On The Brink with Castle Island - Weekly Roundup 12/01/23 (SEC v Binance, Treasury letter to Congress) (EP.479)

Episode Date: December 1, 2023

Nic and Matt return for news and deals. In this episode:  CZ must stay in the US until sentencing The SEC is looking into Binance US In kind versus cash creations for ETFs The Major Questions Doctrine FDIC scandal keeps rumbling Is there a world where GBTC doesn't get converted? Elizabeth Warren versus Subway Content mentioned in this episode: Austin Campbell tweet on Treasury letter Coin Center blog on Treasury letter Fortune, Gary Gensler has remade the SEC into a crypto nemesis and climate warrior. Now a backlash is brewing Sponsor notes: Coin Metrics STATE OF THE NETWORK—Dollar-Cost Averaging Portfolio In Coin Metrics State of the Network Issue 235, we delve into the dollar-cost averaging strategy in the digital asset market, emphasizing the need for informed investment choices

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 Conjecturee 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. Welcome to On the Brink. I'm Matt Walsh.

And I'm Nick Carter. And this episode is brought to you by Coin Metrics. And here is the Metrics Minute. In today's Metrics Minute, we're looking at DCAing. Here's an interesting stat for you. If you had DCA'd into Bitcoin starting at its absolute peak-o-top, the peak price in November 2021, $67.5,000. and you had DCAid into Bitcoin daily from then to now, you'd actually be up 33%.

Pretty incredible. More on that in the coin metrics, state of the network, in the show notes. That's your metrics minute. So the moral of the story there is if you just keep on buying and the number goes up, then you do well. Is that kind of the, that was the metric? Yeah, as it turns out, if you buy a lot and then the prices go up, then you did good.

Man, that's good. That's good. Intuitive, but it makes sense. This is not investment advice. No, not an investment advice. Well, busy podcast week. Do you think Vivek Ramoswani was the biggest guest we've ever had on this podcast? Probably by name recognition, yeah.

Do you think? Yeah. Whipemmer has more power, I would say, but probably not quite as well known as Vivacian. Vivek. Vivek is very knowledgeable about crypto stuff. You can tell. Yeah, and he's not even a crypto guy. Oh, he's he he's probably what, the only candidate that disclosed holdings? Maybe aside from RFK. RFK owns Bitcoin. I don't know about DeSantis. He's he's very pro-Crypto though, so I wouldn't be surprised if DeSantis owns Bitcoin at least. Yeah, we know he's pro-crypto.

He's kind of not said that much about it. But yeah, I mean, Vivek is just so impressive. He's just a very clear thinker and a very good speaker as well. He's really been on the podcast circuit, huh? Yeah, I, you know, I kind of want to pound my chest a little bit in terms of having been able to get him on, but he has done a ton of crypto podcasts. Yeah. So we're not the only ones.

Well, maybe we should just start to open it up to the field, similar to All-A. just have all of these people come on, but it's like, hey, we only want to talk about the core issue, which is crypto regulation in the U.S. Yeah, so to all the presidential hopefuls that are listening to this show, maybe they're listening. I don't know. You're welcome to come on the show. So hit our inbox. Both sides.

There are Democrats running. Yeah, no, we don't, you know, we're not just. just limiting this to one side. Even if you're an anti-crypto presidential candidate, you may come on the show. Come on and we will ask you aggressive questions, but we'll talk about it. We'll talk it through. Vivek is very focused on this West Virginia versus EPA Supreme Court case. Have you heard of this one? I have. I think that if we should define it, but I think that this could have a massive impact on the ability of the SEC to just run amok. Yeah, so from what I understand, it has something to do with something called the

major questions doctrine, which I don't know if I can really tell you what that is, but I believe it has something to do with the ability of these federal agencies to interpret their power. And as it turns out, this current court takes a very kind of limited. view of that, which potentially extends the SEC and other agencies in terms of their own power that they actually possess. I think it has major implications to the Coinbase and Cracken cases that the SEC has gone after those companies with the view that everything is a security except for Bitcoin when it's clearly not in their mandate to just define that. And so this is

going to be a factor. And if this Supreme Court case goes in the direction of less, you know, less administrative state, so to speak, I think there is a very high likelihood that Coinbase would win their case. Yeah, I was reading a, I think a fortune profile of Gensler this morning. And in there, they, I thought it was a great profile. It was good. And in there they said, yeah, we'll put that in the show notes. They said that he's been successful in kind of bringing the crypto industry to heal, which I don't think is true, though.

I just don't think that's true. I mean, he's successfully harassed the industry, but has he won the major cases cowing the industry? I wouldn't say so. No. And I think FTCS is a huge black eye. FTCS is also a huge black guy for him. I mean, he has meetings on record with Brad Katsuyama at IEX

and Sam Bankman-Fried from FTCS on the topic of giving them some sort of a safe harbor to operate, like a no-action letter. to operate FTX in the US. Can you imagine how many more people would have lost their life savings if Gensler had his way there? Yeah, so how can you celebrate taking down Kim Kardashian or whatever whilst you overlooked the biggest frauds

that had happened where you had met them? I mean, the SEC can't claim victory on FTX. They can't claim victory on Celsius. They can't claim victory on three arrows. Genesis. Like they weren't involved. They all collapsed on their own. And then the SEC went after them.

So how can you say the SEC has had success? I don't see that. They've certainly had success in stymying innovation in the U.S. It just feels like every week we're talking about another company that is establishing domicile in London or Bermuda, some other jurisdiction. and in hiring away U.S. people to actually leave the U.S. to build their companies. Yeah, we see this in the data. The electric capital data showing where the developers are. It shows the outflow of developer talent from the U.S.

I mean, this is literally evident in the data. I mean, I did a podcast with Kim Grauer of Chainalysis. That'll be out next week. Their geography of crypto report, which I strongly recommend, It also shows as 2023 developed and hostility increased in the U.S., U.S.-based users moving to offshore stable coins. So all these data points are very clear. It's not that people are doing less crypto.

They're just doing it in ways that are less accountable to the U.S. D.C. must be aware of this. Like they must be aware that tether supply is growing and other domestic stables are shrinking. That's what I was going to say. I mean, there should be a KPI to track some of these things. It's like the SEC has taken a hostile stance towards stablecoin issuers. What has happened? The largest stable coin has just grown by leaps and bounds internationally accruing value outside the United States, basically creating this euro dollar market that is the I think the 16th largest holder of U.S. treasuries outside the United States. You would think that you would want that value to accrue to a U.S. domiciled company. Yeah, I mean, Tether is now $88 billion. $88 billion in Tether. They're going to hit 100. There's nothing stopping them. They have line of sight to $100 billion. Yeah, it'll get there. It definitely will get there. Would you ever guess that they would be able to hit $100 billion, especially five years ago when they were depegging, when they had the NYAG case, they had the balance sheet, the related party loans?

I mean, it is remarkable that they survived all of that and managed to keep growing. That is crazy. I mean, you have to remember the origin story of this thing. It was started by Brock Pierce back in the day. And so in the early days, not only would I have never imagined it, I wouldn't have even thought that these guys would have gotten two or three years of operations under their belt. But now they're a sovereign scale owner of treasuries right now. It feels kind of unprecedented.

I mean, maybe there have been similar structures in the past, but I don't know what would be analogous. And yeah, meanwhile, the domestic stable coins are being subpoenaed, even the most high-quality ones. I mean, PY-U-S-D is a very sound and thoughtful approach. They're being harassed. USDC supplies, I think it might have turned around now, but it was declining precipitously. Well, there could be some changes on the horizon, I suppose. I don't think that Gensler will be in charge of the SEC in perpetuity. So we'll see what happens, I suppose.

It was interesting that in the profile in, it was Fortune, I guess. Was it Fortune or Forbes? Yeah, Fortune. In Fortune. I didn't realize that he was actually kind of a Maverick when he was running the CFTC as well. he ran that thing like a little fiefdom. Yeah, what was interesting there, and I didn't know this. I mean, I obviously knew he was quite aggressive at the CFTC,

made a lot of enemies in the financial services industry. I didn't realize the scale of what he just tried to build out in terms of CFTC headcount and real estate. So it sounds like there's quite a few office buildings that are like 20% occupied. And he just kind of went out of his way to do that. Didn't necessarily have congressional authority to do some of those things it looks like,

or at least that's the allegation, but really tried to build up an army within the CFTC. Obviously, he's kind of done a lot of the same things at the SEC. It was interesting that the CFTC actually unionized under Gensler's authority where really the workers were felt like they were being overworked, kind of working bankers hours and making government salary type of thing. Yeah. You get the sense that some of that's happening at the SEC even right now.

Yeah, and you see that in the data, the SEC attrition data. is quite high. So there's some discontent there. Now, you could say that he's not doing his poor of a job, maybe as Marty Grunberg, because the FDIC scandals here seem to only be building upon themselves. Oh, yeah. I mean, this is getting worse. It's getting worse by the day.

I think Marty might actually be, this might be the end of the road for Marty Grunberg. And it's weird that it's because he supervised oversaw, culture of harassment and just general bad behavior. At the FDIC, it's weird that that's the reason why. I mean, that seems to be a valid reason for his career to end. To me, the bigger problem not to diminish the badness of that is that the FDIC has acted rampantly unconstitutionally outside the boundaries of their actual statutory authority, both with 2.0, choke point 2.0, and choke point 2.0.

point one point oh that he also presided over back in the day that's the real problem but i'll take i'll take anything at this point i'll take forcing him out because there's a terrible culture there too that's fine i'll accept that you know who we should get brian brooks bring him back he was at the oCC briefly did some great work let's get him involved at the fdic let's get let's get some sensible regulation i'm not saying there should not be regulation, but let's get some of these U.S. banks back to level playing field with their international counterparties. So on the SEC, actually, I have a provocative thought, which is, what if the grayscale trust product does not get converted into an ETF deliberately?

By the SEC denying it, you mean? No, no, no, by the owner. So let's say it gets sold. and some large private equity fund buys it. Their motive at that point is to keep it in the trust construct and earn 200 basis points a year in perpetuity as opposed to probably 30 basis points if it gets converted. So just keep it as a toxic closed-end trust product

and milk it for 10, 15 years and just deal with the pressure and the political fall. out basically. I think you'd have a, I think you'd have some litigation, don't you think? I mean, they've been very vocal. They've always intended to go to an ETF and that would seem like a bait and switch. I think you'd have to, you know, I guess you could do that, but you'd have to have some sort of a reg M relief to allow people to sell out of the thing, I would think. Yeah, yeah. So this thought experiment would involve a new owner buying the product, the trust, because Obviously, DCG is now in the process of divesting their corporate assets.

And the new owner would then say, yeah, look, we'll try and close a discount. Maybe we'll do some buybacks not at par, you know, to alleviate the pressure a little bit. But actually the objective would be to milk the fees for the foreseeable and not convert it. I don't like this thought experiment. I don't think that's going to happen. but that that is just what it is a thought experiment. I think it could. I think it could.

If it's an entity that can just handle the pressure and the litigation and be financially rewarded for that. I don't think there are a lot of potential buyers of assets. They're like, hey, let me just strap in for just a humiliating bout of lawsuits here and everyone in the crypto community is going to throw arrows at me. It would be someone, some entity that could stand to be hated and to be, rewarded for that. I don't know. I don't see it. It's just an idea. All right. Well, why don't we hop into some deals of the week? As always, these are powered by Masari Enterprise, which is a great

place to go to get the latest deals of the week and all sorts of interesting crypto analysis. First one up is wormhole. This is a blockchain interoperability protocol raised $225 million from jump trading, Brevin Howard, Coinbase Ventures, Multi-coin, and others. Then we have actual with two Cs. That's a Web 3 accounting platform. There is 3.85 million from third prime, IDEOColab, alchemy, and others. Then we have coin change, a digital asset platform.

There is $10 million from G1VC, Spirit blockchain and others. Spirit blockchain. Then we haven't come across them. I do know Spirit Airlines. Are they affiliated with the airline? You ever been on one of those? I have had the misfortune, yes, the playing spirit. Just the worst. Just the worst. Like, I mean, NPS score might be negative on Spirit Airlines. I haven't been on one in years, but that is a terrible way. That's worse than the Fung Waw bus. If you told me I had to be on the Fung Waus for four hours or on the Spirit Airline, I'm taking the Fongw boss the whole time. I'd rather have someone eating Mickey D's next to me from Boston to New York, just the whole way on the Fung Wai.

That's the Chinatown bus, right? Yeah. The Chinatown bus? Yeah. It used to be like five bucks. I think someone was beheaded on that once. Yep. Wasn't there someone that got beheaded on that?

Yeah, someone got beheaded. So there are, you got to kind of take your life in your own hands. But honestly, you do with Spirit too. I mean, you get the most unfriendly people, just a very hostile environment on those spirit airlines. Next up, we have Sutter, which is a Web3 consumer app. They raise $5 million from A16. Marcy Ventures and Superlayer.

Then we have Mumolin. This is a project building decentralized services in the Bitcoin mining space. There is $6.2 million from Jack Dorsey, accomplice, and others. Then we have Grove, a decentralized physical infrastructure network, aka DIPIN, formerly known as Pocket Network. They raised $7.9 million from our friends at Avon Ventures, from Placeholder and Druid Ventures. All right. So those are the deals of the week. Not the craziest news week ever. I guess we could, you know, last week was pretty nuts with all of the Binance stuff. So there's definitely some mop-up stuff going on here on Binance, I guess, to start. So it seems like the SEC is still, you know, obviously they were not at the table for this big settlement. So the SEC was not a part of this. DoJ was CFTC was. SEC is still going after Binance US. And we'll see what happens there.

CZ has stepped down from the U.S. board, which makes sense. Kind of surprised that they're even trying to operate in the U.S. with finance U.S. It just seems like the easier thing to do would be to kind of shut it down. A U.S. district court judge ruled this week that CZ must remain in the U.S.A. in advance of his February sentencing on these money laundering charges. That also seems kind of commonsensical. I wasn't really expecting that he would just be able to go back to UA.E.

He has every incentive in the world to be a flight risk. Yeah, no, that actually does make sense. I mean, he has no connection to the U.S. The UAE does not have extradition treaty with the U.S., which is kind of surprising, I guess. And so the judge basically concluded that it didn't make sense for him to be in the UAE before sentencing. On the SEC front, what did you make of this?

because do you think they found something that there was assets being improperly siphoned out of Binance U.S.? Or is this just a fishing expedition, do you think? I wouldn't be surprised if there was like insider dealing or something like that at Binance U.S. I mean, an affiliated market maker or something like that. I wouldn't be surprised if wallets maybe were being shared between the international entity and the U.S. entity. the suggestion that this is like a massive Ponzi scheme is kind of hard for me to buy into just because you can see the assets on the blockchain. So finance has like $60 billion worth of crypto that is publicly visible and addresses.

So this is not a FTX. I don't think this is an FTX style situation whatsoever because you go back and think about it from the FTX perspective. There's just no like wallets. There are no tagged wallets. So it was one of the great, unfortunate realities of that situation is that there wasn't enough on-chain sleuthing into, well, where's all the money? And you could just see it on the blockchain.

And so I don't think it's that. Now, were there all sorts of things that were not done right at Binance U.S.? I could buy that for sure. Yeah, this was what I found very perplexing about the news coverage around this, is that the claim was that the SEC was investigating an FDX-style fraud at Binance U.S. but on the face of it doesn't make any sense because I haven't heard from any Binance US users that aren't whole

or weren't able to withdraw so I've seen no evidence yet of funds being missing or funds being misappropriated we haven't seen anything like that so where's the smoking gun here? Now there's clearly going to be a shoot-a-drop here

because otherwise Gensler would have joined this party parade of, you know, government officials that was taking a victory lap on this. I think it would have been pretty easy for him to jump on and be part of this settlement, is my guess. Clearly didn't want to do that. You know, you know that he's a politician. So at some point, he will be taking a victory lap on something. So my guess is that this will just play out and it will be the new finance leadership that has to kind of fight that fight, it seems. There's also the possibility that more bad stuff would come out about finance, of course. So once you have the independent auditor in there to supervise, they're going to dig into every record. There's going to be suspicious activity reports have to be filed retroactively. So you'd probably find more bad guys that were on that exchange, almost certainly. So I don't think the negative news cycle is over by any stretch with finance. Yeah. You know, I was digging into their proof of reserve out of station that they had made.

So Binance itself has done 12 consecutive monthly ones, starting from when FTX collapsed. And because people ask me about it all the time. They're like, well, what do you think of the Binance POR? And I always rated it badly in my ratings. And so I'll just share my views on it here. So it's not clear to me that they actually cryptographically attested to the wallets that are included on the asset side. of the proof reserve. So that is necessary because you need to prove they're your wallets, that they're not just someone's wallets that you're claiming are yours. I have no reason to

doubt that it's their wallets, but they, as far as I can tell, they didn't do that. So that's one problem. Problem number two is they said that there is a third-party auditor that supervised the POR, and that I would say that's basically necessary for the liabilities to be faithfully reported. That's the most complex part of the POR is exporting their internal database of liabilities and publishing it for the users. But there's no report available and they didn't name the auditor. So that is missing. They do have the client facing ability to verify your inclusion in the liability set, but without that attestation from an auditor, it's hard to trust. And also, they don't say anything about what legal system or regulatory system the relationships with the users is under,

you know, like where you could challenge them in court, for instance, and they don't say anything about the assets being in any way bankruptcy remote or held in a FBO trust structure, as is the case with some other exchanges. So anyway, look, I'm not spreading FUD or anything, but their POR has a lot of holes in it. I don't see any reason to believe that they are lying or anything, but just want to clarify that on the POR. It's very incomplete as of right now. And some of that makes sense.

Obviously, from a legal jurisdiction standpoint, I think they're jumping all around. And so that probably is probably just they don't have really a legal jurisdiction. These things are not FBI accounts. obviously. On the auditor side, you're just not going to get an auditor to sign up for an engagement with Binance. That's just not going to be a thing. I think I had told this story on the podcast before, but I know several auditors who are in and around the cryptocurrency space and have suggested to them at times that it would be an interesting business to be in, to be in

this proof of reserve space. And basically the answer that I get is, well, have you ever heard of Elizabeth Warren? Like she's making her life a living hell to begin with. Like, why would we bring that scrutiny on ourselves. Yes, this is the biggest problem with proof of reserve is that there's not a lot of auditors that are willing to put their reputation at stake to oversee them. Not that there's anything wrong with these exchanges necessarily or proof reserve itself, but the auditors face political pressure to not deal with the industry and the reputational risks.

Huge problem, actually, which is certainly hindering the desire of exchanges to do PR. that said, Cracken did just resume their proof of reserve after, I think, a six-month or one-year layoff. So they haven't publicized it yet, but they did make it available to clients recently, which is audit or assisted, actually. So there are boutique firms that will assist your proof of reserve. It's just that the Big Four are nowhere near doing it right now, which is a shame because I talk to people at the Big Four and they want to, but they just can't. Yeah, that's, you know, add that in. the file of hustle activity that's going on in the U.S. right now.

Yeah, people don't think about audit as a vector of attack for the industry, but it absolutely is, and it's similar to the choke point stuff, as we've said on the show before. Chokepoint is financial regulators going after the banks, telling them not to serve as crypto. Audit choke point is, you know, famous members of Congress going after the audit regulators, PCAOB specifically telling them to tell the big audit firms don't touch crypto firms. So it's the exact same process. This is what Vivek talked about on the podcast is using these kind of backdoor informal routes to make policy without making policy, which I find very objectionable.

Now, I don't know if you saw this this week, but Elizabeth Warren has a new punching bag. maybe the attention is off the crypto industry for a week or so here. She has a huge issue with this subway buyout, big private equity buying up all the sandwich shops, creating a big monopoly. And I, I for one, think that the $5 footlong is in jeopardy at this point. Yeah. So what was it last year? Her problem was with big poultry.

Yeah, the turkey gouging. Yeah, turkey prices. Big chicken. And now it's a big sandwich. Joe Biden today tweeted. that the problem with inflation is corporate firms raising prices. So I guess it's not about money supply or anything. It's just that all corporates became greedy at the same time

simultaneously whilst not having been greedy for the prior 20 years. So they just turn on the greedy switch all at the same time. I think that's it. So that's their interpretation of what's going on with inflation. You know, these are the big issues of our time. You know, sandwich shop monopolies and things like that. I mean, I think Subway should be eliminated because it's just a heinous brand. And it's egregious in terms of the food.

Oh, no. And then you seed oils. I haven't, I haven't had a Subway in a while, but that's a good product. That's a good product, Subway. What I don't like is that they punt. Pump in artificial, like, perfume, like, sense into the stores. Yeah. You notice this?

Because Subways, they all have the same smell. That's not just an emergent feature of Subways. That's because they deliberately impregnate the air in there with this yeasty odor, aroma. Yeah. Because they want it to be a multi-tactile, multi-sensory experience, right? So you want to associate the odor with Subway. I'm against that.

I don't like that. It doesn't smell good. I know a guy whose job is to sell smells. That's a whole thing. There are companies that work with big hotels and companies like Subway and they sell smells, aromas. And the Subway one, I'll give you that.

It's not good. If you walk into one of those things, you feel it's like being in an early 1990s restaurant in Boston. You just come out smelling like cigarettes. Yeah, I'm not a fan of that one. I will say I do love going to the gas station. because I love the smell of gasoline, which I think is actually a genetic thing.

Some people love it, some people hate it. I love it. I think they put that smell in the gasoline as well. Yeah. I've always wanted a candle that smells like gasoline. Does anyone make this? That could be a good stocking stuffer. Yeah, because it's just a great scent.

Sometimes I linger a little bit too long at the gas station because I'm enjoying the smell so much. Yeah, the gas station, yeah. It's good. I'm not above admitting that. I'll co-sign on that. All right. So next up in news, Tom Chippus, formerly CEO of Airsex, which was sold to CBO in 2021.

Tom has joined Argo blockchain, a publicly traded Bitcoin mining company as the new CEO and board member. Congrats to Tom on that one. That's a great get there for Argo. I was on the board of ArsX, and Tom was a fantastic leader of that business. So sure he'll do great things at Argo blockchain. All right. Next one up, I guess we'd be remiss if we didn't talk Bitcoin ETF. There's obviously not a ton public that's happening.

It's got to be so frustrating to be at one of these sponsors, like a fidelity, a BlackRock, a bitwise, a grayscale, that you obviously have a lot of interaction these days with the SEC, but you can't really talk about it. And you have all sorts of talking heads just speculating wildly about it. But there was a public filing. this week. So in the Black Rock, there's actually a few interesting things on this one. So in the BlackRock SEC page with the proposal, the rule change proposal, you can see comments and you can also see

the meetings that the sponsor has had. And if they bring slides with them, they actually have to publish them on the SEC website. So one interesting thing was there was a comment letter this week on the BlackRock ETF proposal that said that it was from this guy, Jason Hobby, who works at compound the defy protocol and it said that he also worked at enterprise ethereum alliance and it was this weird weird article from coin telegraph about some sort of a hack and the gist of his comment was that this should be disproven because bitcoins can be hacked from black rock or something something crazy and so i tweeted out i was like hey enterprise ethereum alliance and compound is this a real letter. Like this just seems like a really strange thing for someone in the industry to point out. And I don't even understand what the argument is. And like 45 minutes later, the guy who apparently was, it said that he posted it, he came back and said, no, like I didn't post that. So some random person went on the SEC's website said that they were this guy who's the CEO of compound, Jason Hobby, and posted it. So it's just crazy that the SEC doesn't do a verification check on emails.

for public comments, I can't believe that. That's so easy to implement. That would be like an hour's worth of work for someone to code that up. So it makes me wonder how many of these comment letters are actually real or not. I mean, there's got to be so much spoofing. And there aren't a lot of people reading these things to begin with. I just happened to be like reading this one. So that was weird. Second thing, which is more serious. So BlackRock is going down this path. And as far as I can tell, just from all the public back and forth on this, there's a big conversation right now around how the creation of the ETF shares is going to happen, whether the market makers and the authorized participants engage with this product by bringing

Bitcoin directly to make the product or whether they do what's called a cash creation. And the issue, as far as I can tell, maybe we should have someone way more qualified to talk about this at some point on the podcast, is that a lot of these underlying. market makers that are doing some of this activity or doing their crypto activity outside of a registered broker dealer since Bitcoin is not a security. And so their ETF division that does the non-cry-reteames, you know, obviously it's a broker dealer. They're dealing with securities. The SEC maybe is saying, well, look, if you're not doing it in like a BD, how can we get comfortable at this. Thus, maybe they're pushing for like a cash creation where, okay, BDs can do the cash part

and then just have some other entity doing the Bitcoin part that is outside of a broker dealer. So anyways, there seems to be a lot of back and forth on this. BlackRock has wanted to do in-kind creations for this Bitcoin product. And it sounds like maybe the SEC has had some issues with it because in this public filing that we'll put in our newsletter, BlackRock outlined their original in-kind creation versus a new in-kind creation flow. And I won't get into the weeds on it, but it's basically an extra step. And Coinbase is involved in the process at a pretty significant level from the Bitcoin creation side, the Bitcoin purchase side.

So I don't know. I guess the question here is, all these things are kind of different underneath the hood. And there seems to be a basis for competition here that is more than just marketing. like people are doing this all a little bit differently. And I think maybe some of these sponsors just aren't really equipped to deal with spot crypto. And so want to do it in a certain way. And maybe if they weren't allowed to do it that way, then it would take longer to get the

product out. So I'm kind of monitoring this closely. And unfortunately, you just don't know because the SEC won't say, okay, we're good with this. we're not good with this. It seems like they're just kind of, okay, tell me more about that. Tell me more about that. And there's no like posture on this. So does the Bitcoin ETF need to be in-kind creation? Does it need to be cash creation? If it's in-kind, how do you want it to work?

I will admit this is completely incomprehensible to me. But I think we should get someone from one of these sponsors to come on the show and talk about it. Well, the problem is they, I don't think they really want to talk about it when it's ongoing. So, you know, at some point we'll go deeper on this issue. And it's not, this is super esoteric. So you don't need to care about this type of stuff unless you really are in the weeds on this. You're doing it a day-to-day basis. A consumer will never really know the difference between a cash creation or an in-con creation.

And a lot of these things would work either way. It's just like how long do you want us to take to get this product to market. but it seems like we're really, really deep in the weeds on how these things ought to work. So again, further fuel to the fire that it's at least moving forward. I mean, we're never having this level of sophisticated conversation about these products in years past. Yeah, that's really my takeaway here. It's very clear that the SEC is actually deeply engaged on the details of these applications now, which was just not the case before.

And there was some other incomprehensible stuff from Eric and James over Bloomberg, who are my long-time gurus on this, about specific timing with some of the applications, which seems like it looks like the SEC is lining up for a coordinated mass approval, as far as I can tell. It looks like early January. So, you know, I don't know. Does that mean people at the SEC just need to be working on Christmas to get all this stuff done? Yeah, so that's how it is under Gensler, investment banking hours. Okay. We appreciate their sacrifice. Thank you.

Thank you. In other news, Santander, which is the big Spanish bank, they have selected Taurus as their cryptocurrency custody provider. That is a headline that you will not see from a U.S. bank anytime soon in terms of actually being in the cryptocurrency custody space. Yep. and elsewhere in foreign banks that are able to do crypto whilst their U.S. counterparts stagnate. SBI Holdings, the Japanese banking conglomerate partnered with the digital asset cyber firm Halborn for smart contract audit services.

Yeah, that's a big win for the Halborn team. Obviously, they're best in class on the cybersecurity front. Disclosure were investors in Halborn. A bunch of interesting stuff on the legislative front. This is another one where I don't know what's going on here, but there's a lot of back and forth on the idea that digital asset regulation could get jammed into this 2024 National Defense Authorization Act. I don't know which way this is going to go. It seems like there's some horse trading going back and forth right now. But the D.C. Chamber of Digital Commerce wrote a letter to the congressional leadership urging them to act on this.

French Hill came out this week and said he thinks it's going to be more of a 2024 type of a thing. So we'll see what happens here on these key legislative issues. There was also a horrible letter from the Department of the Treasury to the Senate banking and House Financial Services Committees. A memo entitled Potential Options to Strengthen Counterterrorist Financing had a bunch of recommendations on crypto, which would basically really nuke the crypto industry in the U.S. if this went through. coin center wrote a response to this letter and Austin Campbell also wrote a reaction to it which we'll put both of those in the show notes this seems to be just a consultative letter and a discussion to be had but the provocation in DC continues yeah I recommend checking out

Austin Campbell's tweet on this topic he apparently has seen this letter I don't know if it's actually out there yet broadly but I don't think this thing has any shot of being a bill. There's no way you're going to get Congress to act on something that is basically more aggressive than the Patriot Act. It's just, it's just crazy. It looks like the terrorist financing issue or Conard or whatever you want to call it. I mean, is the cause of the day in terms of Congress and the executive seizing the perceived authority to crack down on crypto? So, I mean, really, I would say we're up against it in Washington right now.

Yeah, it'll be interesting to see as these kind of bills work their way through. Obviously, a lot of these things, if you just had an effective market structure bill in the U.S., all of these things would be addressed. You just have similar provisions that apply to, you know, broker dealers and banks. The compliance frameworks are there. It's just that there's no comprehensive market structure bill yet. I'll leave you with Austin's closing words on this. A proposal like this, this clumsy, balkanizes the blockchain world, shuts the U.S. off from the rest of the world,

probably ensures that the currency that will be used going forward on blockchain will be the euro at the yuan at the exact moment when the U.S. needs significantly more funding for a deficit. Oh, and it might create a genuinely whorettainly. horrifying dystopian surveillance state overall grade F. So he made his feelings very clear on the letter. Yeah, I agree with them on that. Now, the U.S. is doing stuff that's beneficial.

Like the U.S. apparently seized a domain and sanctioned a cryptocurrency mixing service called Sinbad, which was doing a bunch of stuff with North Korea. I'd never heard of it. It's kind of an interesting name, Sinbad, one of the great actors of our generation. But, you know, we applaud when the bad guys get taken down. All right. So I think that's it for the week. We'll leave you on that optimistic note.

But, you know, in general, I'd say we're kind of marching forward here. This is, there are signs of life in this market. It doesn't feel like it's going to be a slow end of the year whatsoever in terms of new deals that are going to be announced here in the coming weeks. Yeah, I feel great about it. And I don't know why, but we got a ton of feedback on the roundup last week. so thank you for that. It's always nice to hear from you. Keep it coming.

Yeah, we appreciate our listeners. Yeah, we did get a lot. I was like, what did we even talk about last week? It was the Thanksgiving episode, but I think it was because you thank the listeners. Yeah, they like it when you thank them. So thank you again. All right, everybody. Have a safe and healthy weekend, and we will see you on Monday.