The Breakdown - The Latest Updates from Washington D.C.'s "Golden Age of Crypto"

Episode Date: February 21, 2025

After a few days enmeshed in memecoin scandal, NLW checks in on the latest stories out of D.C. Individually none of the stories is a showstopper, but together they show just how quickly the regulatory landscape for crypto is being transformed. Sponsored by: Ledger Ledger, the world leader in digital asset security, proudly sponsors The Breakdown podcast. Celebrating 10 years of protecting over 20% of the world’s crypto, Ledger ensures the security of your assets. For the best self-custody solution in the space, buy a LEDGER™ device and secure your crypto today.Buy now on Ledger.com. 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 Thursday, February 20th, and today we are finally taking a break from Memecoin Mania to do a catch-up on some of the continuing crypto activity in Washington, D.C. 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 bit.ly slash breakdown pod. All right, friends. Obviously, the demolition of the meme coin industrial complex has taken center stage this week. And in all the conversations around how to change things and the changes that we need, one of the main differences this time around is that there are actually partners in D.C. in the

regulatory apparatus who want to engage with the industry in setting common sense ground rules. And not only that, ground rules that don't just prohibit certain types of bad behavior, but officially sanctioned certain types of previously gray area behavior that could suck some of the oxygen away from the seedyer parts of the industry by creating more space for interesting experimentation. So today what we're going to do is catch up on some of the continuing activity from Washington and the Trump administration as they attempt to usher in what they've called their golden age of crypto. Let's begin with Trump himself, who reiterated his views on crypto at a Miami conference on Wednesday.

Trump renewed his commitment to making America the quote crypto capital of the world. He said, we want to stay at the forefront of everything, and one of them is crypto, and Miami seems to be the center of the action, and maybe it'll stay there. We also got our first glimpse of Trump keying his approval rating off the Bitcoin price when he stated, Bitcoin set multiple all-time record highs because everyone knows that I'm committed to making America the crypto capital. Trump big noted his crypto executive order and the various initiatives that are getting underway in the government. He said, I've signed executive orders to end Joe Biden's war on crypto. We ended that war totally. That war is over. They were very hostile toward them until the very end because there's so

many people on Bitcoin and crypto that just before the end, the SEC came out and they were being very nice. As an aside, it is always a challenge to quote Trump, as the transcript is never exactly the most clear thing. Anyway, nothing particularly new here, but Trump's comments do reinforce that his administration will be plowing ahead with crypto reforms, regardless of any scandal. Both the Melania and Trump token were mentioned during this week's meme coin insider trading scandal, but that new cycle doesn't appear to be even close to catching up with Trump. In terms of actually getting reforms done, it's a pretty positive sign that Trump isn't getting sidetracked by the crypto story of the week and is sticking to a fixed narrative. Now, moving on down from the top, as much as

executive orders might have gotten the ball rolling, lasting policy is going to come from elsewhere in the government. To that end, another box has been checked with Howard Lutnik being confirmed as Commerce Secretary on Tuesday. Lutnik is the former CEO of Cantor Fitzgerald, the big fan of Tether, and to use his words, he owns an S ton of Bitcoin. With Lutnik and also, he's a lot of office, the real work on crypto policy can begin at the White House. Two weeks ago during his press conference, Cryptozar David Sacks, gave a status update on the Bitcoin's Strategic Reserve, saying that the planning can't begin until everyone on the Crypto Council is confirmed by the Senate, likely at the time referring to Lutnik. Recent reporting suggests that industry membership on the

crypto council is very tenuous. Trump is reportedly reticent to appoint any industry figures permanently and instead rely on a rotating group across a series of summits focused on individual policies. Unchained wrote that this new plan was viewed as a way to, quote, avoid rife tribal and infighting within the crypto industry. I can't imagine what he's concerned about. Anyway, while Ludnik will likely have his hands full with trade and tariff policy, the core of Trump's crypto team is now in place and ready to get on with the job. Over in Congress, meanwhile, Ted Cruz is pushing forward the first crypto vote of the new term, a proposal to remove a controversial crypto tax rule.

Cruz is calling for a resolution that would repeal midnight rulemaking from the IRS that would classify a huge portion of the crypto industry as brokers. The rule would force DFI protocols to track and report user profitability to the tax agency in a way similar to stockbrokers. Critics have pointed out that DFI protocols typically don't have enough information about user activity to track this information, which could lead to millions of erroneous reports being filed with the IRS. The Blockchain Association is sent a letter to congressional leaders from both parties calling on them to repeal the rule stating that it, quote, represents regulatory overreach that fundamentally misunderstands the technology it attempts to regulate and ignores Congress's intent.

All 75 Blockchain Association member organizations co-signed the letter. While the rule wasn't set to go into effect until 2027, it risked crippling the defy ecosystem and essentially killing off the idea of disintermediated finance. The blockchain association wrote, under the rule, software companies that never take custody or control of user assets will be required to radically rebuild their services in order to unnecessarily collect and then report to the government the personally identifying information and transaction details of potentially tens of millions of American users.

A spokesperson from the Defy Education Fund said that they were, quote, thrilled to see momentum building against the, quote, unworkable unconstitutional rule. Now, the constitutional argument hinges on the idea that DFI fundamentally has no true intermediaries with control of customer funds. So cannot be forced to surveil their users and report their data to the government under the Fourth Amendment. Peter Van Valkenberg, the executive director of Coin Center, wrote, So good to see the crypto industry come together to support Congress repealing the broker

rule. Demanding warrantless user data collection from mere software devs is not something we do in America. Alexander Greve, the VP of Government Affairs at Paradigm tweeted, Non-custodial intermediaries and software developers are not brokers, and the IRS is acting outside of congressional intent. Roll it back. Cruz's resolution doesn't currently have a timeline for a vote, but industry lobbyists will be in Washington next week to drum up support. Hello, friends, I am thrilled to share that Ledger is once again partnering and sponsoring with the breakdown. Many of you know, but for those of you who don't, Ledger is the most secure

hardware wallet for your crypto and logins. It's trusted by 7 million users and secures 20% of the world's digital assets. What's more, Ledger is a lot more than wallets. Over the recent years, they've built a comprehensive ecosystem of products and services, all of which are designed to make digital ownership more secure and accessible. You can buy your Bitcoin with Ledger and Ledger Live, and so much more. Basically, not only did they want to keep your assets secure, they want you to be able to do more with them. Ledger's newest devices, the Ledger Stacks and Ledger Flex, introduced the world's first secure touchscreens, making it easier and safer to manage your transactions and assets. Alongside Ledger Stacks and Ledger Flex, the company also launched the Ledger Security Key app,

offering a safer alternative to traditional passwords and enhancing your digital security. If you are in this space, you owe it to yourself to at least check out Ledger and their ecosystem what they have available to you. So thanks, once again, to Ledger for sponsoring the show. Regarding the push towards a regulatory framework, Coinbase has made a proposal for how Congress should think about crypto legislation. They laid out six key priorities which included granting spot market oversight to the CFTC. This has been one of the glaring gaps in the law for years. Neither financial regulator has rulemaking authority over Bitcoin and crypto spot markets currently, leaving exchanges without a clear rulebook to enforce. Other priorities included creating

SEC rules for capital raising in token projects and establishing a stable coin network. Beyond the policy recommendations, the memo emphasized that Congress needs to seize the opportunity. Coinbase wrote, The risks of inaction are clear. Without regulatory clarity, the U.S. will continue to lose its edge in blockchain innovation. Developers and businesses will seek opportunities abroad, and consumers will remain vulnerable to fraud and systemic failures. Over at the SEC, the dismantling of the Gensler agenda continues, with the agency abandoning an appeal of broker-dealer rule changes. The rule was passed in February last year and massively expanded the category of platforms that were required to register as broker-dealers. The dealer definition was expanded to include

anyone who trades in a, quote, manner consistent with de facto market making. The wording captured crypto market makers, large trading firms, and potentially even automated market maker protocols used in defy. The definition of a broker was stretched to cover any messaging platform used to organize markets. This would impose registration and reporting requirements on defy platforms and potentially even non-financial communication apps like Telegram that host informal OTC markets. To put a fine point on the implications, this rule would have required defy protocols and OTC markets to have full compliance with KYC and anti-money laundering rules. These drastically expanded definitions were viewed as unworkable, and the SEC was sued to prevent

them going into force. The rule was struck down by the courts in November, but Gensler's SEC filed an appeal a few days before the former chairman stepped down. That appeal has now been vacated, and the rule will join the growing pile of Gensler agenda items in the scrap heap. Kirsten Smith's CEO of Blockchain Association said, complete in total victory today in our case against the SEC over the dealer rule. Following the SEC's voluntary dismissal of its own appeal, the crypto-interested,

industry can breathe a sigh of relief. Larry Floreo, the General Counsel at 1KX Network tweeted, The message is clear, innovation thrives when regulators engage collaboratively rather than through enforcement-first tactics. That isn't the only SEC lawsuit affected by the changing of the guard. Over the past week, the regulator requested a pause in their cases against finance, coinbase, and strategic litigation brought by a pre-launch exchange called Legulex. Some have noted that the treatment of SEC cases has been uneven, with lawsuits against Ripple and Cracken continuing. Fox business reporter Eleanor Territ queried her sources within the agency on this point. She tweeted, on the SEC pausing ongoing litigation against crypto firms, I'm told by multiple

legal sources that the SEC has been prioritizing cases with immediate court deadlines, which is one explanation for why we haven't seen pause requests in the Ripple and Cracken cases. Cracken's next court date isn't until late March, while Ripple's next deadline is in mid-April. The next major court date will be a deadline in the Coinbase case, which falls on March 14th. Taken together, these stories are representative of how Washington's crypto realignment is playing out. We're not seeing one big, single policy or anything like that, just dozens of smaller actions that undo much of the agenda of the previous administration. It will, of course, take a long while before we see positive new policy.

But the dismantling of the existential risks to the industry continues at a rapid pace. Turning to Wall Street, the SEC has been busy getting through filings for crypto ETFs. Over the past week, the agency has now acknowledged applications for XRP and light coin ETFs, adding to the Solana and Dogecoin filings from last week. In addition, applications to add staking to Ethereum ETFs have been acknowledged. Acknowledgement is the first step in his sometimes long road towards approval, but it indicates the SEC is engaging with these very new crypto ETFs. Finance lawyer Scott Johnson commented, to be clear, acknowledgements generally mean nothing, particularly in this case. They're only noteworthy with respect to certain spot digital asset

filings like Seoul, in which the SEC under Gary were refusing to acknowledge on the basis that they were being improperly filed. In other words, the new look SEC is following normal procedure, rather than looking for loopholes to hold crypto-etfs back. Nate Grassee, president of the ETF store, commented on the acknowledgment stating, no surprise but nice to see progress. NASDAQ has filed an interesting rule change proposal that could open the door to a more complex crypto-etifs and index funds. The exchange has asked the SEC to approve a rule that would allow the listing of funds that

include digital asset commodities, security tokens, and crypto derivatives. The application is specifically regarding the hashtag's crypto index ETF, which is currently limited to just Bitcoin and Ethereum. If this rule change is approved, the ETF would be able to add other crypto tokens regardless of their status as securities. The rule change would allow other ETF providers a pathway to offering similar products as well as more complex derivatives-based strategies. Individual ETFs would still require approval, but this rule would represent a new standardized pathway. Finally, one surprising effect of the shift in regulatory stance is the return of Binance U.S. The domestic affiliate exchange has reopened U.S. dollar deposits and withdrawals

for the first time in 18 months. The exchange shut down their fiat rails during the early stages of the SEC lawsuit, with reports suggesting they were shut out of the banking system. Since then, the exchange has operated using crypto only and suffered a near complete collapse in volume. U.S. trading pairs will now return with 10 major tokens initially and others on the way. Binance U.S. declined to name the new banking partner facilitating their return, but reports suggest it was a fintech rather than a chartered bank. Either way, it's a very strong indication that Operation Chokepoint 2.0 is indeed winding down. So as you can tell, none of this is big news on its own, but taken together shows a picture of how things are

proceeding. Slowly but surely and absolutely for the first time in a very long time in the right direction, and that is something to celebrate. For now that that's going to do it for today's breakdown, appreciate you listening as always, and until next time, be safe and take care of each other. Peace.