The Wolf Of All Streets - Bitcoin’s Biggest Battle: Caitlin Long's Shocking Insights On The Regulatory War!

Starting point is 00:00:00 It is going to be absolutely batshit crazy. I thought it was going to be batshit crazy before Trump. I know. And it's not just what Trump has done. A lot of those individual bankers have been just beaten up by, you know, agencies doing unethical things. Wink, wink, nod, nod. Aha, crypto industry, we screwed you. The Fed governors don't have the kind of power that you think they have. Irresponsibly long. Look at her shirt. Look at her shirt. Whichever way she ends up on in the edit. Yeah. We all know that the United States government has cracked down hard on the crypto industry and on Bitcoin over the past few years. But we have a few heroes that have been leading the charge, fighting back against the government. Caitlin Long, one of my favorite

Starting point is 00:00:42 guests from Custodia Bank, is one of them who's been suing regulators on behalf of herself and the industry. We dug deep into everything that's happening in the government, the corruption, the insane stories, and as we described it, how batshit crazy the next few months and years are likely to be. Kaitlin breaks down everything happening at the government level better than anyone else. You cannot miss this conversation. Caitlin, it's been quite a while and I'm so happy to be back with you because things were horrible last time we spoke. And it seems like the tides, the winds, whatever euphemism you want to use, have massively, massively changed in the past few months. So I want to talk about that generally, but then I do want to get more specifically into Custodia and Operation Chokepoint 2.0 because I feel like that's still happening. Let's speak more generally. It definitely is. So politically, things have

Starting point is 00:01:56 turned, especially in the United States. We've now got two of the three candidates that are going to be on the presidential ballot who are hardcore Bitcoin supporters. I know there are folks questioning whether Trump really believes in it. It doesn't matter. It's in the Republican platform and he got it in the Republican platform and he is surrounded by people and has been consulting with several folks from the industry. I won't confirm. I can. The tide has turned. And it's not just what Trump has done. It is also the moderate Democrats. And I am one who's been very grateful and outspoken with gratitude for their attempts to try to get Biden to see that this is politically just toxic for him. And yet he's sticking with his deal with Elizabeth

Starting point is 00:02:57 Warren, apparently. She still controls those agency heads And she controlled the appointments process and the policy for domestic financial and economic policy for Biden. And she's still in charge. And boy, they're doubling down. So to your point, Operation Chokepoint 2.0 is absolutely still happening. Crypto investors in the United States face some major challenges. One of them is that there's almost no way to get exposure to the asset class inside of your traditional investment vehicles. The other thing is the taxes. They are absolutely atrocious. What if I told you there was a way to solve both of these problems?

Starting point is 00:03:33 Well, there is. And it's with a self-directed IRA from iTrust Capital. Guys, not only can you open a new self-directed IRA and fund it with the limits each year, but you can actually convert over from your 401k, your Roth IRA, any other IRA that you already have, and you can do that tax-free, just transferring over the balance, and then you can go to cash, buy as much Bitcoin than you want, and not pay taxes when you sell it. You absolutely have to try this if you are in the United States. Use the link down below. It's bit.ly slash itrust-scott. That's bit.ly slash itrust-scott. You have to try this now. Well, there's so much to unpack there. I want

Starting point is 00:04:16 to stay on the White House and the Biden administration for now because interestingly, as you said, they've seen that it's politically unpalatable to raise an anti-crypto army and to push that narrative. So publicly, because of Trump's pivot, we've seen the White House at least make theoretical strides to reach out to the industry. They did the roundtable with Ro Khanna, who is very pro-Bitcoin, objectively, on the left. There are people there, but they still vetoed SAB 121. You still have Carolyn Crenshaw being up for reconfirmation. So this feels like one of those watch what I do, not what I say situations. It's such a great point because there's something even more egregious and it's subtle. And folks have just started to figure it out. The industry, I think, has been scratching

Starting point is 00:05:04 its head because the first reaction was, oh, the ice might be thawing at the SEC. And this is that the SEC is granting exceptions from the accounting standard for big banks. Literally, the Bloomberg story that they leaked to. By the way, Bloomberg was the outlet that got the leaks from the White House and the Fed in the Custodia case that were designed. Bloomberg allowed itself, unfortunately, to be used by the political arm to try to get Custodia to withdraw. Okay. So I wasn't shocked. That was back in January, 2023. I wasn't shocked to see Bloomberg

Starting point is 00:05:37 get the leak from the SEC. This was all by design and it came out just hours after the failure to override the veto in Congress of SAB 121. Here comes this Bloomberg story with a high-placed SEC official saying, oh, the SEC is granting exceptions to the accounting rule. First of all, step back and think about that. Exceptions to the accounting rule? Are you kidding me? The SEC did not implement that accounting rule in accordance with the Administrative Procedure Act in the

Starting point is 00:06:11 first place because a change that big needed to go through public notice and comment. So they've got that issue in the first place. And now they're arbitrarily granting exceptions for several large banks. And I saw the story that Goldman is putting out a bunch of crypto projects. That's Gary Gensler's old firm. That's right. It's the announcement was that effectively three tokenized real world asset projects from Goldman likely to come. We've seen, obviously, BlackRock launch

Starting point is 00:06:45 BUIDL, which is at over $500 million in management. We know there's over a billion dollars in tokenized treasuries, many from Franklin Templeton. That movement is happening. But I want to give people who may, I don't want to take for granted that everybody knows exactly what we're talking about. When it comes to SAB 121, this was that accounting rule that was sort of a memo, but it basically disallowed the largest banks and institutions in the United States from custodying crypto assets, or at least from listing them as assets. They had to list them as liabilities, so they haven't had cash on the other side of the balance sheet. Nobody's going to custody a billion dollars in Bitcoin if they have to have a billion dollars in cash against it. But what's interesting to me here is that this is one of those cases where the Democrats

Starting point is 00:07:25 very much pushed back against the White House and Elizabeth Warren. Elizabeth Warren stood on the floor of the Senate and basically begged them not to do it. And Schumer and nine other senators went the other way and then 70 Democrat congressmen. So this was a bipartisan effort that the White House said they would preemptively veto and then followed through even after the vote came in a way they never expected. And this would have allowed Wall Street institutions to custody Bitcoin, which is probably what you would think the administration would want to get it out of the hands of the crypto natives. So none of this makes any sense. Exactly. And this is why I call out Ro Khanna and say, thank you. Thank you for trying to reason with the White House. There are

Starting point is 00:08:05 absolutely a lot of moderate Democrats who are on our side and we should be thanking them instead of the vitriol against all Democrats. It's really just that Warren crew, but unfortunately she's in charge. And this is her, these are her acolytes who are the ones pulling these strings. But, but to your point, you made the point about watch what they do, not what they say. They say they're progressives. The most corporatist thing that could be done is granting special exemptions from an SEC accounting rule for large banks, but still requiring that the crypto industry comply with that accounting rule. How corporatist is that? Where are your progressive credentials? Where are the true progressives saying to the SEC, this is wrong. It not only

Starting point is 00:08:53 didn't comply with the APA, but you're now being arbitrary for the big banks. Why are the Bernie Sanders of the world not disowning this? And again, I really feel for Ro Khanna because he's trying really hard and this is what he's up against within his own political party. I just shake my head. I mean, it's really interesting. We've talked about it probably endlessly collectively how Bitcoin should be championed by progressives. Yes. Yes. We have a lot of progressives in this movement. Absolutely. Right. Just logically. Like if you're for the little guy, you should be for freedom and Bitcoin and all these things. So it means that there's something much more sinister going on. And I don't think it's necessarily across the party. But listen, Elizabeth Warren cut her chop. She got famous by screaming from the mountaintop that after the 2008 Great Recession, no Wall Street heads went to jail.

Starting point is 00:09:44 Where's the accountability? Why are these people not in trouble? She was right. But how do you factually square that, you know, a decade and a half later with the fact that we know that her money is coming from the banks? We know these exceptions are being granted for this reason. We know the anti-crypto army was raised for this reason. Listen, I've had John Deaton on countless times. Well, the anti-crypto army of one. Yeah, I was going to say, it's now her and Gary Gensler. But, you know, I've had John Deaton on a number of times.

Starting point is 00:10:13 I know you're friends with him and a big supporter. He outwardly says, listen, JP Morgan's writing her bills. Yes. I mean, I don't know that. Right, I don't either. I can't bet it. Look at the reality, right? I mean, it was interesting because both the crypto industry and the large banks were lobbying against SAB 121. And I think it's very interesting that, okay, four hours after the veto fails to be overridden and the progressives are taking a victory lap because we're still killing the crypto industry. Here comes this leaked story from a senior SEC official, which has subsequently been confirmed by SEC spokespeople. But here's my understanding,

Starting point is 00:10:55 because I'm talking to people trying to figure out what is really going on here? Because there's actually something really good for Custodio. We should flip to that in a minute that comes from that. But here's the thing. The SEC is saying, oh, it's confidential supervisory information. We can't talk about this. The SEC is not a bank regulator. And so they're now trying to say, well, we're absolutely not subject to the APA because they ignored it. So far got away with it. They're absolutely not subject to congressional oversight because they're saying, oh, we can't explain how we're giving these exemptions and we're not going to publicly say, oh, by the way, it's just our big bank friends that are getting these exemptions. Wink, wink, nod, nod. Ha ha, crypto industry, we screwed you.

Starting point is 00:11:38 Okay. That is exactly what they're saying in their actions. So the whole thing, it's going to be overturned. I actually think, I was talking with somebody in the legal community last night, that when there is a lawsuit brought, which there will be, there might be a temporary restraining order. This is such an egregious violation of the law that there might be a temporary restraining order. And I encourage whoever sues over SAB 121, it won't be the big banks because they got their exemptions. I encourage whoever sues to go for equitable relief here

Starting point is 00:12:13 because this is such an egregious overreach, but it's part of the pattern. And to your point earlier, while these folks are still in control at the agencies, they're doubling down. Who do we see announced just a couple of days ago? They had their bank account closed by Bank of America. Somebody big in this industry.

Starting point is 00:12:35 And I apologize for forgetting who it is. I saw Nathaniel Whittemore. Nathaniel Whittemore, yeah. Who's my co-host on Fridays. He said that his personal banking account. So not even industry-wise, that's just for deposits and withdrawals from crypto exchanges. It's still happening. And Custodia is seeing it because what happens is there are so few banks that are willing to serve the crypto industry because the FDIC put these pause letters out and its own inspector

Starting point is 00:12:59 general, this was now a year ago or so, its own inspector general said that violated their own internal policies and procedures because they're supposed to say pause until X or pause and we will clarify, but they never clarify. Okay. So this is all consistent with the Bill Ayers rules for radicals. We're just going to end justify the means, ignore the rule of law, ignore internal processes and procedures. Folks, this is lawless. And this is what we're up against with this Warren-Biden crew. And I don't know why Biden, with this Kumbaya meeting that Ro Khanna arranged, isn't disowning all of this. But clearly he's not. I think he thinks that the perception is that he's getting

Starting point is 00:13:45 closer to it and that's all he needs. Again, watch what we do, not what we say. Most people are going to see what they say and what's presented in the media that they're thawing and that the SEC didn't pursue some of these Wells notices of late, but the things that matter really matter and they're not changing at all. So I think it's a political strategy for sure. I mean, you talk about that it's sort of an aggressive or egregious overreach, that the ruling on SAB 121 here, everything the SEC does in SAB 121 themselves were also egregious overreach. Correct. So it's like an egregious overreach on behalf of an egregious overreach. Exactly. And now let's talk about the practical reality. One of the things that we experienced was the auditing firms were all confused when SAB 121

Starting point is 00:14:33 came out because there was no warning that it was coming out. And all of the auditing firms have national offices. They like to keep consistency. They do tremendous work keeping consistency in applying accounting standards. And it was something that literally every one of them, but the ones that are consulting and the ones that are actually doing the auditing, were struggling with because it was a targeted accounting change, targeted at a particular group. But if you didn't fall into that group, you might have been in crypto, but not an SEC filer. So you didn't actually have to comply. But the accounting firms were struggling with this. So now you file, you throw on top of that, that the SEC is granting special exceptions from it. And the magnitude of the accounting change, to your point, is enormous. It balloons the balance sheets of the crypto custodians by billions of dollars in some cases. Look at Coinbase's balance sheet before and after SAB 121. This is insane. And so this

Starting point is 00:15:35 is no small change. And the fact that you've got rules for radicals type agency heads who are abusing their authority doing this kind of thing. I will also give a shout out because I know we had supporters at the Fed, and I'm quite sure that there are people at the SEC who think the same way. They are appalled by the fact that you've got these folks who are just end justify the means in charge, and they are doing things that don't comply with the law, and well-thinking agency people are, I'm quite sure, appalled. The problem is that it's hard for them to speak up, but I will say there are a number who have been coming forward to various folks in this space. Keep doing it, Because ultimately, right matters, truth matters,

Starting point is 00:16:27 the rule of law will come back. If it doesn't, then none of us are going to, I mean, frankly, the whole crypto industry is forced to leave the United States. And, you know, are you guys really going to have a job? Stop and think about the long-term implications of essentially just throwing out all of the laws and procedures and policies that have existed for decades, that these regulatory agencies are just rules for radicals and justify the means just chucking out the door. It's crazy. There is widespread dissent at almost all of these agencies. Some of it just isn't as vocal as the SEC. Obviously, at this point, Hester Peirce and UADA write a knee-jerk dissent to literally everything that Gary Gensler does. So we know that a Trump victory puts Hester

Starting point is 00:17:15 Peirce at least temporarily likely as the SEC chair, although she'd probably be replaced, but she would be interim. I think we all know that would be great for the industry. I mean, the FDIC chairman's relationship with Elizabeth Warren, that entire toxic environment at the FDIC, and she supported him before he still got hosted. And every one of these agencies- Watch what they do, not what they say. Yeah. Right. And we know that there's very rational, reasonable people. We've heard it at all of these agencies. They're very upset with the dramatic, I guess, change. Speaking of dramatic change- And it's Michael Barr at the Fed. It's Michael Barr at the Fed. But there are a lot of others at the Fed, and we know exactly who they are. Because remember, we're an applicant,

Starting point is 00:18:00 we got discovery, we've seen it. And just the stuff that happened at the Fed, just some of the career staff at the Fed really is appalled that the Fed was allowed to be used by the White House in this way to go against Custodio. And I'll just, the one fact that is the most egregious is that in the entire history of the Federal Reserve, the longest denial order was three pages. And when they denied custodial, it was 86. Okay. And there were so many lies. And the whole thing came to us as just such a shock. It was, in retrospect, very clearly a political document.

Starting point is 00:18:39 It was, in retrospect, very clearly designed as part of this, let's kill the crypto industry, rules for radicals, all of government approach. And it was not only illegal, but it was unethical. And again, I'm sure there are a lot of folks that we had good relationships with at the Fed before this happened who are appalled that the politicians got control of the Fed to be able to do this. Independent agency, right? So-called. Yeah. So they'll tell you.

Starting point is 00:19:12 So listen, give us an update then on the situation with Custodia. We obviously know from past conversations, your master account was rejected. You sued. Yeah. Hey, at this point, that process is on autopilot. We filed the appeal, had some very interesting amicus briefs filed. That's great. Custodia has been operating now.

Starting point is 00:19:37 We're coming up on our two-year anniversary this fall. Amazing. Congrats. Okay, so we've been operating with two hands behind our back. We've had to deal with debanking from our banking partners. But here's one message that I would say. We are operating in certain states. We are live with multiple banking partners, and we are looking for more. And here's the irony. The SAP 121 news, the fact that the SEC is granting exceptions, that's great for custodia because a lot of banks are going to, and by the way, I speak out against it, right? So I'm not talking my own book, but a lot of banks are going to be looking for a bank partner for Bitcoin custody. And the regulatory agencies have rightfully been cracking down on third-party risk management. You've seen

Starting point is 00:20:22 what's gone on with Evolve and Synapse. Prime Trust, Fortress. Well, of course, right? Okay. So the fact that somebody out there, Custodia, has been complying with a version of what's called the FFIEC exam manual that has been adapted for crypto, which is what the state of Wyoming did. We meet the third-party risk management requirements of banks. A lot of, if not all of, the crypto industries companies are not going to meet those requirements. And what's happened is the requirements have been ratcheted up a lot, even since SAB 121 came out. So what happened is some banks either downsized or laid off and shut down their teams when SAB 121 came out because there

Starting point is 00:21:04 was no chance they were going to make substantial revenues. And so we interviewed a lot of people. Some of them were working for Custodia. We survived it. We came to the other side. Now here come all the banks again. Now, this is a double-edged sword. I will be putting a blog post literally saying, here come all the banks. I think we're calling it, the banks are coming to Bitcoin. It'll be up in the next day or two. It's a double-edged sword, but there is a huge advantage for a bank as a custodian. I am a not your keys, not your coins Bitcoiner. However, a lot of companies cannot legally custody their own Bitcoin. I was going to say, you can't just buy a couple. MicroStrategy can't

Starting point is 00:21:45 buy a few billion here and there and throw it on a ledger and hope for the best. Correct. Right. So they are going to work with third parties. And you do want your third party custodian to be a bank for legal reasons. And this is ironically what the SEC is getting at. The SEC is right that banks have special protections for consumers because in bankruptcy, the assets under custody are going to deemed to be owned by the customers, but they still got pulled into the bankruptcy estate. The custodian customers of Celsius ended up agreeing to take 72.5 cents on the dollar. So they took a 27.5% haircut. Even though the assets were deemed by the bankruptcy judge to be owned by the customers, why did they agree to that? Because it was going to take years to wait out all the clearing of preferences. And just two weeks ago, the bankruptcy trustee sued a bunch of Celsius customers who got

Starting point is 00:22:57 their money out before it failed to claw back those transactions. This is what happens with non-banks. People who withdrew 90 days before when there wasn't even a hint that a bankruptcy is coming are effectively being clawed back because they may have known and withdrew ahead of it. So let me give you the punchline. That doesn't happen with banks. When banks fail, the receivership structure is designed to protect the consumer. When a non-bank fails, the bankruptcy structure is designed to protect the consumer. When a non-bank fails, the bankruptcy structure is designed to bring assets into the estate to give as much as possible to the shareholders and other creditors. Okay. Big difference. The consumer is deprioritized in a bankruptcy.

Starting point is 00:23:40 The consumer is the priority in a bank receivership. This is why you want a bank. This is why ultimately as a legal entity, I'm not talking about like you want an incumbent bank. I'm talking about a bank as a legal entity for your custody provider. I want a crypto native who is registered as a bank to get the benefit. And there's a reason that you did that. Right. I mean, I don't remember. I don't even know how it shook out. But I mean, Prime Trust was obviously a registered, you know, custodian in Nevada and they lost keys to a wallet and hid it. But I don't know how that's played out, but apparently not particularly well yet. Well, because they got they got dragged into bankruptcy court. This is the point. because they got dragged into bankruptcy court.

Starting point is 00:24:25 This is the point. Banks cannot be dragged into bankruptcy court. So, all right. So what you want is a bank as a legal entity. Now, here's the thing. Because the SEC, they recognize that this is a structural advantage for banks as legal entities. structurally why they're not wrong on SAB 121 to say, hey, we want the customer's assets to be guaranteed to be owned by the customer in the event of the failure of the institution. But they should have made that distinction in SAB 121 from the very get-go. Instead, what they did was

Starting point is 00:25:00 say, all right, we're trying to sweep the entire industry out of this country and kill it. So, all right, we're not making that substantive distinction. We're just throwing out this accounting rule without public notice and comment. This kind of thing would have been pointed out to them two years ago. So the SEC substantively is not wrong. For decades, the SEC has been worried about this. They don't like trust companies as custodians because the trust company cannot guarantee that in bankruptcy, a preference doesn't come into play that causes the customer's assets to be haircut. And that's exactly what happened.

Starting point is 00:25:38 Celsius wasn't a trust company, but that's the point. There's a very black and white line between a bank and a non-bank. There are exactly two banks operating that comply with 11 USC 109 that are crypto native. And 11 USC 109 is the thing that says a bank can't be drawn into bankruptcy court. There are two that fit this bill. Custodia and? Custodia and? Kraken Bank. That's it. That's right, because they're registered as a bank in Wyoming. Right. You got it. Not coincidentally.

Starting point is 00:26:09 Yes. So this is big, important stuff. Now, I will say, the banks have been awful. The dirty ball that's been played by the lobbying organizations and by certain bankers. I mean, when the custodian story comes out, it's going to be jaw dropping. But I will say also, we are so grateful to a lot of banks and individual bankers who have supported us. A lot of us really, a lot of those individual bankers have been just beaten up by, you know, agencies doing unethical things. And so they love it that somebody's standing up to them. However,

Starting point is 00:26:46 my message to the bankers is, if you are seeing where the puck is going, as opposed to where it is today, Bitcoin is here to stay. You now are able to get back into this business as a custodian. And a lot of you had to dismantle your businesses. come talk to Custodia. Because we check boxes that non-bank crypto companies cannot check for a whole bunch of reasons. All the third-party risk management, all the novel activity supervision program stuff that's come out from the bank regulators since SAB 121. And here we are. So subcustody relationships, partnerships, we'll talk to anybody about anything. Come on in.

Starting point is 00:27:27 Info at custodiabank.com. Let me preface this by saying I'm a huge fan of Coinbase and I love them. But as you describe this, which I've never heard it described as such, it makes me scratch my head that Coinbase is the institution custodying almost every single ETF, including BlackRock. And that was forced because none of these other companies under SAB 121 could even touch these. And very few companies would be able to have the cash to even offset this. But at what point can Coinbase not offset these liabilities with cash assets? Or how does that work? So this is interesting. They're not a bank. And is there a risk to it all being at Coinbase because they're not a bank?

Starting point is 00:28:08 Well, yes, because of this issue, right? So it's a trust company. It's just like the prime trust issue, right? Exactly. There's a risk. Absolutely. And that's one of the reasons why you're starting to see the ETFs diversify. And yes, a bank legal entity. If Coinbase could put a bank legal entity wrapper around that custody business, it would solve the problem. The challenge is that the gatekeepers in DC don't want crypto native companies to become banks, right?

Starting point is 00:28:38 So the two companies, Custodial Bank and Kraken Bank, the subsidiary of Kraken, are Wyoming entities that of of course, the Fed is unlawfully blocking access to Fed master accounts. In Custodio's case specifically, we applied for FDIC insurance. So I will say that I'm aware that pretty much all, if not all, of the largest crypto companies in the US have tried to obtain bank charters. For this reason, they all know that ultimately you've got to be a bank to be a custodian long-term. That's why the

Starting point is 00:29:11 entire securities custody industry is inside banks. It's very rare when a trust company is a custodian for a pension fund or an endowment or a mutual fund. It's all banks for this reason. It's the legal entity advantage. That's the issue. That's the reason. And so they've been trying to get through the gatekeepers. But now we're back to the rules for radicals in DC who are absolutely saying, we don't want anyone who doesn't look like us and who doesn't do traditional business. And we're especially afraid of technology because we think technology is old, you know, web 1.0. We don't even know what an API is. And we certainly don't want anything decentralized and distributed in the banking system. And so they just block everybody. So I am aware that at multiple points,

Starting point is 00:30:06 large companies in this space have tried to become banks. And so does SAB 121 hurt a non-bank as much as it hurt banks? No, it doesn't. Because they don't have to hold as much capital against the on-balance sheet liabilities. But still, it's a problem. And if you're somebody who's consuming the financial statements of Coinbase, go look at the before and after SAB 121 accounting statements. It's radically different. And so how are investors supposed to parse that? You've got to become an expert in this stuff. So there are so many things that could change, I would imagine, for Custodia. We obviously talked about regime change. So I do want to get into what it would mean if we had a different administration and a

Starting point is 00:30:49 different regulatory environment. Would that give you a better chance of retroactively getting your Fed master account? Could you reapply? How would that look? But I also want to put that in context of the Chevron deference decision and that being overturned because we've talked about this bloat and the aggressive regulatory state and the corruption, but it seems like a lot of that has already been decapped now by the Supreme Court. Yes. Well, it's decapped, but the actual

Starting point is 00:31:17 application of it still has to work its way through the courts. And it just so happened that right after the Chevron deference case was overturned, probably one of the first, if not the first thing that the attorney who got that massive victory, Paul Clement, one of the first things he did was file an amicus brief in our case on behalf of two of the trade associations in our space. Very grateful to all who stepped up to support Custodia in the lawsuit. And of course, on the first page of his amicus brief, he quotes the Loper Bright case, which overturned Chevron deference. So we'll see. But it just so happens that our case is one of the early ones that's lined up that could be impacted by it. But of course, I don't want to speculate because I can't give legal advice. I got to defer to the attorneys on that one.

Starting point is 00:32:07 But it is at a macro level true that there were multiple cases that came out of the Supreme Court at the end of this last term that clipped the wings of federal agency authority. And there was a terrific article for the bankers who are listening, a terrific article written yesterday by Michelle Ault of Claros Group, looking at four of the cases. And she ends up concluding two things. One, that the Fed's going to have to grant master accounts to more non-traditional organizations like Custodia, and that there will be more applicants because the FDIC has been discriminating against anybody who isn't playing vanilla. And of course, we experienced that at Custodia, we couldn't get FDIC insurance in 2021 when we tried. And long story short, she's saying, look,

Starting point is 00:32:59 you know, all of this sort of picking winners and losers that the agencies have done is no longer going to fly. And I think she's right. But it may take a couple of years for court cases to work their way through. And again, these agencies, right now, they're controlled by the Warren crowd. Non-specific to custodian, then, because I know you can't speak to that. We have a wide breadth of cases from regulators against our industry and even beyond, but certainly the notable ones being Coinbase and Binance, obviously, from the SEC ripples still ongoing and others. If you get complete regime change generally here in a vacuum, Gensler's gone. You get somebody like a Hester Peirce. What happens to cases like that? Do they get dropped or like, is there a more favorable

Starting point is 00:33:49 environment for trying them? Because I mean, people even forget that Clayton is the one who actually started the Ripple case. He did. Gary Gensler actually inherited that one as much as he gets credit for going against the industry. That was under the Trump administration with Clayton. Absolutely. Right. And, you know, the debanking regime chain or the debanking that happened in 2017 that brought about the Wyoming Speedy Charter in the first place in 2018, that was under Trump. OK, so, yes, the the the prior regime was not it did not have clean hands. So we don't know. It's a great question, Scott, because I, you know, Arthur Hayes has been warning, hey, Trump doesn't ideologically believe in any of this. He was being opportunistic. And that may very well be true. He got it in the platform. That is, that means he's putting his, his heft behind it. But listen, and I, I don't do politics.

Starting point is 00:34:43 It always comes out that like we're all massive Trump supporter, whatever. We have to talk about our industry. And this is the reality of where it's at. But I do think that regardless if he ideologically believes in crypto, we do know that he ideologically believes in deregulation. We do know that. And to be clear, I don't endorse anybody. I will talk to anybody on either side of the aisle or independents. Right. And so I very clearly don't endorse anybody, but I will speak out against the regime that's trying to kill our industry and that's trying to kill my company. Okay. And that's the Biden Warren crew. So that's where I come from. But yes, we don't know this. He definitely wants deregulation, but we don't know who he's going to put come from. But yes, we don't know this. He definitely wants deregulation,

Starting point is 00:35:26 but we don't know who he's going to put in place. I mean, he said he wanted deregulation and they put he put Steve Mnuchin in as Treasury Secretary. Just this morning, I saw a reference to he might put Jamie Dimon in as Treasury Secretary. That would not be good for us if he doesn't. I want to talk about that. OK, I had a conversation about that on Twitter spaces. Somebody asked me that question. I guess my like last half full silver lining view is that Jamie Diamond's going to just go with the wind and doesn't actually isn't as anti crypto as we think. And it's just an Elizabeth Warren talking point. And if he joins the Trump administration as Treasury secretary, maybe he would have a meaningful change of heart, but maybe I'm wrong. I just believe they're all politicians one way or another and we're

Starting point is 00:36:09 saying what's favorable to them in the moment. I mean, J.P. Morgan does a lot of business in the crypto industry. Yes, I know they do. I know they do. They've also debanked a lot of companies in the crypto industry. I agree with you that it wouldn't be good. So there's a lot of reasons both ways. Yeah. Yeah. I think he's, I think he's part of the, of the blockchain, not Bitcoin crowd. I know he is. Um, and, and, and, you know, just today that the BIS came out with a clarification on banks using stable coins and it was designed to help the banks that have their own permissioned network stable coins and screw the tethers and USDCs that use permissionless backends for their stable coins. In other words, a private blockchain, JP Morgan coin.

Starting point is 00:36:57 Exactly. And that was not how it was originally drafted. So I look at it and throw my hands up and say, all right, well, if the banks want to have their own little corpo coins to borrow Andreas Antonopoulos' phrase, then, okay, let them have their own corpo coins. That's not going to- Right, they can all talk to each other with their little system between them. That doesn't affect us. It doesn't affect us. That is actually a practical usage of the technology, to be fair. For sure. And they are having some benefit of that. And remember, I came from an investment bank that was working with corporate treasurers.

Starting point is 00:37:29 I was trying to solve some of these real pain points for corporate treasurers and saw that our technology would help do that. And by the way, I went through a blockchain, not Bitcoin phase in my career. I went to a enterprise blockchain startup from 2016 to 2018, thinking that we were going to, just like the adoption of the internet, go walled gardens first before we tear down the walls, intranet before internet. And that's not what happened. Not really. I mean, it may come back. But in effect, these two systems ended up developing parallel. So you still have the JPM coin, and they've done several billion of transactions between their customers. Great, Godspeed. That does solve pain points for corporate treasurers. But it's kept separate because there's no interoperability with open permissionless backends. And it's funny because they're using open permissionless backends for things like TLS, for things like TCP IP in the first place, but they can't get their arms around open permissionless backends for ledgers, for ledger

Starting point is 00:38:36 money. And I lament this because I've tried so hard to work with the regulators. A lot do understand, but they are just so influenced by banks that are scared of us. And so this BIS thing this morning, I did a comment letter with our then CTO probably two years ago on the initial proposal that came out in October 2023. And we actually pointed out that the initial proposal went so far, was written so broadly, that if it was interpreted broadly, it was banning the banks from using the internet at all. And so that's, but that's the point, you know, they need folks who are willing to step up when they when they overreach like that and say, no, the internet actually can be done securely. So how do we take this technology and apply it to banking without blowing up the banking system?

Starting point is 00:39:34 And they're just still in their own bubble. And meanwhile, the gap between the technology understanding of the regulators, and here I'm speaking to the BIS specifically, and where technology actually is, is widening. Governor Bowman from the Fed had an interesting speech a couple weeks ago where she said, look, we might end up with just a much smaller, narrower, more plain vanilla banking system and a much bigger non-banking system where all the innovation takes place. That's kind of how things have evolved. But she's saying, look, fear should not guide the regulators to that end. Because by doing nothing, that's where they're heading. And she was openly challenging them. Now, I happen to know that some of the inner workings of the Fed, the Fed governors don't have the kind of power that you think they have.

Starting point is 00:40:28 It's because the Fed is dominated by the chair. This is something that happened during the Greenspan era and has continued on. And a lot of the Fed governors don't have access to staff, don't have their own staffs. They can't get their own meetings on Capitol Hill. Exactly. It's very different. They're like press agents who go up and give the speech and the talking points. They don't have real power. Right. And clearly they were told by Jay Powell and Michael Barr, vote against custodia, right? Because even people that we knew were favorable towards custodia when push came to shove voted against us. This was all, you know, again, the history is that Michael Barr had a meeting to talk about Custodia's application two weeks after FTX.

Starting point is 00:41:13 And then suddenly a few days later, the denial memo appears. Those are the facts. Okay, so we know exactly who did this. And then when the actual vote came, by the way, again, like talk about how federal agencies work. How is it that Bloomberg got the tip that the Fed was going to vote Custodia down two days before the Fed governors actually voted on our application? So this just like, I hate that we're in this position. We didn't want a fight. We wanted to build. And we will get to that point. But man, oh man, did we end up being in the middle of part of just the exposure of just how lawless some of these federal

Starting point is 00:41:55 agencies have become and how broken the systems really are. BIS isn't our agency, so I guess it's agencies all around the world. But you brought up stablecoins and didn't necessarily intend to talk about it. But I think it's a really important topic right now because, as you just pointed out, that would sort of eliminate the incumbents and move the responsibility to banks. Some of the proposals in the United States actually would be very bad for a Tether, for example, even though Tether is arguably helping the United States government and the dollar by buying so many treasuries. But it would effectively eliminate them because they're not issued by a bank that's chartered in the United States. So that is, again, pushing it towards the bank. I had a conversation with Paolo Arduino from Tether just last week. He was actually saying that they have issues with MECA, the new regulation in Europe, because they want them to

Starting point is 00:42:45 go to the banks who are fractionally reserved and won't really fully back the stable coins the way that Tether does. So there's a lot of irony and strange bedfellows. Unbelievable irony. So how should stable coins be handled by a government or a regulator or central, whoever it is that's tasked with that. Really challenging here. Well, so here's what's interesting. The BIS was ahead of the Biden-Warren crew in its recommendations that banks

Starting point is 00:43:14 can hold up to a certain percentage, a small percentage, but a certain percentage of group 2 crypto assets which include things like Bitcoin and Ethereum issued on open public permissionless chains. The US absolutely banned that. So Biden was behind, Biden and Warren have been behind the BIS. Now what's going to end up happening if Biden is no longer president

Starting point is 00:43:39 is whoever does take the presidency is very likely to get ahead of the BIS. They're just going to ignore what the BIS just did, which was to say, well, you cannot hold anything other than a bank issued permissioned stable coin on a bank's balance sheet. And they're probably just going to ignore that. To your point, the BIS is not our agency. It's a central bank for central banks, and it doesn't have direct authority over the U.S. So the U.S. can decide to adopt things like the Basel III capital requirements, but every country that adopts them usually adopts them with some twists, and they don't take it word for word. So the BIS is trying to get everything to be coordinated globally, but they never, of course, get 100% coordination. So the US can just ignore all that, to be honest. And I think it might. So now we're into a really interesting question. And Arthur

Starting point is 00:44:36 Hayes had a really interesting point. Should we try to get a crypto regulation bill in the United States now? Or should we wait until after the election? There's a real debate about that. And I will say this, if the Republicans don't keep the House, then Maxine Waters will become House Financial Services Chair again, and she will block all crypto bills. So the question is- Funny, because she was working on one with SBF, but okay. Well, again, yeah, right. She will block the crypto bills that should be passed. Let's put it that way.

Starting point is 00:45:15 Right, but so here's the point. No one knows what the outcome of the election is gonna be. It's just a batshit crazy scenario. And just, I think it's gonna get crazier. It just got very, very crazy. Man, what happened over the weekend just shook a lot of us watching it. It was incredible. The thing that I can't stop watching is the recreation of Trump's head. If he had not turned his head, what would have happened? I mean, that is how close that was. Holy cow. And again, I'm not making a political statement here. I'm just, you know,

Starting point is 00:45:50 praying for the country that everybody calm down. Cooler heads need to prevail. We should not have political violence. And long story short, the rhetoric got there and it, you know, and it happened. So how do we calm it down? I hope it does calm down, but it's probably not going to. I fear that it's not going to. So anyway, but without getting down. Yeah. Well, let's step back. Why is it that we have such fights like this? Because there's so much power in these elected offices. What if somebody went in and actually massively cut the power of the office? That's what Millet is doing in Argentina. Then you wouldn't have such fights over it. No one knows who the president of Switzerland is because the president

Starting point is 00:46:37 of Switzerland doesn't have much power. So really, if we actually had somebody who was philosophically committed to the founding principles of the United States, which is decentralization of power and separation of powers and checks of balances, that's the most important thing that keeps the United States together. Then, wow, maybe we wouldn't have such fights. But what we've had is a 50-year trend towards centralization of power and authority at the top, including at the top of Congress. So this gets back to my point about right now we've got Schumer who's pro-crypto in the Senate. My understanding is that Anita Dunn in the Ro Khanna Kumbaya meeting said that if Congress passes a crypto bill this fall, Biden will sign it. So now he could go back on that, but at least she said that. So if they can get something through, you know, and McHenry's in control in the House.

Starting point is 00:47:32 And he's leaving. But well, yeah, but I'm talking about like before or after. Right now. We've got an interesting setup right now. That is a delicate balance because do you want an inferior bill that you can get, the bird in the hand, right? Or do you gamble on a better bill if you get the election you want and they deliver on the promises and they can actually get it through? But you might have Maxine Waters if the Republicans don't keep the House and she will

Starting point is 00:47:57 block it, right? And then you get nothing. And again, you know, Schumer and it's Lummis Gillibrand and Stabenow and who's, is it Daines, who's on the Senate ag. That's the power structure right there in the Senate. Yeah, I think there is, ironically. Exactly. It is doable. And right now I'm leaning towards, you know, the industry should just take it. And you know what, Biden might actually let it go through just to dispel the I'm anti-crypto myth for that moment. And yeah, meanwhile, I like crypto too. Meanwhile, what's going on at the agencies behind closed doors is, you know, they're helping their banker friends while they're officially saying that, you know, they're not corporatist.

Starting point is 00:48:43 We talk about the decentralization of the United States government. We've got four branches, right? Executive, legislative, judicial, and BlackRock J.P. Morgan. Yeah, right. Yeah. You know, I don't know. That does all get overblown. But I concede. I mean, as somebody who's literally faced it, the Fed is a club and the Fed doesn't like to let people in who don't look like them. And, you know, it's one of the few industries that has not been disrupted by tech, really, and has not been, has not had, you know, the great opening of equality of opportunity that allows the diversity of this country, the small D diversity of this country to contribute to the industry. If you just look at the number of banks that are owned by women, by African-Americans, by Hispanics, by Asian-Americans, it is stunningly low, just shockingly low. It's less than 1% in aggregate. That's insane. Right.

Starting point is 00:49:48 And so this is literally the old boys club. And I wonder how many of them are multi-generational. Good point. Yeah, good point. Rothschilds. Yeah, there are 4,400 banks in the United States of which only 18 are women-owned and only seven are African-American-owned. I mean, these are stunningly low numbers.

Starting point is 00:50:03 That is literally insane. I had no idea. Correct. But this is the point because it's been, the gatekeepers have kept anyone who doesn't look like them or come from the right background. I mean, if you go back and read what the Fed said about custodia, we didn't have the right experience. The first thing that popped into my head when I read that, because it's, first of all, it's just a joke, right? For me, not having banking experience, come on. But the interesting question is, it popped into my head, like, this is what a whites-only country club would have said to an applicant who didn't have the right pedigree in the 1970s. And like,

Starting point is 00:50:41 why is the Fed still doing this? Why is their own inspector general who has a commitment to equality as stated on its website? Why did they not do it? Why was there no repercussion for any of this? It's insane. Interesting, because I was going to say that Custodia has a double whammy that probably is problematic at the Fed. You have a triple whammy. Now you're led by a woman. That's the one that I didn't have in my mind, right? But clearly you just made the case. That's what Bitcoin, right?

Starting point is 00:51:12 Obviously like you dare use the word and three, you dare not be a fractional reserve bank. And that one has a lot of history, right? Narrow bank, people may not know the history of narrow bank, but other banks have been rejected before for apparently the outright crime of wanting to hold their customers' assets. Yeah. Well, I talked to a very, very senior Fed insider who confirmed to me the only issue, the only real issue was crypto. Yeah. We got caught up in the, you know, Biden, Warren, Cruz, all of government,

Starting point is 00:51:46 we're going to kill crypto. It was Michael Barr who was, you know, appointed by her, right? Because she got to control the appointees and he did it. And so it wasn't overreacting to FTX. I keep waiting for cooler heads to prevail. It's so fascinating because there is an issue that was raised in the appeal brief by custodians, attorneys, and I'm not going to talk about that. It relates to the appointments clause. Okay. We just saw a big appointments clause case come down in the Trump classified documents case. The appointments clause is one part of the constitution that's actually hot in the legal community right now because you're seeing some lobbying made. Okay, it's the same appointments clause point that is made in our case. There was a claim made

Starting point is 00:52:35 in the early part of our case that was dismissed by the federal judge. Well, Paul Clement, who is one of, if not the most respected separation of powers experts on the US Constitution. He was Bush's solicitor general. He was the one who won the Loper-Bright case that overturned Chevron and had a reference to Loper-Bright on the first page of the amicus brief from the trade associations, just to connect the dots from our earlier conversation. He really went after the Fed in a way that I hadn't thought of before, related to the structure of the Fed being illegal. And a lot of the anti-Fed people have been saying this for a while. It's unconstitutional. And he got

Starting point is 00:53:17 very specific. Private banks. Okay, this is the point. It is a bunch of private banks. And so because of the governance of the 12 regional Federal Reserve Banks, which started out as private institutions, they are legally corporations that are controlled by the banking industry. So how can the president of one of these Federal Reserve Banks be making a gatekeeping decision about a competitor? How's that lawful? Well, under the Appointments Clause, he laid out it's not. Because, and this is, again, a hot area of the law, you're seeing a lot of these Appointments Clause cases bubbling up. The President of the United States has to be able to fire the executive branch officials.

Starting point is 00:54:04 And there are independent agencies, and there's been a lot of litigation over what an independent agency, how much control the US president has over appointments in independent agencies. But the punchline is that either directly or indirectly, the president of the United States has to be able to fire someone

Starting point is 00:54:24 who's doing official U.S. government business. And he laid out that because the Federal Reserve Bank presidents, if they really made the decision in the case of Custodia, which they did not, it was Michael Barr at the Board of Governors, but they were just executing, they were just delivering the decision. Here's the point, that it's not constitutional to have a private citizen doing official U.S. government business. The U.S. president has to be able to fire them, and you cannot layer two four-cause protections against being fired, which is exactly the structure. But he went even further to say that if you buy that the Kansas City Fed president was solely making the decision about custodian's application,

Starting point is 00:55:11 which was factually not correct, and we dispute that, but if you buy that, that it doubly creates an even bigger appointments clause problem, precisely because of the thing that the anti-Fed people have been saying for years, which is that the Fed is controlled by private banks doing official U.S. government business. So I will say, because I know Fed people watch my podcasts, we never wanted this fight. OK, this you've now got three solicitors general from both political parties involved in this case and the former solicitor general of Virginia involved in this case and the former Solicitor General of Virginia involved in this case all lined up against you at the Fed.

Starting point is 00:55:49 Okay, we didn't ask for this. You forced us into this. And I'm hoping cooler heads prevail. Well, I think we all are hoping cooler heads prevail. But I think something you said earlier is the best description for what's coming and that's batshit crazy one way or another. It's going to all be batshit crazy. But Bitcoin, let's end on a positive note. Irresponsibly long. Look at her

Starting point is 00:56:10 shirt. Look at her shirt. Whichever way she ends up on in the edit. Yeah. Bitcoin thrives in these environments. It is ultimately right now an asset that is trading as a high beta asset, trading almost like a leveraged tech stock. But here's the thing. It is going to, at some point when we get, it's basically an insurance policy against chaos. That's how I think about it. That's how it traded immediately after the Trump assassination. It's how it traded after Silicon Valley Bank, right? And so when you see these bad events, these so-called black swan events happening, and Bitcoin trades up, that's starting to tell you something. We're starting to get to the point where it's trading as an asset that really is insurance against a confidence collapse in the traditional system. And I'm hoping that that confidence collapse doesn't

Starting point is 00:57:07 happen. None of us want to live in that environment. But the more the crazies dig in and put their head in the sand about technology advances, the greater the likelihood that you see this separation that Governor Bowman talked about, that the traditional system just gets more plain vanilla and smaller, and all the innovation happens outside of it. Well, let's go. Bitcoin goes up. If things go good, if things go bad, it's all good for Bitcoin.

Starting point is 00:57:35 That's how I'm going to end it. Everything's good for Bitcoin. That is kind of how it's going to end up. It's my favorite narrative. Regardless of what happens, the more bad shit crazy, the more Bitcoin should perform well. Caitlin, thank you so much.

Starting point is 00:57:46 This is awesome. We'll obviously have everybody following you and tag. Great to see you and look forward to seeing you soon in person. Thank you so much. Yeah, likewise. Safe travels next week. Cheers. Let's go.

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The Wolf Of All Streets - Bitcoin’s Biggest Battle: Caitlin Long's Shocking Insights On The Regulatory War!

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