On The Brink with Castle Island - Weekly Roundup 02/17/23 (BUSD Wells notice, Howey vs Reves, the SEC's custody guidance) (EP.397)

Episode Date: February 17, 2023

Matt and Nic return for another week of news and deals. In this episode:  Is peak FUD in? Is this the 'custody rule rally'? OTB is keeping the deals of the week House is probing the connections between FTX and the SEC SBF is banned from using a VPN Is SBF a secret sports fan? SBF's bail cosigners are unmasked SBF VC investors are hit with a class action lawsuit SEC sends Paxos a Wells notice Circle dispells Wells notice rumors Is the SEC going after all stablecoins or just BUSD? What does Reves say about stablecoins being securities? Tether is the beneficiary of the crackdowns in the US Can US regulators really go after Tether? How Paypal deposits are like stablecoins What's in the SEC's custody rules? Changes to market structure if the SEC's custody rules go through Binance suggests that they are ready to settle up with US regulators

Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of Concentred Easy. You've printed a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin.

Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. What a week. What a week. I thought this was heading in a bad direction from a regulatory perspective this week, but I think we're going to be all right. But there's a lot to talk about.

Yeah, actually, I think the regulatory peak fud is in, actually. I mean, look, things can get worse. Are you drinking a Red Bull right now? Yeah, sugar-free. Wow. I'm a big sugar-free Red Bull guy. I'm actually on a lot. large dunk in ice right now. This is a late afternoon caffeine pod. We're going to be bringing it

bringing it today. Yeah, we got to rally ourselves here for this one. I actually did a podcast yesterday on day three of a fast, which I know the fasting is not popular with the rest of the SIV partnership. No, because you're just grumpy and generally your brain doesn't work as well. But I was okay this week. I wasn't that cranky. No, yeah, you were generally good. Sometimes when you're on fasts, you're just not a pleasant person to be around. guidance I get on the fasts from everyone I know is to not do them. Yeah, I don't get the full fasting thing. It's a life extension thing. We're biohackers. Oh, it's like a Vitalik life extension type of thing. I think Vitalik's been on like a three year fast. I might be involuntarily fasting if crypto keeps going

in this direction. It could be. Yeah, you could be just going hungry. That's what they call that. But, as I said, peak foot is in. Circle didn't receive a Wells notice. Apparently, Binance is settling something or other. And all of the other bad news, I think, is priced in at this point. So maybe that explains the rally. I don't know. There's a lot to talk about on the price this week.

We usually don't talk about the price, but the market was totally off base on this trade. You very rarely see, in this day and age, something like the custody rule moving the markets the way they did. It was like a 15% jump in the price of Bitcoin after that came out. You think this is the custody rule rally? I think so. I think the market was way off sides on the custody rule. I think that the idea, the whispers were that the New York trust path forward was not going to work for qualified custodians and that Anchorage was going to have an effective monopoly on that market as the only OCC registered. I guess Boney's maybe going down that path too. but really it's just Anchorage and market today.

And we'll talk about it later on the podcast, but that was not the case. So the New York Trust appears to be alive and well as a framework for qualified custodians. So what do you call FUD that's not FUD? Like Duff? Inverse FUD. There's just so much of that, though.

It's just impossible to navigate Twitter these days because people are just making stuff up. Yeah. So this is why we tune into on the Brink. This is Brink Nation. Does anybody know the custody rule thing? I certainly don't. It appears that you have done your homework. Did you read the 400 pages of the... I've not read every page, but I've read a bunch of it. It's very hard to read. It's 434 pages.

You were telling me that there's someone at the SEC that spent the last 10 years working on this? Yeah, apparently our favorite Mr. Gensler gave a shout out to a staffer that spent a decade on this. And maybe they're opportunistically rolling it out now. But yeah, it shows they put a lot of thought into it. I mean, God bless, that's a really, that's a long time to be working on something. Seems like, I don't know, it's, we'll have to get into it. But first, we need to talk about the deals. We got a ton of feedback that we need to keep the deals of the week. Everyone loves the deals of the week.

Actually, I got only one negative commentary on the deals of the week. Yeah, we were inundated. Hundreds of people that like it. Yeah, so honestly, I've egg on my face. Thank you to Brink Nation for chiming in. We will be keeping the deals. The deals are in. The deals, as long as there are deals, which I have every reason to believe we'll start to see more deals.

There's some chunky ones this week, too. First one up is Taurus. This is a Swiss digital asset tokenization platform. Big raise here. So they raise $65 million from Credit Suisse, Deutsche Bank, Piquet Group, and a number of others. So these banks are getting behind tokenization. And they have been, I guess, for a while in Switzerland. I'd like to see some more of this in the U.S.

I'm not like a huge tokenize the world guy. but it's a great use case. Yeah, Switzerland, one of the key winners here, clearly, emerging winners from the sort of bank crackdown in the U.S. Yeah, for sure. Undeniably. Yeah, Switzerland, Abu Dhabi, UAE, Singapore, already seeing startups looking abroad, putting out feelers. Hong Kong is trying to attract startups, too. It's kind of crazy that we just got lapped on regulatory in the U.S.

Yeah. Yeah, I mean. Boxchains were basically invented in the United States as far as I can tell, and we just lost the regulatory head start. Invented by the NSA. Yeah, little known fact. Lab leak. We suspect.

Yeah. Leaked out of the lab. We conspiracy eyes that it was the NSA, for, for different reasons. I have a, you know, I think the best conspiracy is that, you know, 10, 15, 20 years from now when the federal government just decides that, hey, we're going to adopt Bitcoin, that they just own like 20% of it already. This is the Bitcoin Lab leak hypothesis.

We think that Satoshi was a cryptographer at the NSA and it was a secret project and then it was put on ice and Satoshi leaked it because it was too good to keep it a secret. Well, that's your theory. My theory is that it was 40 chess and that we're just saving those keys for when we really need them, when we flip off of the dollar. So, yeah, I welcome that day. I'm not sure the current admin is aligned with that, but maybe the next one will be. Yeah, I don't think we're going to be doing any of that anytime soon with Mr. Gensler or Biden. So second deal, Monad Labs, layer one blockchain.

and there is 19 million from Dragonfly, Naval Ravacant, placeholder, and others. Next, we have Caldera. This is a Web3 roll-up company. There is $9 million from Sequoia and Dragonfly. Then we've got Orb Labs, a blockchain and drop-reability startup. There is $4.5 million from Bain, Capital, Crypto, Shima Capital, and Sixth Man. And then we have Iron Blocks, which is a blockchain cybersecurity platform. They raise $7 million from Collider Ventures, Parify, Samsung Next, and others. Then we've got Nefta, which is a Web3 tooling startup. They raised 32 and a half million. Sorry. Then we've got Nefta, which is a Web3 tooling startup.

They raised $5 million in seed funding led by Play Ventures. Also in the round Polygon Ventures, 7X Ventures, and Sofermian. So let's talk about some FTX stuff, quick hitters. We always have to talk about the everyone's favorite crime family, just the crime syndicate, bad actors. A bunch of stuff happened this week. I'll just run through a few and you tell me what you want to talk about. So,

House Financial Services Committee, they're probing the connections between FTX and the SEC. We've been talking about this for ages, just around IEX and meetings that may or may not have happened. So that was interesting. Turns out Sam was using a VPN. So he got in trouble for that. He was using a VPN.

He says to watch football, which doesn't make any sense to me. You tell me his parents don't have cable. I thought he was a baseball guy anyway. Yeah. First he said he's like he had that reporter over his house and the reporter's like oh he's watching baseball. It's like spring training hasn't even started. What type of baseball is this guy watching? Does Japan baseball started? What is he watching? And then playoff football. Why do you need a VPN to watch that? You're in California. Yeah. I mean, uh, Sam doesn't like sports. Okay. He didn't he had those heat ringside tickets. He never went to the games.

It just makes no sense. Just don't lie to me that you're on a VPN to, I mean, there's a couple logical explanations. You could say, well, I just had my VPN default on so that when I turned on my computer, it logged me into my VPN. But it doesn't seem like that was the case. Or it could be that you're on a bunch of these rogue international cryptocurrency exchanges trading coins, which is what he probably was doing. But don't tell me your watch of football. Yeah, I'm not buying the Sam as a secret sports superfan hypothesis. I don't believe that.

It's just you don't, I get like during, you know, weeks one through 17, if you're in an out-of-market city, you need to have a VPN maybe to watch the game. But these playoff games are all national. And if you have cable or YouTube TV, you don't need a VPN. It just makes no sense. Yeah, we've cracked that case. I really, I feel strongly that he's lying about that. And other news here, so his secret cosy.

for the bail, they were released. So he, it seems like his legal team forgot to, to argue against it or something. There's some loophole that it just came out. So the co-signers were Stanford, former Stanford Law Dean, Larry Kramer, and a Stanford researcher named Andreas Papki. So, I don't know. I don't know. I really have a hot take on this. It looks like a couple of his parents' friends signed. Good friends, honestly. I mean, props that's a strong familial bond i guess if you're a stamford professor you have world-class deal flow like the greatest deal flow imaginable so i understand that these people probably have money it makes sense yeah i mean it's hard to have vitriol towards this right if like your best friend's kid was in

trouble would you help them i think the answer is probably yes so that seems like what kind of happened here. And then I guess the last thing for FTX news is some of the venture investors were hit with a class action lawsuit this week. So Sequoia Paradigm and Toma Bravo, this was around their role of just promoting the company. I don't know. I never know with these class action lawsuits if they have any teeth to them, but that was in the news this week. Yeah, there's a lot of frivolous class action lawsuits floating around. This one alleges that they kind of lent an error of legitimacy to the company, no idea where that's going to go. Also, I try to find the lawsuit, the text of it, and I weirdly difficult to do that. I don't understand why you need a subscription to Lexus Nexus or

whatever to find the text of these lawsuits. Lawsuits should be readable to the general public. I find that ridiculous. I know. I'm learning a lot about PACER and Lexus Nexus these days. Yeah, we're spending way too much time reading case law. Unfortunately, I guess that's what the industry demands, but I wish that we didn't have second jobs as lawyers right now. I know. If just these lawyers, man, these lawyers are making so much money in this market. These restructuring lawyers, just the money that's being spent on the FTX case alone on restructuring is incredible.

I spent way too much time this week reading the entire history of the Reeves case, which is the second securities determinant case, alongside Howie. We all know Howie. Now I'm going to drop the tea on Reeves for you this week. All right. So let's get into it. So this was the biggest roller coaster week from a regulatory perspective that I think I've had since I've been in crypto.

I've been just up and down on how to think about this. The first thing that happened was around stable coins. So the SEC sent Paxos a Wells notice. So they're going to sue them. So the Wells notice is what they send you when they say, hey, we're about to sue you. Tell us why we shouldn't. So the SEC did that to Paxos this week. Paxos, of course, is the provider of the BUSD stable coin, which is the Binance stable coin. It's all white labeled on Paxos infrastructure. And so it's critical to point out here that Paxos also does USDP,

which is their own stable coin. So they were ordered to halt the Binance version of this, not their own version. So then there was all these rumors that Circle got a Wells notice and that this was a broader enforcement crackdown on stable coins and that Gensler was going to say that their securities. That's basically what the whole industry was talking about on Monday. I don't think that's what's going on here, but it's, you can't definitively say that yet. But what appears to be going on here is just this is a way to crack down on Binance through Paxos. And it looks like this BUSD, we kind of knew this was going on, but it's issued on Ethereum by Paxos. And that's kind of where Paxos's involvement stops, as far as I can tell.

And then Binance takes the BOSD on Ethereum and represents that on Binance smart chain. And so I think that's really what caught the eye of the SEC and what potentially makes this a security, which, you know, if that's a case, which I should just very clearly point out that we're speculating. But since they didn't go after Paxos' own stable coin, I think you can kind of speculate that this is the case. So that kind of makes sense to me. Yeah, they also did not release issue a Wells notice to circle regarding USDC. So if the SEC's posture was all Fiat back stable coins are securities, I believe they would have acted differently and, you know, gone more broad-based in terms of going after these, the issuers of these stable coins. So I agree with you. I think the issue is more regarding BUSD, B.SD.

being issued on chains that it wasn't authorized as far as I can tell. And also, frankly, the Binance smart chain blockchain is troubled. So I actually understand why you might have questions about issuing a stable coin there. So, so, but then Paxos came out and they released a statement that they intend to vigorously litigate this and that they're going to contend that BUSD is not a security. They might win that. It's really hard to say if that thing is a security. It doesn't immediately jump out to me that that would be a security,

even with everything you just said about how Binance is treating it after Paxos issues. It doesn't seem like a very easy case to win. But if the objective was to just do a bunch of stuff around the edges of Binance to try to slow down Binance or push them into a settlement or try to eliminate them, this is probably what you'd start to do. So I want to briefly address the stable coins as securities argument, not knowing what the particular nature of the complaint is, but just generally, whether Fiat back stablecoins or securities. So there's, of course, the Howie Test. The Howie Test is the four prongs.

The one prong that stable coins don't satisfy is the expectation of profit. If you're holding a Fiat backed stable coin, non-interest bearing, there's no expectation of profit. So under Howie, I don't believe it could be considered a security. Now, there is another test, which also into the Supreme Court, which is Reeves. And Reeves is also a four point test. So I expect this will become common knowledge in the industry at some point. It'll be one of those. Everyone knows Howie. You're all going to have to know Reeves now. So basically, you know, there was a case where I don't know exactly know who, but they issued notes. and they were interest-bearing, and it was to finance business operations, and they aggressively

marketed them, in particular, marketed the ability to make money on the notes issued. So just, you know, in terms of comparing that versus the substance of what a stable coin is, it doesn't look like there's a ton of similarity there. The four tests, the four points in the Reeves test, are what the motivations of the buyer and the seller are. So if the issuer is issuing the note in order to make money and the buyers are buying it in order to make a profit, you know, that hurts your case. The plan of distribution, so if it's traded for speculation and investment, it's more likely to be a security. If the investing public believes it to be a security, then it's more likely to be a security. And the last point is risk reducing factors.

So if basically the note is backed in some way, then it's less likely to be a security. So from that analysis, Fiat back stable coins issued under a trust license or something like that, backed by collateral. You know, there's real commercial uses. There's a good reason why you might use the stable coin. Of course, it's not interest bearing. All those things taken together, facts and circumstances, as they say. lead me to believe that FiaVAC stable coins are not securities under that test.

So I totally agree with that. So the other thing that's kind of interesting here is, so all these circle rumors, right? So we spent the last week hearing nonstop rumors the Circle had gotten a well's notice that the SEC was going after just all stable coins. And so what ended up happening was Tether's AUM grew tremendously because it was perceived as less risky than Circle or Paxos, that you wouldn't want to get stuck in one of these stable coins that the SEC orders them to shut down. So within 24 hours of this Paxos thing happening, a billion dollars went into Tether, which that can't be the objective of the SEC here, to try to drive more capital offshore into these kind of unlicensed euro dollar type of markets. It would have been a lot better for the SEC,

I think, to come out and just say, hey, this is not a broad-based crackdown on stable coins. this is just a finance thing. Like that's, they should have said something like that. And they still haven't. So what's happening now is just more and more monies going into Tether. Yeah, it's not surprising. I think we even said this last week is Tether was going to be one of the beneficiaries of the Stablecoin crackdown and the crackdown on banks.

Stablecoin is perceived as something that's offshore, that's remote from U.S. regulation. So it's completely unsurprising as regulators get more active. and harassed the onshore U.S. domiciled stable issuers that Tether benefits from all that, which, as you say, cannot possibly be their objective, but it is a clear consequence here. The other interesting thing about Tether this week was there was a story in the journal

that Cantor Fitzgerald is overseeing a big chunk of the bond portfolio, so that they're basically buying a chunk of the basket through Cantor. And, you know, the internet gets up in arms about this, but I haven't seen the take of, well, what if that was like a totally legitimate transaction? What if Cantor, what if they have like an offshore unit that fully KYC'd tether and onboarded them fully compliantly? So yeah, like, what's the, there's a world where it's like, all right, yeah, what's the big deal? Yeah, those are, I mean, it's, if you want to go after tether, you're going to have to somehow crack open the Swiss banking system. Of course, they

have other banks worldwide, but the assets are in the Swiss system. And that's not an easy not to crack. The Swiss, you know, that banking system exists in a specific configuration and people find safety in it because the banks typically enshrined privacy and the protection of clients and depositors. So it's going to be difficult, I think, if US regulators really, really want to go to the source. That's going to be a difficult one to sort of disentangle and, you know, really regulate against those entities, which are in Europe. Totally. So, you know, the other, maybe this is actually one of the bigger stories that no one really talked about this week is PayPal. So PayPal paused its stable coin project. This is like the worst kept secret in the

industry that PayPal has been building out the stable coin product for a while. And it makes a ton of sense if you're PayPal. You're probably paying tons of fees to Visa and MasterCard, and this is your opportunity to build a payment system on a blockchain rail. I think it's a master stroke strategy. So they've been building a coalition, talking to all sorts of infrastructure providers for the better part of a year to get this thing up and running. And it looks like the back end technology provider for this is Paxos. And so there's a strong rumor in this industry that they were ready to press go on this thing. And Dan Shulman, who's the CEO of PayPal,

this is one of the best executives in the history of Fintech. So this guy doesn't do anything haphazardly. There's no way, in my opinion, that Dan Shulman is pushing in, ready to press go on a project if he's not fully signed off with the New York Department of Financial Services. It's inconceivable to me

that this PayPal project could get so far along without New York DFS being on board with it. It's just I refuse to believe that he would have overlooked that. And so my question is, what happened here? Like the SEC, did the SEC tell them to pull the plug on this? Because it's clear that DFS is fine with stable coins. They have plenty of them. They've got circle.

They've got Paxos. There's stable coins that are issued there. So someone told them to not do it. And I really hope that it comes to life what actually happened here. Because if the SEC is saying don't do a stable coin that the DFS already said was fine, like, why do we have two, who do you go to? Like, we need to have clear rules of the road here. Why do you even have the DFS if the SEC is coming over the top? It just, I'd love to get some answers to that.

Here's the interesting thing, too. A lot of stable coin legislation or regulatory moves that would crack down on stable coins would also capture. structures like PayPal, their default business, because it's very similar to a stable coin. It is a liability issued to clients and you can, you know, transact through that system. Of course, it doesn't settle on chain. It settles on their own database. So that's the material difference. But, you know, ultimately as a user of PayPal, for instance, you are an unsecured creditor of that system. So it's very, very similar, I would say, in many respects to what a stable coin is, if you just look at the kind of spirit of the thing. So that's one way, I think, to defend

stable coins is to point out that it's not really that different from a PayPal, Venmo, Apple Pay, other systems like that where they have float and it's backed by reserves, treasuries, things like that. Of course, people are generally okay with those. So if you expand it to stable coins, it's hard to devise a legal theory that kind of distinguishes the two. Yeah, I totally agree with that. So I think we'll be talking about stablecoins here for a while. I really hope that PayPal continues to build out their stable coin infrastructure. I think it would be a real shame if they didn't do this.

I have every reason to believe Paxos will fight this BUSD thing for a long time. And it's sort of, it's kind of a shame, I think, to have some of these infrastructure providers that have been trying to do things the right way. Chad's been trying to build that thing in a compliant fashion since like 2014. So it's a it really shows you some of this FTX belowback here is, you know, it's going to fall on the folks that are regulated where the U.S. you know, can actually get their hands on you. So more to come, I guess, on that one.

The good news from my perspective is the really broad base crackdown on stable coins, which we thought might be happening, I'm less concerned about it now. So the sort of choke point 2.0 thing, going after banks, you know, we have every indication that that's real. And I'm getting confirmations of that from all over the place. But at the very least, I don't believe it's existential for stable coins right now. All right. So you want to talk about custody next? Well, this one is your domain.

I think a lot of people are waiting for your take on it. we're getting a lot of questions as to the nature of these rules and what they actually mean. Does this invalidate a lot of businesses in crypto? So what's in the rules? And then what are the consequences here? All right. So this has been another huge rumor this week. So the rumor was that the SEC was going to take the posture that qualified custody under the Advisors Act would basically only apply to federally chartered.

entities. And so the suggestion, the rumor mill, was that if you were operating under one of these state trust licenses, these state banks, like the New York Trust Charter, that that would not work for registered investment advisors, which that would be a huge deal. So that would mean that something like a Coinbase, a Fidelity, Gemini, Paxos, there's a long list of folks that have built custody businesses that serve RIAs, that they would not be able to continue to do that, was the suggestion and that you'd have to fall back under this OCC charter, which right now, Anchorage is the only crypto custodian that operates under that OCC charter. I think Boney might be pursuing something at a federal level, but they don't have a product yet. So that would have been problematic, right?

Because then you just have Anchorage and then it's easy to just kneecap one entity. So that would have suggested that registered investment advisors would have had really nowhere to go. So if you're a crypto hedge fund, that means that you're kind of out of luck. You can't comply because there's just no service providers. So then the SEC introduced this proposed rule. And I guess it merits mentioning that this is just a proposal. So there's going to be a comment period and then there's going to be a vote by the commissioners to see if this gets adopted. We can talk more about some of the politics around whether or not this will get adopted. But I guess the first thing to just point out is that our worst case scenario here is kind of off the table.

So the New York State Trust framework is still going to work. There's some enhancements. There's some things that you need to do probably above and beyond what New York is asking you to do under the DFS regime. But qualified custody at the state level will be honored as part of the Advisors Act with some bells and whistles. This is kind of the first thing I would say. So what does this mean for exchanges? Is this an attempt to unbundle them and get them to unbundle? vertically integrate. Yeah. So the exchange piece, I think, is where we should spend a little bit

time talking about. So some of these custodians operate exchanges. There's also, it merits mentioning that a bunch of exchanges on their own that are not operating under any of these frameworks are just explicitly not qualified custody locations. And, you know, throw FTX in that. So if you're a registered investment advisor that had money on FTX, you shouldn't have had it there. It's, you should not, you period full stop. That's not. That's not. acceptable custodian for you as an RA. It's not an acceptable custodian. So all of these registered investment advisors that are part of this FTX debacle that lost a bunch of money for their limiteds, that's not good. And so that has nothing to do with this custody rule. Like, you

should have known that already. But what gets interesting here is the way an exchange actually works. And so let's say that you're a registered investment advisor, you hold money with a qualified custodian. Let's say you have it at a fidelity. If you take it off and put it on an exchange to trade it, that is not also a qualified custodian. That's a problem. You can't do that. And so there's going to be this interesting situation here where you, that is a pattern. That's crypto hedge funds do some of that where you would have your custody account, then you take the money off. You go put it on an exchange that you have the accounts on that you can't do that. So the posture of this rule is that that that's not possible. So then you get yourself in a position where you say, okay, well, how do you actually trade? It's one thing. All right, good, we can custody with our custodian. How do you trade? And I think there's a couple ways to go about that. One, and I think like a fidelity actually is probably fully buttoned up the way I read this rule. So, you know, if you're in a fidelity account, they have a platform that they would go out and source liquidity for you and it's effectively a bilateral trade. So it's connecting to various, you know, either over-the-counter providers or exchanges.

but they're facilitating kind of an agency trade. And I'm sure the mechanics will get scrutinized here, but something like that's fine, where you're not taking the money off of Fidelity and putting it on to like BitFenex. Like that's a no-go. The other thing that gets interesting here is just like prime brokerage. So you could imagine a world where this just gets completely kind of bifurcated

and you don't have the need to take the money off, put it on exchange. Maybe you just get credited to trade on an exchange, but your assets sit with the qualified custodians. And so I think the beneficiaries of this, potentially, the way I read it, would be firms that enable you to do kind of this OTC bilateral trading on top of qualified custody. And then the other big beneficiary potentially is prime brokerage-style businesses that would facilitate financing that would allow you to access liquidity on these exchanges but without actually moving your underlying asset.

So you get into these interesting custody setups. I think it's all workable. I don't, I think we have no idea what's underneath the hood at some of these quote unquote qualified custodians right now, though. So it could be that there's technology build that needs to be contemplated. Could be that we need more prime brokers to enter the space. So there's stuff like that. But I think it's workable is the good news.

And the price of Bitcoin would agree with me, by the way. That was incredible. So this rule came out and then the price of Bitcoin went up like 10 or 12 percent, like almost immediately. I think everyone was off sides on this expecting something really bad. But this rule basically says if you're a registered investment advisor, if you're a crypto hedge fund, you can play in this sandbox, which is ultimately a very good thing. Yeah, it'll mean that the market will have to come to resemble much more the market structure that we see in traditional securities where exchanges are not vertically integrated. They're not doing custody themselves. Maybe, but it could be that

you know, like a Coinbase could still operate the exchange and the custodian, but they need to be really careful about the flow of funds. And so that's a solvable problem, in my opinion. Same thing for like a Gemini. But I don't know if there's a technology build underneath the hood to actually, it's going to be very specific, right? It's going to be where is the asset who has control of it? There's my favorite 15c3-3-3 language in there around possession and control.

This thing has it all. The thing I will point out, though, is that, this is much broader than crypto. So we're talking about bank loans. We're talking about derivatives. We're talking about the custody of things like wine collections and baseball cards and cars and stuff. So I think there's going to be a bunch of people that don't like this rule,

potentially. And there could be some kind of non-crypto industry participants that push back on this. I have no idea if this will be passed. But if it's passed as is, at least on my first take is it's workable for the crypto industry. It might be, it might cost some money to come into compliance for some folks, but it seems to be workable. And if you think about the FTX debacle, if there was segregated custody, which was accounted for by a more regulated entity, it wouldn't have been possible to just arbitrarily siphon the funds out of that. So this addresses those kinds of issues.

Yeah, this definitely would have addressed those issues. And I think the first thing would just be that if you were a big crypto hedge fund, you wouldn't have been able to put money on FDX. Well, I was worried about it. Yeah, I was really worried about it. I was making a lot of phone calls this week. I mean, if you were really trying to kneecap the industry, being really harsh around the New York trust license would have been a way to do it.

It still feels like there's this big tension between the SEC and the state of New York around kind of who's in control. It's tough. A tough way to operate as an entrepreneur to just not have that regulatory clarity. Yeah. That's encouraging. I don't know. Thank you for reading that. I didn't know what the hell was in this thing. Well, I'll caveat that I think there's a bunch of edge cases here and there's a bunch of legalese. So this trading one is a good example of I think there's going to be people much smarter than us that read through this and that have legal backgrounds and that are going to be able to point out some other issues. So we'll be talking about this for a while. It could be the

that there's an industry push around something totally unconnected. Like, I'm sure this thing doesn't contemplate defy or whatsoever. So I'll suspend judgment on my final position on this, but from a first read, I think it's, if you're looking to a company like a fidelity or a coinbase, this seems like this will be fine. So elsewhere in news that was, I would say, favorably received by the industry,

we have interesting news out of finance. So Patrick Hillman, the chief strategy officer, has suggested that they are really willing and ready to settle up with regulators, potentially pay some what I assume will be large fines over past behavior. And they're kind of ready to come to the table and settle up, which I think. We don't know exactly the nature of this, but from what I can tell, the market reacted to this pretty positively, too. I think that would be great. I mean, assuming that there's nothing crazy going on at Binance on customer funds, that's a settlement would be a really good thing. It's just impossible to know what's going on there.

It's everyone's got a hot take on Binance. No one actually knows what they're talking about. Yeah. I mean, after FTX and the credit crisis, I think the number one biggest question mark in the industry was Binance as well as Tether, of course, kind of the two big question marks there. Tether, of course, already settled various things in the past, see what happens there. But so many questions outstanding about Binance, there's such a large portion of trading volumes globally.

If any of this were actually resolved, I think that would be super, super positive. Did you see the Galaxy Digital received approval for a Bahamas subsidiary? Really? Yeah. Do you think more people who move to the Bahamas? There's some great real estate down there. Do you think they're going to reopen Margaritaville? Well, yeah, Bahamas, their economy, I think, has been depressed ever since the FTX left. I think that'd be great. Just have the folks at Galaxy move into the old FtX headquarters. I think those guys can revive the island. Pick up the Margaritaville tab. Pick up the tab. All right. I think that was all the regulatory stuff. What else we got this? week. What did you make of the Super Bowl? I thought it was a great game. I thought that was a

tough way to end it. I guess it was technically holding, but you hate to see it's just a tough way to end a game. Awesome game. I was hoping for overtime. I'm amazed that Chiefs won. I mean, Patrick's Mahomes was clearly compromised. Just that shows you what Toridol can do. What an advertisement for Toridol? I mean, even in the the AFC Championship, he was pretty injured, too. But incredibly, he was able to just power through. You know, it's, um, it was kind of, uh, relaxing to watch the Super Bowl. Usually my team's in it, so I'm usually pretty, like, wound up, but I was just a relaxing Super Bowl. Just kind of watched it and went to bed. Did Philadelphia actually riot? I would feel like I didn't see that covered. I think maybe

this year they actually kind of behaved themselves a little bit more than usual. No, they flipped over, uh, they flipped over a car, like before the game even started. I don't know. It's, they got off easy. They're probably still climbing up telephone poles in Philadelphia. They don't, they just can't handle success over there.

Actually, they've lost three championships in a row. Three different. That's, so the city greased the telephone poles preemptively. Yeah. But then they didn't need to because they didn't win. So I guess when,

when they lose, they don't climb the poles. Although I think they did climb the poles. I think there's still people that were tearing down the city. I never got that. Why would you want to just fully damage your own city? Up here in Boston, I mean, we have so many championships so frequently. There's just people know how to behave themselves, just act like you've been there before.

It's just another Sunday for Boston. Yeah, it's just all right. Well, oh, another one. All right. Great. I remember the first time the Patriots won, they canceled school. So I got to go because they. canceled school. And then for all the subsequent championships, they were just like...

Yeah, then it was just like, all right, well, we just keep on winning these. You just can't have like a holiday. And sometimes we win like multiple sports per year. So it's... All right. Well, we have some, we've got some new podcasts in the hopper. We've got some recorded. We have one on ordinals, everyone's favorite topic. We've got another one on, on Monday with some some allocators that are really sharp talking about real world assets talking about the house so we got some good stuff in the hopper tell you what about ordinals fees on bitcoin are increasing get your bitcoin transactions in now ordinals is a big deal i think people are not appreciating how big of a deal ordinals actually is yeah i was pretty blasé on them at first um had my conversation with kC which

will release soon and um pretty bold up on it not going to lie I think Bitcoin will end up being seen as a premium yet very scarce block space for NFTs that are fully on-chain and have really strong availability guarantees. And there will be a niche but vibrant NFT ecosystem on Bitcoin going forward. And I think we've entered a new fee regime, structurally higher fees due to the pressure introduced by ordnals. All right. I can't wait to hear it. All right, everyone. We'll have a safe and healthy weekend. We will see you on my own.