Katie Haun, a partner at A16Z, believes cryptocurrencies have as much growth potential as the Internet, and that the new crypto fund will be betting on the next seven to 10 years.
Title: “Interview with A16Z Partners: We’re playing the long game, $2.2 billion crypto fund will focus on three areas” by Deep Tap TechFlow
Who are the most powerful women in Silicon Valley right now?
Perhaps Katie Hahn, a general partner at Andreessen Horowitz (A16Z), is one of them.
In the previous decade, she had served as a United States attorney, working with agencies including the Securities and Exchange Commission, the FBI, and the Treasury Department to investigate fraud, cyber and corporate crime, creating the government’s first cryptocurrency task force, and leading investigations into Mt.Gox and Silk Road.
An honorary graduate of Stanford University Law School, Katy has clerked for U.S. Supreme Court Justice Anthony Kennedy, is a life member of the Council on Foreign Relations, and serves on the boards of Coinbase and HackerOne.
She will now co-chair Andreessen Horowitz’s $2.2 billion cryptocurrency fund, which was announced this week, along with another partner, Chris Dixon.
This is A16Z’s third cryptocurrency base, after Katy joined the firm in 2018 and helped lead the first two cryptocurrency funds, with $300 million and $515 million under management, respectively.
The move comes amid a period of post-bull market uncertainty for cryptocurrencies, with China actively regulating them and raising questions about their value and future regulatory status.
DealBook founder Andrew Ross Sorkin sat down with Katy to share her views on regulation in China and the long-term development of cryptocurrencies, as well as the direction of the new $2.2 billion fund.
Have we ever seen a government as big as China take similar measures?
KATIE HAUN: Actually, China did something similar in 2017. It bans trading in bitcoins on exchanges in China. The price of Bitcoin had been hovering around $4,000 at the time, but the price dropped sharply on the news, and I’m surprised it didn’t happen sooner.
China has publicly stated that they consider blockchain technology to be one of the top five national priorities for the next decade and are developing their own digital currency, known as the digital yuan. We think they plan to export this currency, link trade to it and incentivize people around the world to use this currency, not just in China.
What happens if Bitcoin is completely shut down in China? Is there no market for bitcoin?
KATIE HAUN: The best analogy is China’s Great Firewall and the Internet. Of course, it would be harder for China to ban it outright. They can do things like control the ramp up and down, which has been done. If you look back at the news of 2017, it actually highlights the tremendous staying power of decentralized, open systems like Bitcoin.
Peter Thiel argues that China is eager to see the rise of Bitcoin and other cryptocurrencies and sees them as destabilizing the dollar. Do you agree?
Katie Haun: I don’t agree. I think China wants to keep control of its digital version of the RMB. I think they are developing an effective closed licensing system. I do agree that they are very keen to see the dollar’s status as the global reserve currency broken up, but disagree with Peter Thiel (pinning the hope on Bitcoin) that we are more likely to see them export their version of it by linking incentives to their digital currency for individuals around the world to use it.
Back in the US, do you think cryptocurrencies will be regulated?
KATIE HAUN: One theory is that the founders of the cryptocurrency project want an unregulated Wild West. They’re really kind of in a rush to get the regulators to say what the rules are, and it takes a lot of time, money and resources to move between agencies from the Commodity Futures Commission to the Treasury, not to mention 50 different state regulators, to figure that out.
SEC commissioner Hester Peirce has called for a regulatory sandbox, but I’m not sure it’s enough, since it only addresses the issue of projects that are clearly securities. What I would like to see, at the federal level in the United States, is a regulatory sandbox with federal preemptive action, and in order to do that, you first need legislation.
How will this work?
KATIE HAUN: It will allow programs to start under some rules, but it will provide an important testing ground to see how they perform in the wild. At the same time, it will play a very important role for regulators and government personnel by helping to train these new technologies, and there really is no easy way to keep up with the pace of development. I work full time in this industry, surrounded by experts, and even I can’t keep up with the pace of technology that is changing so fast.
But how do you protect consumers in a process in which the wider public is clearly not protected?
Katie Haun: Consumer protection is really important. However, people want to have access to these products and services, and just to say, well, we’re not going to allow them here in the United States is not the answer, because today anyone with an Internet and a VPN can easily access products and services that are offered in other countries.
It’s very difficult, if not impossible, for the United States to monitor what’s happening on overseas platforms.
As a former prosecutor, how do you see encryption being used in so many ransomware attacks like Colonial Pipeline? Why do criminals love bitcoin so much?
KATIE HAUN: Criminals are early adopters of Bitcoin and in some ways even test testers of new technologies. They are always looking for a way around the regulatory system. Frankly, law enforcement officials actually really like it when you pay in bitcoin rather than fiat money.
I think it’s interesting, because as a former prosecutor, I take it for granted. Where wire transfers or traditional financial services are used, there is a real sense of false security, where people think, “Oh, we know everything about this. So we just go to the subpoena and the bank will give us these records and we can go and get the money”, which is far from the reality.
So you don’t believe these ransomware attacks are a function of cryptocurrencies?
Katie Haun: I think you’re asking if cryptocurrencies are the cause of the ransomware. It’s definitely not. At the Department of Justice, I prosecuted the largest cybermoney laundering case ever. In the fiat money system, 99.9 percent of money-laundering requests are successful. In fact, Colonial Pipeline, where the ransomware attack really stands out, is a good example. Never before has the Department of Justice been able to recover the proceeds of international criminal activity so quickly. (in the case of fiat money systems), this timeline is usually several years, if any.
When you consider the risks of cryptocurrencies, how leveraged do you think the cryptocurrency system is?
Katie Haun: Just like with traditional financial services, leverage certainly plays some role, I don’t deny that, but people can get more leverage through platforms overseas. So I think it’s in the interest of American regulators and consumers to promote responsible innovation in this country, and we need to find out what are good rules that we can agree on.
I think policy makers and lawmakers in the United States are starting to realize that China and other countries are moving forward and recognize that digital currency and blockchain is a real priority and that we are lagging behind. This is different from the Internet, where DARPA and the US government have a hand in helping to develop it.
What do you think of the memification of cryptocurrencies? When you saw Elon Musk tweeting about Dogecoin, did you say it was a good thing or a bad thing?
Katie Haun: Somewhere in between. There are some fundamental changes going on in the Internet and culture right now, and I think cryptocurrencies are at the epicenter. It’s easy to think of changes that happen as games or memes, and a few years ago, I made that mistake myself. And, you know, I’ve been proven wrong several times. So one of the things I try to learn is to keep an open mind.
In the past few months, amid the excitement surrounding cryptocurrencies and their future, NFT, and Bitcoin prices rising to more than $60,000, you have raised over $2 billion for crypto funds. Can you tell us a little bit about the background of the fund and the fundraising in this context?
Katie Haun: We were talking about raising a third fund long before any of the exciting scenarios you just described and making bets for the next seven to 10 years.
One of the key categories we are interested in is infrastructure and scalability — focusing on the user experience, providing tools for crypto investors, traders, and more mainstream consumers to access cryptocurrency products and services, and looking forward to redoubling our efforts in this area.
The second category is NFT and games. A lot of people I talk to about NFT think, “Oh, yeah, digital art,” and I think it’s not just about art, it’s not just about games, it’s not just about merchandise. It’s about a new business model for creators and bringing new audiences, new types of creators, sports fans, and media types to cryptocurrencies.
And then the third category is DEFI, Decentralized Finance.
This fund is much larger than Phase I and Phase II funds, so what does that say about where we are?
Katie Haun: It was about four times the size of our last fund, and we were oversubscribed. We can easily raise more and bigger money from our existing LPs, and we don’t even need new LPs. But we don’t want to raise a bigger fund for a bigger number. I look at it almost as if we were raising money for the Internet decades ago, and we had separate funds for consumers, for infrastructure, for businesses, including for games. For cryptocurrencies, we see the potential for growth as big as the potential of the Internet.