The Wolf Of All Streets - Why Stocks Are Plummeting | Knockout Punch To SEC | Crypto Town Hall

Episode Date: October 4, 2023

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Hey Mike, how are you? Ryan is glitching as well. Mike, is it working for you? It is. Good morning. Good morning to you. Have you changed your mind or you're still pretty pessimistic about the economy? Unfortunately, I think it's just getting worse and the stock market is just starting to figure

it out. Okay. How are the markets over the last couple of days? I haven't looked at them for at least a week. Well, going down, the key thing to note this morning, if you look at the Nikkei index on the week, if we close here, it's the worst week of the year um this morning overnight index was down what let me just check my index it was down 2.3 percent so it's global it's macro it's everywhere spiking bond yields are really a story the u.s 30 year got to near five percent um this morning overnight It's backing off. Crude oil got to around 92. It's backing off.

And it shows a lot of inklings. I show a lot of comparisons to 1987 before the stock market crash. Bond yields peaked the week before the crash. And then if you look at crude oil, it peaked in 2008. And everything I see is a tilt towards recession.'s starting to kick in but it's not gonna i think it's one of those things where people aren't going to believe it until the stock market goes down and virtually every person rational person i spoke to run a lot of money i keep talking to me about same thing i look over that the to your note five percent it's a giant sucking sound for key things how long can cryptos stay out of the fray and let's look at the high this week in ethereum was 15 16 52 i'm sorry 17 52 when ethereum futures started

trading in 2021 that was the first closing settlement so ethereum's holding pretty good resistance um and i think the key thing about here is all risk assets were up this year. Cryptos led the way up. All risk assets have actually declined in the third quarter. Cryptos led the way down. Cryptos bounced a little bit. And for the rest of the year, I think we see that confirmation from our economics team. They're heading towards recession. How much of that depends on what the Fed does? So you're looking at the markets are down, the S&P is down over 8% since the Fed said they're removing recession from the markets. But the markets are not really, are they pricing in higher interest rates? Because we're

also getting mixed signals. The Fed is pretty adamant that the focus is getting lower inflation, the interest rates will continue going up, most likely. But we saw recently another Fed member who said that rate hikes, they're not seeing rate hikes anytime soon. And we've also got Yellen. I'm trying to get the quotes here. So Treasury Secretary was talking about she's being optimistic over the U.S. economic outlook. And she also talked about the U.S. debt service being manageable for now. So we'd love to get your thoughts on that. First key focus. And also lastly, and lastly, sorry, she said that's what I was looking for. She said higher

for longer rates is by no means a given. Yeah. So she's starting to hedge a little bit because I think she's starting to realize she said this exact same thing, very similar to 2007, talking about a soft landing. Our economist wong pointed that out this morning and said and clearly our our economic view is for recession u.s begin by the end of the year now it's already started in europe but you asked about the fed so the key thing to remember about the fed is they are remaining vigilant and jaw-boning and they will do that until something breaks that's unequivocal that's just what's happening so let's first focus on what the market is fed fund futures right now the effective rate is 5.33 and the peak in the futures is 5.43 in january so it basically the market's still tilted towards higher rates so to me that is a major headwind

for all risk assets the market still thinks they're going to hike the fed still says they're going to hike we're heading towards recession what's going to take to take the hikes on the market? Risk assets must go down. What's the most risky assets on the planet? Crypto. So right now, stock markets just starting to catch up on it. And the bottom line is this is what's really different this time. And a lot of similar situations is you have that giant sucking sound of U.S. government, too, you know, and high yield.

So here's a key fact is cryptos were born in a zero interest rate world that is that fact has reversed this is not a zero interest rate world it's actually pressuring gold too there's been significant outflows in gold etfs because for the first time you can get a rate on guaranteed from us government it's well above inflation inflation in some of metrics that i show are clearly is collapsing ppi to hell in with this the low in ppi this year is minus 3.3 percent the high in 2008 was plus about 10 percent mike i want to point something out mario as well on monday mike james lavish uh dave weisberger and i were chatting and james lavish showed a chart I had never seen. Mike, you might have access to it at Bloomberg, but you'll remember it was mentions of soft land

media and by government officials line up, you know, in a visual chart with recessions and depressions and market crashes. And there's literally a massive spike by the government every time talking about a soft landing right before every single major correction or crash or recession in US history. It absolutely blew my mind. But the more they talk about soft landing every single time, the more likely it is that you're going to have a hard landing or a recession. I appreciate the mention of that, Scott, because sometimes I obviously want to, I enjoy working with my colleagues and blueberry intelligence, you know, we're not perfect. But one thing about here is we're an independent

week, you know, this is my view, this is that Bloomberg view. It's that story that the James featured came out from our economics team on Sunday night, so they had set it up, they waited for see what happened with the with the government shutdown. And they said, Alright, here's what's happening is, that was cool to see that picked up by the media because it's a cool it's just a thing you learn in training is fade the consensus particularly when it's that much meaning that one way that's the key thing of reason i've been so bearish about cryptos lately is the consensus has been so bullish about these

etfs so i just published you just saw on twitter that every time we get these kind of futures launches and etf launches scott's pointing this out usually means peaks and markets but that's the key thing that's notable is we've completely tilted the consensus towards a soft landing, which means we'll probably tilt the other way. And even the head of CalSTRS or CalPERS, I think it was CalSTRS, the big California pension fund said yesterday, I heard it on Bloomberg News, Christopher, I forget his last name, said that he expects the S&P to drop back down in the year. And this is one of the biggest money managers on the planet.

I want to go to Gareth and I think, Ran, your mic is working. Sure, my mic is working. How's it going? Cool. How are you, man? Gareth, I want to get your thoughts, just kind of balance it out a bit. Just a quick overview of the markets and what Mike has been talking about as well. And just a quick recap before we dig into the agenda. And Gareth, if you could also touch on ADP, because we actually saw some job numbers today that I think shocked a lot of people. So I think that's worth mentioning. I'm sure you're tracking that.

Yeah, absolutely. So the interesting stuff started yesterday with the JOLTS number, right? JOLTS number came out, I think people had expected, that's the job openings number, about 8.8 million job openings in the US. It came out yesterday at 9.6 job openings, which 9.6 million. So again, that was a much stronger number. It kind of was the catapult to pushing those yields sharply higher yesterday, which then panicked the stock market. We saw the stock market having one of its biggest down days in recent history here, as we also saw the Dow, I believe, turn negative for the year, Russell's negative, S&P and NASDAQ still holding up because of the big caps, the magnificent seven. But the key again today, so yesterday it was this, oh my gosh, everything's so strong.

This morning, the ADP number came out at 815am. And it was a weaker number coming in at only 89,000 private jobs created, or 89,000 private sector jobs created. And that kind of kicked off now a reversal where yields began to fall, saying, wait a minute, maybe the economy is not so strong, right? Because we're getting less jobs numbers. So the market is kind of unsure at this point. We got factory orders at 10. It was stronger than expected. So now we saw we're seeing yields begin to inch up again a little bit. To be honest, I think this is all interim data until Friday's nonfarm payrolls number. That's going to be kind of like the official stamp on where we are. But this market, there's no doubt it's a weak market. I mean, this is scaring people.

I think the bigger thing is how long can or how fast rates are going up. And then what is the underlying damage to the financial system? If you're looking at the dollar yen trade, what's going on there? How much impact financially does that have on the globe, which is massive? So there's so many inner working things happening here. I'm shocked that nothing's broken yet. I wonder if something is broken. We just don't know about it because without bank runs, you know, basically the Fed taking the bank runs off the table, how would we know if there's trouble in a bank, right? I mean, what would we look for? And so I think people just have to be

cautious here. Don't be surprised to see a rally if yields do start to pull back, like a weak jobs number could kick off a small rally. But I think it's the beginning of a downturn in the economic picture. And Garrett, I think yesterday's job number, the JALTS number, I think that was the most significant number of all of it. Because if we look at the non-farm payrolls, and we look at the, you know, all these job numbers that are coming into the market, that shows, I think, very almost intermittent data. Whereas if you look at the jobs number, that's how many jobs are actually open. And if there's 9 million jobs open,

that means that this economy is flying. That means that this economy is flying. You take that, you overlay it against the GDP of 8% or 8-point-something percent annualized GDP. That shows that this economy is flying. And I think what the market is starting to price in now is actually the potential credit event that may be looming. Now, I'm not one of these.

I think what the market is starting to worry about now, you were the one who got me to start looking at the TLT. And I'm looking at the TLT trading at 85, coming off a high of uh 180 or 185 in february and what the market's now starting to tell you is that they are expecting some kind of credit event i'm starting to see a capitulation candle in in in in treasuries and that means that the market is really starting to price any credit i think that credit event is the more significant event if the market were pricing in a credit event yeah I think that credit event is the more significant event. If the market were pricing

in a credit event, you would see treasuries rallying, not falling. That's the opposite. The treasuries tend to rally in the face of a credit event. That's why every credit event for the last 50 years, you've seen treasuries rally and yields fall. Maybe just educate

me as to why treasuries would rally if the market is passing in a credit event. It's a safety trade. Hold on. Are we talking about a sovereign credit event? Are we talking about a company credit event? 1987. Any sovereign or credit event over the last 50 years, treasuries have rallied.

People pile into a safety trade and yields fall precipitously that's how the treasury market works the fact that yes so we're talking about that we're talking about two different no i'm just saying the fact that treasuries are selling off is indicative of strength in the economy not weakness that's that's where i think you got it wrong can i interject i? I think Joe straightened it out, but it's also what happens is this is called hitting the stops. This is what typically happens when things get really bad. People are hitting their stops in Treasuries. Treasuries is the safest asset in the planet.

There are people who have been in a lot of these, you know, who have been short, long in, and they're getting stopped out. And typically this is what happens near inflation points that's what happened in 1987 yeah but mike mike nailed that i mean that's exactly it people have been in the recession trade which is hiding out in treasuries expecting economic downturn for about a year now. I mean, you've seen record exposure from various actors into treasuries, piling in, thinking stocks are going to crash. And some of those positions are being unwound. They're being unwound because the recession hasn't arrived, because economic growth is hung in there, because unemployment has remained low. And those folks that were sort of preempting, front-running the recession into treasuries,

who have gotten burned in the last year, they're now getting, they're basically getting run over again. Yeah, well, what I would say, one of the things I just want to point out, too, is I think it's important to recognize that the bond market is a massive market compared to the stock market, right? We're talking US probably $50 trillion is in the bond market globally maybe 150 trillion and you have to recognize what's going on in the underbelly here we've had we have bonds that these banks these institutions that people are holding in their 401ks or or at least in funds within there a lot of them are down 25 to 50 percent so i mean there are some on paper losses on the underbelly of this economy that are massive. But again, we don't have to market them in treasuries and maybe rates do pull back at that

point? We'll have to see. But there's some I mean, this is a major event going on that we I haven't seen in my lifetime. And again, if you look at the dollar yen, what's going on with that? Two things are driving it, right? You've got the supply issuance, which is a big deal, like the new supply issuance. But the secondary issue that is things driving is that in a healthy economy, what you should see is an upward sloping yield curve. You should see that investors demand a premium, meaning higher yields for longer dated instruments what an inverted yield curve is. So you ask, why is it inverted? Why do short end rates still have a higher yield than longer end rates? And I think it's largely been because people have consistently put on this recession trade, expecting economic doom, and they bought up the long end thinking that inflation is going to come down. Ultimately, if inflation doesn't come down significantly, you're going to see longer,

higher, longer end yields. that market's going to reprice to reflect that. Anything else to add, Scott, before we move on from the macro discussion? Actually, I've got a question. Is there any chance that the Fed will panic

and drop rates this year? I know it's an unpopular opinion, but is there any possibility for that to happen, especially if we see something breaking? And what would that mean for crypto and risk assets if that pivot the number one way to make that happen is a stock market to go down hard it's the history of all fed moves in the

stock market and the good lesson was ben bernacki's a curves act the good lesson is i'll just end with this as fact is everything the time the stock market's been down at least 20% on a 12-month basis since 1950, the Fed is eased, with the exception of one time in 1988, because it already collapsed for the 87 crash. So yeah, that's the number one thing I'm looking at to make this stop. That's what I'm worried about. Risk assets have

to go down, and the Fed's going to keep hiking rates. The Fed wants risk assets to go down. The Fed is targeting risk assets. They're targeting unemployment. They're trying to break this market, and the market is resisted remarkably. What I'm hearing from everybody is that the only way that rates start coming down is if the markets come down. No matter who I speak to, no matter what the opinion is, everyone's saying the same thing.

The interest rates will come down when something causes the stock markets to crash. Am I right? I will say, the history will tell if you're right, but that is the, if that's the consensus I'm concerned, but I think it's just definitely the fact

and it's basically what Joe said and what the Fed has been saying indirectly and it's how markets work in this environment to be still hiking rates yet everything leaning towards recession basically the market to prove the recession and typically you don't confirm the recession from the nber until stock market goes down a lot that's the risk hold on second. Let's go through a couple. Let's go through a little bit of history. So 1987 rates about 10%. Stock market

crashed. So the peak was a week before the crash. Correct. 1995, Mexican peso crisis. 1990, I'm looking at a chart here. I can't see exactly the dates. Asian crisis.

The tech bubble burst in 2001 was the peak of interest rates. The global financial crisis was the peak of interest rates. Look at this, look at March. Look what happened to yields in the week before SBB collapse and the week after. Yields plummeted because that is the fear trade, right? The fear trade is let's pile into treasuries and let's bring rates way down. So the higher the yield goes, the more indication you should have that nothing's breaking. That's what the market is telling you. Yes. Well, I would imagine that if Yellen hadn't come out during the SVB crisis and said all depositors are effectively covered, then we would have had something that would be very broken, right?

So that… If the Treasury and the Fed hadn't have worked together and effectively assured depositors that they would always be made whole, would we have a banking collapse on our hands? And, Rand, that's a very good point. Think about what's happened since that case. The Fed has kept hiking rates. So the government, the fiscal side, the Treasury side came in to back up banks. That was somewhat unprecedented to back up all deposits.

It used to be, what, $250,000 insurance. And at the same time, we've had this mass fiscal stimulus. So the number one thing in all markets is liquidity keeps being taken away by the Fed. It's kept the Fed to hiking. That, to me, is part of the great reset happening in real time. And I hope it doesn't work out that way, but that, to me, is the current trajectory. Yeah, just to give you the data, we were 5.05% on the two-year. Within five days, we fell from 5.09%. We fell all the way down to 3.6% in five a game or the fed the government's playing a bit of a game of chess here so what they're saying is look we want to keep increasing rates because we want

to slow down the economy what can go wrong well the banks can collapse hold on let's just let's just play a move that will stop the bank from from collapsing and then carry on on our mission to to to keep increasing interest rates and slow down the economy yeah i think they want other other things to collapse besides the banks right because that's a financial stability issue they want they want commercial they want real estate to collapse residential real estate they've targeted that in particular because they said the prices are to whack they want unemployment to rise rapidly they want certain other segments of the economy you know to all all to roll over so they're they're trying to target specific areas of the economy to all roll over. So they're trying to target specific areas of the economy. Yes.

I agree. I think there's different levels of collapses. I think the first level of collapse is the consumer collapse. I think the next level of collapse is company collapse. I think the next level of collapse is a banking collapse. And then you go all the way up until you get to sovereign collapse i'd love to get uh sam i think that's the first time you come on our stage we'd love to get your thoughts on on the discussion so far and kind of link and get more to crypto especially i saw you posted uh i think it was today you were

posting something i'm going to be posting about as well or not yesterday about the um the the massive amount of debt that the US is adding I think they added enough debt in one day that's like half Bitcoin's market caps maybe give us your thoughts on why I think that's concerning and link everything to crypto and your thoughts on the markets yeah well I agree with a lot of what Mike was saying and Joe in terms of you know a coming recession if you will and that the Fed wants asset prices to fall. But I think you have to consider the fiscal picture here. And they're already running these wartime fiscal deficits right now. And there's already declining tax receipts. If the stock market falls down 20%, well, stock receipts are going to continue falling as well. And we already have unemployment rate is

still at multi-decade lows. And so it poses the question, what happens to the deficit if a recession does come around? And is that inflationary? And so we've seen what the Fed has done. If history is any guide, I mean, just look at the chart of U.S. Treasuries held by the Fed over the last 20 years. I mean, it's just straight up into the right. And so if the Fed does come in eventually to try to help the fiscal side of things, You know, if we are entering this period of fiscal dominance where, you know, the fiscal situation overrides any kind of monetary policy, and we're talking about Fed independence here to an extent. But if the fiscal position and the problems there override the Fed's ability to kind of

focus on these other mandates and they'll have to come in regardless of where inflation is at that level. Well, in that situation, their balance sheet is going to explode once again. And so if you look at Bitcoin, and this was an interesting study by actually S&P Global, it looked at Bitcoin's price against the Fed's balance sheet. And so what it showed is a noticeable trend in the price of Bitcoin, where it rises when the Fed's balance sheet. And so what it showed is a noticeable trend in the price of Bitcoin, where it rises when the Fed's balance sheet rises, and it falls during when it when it starts to fall. So when during periods of QT, Bitcoin's price suffers during periods of QE, it rises. And so I mean, that kind of makes intuitive sense. And you can see the same trend when you look at annual returns for Bitcoin and the year over year changes in the Fed's total assets on its balance sheet. I mean, the two are very closely correlated.

So Bitcoin's performance is intimately tied to the fiscal profligacy of governments and the accommodated policies of central banks. And I think the fiscal picture is the big elephant in the room here. And if asset prices start to fall, if we're entering a recession, I think the fiscal deficits are going to explode. And the Fed will have to come in. And in that scenario, I think Bitcoin will perform well, just like it has in the past. So I just need to back up on what Sam said a little bit there. I completely agree with what's happening with the fiscal. That's a major thing. So we're, we increase the deficit on an annual basis right now about 8%. We've never increased the deficit at that pace ever without a recession particularly because it typically happens during recession because as you mentioned tax receipts

everything goes down capital and gains goes down and the fed government spends more the thing that's different now is you have to be careful comparing bitcoin to anything over history it's a baby it's been only around for 13 years it's only accelerated now it's hitting the stage of maturation you can see that with with the cash and carry from etfs and futures up the key thing that's notable about bitcoin compared to gold which has been a tradition traditional bitcoin still trades about two to three times the volatility of most risk assets gold in the stock market and when you hit stops you are never in risk assets with the highest volatility almost always go down so i completely

agree with you in the long term but in the shorter term haven't been one who owned a lot of gold in 2008 initially had to take a hit in that until it went up 3x because i completely expected what's happening you have to be careful with the number one leading indicator in the planet who's been pointing to problems there recently expecting it to go up when things go down that to me is the key thing is when you hit the trigger finger of stops you sell what you can and you know almost never sell treasuries with low volatility you sell everything with high value that's the one thing about bitcoin it's a baby it's the best performing asset in the planet it still has a very high volatility i agree i agree completely, Mike. It's

about timing at that point when we're talking time horizons. If we are entering that period, Bitcoin, I believe, will suffer as well. But when you think about the long-term value proposition, it's scarcity. That's when you think about, okay, if we are entering a period where the Fed comes in again and the balance sheet explodes, you have to think about ways to potentially, you know, hedge your portfolio a little bit. That's when Bitcoin's long term value proposition, I think, could be attractive. Oh, completely agree. Dave, I wanted to bring you in as well, before we dig into the move to the SEC story, the XRP story.

I get your thoughts on the discussion so far. And also, I saw you post a fair bit about the launch of the ETH Futures ETF. I know we covered that already, but I want to get your quick thoughts on the launch and whether we should look at least most expectations and whether that means anything. Dave, you there? You mean me, Dave? Yes. Yes, Dave. I do Yes, yeah, Dave. I do, I do, yeah.

Yeah, so, you know, as far as the ETF landscape is concerned, I wasn't expecting a lot out of the ETH launch. We haven't really seen much out of the ETH launch. You know, I think the reality of this is pretty clear. The ETFs here have always been the bridge products, right? That's the place where we've hoped that we would get institutional and advisor adoption. Sorry, you dropped out. Go ahead.

Sorry, continue. Sorry. They've been the bridge. That's what we've hoped. It's that the ETFs would be a trad-fi, defi bridge, because that's what allows things like advisors and retirement accounts to easily get access to some of these assets. And lo and behold, because we've done such a great job in this country of shutting down U.S. interest in crypto by misregulation, deregulation, malregulation, whatever we want to call it, we've sapped most of that interest out of the market. And that's why, you know, after a couple of days trading, what we're seeing is $5 million,

$10 million there and flows to the East, to the East Futures products, which is not super surprising. The flip side of that, of course, is that we did get the sort of the rumor mill running this week that the SEC had asked all the filers for spot products to update their S1s, their preliminary prospectuses. That is something that essentially never happens unless the SEC is about to tell you whether or not you're going to market. So I've gone from being a real bear on whether we would see a spot ETF this year to now being fairly certain we will see spot trading ETFs by the end of this year or maybe by the end

of the first quarter next year. So that's constructive at least. But I think until we really have some clarity in the regulatory environment, I still think we're going to see anemic responses to most of these launches. Well, since we're talking about the spot ETF, Preston, I'd love to bring you in as well and get your thoughts and Dave's thoughts on anyone else on the SEC story. I'm not sure if you've covered it as well, Dave, but Preston, I know you could talk about it. And that's the interlocutory appeal by the SEC was rejected. So now they have to wait till I think April, end of April for the hearing.

And that's regarding the ruling when it comes to Ripple Labs, the SEC versus Ripple Labs on whether XRP is a security. And just as a reminder, the ruling, if I remember correctly, that XRP that was sold on the exchanges is not considered a security. The XRP sold by the executives is not considered security, as well as the XRP distributed to, I think, developers or partners, something along those lines, is not considered security. The only thing considered as security is a private sale.

And then there was an interlocutory appeal by the SEC, and that today was rejected, which is another loss for the SEC. Not as major as uh you know the the you know there's still a hearing end of april it's not the end of it uh but at least the appeal was rejected and the reasons for the rejection now preston you can correct me if i get anything wrong but the reason the judge said is quote substantial ground for difference of opinion was not found um according to her and uh she did not agree that an appeal would materially advance the case towards conclusion because the sec was trying to get an interlocutory appeal because the ruling impacted other cases.

And they were referring to, obviously, Binance and Coinbase. And the judge also said that the – so she also said the decision did not conflict with the July 31 ruling by the judge Rakoff regarding Terra. And the SEC has said that they had a plausible claim that Terraform Labs token was a security when sold on public exchanges. So the judge is saying that this does not relate to it, does not conflict with that ruling. Preston, did I give a good overview? Did I make any mistakes? And maybe you can add more context. Yeah, no, I think that's a fair overview. I mean, so sort of condensing that, basically the SEC sued Ripple. Ripple and the SEC engaged in some preliminary motion practice. The SEC won some things. Ripple won on some other things. The SEC said, hold on a second, we disagree that Ripple should win on this point regarding secondary sales of XRP.

And we think that the litigation, right, this is an essential point to the entire litigation, right? So what we want to do is we want to appeal that right away so that when we go to trial, we can go to trial on all the issues and not just the investor sales and Brad Garlinghouse and Chris Larson's, you know, sales of XRP, which is what they're going to go into trial for next year. So they applied for leave to appeal, the permission to appeal. That was denied. So they've got to go to trial on the issues that have been preserved for trial. And then what they've got to do is, once that trial is complete, they've got to appeal the

whole thing, right? So they're not going to be able to appeal this one particular issue regarding secondary sales of securities. I mean, so that's the state of play. I mean, if you want, I can talk about what I think of Judge Torres's ruling, but that's kind of where we are. Michael? Yeah, I just wanted to say I think you did a pretty good breakdown right there. The one thing I wanted to add, right, is like XRP is never a security. Depending on the sale of how Ripple sells that XRP, that sale might have to be registered in the future with the SEC. But Judge Torres was very

clear in her original decision that XRP itself is never the security. And even in this most recent ruling, she went out of her way to say that Ripple does not own the XRP ledger. Right. So what we're seeing is it's very clear going forward. XRP is not a security. And I think we just saw Judge Torres telling the SEC once and for all. Look, I was clear the first time this isn't changing. The SEC brought bad facts to this case and they're getting rebuted pretty hard by the legal system well i think you're 100 i think mickles i think mickles is is right that i think what the sec did through requesting this interlocutory appeal was actually do it maybe a little bit more damaged than good because the judge firmed up her ruling

and said more things than she said in the original ruling which now makes another appeal much harder. It's kind of, Judge Torres' ruling is it was wacky when she first did it, and it's kind of still wacky now. There's a lot of disagreement, even within the Southern District of New York, right, even within the district, let alone the circuit, as to whether what she's determined with regard to the secondary sales is right. Judge Rakoff in the Tara case declined to follow it. He elected to follow the logic and reasoning that was applied by Judge Castell in the Telegram case a few years ago. So I think that, you know,

again, there's not really a whole lot to update here. Yes, Ripple, this is a victory for Ripple, no doubt. And it's an interesting victory for the crypto space. Does it mean that Ripple, no doubt. And it's an interesting victory for the crypto space. Does it mean that Ripple tokens aren't securities? No, right? Not necessarily. That's what we've got is we've got one judge who's kind of a little bit off-piste here in making that determination because it's at variance with all kinds of other rulings that have come out of the Southern District of New York.

So, yeah, it's a bit... Joe, I'm interested. You said my take wasn't right. I'm interested. It's not right that anything in this ruling makes it more difficult to make a later appeal. That's wrong. The law favors, under the federal rules and under most state court rules, it favors appeals of final judgments. That's the standard. It's either right or the law. So, it does not like to do piecemeal appeals, okay? This is a simpler way of saying it. If you seek an interlocutory appeal, you should know as a litigant, whether you're the SEC or any other party, and I filed plenty of them, that your chances are slim to actually get it granted, okay?

You have to show all the factors that the judge sets forth in the order, which, you know, substantial difference of opinion on certain issues. You have to show that it's going to expedite resolution of the merits on the overarching dilemma. So you have a high standard to meet, right? And just because a judge refuses to grant an interlocutory appeal does not in any way impinge your rights at the end of the case, in the event that you're not happy with the judgment. I'm going to quote a tweet by Jeremy Hogan. He says, the SEC's motion for a locatory appeal denied, which means the case either goes to trial in April or goes away.

And this order allowed the judge to explain parts of the ruling even better, making appeal that much harder for the SEC to a disaster for the agency. No. That's not right. He's wrong. Sorry. I don't care who's saying it that's incorrect and you don't think that the additional language that she used in the the appeal and the additional explanations just you know like she she gave one ruling and then

she elaborated on that ruling and in the elaboration of the ruling she she created like many more points that if they wanted to appeal they would now need to appeal well here's the thing here's the thing there her ruling was widely criticized right the first time it came out everybody kind of looked at it and was like like where is where is this coming from this idea that if you sell a coin to an investor it's not an investment contract but if you sell it to to an investor, it's not an investment contract. But if you sell it to a retail investor, as opposed to an institutional one, it suddenly loses or sorry, it suddenly loses its investment contract character and becomes not an investment contract. So I got like rinsed, like even within my own firm, I wrote a blog post at the time, like clients were

complaining, my partners were complaining, like, why are you saying this? This is like, this is good for us. And it's like, well, it might be good for the space. Right. But only if it holds and only if it holds and withstands continued, you know, a regulatory assault by the SEC. And that could be this SEC and this regime couldn't be in place for a very long time. If Biden wins reelection, or Harris or Newsom or whoever else and their priorities stay the same. So like, we're looking for something that's a little more concrete. The initial judgment was wacky. I don't think we should be surprised that the judge then declined to overturn herself, right? In a later order. She's not going to do that. So I need to jump in and make a quick point here. I mean, the decision is wacky for people who don't like XRP. And for people who always against Ripple from the start. I mean, if you look at the lawyers like John Deaton and Jeremy Hogan, who've really been right throughout this entire case, right? They broke this down in very, very logical ways, and they've been spot on.

It's really the people who have been anti-Ripple and XRP from the beginning who have really been coming out recently and being like, oh, this is a wacky ruling. It doesn't make sense. It's very simple, really, right? If you're just buying XRP in the open market, not directly from Ripple, that's not a security. If Ripple is directly providing you that XRP on the back end, then that was a security. It's really easily broken down. That's really unfair. Here's why it's unfair. It's unfair because these issues, okay,

if you want to be fair-minded about this, okay, what you should say is that these issues are new and novel, and they have not been addressed by, you know, a ton of courts. So you have to look at them and say, okay, yes, you can think that that's your theory, that secondary market sales are not investment contracts, but there are plenty of folks on both sides of the aisle on this dispute that disagree. Some say it is, some say it isn't, and courts address this. And it will work its way through the first level of courts, then it will work its way through the second level of courts until you have pretty solid case law that everybody can be comfortable with. That's how the legal process works.

Additionally, we've got Telegram. Hold on. The Telegram case addressed this issue specifically, right? Because Telegram dealt with a primary distribution and an intended secondary distribution and they said listen if you're going to be doing this the people who are going to be effectuating that distribution to secondary sellers are statutory underwriters and as a consequence this is a public offering by stealth right and you're not allowed to use regulation d which is the private placement exception in order to carry out a public offering by stealth so we have have within the Southern District of New York, right, prior cases which deal with very similar issues, which broke the other way. So yes, we have in this case, Judge Torres is saying, well, Ripple, this is my interpretation

of it. This is how I interpret secondary sales. But that's certainly not going to be the opinion of all of the judges in that district or all of the judges in the United States. And there's, I think, considerable cause to think that it's going to eventually be overturned if it gets that far. And you should recall that some of the folks that you mentioned earlier, the legal commentators, argued vigorously that the institutional sales were not investment contracts. They were. That's been ruled by this judge who's hostile to the SEC, it appears. Dave? Yeah, I was just going to say that, you know,

we're putting a lot of emphasis here on individual court decisions. None, in my opinion, none of this is actually resolvable until there's actually legislation. And so all of this is basically a delaying tactic towards what I would consider the next reopening for U.S. investors to the complete ecosystem, which is when we actually get legislative relief. We're basically in this position now because we have this dysfunctional SEC of doing regulation by litigation. That is not a functional way to run any kind of system so i don't disagree that these are definitely interesting and core issues but they have real impacts on how we think about traditional

securities law as well and so i think until we actually get some kind of legislative response that helps us understand what the u.s crypto market is supposed to look like i i think that it's very easy to get caught in the weeds of these individual decisions about whether or not this gets appealed or that gets appealed, or whether this case contradicts this other case, all of those things, that uncertainty itself has this incredible delaying mechanism on any real focus from the capital structure towards these products and these protocols. So I still think that this is a lot of sort of circling around the whirlpool. And until we end up with either a new SEC that's willing to be, you know, play by its

own rules a little bit better or an actual legislative solution, I don't think we're actually getting real resolution here in the next year or two. There's how. Sorry, just one more thing if i can um there's there's actually within the crypto lawyer community there's a there's a huge debate going on right now about whether we should try to take a case up to the supreme court and get it ruled on there right or whether you should adopt legislative change the folks who are in who are pro take it to the supreme court are guys like lewis cohen and Gabe Shapiro, who read the plain text of the Securities Act of 1933.

And they say, listen, it's really clear that what we're dealing with with cryptocurrency isn't the security, even though some of the early transactions are sort of security-ish. Right. And so we should bring it all the way up, roll the dice and see what happens saying listen congress is clearly going you know the sec has gone too far congress never intended it let's go back to an originalist interpretation of the statute because we've got an originalist court and see what they actually meant i think the other side is nitpicking and right saying well again it is an investment contract we've got 90 years of press there's 70 years of precedence in half since howie and blah blah blah blah and all that i think if we look to other jurisdictions outside of the United States, that actually gives us a better sort of guide as to firstly, it gives us some ammunition that we can bring to our legislators and our regulators saying, listen,

this is how they do it over here. And it's, you know, their society hasn't collapsed. And second, it sort of gives us a guidepost for saying, okay, here's what the regulation should be shaped like and look like. Because at the moment, the U.S. is kind of doing incremental. They're proposing incremental changes where the existing regimes continue to apply to crypto. But I and others think that crypto is a sui generis asset, which just hasn't quite found its product market fit yet. So in that setting, we look to like the U.K., for example. They have a pretty strict crypto regime.

It's actually entering into a force next week for financial promotions. But one thing they haven't done, notably, is they have not reclassified cryptocurrency as a security, right? If you market or arrange deals in or sell cryptocurrency, right, you're going to have to comply with certain customer protection rules. But one thing they didn't go do, right, they did all of this stuff around customer protection and disclosures and everything else. But the one thing they didn't do is they didn't reclassify it as a security, meaning that spot exchanges for crypto, you can still buy, which is the principal source of liquidity for the crypto markets, you can still buy and sell, right? You can still get on that, you can still trade it, you can still talk about it on a forum, you can still buy stuff with it, you still self-custody it in the united states we haven't done that because they're

trying to shoehorn the whole regime into the securities regime so the day perfect absolutely great point um but i read legislation is the answer here and we've got to start figuring out how we can kind of pull ourselves out of these discussions where we're chasing our tails about how he means to look at the bigger picture Here on that point last question I have with I want to kind of move on to the final point of the day is that How how big of a role do you do the court rulings play on legislation though? I Mean I think they're big and when you saw the XRP decision first come down, you saw a lot of different policymakers specifically who have been really proactive in this crypto space tweeting about it and saying, yeah, this is what we've been saying. They're obviously paying attention to these things. These are very complex issues. So getting legal opinions on long drawn out cases

are very important. And I think ultimately they get this gets built into a lot of the legislation. If you look at what's being put forward right now, most of it isn't that these tokens are securities. Most of them have some sort of commodity attribute to them. So I think it's actually playing a pretty large role in how these different things are being drafted. I don't think as much in legislation. It's far more important what party is in power. And what you're seeing in Washington is there's a continual divide. There's more and more of a sort of hardening of the conservative blocks are sort of more pro-crypto, pro-innovation, quote unquote, and the more liberal senators and congressmen

are tending to be anti. So you're seeing a partisan divide. So I think in terms of forming what legislation actually would get passed and signed by, you know, whoever is the president, it's going to be more impactful who actually is in the right in the halls of power. Yeah, I agree with that. But the caveat to that is the more disagreement there is between the judicial pieces of this, right, so the point was brought up that we already have like contradictory things just going on in New York, the more those contradictions are embedded in final decisions, the more likely we see a legislative solution. If, in fact, what we saw was sort of a universal judicial path here where all of these cases were getting decided the same way,

establishing the same case law and then subsequent cases effectively being summarily dismissed or approved based on that case law, I think that would make a legislative solution less likely because that would encourage, you know, particularly the House of Representatives to just sort of say, well, it's being taken care of. We have other fish to fry. I think the more chaos in those decisions, as much as I don't really want that, the more likely I think we get a bunch of slightly more centrist senators and reps to come together and say, look, maybe neither party wants the same exact answer, but we have to solve this because it's bad for American competitiveness. Yeah, I think that's right. Guys, one thing that we didn't mention, and it's probably not that impactful, but it definitely has to be mentioned, I think, obviously, is that

Kevin McCarthy was, you know, ousted as the Speaker of the House yesterday. His replacement, at least temporarily pro tempore is Patrick McHenry, who's arguably the most forward thinking on crypto and certainly the most open minded pro crypto legislator that we have in Congress. Now, I'm not going to go out and say that's going to be particularly impactful, that he'll last long. But it is interesting that we have people in the halls of power legislating that are actually pretty forward-thinking and positive on this industry yeah i think on that point scott so go ahead sam well i was to dave's point about the contradiction i mean we just had a perfect sign of that yesterday when coinbase tried to dismiss its sec's lawsuit the sec's

lawsuit based on the ripple ruling um but they denied that citing the subsequent ruling in the terraform labs case and so it's just a perfect example of the you know contradictions that's occurring in these courts cool on that point scott was going to mention the the the the coinbase asking the judge to toss out the SEC suit. So what you're saying is that the judge refused to toss out the Coinbase suit? Is that the decision was already been made, Sam? Yeah. So Coinbase asked a federal judge to dismiss the SEC's lawsuit based on the Ripple Labs court ruling. But the judge refused.

Yeah, because they cited the terraform labs ruling and so it just kind of shows oh thank you that's a bit all right hold on didn't didn't the first judge say that that there's no relation between the terraforms ruling and her ruling and the and the the need for a interlocutory appeal and then this other judge said that because of that Terraform's ruling, they refused to toss out the SEC lawsuit. Is that right, Sam? No, no. Yesterday, the SEC filed its response to the motion to dismiss.

Yes, exactly. Yeah, okay. But the judge... There wasn't a ruling. Yeah, that's what I thought. That's the news that I had. There's no ruling done. So the Coinbase asked the judge to toss out the suit,

and the SEC said that Coinbase's argument are, quote, nonsensical. But I didn't know there was a ruling. That's why I thought I missed the news. All right, cool. So there is no ruling on that piece of news. All right, cool. There will be a reply that's filed by Coinbase. The reply will be in support of their motion to dismiss, and we'll get that.

So if I recall, maybe Preston knows from the briefing schedule, you still got you know you're probably gonna get have months before you get ruled and mario something interesting being pointed out by some of the legal analysts in the xrp communities uh judge torres made it very uh made a point to make sure that her ruling was only applied to xrp specifically in her interlocutory appeal. So this is something people were pointing out where it might be harder for other tokens or even someone like Coinbase to actually use this going forward. And she was just a little more specific than she was in her prior

ruling. So it's something to consider because we have seen almost every single crypto player kind of go to the Ripple SEC case and cite that as kind of a way forward. So it's important to note that she did kind of narrowly tailor it to XRP slightly more in her response in the interlocutory appeal. She also includes the contradictory footnote that doesn't make any sense at all that says that my ruling doesn't apply to secondary market sales, which is a kind of confusing statement in all respects. What do you think is confusing about that, Joe? I just had to clear up. She's saying, she outlines the logic almost very clearly, I think,

although I disagree with it, about why the market sales, the exchange-based sales, the programmatic sales, rather, that those are in fact not investment contracts. But then she puts in a footnote at the bottom that I'm declining the rule as to whether secondary market sales are investment contracts. I don't see how those two things

are not mutually exclusive. Couldn't it be because every single secondary sale is different so I could package XRP in a way that's security and she can't make a ruling based on every single secondary sale to ever exist? First of all, I think if you go back to the programmatic sales, they're all based on exchanges, okay, which is a secondary market sale. Okay, it's done in a blind way where you don't know

if you're purchasing from Ripple Labs or elsewhere. And if that logic holds true, that those programmatic sales, which occurred over years, are not investment contracts, which is the big if, then by definition, secondary market sales are not investment contracts. You can't have both those two things. Yeah, I got a different opinion from John D. And he seemed to think it was because he couldn't make it. We've talked on this space about that. He agrees with me. He says that there's a contradiction in the opinion on that. You can reach out to him if you want. I've talked to him at length about this. I don't know. I think she just put that in there to sort of allow herself wiggle room, I guess.

Cool, guys. I think on that point, I was going to talk about the EU, the CBDC in Europe, not a retail CBDC, a wholesale CBDC that's launching very soon. So the governor in France of the French Central Bank said that CBDC experiments will be rolled out next year, including trials with real transactions. But a permission network, so he's talking about a permissioned network, so kind of a centralized blockchain, and the benefits of that for bankers.

So bankers saying it's important for managing inflation, maintaining financial stability. I know it's a really good debate to have, and we've been pretty critical of CBDCs. And then wholesale CBDCs, primarily used. So the wholesale CBDC that's launching very soon, I think in the next couple of months, before the end,

no, it says next year, they'll be rolling it out. But that'll be a wholesale CBDC, which can be used between financial institutions for interbank settlements. It's not a retail CBDC. But we can cover that tomorrow. I think we've covered everything for today. We'll see all again tomorrow scott anything else to add i think we

covered it cool all right guys and make sure you follow the other co-host which is the red icon ran dropped out so i've co-hosted the red icon make sure you follow that red icon because we're going to be hosting shows from there and we'll see you again tomorrow at the same time thanks everyone