Dialogue with A16Z Partner: We are playing a long game, the $2.2 billion crypto fund will focus on three areas

This article is sourced from The New York Times, written by DealBook founder Andrew Ross Sorkin, and compiled by Deep Tide Techflow.

Who is the most powerful woman in Silicon Valley right now?

Perhaps Katie Haun qualifies as one; she is a general partner at the renowned Silicon Valley venture capital firm Andreessen Horowitz (A16Z).

For the past decade, she served as a U.S. federal prosecutor, collaborating with agencies such as the SEC, FBI, and Treasury Department to investigate fraud, cyber, and corporate crimes. She created the government’s first cryptocurrency working group and led investigations into Mt. Gox and Silk Road.

As an honors graduate of Stanford Law School, Katie clerked for U.S. Supreme Court Justice Anthony Kennedy and is a lifetime member of the Council on Foreign Relations, serving on the boards of Coinbase and HackerOne.

Now, she will co-lead the $2.2 billion cryptocurrency fund announced this week by Andreessen Horowitz alongside fellow partner Chris Dixon.

This is A16Z's third cryptocurrency fund; Katie joined the firm in 2018 and helped lead the first two cryptocurrency funds, which managed $300 million and $515 million, respectively.

Currently, the cryptocurrency market is experiencing a period of uncertainty following a bull market, as China actively regulates cryptocurrencies, raising questions about their value and future regulatory status.

Recently, DealBook founder Andrew Ross Sorkin interviewed Katie, where she shared her views on Chinese regulation and the long-term development of cryptocurrencies, as well as the investment direction of the new $2.2 billion fund.

Andrew Ross Sorkin: Have we ever seen a government as large as China take similar measures?

Katie Haun: In fact, China took similar actions in 2017. They banned the trading of Bitcoin on exchanges in China. At that time, Bitcoin was hovering around $4,000, but the price dropped sharply following the news, and I was surprised it didn’t happen sooner.

China has publicly stated that they consider blockchain technology one of the top five national priorities for the next decade and are developing their own digital currency, the digital yuan. We believe they plan to export this currency, linking trade to it and incentivizing people around the world to use it, not just in China.

Andrew Ross Sorkin: What would happen if Bitcoin were completely shut down in China? Would the Bitcoin market cease to exist?

Katie Haun: The best analogy here is China’s Great Firewall and the internet. Of course, it’s much harder for China to completely ban it. They can do things like control the on-ramps and off-ramps, which has been done. If you look back at the news from 2017, it actually highlighted the tremendous resilience of decentralized open systems like Bitcoin.

Andrew Ross Sorkin: Peter Thiel believes that China is eager to see the rise of Bitcoin and other cryptocurrencies, believing they will undermine the stability of the dollar. Do you agree?

Katie Haun: I disagree with that perspective. I think China wants to maintain control over their version of the digital yuan. I believe they are developing an effective closed licensing system. I do agree that they are very eager to see the dollar’s status as the global reserve currency undermined, but I disagree with Peter Thiel’s notion (of relying on Bitcoin). We are more likely to see them export their version, incentivizing individuals around the world to use it by linking incentives to their digital currency.

Andrew Ross Sorkin: Back in the U.S., do you think cryptocurrencies will be regulated?

Katie Haun: There’s a saying that founders of cryptocurrency projects want a wild west with no regulation. They are really a bit eager for regulators to state what the rules are, which requires navigating various agencies from the CFTC to the Treasury, taking a lot of time, money, and resources, not to mention the regulatory bodies of 50 different states.

SEC Commissioner Hester Peirce has called for a regulatory sandbox, but I’m not sure that’s enough, as it only addresses projects that clearly fall under securities. What I would like to see is a federal-level regulatory sandbox that has a federal proactive approach, and to do that, you first need legislation.

Andrew Ross Sorkin: How would that work?

Katie Haun: It would allow projects to launch under some rules, but it would provide an important testing ground to observe their performance in the wild. At the same time, by helping train regulators and government personnel on these new technologies, it would play a very important role; there really is no simple way to keep up with the pace of development. I am a full-time person in this industry, surrounded by experts, and even I can’t keep up with the rapid pace of technological change.

Andrew Ross Sorkin: But how do you protect consumers when, in this process, the broader public is clearly not protected?

Katie Haun: Consumer protection is really important. However, people want access to these products and services, and simply saying, “Well, we won’t allow them to exist in the U.S.” is not the answer, because today anyone with the internet and a VPN can easily access products and services offered in other countries.

For the U.S., it is very difficult, if not nearly impossible, to supervise what happens on overseas platforms.

Andrew Ross Sorkin: As a former prosecutor, how do you view the use of cryptocurrency in so many ransomware attacks like Colonial Pipeline (the largest fuel pipeline operator in the U.S.)? Why do criminals favor Bitcoin?

Katie Haun: Criminals were early adopters of Bitcoin, and in some ways, they are even testers of new technologies. They are always looking for ways to circumvent regulatory systems. Frankly, law enforcement officials actually prefer that you pay with Bitcoin rather than fiat currency.

I find this interesting because, as a former prosecutor, I take it for granted. There is a real false sense of security in using wire transfers or traditional financial services, where people think, “Oh, we know everything about this. So we just have to subpoena, and the bank will give us these records, and we can go get the money,” which is far from the reality.

Andrew Ross Sorkin: So you don’t believe these ransomware attacks are a function of cryptocurrency?

Katie Haun: I think what you’re asking is whether cryptocurrency is the cause of ransomware, and that is absolutely not the case. I prosecuted the largest cyber money laundering case at the Department of Justice. In the fiat system, 99.9% of money laundering requests succeed; in fact, the truly remarkable aspect of ransomware attacks—Colonial Pipeline is a great example—is that the Department of Justice was able to recover the proceeds of international criminal activity so quickly, which is unprecedented. (In the fiat system), that timeline is usually years, if at all.

Andrew Ross Sorkin: When you consider the risks of cryptocurrency, how leveraged do you think the cryptocurrency system is?

Katie Haun: Just like traditional financial services, leverage certainly plays a role, and I don’t deny that, but people can obtain higher leverage through overseas platforms. So I think promoting responsible innovation in this country aligns with the interests of U.S. regulators and consumers; we need to find what good rules we can agree on.

I think U.S. policymakers and legislators are starting to realize that China and other countries are moving forward, recognizing that digital currency and blockchain are real priorities, while we are falling behind. This is different from the internet, where DARPA and the U.S. government had a hand in helping develop it.

Andrew Ross Sorkin: How do you view the memefication of cryptocurrency? When you see Elon Musk talking about Dogecoin on Twitter, do you see that as good or bad?

Katie Haun: It’s a bit of both. There are some fundamental changes happening in the internet and culture right now, and I think cryptocurrency is at the epicenter. People easily view some of the changes happening as a game or a meme; I made that mistake myself a few years ago. And, you know, I’ve been proven wrong several times. So one of the things I strive to do is to keep an open mind.

Andrew Ross Sorkin: In the past few months, amidst the excitement surrounding cryptocurrency and its future, with Bitcoin prices soaring above $60,000, you have raised over $2 billion for your crypto fund. Can you provide some background on the fund and fundraising in this environment?

Katie Haun: We started discussing raising the third fund long before the exciting scenarios you just described, betting on the next 7 to 10 years.

One important category we are interested in is infrastructure and scalability—emphasizing user experience, providing tools for investors and traders of crypto digital assets, enabling more mainstream consumers to use cryptocurrency products and services, and we expect to double down in this area.

The second category is NFTs and gaming. Many people who talk to me about NFTs think, “Oh, yes, digital art,” but I believe it’s not just about art, not just about gaming, and not just about collectibles. It’s about new business models for creators and bringing a whole new audience to cryptocurrency, new types like creators, sports fans, and media types.

Then the third category is DeFi, decentralized finance.

Andrew Ross Sorkin: This fund is much larger than the first and second funds; what does that indicate about the stage we are in?

Katie Haun: Its size is about four times that of our last fund, and we are oversubscribed. We could easily raise more and larger funds from our existing limited partners without even needing new limited partners. But we don’t want to raise a larger fund just for the sake of a bigger number. I almost view it as raising funds for the internet decades ago, where we had separate funds for consumers, for infrastructure, for businesses, including for gaming. For cryptocurrency, we believe its growth potential is as great as that of the internet.