On The Brink with Castle Island - Weekly Roundup 12/25/20 (FinCEN's proposed rules, the SEC takes aim at Ripple, predictions for 2021) (EP.161)

Episode Date: December 25, 2020

Nic and Matt return for a special Christmas episode of OTB. In this episode:  Jay Clayton steps down and Elad Roisman takes over as interim SEC Chair We analyse the Treasury's proposed rule on VASPs and crypto transactions Why the FinCEN rule imposes greater demands on crypto transactions than cash as far as surveillance is concerned Are the proposed workarounds between VASPs and defi asset pools viable? Our book recommendation on the politicization of the Treasury Our analysis of the SEC complaint against Ripple How bad is the SEC complaint for Ripple? Some of the most damning quotes from the SEC complaint The significance of the SEC extending the statute of limitations with Ripple Our theory for why the SEC waited so long to sue Ripple Implications for exchanges facilitating the trading of XRP A development on 15c3-3 We revisit our predictions for 2020 and issue new predictions for 2021 Content mentioned in this episode:  The Treasury's proposed rule on crypto wallets The Presidential Working Group's statement on stablecoins The SEC complaint against Ripple Labs The Tokendaily 2021 Crystal Ball Sponsor notes:  Withum is a forward-thinking, technology-driven advisory and accounting firm committed to helping our clients be more profitable, efficient and productive in today's complex business environment. Our Digital Currency group is proud to partner with members of the cryptocurrency community. Get to know us at withum.com/crypto.  

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 quantitative 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 a Bitcoin.

Welcome to On the Brink. I'm Matt Walsh. I'm Nick Carter. And Merry Christmas. Yeah, I guess this is going out on Christmas Day. So I can't necessarily recommend you spend your Christmas listening to On the Brink. But if you are, Merry Christmas. I think a lot of people will. You know, we can't question their choices here.

Christmas alone is not sufficient to stop us from doing the podcast. Well, if you thought it was going to be a slow news week, you would be wrong because this was one of the busiest news weeks of the year. In particular, the regulatory hits keep coming. I mean, it kind of seems like we're entering the black market phase here a little bit. Yeah, this was a pretty significant regulatory week. Treasury, we had Ripple, we had Jay Clayton stepping down. So there's a lot to cover. Before we get into it, why don't we hit on a couple of the content items this week? So we had Matt Hogan on earlier in the week. always a blast to have Matt on. I thought this was a lot of fun. Talked a lot about the RIA channel. Talked about the changing attitudes towards crypto assets in that channel. Talked about a Bitcoin ETF, which, you know, this was before Clayton resigned, but it looks like the Bitcoin

ETF is going to be the story of 2021 here. Fingers crossed. I mean, I was just before this listening to Odd Lots and even Joe and Tracy were saying they can't believe there's not a Bitcoin an ETF. So it's not just big corners that are complaining about it now. Yeah. So that will be a big story to keep an eye on. You also appeared on Ground Floor Consensus, a new podcast from Real Vision. Yeah, so I guess Real Vision is diversifying their offerings a little bit. So I did a show with Ash. I was the second guest. Melton was the first. So really looking forward to seeing what they do with that podcast. Yeah, that was a good one. So why don't we get into some deals? So first up, we have coin DCX, which is an Indian cryptocurrency exchange.

There is 13.9 million from Block 1, Temasek, Coinbase ventures, jump capital, and some others. Next one up is Flexa Network, a crypto asset payments company. They raised $6 million in a token sale from robot ventures and others. Next, we have title finance, which is a company building an insurance product on Pocod. They raised $1.9 million from NGC, kinetic, Genesis Block, and some others. Next one up is Siba Bank. This is a digital asset firm. They have a banking license in Switzerland.

They raised a $22 million Series B. And Hashed, which is a fund that we know fairly well, they announced a $120 million fundraise. I think this is the largest fund in South Korea in the crypto space. So congrats to Hashed. That's right. And the last one up is Siri Network. This is a company that's building a CRM on top of Pocod as well.

So they raised $1.5 million from Arrington, XRP, QCB, and Kinetic. All right. So let's get into some regulatory news. Where to start? You want to start with Treasury or you want to start with Jay Clayton? Yeah, so Jay Clayton officially resigned. He is gone from the SEC. Jay Clayton has been kind of an antagonist, I would say, for the crypto industry.

and he's officially gone. And as of just now, he was replaced. We now have an interim SEC chair, Elad Royzman, I believe. So we wish Jay Clayton, nothing but the best in his future endeavors. I don't think the phone has been ringing off the hook these past 24 hours from crypto companies looking for board member roles or advisory board members. I don't think he's getting a lot of interest there. I don't see him getting a lot of interest from financial services firms that are looking to do Bitcoin ETS. and things like that, but we wish him nothing but the best.

Yeah, there's a wide world out there outside of the crypto industry, but for sure he's not ingratiated himself to crypto folks. I don't know what a lot stances on any of this stuff are, but I think regardless, that is just the interim seat, and we're still waiting for the announcement of kind of the full chair, which we're still waiting to hear about. So in any other week, I think that would have been the story of the week. But of course, last Friday, we had a big drop from the Treasury Department.

So let's talk a little bit about this rule. So there's been a big rumor mill for really months now that on his way out, Secretary Stephen Mnuchin was going to just drop a bomb on the crypto industry. And obviously, it's been something he's been working on for a while. The rumor mill was that it could be as bad as outlawing non-custodial wallet transfers, peer-to-peer transfers. So, you know, for those of you who may be unfamiliar, this would effectively be targeting peer-to-peer transfers, such as hardware wallet-to-hardware wallet transfers between individuals, which I think would have been really difficult to hold up in a court of law. You'd really be infringing on personal liberties at that point.

Now, I guess the good news is that what actually came out was not that bad. It was certainly pushed back, and we can thank a lot of people in industry and certainly a lot of congratulations. leadership for pushing back against that. Basically, what came out here was a rule proposal with a 15-day comment period. And effectively, what it would say is that there would be new obligations on virtual asset service providers, which are VASPs. These are exchanges and brokerages, really any of the on-ramps. So for withdrawals in deposits of $3,000 or more, these VASP would be required to record the name and physical address in certain other personally identifiable information of the wallet owner. And for withdrawals in deposits of $10,000 or

more, there would be a new requirement to file what's called a currency transaction report, a CTR with FinCN, which is a division of treasury. So it's an additional record keeping and reporting requirement that is being proposed here on virtual asset service providers. A few people said that this just brings crypto service providers into concert with other kind of money transmitters and financial businesses in terms of their record keeping requirements. I would say there's some validity to that, but also the blockchain itself has a degree of memory. And so that's not the case with cash, for instance. So if you're able to associate someone's identity with their address on chain, you're able to trace their activity kind of over

time, which so this is a more, it's a greater surveillance ability than just requiring banks, disclosure cash transactions, for instance. Yeah, I think that's a good point. And I think I've heard that as well that this just puts crypto on par with cash. I don't think that's true. I think this puts crypto much more on par with a high risk asset or something else. It's not on par with cash. Now, I will say this could have been a lot worse. As I mentioned, that there had been a lot of rumors around peer-to-peer transactions being outlawed. We had Cynthia Loomis come out publicly speaking out against that. We had a group of eight congressional leaders led by Warren Davidson come out against it.

We had numerous people in industry, the blockchain association, the DC Chamber of Commerce, Coin Center, all were very active behind the scenes. That being said, it's still a really bad rule. And there's a number of things to get into around why this is a bad rule. Number one is that it definitely infringes on privacy in a way that we don't have in other types of transactions. So it massively infringes and expands the surveillance apparatus of the federal government, handing over this customer PII, personally identifiable information to these agencies, which by the way, many of these agencies have had leaks and hacks in recent years. There's also the issue around deanonymizing accounts on these public blockchain. and, you know, depending on how you interpret this rule, and I think that's another reason why it's a bad rule is that it's not very clear.

So what it takes to become compliant with this rule is very difficult to navigate. And I think as a result, you're going to start to see a situation where these VAS just say, look, I don't know what it takes to be in compliance. So I'm just going to dump a ton of PII on FinCEN. And I'll just err on the side of violating the privacy of my users. So I think that's what you're going to see. And then the other point on that privacy to my earlier comment, I think you're just going to have a mechanism here for the government to try to deanonomize accounts to try to see who owns what on these public blockchains.

And that's a level of surveillance that doesn't exist in any other asset class. So it's problematic. So there's a number of issues here. Yeah. And I mean, you know, it's not like we have to look far back. in history to see instances where the Treasury has been a poor steward of data. I mean, what was it this week or last week the Treasury was hacked? So effectively, you're creating a honeypot which the Treasury is taking charge of and anybody

who's able to breach their servers is unable to get full characterization of Bitcoin and other digital assets and, you know, determine which Americans own the asset and so on. So it's kind of disastrous for user privacy. The other thing that a lot of proponents have talked about affects the crypto industry is the fact that a lot of newer, more complex financial contracts on blockchains are not occurring on a peer-to-peer basis. They're on a peer-to-pool basis. So interacting with any DFI protocol, but even interacting with a multi-signature wallet

where numerous people might have keys and with Taproot, you're going to have an arbitrary number of potential signatories to a single transaction. So multi-sig or pooled transactions, you know, compound maker, uniswap, any of these pooled engagements on Ethereum, for instance, transacting from one of those to a VASP means that your obligation would be to disclose the identity of everyone in the pool, which is obviously impossible. the whole point of defy is that you don't necessarily know who your counterparties are and the assets are fungible within the pool. You're not doing diligence on every contributor to a pool, for instance. And so now defy, there's sort of a barrier being erected by this guidance between any pooled engagement and any kind of regulated brokerage.

So I'm not exactly sure what is going to happen there. Yeah, I think there would be, you'd think about workarounds there potentially where exchanges and brokerages would only allow withdrawals to wallets that are under user control and there'd be an intermediate hop. But then, of course, you can surveil that too and you can use forensics tools to deanonymize people from there. Yeah, and if FinCun was got really aggressive about it, they could just demand that the VASPS surveil user behavior, post-withdrawal, which again, this comes back to the non-fully private nature of blockchains. They could surveil user behavior post-withdrawal and see, okay, did they deposit to Defi or to a mixer even or any of these pooled contracts. And if so, even if after several hops, after withdrawal from the VASP, then they might look

at banning them. So I'm not even sure this multiple hop approach that some people proposed is necessarily that viable. It's sort of easy to detect, basically. As you can tell from some of the things we've brought up here, we're talking about a new technology infrastructure where potentially some of the rules and regulations around the existing financial services world need to be rethought and reexamined. It's very much like in the early days of the internet, the public web could not be necessarily regulated in the same way that a telecommunications company was regulated. and the open web necessitated or rethinking of technology infrastructure and the role of media companies, the role of telcos.

So in a lot of ways, I think these are, we will need to have regulations here, no doubt, and anti-money laundering is very important and terrorist financing is something we want to stop, but we can't just restrict the technology. And so to me, one of the biggest issues here is that there's so many important things to discuss in so many edge cases, and you want to do it in a way that. that doesn't just kneecap the entire industry. In a 15-day comment period is just so out of the norm for something as complicated as this and something where you have so many interdependencies and so many startups and incumbents

that are building things, it's just not fair to have that 15-day period. You'd usually see a 60 to 90-day window for something as complex as this. And the Treasury has kind of hidden behind this national security concern, which no way. can really, you know, there's clearly nothing kind of imminent or pressing here from a national security perspective. It's clearly a politically driven apparatus. And so I think if nothing else, industry will potentially be successful in pushing back against this 15-day window because it's just purely political. And it was, the window was started as people left the office for their holiday break, too, which is the funniest part of this whole thing. I mean, it's so deliberate. It's a

total insult to the industry. This is an American industry. There's multiple billion dollar companies that have been built on this stuff. And the government is just showing total contempt for what's been built here. And a total lack of willingness to engage with the actual technology. They're treating it like a legacy financial asset, which just doesn't make sense. If you're a regular listener of this show, you know that we take accounting and auditing pretty seriously. And that might seem a little bit strange in an industry that prides itself on the removal of intermediaries, but we think when it comes to digital assets, trust relationships with counterparties like custodians and brokerages is critically important. Witham is a top 25 ranked

accounting tax and advisory firm. They have a digital currency and blockchain group that's working with some of the highest profile companies in the industry on things like tax advisory, financial statements, token sales, stable coin audits, and much, much more. To contact their team, go over to witham.com slash crypto. That's W-I-T-H-U-M-com slash crypto and get in touch with someone on their team. So the industry is really aligned, not surprisingly, behind this. This is something that is united everyone in the industry.

The comment period's open. So I'd encourage folks to engage with that and submit comments. Coin Center has a nice post around how to do that. Jake Chivinsky had a nice post around that. And a number of crypto companies have started to put out blog posts with their comment letters. Crackin talked about the effect of restricting access to the poor from financial services. Coinbase really honed in on the short comment period and the lack of clarity and the rule. The Electronic Frontier Foundation had a blog post taking issue with the personal privacy and financial surveillance apparatus.

Matt Corallo, a Bitcoin developer, had a really thoughtful letter around how this would really restrict the ability for charities to accept donations. from people, which I hadn't thought of, which is also true. So I think bottom line is if you have a really thoughtful take on this, you know, please submit it. Yeah, I have a book recommendation along these lines as well if you need a last minute Christmas gift. It's a little late now. There's this great book called Treasury's War by Juan Zarate. Have you read this?

No, I haven't. So this is a former member of the Treasury detailing how the Treasury's, you know, became a political, a highly politicized agency and actually engaged in effectively warfare, in particular after 9-11 when the Patriot Act was passed, which massively increased the data surveillance requirements of all sorts of money transmitters, including sort of precious metals, brokers, and so on. And one thing he said in the book was, after 9-11, they adopted this incredibly loose standard in terms of evidence required to, to decide that a money transmitter was engaged in terrorist financing. So instead of having a high

burden of proof, they only required 80% certainty that a money transmitter was engaged in suspicious transactions in order to shut them down. And so there are a bunch of innocent money transmitters that they effectively shut down in this overreach as they were trying to, you know, freeze the assets of al-Qaeda and so on. So if you want plenty of case studies on how super-grimilar enforcement can have a ton of collateral damage. This is the book about it. But it's not written in a confessional way. It's written in kind of a braggadocious way like, hey, you know, we turn this sleepy financial agency into this highly effective sort of politicized sort of military agency. So highly, highly recommended reading. Yeah, good, good recommendation. All right. So, you know,

more to come on this treasury thing. I think we'll have some folks in the industry that are working hard over the holidays to submit comment letters here. It kind of comes at the same time as the presidential working group on financial markets issuing a statement calling for on-chain stable coin KYC, which is kind of another thing that is incompatible with how this technology works. So there's a bunch of stuff that's going on at the intersection of Treasury and the executive leadership here that is not looking great. Yeah, the on-chain KewIC for stablecoin. makes even less sense than the proposed rule on VASPs. I mean, on chain, stablecoin, KYC just completely defeats the purpose of using

a blockchain at all. So that one I'm actually less worried about because it's so just sort of preposterously incompatible with the technology that it is not implementable, in my opinion. Like, these things don't sound to a person that's not steeped in crypto or blockchain industry as crazy, but they would be akin to put. putting in some of these crazy regulations you heard around at the start of the automobile where you had to have someone walking in front of the car with like a flag or something or saying that you can only use the internet if you sign on through AT&T first and you can

only visit websites that AT&T says you can visit. It's just we'll look back on this period and just say it was so clear that Treasury Manukin and many others in the administration just had absolutely no idea of this technology and we're just trying to put these artificial gates on it that really could have restricted the growth of an entire industry that is on par with the advent of the commercial internet. So there's going to be a huge opportunity here for incoming Treasury Secretary Janet Yellen to make her mark.

I guess I would say I'm sort of very cautiously optimistic on her willingness to engage. the future SEC chair will also have a huge opportunity to define American engagement with the industry. So the good news is that we're at the cusp of transitions at all of these agencies. The bad news is that we might be getting less favorable regulators. I mean, it's unclear. There's definitely the big, big news of the week, which we should talk about, which is the SEC's enforcement action or.

complaint against Ripple and some Ripple executives. Oh, did that happen this week? This is two enormous things in one week, but I think some people have been waiting eight years for this, and it finally dropped. Well, couldn't have happened to a nicer group of guys. Yeah, I mean, this is one I think maybe I'm not going to complain about as much, because it seems pretty valid as far as a complaint goes. And actually, if you read the full complaint, it's really fascinating reading.

There's a lot of sort of the guts and the internals of Ripple are spilled onto the page for the first time. But yeah, this is one where they might actually have done a lot to deserve this. Well, so let's just set it up, I guess. So Ripple is a company that issued the XRP cryptocurrency. They were the second largest cryptocurrency. It is 60% owned by the Ripple company. They have been running effectively what amounts to a continuous ICO for the past seven years selling off XRP. We're not legal experts, so we'll caveat that everything we're saying right now, you know, read the complaint yourself and form your own opinion.

But the SEC has come in and effectively said that they had issued an unregistered security and they were continuously issuing that unregistered security over time. They're claiming that XRP is still a security. and they're seeking to effectively have it remediated. The SEC complaint is so bad for Ripple. I don't think I've ever read more damning facts and circumstances of an ICO take down than this Ripple complaint. It is clear that the SEC did a ton of work and, in my opinion, has them dead to rights. Yeah, I mean, it reminds me of reading the KIN complaint and the Telegram complaint. and when I read those, I knew the SEC was going to win. And it's kind of the same thing here.

Having read the whole complaint, there's no doubt in my mind that it will be an adverse outcome for Ripple. And in particular, they're going after two executives at Ripple too, which is not common. This is a little bit out of the ordinary, piercing the corporate veil, so to speak, and going after the executives, namely Chris Larson, Brad Garlinghouse. So I'm going to read you a few choice quotes from this because they're rather damning. So over a years long unregistered offering of securities, Ripple was able to raise at least $1.38 billion by selling XRP without providing the type of financial and managerial information typically provided in registration statements.

So basically the SEC is saying they raised a huge amount of capital here. They did not really provide any meaningful disclosure. That's what securities laws are all about. another quote. Meanwhile, Larson and Garlinghouse orchestrated these unlawful sales and personally profited by approximately 600 million from their unregistered sales of XRP. Garlinghouse did so while repeatedly touting that he was very long XRP, meaning that he held a significant position he expected to rise in value without disclosing his sales of XRP again. Security's laws tend to mandate that directors of companies disclose their sales or they do it on a defined schedule.

You know, they talk about the establishment of XRP and they clearly establish that Ripple effectively created XRP. There's no distinction between them. You know, Ripple likes to claim that they sort of discovered XRP somehow or they were gifted XRP and hence, you know, there wasn't a real connection between the company and the asset. The SEC, you know, very thoroughly debunks that. They even say that Chris Larson admitted that he was paid to assume,

the risk that the offering would be considered a securities offering. They even talk about Ripple engaging in effectively open market operations to support the price of XRP at really critical periods, kind of like what a central bank does, basically. They have some incredibly damning quotes from David Schwartz. One thing he is probably going to regret posting was on the Bitcoin talk forum. He says, as a as a corporation were legally obligated to maximize shareholder value with our current business model, that means acting to increase the value and liquidity of XRP. We believe this will happen if the Ripple network is widely adopted as a payment system. One would expect increased demand to

increase price. So, I mean, they clearly established this was an ongoing financing offering, which did not end. It went on from 2012 to earlier this year, I believe. They kept selling the securities long past that catalytic moment in 2017 when the SEC released the Dow report, which is kind of considered to be a delineation. They created all the XRP. They had an interest in the price of the XRP increasing, and they undertook significant entrepreneurial efforts to support the price and to market the asset to retail investors. So I don't exactly see how Ripple could really contest any of this, basically. Yeah, I think that they'll fight this, but, you know, the SEC has really done their homework on this.

And it looks like the SEC has extended the statute of limitations several times here. And so talk a little bit about that, maybe. Yeah, so that was one of the most interesting things in the document. So the SEC undertook these tolling agreements with Ripple at least twice, I think more than twice, which effectively what that entails is you go to the company, you say, we're planning to sue you, potentially, but we need more time to build our case. Would you give us more time and extend the statute? And XRP agreed, and actually generally speaking, the companies in question do agree to this

because the alternative is that the SEC brings a case right away and it's even harsher. So it's sort of considered prudent to agree to the tolling agreement. I wonder what the disclosure is on the tolling agreement. So obviously the Ripple has gone out and struck commercial agreements and raised capital after these tolling agreements, I think. Certainly the money grant deal appears to be after. So I wonder if they disclosed to folks that they're under active investigation by the SEC. This was the first time I'd heard anything about it. I think we would have heard if it was public.

But what that suggests to me is that the SEC had known since 2018 that they wanted to potentially pursue Ripple here. and it's just that they wanted to build up a body of case law. So this is my theory as to why they waited so long. A lot of people are saying, well, why now? What's special about now? And my theory is that they wanted to win the big blockbuster, but the more marginal cases, the telegrams, the kicks, and then a whole host of others.

They wanted to prevail in those big high-profile cases so that when they went for effectively the final boss, ripple, the most well-funded potential securities offering in the whole crypto industry that they had an iron-clad body of case law to rely on when they took this thing to a judge. And because the SEC has won all of these big cases now, they sort of feel empowered to pull the trigger.

So that's at least my theory on why now. That's interesting. One of the secondary effects here that I'm interested in monitoring is, you know, if you're in exchange or custodian and you do not have the greenlight from the SEC to transact insecurities and you still have XRP on your platform and you're facilitating the trading in that you're effectively I would think that you're you'd be looked at as facilitating the trading of an unregistered security so that in and of itself is certainly punishable so these exchanges that are still listing XRP right now I think are

running a big risk. I mean, and remember, Coinbase held off on listing XRP for years and sort of finally capitulated. And in fact, in this document, in the SEC complaint, there's a line about Ripple trying to effectively bribe a certain exchange to list them. I might not be Coinbase. Could be any exchange. But Coinbase was, you know, I thought they were being very prudent by not listing XRP for exactly these reasons.

I mean, they even had a framework. establishing the risk of something being a security. And they eventually capitulated and listed the asset. And then that was sort of, I think, that gave it a veneer of acceptability and then a bunch of other exchanges subsequently listed it. And now almost every major kind of retail brokerage, both in the U.S. and overseas, lists Ripple as one of the core assets. And they've all made a lot from trading fees, from trading the asset, too.

So, I mean, I don't necessarily know if the SEC will choose to go after all these exchanges. I would expect to see delistings imminently. Yeah, you would think. You would think that those deal listings would come. So, you know, I'm sure we'll hear more about this in the weeks to come. Ripple has a high-powered, you know, bench of attorneys, including Mary Joe White, who was formerly the chairman of the SEC. I'm sure with here, Brad Garlinghouse talking about China control of Bitcoin and Ethereum and all sorts of other nonsense in the coming weeks and months. So it'll be a spectacle.

Yeah. And this is something that wrinkles me maybe the most is that in one breath, Brad Collinghouse denounces the overreach from the SEC and asks for the crypto industry to stand with him against the SEC. And at the same time, he's claiming that ripple is more decentralized than Bitcoin and Ethereum are controlled by China and, you know, critically vulnerable because of proof of work. So it's not like he's ever done anything to win, you know, to get into the good graces of Bitcoiners, but he's still sort of asking for our support in this mission. So I don't know. I don't have very much sympathy for him, unfortunately. Yeah, so more to come on that. In other SEC news this week, we actually had an interesting development on something that I've been

talking about for a while, which is how digital assets are. characterized under the custody rule 15C3-3 around possession and control. So for broker-dealers, this is really important when you're looking at holding a digital asset, a digital bearer asset. So basically what the SEC has done here is come out with a statement and a request for comment around how digital asset custodians and broker dealers can engage with these type of assets. And it talks about a period of five years taking no action subject to, these broker dealers doing certain things. I think this is a big development. We'll see how it plays out.

I don't think it's fully baked yet, but effectively what we're seeing here is that a number of these broker-dealer applications that have been trying to hold digital securities have not been approved. And this guidance might make that a lot easier. There's a couple of things around the edges that are kind of weird to me.

They're talking about a standalone broker-dealer, so it's not clear that you can hold digital asset securities within the context of an existing broker-dealer might need to be a new one. That doesn't seem great to me. But I think what we're seeing here is just more clarity. And so that will be really good for those startups that are targeting ATS venues and custodians and all sorts of things, as well as just the existing financial incumbents who want to hold representations of real-world assets as digital securities.

So good development, still not a ton of clarity on holding Ethereum or Bitcoin. under 15c3-3.3. I think that's something folks would like to see more clarity. But step in the right direction, I think. Yeah, you've been talking about this forever. It seems like it's every week you bring it up on the show. Well, I think that, you know, the framing here is that until this year, no banks or broker dealers held any of these things. And so the OCC bringing clarity that banks can hold Bitcoin and stablecoins was huge. And now you're starting to see all sorts of banks really spin up their efforts and start to expand their R&D into real world things. And if you look at the addressable market of broker dealers and how none of them are doing

anything in Bitcoin or stablecoins or tokenized securities, there's really nothing happening because they don't feel that they have clarity. So you're talking about just a massive pool of capital that is about to get off the sidelines here. So it's really compelling. So this also pertains to your prediction you made in the, token daily crystal ball. You actually said that the SEC would give us clarity

on this exact issue. I was proven right within two days. Yeah, it happened already. I don't know if it counts because we're not in 2021 yet. Yeah, so Suna does these predictions and she aggregated a number of predictions from folks in the industry.

And mine was we will see clarity from the SEC on C3-3. It will unlock greater participation in the industry. I also predict that a U.S. pension fund will publicly announce that they have a Bitcoin position. I think that we'll see more than one Bitcoin ETF approved in 2021. And I also think that we're going to start to see crypto asset infrastructure companies going public via IPOs, hopefully not ICOs, and also SPACs. Yeah, so kind of big predictions there. Mine were mostly pertaining to stable coins. So I said, I think there's going to be an episode

of crypto dollarization, which kind of helps take down a sovereign currency. And I carved out the Bolivar because the Bolivar is already sort of going through that transition. So it has to be different sovereign currency. I also said a major stable coin will kind of suffer a bank run. So we'll see about that. And there will be more than 50 billion stable coins. And that a half dozen exchanges will institute proof of reserve. So pretty good predictions. Well, we'll see. I've done these three years now.

So maybe we can briefly revisit the 2020 edition. Well, let's see. What do I say? I said Fiat back stable coins face considerable regulatory scrutiny as regulators realize issuers are conducting minimal surveillance within their networks. Am I going to take the W? I don't know. They haven't received that much scrutiny yet, honestly.

Take the W on that. I said Binance will be forced out of Malta and has to search for a new home base once again. I think that happened. I'm not sure they were ever actually in Malta, actually. Either way, they're not in Malta right now. That much is clear. I said the SEC wins a case against Kik, setting a firm precedent, and causing dozens of similar tokens to settle. Well, they definitely won the case.

And I also talked to proof. I said a major U.S. exchange initiates of proof of reserve protocols. that didn't happen, unfortunately. But if I put it in my predictions every year, eventually it'll happen. Yeah, you just keep on predicting it. It's like a Bitcoin ATF. People have predicted every year. It's like the year of Linux on desktop.

It's just around the corner. In other news, Micro Strategy ended up buying all that Bitcoin. $650 million convertible note completed last week. This week they announced they bought 29,646 Bitcoin. at an average price of 21, 925. So right now they have 70,040 bitcoins at an average price of 15,964. So pretty good.

It's important that we normalize buying the top. There has to be someone buying it all-time high. And in this case, it was Micro Strategy bought near the top, although they're still very much up on that position. You know, who knows if we'll see another convertible note from Microstrategy in 2021. Nothing would surprise me at this point. 70,000 Bitcoins is a good number to have.

Yeah, it's not bad. Michael Saylor just appeared on odd lots as well, which I think may not have been as friendly in appearance as the various Bitcoin podcasts. Yeah, I haven't listened to that yet, but I could imagine that would have been a little bit of a tougher audience. So I think that's it for the week.

Hope everyone has had a Merry Christmas. We're going to be back next week for a new year's a pre new year's episode yeah so total continuity here no breaks but we've got some great interviews really fantastic interviews coming up very excited to publish i think we'll probably have a lot of news happening here there's a leadership transition and there's quite a bit of regulation hanging out there there's a lot of bitcoin buying quietly behind the scenes at big institutions too so we'll see if we have news on that front as well well everyone have a happy to holidays and Merry Christmas and I'll come to you next week.