Unchained - Could the Bank Secrecy Act Harm Crypto? Coin Center Thinks So - Ep. 571

Starting point is 00:00:00 It's much better in all legal areas and policy areas generally to have technology neutral standards. And the amazing thing about that original broker definition, which should just be the definition here as well, is it doesn't mention technology anywhere. It's about a relationship between the customer and the professional. It's about a trust relationship. Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin. author of The Cryptopians. I started covering crypto eight years ago, and as a senior editor at Forbes, was the first

Starting point is 00:00:35 Main Tree Mead Reporter to cover cryptocurrency full-time. This is November 17th, 2020-free episode of Unchained. VaultCraft by Popcorn is your no-code DeFi toolkit for building automated, non-custodial yield strategies. Learn more on VaultCraft.io about how you can supercharge your crypto portfolio. Arbitrums leading layer-2 scaling solution offers you ultra-cheap and lightning-fast transactions. all with security rooted on Ethereum. Visit arbitram.io today.

Starting point is 00:01:04 Today's guest is Peter Van Valkenberg, director of research at Coin Center. Welcome, Peter. Hi, Laura. It's always a pleasure to be here. Pleasure having you. There's a new broker rule that's being proposed by the IRS

Starting point is 00:01:17 for tax reporting that is causing concern in the crypto community. What does the rule say and why has it gotten so much attention? Yeah, so a broker rule means it's the definition of who is a broker for IRS third-party tax reporting purposes. And for those of you don't know what IRS third-party tax reporting means, it's like if you have Robin Hood as your platform for trading stocks, you've probably noticed that at the end of the tax

Starting point is 00:01:45 year, they send you a PDF of all of your trades and your capital gains, right? Well, they also send that PDF to the IRS, of course. That's third-party reporting. You know, they're a third-party to your trades, and they report, you know, your capital gains to the IRS so that the IRS can have a pretty good idea whether you're honestly reporting your gains back to them. It's kind of a silly system in a way, because if the IRS already knows what you owe, why do you have to tell them what you owe? But that's the system we have. And so about two years ago, Congress decided, okay, well, we should have better,

Starting point is 00:02:17 clearer third-party reporting obligations for persons in the crypto space, right? And that's actually quite a reasonable thing for Congress to say. Coin Center had been advocating for a very long time that we needed clearer standards from the IRS so that people like Coinbase or Cracken would know exactly how they're supposed to do third-party reporting, and people who use those exchanges for their crypto trading would be able to more easily comply with their tax obligations because they'd get like they get from Robin Hood a really clear picture of their capital gains for a given year. Congress had a big fight over it, if you guys all remember. I think either me or Jerry probably went on this podcast back then and talked about it, because the

Starting point is 00:02:57 the early draft of who should be a broker in crypto wasn't just Coinbase and Cracken. It was this new definition of broker that would sweep in non-custodial exchanges was actually in the early discussion draft and decentralized exchanges was in the early discussion draft. And so we fought about it. And we actually delayed the passage of the Infrastructure Act was this massive new Biden initiative for a few days because it got so ugly in the Senate. And we got the original discussion draft language removed, which meant that the new definition looked a lot like the old definition of broker. Just now, if you're brokering digital assets instead of brokering securities, we're going to get guidance from the IRS as to how you can do third-party reporting.

Starting point is 00:03:38 And so we treated that as a victory. We thought it could have been better, but Congress pretty clearly said, look, we're going to have third-party reporting in crypto, and brokers are going to be defined as something that's not too different from brokers in the traditional space. They just happen to trade digital assets for people instead of securities. Fast forward to now, it's taken all this time for the IRS to actually have a rulemaking to implement that congressional change by coming up with guidance in rules about how to interpret that statutory change and what the obligations of brokers and crypto are all about. When the IRS issued its guidance, it's as if they took the original discussion draft language which said, we're going to cover decentralized exchange and forgot the Congress threw that language out and actually passed a different statute. And so the broker definition in the rules that we have this comment period on would include all kinds of people, including people who merely publish software if when they publish the software to say the Ethereum blockchain or the smart contract address, they have any ability to change the fees charged by the smart contract for usage of the smart contract.

Starting point is 00:04:42 And so that's a lot of people. And that's a lot of people who are not in any way traditional financial organizations or institutions. And so from our perspective, this is unconstitutional. From a First Amendment perspective, because it's compelled speech, any kind of compelled disclosure is compelled speech, we usually accept that corporations can be made to disclose uncontroversial facts, like when the packet of cigarettes has a warning label on it. That's okay. That's the kind of okay compelled speech.

Starting point is 00:05:13 But we never accept that the government can compel people to speak something that's creative or expressive or is a viewpoint that goes against their closely held views. That kind of compelled speech is just unconstitutional in the U.S. because you're supposed to be able to speak your mind. And this rule, by forcing people who develop software that does not create a customer relationship, change the way they develop their software to actually create a customer relationship, collect information about their users' capital gains and other personal information, you're forcing them to say something that is deeply against their closely held

Starting point is 00:05:44 views about privacy and civil liberties. and so we think it's an unconstitutional compulsion to speak. That's the first half of our comment. The second half of our comment letter to the IRS about the broker definition is about the Fourth Amendment. And the Fourth Amendment is this idea that, you know, in the U.S., before the government comes and searches your records of your financial transactions, like especially if you kept them in your home, for example, they need to go get a warrant from a judge. And the judge is going to say, do you really have probable cause to go investigate Peter Van Valkenberg? Do you suspect him of a crime? Do you have some evidence to support that suspicion?

Starting point is 00:06:16 And ideally, the judge would get in the way of somebody abusing their prosecutorial or investigatory discretion. This is why we have a system of, you know, law and checks and balances in this country. And so third party reporting is kind of interesting from a Fourth Amendment standpoint because when Robin Hood sends the IRS your capital gains tax information, they do it without the IRS having to get a warrant to go get that information from Robin Hood. And the thing is, when it comes to normal brokers who are acting on behalf of their customers, we have a longstanding exception from the warrant requirement for that kind of reporting. The courts fleshed it out a long time ago in California Bankers Association versus Schultz

Starting point is 00:06:56 in a number of cases said, look, you lose your reasonable expectation of privacy when you're asking someone to act on your behalf. Like Coinbase is your agent. They're acting on your behalf. And so when you hand information to them, government can go get information from that agent. But again, in the broker rule, mere software developers are now going to be required to report. Those people are not my agent. I don't have some sort of fiduciary relationship with me. They have no business collecting this private information about me.

Starting point is 00:07:23 And if the government wants them to do that, they're going to need to get a warrant to collect this private information about me, rather than just assume they can get it through a normal administrative search or subpoena. So those are the two arguments that we make in our comment. And I know it's kind of like a big block of Peter Van Valkenberg audio, but hopefully It also lays out the gravity of this. It affects crypto in a pretty big way. It's going to be very difficult to imagine how a lot of people in crypto will comply. And also the civil liberties concerns involved.

Starting point is 00:07:52 I think it's just it contravenes our First Amendment and Fourth Amendment rights. Ideally, the IRS will change the final rule sometime in the next few months. But we'll see. Well, what's interesting is what you said at the beginning, where they already had language that had been substantive. Like, you know, you're saying that they reverted to the language that people had fought against. And so they already have kind of a revised version. Or I don't know if it's they, but, you know, there is a revised version out there. So, you know, just briefly, I guess, like, why don't you say, I mean, I guess if it's just similar to what's been the case, then, you know, what do you think is the best way for the IRS to accomplish whatever goal it is that they're trying to accomplish with this role.

Starting point is 00:08:31 Totally. Yeah. So, and this is, I'm glad you asked this because I think a lot of people think, oh, Coin Center, they're a bunch of anarchists. They just want to see the government collapse or something, you know, from lack of tax revenue. And that's simply not true. We've been asking, we've even asked members of Congress, like Representative Tom Emmer and a few others who stood up for this issue, asking the IRS to give us clarity as to how real brokers in this space, like actual trusted entities like Coinbase, crack. And even just like a typical like investment advisor, if they happen to be giving you advice about crypto, how they can do third party reporting. Because the standards weren't clear. There's a lot of like nuts and bolts things that the IRS. needed to give guidance on, like, how do you calculate basis? What happens in the event of,

Starting point is 00:09:12 like, a virtual currency fork where suddenly you have Bitcoin and Bitcoin cash? You know, how do we, how do we account for capital gains in that situation? And so we want good third party reporting because it means that Americans who want to pay their taxes will be able to better and more easily pay their taxes. And that's good for everyone, including crypto, including the government. So what the IRS could have done is just said, look, we've got an existing definition of broker. It's based on a few very specific definitions in the tax code, like the definition of what it means to affect a transaction, and the definition of what it means to have a customer as a broker. And you take all those definitions, you'll just have to take my word for it, or you can read our comment. You take all those definitions, and what you come up with is the existing standard for who is a broker is someone who is an agent of a customer.

Starting point is 00:10:00 so they're acting on their customer's behalf or a principal in a sale to a customer. So they're like one of two people in a sale and their business is selling to people. They're like a dealer in something. That's a very reasonable definition. It should be the definition in crypto, but instead we're going down this rabbit hole of talking about people who publish software and control the fees for the smart contracts on that software. You know, it's much better in all legal areas and policy areas generally to have technology neutral standards. And the amazing thing about that original broker definition, which should just be

Starting point is 00:10:35 the definition here as well, is it doesn't mention technology anywhere. It's about a relationship between the customer and the professional. It's about a trust relationship. And so where that trust relationship exists, regulations probably should apply, because when you're asking someone to trust you, you should probably have somebody watching over you to make sure that you're trustworthy. But when you're just publishing software and anyone in the world can use that software, it's like obligating a novelist to, you know, monitor who's reading his books by having a bunch of in-person book signings and then like seeing who shows up and then going to the government being like, ah, these people showed up. Like, that's a ridiculous way to do regulation.

Starting point is 00:11:14 Anyway, I'll stop ranting. All right. Well, so in a moment, we're going to talk a bit more about the Bank Secrecy Act, but first a quick word for the sponsors who make this show possible. Arbitstrom stands at the forefront of innovation as the premier suite of layer two scaling solutions. bringing you lightning-fast transactions at a fraction of the cost, all with security rooted on Ethereum. From Defy to gaming, Arbitrum 1 plus Nova is home to over 500 projects. And with the recent launch of orbit, Arbitrum welcomes you to build your very own tailor-made layer 3, or an orbit chain. Propel your project and community forward by visiting Arbitrum.io today.

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Starting point is 00:12:24 With Amex Platinum, you have access to over 1,400 airport lounge is worldwide. So your experience before takeoff is a taste of what's to come. That's the powerful backing of Amex. Conditions apply. Back to my conversation with Peter. One quick question is that I have a feeling that the IRS's purpose was to make sure that they are collecting taxes from people engaging in Defi. So how would you propose that they do that if you agree with me that that was part of the purpose. I think a lot of people end up cashing out by going to a centralized exchange, right? So if you think your target of taxpayer who is noncompliant is getting away with it, it's going to be evident in third party reporting from custodial entities when they're getting

Starting point is 00:13:13 away with it, right? When they actually go to cash out into dollars or something like that. You know, the other thing I'd say is with respect to the way we run our tax system in general, it's a voluntary reporting system. And so, you know, we are supposed to pay our taxes. We're supposed to disclose our income to the government every year. And if you're not doing that, then you're violating the law. And I don't believe that law enforcement needs to level our First Amendment and Fourth Amendment rights to have the tools it needs to find the people who are manifestly lying about their taxes.

Starting point is 00:13:47 I just, I think the Constitution and an efficient and well-enforced tax regime can coexist. And so what does that balance look like? Well, it's going to look like probably more boots on the ground doing tax investigations in the areas where we have less third party reporting, like a whole bunch of purely defy transactions. And, you know, that means the IRS probably needs more funding. And I'd be the first to stand up in Congress and agree that the IRS needs more funding to accomplish that mission. But I'd also be the first to stand up in Congress and say, the IRS can't, however, declare the First and Fourth Amendment invalid. That's not how America works. Yeah, well, speaking about amendments and the Constitution, this week you published a research paper asking if the Bank Secrecy Act was unconstitutional. And before I have you dive into your argument, you told me before we started recording that you actually wrote this paper two years ago. So why, yeah, why did you write it then and why did you not publish it until now? So that's a good question. And yes, I did tee that up. So this paper is part of a story. series. We wrote in 2019, Jerry wrote a paper making the moral ethical case for digital cash, like why private money is just good for an open society. I wrote a paper in 2019 that we published then, which was the constitutional law aspects of trying to apply the Bank Secrecy Act to software developers, but specifically the First Amendment and Fourth Amendment constitutional

Starting point is 00:15:16 issues, which I helpfully just went through with respect to the broker comment. These are different statutory laws, one's tax law and one's financial surveillance PSA law, but the First Amendment defenses to overapplication of those laws, the First and Fourth Amendment, have the same interpretation in both situations. So that was that 2019 report. Now, this new report's called broad, ambiguous, or delegated constitutional infirmities in the Bank Secrecy Act, and it's not about the First or Fourth Amendment, because we made those arguments back in 2019. It's about our constitutional separation of powers. So in the United States, under Article 1 of the Constitution, which gives powers to Congress, all legislative authority is vested in Congress.

Starting point is 00:15:56 And that means Congress can't go and say, hey, Mr. President or, hey, Supreme Court, you're now going to get the power to make law that would violate the Constitution. Even if the legislative body is like, we're legislating and we're going to legislate to give you legislative authority, they can't overrule the Constitution. And so the problem with the Bank Secrecy Act that we go through in this new paper is not about the First Amendment or Fourth Amendment implications, but that we're not about the First Amendment implications. But it's instead about the fact that when the Bank Secrecy Act was passed at the 1970s, it basically gave a blank check to the Secretary of Treasury to say, you know, there's this

Starting point is 00:16:31 category of persons in the world called financial institution. From those persons, we want all these reports, suspicious activity reports, currency transaction reports, all this surveillance. You can decide, though, who's in that category. You could decide that, you know, an insured bank is a financial institution and needs to do reporting. But you could also decide that, casino is one. And you could decide that a money transmitter is one. And oh, by the way, the definition of money transmitter we're going to give you could actually be stretched to apply to basically anybody who transmits money, even if it's their own money for their own purposes. It's a money transmitter under the statute. And so there's this huge breadth of authority that the BSA gives

Starting point is 00:17:10 the Secretary of Treasury. And the Secretary of Treasury for a number of years used it pretty wisely. like they only asked for reports from insured banks, which to me is quite reasonable. But, you know, from the Patriot Act onward to a lot of the rules and regulations that have been implemented by the Secretary of Treasury, we've seen the category of financial institutions stretch to become extremely large and effectively unworkable to the point where we have to question whether this authority to just decide when to apply the statute and when not to apply the statute is constitutional under the non-delegation doctrine, under the notion that the law making power should only be vested in Congress and shouldn't sit with an unelected official

Starting point is 00:17:48 within the executive branch. So that's the idea behind this paper. It's 60 pages long. So if this has been interesting to you, you can read all the case law and all the factual findings that we make. But to answer your other question, why are we just publishing this now if I wrote it about two years ago? It's, you know, it's funny. We actually like the way that FinCEN, the division of Treasury that focuses on BSA policy as crafted policy using this discretion. Since 2019, virtual currency guidance, they came out and said, you know, the only people who need to do this kind of reporting, this kind of mass surveillance, are people who actually control other people's crypto. They have independent control. And that's probably the right choice. Like, that's the insured bank

Starting point is 00:18:35 within the crypto context. They're not insured always, but that's the big financial institution that it seems reasonable to obligate as a surveillance tool, as a deputized surveillance entity. It's not reasonable to extend that authority to software developers. So when the broker rule came along, recognizing this as IRS, not FinCEN, we said, all right, well, it's happening. People are starting to take these broad rules and apply them to people who are not traditional financial intermediaries. So we should probably publish that paper where we talk about how that authority is unconstitutional,

Starting point is 00:19:07 even though we agreed up till now that the usage of that authority was pretty good. So it's a fairly pragmatic calculus as to why we didn't publish two years ago. You don't want to go to somebody who's actually a good regulator and doing a good job limiting what could be a disastrously broad statute and say, you don't have any power to actually limit that statute. Now we're out here maybe saying that. Well, we are saying that because we're afraid that some future administration that's very hostile to crypto that might want to, quote, wage a war on crypto is going to abuse all that power. So we want to make sure that we're clear that that power can't be stretched to absurd limits and might be an impermissibly delegated

Starting point is 00:19:47 authority from Congress to begin with. And so now that you've published this paper, is there something kind of on the ground that you can do? Like I don't know how things like the Bank Secrecy Act get changed. So is there some kind of like practical way that you're going to go about trying to get your ideas, you know, put into practice? I mean a few things. So we have worked with champions in Congress who care about innovation and civil liberties, like Representative Tom Emmer in the House, for example. He put forward a piece of legislation that would have created a safe harbor saying these rules can never be applied in an overbroad way to these sorts of people, to software developers, to people who don't control other people's money. So that's one avenue is to continue to work with Congress to use Congress's actual authority to narrow the impermissibly authority that exists already in the Bank Secrecy Act. The other way is court battles. Now, we're not going to sue because still to this day, the Secretary of Treasury has not promulgated a rule using that unconstitutionally delegated legislative authority that would do something

Starting point is 00:20:57 particularly bad, like obligate software developers to be BSA compliant. We've seen it now in the broker context, but that's the tax code. We haven't yet seen that power abuse. in the BSA context. So we're publishing this now, basically to get these ideas out there such that when this happens, if this happens, people would be able to bring a lawsuit saying the power that you're using to unconstitutionally expand the Bank Secrecy Act is not valid. Here are the arguments we're going to fight you in court. Hopefully we get all the way up for the Supreme Court, where, as you can read in our report, there are numerous justices who are deeply skeptical of unbound power within the administrative state. We saw that in West Virginia versus EPA,

Starting point is 00:21:43 where the major questions doctrine came up. We've seen that in the justice's willingness to narrow Chevron deference. And I think the big one, the shoe we're waiting to drop is we've seen in Justice Gorsuch's dissent in a case called Gundy, him signaling, you know what, we need to revive the non-delegation doctrine. Congress should be making laws here. They're the elected officials within a democracy. And when something's really consequential, Congress should be the one that chooses, not the agency. So I think this report kind of tees up those issues with respect to the BSA, such that if we ever had to fight a big expansion of the BSA to software developers, we could fight it on First Amendment grounds, on Fourth Amendment grounds, and on non-delegation

Starting point is 00:22:23 grounds, which, as I just said, are pretty hot right now at the Supreme Court. Yeah, and just some of those terms, Chevron defense and non-delegation have to do with when there's, like, ambiguity in a law, then, you know, who decides how to interpret it? Like, is that Congress or the courts? Exactly. And if I, okay. I'm glad I got that right. Yeah. So on that, one thing that's it, so I started writing this paper thinking, oh, well, they're really interested in narrowing Chevron deference and in, you know, the major questions doctrine. And so is the Bank Secrecy Act ambiguous? This is like my research topic going into looking at the Bank Secrecy Act statutory text.

Starting point is 00:23:02 And I read the text and I found, oh, no, the Bank Secrecy Act isn't ambiguous. It's just extremely broad. And breath and ambiguity are different with respect to sort of like rule of law analysis. The outcome tends to be the same because they're both bad laws in a different way. An ambiguous law is bad because a normal person who wants to like read the law to find out what they're not supposed to do is like, what does this even mean? I don't know what I'm not supposed to do. A really broad law that says that people aren't supposed to do anything, like it criminalizes effectively everyday life.

Starting point is 00:23:40 The person knows that this thing is criminalized. It's not ambiguous, but they don't know if they're going to be actually, you know, caught for it because the government can't go and arrest everyone. So it creates ambiguity in a different way. But the thing about Chevron deference and major questions, as you were saying, is they depend on the statute being ambiguous, and then the administrator abusing its power to interpret something that's ambiguous. The thing about non-delegation, which is another doctrine that the court is very interested in,

Starting point is 00:24:08 but it's not the major questions doctrine, is if the power delegated is very broad, then that delegation itself is unconstitutional, irrespective of whether it's ambiguous text or, you know, very clear text. And I think that's the case with the Bank Secrecy Act. We spend 60 pages going through statutory canons of construction and explaining the text of the BSA and how the judges would probably read it and then saying, you know, you might be able to narrow discretion here using the major questions doctrine, but actually that goes against a lot of other principles that the justices hold dear. Like you can't invent ambiguity in a statute. If the statute's clear, just enforce the statute. And so that's ultimately why we rest on the non-delegation doctrine in the paper, which I think is kind of a slam dunk, frankly, with respect to the BSA. Because there's actually, in the dissenting opinion of Justice Brennan, in the case that first found that the Bank Secrecy Act was constitutional as applied in the 1970s, Justice Brennan, a very liberal justice, famously liberal justice, said, this statute's unconstitutional, not for the reasons that the ACLU is saying in the complaint, they were the plaintiff. Or the California Bankers Association is saying in the complaint, they were a co-plaintiff. It's not necessarily because of Fourth Amendment issues. It's unconstitutional because it's this naked delegation.

Starting point is 00:25:22 of power to the secretary. And so far, the secretary's used it reasonably, but they shouldn't have that power to begin with. So you can look at that Justice Brennan dissent. He basically teed up everything that I think Justice Gorsuch, you know, generally painted as a much more conservative justice, would completely agree with with respect to delegations of legislative authority today, including, we would hope, the delegations that are inherent in the Bank Secrecy Act. So it's kind of a fun history lesson in jurisprudence and political change and ideology. And read the paper. If this is fun to you, please read the paper.

Starting point is 00:25:58 Actually, but it is very interesting because, yeah, it at least goes to show that when people think of these things as being political, there are certain things that, you know, the two quote-unquote sides can agree on. So one thing that I did also want to, you know, be sure to ask you about is that the coin center lawsuit against the Treasury Department over OFAC sanctions designation of tornado cash smart contracts, that was dismissed by the district court. And so I wondered what CoinCenter's plan was right now. We're appealing. So we thought we had a good chance at the district court. We think we'll have a good chance at the circuit level at the 11th circuit, which is the next step when we appeal.

Starting point is 00:26:40 And, you know, it's worth noting that this would be a big outcome. What we're calling for, is an injunction on OFAC's use of sanctions power with respect to these smart contracts that actually aren't the property of a sanctioned entity. And standing up to a big agency like OFAC is quite a thing for a judge to do, including at the district level, it's more common to find that when there's really thorny questions of what the rule actually means, what the law actually means that the circuit courts get more involved there. So, you know, not saying anything about whether, you know, I can't put a percentage on it because this is a hard case and an important case. But I think I'm very optimistic about our appeal at the circuit level.

Starting point is 00:27:25 All right. Well, thank you so much for explaining some really difficult and complex issues that have a big impact on the crypto community. It's been a pleasure having you on Unchained. It's been lots of fun. Don't forget. Next up is the weekly news recap. Today presented by veteran crypto reporter and Columbia University NightBadget Fellow, Michael Del Castillo. Stick around for this week in crypto after this short break. Popcorn just made defy way easier with VaultCraft through no-code defy toolkit for building, deploying, and monetizing automated yield strategies in a few clicks. Forget spending months of R&D and capital when you can instantly launch your crypto fund with VaultCraft on any EVM chain.

Starting point is 00:28:05 From wallets and institutional service providers to non-Defi DGuns, anyone can use VaultCraft to supercharge their crypto portfolios with custom tailored cross-chain yield strategies. Go to vaulcraft.io and start building. Hello and welcome to this week's crypto roundup. Asset management giant BlackRock filed for Spot Ether ETF and it had almost no impact on the market while a fake filing sent XRP soaring. Meanwhile, Disney forms a partnership with dapper labs while questions about whether or not the NFT giant is issuing securities remain unanswered. I'm Michael Del Castillo, a Knight-Badget

Starting point is 00:28:46 fellow at Columbia University, and this is your weekly crypto roundup. BlackRock, the world's largest asset management firm, has made a significant move in the crypto market by applying for a spot Ethereum exchange trade and fund, or ETF, with the U.S. Securities and Exchange Commission. This groundbreaking step, named the I-Share's Ethereum Trust, is aimed at tracking the performance of Ethereum, the second largest cryptocurrency by market cap, now valued at about $238 billion. The initiative follows BlackRock's recent attempt to launch a Bitcoin ETF. At first glance, it may be somewhat surprising that the filing didn't have a large impact on the price of ether, which briefly rose by 2% to a high of $2,079, before stabilizing at around $1,983.

Starting point is 00:29:35 But after weeks of rumors circulating about the filing and an 8% jump last week, it appears the enthusiasm was already priced in. A U.S. judge has lifted the automatic stay on proceedings between beleaguered cryptocurrency exchanges, FTX, and BlockFi, allowing the latter to resume its claim negotiations. This move follows BlockFi's emergence from bankruptcy last month, with claims that FTX's collapse cost it over $1 billion. $55 million tied up in FTX and was owed an additional $671 million, so they say, by sister company Alameda Research. The mediation between the two companies is set to begin next month. In a related development, FTX has initiated legal action against Dubai-based cryptocurrency exchange By-Bit, seeking to recover nearly $1 billion.

Starting point is 00:30:29 The lawsuit alleges By-Bit fraudulently withdrew funds just before FDGISB. F.TX collapsed, marking another chapter in the ongoing turmoil in the crypto exchange landscape. While Bitcoin first rose to prominence as a way to send money without middlemen, these legal battles underscore how the reliance on interconnected middlemen introduced nearly market-wide risk. Ironically, the new owners of FTX appear to be continuing to play the markets. On Monday, wallets believed to be controlled by FTCs transferred $13.5 million worth of Solana's sole cryptocurrency to Binance and Wintermute, according to a Coin desk report. The move coincided with a slowing down on Seoul's meteor of 150% price increase over the past month. Four million dollars worth of

Starting point is 00:31:14 USDT were also moved. Meanwhile, forward generals in Sam Bankman-Freen's collapsed empire launched a new crypto exchange dubbed Backpack, according to a Wall Street general report last weekend. They claim they'll be fixing the problems that led to the downfall of their former boss. Hackers have allegedly stolen $125 million from prominent cryptocurrency exchange, Polonix. In a tweet that looks more like an ad, the security firm that made the claim said the hackers targeted the exchange's hot wallets. The attack, which was confirmed by Tron creator Justin Sun, included some of the assets he created, i.e. Tron, along with Ethereum and Bitcoin. Plonix quickly disabled its wallet services, according to a tweet from its customer service account. Sun offered a 5% bounty to anyone

Starting point is 00:32:03 who helped recover the assets. As one would expect, Polonniaks nearly instantly published a blog, trying to calm investors and committing to fully reimburse stolen funds. The letter signed the Poloniac's team, claimed the exchange had engaged a, quote, top-tier security firm to enhance its security measures, and that it was on the verge of restoring wallet services. It's a good reminder to the industry prone to seemingly endless attacks that maybe these top-tier security pros should be brought on the team before their customers are robbed. This week, Kathy Wood, head of Arc Invest, suggested that SEC Chair Gary Gensler's reluctance to approve Spot Bitcoin ETS may be influenced by alleged ambitions to become the U.S. Treasury Secretary.

Starting point is 00:32:48 Wood is far from an unbiased speaker, though, having been behind one of the several pending applications. She also challenged Gensler's concerns about market manipulation in Bitcoin, describing it as a, quote, decentralized transparent network, end quote, where activity is openly traceable. She further implied that Gensler, with his background in global economics, is likely aware of the transparency. Woods strongly worded allegations add a new dimension to the ongoing debate over the approval of Bitcoin ETFs in the U.S. financial landscape. Meanwhile, the SEC reported a, quote, productive year with increased enforcement actions in the crypto industry, hilariously, of the 784 enforcement actions they mentioned, they specifically highlighted their work getting famous person for hire,

Starting point is 00:33:35 Kim Kardashian, who was fined a $1 million penalty for failing to disclose she was paid to promote an Ethereum competitor. Bankrupt crypto lender Genesis reached an agreement with the collapsed hedge fund Three Arrow's Capital, also known as 3A.C, to pay a tiny fraction of the $1 billion in claims to resolve the dispute. Just $33 million. The proposal follows Genesis filing for Chapter 11 bankruptcy protection earlier this year, owing creditors $3.4 billion. The settlement detailed in court documents is the result of, quote, extension of negotiations

Starting point is 00:34:11 between Genesis and 3AC. It includes a mutual release of liability between the two long-bickering firms. Genesis, part of the digital currency group, was exposed to both 3AC and the recently bankrupt FTX Exchange. The company is now seeking court approval for the settlement with a new court date set for November 30. The price of XRP experienced a significant surge following a fake filing for a quote BlackRock I shares XRP trust in Delaware. In fact, it was anything but. The filing, which appeared to indicate BlackRock's intention to launch an XRP-based fund, led to a 12% increase in XRP's

Starting point is 00:34:51 price in just 30 minutes. However, BlackRock executives later confirmed the filing was fake. The incident caused confusion and speculation on the market, with some still debating the authenticity of the filing hours later. Despite the initial spike, XRP eventually erased its gains from the day. According to a decrypt report, the Delaware office of the Secretary of State has informed the State Department of Justice about the bogus filing. It'll be interesting to see, just exactly how the alleged fraudster got the seemingly authentic documents on the official Delaware site. It's certainly not a good look for the state, but could also be fuel for Gary Gensler to show the immaturity of crypto itself. Crypto markets faced a tumultuous period this week

Starting point is 00:35:37 with over $307 million in liquidations of leveraged crypto-long positions, marking the largest amount since October 17, according to data from Coinglass. The downturn was partly attributed to the fizzling momentum around the expected approval, I should say maybe hoped approval of Bitcoin and Ether ETFs. For context, though, inflows into crypto investment products this year have surged reaching over $1.1 billion, the third largest level on record, according to Coin shares data. Bitcoin continued to lead with $240 million in inflows last week, totaling $1.08 billion this year. Ethereum also saw a significant increase with 49,000. million dollars in inflows. Meanwhile, the grayscale GBT discount continues to narrow as the market

Starting point is 00:36:27 reacts to the potential of spot Bitcoin and Ether ETFs. Up from an all-time low discount of 49%. The discount at the time of recording was about 13%. The tokenization landscape is witnessing exciting developments with major financial institutions embracing this innovative approach. The venture arm of standard chartered bank has launched Liberia, a tokenization platform aiming to issue Singaporean government bonds on-chain. Ledger Insights reports they're using the Stellar and Ethereum blockchains. Simultaneously, the Monetary Authority of Singapore is spearheading tokenization pilots with financial heavyweights JP Morgan, DBS, and BNY Mellon, signaling a strong institutional interest in the technology. The tests are being done for digital asset trades, payments,

Starting point is 00:37:19 clearing and settlement, fund management, and automated portfolio rebalancing. This initiative is expected to streamline processes and reduce costs, enhancing the efficiency of financial transactions. In another development, finality that's spelled F-N-A-L-I-T-Y, a F-T-E-T-E-T-Y-E-T-E-T specializing in tokenized cash, raised $95 million in a funding round led by Goldman Sachs and BNP Parabot that brings the total raise to about $160 million. Lastly, an asset management startup Superstate closed a $14 million Series A funding round. They aimed to create a framework for compliant, tokenized, registered investment funds, bridging traditional finance and blockchain technology.

Starting point is 00:38:04 Disney is about to sprinkle from some fairy dust on the NFT space, Assuming that is, their partner can get over some pending securities questions. Dapper Labs, the faults behind CryptoKitties and NBA TopShot, are teaming up with the Mickey Mouse creator to launch Disney Pinnacle, an app where users can collect and trade something called a digital pin, which is presumably the source of the painful pinnacle pun. Earlier this year, Dapper was sued by plaintiffs alleging it was violating securities laws, a lawsuit that is ongoing. Assuming there's no hiccups along the way, the app is set to launch on a lot.

Starting point is 00:38:37 iOS. And that's all. Thanks so much for joining us today. With daily podcasts, videos, and written updates, Unchained is your go-to source for all developments that could redefine the crypto landscape. Visit Unchained Crypto.com and never miss an update. Unchained is produced by Laura Shen, with help from Kevin Fuchs, Matt Pilcherd, Juan Aronovich, Megan Gavis, Shawshank, and Margaret Curia. The weekly recap was written by Juan Aronovich and edited by Michael Del Castillo. That's I'll be taking a break next week for Thanksgiving and look forward to chatting again soon. As always, thanks for listening. Unchained is now a part of the Coin Desk Podcast Network.

Starting point is 00:39:23 For the latest in digital assets, check out markets daily seven days a week with new host, Noel Atchison. Follow the CoinDesk podcast network for some of the best shows in crypto.

Unchained - Could the Bank Secrecy Act Harm Crypto? Coin Center Thinks So - Ep. 571

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