On The Brink with Castle Island - Weekly Roundup 07/21/23 (Nasdaq reconsiders custody, the Torres doctrine) (EP.439)

Episode Date: July 21, 2023

Matt and Nic are back with more deals and news. In this episode:  Was XRP discovered or created? The saga of Otter 841 Matt's wildlife trouble More SAB121 chaos Rep Ritchie Torres sends Gensler a tough letter What is the Torres Doctrine? Terraform labs has a new CEO Our theories for why Nasdaq pulled the plug on their crypto custody business The IRS is auditing the crypto rich in PR We bring back our triple threat segment Content mentioned Matt's thread on SAB121 Bloomberg's profile on Customers Bank We enjoyed the Fidelity Digital Assets Q2 Signals Report. BitMEX Research had a thoughtful article about Gary Gensler's CFTC days Kathleen Breitman in Fortune, Ben McKenzie needs a Hug Sponsor notes: Coin Metrics' State of the Network: Currents Shift After SEC v. Ripple Summary Judgment In this issue of State of the Network, we provide a data-driven overview of digital asset markets after a milestone ruling in SEC v. Ripple case

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 to Britain's ailing economy with a new round of Concentive Easing. 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 Nate Carter. And this episode is brought to you by Coin Metrics. And here is the Metrics Minute. Well, for this Metrics Minute, we're talking about Ripples' partial victory over the SEC in their longstanding debate. It caused a surge in the price of XRP, the summary judgment. It increased over 70 percent, reached a market cap of $75 billion, highest than over-everage. year. Other tokens that have been alleged as securities like Solana also responded strongly with a 17%

increase through Monday afternoon. Before the partial court decision, Binance dominated XRP trading volume, representing $2.4 billion out of the 6.2 on the 13th of July after the ruling, Coinbase and Cracken relisted XRP. Despite the victory, the industry's battle with regulators continues. with 74 billion of the 1.1 trillion crypto market having been alleged as a security, according to the SEC, highlighting complexities in the classification of these assets. That's your metrics minute. Good metrics minute there. XRP.

Someone get that. Remember when, does Query metrics still have XRP up and running? I remember when they were trying to get it. The node was shipped like physically, right? It was like a FedEx shipment. I don't know if that ever actually happened, but yeah, I think Ripple offered to send them a full archival node because they couldn't sink it. Because they were taking years to sync it, right? Not through any Quinemetrics error, but because whatever, the API wasn't very permissive.

They offered to physically mail them, physically mailed them a hard drive with the archival data. It's a big heavy node. Ripple case study. So I saw the funniest tweet about it. I don't remember who said it, but they said, you know, this is a real victory for interbank, uh, interbank transactions, the ripple case. Because now you can use XRP as a bridge currency and you know it's not a security, I suppose is the logic there?

Making light of the fact that Ripple has never had success in actually establishing XRP. Whatever. I butcher the tweet. It's funny. Well, maybe they will now now that we know it's not a security. That's the one thing that the, correspondent banks of the world have been waiting for XRP to not be a security. I think it kind of makes you and me look bad because we were the ones that were making fun of

Ripple discovering XRP, like a bunch of wildcat oil men out in the field. That's funny. Digging for XRP. But we stand by the fact that that's funny because it's funny because Ripple earnestly claimed this. They claimed that XRP was discovered rather than created. And they claimed that it was the natural resource. like oil and they just happen just ripple labs happened to be the ones that had most of the

xrp. Hey, which is a preposterous claim for the sake of the industry no more no more of that talk. Yeah, let's leave aside the xRP as an oil like come on we we're going to leave that in the dustbin of history. The four four. So I watched a great documentary on Netflix lately which was all about sea otters. Sea otters? Sea otters, which is pertinent to our first discussion topic of the day, which has to do with this rogue otter in Monterey, California. Have you heard about this?

Well, so what's going on with this? You had mentioned something briefly. He's like attacking surfers or something. So there's an otter called Otter 841. She doesn't have a name. I think honestly she would be less angry if we had named her. instead of treating her like a prisoner. Anyway, Otter 841 has been commandeering surfboards

and there's videos of this, taking over so active occupied surfboards, damaging them, just basically being a little nuisance. Wow. And so the crime for this is the, you know, U.S. Fish and Wildlife Service,

they're trying to arrest the otter. They're trying to intercept and take the otter into custody. and put her in the aquarium for the rest of her days, life in prison. Life in prison for just messing around some surfboards. Was surfboards broken? I mean, I don't think she was able to snap them in half. I mean, she's a small sea otter, which I didn't think that that's disproportionate, if you ask me.

That is. That sure is. That's just, she's just a little prankster. She's just doing pranks. Now, should you get deported out of Monterey and maybe send some, somewhere else. Yeah, I could see that. But that's her home. So I'm sympathetic to otter 841 because it's the surfers that are in her territory. The otters were there first. All right. All right. You know? So I tweet about this and then we heard I got an email. I won't name them just yet, but this person said he was out swimming with a swimming, how do you pronounce it, boo-oy?

The fact that you don't know how to say the word buoy is shocking to me. You called it a boy. Boy. It's not a boy. You're telling me it's not boy, but it's buoy. It's a buoy. It's a buoy. It's a buoy like a buoy nice.

He had one of these attached to him. So when you swim, I guess you don't want to get run over by a boat. And Otter 841 stole the buoy. Yeah, this is a noted crypto entrepreneur. I can't say his name, I guess. crypto entrepreneur in our industry. He was the first victim of Otter 841. Wow.

And I asked him, do you support Amnesty for the Otter? And he says, 841 is the hero we deserve. She is the original local. All right. So even the victims of Otter 841 support amnesty. I've had my own issues with animals. So I mentioned a couple weeks ago that I ran over a skunk. I don't know if I killed it.

It was maybe just a broken. something. It seemed very likely the skunk did not make it. Definitely wasn't good. I was outside a couple of nights ago in my yard and just sitting down in a lounge chair, relax. I think I was listening to a podcast and a skunk walked right across my yard, 15 feet away from me. I'd never seen one in my yard before. I thought it was a vengeance seeking skunk. I just went right back inside. I wanted no part of that. Do you think that this was the original skunk comeback? Can you imagine? It's possible. It's possible. I hit the skunk maybe a half a mile away from my house. It's quite possible. But this skunk looked like it was walking just fine. The one that I hit might be a three-leg skunk. So this is a

cousin of the skunk that you mercilessly dispatched in your large SUV. I mean, when a skunk comes by you, that's talk about animals you just want nothing to do with. Maybe ever since you got sprayed or carded, the skunks know you're an enemy of skunk kind. I think that's what it is. And they're stalking you. Yeah, it's crazy. Me versus the animal kingdom has been a recurring thing. I'm amazed that there's actually a new anecdote every week in terms of your ongoing

fight with wildlife. I mean, I'm telling you, I live, it's not even made up. It's like I live on a farm. It's crazy. And they have a vendetta for you. Oh, it's like a lot of it. It's just I live next to a zookeeper. That might be part of the problem.

That's the 100% of the problem. When you're next door neighbor sits in his backyard and consumes 40 Bud Light today and feeds wild turkeys, you're going to have some wild turkeys in your yard. Bud Light, really? Well, yeah, I'll have to check if he's still on the Bud Light. He was he wasn't noted. He was keeping him in the business for a long time. I don't know if he's a Modelo guy now.

They need him more than ever. They need him more than ever now. He might be a Medello guy. Well, we didn't have a podcast this week, the summer. Things are a little slow. Did have a lot of deals. Did you notice there was a couple good fund raises here, like venture fund raises.

So polychain has closed on a $200 million venture fund, and then coin fund has closed on a $158 million venture fund. In this climate, those are two great halls. So really happy to see that for the polychain guys and the coin fund guys. Congrats. Yeah, big achievement. Obviously tough to raise right now. Nice to see some dry pow

coming into the market. Congrats to those teams. Next up we have Risk Zero. That's with a C. There is zero knowledge software company. There is 40 million from blockchain capital, Galaxy, and iOSG. Next one up is Pox Labs. It's P-Zerox Labs. Do you call that? Pox.

Pox Labs. They're developing the Manta Network. They raised $25 million from Polychain. Then we have Argo blockchain, the mining company. They raised 7.5 million. And then we have Futureverse, a Metaverse startup that raised $54 million from 10T and ripple labs. This next one I thought was pretty fascinating. Athena, they're creating a decentralized stable coin.

Now, don't panic if you've heard that before. Okay, this is not like Terra, Luna. it's based on Ethereum. So my understanding of the way this works is there's a long Ethereum stake deeth position that's paired with a short position. The short is paid for by the yield, the native yield coming from stake deeth.

And as long as that whole structure works, you get a kind of a dollar exposure out of that, a synthetic dollar, potentially with a yield attached. So this was a, a big raise. A lot of exchanges participated. Apparently this is an idea spawned from an Arthur Hayes blog post too. So very interesting experiment there. Interesting concept there. Next one up is Evertas. This is a cryptocurrency insurance company. They've required BitShore, which is a specialty

insurer of Bitcoin mining operations. And lastly, we have radiant capital. They're a D5 protocol. They raised 10 million from finance labs. Pretty healthy deal week, huh? Nice to see, even though we're in the summer doldrums. Deal's still getting done. So a lot of regulatory stuff this week. So let's start off with some of the letters that got sent out. Richie Torres, who's a congressman, a Democrat from New York, sent a scathing. And I thought a very well-deserved letter to SEC Chair Gensler on the heels of Ripple's partial victory against the SEC last week.

Basically, just called out the SEC's failure to act towards providing clear guidance and the fact that the SEC is just regular. via enforcement. And then later in the week, we had Congressman French Hill, who's a Republican from Arkansas, and Congressman Dusty Johnson, who's a Republican from South Dakota. They joined up on a letter. It was a letter basically just saying, you need to come up with this comprehensive, you know, framework. You need to work with Congress towards a comprehensive digital asset framework as opposed to just going out and regulating via enforcement. And I thought it was interesting that later in the week you had some leaks. The Block had a good article just today, actually, we're recording this on a Thursday, that the SEC has just categorically failed to

cooperate with the McKenry-Thompson market structure bill. They have just told the Democrats on the Financial Services Committee that they won't even help them write it up because they disagree with it, or they think that it is beyond repair. And why would they think that? Well, that's because it takes power away from the SEC and it gives power to the CFTC. So no real surprise there. I've seen quite a few reactions, especially from kind of trad-fai non-crypto people in the last week as the ripple decision has started to take hold. And I'm seeing a lot of consternation. A lot of people think that it's backwards in terms of institutional investors being protected, retail not being protected.

A lot of people just really profoundly disagree with Judge Torres, no relation to Richie. Judge Torres' analysis. The Torah's doctrine is what we're calling it. Richie Torres called it the Torres doctrine, yeah. And I thought that was funny because maybe he's naming it after himself, but not actually. Judge Torres. And the Torres doctrine says that, well, it really depends on the, token itself is not a security, it's just a token, and then it just depends on the nature of the

transaction, whether it's a security or not. And this has caused a lot of soul searching in the pundit community. And I would say the main reaction I'm actually seeing from non-cryptu people is they expect the decision to be overturned. And I don't know what's going to happen. But it's very interesting to see the totally disparate reactions. Crypto community, totally jubilant, Thin twit community basically thinks the judge got it wrong. If you just divorce yourself from the day to day on this and you imagine that someone from a different planet got plopped into the United States and you were trying to explain to them how we were doing cryptocurrencies in the United States, it would be really hard to follow it. You'd say, all right, well, everything comes

down to this 1946 case called the Howie Test. And this thing was invented, this highway test thing happened before the internet, let alone blockchains. And so now we have this situation where one of the regulators thinks that everything should just fall under the highway test under their jurisdiction. And a bunch of other people are trying to just have new regulation, basically. Is that how you, I mean, is that about it? Yeah. I think the crux of it turns on, if you read the Matt Levine, commentary on it. He analogized it to issuance of stock. And the judge, of course, said the

issuances of ripple to employees were not securities because there was no investment of money. And Matt Levine compared that to stock-based compensation, thought it was probably still security. The other thing is Matt Levine made the point that, okay, so companies go public. They do primary issuance to the public. That's obviously security. But then they might do an at the market offering or they find other ways to inject their shares into the general public. Obviously the shares trade on the exchange. That provides liquidity, keeps the stock price high, helps finance the company's operation. Those are still considered securities transactions even if they're secondary transactions, right? So even if there's no primary issuance, these are trading on the secondary exchange. It's still

kind of benefiting the company. They're still considered security. under our legal apparatus. In this case, the judge said, those secondary transactions are not securities because the buyers, the retail, they're not directly facing off against the company. And it's not even clear if those purchases of XRP even directly benefit the company.

And so then they're not expected to provide the same disclosures that a securities transaction would entail. And I guess I kind of agree with Matt Levine. I know that's not the most pro-crypto take, but I wouldn't distinguish primary stock issuance in an IPO from secondary transactions. Ultimately, you're still dependent on the corporation to create value and return capital and do stock buybacks and issue dividends, do things that make the shares be worth something. And I don't see that.

a huge distinction between buying it at IPO and then buying the stock later on. You're still buying a piece of the company. So I'm actually kind of sympathetic to the point that Matt Levine is making care. So if you were to ask me honestly, I would say I probably fall in the camp of this decision being overturned by higher time. You know, it could get overturned, but it's not going to get overturned for quite a while is the reality. And so you still live in this world where if you just take the coin market cap numbers, which are obviously inflated, but there's, you know, how many cryptocurrencies are there? There's over 26,000 cryptocurrencies. There's over 640 exchanges that list these things. You have jurisdictions across the world that have varying regulatory postures

towards this. You have Micah in the EU. You have the UK has come up with a framework, Singapore, Hong Kong, Dubai. So you have competing frameworks for how these things are treated. And this Ripple case, the fact that they had a partial victory here, the SEC lost, it was kind of their first high-profile crypto loss, just means that, you know, there's not one way, there's not a peanut butter spread way to treat these assets. And so the SEC can either go ahead and try to regulate via enforcement or they can work with Congress to come up with a framework here. And if you regulate via enforcement, it's just going to take you years and you're going to have to go after thousands of projects, thousands of individual tokens, it just seems like a total waste of taxpayer money.

Yeah, I mean, the regulate by enforcement strategy has manifestly failed because the approach was to starve these tokens of liquidity by persuading exchanges to delist them with the argument that the secondary trading was all securities transactions. That failed. So, you know, to summarize my view, I'm gratified that that happened and that the SEC took the all here. However, I actually, don't think the right strategy is to say all this stuff is not securities. The right strategy is to innovate and create a regulatory regime, a disclosure framework, whereby the issuers of these things, especially in the case of Ripple where there is a single entity that's very critical in the XRP ecosystem, they do the disclosures that are owed to the buyer of the token, to the public

that holds it. I think this, you know, is a kind of a pseudo equity. You know, I've thought that for a long time. So what we are owed is a framework through which the issuers can make these disclosures, something that's fit for purpose. Obviously, the equity securities framework is ill-fitting. What we need is a new framework. I don't think, though, ultimately the legal strategy of saying blanket, this is not a security, has no resemblance to a security. I actually don't think that is going to work. In the case of Ripple, for instance. Yeah. Yeah. Yeah, I think that Very well, it could be the case. But no framework is forthcoming for now.

Well, switching gears a little bit. Did you see that Terraform Labs announced a new CEO? I actually did not. This is the first I'm hearing of that. Yeah, I mean, if you were- That's a hell of a job. Asking yourself why this company still exists or why it would need a new CEO,

you wouldn't be the only one on this podcast? Well, there's a lunk. Is that what it's? Like there's the Luna successor. Is that what it's called? I think it's Lunk. Oh, how's that doing? Lina Classic.

Not good, I think. But anyway, there's a blockchain that still runs, I think. It's incredible. I don't know. That's a tough job to walk into. NASDAQ, unfortunately, has shelved their crypto custody ambitions. That's what we're seeing, siding the regulatory environment in the U.S. Not good.

Well, I want to talk about this one a little bit because there's a bunch of things that could be at play here. So NASDAQ, they were public in saying that they were going the New York Department of Financial Services Path. So they were setting up a New York Trust license in order to do this custody offering. And they were working with a pretty well-funded venture-backed custodian on this, a custodial infrastructure provider, I should say, on this. And they were hoping to launch this year. And so they've pulled the plug on it. So it sort of begs the question why you'd pull the plug on it. We can talk about Sab 121.

I don't necessarily think that that's the reason why they're pulling the plug on it. And I don't really think that it's because they've given up the fight and crypto and that they just don't think that this is a good business to be in. So my guess is that it's one of two things. One would be that NASDAQ is the exchange for a number of the, these Bitcoin ETF proposals and that they just think that that's a better line of business for them to be in, that you're going to get a Bitcoin ETF, NASDAQ will accrue value by being the exchange for a number of these products. And that competes for flows potentially with the spot products. So I don't actually believe that, but that's a steel man argument. The second argument,

and I actually think that this is what it is, is if you look at Gensler's public statements over the past year, he has talked about crypto custodians should not also be exchanges. And we've thought for a long time that he's focused on Coinbase and the fact that they operate a custodial enterprise and they also have an exchange. And you really would not see that in the other traditional asset world. And so could it be that NASDAQ has had some conversations with the SEC and said, hey, we want to launch this crypto custody business and that the SEC has just said, hey, you know, I wouldn't do that if are you? You guys run an exchange. Why would you also be the custodian? That appears like there might be some inherent conflicts in that business. Now, whether there are or not, I think is up for

debate. But I wonder if that's maybe what happened here. That's actually a fascinating point that I hadn't considered. I always thought the SEC's objective to unbundle the exchange functions was targeted the crypto-native firms like the Coinbase. Frankly, I think that'll happen. But you're saying it also affects Tradfai firms. Yeah, you don't see Tradfai firms operate exchanges and also operate global custodians. So I think it's quite possible that NASDAQ is either reading the tea leaves on some of Gensler's public statements, which is like this week, he was on the record on Monday saying that a number of these crypto companies have inherent conflicts. So, I wonder if that's what it is.

I further wonder if, you know, who knows what happens with this Coinbase lawsuit around whether these things are securities or whatnot. But you wonder if at some point Coinbase has to divest their custody business if they want to continue to run their exchange business. I was just thinking that today. I mean, if you zoom out from the perspective of an alien looking at the crypto industry, well, not an alien, just a reasonable person knows how finance works. It's crazy.

that exchanges are so vertically integrated. It shouldn't be that way. The only reason that it is that way is just a relic of how this market structure evolved. Yeah, it's a path-dependent thing. I mean, exchanges do order matching, so exchange stuff. They do custody for the most part.

They do margining in some cases, right? Acting as a kind of a prime. They do data analytics, right? and in some cases they run venture capital arms that then list the tokens that they invest in. That's crazy. All that stuff is crazy. Those are five different concerns. It is.

And the reason that they're five different concerns is because you've had these scandals in traditional financial services over the years. And there was a good reason. There's a lot of laws that got passed over the years in order to bifurcate those functions. So, I mean, I always thought it would make more sense for NASDAQ to be aggressive in the data space or the compliance space with respect to cryptocurrencies. That's really what they're great at, apart from order matching, obviously. Well, I just hope that when we get the landmark crypto legislation, it gets a cool name like Sarbanes Oxley or Glass-Degal. Well, I guess it kind of matters who the people are, right? Lomis-Chillip.

I guess that's how you name. Yeah, so it could be McHenry. Henry Thompson. Thompson. That's not a zinger of a name, like Sarbanes-Oxley. The poor guy behind, or girl, behind Telecommunications Act of 1996. It's like, who's, we never, we don't even know. Yeah, or the 34 Act. Who is that? I mean, we just, that was just the year. I think we should take politics out of this and just have it be the market structure bill of 2023, the thing that unlocked the ability for regulated. financial institutions to deal with cryptocurrency in the U.S. I think if we say it enough on this podcast, it will happen.

I'm sounding like a broken record on this regulatory stuff. There's like 25 weeks left in 20 weeks left in the year, so it's 20 more episodes. We're going to say it every time. We're not going to stop. You thought 15C3-3-3 was bad, wait until you hear SAB 121. So speaking of which, you know. Now, you're cultivating a bit of a following on Twitter Matt. You've had two banger threads in a row.

I'm getting better at Twitter, for sure. For sure, I'm getting better. I think I've found my lane as to just go deep on some very esoteric thing. So Saab 112, you did a big threat about Gensler, Warren. Nobody knew what this thing was. Turns out it's holding the whole industry back. What's going on here? All right.

So here's what happened. So in March of 2022, the SEC published a pretty obscure accounting bulletin. So staff accounting bulletin number 121, which we call SAB 121. So this states that any company that reports to the SEC under U.S. Gap or international financial accounting regulations has to have a safeguarding option for crypto that results in them creating a corresponding asset on their balance sheet and a corresponding liability. So said in plain English, if you're a bank, a public bank in the United States, if you hold customer crypto assets, you actually need to record that as an asset and a corresponding liability on your balance sheet as the bank. Now, that is a big problem. That is not how custody banks work in general. So to bring that to life a little bit, State Street, which is one of the largest custodians in the world, they have $40 trillion in assets, customer assets.

that they safeguard. But those 40 trillion are not on their balance sheet because they actually don't belong to them. It would make... Yeah, and just to interject, their market cap is $23 billion. Their market cap is $23 billion, right? So they're total assets. No one expects that there's parity in terms of their client custody to assets and the equity value of the business. Correct. Look, they're safeguarding the assets. The assets do not belong to them. Now, with assets that belong to you, you have to have capital reserved against some of those assets. If you're if you're a bank. And so the way that works, and I'm going to draw from an Anchorage comment letter here because I thought it was really good. So Anchorage sends a letter to the

SEC after this and says, look, these banks need to hold up to 500 basis points in Tier 1 Capital for any digital asset that they hold on their own balance sheets. And so, you know, if they're charging 35, 40 basis points and then they have to reserve 500 basis points to quote Anchorage, it makes it unprofitable for banks subject to Sab 121. custody digital assets. There's no business there, right? If you have to hold that much in terms of U.S. dollar exposure for every dollar of Bitcoin that you hold on a balance sheet, you just wouldn't hold any Bitcoin. And from a risk perspective, sorry to keep interrupting, it doesn't make sense because you have the Bitcoin in full reserve. So there's no sort of

uncertainty. You don't need a buffer. The Bitcoin's not going anywhere. You're not re-hypothicating the Bitcoin. So I went down this rabbit hole of just funding public available information last Sunday. It was a little bit of a rainy day. And my kids took naps, which was good. So I was able to dig into this a little bit more. So when Bank of New York Mellon applied for their custody offering with the state of New York, so they got approved with the New York Department of Financial Services, recall that. They clearly stated in their application that this would just be treated like any other asset. So pursuant to the same general considerations in accounting treatment for any other asset that the bank safe keeps.

Now, the Sab 121 thing totally changed the game on them. And they wrote a comment letter to the SEC, which I have linked in my tweet storm here, where they say banks cannot practically serve as qualified custodians for digital assets at any sufficient scale if they are still subject to these threshold limitations of Sab 121. And then in bold, they say, we recommend that bank qualified custodians be exempt from on-balance sheet requirements of Sab 121 in order to resolve this conflict. So I don't know how much more clearly you can spell that out that there's just no business there. And just to drive that home even more, they published in their latest filing with the SEC that they in fact have a de minimis amount of capital tied to Bitcoin on their balance sheets. So basically they have no assets in this new crypto custody offering.

So, you know, I guess the question is, is this good policy in the United States? And a lot of people would say no. So Lummis and McKenry have demanded answers. They point out that this guidance basically makes the most trusted banks and credit unions in the world unable to custody these things. You know, Hester Perth was all over this from the start. So she actually had a dissent. She had a public statement against this at the time it happened, which I hadn't even read until recently. And then you've had a number of other Congress people kind of probe into this.

But, you know, sort of get yourself to a point where you're saying, this makes no sense whatsoever. So you have this collapse of these, you know, crypto companies. And your reaction is, okay, let's just make it such that like the really trusted ones that are trusted for years.

Bank of Newark-Mellon has been around for over 200 years. Let's just make it illegal for these guys to do it. Like, what are we trying to do here? Yeah, this is insane policy. If the reasoning in the government was, okay,

these crypto-kidies, can't be trusted to do custody. All right, fine. Let the world's largest custodians do custody. But that's not what they want. They want to inhibit that. They want no one to do crypto custody. They want these assets to be uncustodied. They want to inhibit the legitimization of the asset class. That's the only explanation I have. And I think this is, you have to look at this in just a broader context of what the federal government has done post-F-TX here. And so you have these operation chokepoint moves with the FDIC and the OCC that have, I think, in an extra legal way, gone into some of these banks

and forced them to have deposit caps on the crypto industry in an attempt to debank crypto companies and constrain the growth of the market. Basically just cut the ability for banks to service some of these startups. So, you know, that's number one. Number two, you have this Sab 121 thing, which is, okay, let's just make sure that none of the big banks or broker dealers can custody Bitcoin. That'll prevent this thing from growing. Number three, you have this custody rule, which maybe I'll do another tweet storm on this, but the SEC has proposed a change to the custody rule that would look

unfavorably on state trust charters. And so it would make it very difficult to be a qualified custodian in the eyes of the SEC if you're operating under a state trust license. And I think there's a lot of reasons why that won't pass and there's a lot of non-crypto reasons, a lot of financial interests that are against this. But that would shut down, you know, BitGo, fidelity, all of, you know, all of these crypto custodians. So then if they're able to shut down the big bank custodians for SAB-121, use the custody rule to try to shut down the state custodians, you know, if they're ultimately successful with these things, you just end up in a place where you just choke off capital to the entire crypto sector. To be clear, I don't think they'll be

successful in this because I think this state trust thing, they're not going to be able to get away with it. But they have gotten away with Sab 121 and they have gotten away with cooperating on chokepoint. It's a, yeah, it's pretty, it's pretty coordinated. I mean, it's a controlled demolition, attempted controlled demolition of the onshore crypto industry and Hong Kong is laughing. Singapore's laughing. The UAE is laughing. London is laughing. Berlin and Paris are laughing. the rest of the world is reveling in the U.S. fumbling the bag. We are the number one nexus of crypto capital, talent, entrepreneurs, users in the world. And the U.S. government is trying to destroy all of that.

You know, it's true. And you have to, of course, remember that this is a global industry. And so you have these European banks that are actually not subject to a lot of these rules. And so they are the ones that are actually launching these. custody businesses. And I think at a certain point, it makes sense for the bank lobby to get a lot more aggressive here and to just say, hey, we want a piece of this action. So you can charge 45 basis points, 50 basis points to custody Bitcoin if you're a bank. I mean, why wouldn't you want to be in that business? Yeah. I mean, community banks, remember, NIDIG had their experiment with community

banks to use online banking to get individuals access to Bitcoin through that interface. And the FGIC reacted very harshly to that. And that was mothballed. Banks stand to benefit from the emergence of alternative revenue lines, non-interest income. I mean, they want to do this stuff. I mean, that's clear. So it's just the regulators that are stymie. them. So I guess, you know, more to come on this, but this is why we have elected representatives. So

get in touch with your local representatives and tell them to get on the repeal here. I think the wish list here, if you just think about it from the perspective of what would it take for the U.S. to be more competitive here. It's repeal Sab 121, allow the big banks and broker dealers to actually offer Bitcoin custody and other assets. Number two would be a market structure bill in the U.S. codify what's a security, what's a commodity. And number three would be a stablecoin bill. Let's just make it, you know, yeah. And number three would be a stable coin bill. Let's proliferate U.S. dollars as far as we possibly can with this technology. Here's something interesting. You rarely see these four senators working together. We have Warren, Marshall,

Lammis, and Jalabrand. They proposed a crypto amendment to a national security bill. which would require enhanced AML requirements for crypto ATMs and stablecoin issuers. Pretty surprising to see, actually. Yeah, and this is sort of a piece of must. This bill has to pass, right? So I wonder if this amendment will be included in it, but you would think that you would not really be able to run a Bitcoin ATM company at scale with these type of restrictions.

It says you have to collect a driver's license every time someone use a Bitcoin ATM. Yeah, I'm just surprised to see Lemmison Gillibrand sign on to this. I was surprised to see them sign on too, but do you think that that suggests that maybe there's a deal to be had here on the Lumas Gillibrand? Right. Yeah, it kind of looks indicative of some compromise being made.

Well, did you check out this Puerto Rico news? Puerto Rico is working with the IRS. on an investigation into 100 wealthy Americans. I would not want to be on this list. Well, I guess I would want to be on a wealthy American list, but not this one. This is one where you move to Puerto Rico to dodge your taxes. I mean, it's not dodging.

There's the law that in theory you avoid taxes if you move there, but you really have to credibly move there. I know people have actual apps that track their location at all times for tax purposes, which is clever. So, yeah, basically the IRS is going to look and see if people actually followed the requirements of the program. I don't know. And not all them did.

So many of these people moved to Puerto Rico and then the market just cratered. And then you're in Puerto Rico trying to pay fewer taxes on $0. And the IRS is auditing you. So we have a now very popular segment. All right. So there's a segment on the show, which is the orange. Arnold segment. So who is a triple threat? Who has reached the top of their field in three different domains? Arnold being the canonical one. We've had a few suggestions. We got a torrent

of suggestions this week. So we're going to run through them and then decide do they meet the criteria? Are they a true triple threat? Shout out to Jack Miller, who had a really good tweet storm about this. Jack Miller sent us about 50 names. He actually sent us 50 names. All right. So, tee it up. All right.

We're just going to run through them and then you tell me if they're, are you tapping in or you top it out? So Jack had list one, which is very strict on success in different fields. And then list two, which is a little bit less strict. I guess let's start with the number one. Yeah, we actually don't have time to do list too. so we're going to do this one. All right, Al Franken. S&L, he was a senator before I think he was forced to resign.

He was also a best-selling author, and he is a comedy writer. That's four things. I'm going to give that too. Every U.S. senator is an author. I don't know. Is it an autobiography? What is it? What type of book are we talking?

I'm tapping out in Al Franken because he had to resign in disgrace, so he wasn't a successful senator, in my opinion. All right, so we're out on him. Ronald Reagan, obviously an actor. He was the governor. I mean, Ronald Reagan really was the template for Schwarzenegger, and he was also president. He was a president.

Actor and politician, that's two things. Oh, yeah, and then he was a radio broadcaster. I mean, we're technically, like, we're radio broadcasters. I'm giving them two on that. He's not getting a third. Oof, for Reagan. Okay, here's one. Jimmy Carter.

Jimmy Carter, no relation. Businessman, peanut farmer, I think. Yep, I'll give him that. President. And then he was a peace campaigner. You know, he won the Nobel Peace Prize. Don't all presidents win the Nobel Peace Prize? Obama won it for some reason.

Obama was like the biggest drone striker, the whole. Peaceful drones. Oh, okay. I don't know. I don't know if I like that for a third one. I don't, I guess. So I'm giving him one out of three. because he wasn't the goat in terms of peace.

I mean, I don't even know how you measure that. And I don't even know if he was a particularly good peanut farmer. But he started, he started Habitat for Humanity. I might give him that one. All right. Did he really? I think so. Well, either way.

I don't think he was necessarily atop of his field in terms of peanuts. So I'm only giving him two. All right. Jimmy Carter. Sorry, you get two. All right. We're still on the actress. Clint Eastwood.

obviously a famous actor and then a great director and then he was also the mayor of Carmel by the sea right next to Monterey actually I mean I get that acting and directing are different but are they so different that you would give them top of the billing category here I mean is this is it's not really what I'm giving him two out of three yeah give them I'm giving him two out of three because there's a lot of mayors in the world how do you become the best mayor I don't know. Who's the best mayor? Who is the best mayor?

I don't know. That's a good question. So two out of three there. Paul Robeson. I actually don't know him, but he was an actor, a singer, professional football player,

lawyer, and silver rights activist. That's five things. That's pretty good. I don't know anything about them, but that's a lot of things. All right. We're just going to take the,

all right, here's a good one. Chris Hadfield. Famous astronaut. He was also a flyer, pilot, also an author and a musician. He's not the best musician. I mean, he's kind of an amateur.

But I'm actually tempted to give it to him because he's pretty cool. I've never heard of him. So he couldn't be top of his field for astronaut or musician. Well, I mean, there's not that many astronauts. I think he's probably the best dozen or so. All right. Shack. He was obviously in the NBA.

successful businessman. I don't know what his business ventures are. Probably sold water or vodka. He owns a bunch of like restaurants and stuff. TV star. I think that's fair.

And a DJ, apparently. I'll give you, Shacks, I'll give you that. Shacks in. Same theme. Kareem Abdul-Jabbar. So obviously he was in the NBA. He was a writer.

And he was a civil rights activist. the writer part I'll have to get back to you on that one yeah the problem is we just don't know the books we don't know about the books that these people have written you've read an autobiography I'm not giving you top of your you're not like that doesn't count you're not in that same category with all the great authors

it has to be a novel has to be novel okay Imron Khan this isn't a just wrong one wasn't he just arrested or something like that like there was some kind of he was arrested right i don't know let me see um yeah he was arrested um there's something something weird is happening over there with um run con anyway so he was the president of pakistan sorry prime minister he was apparently a cricket superstar i didn't know that and also an author nope not getting the author no author no

Okay, mani pack y'all. This one's fair. I mean, okay, obviously one of the best boxers of all time. He was an entertainer. I don't know what that means. Entertainment how? He's like a singer. He sings or something. No, I'm not giving him on that. And then he's also centered in the Philippines. I think he ran for president in the Philippines too. All right, but we're only giving him one out of three. Yeah, he's just a boxer. Actually, he is technically as a center. I'll give him two. All right. So Bill Bradley, NBA player, U.S. Senator and Investment Banker. I don't know. I didn't know about the, I did not know about the, oh, Bill Bradley and I sat next to each other at a Paxos event in like 2015. Did you talk to him? Yeah, I did. I introduced myself to him. So I don't know who that is. Bill Bradley, he's almost president.

Really? Yeah. All right, we're almost at the end here. Thomas Jefferson, I've been TJ. He was the president. He wrote the Declaration of Independence among other works. Apparently he was an architect as well. Are we giving it

to TJ? Two out of three ain't bad, TJ. I don't see any of those buildings still around. So it wasn't that good of an architect. Tough. Okay, Benjamin Franklin, got to give it to him. Diplomat, writer, inventor. I mean, no question. He gets it. A diplomat, a writer, and an

inventor. I guess so. Yeah, yeah, yeah. All right, DaVinci, we already covered. Isaac Newton. So, do you know this? I guess he invented physics or some branch of physics. He invented calculus, right? Independently. It was like, him and, it was co-invented at the same time by Leibniz. He was doing it at the same time, yeah. So that one, he gets 50% credit there. And then he was also the master of The Royal Mint. Did you know this? He was a central banker. I did not know that, but that's three.

If that's true, he was triple threat. If I'm not wrong, I think he lost money in the South Sea bubble also. That's like losing money in the 2021 crypto market. That comes with the territory. Everyone did it. So he lost money in the South Sea bubble of 1720. So, yeah, clearly he wasn't the best trader. all right and uh yeah well that's it for now we can't do this second list because there's too many

i mean it's like 50 names so it's an incredible list thank you for taking the time to put this together jack miller jack you did good i mean we came up with three names between the two of us i have i have one addition a friend of the pod uh said Oprah winfrey and i think that's actually very valid So she's an investigative reporter, newsperson. She has the talk show, and then she's an entrepreneur. Well, I think we can disclose that it was Lorishin that suggested it. It was Laura Shin that suggested it. And I think that's right.

That's a triple threat. Yeah, we're going to give her that one. All right, so I think that's it. We link to a bunch of good reads over the weekend. If you're interested, check out our newsletter. There's one on Customers Bank. There's Fidelity Digital Assets put out a good signals report that we recommend checking out. The guys over at Bitmex Research put out a thoughtful article about Gary Gensler's CFTC Days

and some of the similarities in the gold and precious metals market versus crypto. And then David Morris has a good article, Get a Horse, what crypto can learn from early automakers' struggle for acceptance. So check out all those. weekend reads. Yeah, on the customer's bank front, I mean, Bloomberg positions it as if they are kind of like the saviors of the crypto market or like they're the last bank standing. To be clear, they're not onboarding new crypto firms. I mean, that's just unfortunately not happening.

Yeah. So there were other banks. There's a major bank that was onboarding crypto firms and they abruptly changed. course mere weeks ago and guess who was the guilty party our 11 FDIC and OCC. So chokepoint 2.0 is still going on. It's very real. It has not ended. It's very real. It is still going on. And it might get worse. All right. On that happy note, have a safe and healthy weekend and we will see you on Monday.