcoin investor? Because-- and I honestly don't understand this-- the Chinese crackdown, yet you can still trade with Bitcoin via Hong Kong. And if you had a VPN, couldn't you just do all of this under the radar without being detected anyway?

ANTHONY POMPLIANO: Yeah, the dirty secret that most of these governments don't want you to know is, they can make it illegal. They can tax it. They can shake their finger at you. They can throw you in jail, et cetera. But that's everything that they're going to do to regulate or punish the individuals or the organizations that are kind of supporting, dealing with, or related to these assets. But you're not going to be able to shut down the network.

And so, ultimately, what I think the world is going to wake up to here is there are legacy organizations who believe, in the past, that they've been able to implement their view of the world or what they hope people will follow. But what decentralized technologies really provide is the will of the people is actually expressed in the asset.

What I mean by that is we've seen Bitcoin be banned in places like Nigeria or Pakistan, and adoption exploded. Same thing in China. And so, ultimately, what these governments are figuring out is you can tell your citizens not to do something. But if they want to do it, not only are they going to do it, but they're actually going to see your action or your crackdown as a marketing campaign.

And so, I think in the United States, you know, nobody really wants to say it, but we should be thanking China for this action. Thank you very much. You just pushed a bunch of the mining hashrate into the United States and propelled the United States to be a leader on the global stage. Thank you very much for shooting yourself in the foot when it comes to adoption of this asset. The United States now can kind of accelerate and catch up to where China had been.

I think, ultimately, what we're watching here is Bitcoin is good for business. It's good for individuals. It's good for corporations, as we've seen with the publicly traded businesses putting it on the balance sheet. It's good for financial institutions that are starting to adopt it. And ultimately, it's good for nation states as well, things like El Salvador, et cetera. And so the United States is going to get on board. I think we'll end up embracing it. And China will be left behind, as the United States takes the leadership role in that global stage.

ZACK GUZMAN: Yeah, really presenting the foil there to kind of the property laws that we have in our Constitution here in the US when it comes to not being able to take that away. But there are interesting maybe reflections here, Pomp, when I think about some of the investing tips, shall we say, that have been given out in the crypto communities over the last few years. And a lot of that really boils down to don't risk more than you're willing to lose.

But as it's continued to run here, as we've seen Bitcoin now top 40,000, and of course, more than that earlier this year, I wonder how much that changes. I think when we spoke last year, you had half your net worth in Bitcoin. Obviously, there's differences there when we're talking Bitcoin versus some of the other fringe cryptos.

But Coinbase just announced today that they're going to let people direct deposit their paychecks into their accounts on Coinbase and allow them to choose any percentage that they want to dedicate their paycheck to. So I mean, when we're talking about that being an option now, what's the advice for investors looking to invest in crypto? How much, really, should they maybe dedicate?

ANTHONY POMPLIANO: Yeah, look, no, I don't necessarily give financial advice. I can tell you what I do, and I can tell you how I think about it. I've got 90%, 95% of my liquid net worth in Bitcoin. It wasn't because I bought Bitcoin in 2011, and it went up a bunch. I made an active decision to denominate my financial situation in Bitcoin. So every decision I make, whether I'm spending or I'm investing, Bitcoin is the benchmark. Bitcoin is the denominated asset.

And when people tell me that, oh, that sounds crazy, I usually say to them, well, you know what sounds crazier to me, is if you have 90% to 95% of your liquid net worth denominated in dollars, because the dollar is guaranteed to lose purchasing power. And Bitcoin so far, over long periods of time, has appreciated your purchasing power.

And so, that's an individual decision every person needs to make. But I think from a structural standpoint, given the monetary and fiscal policy that we're facing, you've got to be absolutely insane to keep majority, if not all, of your kind of assets in dolalrs. And I think you see that in the wealth inequality gap. Bottom 45% of Americans, they hold no investable assets. They've been absolutely destroyed and punished by the central bank. And that monetary and fiscal policy, everyone from Stanley Druckenmiller, all the way on down, talking about that.

And ultimately, what we've seen is those that held assets, kind of the richest people in our economy and in our society have only gotten richer over time. And so it used to be that you could save your way in the dollar to financial security. You can no longer do that. You have to invest.

And if you really look at kind of what I've done, I'm probably one of the most conservative people in this industry. Most people are going and investing in all kinds of what are essentially early stage technology companies or networks. For me, I'm simply saving, but I'm choosing to save in an asset where my purchasing power appreciates over time, rather than saving in a depreciating purchasing power asset like the US dollar.

And I think over time, what you're going to see is more and more people are going to wake up. They're going to understand how the dollar works. They're going to understand how the economy works. And they're going to choose to at least expose some of their assets to this new world. And I tend to think that will be a good long-term play.

SEANA SMITH: Anthony Pompliano, always great to get your perspective here at Yahoo Finance. Thanks so much for taking the time to join us. We look forward to having you back again soon. And Zack Guzman, thanks to you as well for joining us here today.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting