On The Brink with Castle Island - Weekly Roundup 03/31/23 (CFTC v Binance, McHenry's stablecoin bill, Gruenberg's questionable testimony) (EP.411)

Episode Date: March 31, 2023

Matt and Nic return for another week of news and deals.  Cooper and Kirk's white paper on Operation Choke Point 2.0 How bank regulators put crypto-facing banks in a catch-22 SBF charged with bribing a Chinese official Is Sam funding his legal defense with funds purloined from FTX users? The CFTC charges Binance with operating an unlicensed derivatives exchange Binance execs haz no confidence in their geofencing How did the CFTC get their hands on CZ's Signal history The SEC shuts down Beaxy Microstrategy buys another $150m worth of Bitcoin NASDAQ is aiming to launch their crypto custody platform in June What's the deal with McHenry's stablecoin bill? House Democrats would make issuing a stablecoin effectively illegal Elizabeth Warren is "building an anti-crypto army" Are DAOs unincorporated associations or general partnerships? Is the SPDI dead in the water? Did the FDIC Chair perjure himself in front of Congress this week? What's the deal with the SigNet sale? Is dedollarization happening? Content mentioned: Cooper & Kirk whitepaper on Operation Choke Point 2.0

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 constituted easing. You print a couple trillion dollars, and all of a sudden, people start to worry.

So out of this worry, we have something. called the Bitcoin, Bitcoin. Welcome to On the Brink. I'm Matt Walsh. And I'm Nick Carter. Someone told me that we had too much turkey talk last week. Is that right? Yeah. They said we need like real news. I don't want to hear about your turkeys.

Really? So I will refund your free podcast subscription. Yeah. Wow. If I want to talk about my turkeys, I'm going to talk about my turkeys. I get good reviews on the cross talk. Yeah, usually people like it, but someone just said, I need more analysis of what's going on in the crypto space. It's like, listen, this is a highbrow podcast.

We do a lot of analysis. Just get past, yeah, just skip the first five minutes. So, we got another 40 minutes of analysis after. Just we're out here doing a labor of love for the industry. For free. Yeah, for free. We currently have no sponsor. I don't know what happened to our sponsors.

Currently have no sponsors. Luckily, this is not a commercial endeavor for us. that's true. We'd be losing more money than FTX right now. Yeah, no, so look, if you want to sponsor the show, we'll make it very easy for you. Maybe if you're like a large bank that wants to do more than 15% of your deposit base for cryptocurrency companies, we'll do it for free. We will advertise your bank. Unfortunately, no such banks exist.

No. So, they're being choked. Yeah. But that's been, that's confirmed. That's confirmed. I've been spending a lot of my time working on banking stuff with startups at our portfolio. Startups shouldn't have to worry about getting access to bank accounts. That should just be automatic.

It's a lot of illegal things going on out there. I think there's going to be a lot of investigations. I mean, we'll talk about it. And you're actually doing a podcast with these guys. But there was an amazing white paper put out by this firm called Cooper and Kirk. which was a law firm that played a very prominent role in chokepoint 1.0. So they did a big deep dive on what's going on with these federal bank regulators. And I can tell you, it is all true.

Yeah. I mean, this firm is no slouch. They're pretty well known. I mean, they argue cases in front of the Supreme Court. They're pretty well known in D.C. And this white paper was a tour to force. So I'm interviewing one of the partners tomorrow, and we'll have that episode for you next week. diving into their their claims here. I mean, the stuff I found interesting that was the specific

constitutional recourse that the industry has. So we're not without recourse here. No, I mean, laws are being broken here. There's due process issues here. There's bank regulators going way beyond their statutory authority. You have, you know, federal banking regulators just aren't performing their statutory duties. It's all sorts of stuff, administrative procedures act violations. I guess the key takeaway that they put out was that Congress should investigate whether or not bank regulators are acting to squelch private sector innovation in order to clear the field of competition for the benefit of existing federally regulated banks. And that is what it feels like to me. Yeah, a bank executive I talked to today put it in really stark terms. So these federal regulators now message to banks, you can't have more.

than 15%. There's some, the numbers fluctuate a little bit, but basically more than 15% of your business can't be crypto related. At the same time, if you are going to serve as crypto customers, you need a dramatically stepped up compliance program. So that's a large fixed cost. As a small bank for the fixed cost to be worth it, you need, if you're going to do crypto, you need to be all in, basically. That's the only way it is worth it. It doesn't make sense if it's a marginal or ancillary part of the business because at that point the cost or no longer justify that business line. And no large banks are serving crypto. So because of those two factors combined, it basically makes it virtually impossible for banks to serve as crypto because they have a high fixed cost,

but their ability to earn revenue from crypto clients is capped by the same. mandate. So it's a total couch 22 that the banks find themselves in right now. It just looks extraordinarily illegal, what's happening. So excited that you're doing that podcast. I think we'll get to the bottom of a bunch of this stuff over time. In the meantime, deal's still happening. Let's go. So first up, Dapper Labs, you know them, company behind the flow blockchain and crypto kitties. Originally, they're launching a $725 million dollar ecosystem. Did I read that right? 725 million. 725. Let's go. It's enormous ecosystem fund for the flow blockchain.

Get those tokens flowing over there. Next one up is fetch.AI. This is a, it says it's a blockchain platform that leverages AI. Well, they have AI in the name. It's, yeah, blockchain plus AI. And they raised $40 million from DWF Labs. then we have Radix tokens. They're a blockchain development firm. They raised $10 million from DWF Labs. I don't know what DWF Labs is, but they're in a bunch of stuff lately.

They're doing a ton of deals. They just didn't, didn't they do a synthetics deal a few weeks ago? There's a ton of money flying out of that place. Next one up is Aigen Labs. This is, of course, the team behind EigenLayer, which is a restaking protocol building on Ethereum.

They raised 50 million from blockchain capital, polychain, hack VC, and electric. Then we have Sega, C-E-G-A. There is Silana-based derivatives protocol. There is 5 million from Dragonfly. All right, let's cue up the music. We got the crime family. Back at it.

All right, this one, you know, I thought that the FTCS people couldn't surprise me, but they've done it again. This one was pretty remarkable, actually. We added some, this is a serious, serious charge. So we have a superseding indictment filed this week that has charged Sam Bankman-Fried with paying a $40 million bribe to a Chinese official in November of 2021 to basically unlock an Alameda trading account on a Chinese exchange that had been locked up. And this charge is being made under the Foreign Corrupt Practices Act, which is a no-joke act. So he's facing even more jail time.

This seems really bad. very foreign government official i mean it can't really get much worse for sam but uh good god sam what are you doing so i want to know what this was about so i mean the timeline doesn't really add up but there was a point when the okay x platform was shut down i don't know if you remember that there was a kind of a signing issue but that was like a year before this allegation and there was definitely some rumors that there were entire accounts that were being sold during that lockup period and that Alameda was bidding on some of those accounts. So it would be, hey, you're a trading firm and you have X dollars on the platform. You would take X minus 50% just to get liquid on it

because you thought maybe it would never come back. And there was a strong rumor that Sam Trebucco and Sam, you know, criminal Sam, Bankman Fried were bidding on some of that stuff. But I don't think the timelines actually line up for this one. So who knows what, I cannot wait to find out why they were bribing a Chinese official here. I can't make sense of it. Well, so the claim is that they paid 40 million to unlock accounts containing a billion in cryptocurrency, which is a good return. But I want to know why they were locked up, because if this wasn't just the OKX thing where everyone was locked up and this was an actual trade, I guess that would make sense that. you know, Alameda saw the opportunity to bribe an official.

And at the same time, they're buying out all these other accounts. And so they were making money on the trade. But that happened in, I think, January of 21, the OKX thing, maybe even a little bit before. And then this happened in November of 21. So was this just a case that one of these Chinese exchanges just actually quietly locked Alameda out and was just pushing Sam to see if they could, someone was shaking him down maybe? Is that what was going on? Was he being kind of shaken down by a Chinese official here? The other weird FTX thing is Forbes reported,

this one is also insane. Forbes reported that Sam's legal defense is being funded, presumably very expensive legal defense, is being funded by millions of dollars that Alameda gifted to his father, Joseph Bankman. So how does that, work. This seems like a loophole. You steal money from your customers. You grant it to your dad. You get in legal trouble and then use that stolen money to pay for your legal defense.

How is that allowed? That cannot be legal. This Joseph Bankman character, I mean, I think there's an argument to be made that he should be kind of like in the, in Sam territory in terms of being on the wrong side of the law here. I mean, he's kind of in the inner circle. He played a pretty prominent role. He was on all sorts of email exchanges. He was certainly involved. He was on the payroll of the company.

He represented the company externally. He was in these conversations with folks on the hill. I don't understand how there's people that were intimately involved in FTCS that have apparently merged unscades from this thing. Yeah, I mean, Sam Trucoco, Romnik Aurora, some of the real pivotal players that were involved in big strategic. decisions for the company. We haven't heard anything about. But Joe Bankman-Fried actually introduced Sam to a bunch of the people that did some of those later rounds. I mean, he was actually introducing him

to very prominent venture capital investors. And a lot of those people did the deal in part on the reputation of Professor Joseph Bankman-Fried. Or I guess Freed is not his last name. Joseph Bankers. No, he's just Bankman. So the guy is intimately involved. He presumably has inside knowledge of how FTCX was working. I mean, is he really going to represent that he didn't have any knowledge of any of the fraudulent activity that was happening there? I don't know. It's, I mean, I would classify his role at FTCS as almost like a head of government affairs or head of IR, one of these type of roles. So, you know, it's not like he was the head of product that should have known where the wallets were.

But you would think, you know, that you would be aware that something was amazing. miss. Well, next up in news, there was a blockbuster complaint from the CFTC, basically charging finance and CZ with violating CFTC regulations. I mean, this was a long complaint with all kinds of stuff in it. Yeah, so very long complaint. There's a lot to talk about here. I guess no shock that there was an enforcement action taken here. I think everyone in the industry has expected this for some time. It's probably not the last one. This is a civil complaint from the CFTC.

It mostly focuses on these civil violations of the Commodity Exchange Act and any number of CFTC regulations. There's a lot here. So, you know, U.S. participation on the platform. There's a lot of anti-money laundering things. There's, you know, some really bad text message exchanges in this. I don't know that they're criminal. I certainly think they're a horrible, horrible look.

I think there's probably going to be a DOJ complaint on the back of this if I had to predict. Yeah, just reading. I mean, there's one section which mentioned Hamas and AK-47s, which was widely reported. The part that cracked me up actually was the line apparently from a, text message between Binance executives, all caps, I has no confidence in our geo-fencing. That's kind of the essence of it. Binance's anti-VPN or geofensing tactics were clearly ineffective.

And according to the complaint, they had a large percentage of the users were U.S.-based. I mean, I believe over 20%, even when they closed the exchange to U.S. customers. And then according to the CFTC, didn't really make sufficient efforts to keep them off the platform. The text messages are all pretty, they make for some tough reading. Yeah, I mean, this looks really bad. The other thing is there's mention of affiliated entities trading on the platform, which is something you don't want to see.

Obviously, that was a big part of the FTX fraud that they had an affiliated entity that was trading against their customers. And there is, there's some documentation there. So I don't know. My guess here is that what we end up seeing is a settlement at some point, I would imagine, on at least these issues. But I guess the question is, do we see some criminal prosecution on the back of this? Yeah, certainly the rumors are that the DOJ would follow this up with their own indictment.

I guess why this is like particularly relevant is that finance is over 60% of the spot market for cryptocurrencies. And so this is the largest exchange by a mile. I mean, there's language in here just calls out the scale. So there's one excerpt that says that CZ, they're trying to make the case that CZ was very involved in the nitty gritty, that he approved an expense report for $60 in a month where finance did $700 million in revenue. So the scale of this business, I mean, this is one of the biggest businesses in the world

at its peak. I think something people are also concerned about is how. the CFTC got their hands on CZ's signal message history. So some people think that maybe there was a zero-day exploit, but I don't know if the CFTC like has access to those kind of, you know, like Pegasus and those kind of spy tools. I think it's also just very possible that someone on the inside just screenshot a lot of these and shared them with the investigators. Yeah, that was my take is that this was probably someone that was. in a number of these chats with CZ

that screenshoted their own signal and you know you could see that it was an auto disappearing message that's my guess I actually the Signal Foundation president came out and said that they were not compromised so you know as far as we know it was not

a hack of signal itself you know I think that I think the interesting thing here though is what's this going to do to the to the landscape of cryptocurrency exchanges I think Binance has had something like two billion dollars of net outflows over the past two days. I would have to think that some of these other venues, international venues,

that offer similar products, similar kind of derivatives exposure and leverage, would probably see some share gain here, like OKX comes to mind, maybe by bit. Some of these shops will probably see some of the increase in volume. I don't know if they'll be particularly encouraged, though, because the offshore exchanges have been faced with scrutiny, Ku Koi was sued in New York recently. Also this week, Beeksie was shut down by the SEC. The founders were charges running an unlicensed securities exchange.

So I don't know if these exchanges will be sleeping easy after this finance indictment. So you mentioned Beeksie. I'd never even heard of this one. Was this kind of a known thing? I literally had not heard of this exchange. So they were shut down by the SEC. They were charged, and I guess they pled guilty, to running an unlicensed national securities exchange.

They did a token, it looks like. They did their own exchange token. So I don't know. I guess this is a big deal in the context of this could be what the SEC's playbook towards Coinbase is in terms of running out similar charges against an exchange that they say should have registered as a national securities exchange.

You know, never mind the fact that that is just completely impossible. And the SEC has not laid out a path for a cryptocurrency exchange to do that. And it's not even clear that these assets are securities on their platform. So, but I think this is probably what the SEC will come at Coinbase with. And I think if that's what they come at them with, then Coinbase probably has a really good chance of winning the case. So elsewhere, also in Binance news. A federal judge granted the DOJ's application to stay the pending sale of Voyager's assets to finance US.

So presumably there was some relationship there that was partly reaction to the CFTC complaint. Yeah, so the SEC had been trying to block this for a while. And the bankruptcy judge, I think rightfully so, said, show me the facts. I mean, if you actually have something on these guys, then let me know, which actually leads me to believe that maybe the SEC will also come. into the fold here that maybe they just didn't want to blow a lid on their charge against finance. But anyways, really bad news if you're a Voyager customer because you thought you had a deal here to get some of your money back in a deal where Binance would have assumed title of

these assets and you would have been able to withdraw. And now you don't. I don't know who could buy Voyager at this point. I think you'd have to have state by state MTLs in the United States. And that's a very small list. I don't think Coinbase is going to be really in a a hurry to acquire these assets. And so who else is there? I mean, it's a very small list. There's probably sub 10 companies that have the coverage state by state level. And a bunch of them are just going to put this in the too hard bucket, I think. Elsewhere in legal developments, which it seems like that's all we talk about on the podcast these days. Good old three arrows capital. They're back in the mix. So the U.S. bankruptcy court has ordered Kyle Davies to respond to a subpoena

within two weeks. Yeah, I don't know how this works. I mean, so he served via Twitter. Yeah, he served on Twitter. He's obviously not participating in the wind down of this thing. Like, he said that they were cooperated and tried to get their creditors, their money back. He's obviously not doing that. I just don't know what they can do here.

I mean, he's born in the United States. I don't know if he's renounced his citizenship. I can't imagine he's going to come back to the U.S. So you're going to have to find a way to catch this. guy, but he's in a non-extradition country. So who knows? But doesn't, I don't mean, these liquidators aren't really moving at lightning speed here. Yeah, I think the cross-jurisdictional nature really complicates that.

Yeah, I don't know. Taneo, I wouldn't put them in like the fast acting category right now. A very, very slow-moving liquidation firm, if I had to say. So micro-strategy was in the news. this week because they somehow bought $150 million of Bitcoin at a low average price, actually, in the $23,000 range. They also prepaid their Silvergate loan. So I don't know where the money came from, though. People are curious about that because according to their filings, they didn't have that just sitting around on their balance sheet. Oh, they didn't have. So they paid $161 million to

pay off their their loan. So if you recall, they had pledged Bitcoin with Silvergate and they had taken a loan. That loan had a face value of $205 million, but it looks like during that Silvergate bank run, kind of solvency crisis, they, micro strategy went back and repaid it at a huge discount. So they paid $161 million to extinguish $205 million of a loan. So they're out of that, which looks like a good trade for Sailor. And then over the course of the last quarter, they've bought $150 million worth of Bitcoin, as you say, at 23.3 or 23.2K. Right now, the price of Bitcoin is 28K. So they just keep on going over there at micro strategy, huh? Yeah, good job. They normally don't get good fill prices. Yeah, I mean, he's still down, right? I think him and Buckella are still down overall.

I think it brought their cost spaces down to roughly 30K. Some other interesting news. So NASDAQ, who's been kind of quiet here, they started doing a little bit of press this week. So recall that they have announced that they're going to do a custody platform, crypto custody platform. So they went on Frank Chaparro's podcast this week. They did a couple other interviews in which they said that they want to launch this thing in June, and they're working through the New York Department of Financial Services. I will take the over on time to market on this.

pushing anything through the DFS right now is going to be questionable. Recall that PayPal had a stable coin that were, they were just about to launch, that DFS and SEC put the kibosh on back in, what, November, December time period. So hopefully NASDAQ can get this thing out. But, you know, that would be kind of an interesting development here to have NASDAQ,

not in the custody space to begin with, coming out with a DFS regulated custodian for crypto. I think that would actually be quite a positive. popular custody platform if they're actually able to get it to market. Yeah, that's the institutionalization story, which is still going, despite the hits that the industry is taking. So I did want to talk about this McKenry news. So, you know, as listeners of the podcast will know, I think we need two bills passed, two acts

of Congress. One is we need stable coin regulatory clarity. If we're going to keep on having proliferation of U.S. dollars on chain, you just need to codify what it takes to issue a stable coin and put some clear rules of the road in place. The second thing I think we clearly need is just a market structure bill. And in that market structure bill, you should endeavor to define how you take something from a fundraise to a decentralized network. And what is a security?

What's a commodity? How should the exchanges work? How should the custodians liaise with the exchanges? You desperately need a market structure bill. So there was an interview that Patrick McKenry, did this week. So he's the ranking member of the House Financial Services Committee. He's a Republican out of North Carolina. So he did this, he did this interview that we can put in the show notes where he actually gave some clarity there. He said the market structure bill is ready to go.

And that will be something that gets introduced here in the coming weeks, which is actually really exciting. The second thing he said was that the stable coin bill, which he was working on with Maxine Waters, a Democrat from California, there's a rough skeleton of that bill, but there's a lot of nuance that both sides are disagreeing on in the House. So I've got some birdies out there who have been involved in some of these discussions or peripheral to these discussions. And it sounds like from where I sit, the stable coin thing is going to be really hard because you know, you would think that this would be a very clearly bipartisan issue where you'd have just the future of the dollar is really the question.

And if you're a Democrat or you're Republican, having a strong dollar that's used across the world would just be a good thing. You want to maintain the reserve status of the dollar and stable coins is probably the best way to do it. It seems like the issue is that House Democrats are not in favor of these state chartered trust companies being able to issue stable coins,

which doesn't make any sense to me. So they're against the idea that the New York Department of Financial Services, these also these Wyoming things should be able to actually be the stable coin issuers they want it to be a federally chartered bank of course that's a huge problem because there aren't any federally chartered banks that are doing stable coins right now so if you define the stable coin law that way you're just not going to have stable coins it's basically like introducing a stable coin law and in so many words just saying you can't have stable coins so i don't understand for the life of me why the house democrats would

have this posture yeah just on that point since January we've known that the Fed basically is disallowing chartered banks from issuing stable coins on public blockchains. They've made that very, very clear. And if you talk to bankers, they'll tell you the same. As a bank in the U.S. today, the current interpretation is you cannot issue a stable coin on a public blockchain. So this proposed bill would just mean that you can't issue a stable coin, period. No one can issue a stable coin. So rightfully so, I mean, I think you have the Republicans in the House that see that this is a huge issue, that you'd have USDC would be put out of business, you'd have Gemini put out

a business, you'd have all these market infrastructure companies that are actually doing things, not to mention PayPal and all these other ones that wanted to do it under the state structure that just wouldn't be allowed to operate. So, you know, totally kneecap any startup in that category any incumbent that wants to do anything. So the, you know, the Republicans are holding their ground on that. Now, onto the market structure bill, which would be sort of this framework for saying what's a security, what's a commodity, how do you move from being a security to a commodity? It actually sounds more promising in the House. It sounds like there's actually a bill that could potentially get passed there. Now, the issue is that it just sounds like it's not going to pass in the

Senate because the Senate Democrats just don't want to do it. And I don't understand what the the pushback is, but they just don't want to have any pro-crypto, here are the rules of the road, you know, frameworks. I don't know if that's the Elizabeth Warren wing or not, but it seems possible to me that you would actually have the bill that we all need pass the House and just die in the Senate. That's sort of what I would anticipate would happen, at least today. But, you know, I think this is incumbent on the industry to start to get really active. This is the time that you want to be speaking to your politicians. You speak to your elected representatives. You know, some of these elected representatives are, you know, the ones that are unfortunately up in my district, which is Warren and Stephen Lynch, who aren't going to do anything.

So there's no point. You know, you're talking to an empty suit in Stephen Lynch. But, you know, if you are in a district where you have a Democrat that is potentially open-minded to hearing about startups, this would be a really good time to engage with them. Yeah, Elizabeth Warren today put out a tweet saying Elizabeth Warren is building an anti-crypto army. as part of her fundraising. How does that make sense as a campaign issue? Like, do people really care about crypto that much? Pathetic.

I can't imagine why that makes sense as a campaign issue is beyond me. I mean, the fact that Elizabeth Warren is running for re-election, she's going to be 80 years old when she runs for re-election, and she's going to be in office until she's 86. It just seems like there should be some limitations there. I mean, according to NIDIG, In 2021, 22% of Americans adults own crypto in some form. I would have to imagine that survey was on Jan 2021.

Some time has passed since then. I assume the number is higher now. So that is a meaningful constituency, right? That's 45 million Americans. And so they obviously care about crypto. they're remaining 78% of Americans or less. They're not strictly anti-crypto. Mostly they just don't care.

So that is a highly engaged, fairly large constituency. They care. And the other side doesn't strictly care. So why as a campaign issue does it make sense to brand yourself an anti-crypto candidate? I don't understand it. I don't know. It doesn't make any sense to me.

it's certainly not like she's planning for life after the Senate. There will be no life after the Senate for Elizabeth Warren. She'll be, she's unbeatable up here in Massachusetts. It's crazy. Yeah. So let's see. What else happened this week? There was an interesting development in the BZX case,

which is the BZX Dow. The court denied a motion to dismiss the members. They denied a motion to dismiss. of the members of the Dow who held the governance token, they found that the Dow kind of unsurprisingly is plausibly a general partnership, sort of unincorporated partnership. And Gabe Shapiro had a good tweet on this. He said it holds at the full, the full upgrade ability of a custodial of a smart contract where the upgrade keys and the control of a single dev is a custodial arrangement. So if there's an upgrade key, which is in the hands of someone, that makes it effectively custodial.

And he thought the same might be held, might be the case from multisigs. If true and if upheld, that is a damning result in the U.S. for Dow's, as far as I can tell. And maybe for smart contracts in general. But I don't really understand how that would apply to multi-sig. I mean, multi-sig, wouldn't it just go back to the Bitcoin protocol itself? I think this is mainly on ETH. The court might say, well, this is a multi-sig of, let's say, five people, they effectively are the custodians of these user funds,

given that they have the upgradeability, which can be used to steal funds. I don't know. I think that's a stretch that you could actually define someone who does not have the ability to move the funds as the custodian. I think you'd actually have to fall back on the custody rule for something like that. I think you'd have a really hard time proving that. You know, the Dow stuff, maybe.

That seems pretty chilling to the future of Dao's, actually. Dow's is, yeah, de facto or even to jury general partnerships is troubling because then as an administrator of the Dow, you're jointly and severally liable for any issues that the Dow encounters, which is not a form of liability you want. I wonder how that would apply to the Wyoming Dow LLC framework. It seems like maybe you'd see more of a push towards some of these state frameworks that actually probably work, is my guess.

Yeah, that would be an argument for having a so-called Dow wrapper in that case. You'd want to have an LLC. But some DAOs don't because they don't want to docks. the leadership, basically. Speak of Wyoming, at what point are we just going to have Wyoming just stand up and say, what the hell? I mean, we did all of this work, and now our state's rights are just being violated across the board.

All these startups that came to Wyoming and tried to build things just got denied at the federal level for their banks. It just seems crazy. Yeah, it seems to me that the SPDI is dead in the water, unfortunately. The ultimate authority with banking is the Fed. and the master account, and it just doesn't seem likely that any explicitly pro-crypto bank institution chart at the state level will get that master account. Unfortunately, that seems to be the status quo today. Although, who knows? I mean, the FDIC chair seems to be making

some really questionable comments on the record lately. Yeah, so there was an interesting hearing. There are hearings in the Senate and the House this week with top federal bank regulations. regulators. I thought Emmer's line of questions to FDIC Chair Gruenberg were really direct and effective. And I don't think Gruenberg told the truth. So I don't know what the penalty is for lying to Congress. I feel like you shouldn't lie to Congress as a general kind of like piece of advice. You probably shouldn't do it. Probably not. But I don't know if there's any consequences. So chair Gruenberg contradicted himself in the testimony regarding the Cignet IP so the piece of silver signature business he told representative emmer that the IP had already been sold

later he told representative Garberino that it was being in the process of being marketed in fact neither of those things is true has not been sold the FJC still has it and they're also not selling it. So there have been bids for it from other banks, by the way. The FDIC has denied them. So they're not maximizing the value of the asset here, which is their duty under law. They're apparently not selling it. The truth is, though, that CigNet on its own isn't worth very much. You need to have a network of crypto clients that are all clients of the bank for any of those fiat settlement networks to have any value. So that was the the real value of Cigna was that they had all of the major crypto firms on board in one place.

So the IP on its own isn't worth that much. But Greenberg also, I think, was very loose with a truth. Like, I don't want to say lied, but, I mean, you just didn't tell the truth. When Emmer asked them, you know, have you communicated to banks that the supervision will be more onerous if they take on digital asset clients or if they have crypto clients? Grinberg denied that. That's a lot. That is a, that is, I'm comfortable saying that's a lie.

Yeah, that's a flagrant lie. Very senior bank officials who have told us the exact opposite. Talk to any bank executive that covers crypto. They will tell you, they will tell you that the FDIC has specifically more intense data requests, more burdensome requests of them, specifically pertaining to their crypto business. we know that's not true. Here's another thing. Grunberg said that all the deposits from SVB

were assumed by first citizens. We also know that's not true. So, I mean, what's going on? These people are out of control. Yeah, I don't know why going on record and saying things that are, you can easily disprove everything that he said there. I mean, you will have bank executives

that would be willing to testify to that effect. I just, I don't understand it for the, life of me what he's trying to do there. So yeah, so the, and the FDIC is at the center of this, actually. From the conversations I've had, they of all of the arms of the government that touch the banks, they are the most hostile to crypto. So they are the center of this storm. So the FDIC chair, who by the way, of course, he presided over choke point 1.0. His actions and his statements are paramount. I think he should be receiving a far higher level of scrutiny. Unfortunately, it's falling to a very small number of representatives which are willing to actually chase up these leads.

So in other news, I don't know if this is just me that I've been paying more attention to this, but there's an increasing amount of, I would say, de-dollarization, I guess I would call it, across the world over the past couple weeks. So, you know, just in the past few days here, Kenya has signed a deal with Saudi Arabia and the UAE to buy oil with Kenyan shillings instead of US dollars. We have China doing some cross-border elements. and G Yuan settlement with Brazil, it looks like. I mean, what's going on here? Well, it doesn't really surprise me.

I mean, the U.S. treats the dollar as a political weapon. We know this. And whether or not you agree with the usage of the dollar network, with the parallel usage of achieving political, strategic, and military, frankly, objectives with the dollar network, whether or not you agree with that, it's absolutely the case that it is a real thing. I mean, sanctions is the primary way that the U.S. basically achieves policy goals or attempts to achieve them abroad.

They sanction the Russians. And that was, you know, that was a sea change, I think. So now nations that feel that they might eventually fall afoul of the U.S. government, they're diversifying and they're looking for new ways to settle. So some people are saying this is the end of the dollar. I'm not that sympathetic to that view, actually, because ultimately you do need somewhere to park your excess reserves, you know, and that mainly still goes into the U.S. financial system.

So China is selling treasuries, but they're also buying other kinds of dollar-denominated securities at the same time. So the U.S. is still kind of the, store value domicile for people's dollars. It is indisputable, though, that people are trying to find alternative ways to settle international trade transactions. And that is just a consequence of over-eager sanctions-making activity. That weapon has worn blunt. So we shouldn't be surprised that adversaries and allies are finding ways to settle outside of the dollar network. That shouldn't come as a surprise. I don't think that we're seeing the death of the dollar here because as you point out, you have to have an alternative fiat rail, at least in the short term here.

And it's clearly not going to be China's fiat rail. I don't think you're going to see the whole world hop on that. But yeah, I mean, seizing the Russian assets, cutting them off from Swift, I think these are consequences that will probably be written about in history books 50 years from now in the context of how the winds changed on the fiat currency system. Yeah. And then with regards to treasuries, treasuries are becoming a toxic asset. Because, and we're seeing foreign governments to invest from treasuries, absolutely. Because the U.S. is now, they've been a twin deficit nation. The debt to GDP is extremely high. And they've shown, for instance, the recent banking bailout, so when there's stress in the financial system, they're willing to create liquidity to ease that stress. that's ultimately inflationary. Dealing with the high level of indebtedness, there's only one way out. That's inflationary.

So your treasuries are still, the U.S. isn't going to strictly default, but the treasuries are going to lose value in real terms to inflation. So it's not something that foreign governments strictly want to hold anymore, which does fundamentally reduce the U.S.'s ability to issue treasuries to service their very high level of spending. So, I mean, it's one of those things that people don't think is a problem until it's very, very apparent that it is a problem. And I think we're getting closer to that point.

So on that note, I think we're going to have to wrap it up here. That's all the news. We'll have another one coming out on Monday, a little choke point 2.0 follow up. Have a safe and healthy weekend, and we will see you on Monday.