The Breakdown - SEC Defeats, Binance Intrigue, and a Bitcoin Flop: The Biggest Stories of the Week

Episode Date: September 3, 2023

A new experiment, NLW and Scott Melker do a live rundown of the 5 most important events of the crypto week. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Saturday, September 2nd, and that means it's time for the weekly recap, albeit a slightly different version. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to pay you. bit.ly slash breakdown pod. Hello friends, how's it going? Happy Labor Day weekend. Now, one of the things you've probably heard me talk about before is that I'm never exactly sure what I want to do with this weekly recap slot. A lot of the weeks, I just use it as an extra episode because there's been so many

topics going on that we just didn't get a chance to cover everything. But one of the ideas that I had for it going way back to when I first started doing these recaps was to actually use it as a chance to do a bit more, call it editorialization. When it comes to, I'm going to be a bit more, call it editorialization. When it comes to the average breakdown show, part of what I think you guys like is that I keep the opinion and op-edding to a minimum. Now, of course, I have my perspective on things and they come out, and there are some times that episodes just need to let the hot takes rip, but by and large, my goal is to give you information. I think that news in general, and especially in a sector as contentious as crypto, is so hot under the collar that simply presenting a diverse array of

perspectives, without trying to just nudge you towards my own, is the value of the value of the value of you add that I can offer that maybe is missing in some other places. That said, I also do think that there's something interesting about being able to contextualize the news and give some takes around it. And so when Scott Melker, who some of you listened to as the Wolf of All Streets, asked me to start experimenting with a Friday News Countdown Recap show, I thought it was totally worth a try. So what you have is a first collaboration that comes from a live stream on Friday morning. Basically, we talked through what we had determined were five top news stories from the week, and as you'll hear, have a whole lot more room for discussion and analysis than just reporting the news.

Now, if you guys just strictly want facts, you will have heard about all these things before on the shows earlier this week. However, if, on the other hand, you want some of those hot takes and more discussion around the big events of this week, this might scratch that itch. Now, as to the specific topics, one of the things that made this week interesting is that a lot of the summer has been fairly quiet. But it ended with kind of a bang. The court cases that were determined this week have, I think, big implications for things heading into the fall, and so there was, as you will see, a lot to discuss. Anyways, you know all the different channels to find me at NLW on Twitter, YouTube comments, or, of course, in the Breakers Discord. Let me know what you think about this format.

Let me know if you enjoyed the conversation, and we'll see where we go from here. For now, like I said, I hope you're having a great holiday weekend. Let's dive in. Good morning. How are you? Good. As it going, man. It's going well. So this was one of those weeks, as I said, where it was almost hard to drill in on five key topics, right? And until the last day, we were getting new stuff. It's like the world knew that summer's over and it's go time again. And everyone's done touching grass. We're coming back, headed into a fall of hopefully more consequential action, I think. More consequential action, but we do know that seasonally for stocks and for crypto, September is the worst month of the year.

Right. I think we've seen generally 12% down over nine of the 12 last years on average for September. Yeah, it's interesting. I always, I always forget that fact heading into because September is such a, there's so much new energy coming back into markets. It's just that a lot of that energy tends to be rebalancing and getting rid of things, I guess. You know, there's a million, anyone can go Google why September is always a down month. There's a ton of different theories, but I don't know, it's interesting. I feel like when it comes to Bitcoin and crypto, I almost always feel still better in September than in June or, you know, June, July or August, just because it's like at least there's something happening, you know, even if things aren't necessarily like, you know, screaming up into the,

to the right. Yeah, I think a lot of people in legacy markets refer to it as window dressing season. It's just sort of you come back from the summer. Everybody's worried about what their bonus is going to be for the rest of the year. they start selling some things in September to lock in gains, and then you move on to the Santa Claus rallies and the other at the end of the year. We sort of on one of the shows came up with a, you know, you have selling May and go away,

but now we need something like, but remember by the dip at the end of September or something like that. But before we come into the fall, because we, in crypto, we also, as bad as September is we sort of have this notion of October, right? We've had this huge moves where October first hits and all of a sudden things go wild. It's, it is, you know, the thing is, I mean, I'm sure you find this as well. Like, the further from being reliant on actual sort of day-to-day movements for making ones living, the more able to

sort of just enjoy the, you know, the patterns that happen, you know, like you spend more time on coming up with fun aphorisms like, remember by the dip at the end of September than than actually worrying about it. Yeah. I'm just hoping that. that it's not another month of sort of bad news. I think we're going to talk about it right now. I think we got a lot of the ETF hype out of the way because we know we won't know anything in September. So maybe at least we don't have to talk about ETFs for the rest of the month. But here's the five stories that we sort of highlighted so that everybody knows. Obviously, I think the biggest story of the week is the gray scale victory against the SEC.

And then, of course, what that has meant for ETS. We have the uniswop class action being thrown out, yet another victory in the court system for D5. And for crypto, the SEC sealed filing against Binance. That one is really curious. We'll dig into that. Of course, the fact that the SEC came down on impact theory for their NFT. And then at the end, something totally different, which is the top 10 crypto ideas, basically, Brian Armstrong saying, hey, if I could do it all again, if I wasn't really busy being a billionaire,

these are the things that I would do in crypto right now. A whole lot of SEC here, man, right? I mean, this has been the dominant thing for 2023, though. You know, when we write the story of what this year was about, it's going to be clean up and follow through from last year and, you know, sort of the fallout of 2022's actions. And a huge amount of that is battles in the courts, you know, the arena for crypto this year was the legal sphere. And, you know, hopefully that's not every year. But it makes sense in the context of this transition. period where even before FTCX imploded, still the dominant theme was getting to regulation

that would work, you know, and it was just that it was internal industry actors pushing for that and subsequent to FTCN imploding. It was basically a situation where the most vocal critics in the administration across all of the different agencies where they inhabited, it's not like they didn't exist before. It's just that they got louder and everyone who was standing between them and, you know, policy got out of the way because who's going to step up to defend? If you're, if you were, you know, positive maybe, you know, but you're probably deprioritizing it. But if you're just neutral and you're sitting at the SEC or the DOJ, you know, coming off of last year, you just get out of the way. And that's a lot of what we've seen, I think, is that battle playing out. Now, the good

thing is we'll talk about this week is that it turns out that the courts weren't quite as aligned with the approach as the SEC and other agencies might have hoped. Yeah, it's a point we talk about quite a lot here, but just because a regulator says it is so does not mean that that's actually the law. So it is really encouraging to see that pushback from the legal system. And to your point about FTX, I think if you were even a neutral legislator, a congressperson, a senator, or even if you were slightly leaning pro-crypto, it became really easy to just say nothing there.

about six or seven months and let it all play out and shake out. But I think that now we are seeing as a result of some of this enforcement action or some of the court action that maybe being on the anti-crypto army is becoming a little less popular and the pendulum is swinging back to where having a favorable opinion of this is going to be the better move politically. That's how we have so many young presidential candidates who are talking about Bitcoin and all in a positive manner. So I think that that maybe is the good thing about them pushing so hard against the industry. I mean, this is, this will be seen as a brutal, brutal, but incredibly strengthening year, I think. You know, I mean, really two years, because if you view 2022 as the beginning of a period of really cleaning out a lot of bad behavior in the space, and then 2023 as following through dealing.

with the consequences of that, but also actually having to, you know, backpinned against the wall, have the fights to get things sort of, you know, lined up and legal as they need to be. That's an incredibly difficult process. Obviously, it would have been nicer to do it on a different standing, but we were never not going to have to go through it. And, you know, the, it's going to be harder than ever to kind of look at this as a passing concern once it has survived this, this particular, you know, set of actions, I think. And so ultimately, you know, again, speaking of cliched phrases, that which does not kill us makes us stronger. You know, you will never have a better example of that in the Bitcoin and crypto space than this year, I think.

Yeah, the old adage of that then they fight you phase, right? To your point, it was inevitable. And I think that we actually have the right fighters in the arena clearly to potentially win this. And I think that only has strength in Coinbase's case, which is the big fighter. that we have. But let's dig specifically into Grayscale scale here. Obviously, for people who don't know, Grayscale sued the SEC after the SEC rejected their attempt to convert GBT, that Bitcoin trust, into a spot ETF. Grayscale decided to fight back and sue. People thought they were nuts at the beginning. But from day one of that court case, the judge seemed to be very anti-SEC, the question why they were even there. And now we got a decision, which is that Grayscale won, and that not

Not only that, the SEC was outright rejected their arguments called capricious and arbitrary, which are two fun words used in legal jargon, obviously, to say, why are you guys even here this case was ridiculous. So to you, how big not only is the gray scale victory, but the language used by the judges and the way in which the SEC lost? Super significant. So digging into the specifics, a couple of things that the case was. not just to get it out of the way. It does not mean that gray scale Bitcoin trust automatically

gets converted. Everyone is very quick to point that out because it's a nice counter-narrative, you know, tweet-tweet point that you get. But that does not mitigate how significant this was. The reason that it's significant is that effectively what the judge ruled on is the logic that the SEC used to deny this particular application. And it's, logic that they've applied to effectively every denial. And at core, I mean, there's a number of different issues, but the core one is this question of market manipulation, right? The SEC has long maintained. And this goes back to the Clayton SEC before Gensler as well, that one of the reasons that there can't be a Bitcoin spot ETF is this fear of market manipulation, right? That the market

is too shallow. There's too few, you know, kind of players who are exchanges. And where that manifests practically for an ETF is in the price feeds, right? Basically, they say, you know, if, if the market for Bitcoin can be manipulated at one of the, you know, four or five exchanges that's feeding in, you know, to this price feed, then that's, that's too high a risk, right? You don't, you don't pass mustard. The problem that Grayscale had with this argument is that it's the same price feed that feeds the Bitcoin futures ETFs that were approved. Now, the SEC had kind of some weird logic around why because of the venue of the CME, there were more protections in place and how it better fit. But at the end of the day, what this judge said, and this is where some of the harshest

language was, is effectively that it failed to meet standard reasons of using your brain that the price feed feeding one wouldn't also, that the same scenario wouldn't apply in each of these in each of these cases, right? That if you're talking about the same price feed, that you can't say that one is going to be manipulated and the other one isn't. And effectively, the judge also said that you didn't provide any evidence. So that was the big sort of thing that was rejected in this case. But the challenge of that for the SEC is that although the judge doesn't, you know, the ruling doesn't say you have to convert this. The ruling says you can't use that particular logic. And so when it comes to future ETF denials, should the SEC choose to want to deny other

applications that are sitting there, they're going to have to find some entirely new reason that's not that, that's not basically any of the reasons they've used in the past to deny that. Now, there are a creative bunch when it comes to hating crypto, so I'm not putting anything past them. But it does create a very different scenario. And I think what a lot of people have noticed is that from a pure political standpoint, it creates a really nice face saving moment where they can kind of say, look, you know, the courts are ruled. We're not trying to overrule courts. Like, you know, we're going with it. And guess what? You know, Black Rock is here. These traditional institutions are here. Sure, fidelity and a surveillance

sharing agreement, you know, means that we're going to pass that, right? It gives them a chance to kind of walk it back. And so that's the real question is, is will they take that opportunity to sort of save face and and shift the narrative a little bit? And interestingly, that's what I'm not going to play the statement, but Matt Hogan, who we have here often, you know, Bitwise urges SEC to Greenlight all Bitcoin spot ETFs as deadline looms. He was very political in his statement in basically saying they were right to reject these in the past. The industry wasn't mature enough. We don't blame them for that, but now is the time to greenlight these. And that speaks to that exact safe, face saving situation that you just talked about. Gensler can literally say, yeah, now the market has matured,

BlackRock and Fidelity are giving their stamp of approval to Coinbase as a legitimate, you know, place to where we can't have market manipulation. They can throw out all these arguments now and say, so now is the time we were right. And now we're giving you what you want. And frankly, then they can still continue to attack the rest of the market in my opinion. It's interesting. It's interesting that sort of statement that you just, you know, ascribed or, you know, to Matt, I think is reflective of a larger trend that we're seeing in.

in narrative making coming from the industry. I think there is a sense that the tide is turning a little bit and that now is a really good time to offer narrative olive branches to the agencies to kind of walk it back. So, you know, I will stop short of guessing whether Matt actually thinks that the industry wasn't ready in the past. But the fact that he's saying that is there's an op-ed in CoinDesk from the CEO of Clean Spark talking about Bitcoin mining that I actually read for my kind of long read Sunday this week. Same tone of, we know that you tried to put this dame tax on the industry like

three months ago, but the tide is shifting against you. So here on a nice little platter is a fresh narrative that allows you to kind of get with the picture a little bit. Now, I think that that may be a little bit optimistic overall. You know, things still haven't turned totally. But I do think it's interesting to note just how much of that repositioning, I think, is happening right now. And it has to be mentioned. Then a lot of people were extremely optimistic that because Grace Gale won this week, all of a sudden we were going to see this slew of spot ETF approvals. I was not one of those people, to be clear. I think the Gensler will continue to kick this down the road as far as he can before making that decision. But the SEC deferred decisions on

Fidelity, BlackRock Bitcoin ETFs. To be clear, all seven of them were deferred yesterday, even though some of them did not have to be deferred by yesterday. So they basically just did this sweeping, bucketing of all seven of them. Curiously, they reject, they kicked six of them down the road and then waited about an hour or two for BlackRock, which gave people just enough time to have these wild tin-hat, tin-foil hat theories that Black Rock was about to get approved.

But we did see all seven of them kicked down the road. And from James Safert, who was on the channel yesterday, next dates to watch, middle of October are the next major days to watch, namely October 16th. Now we've basically kicked this, you know, 45 days down the road. I don't think this will be a narrative in September unless the SEC surprises and just happens to approve one before the deadline, which they can theoretically do. But can we at least stop talking about ETFs now for the next 45 days? Yeah.

I mean, listen, I think that the, listen, the important function of the ETFs, By and large, there's three pieces of it. Two of the three have taken place, I think, in some ways. One is a signal to the market that traditional financial actors are still interested in the space. You know, BlackRock coming in and filing that ETF was, I think, a huge inflection point moment for the industry. That really, to the extent that there was any question left of would, you know, the crypto industry survive this sort of existential, you know, cataclysm of the last, you know, nine months or 12 months or whatever, that put the stopper in that, right? It was just done after that. So that's one really important thing from an ETF. Second really important thing is this decision, right? That this sort of showing that the courts

are not just going to sort of blindly follow what agencies say they're going to uphold the rule of law. And in areas of question, the right actors to figure out law are Congress. That's what the, you know, these court decisions keep saying, basically. So that's part two. Part three that will be valuable is it actually existing. But that will always, almost always underperform expectations, at least in the short term in terms of how it's going to impact price. So it's kind of like, we've got two of the three. Now it's time to sort of just chill, move on to other narratives for a moment. And I think like it would have been insane to think, I think, that the SEC would approve something. One, by any anything in government, anything in bureaucracy is going to go to the last possible moment,

just by nature of how bureaucratic decision making takes place, right? If you have the opportunity to delay it, you delay it until you can't delay it anymore. And that's about everything, right? That's not just about Bitcoin. Two, I think from the standpoint of if we're actually trying to give the benefit of the SEC for them being reasonable, waiting for, they now have a whole new set of information that needs to be dissected, poured over, you know, reviewed by counsel. They actually like genuinely need that.

And in fact, you know, to the extent that you want to be optimistic, them saying, whoa, you know what, hold up. We're going to push all these off. We now have a whole bunch more reading to do. And our lawyers got to dig in. That actually could be more optimistic because, you know, it suggests that like they are behind closed doors figuring out what actually needs to happen next versus just following their proceeding course to reject everything. It literally just lost this week. if we thought the SEC was going to absorb that information and make a final decision within two or three days, I think that that was a bit nonsensical, but classic for crypto Twitter, I would say.

A few things I just want to brush through on this. And then I want to wrap this topic up. We have to mention the price action, obviously, gray scale, massive pump. And then even kind of saw it trail off over the next day. And then before the ETF rejections were even mentioned, massive dump back to the downside. Just so you know, guys, Bitcoin's 26,000. that's where it was before BlackRock even approved. Maybe right now we're just in that part of the cycle where Bitcoin's just kind of $26,000.

But if you're looking for another asset that outperformed, GBT, up 137% if you bought the dip in December. And that's because of this discount window, which you guys can see here. It went to about 15 or 16%, I think, on the gray scale news, back to 20. But if you were buying that in December, not only did you get the benefit of all this upside from Bitcoin, you got the discount window closing. So GBTC in this case was a much better trade than Bitcoin. I'm going to just go wrap that up so that we can move on to the next story, which is, well, we'll start here.

The court sides with uniswap over class action lawsuit. Basically, a bunch of people got together pursuing uniswap because of rug pulls and scams that were happening on uniswap that had nothing to do with uniswap, but basically saying you as the platform, you as the intermediary, allowed these scams to be here, therefore we can sue you. and they also mentioned in that case that they were suing because UDISwap was allowing for unregistered securities to be trading there. I think that this story is a great narrative, but not as big for the law as a lot of people

are pointing out. I would love your thoughts on this. I think that what matters, there's a couple things that matter about it, but they are, to your point, Scott, less sort of about precedent and more about the context that we've find ourselves in right now. So the two pieces that I think are relevant are, one, this decision even more than the Grayscale decision, said quite literally in a couple places, this has not been determined by Congress. I will not be party to expanding authority, you know, expanding securities designation until that has happened, right? So part one of the significance is just a judge saying,

stop trying to use courts to get this point proven when it hasn't been proven. This is a question for Congress. She literally said at one point, you know, this question is better directed to Congress than to me. So that's one. It's, and the reason that that is, it's very emotionally satisfying. And, you know, I certainly, you know, had a nice calming sip of coffee after reading that. It's not actually that relevant because it's still leaves it to Congress. Someone has to decide. It's just, you know, it's not going to be sort of the court reinforcing, you know, some power grab. The second piece that does, I think is relevant is that it's the same judge who's involved in the Coinbase case and hold aside even the specifics. I mean, I think that the specifics point in a positive direction.

I think that what people were most excited about who pay really close attention to this is this is a judge who very clearly has gone extraordinarily deep into this industry to understand the nuance of. of these protocols and how they work and what these things mean. And I think the position of a lot of folks in this space who are confident and optimistic about it in the long run is that when you dig in deeply, things are clearly not as clear as they seem to the sort of antagonists who are just trying to call everything a security. And I think that that sensibility was validated by seeing someone who had really taken the time to actually try to understand the nuance of this space. So those two things are both very good. They're very positive. They're just not

precedential, right, in the sense of, you know, going to make big, big impact on future cases. Right. And I saw people claiming that the SEC had lost here. This was a class action lawsuit for people to be clear. A civil class action lawsuit, this has nothing to do at the SEC, but, you know, people may point to. I just want to point out a few quotes. Due to the protocols, the centralized nature, the identities of the scam token issuers are basically unknown and unknowable, leaving plaintiffs with an identifiable injury, but no identifiable defendants. The judge wrote, I really liked this one. The court finds that the smart contracts here were themselves able to be carried out lawfully, as with the exchange of crypto commodities,

ETH and Bitcoin. So quickly there, this judge called Ethereum a commodity, but maybe that's a story for another day. And then finally, developer, the developer or self-driving cars liable for a third party's use of the car to commit a traffic violation or rob a bank, which is the most obvious thing we come back to, I think, constantly when it comes to crypto. This has been the defense of Bitcoin since the very beginning. If you use an iPhone as a drug dealer to do a drug deal, Apple shouldn't be sued because they created an iPhone. If a country or a criminal uses Bitcoin to send money, the agnostic protocol, Bitcoin,

the asset should not be punished because somebody used it for a nefarious purpose. seen this with the internet over the year. So to me, even though, like you said, it's not precedent, it's nice to see logic coming from the court system. Very obvious statements. And I think, you know, I think it was Stephen Paley who pointed out that this, that underlying issue, although it wasn't the core issue of the case, that underlying issue of how culpable developers are for the use of the software they develop is a question that has always, I mean, it has lurked around the internet since the very beginning of the internet, and it is going to be put on trial again in the coming years, particularly around, you know, crypto is one area where that's certainly

happening, and we are kind of a battle or a front in that battle. Artificial intelligence is going to be another huge one. Congress is chomping at the bit to ensure or to hope that section 230, that exemption that has protected internet platforms from what their users do does not apply to AI. And you've even seen people like Sam Altman in Congress when he testified before the Senate saying maybe Section 230 shouldn't apply to artificial intelligence platforms. So I think that having, I think it's a good thing in general if one is a sort of, of the mind like I think many or if not most in crypto are that developers shouldn't be held responsible for, the uses of their software that we're seeing some sort of legal, you know, agreement with that

when it comes up in cases. So, you know, it's, it's certainly a touchstone for something that I think is going to be a much bigger issue going forward. Yeah, it would be nice if the same courtesy was applied to the tornado cash developers, but I guess we will see how that plays out. And if they were actually legitimately involved in any of those transactions, or if they only created the protocol and then it was, it was used for nefarious purposes. To me, that's sort of the case. It's going to really determine all of this much more than a class action with Uniswap. 100%. The next story, obviously, we have here.

SEC's secret finance court filing has observers bracing for bad news. Now, this one is curious. I've seen a lot of takes in different directions, obviously John Reed Stark, who used to be with the SEC, who, by the way, is one of the few people who, like, I have to take a deep breath and is annexed before I read anything that the guy writes because it always makes me think that the world is ending. Van Nooner said something to the same effect yesterday. This guy hates crypto and he loves the SEC.

He worked there for decades. But to be clear, we have this sort of sealed motion, which is very rare. The SEC is usually very transparent and public with the things that they're doing in these cases. But in this case, it was sealed, which usually means, according to Stark and others, that either it has something to do with protecting an individual or a witness or there's a DOJ enforcement action on the side that they don't want to conflict with or to impact. So basically they don't want this information being public because it could impact the DOJ's efforts to execute a criminal investigation. I think I was putting odds on it. Betting odds are very strong that something's coming from the DOJ for Binance. I mean, is that what you think here this means?

I don't necessarily think that this changes the odds of that one way or another. Binance and the DOJ are like this weird odd couple. who have been dancing around each other now for a year and never really being able to get it together. So you saw, we had this article, I think it was either in late December or early January, Wall Street Journal article about how there was internal conflict at the DOJ around whether to bring charges to finance. Now, that's an extremely weird article to have. The DOJ is not in the habit of talking about cases that they might do. And frankly, holding aside whatever badness,

Binance might have been a part of or, you know, participated in, there has been for sure a nonstop campaign of leakage from D.C. based agencies and departments and, you know, parts of the administration against finance. And to me, that indicates that the whatever case they have is not nearly as on as solid a footing. Like, they wouldn't do that. If they had a strong case, they would just go after it. Now, that's absolutely not to say that, A, more evidence hasn't come in.

B, they haven't just decided to go with the case or anything like that. But I guess that what I would say is if you've been watching this closely, it's kind of been six of one, half dozen of the other around whether the DOJ is going to actually bring charges or not. I don't know that sealed documents showing up necessarily mean that they are. It could just literally mean that the DOJ is saying to the SEC, you know, don't undermine our optionality around that with, you know, X, Y, Z, right? Like, it could be that the parts that are the most compelling of the DOJ's case are relevant for the SEC's case, but still ultimately not enough

for the DOJ to decide to bring a case, but they don't want the SEC's filing to make that decision for them. So, you know, one, it's, it's, it's, it is 100% clear that the DOJ is at least exploring a case against finance and against CZ. And so, you know, to some extent that, that, that I think is inevitable. I'm just not sure how much this actually suggests. that that is for shortcoming or just, you know, is further confirmation that it's a, it's an active pursuit. That Wall Street Journal article was extremely confusing and baffling to me. It really was because, first of all, the DOJ generally doesn't worry about the price of

assets and how it could hurt consumers or insolvency or things like that. That's literally the SEC's job, right? So having the DOJ come out and say, we're worried about investors and how this could impact them to me, to your point, says maybe there's a lot. not that much there. If they had a slam dunk, open shut criminal fraud case against CZ, there's no way they would have been saying that. Yeah. Well, and in, you know, I mean, listen, like part of part of what's interesting right now, again, if you're just watching from the outside, you don't have a dog in this fight, is almost tying it back to the conversation that we were

just having, where the lines of culpability are when it comes to how people use platforms, right? Like, finance is clearly lax with controls at the beginning. You know, that, that, you from the CFTC case from the SEC, like, is very, very clear. Where does that flip you over into criminal culpability, right? Like, it seems very unlikely, given that we haven't gotten an action yet, that CZs, you know, sitting in a backroom, you know, with, you know, like, you know, terrorists from the Middle East, like, making plans. Like, you know, it's, it's much more likely that it's sort of like, you know, there's suspicion. that some organization that shouldn't be there is trading and they don't necessarily go out of their way to clean it up. And so does that create criminal culpability? And part of this may be just

the authorities trying to figure out if it does, you know, not to say that that's good, but it's, you know, these are these are weird uncharted territories. I've always been of the opinion that finance likely did a lot of things that were on the fringe in 2018, 2019, 2019, 2020, not necessarily intentionally, largely because regulation wasn't in place. They didn't know the rules and they just went ahead and kind of went with the, I guess, we'll ask for forgiveness instead of asking for permission approach. And they've probably tried to clean that up largely in the past. So I will be surprised, I guess, if their ongoing efforts here to clean up are false because you see CZ out on a roadshow with regulators and legislators literally everywhere on this planet trying to, you know,

get in line with what they want in each of these jurisdictions. I just think it's an impossible job. But it remains to be seen. It remains to be seen what's going to happen here. But I think that maybe you're right that maybe this story in and of itself is a bit of a nothing burger. I mean, the other, the other obvious realm of speculation for people was that it was, it was them protecting Sam, you know. Three or four weeks ago, SBF shows up in New York, not around a particular hearing, gets photographed, you know, and then a few weeks later, you know, secret documents are filed. I, you know, That is sort of interesting late summer speculation because there's nothing else going on, I think.

I would only say on that front that I would not be surprised if Sam, even outside of protecting his own hide, had desire to screw finance over. But I think that it's unlikely right now that that's actually the case because it does not appear that SBF is in any other mindset. other than defending himself. I don't think he's in cutting a deal mindset. I think he's in working under the delusion that he can still get away with it because he's so smart. I agree with you. The next story that we have to talk about here, once again back to the SEC and here is the actual filing. SEC charges LA-based media and entertainment company Impact Theory for unregistered offering of NFTs. They made about $30 million, paid about a $6 million fine. To be clear, impact theory. And Tom, you know we've had on the channel quite a few times. Impact theory did not admit any guilt, right? They just said, we're going to pay the

fine and move on, kind of like Kim Kardashian. But interestingly, in neither admitting or denying the SEC's findings, they did have to establish a fair fund to compensate impacted investors, as well as to destroy all of the founders' key NFTs and eliminate any royalties that might collect from secondary market transactions. So it wasn't just a fine. I mean, this was a bit of scorched earth. And I think that everyone's question here is what does this mean for every other NFT project on the planet and how it was launched? Is this about the NFT itself being an unregistered security? Or is it about the language and marketing used by impact theory to promote these NFTs and how will that be applied? This is about the SEC using enforcement actions to expand its jurisdiction in advance of Congress saying it is so.

it's sort of surprising that it's taken this long to see an NFT action. But I think that the playbook is pretty clear, which is go after a project that was high profile enough that there's money to be had and sort of narrative impact to be had, but not so high profile that they're actually going to fight back. You know, basically go to someone where the path of least resistance of just paying the damn fine seems better, you know, or is likely to be the chosen path. so that then the SEC gets to point to this as, you know, precedential again.

We keep using that word, but that's sort of, you know, I think that they want there to be the implication because these guys paid the fine that NFTs are securities and it comes in their jurisdiction, even if it doesn't say that, right? There's clearly a might makes right sort of thing going on. And that's effectively what the dissents from the SEC commissioner said is basically like, look, we don't love, you know, how they were promoting this project. We have concerns around that in general when it comes to NFTs, but that concern does not justify expanding our

authority through enforcement actions, you know, more or less, you know, that I'm obviously summarizing. Yeah, my favorite line from Hester Purse and Uyedas, I guess that's how you pronounce his name. I probably butchered that from their dissent here was, we do not routinely bring enforcement actions against people that sell watches, paintings or collectibles, along with vague promises to build a brand and thus increase the resale value of those tangible items. Buying a pair of Jordans on eBay and selling them for 47 more dollars does not constitute the sale of an unregistered security. So if you view NFTs as collectibles, that seems very obvious, but clearly the SEC does not.

I also think that there's an element here, you're right, of them expanding their jurisdiction, but also just going after the low-hanging fruit. They can go after these NFT projects until the end of time and not a single one has hundreds of millions of dollars to defend themselves and to fight this in court to go through that process. And then even if they win to be handicapped by how much money they've spent to do it.

So this is what I think now, if I had to put on my tinfoil hat once again, we're going to see from the SEC. I think their appetite for going after the finances and coinbases and ripples of the world is over. I think they're over-extended there. Yeah. And so now I think we're going to see a whole lot of influencers,

NFTs, like middle to low-end hedge funds, people that they can get $4,000, $500,000, $600,000 out of who will not admit guilt, and they just claim these to be win after win after win after win against the industry, expanding their jurisdiction, and obviously just showing who's the boss, right? Nobody can fight these guys. unless you have hundreds and millions of dollars.

Well, the other thing I think that is worth keeping in mind is, so I agree. Contributing to that is also the fact that we are now coming up on an election cycle, which means, you know, you kicked off the show talking about how investors come back and they try to kind of consolidate their gains heading into bonus season. Apply that to a politician's career trajectory when they're on year three. three and a half of their time in the administration. And they just want to wrap up that nice little package. They have chosen.

I mean, Gensler and his SEC have very clearly chosen that the story for their fellow Democrats is enforcement action wins equal us doing good. And so, you know, you put a few more of those on the board, especially, by the way, if they represent a nice cross section of people, to your point, you know, we've got an NFT project now. Maybe we chuck an influencer there. Maybe we chuck a VC. maybe we check a hedge fund.

Then you have a nice little collection of enforcement Ws, right? And that is now your application for your future role at the DOJ or wherever you want to go next. And I think that as cynical as that sounds, that's going to be a lot of what the next six months are about is just sort of consolidating and jockeying for that, you know, for the next set of roles. Right. And maybe the continuation of that logic is that it also prevents future releases or future acts. by the same kind of people doing the same things. You're going to think twice about releasing an NFT project. If an influencer, we did see Ian Bellino.

We've seen a few of them. But if an influencer gets charged for manipulating a coin or something, no more influencers will talk about coins. Right. And so if a hedge fund, then hedge funds will just stop trading crypto. So I think that it's really prohibitive. And it just is this big kind of red stop sign or traffic light to people who are doing similar things will now live in fear of the.

C. 100%. Yeah. And obviously our final story that we have today is Ryan Armstrong sharing the 10 ideas I'm most excited about in crypto right now. Here's what he said. If you're building something in crypto or thinking about doing so, check it out. We're building lots at Coinbase, but we don't have time to tackle everything. So I figured I'd share these. Bear markets are the best time for building. Why not start today? That's a 23-minute video that we're not going to watch together. But maybe we can just quickly book through these one-by-one, which is what as a this article said, Ryan Selkis from Masari sort of did a thread and capitalized on the hype of it and gave his takes. The first one was a flat coin that tracked CPI. He said it could be a

huge opportunity for the crypto economy to really leapfrog in many ways, decentralized coin that tracks the consumer price index to provide stability and inflation resistance, unlike volatile cryptocurrencies or fiat-backed stable coins. What do you think of that? That seems complicated. Yeah, I mean, listen, I think stablecoins have as much or more product market fit as anything in this space. So a near cousin that is sort of organized around something that makes sense to people like that seems interesting. You know, I don't know. I guess the question would be in, you know, who uses it and for what? But I think it's an interesting thing. And, you know, my guess is that a lot of the point of this is simply to get people thinking.

You know, so I don't really have much more on that, though. Yeah, but to what you said, I've long said that stablecoins are the killer app of crypto, which I know is ironic. And people who are Bitcoiners probably hate that because we're supposed to be railing against the Fiat empire. And Fiat's going to die. And Bitcoin is going to become the global world reserve currency. So tokenized fiat maybe wasn't what they had in mind. But stablecoins are the things that most people in the world who are living in hyperinflationary

environments are using because they want dollars. So a backed stable current, a stable coin that's a flat coin that actually acts as an inflation hedge in environments like that, I think it could be a very interesting idea. On-chain reputation is number two. This is what Armstrong suggested. Tracking entity reputation on the blockchain is a way to combat fraud. We don't yet have a reputation system associated with ENS. And then obviously Selkis went on to say, I invested in a bunch of stuff like this dude. Right. So there's obviously happening. but I think that this is actually very important. Yeah.

I mean, I don't know. My Bitcoin or skepticism comes up constantly when anything that sort of starts to get into the realm of tracking, you know, but I think there are lots of uses of that that are non-dispopian that are actually really important. And it's, I'll put it this way. Social credits, right? It does make social credits. It is certainly a thing that.

is I can't imagine at least a half dozen pretty well-funded startups taking a big swat at this because it's the type of, it's a type of, it has a little bit of a problem or a solution in search of a problem type of thing in that we don't know exactly where that reputation would be put to use because it's not a one-to-one comparison of things that exist. But it seems highly possible that there are particular areas where that reputation is extremely valuable in a certain type of business dealing, a certain type of industry, a certain type of interaction, where if they figure, you know, if it's figured out, even just in sort of one area where it's applied versus sort of just highly generally, it can be very valuable. Yeah, I would have just pivoted this one to on-chain

identity, which I think is more impactful, you know, being able to sign into things and do things without divulging all of your information and protecting your privacy. But I guess this is one step further. Now that I'm thinking about it, it does reek of social credits. I'm not sure I love But the next one, obviously, on-chain advertising. Given the unique properties of Web 3, we might be able to do this. He said, smart contracts can enable paper action advertising if transactions included optional referral data. Pretty, pretty, that's pretty simple, I think. Yeah, I don't want to talk about ads.

Nobody who ever wants to talk about advertising your sponsors ever again. I also lived in Ad World for a long time. Yes, yes, you did. Let's skip that one, but it could be done. On-chain Capital, which is. on-chain capital formation, tracking the net accumulation of capital goods, such as equipment, tools, transportation, assets, and energy can increase access to fundraising. I don't disagree, but we haven't seen fundraising on the blockchain go that great in the past.

It is one of the fascinating things, you know, I mean, anyone who watched the ICO, boom, saw this. It was so powerfully good at aggregating capital. quickly, that its capacity to do so overwhelms any actual sort of applied use of that. You know, like it just made the sort of the bad opportunities from that so much higher and more present than the good ones. I think that what a lot of people feel, which is legitimate, is that there's this hunger for the version of that that has that so low frictionized capital aggregation, but applied for good. It's just a question of how and where. I mean, that's sort of if you look at the Coinbase blog post, that's effectively what he's saying, is that like

ICOs showed this thing that could have been, but it wasn't, and is that thing even in the thing? And, you know, who knows? It's hard. Humans are getting human. That's the problem with this, right? There's certain places where you actually may want some regulation in place or at least some barriers that tell you to slow down, right? I mean, we've even seen it this year with meme coin projects, guys literally rug pulling and then somehow sending a tweet and raising another $5 million in rug pulling and sending a tweet and raising another $5 million in rug pulling. I think we can all agree that that's not helping our industry at all. Decentralize labor market, a global marketplace for labor that uses crypto to pay people across borders.

Cool. But I think it's kind of, I mean, people are already using crypto to pay for people across borders, right? Yeah. Yeah. The way that it's framed on the Coinbase Post is a job or tax. marketplace for crypto. I mean, you know, listen, that's another one where it feels. Yeah. It's it's it's I mean, they use reference examples like brain trust, which is basically that. It's a, you know, a upwork, but you know, crypto native upwork. It's just got that that's so something that people are exploring already, you know, the question is how. Yeah. How much, how much crypto actually matters for that or it just becomes a better sort of natural currency for it. Yeah. You know, as I read through these, what's interesting is I think that these are all really

obvious and largely just going back to the crypto improves this, but it doesn't really change anything. These are Web 2 ideas that operate with faster transactions, right? So, I mean, these are largely pretty much problems that are solved or maybe crypto can be a part of it, but I don't see these as full crypto businesses as we dig into them. But layer 2 privacy, as Selka said, an obvious needs here. Yeah. I think that we need privacy across all layers and not specifically to layer two. True peer to peer.

Armstrong suggested that a fully decentralized peer to peer exchange can be built on top of auditable smart contracts and be a great censorship-resistant solution for escrow, reputation, dispute resolution. They always get shut down when centralized. We've had some false starts here, but it feels like the infrastructure can support this now. Isn't that Bitcoin? Yeah. I mean, I think it's sort of, you know,

uniswap with no hate and uniswap with no, you know, I don't know. I guess the bigger question, if you put it in context of Brian wanting to fund things or Coinbase Ventures wanting to fund things is sort of what do you fund? Because I think this one, the whole, the whole play here is for it to be basically uncapturable, untargetable, you know, and as soon as you introduced, you know, funding for it, you know, there's someone to go after. Absolutely. Finally, here. Number eight, Web 3, game economies. I mean, this was one of the darling narratives of the last hype cycle for sure. Armstrong suggested on-chain games where users are able to truly own in-game NFT assets, creating persistent worlds with real economies. I mean, this literally was the Metaverse hype, the NFT hype, all wrapped into one, the gaming hype. So there's absolutely nothing new here. The question is, I think, will it proliferate in the next cycle? Will it be more successful than it was in the last?

I mean, what do you think about blockchain gaming? We haven't seen a great game. I'll tell you that. One of the most fascinating things about, or funny things if you're sitting there as Mark Zuckerberg. So Zuckerberg has caught a lot of flack for renaming the company meta and talking about the metaverse. And then six months later being all in on artificial intelligence and really putting that as sort of, you know, AI is the stamp. The funny thing is, though, a lot of the technology that's now

being created nominally in the AI realm is useful for making metaverse experiences a thousand times more interesting, compelling, and engaging than the first generation of random crap where you had like Morgan Stanley creating a lounge in Decentraland or whatever the fuck it was, you know, last time around, which was like, you know, listen, that's not me hating on anyone involved in that. Decentraland. had to try, whatever. You have to try stuff. It's just so, like, everyone knew, I believe, including, you know, the people who were doing those experiments, that they were just those early experiments. So, listen, I think the on-chain game thesis, it's really, to me, is more, to what

extent this is its own category versus, you know, game developers just start to have this set of opportunities in terms of how they design the assets within them. And that's just going to be decisions that, you know, game developers make. I don't know. I think that there's, my guess is that a lot of the folks who turn their attention to playing around in that sandbox didn't leave just because, you know, NFT collections got cheaper. If they were interested in that, I think that there's probably a more fundamental feel, but games, you know, they take a long time to come to fruition.

So I think we'll just have to kind of see, you know, but I'm not totally sure that we'll see it quite as sort of clearly a category in the next cycle where it's like on-chain games are a category of thing versus this sort of just this technology is integrated into into that whole sector. I saw a comment here. Scott Dead Drops, Star Atlas, Metal Core, Phantom Galaxies decimated lots of them out there. Listen, I'm not saying there won't be AAA games. I'm not saying there are not AAA games in development. I'm saying we haven't seen a successful AAA game on blockchain yet. And to NLW's point, I mean, you could just see a situation where, you know, call of duty allows you to own some sort of NFT in the game, and we call it a day from the legacy players.

But yes, I do think that there is going to be aspects of this. I just want to see a triple a game before we move on. Tokenize everything is number nine. I think we've been, we've seen that narrative before and a lot of people are passionate about it. tokenizing real world assets can make markets more liquid by encoding standardized metadata, putting debt on the blockchain could enable to centralize ratings and exchange. He added. I mean, we're everybody's been working. on this for a long time. There's literally no way that this doesn't happen. The question is how much of a driver of new unique value it is for the crypto sector versus just, I mean, one of the ways to look at the crypto industry is this sort of powerful internet native financialization of everything,

right? And it is actually kind of been surprising to me that Wall Street hasn't jumped on board with this faster because the ability to, you know, tokenize and create a new layer of financialized products on top of things, thanks to tokens, is such a clear and obvious opportunity that, you know, I mean, I guess it just speaks to the sort of the risk of the industry as a whole, but the TLDR is this is happening. I mean, if you listen to Larry Fink, part of what makes his interviews so powerful this year is he has obliterated the Bitcoin or blockchain narrative in a way that no one ever has from TradFi, he has just completely said Bitcoin and blockchain. In fact, he has swatted down people who have tried to say, you know, it's just the underlying technology that's interesting,

talking about why Bitcoin is valuable. But then in the next breath, talked about how obviously they're interested in tokenizing real world assets too. And I think that is sort of, we miss some of the nuance of those details because we're just so excited about BlackRock putting a Spot ETF. But BlackRock is very clearly going after not just a Bitcoin spot ETF, but this whole space as well. Yeah, I would argue that we don't necessarily miss those details, but that there's a very large swath of the Bitcoin community that hates those details. So they focus on the Bitcoin ETF and they don't go back to his March investor letter, his annual investor letter, where he talked extensively about tokenizing everything. Because let's be frank, that probably, well, could, but probably won't happen on Bitcoin. Right. So I think the Bitcoiners want to focus on the ETF side and everybody else is screaming,

hey, this guy's also talking about blockchain and crypto. And finally, number 10, network states, this is obviously the Bologi's idea that he's invoked many times before and saying that we could, here we go. Armstrong said network states, the successor to today's nation states could be run like decentralized autonomous organizations or Dow's. He called for the creation tools for governance, fundraising, access controls, and services. Do you want to start a country, man? It is always seemed to me that there was inevitably going to be sort of internet native organizations that exist somewhere between, you know, a business, you know, a town and a

Facebook group. The question is just what, you know, the unknown question is who uses those sort of communities and for what? You know, I mean, that's been a lot of the experiment with DAOs. The interesting thing is, or I guess the interesting question is, if you read sort of the precise language from the Coinbase blog post, how much it, how different it is than the incredible number of, you know, Dow management sort of software startups we've seen, what, you know, what makes it unique to manage sort of a network state?

But I think that this one is maybe that flyer, you know, you were saying in the beginning, a lot of these are sort of web two ideas, just sort of made crypto. I think this one is that that flyer for there might be totally different forms of human organization coming in the future in which, you know, if they are not organized geographically, crypto makes sense as an organizing function. And maybe there is some interesting things to be built in and around that, which if we go that generally, I think is an interesting place to explore. That one's for my kids, man. Yeah, that's not happening in my lifetime. And every example. And this sort of is like gaming or NFTs or all the other things, Metaverse we've talked about.

But DAOs to me have just been experiments that have largely ended like Lord of the Flies, you know, with basically constitution DAO. I mean, hilarious. You get tens of millions of dollars to get there for a bunch of crypto DGens. You lose the auction. Then you go, what the hell do we do now with these tens of millions of dollars that we're sitting on? So listen, it's a great idea for the future in my mind, but not something that's happening anytime soon. Yeah.

Well, I mean, listen, that actually to me says, and maybe that's why it's the last one on this list, what you just described is probably the most interesting use for venture capital is these things that describe futures that might be, but are certainly not guaranteed to be. And who knows, shrug seems crazy. You know, that's where venture capital, both accrues value and also creates value by enabling new things. So I like that one. I hope they invest a lot in there. It's so guys, I have to tell you that we were talking right before the show and we were like, probably be 20, 30 minutes. I mean, it's five topics. Right.

And then we knocked out an hour here. As usual, we pushed it right to 10 o'clock. So obviously we had a lot to talk about here. This is on both of our YouTube channels. And it will also be on our audio channels. And I'm assuming you're going to put it on yours, redo the intro, make it match everything that you guys got over there. I've told you guys this a million times I listened to the breakdown every. single day. It's one of the few things that I do. You guys should be doing absolutely the same

and checking out Nathaniel's channels. Absolutely my favorite, which is why I'm so honored to have him here on Fridays. I think this is a great first run. What do you think? That's fun, man. It's good for me. I mean, people who listen to my show know I don't do as much editorializing. You know, and one of the reasons I was excited to do this is a bit more of a chance to get into some of that sort of op-edding around the news, which I think is fun too. Yeah, news reporting gets pretty boring after a while if you don't to actually throw some sort of opinion and feel into it. And I think it was great. I really enjoyed the discourse.

And now we've got to go up. But guys, we're going to be doing this every single Friday, 9 a.m. Eastern Standard Time. Again, you can check it on his YouTube channel, my YouTube channel, and then all of our Spotify's, Apple Musics, and wherever else you listen to audio. And thank you very much. I appreciate you getting up early in the morning.

I know you're probably up way earlier than this in the morning to do this with me, but I'm looking forward to seeing what we can build here. Cheers, man. Love it. Thank you, guys. everybody have an amazing weekend peace