Unchained - The Chopping Block: Crypto as a Public Good, Tornado Cash Ruling, and SEC’s New Direction - Ep. 772

Episode Date: January 25, 2025

Welcome to The Chopping Block – where crypto insiders Haseeb Qureshi, and Tom Schmidt chop it up about the latest in crypto. This week, we're joined by special guest Peter Van Valkenburgh, Executive Director of Coin Center, to tackle one of the most pivotal moments in crypto policy. In this episode, we dive into the groundbreaking Fifth Circuit ruling on Tornado Cash, unpack its implications for blockchain privacy, and discuss the challenges noncustodial developers like Roman Storm are facing. We also break down Trump’s crypto executive order, the SEC’s new direction under Hester Peirce, and speculate on what a U.S. strategic Bitcoin reserve might mean for the future. Show highlights 🔹 Crypto as a Public Good: Why open, permissionless technologies need protection—and how Coin Center defends them. 🔹 Tornado Cash Ruling: The Fifth Circuit overturns OFAC sanctions—what this means for blockchain privacy and freedoms. 🔹 Roman Storm Case: DOJ’s controversial crackdown on noncustodial developers and its implications for innovation. 🔹 Trump’s Crypto EO: Breaking down the ban on CBDCs and the push for U.S. leadership in digital assets. 🔹 SEC’s New Direction: Hester Peirce’s crypto task force and the future of enforcement and regulation. 🔹 CFTC vs. SEC: Will Congress resolve the jurisdiction battle over crypto markets? 🔹 Senate Banking’s Subcommittee: How Senator Lummis could lead a new era of crypto-friendly policy. 🔹 Strategic Bitcoin Reserve: Speculating on what a U.S. Bitcoin reserve might look like. 🔹 2025 Regulatory Outlook: How shifting policies could redefine crypto’s future. Hosts ⭐️Haseeb Qureshi, Managing Partner at Dragonfly ⭐️Tom Schmidt, General Partner at Dragonfly  Guest: ⭐️Peter Van Valkenburgh, Executive Director of Coin Center Disclosures Timestamps -  00:00 Intro  01:34 Coin Center & Crypto as a Public Good 05:04 Crypto Policy Shifts & Trump's Executive Order 16:11 Senate Banking Digital Assets Subcommittee 20:20 SEC Crypto Task Force 32:10 Hester Peirce's Safe Harbor Proposal 35:43 Strategic Bitcoin Reserve: Expectations and Realities 41:12 Tornado Cash & OFAC Sanctions 45:28 Legal Implications for Noncustodial Developers 57:51 Future of Crypto Regulation & Coin Center's Role Learn more about your ad choices. Visit megaphone.fm/adchoices

Just like the internet is a public good, you want an organization to stand up and represent the interests of the technology and its openness and its availability to people. Because people will stand up for all the use cases and all the profitable businesses that get built on that kind of thing, like the Googles of the world with the internet or the coinbases of the world with crypto. But somebody should be there standing up for just the general technology as a public good. Not a dividend. It's a tale of two pawn. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. I'm named trading firms who are very involved.

D5 protocols are the antidote to this problem. Hello, everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective on the crypto topics of the day, although today it's only three of us. Quick intro, first again, Tom, the defy maven and master of memes. Hello, everyone. Joining us, we have special guest, Peter, policy powerhouse at Coin Center.

Hi. Thanks for having me, guys. Absolutely. And I received the head hype man at Dragonfly. We're early stage investors in crypto, but I want to caveat that nothing we say here is an investment advice, legal advice, or even life advice. Please see Chopin Block. That XYZ for more disclosures. So, Peter, welcome to the show. I think for a lot of people who have been around the block in crypto, they know Coin Center. They may know you as well. But for a lot of the class of 2024 meme coin heads,

Help explain to them, what is CoinCenter and why are you guys responsible for crypto still existing? That's awesome. Yeah, this is where I get to show my age, right? So, CoinCenter was founded in 2014. It was me. Jerry Brito, our executive director for 10 years, Naraj Agrawal. Many people see his memes on Twitter. Antony, Hodge, our operations person who's amazing.

And that team has lasted for 10 years. Jerry just retired because we couldn't convince him to stick around any longer. And so now I'm the executive director. And what we've done over, thank you, thank you. I don't really want to do all the fundraising work I now have to do on top of my research job, but thank you. What we've done since 2014 is be the person you can call if you want to call Bitcoin, because that's important in D.C. If a member of Congress or their staff has questions, is there somebody who's standing up for the tech in general,

rather than the interests of any particular company or fund or project in the space. So we've been a resource. We've been close to the medal as far as policy getting made in Congress and in previous administrations. And so you flatteringly said that we might have something to do with why crypto is still around. That's an exaggeration because these things are pretty unstoppable, I think. But I do think we've kept some folks out of jail, maybe not as many as I would have loved. And I do think we've helped kill some bad legislative action and some bad agency action that could have made things a lot harder for developers in the space. We're really here to defend people's civil liberties to build and use these technologies.

So I'd say you guys are probably one of the central groups that has been responsible for being a really active advocate in D.C. and in policy circles to understand what is kind of the heart of the crypto ethically? not just the industry, but the ethos care about. So obviously there are other groups that are now very active with lobbying that are spending a lot of money in D.C. that represent that are more like trade organizations. Whereas was Coincenter my understanding of it is that it's really kind of this pure policy and advocacy vehicle that doesn't necessarily just represent the commercial interests of exchanges or protocols or whatever, but more about, you know, how do you keep the flame of what

crypto is about alive in America? Yeah, I mean, these technologies are open and permissionless. They're public goods. And so just like the internet is a public good, you want an organization to stand up and represent the interests of the technology and its openness and its availability to people. Because people will stand up for all the use cases and all the profitable businesses that get built on that kind of thing, like the Googles of the world with the internet or the coinbases of the world with crypto. But somebody should be there standing up for just the general technology as a public good. That's our. mission. We've been, we've hewn really close to our mission for the last 10 years. And if I don't screw up as an executive director, we'll do it for another 10 years. Okay. Look, I see you guys as like the crypto ACLU. So I think, I think it's awesome. And it's amazing to have people who are so talented and dedicated to the cause, given I know how challenging it's been for you guys over the, over the many years. I mean, everybody who's in the crypto industry has experienced it. But I can imagine for you guys it's been particularly challenging over the last four years.

Challenging, but it's a joy, actually, as a lawyer, to work on hard problems and to feel like you're doing something good in the world. And as I said, we're the small team of five people, and they're like my family now. So I actually couldn't ask for a better career. Yeah. Okay. So the reason why we wanted to bring you on at this present moment is because of all the tectonic shifts that are happening in crypto policy and crypto law, obviously with the new administration coming in and all the changes that are happening around the same time. So we thought you'd be a perfect person to give context and help us understand both where things are now and where things are going.

So let me start orienting us with some news that just broke at the time that we're recording this. So today, we had the first executive order from Trump on digital assets. Everyone was waiting and there was a lot of anticipation about when this executive order was going to come. Of course, we had Ross Albright, the founder of Silk Road. get part in, which is one of Trump's campaign promises. But crypto policy started today, basically, from the executive branch. So the first executive order is called Strengthening American Leadership

in Digital Financial Technology. Basically, long story short, it establishes a presidential working group on digital assets, TBD, what it's going to actually do, but it basically gets the CryptoZar, David Sachs, who's coordinating a group of people in, you know, Secretary of Treasury as well as a bunch of other secretaries that are going to do some working group. Okay, fine. It revokes a lot of the policies from the previous administration, from the Biden administration. Some of those are a little bit vague of like, okay, we're going to have some executive

working group as well on certain topics or we're going to have these kind of longstanding goals. Those have been rescinded. And then specifically it prohibited agencies from creating or promoting CVDCs, central bank digital currencies. So very clear he's kind of drawn some of these lines. Now, many people were anticipating that perhaps this executive order would relate to a strategic Bitcoin reserve. That was not created in this executive order.

But it's pretty clear that the presidential working group is meant to potentially start moving in the direction of figuring out what something of that nature would look like. So, Peter, what's your take on this executive order, how to interpret it? what do you think this presidential working group implies about what's going to be happening in this upcoming administration? Yeah. So if we just zoom out on the last four years and think about the next four years, you know, it wasn't an explicit part of the Biden administration's platform to be as aggressive as some of the agencies ended up with respect to crypto. But that was sort of the reality we found ourselves with. The DOJ is going after the tornado cash developers. The SEC is going after big, well-moneyed defendants in this space who are actually often companies that are doing a decent

job trying to comply with the law, right? We had this really aggressive approach to prosecutions and enforcement actions, and we had this aggressive approach also to rulemakings. So we had the broker rule, which was the IRS using some new powers that Congress gave them in the Infrastructure Act, also of Biden law, to extend the category of who needs to basically spy on their customers and report their capital gains to the IRS. And, you know, it's fine to just take a sidebar on that. It's fine for a trusted entity, like a typical stockbroker, to have to do third-party reporting for tax purposes.

But the IRS was trying to get ordinary software developers of defy protocols and defy products like wallets that connect with Dexas to collect all of that personal information about the users of their software, which to me is a massive bridge too far on. the world of mass surveillance. So that was the, that's where we were, uh, come last November, when there was an election and come now with inauguration and the start of the Trump administration. And this EO, you know, I think there were a lot of pie in the sky dreams that some on crypto Twitter had for what it might be. You said like strategic Bitcoin reserve, like it's going to be all fleshed

out. People were even making connections with the fact that he was meeting with, um, the president of El Salvador afterwards and like maybe we're going to have a joint reserve. I don't know what they were thinking. But, you know, none of that materialized. And to me, that's actually great news. Not that I'm against a strategic Bitcoin reserve, but the first thing this administration needs to do to take a really sober, careful and thoughtful approach to crypto is look at the past executive actions and where things started going off the rails as far as Americans basically being afraid to develop this technology they are in their own country. and say, this is the process we're going to have to surface what was bad.

The agencies are going to report to a committee that we've set up, focused on this issue, and then they're going to decide which past actions, past regulations get pushed back or unwound or changed in a way that makes America more crypto-friendly. And so that's that panel that's been set up with David Sachs at the top, who's ostensibly the term as cryptos are. and they've got this EO now that gives them the power to do this kind of review of past agency action. And the thing that makes me most optimistic about the EO is this one section on like, what is the purpose of this EO?

Because this is sort of what's going to motivate these people when they're reviewing agency action. This is the rubric that they'll apply to the agency action. And the number one purpose in a list of purposes, and you mentioned one, banning CBDCs. That's in there. But the number one purpose in the list of purposes was protecting and promoting the ability of individual citizens to access and use public blockchain networks without persecution. And there's a little bit more verbiage there, but I won't read the whole thing in full. That made me feel really good, actually, because, you know, there's a lot of uncertainties and questions within the new administration. How much are they going to prioritize

civil liberties with respect to crypto or a safer business environment for crypto businesses? Those are both important things. But my passion is to make sure that we don't have more software devs in jail. So with that is sort of the opening statement in that EO, I feel already a lot better. I'm breathing easier. Right. Tom, what was your reaction when you read the executive order? Yeah, I feel a little silly after Tuesday's episode because I think I was

bemoaning the fact that he didn't pardon Ross and there was no crypto EO in the big stack of EOS he saw on day one. and just to wait two days and, you know, some of the campaign promises are coming true. I also thought it was funny when Trump was signing CEO and, you know, it adds some Trump language and he's like, we're going to make America the hub for crypto or something to that effect. So it's, you know, like the speaking over the video itself. That was also quite funny. I thought it was a little strange that CBDC call out, the fact that they have the blind

prohibiting agencies from creating or promoting CBDCs. I feel like CBDCs are this kind of boogeyman that's been in crypto for a while, kind of reminds me of like high schoolers talking about sex like everyone's talking about it no one's having it. As far as I might, we're like very, very, very far away from it. And yet somehow we're still like, no, no, no, no, no. This thing that is theoretical, we definitely don't want that. I don't know what you guys made of that.

I mean, I think we're really far away from it. You're right. Like, I don't think it was ever like imminent here in the U.S. Other countries are not, right? You know, China's got EC&Y. I've talked to people in China and they say they don't even use it. They just get the free giveaway. and then they converted into WeChat and AliPay, which I'm like, okay, that's a hard thing.

But still, it's a thing overseas. It was not likely to be a thing in the U.S., but part of that low likelihood is because of this powerful and I think correct political energy that says that is a really powerful technology if it was forced upon a people in theory for surveillance and for control, both of the monetary supply and macroeconomics, but more. for totalitarian purposes of like figuring out all the things you buy to decide if you've become like a reprobate and need to be reprogramed. So I like that it's in there. I do agree with you, Tom, that it's like a prophylactic against something that maybe is somewhat remote, but who knows? You know, like we could be in a very different world. I mean, even the Biden administration didn't want a CBDC, right? So like this, it's not as though it's like, oh, we have to protect the American government from its own desires. You know, like, nobody.

Nobody wanted a CBDC. That's fair. I think it's a little bit, it's, it's symbolic, you know, I think like it, it represents something shadowy and scary and, you know, is this sort of unoverseable eye of Soren that looks over everything. In reality, you know, how the banks are already quasi-nationalized, like how really different is it going to be? The thing I say, yeah, the thing I say about.

For them to surveil you? Right. The thing I say about surveillance is if you're really scared about CBDCs, which a lot of folks in Congress are, you should be really scared about the Bank Secrecy Act, too, because it's the federal law that requires the banks to collect all this information about your activities anyway and report it to the government without a warrant. And, you know, actually make no mistake. Some of the biggest anti-CbDC champions in the House and Senate, well, especially in the House, are actually very skeptical about the BSA as well. So, you know, they're intellectually honest.

And I agree. Like surveillance. That would be great. If there was an attack of on the BSA, that would be absolutely insane. The BSA, by the way, stands for the Bank Secrecy Act, which is a very longstanding law, I think from the 70s, 80s? Yeah, 73, I think. 73, which basically require, it's a huge amount of the regulatory burden that banks have on ensuring that they don't allow money laundering and just bad stuff going to the banking system, which is a big part of the reason why banks are so onerous with respect to, you know, freezing your accounts and, you know, requiring tons of documentation for different things and also the kind of information that they continually and voluntarily share with the government without getting your permission.

So the kinds of things that don't require a subpoena, don't require any kind of judge oversight. It's just the bank is just streaming data to the government on the options that you're doing something wrong. And it's funny too. That is all because of the bank secrecy. Yeah, it's funny too because it crept up on us as a people concerned with liberty and privacy. Because in the 70s, your bank would still be making some of these reports to the government without a warrant and without your consent. But how many times did you make a transaction with a bank?

You made like a home loan, an auto loan, a few other account openings. And then you were doing all your transactions with cash. Today, you do all your transactions with credit cards and debit cards. And they're just sending reams of suspicious activity reports like thousands a week. I think more than that. And it's all just mass collected without a warrant. So we really kind of gave up on our privacy as a country. So there are serious questions about whether the bank secrecyx still makes sense in the 21st century.

Let's put that aside. That wasn't the only news that happened today. There was two other big pieces of news. The other one was that there's now a Senate banking digital assets subcommittee. Okay, what does that mean? So in the Senate, there are all these committees that basically take the first cut at drafting legislation or weighing in on different topics that require some specialization. A new subcommittee has been created on digital assets.

And that digital asset subcommittee, previously it was the Ag Committee and then the, what is it, the banking? Not banking, financial services. It's banking in the Senate, yeah. Yeah, banking in the Senate. at that committee was the one that primarily weighed in on crypto. Of course, most of the people in that committee don't know anything about crypto. And so it was decided that there's now going to be a digital asset subcommittee on the Senate

banking committee that is going to be chaired by Senator Loomis. So Senator Loomis, very prominent pro-Crypto advocate. She's one of the people who is advocating for a strategic Bitcoin Reserve. But from the governmental side, this is more radical than what Trump was proposing of just, you know, keep freezing the Bitcoin that was on the balance sheet. I think her proposal would involve actually going out and buying Bitcoin. So anyway, she's obviously very pro-crypto. She announced that she's going to be chairing this new subcommittee and that this subcommittee will be passing legislation to promote innovation and consumer protection, making America

the Bitcoin and digital asset capital of the world, and eradicating Operation chokepoint 2.0, which we've talked a lot about previously on the show. Anything I should add to that, Peter? How do you think about what's changed now that there's this subcommittee in the Senate? Yeah, I mean, your summary of like how committees and subcommittees work is accurate, although you omitted maybe the most important thing, which is that the subcommittee or the committee is a gatekeeper. It's very hard for legislation to ever get to the floor. So you might think you have the votes, right?

Or you think you could convince the larger body of the votes very hard to ever get to the floor if you can't get through the subcommittee. And so the head of the subcommittee and also the ranking member of the subcommittee, which is the opposing party highest ranking member, have a lot of blocking power. And so if you're trying to get something through Congress that's important and you're stopped going through a somewhat hostile committee because they don't like crypto or whatever, you're going to have a really hard time of ever getting to the floor of the legislative body and actually moving forward. And so to that point, the one thing I'd add to your excellent summary, Llamis is great. She's been like a champion for us for years now, one of the first senators to get interested in this stuff. And so I'm excited that she's got a lot of energy and enthusiasm for moving forward with this subcommittee. On the other hand, there's also the ranking member. And that could have been a Democrat who was maybe more hostile toward the technology and could be still a blocking factor with respect to

moving things to the larger floor of Congress. But the announcement also said that it's Senator Gallego, who is like a younger guy. He's interested in crypto. He hasn't done a lot here, but he's open-minded. And gosh, I would be so happy if crypto became more of a bipartisan issue. I've been working in 10 years, working in the space for 10 years. It used to be much more bipartisan. The blockchain caucus in the house was originally formed by a Democrat and Republican, by Jared Polis, now governor of Colorado and Mick Mulvaney, who worked for the first Trump administration. Like, you couldn't find necessarily further apart people in the ideological spectrum, but they both like blockchain. And even Bitcoin. They weren't just blockchain without Bitcoin. And so I want those days back. And if we can,

if we can really have good discussions in that Senate subcommittee, in the new House Financial Services Subcommittee on digital assets, that French Hills running, like, we can do may be really good things. Okay, so now let's pivot to the regulatory side, the other big news. And we mentioned this briefly on the last show. So the interim, before Paul Atkins is presumably confirmed, the interim SEC chair is Marko Yeda, who was one of the commissioners, who's also been pro-crypto alongside Hester Perth.

It was announced a few days ago that there's going to be now an SEC Crypto Task Force that will be headed by Hester Purse. And the goal of this task force is clear regulatory frameworks, realistic registration paths, structured disclosure, working with Congress, international regulators, you know, kind of synchronizing some of the stuff that the U.S. is doing with other jurisdictions. And then notably, a review of existing enforcement actions and possible dismissal of ill-conceived cases. So Crypto Mom, Hester Perce is now in the driver's seat, presumably, about how crypto policy

is going to be enacted by the SEC. And the first piece of that policy, presumably, just broke today, which is SAB-121, was just rescinded. So we talked about SAB-121 a while ago, just to remind you, it's basically an accounting rule that the SEC promulgated that says that banks basically cannot custody crypto assets. That if they are, they like count against their regulatory capital, but they have no, or something like that. Basically, you need offsetting equity in order to hold these assets on your balance sheet, which is crazy. It's like way out of line.

I know other asset works that way. And so there was a lot of fight against SAB 121. There was a bipartisan vote in Congress that was vetoed by Biden to overturn SAB 121. Now finally, Hester Purse has basically, you know, with a stroke of a pen, reversed it. And it seems like a sign of things to come, which is that this SEC is intent on kind of, you know, bringing us back to sanity a little bit. SAB 121 was probably the most egregious of just like what this makes no sense. This is not even like a, hey, you know, people can disagree. This is just like an outlandishly unreasonable rule that was imposed on the banking industry

that ironically made it less safe because it made banks unable to custody crypto. So you have to entrust your money to a crypto company instead of to, you know, J.P. Morgan or State Street or whatever. So let me take a step back. Peter, help contextualize this. What do you expect to see SAB 121 aside from this new SEC Crypto Task Force? Should we expect, are they going to drop all the cases? Are they going to start making rules?

Are they going to wait until Atkins comes in? What should I expect from here? Because I think for most of us in the industry who own things that are besides Bitcoin, the SEC is kind of in the driver's seat for a lot of what's going to end up affecting the rules of the road for the industry. Yeah, I think that's right. I think we'll see a big change from the SEC in posture and in aggression towards, you know, like gray area cases and especially cases that are brought against defendants who are like actually like doing a good faith effort to comply with what is a very vague and muddy rule set.

Whether a token is a security with a foundational question, you go to five different attorneys. They'll give you five different answers and none of them will write them down in a paper because they're all scared of losing their license because the SEC's talked about lawyers being too liberal in the space. So, you know, we have a lot of clarity to claw back after the last four years of really aggressive enforcement and no clear regulatory guidance. And I think that Hester is the commissioner to do it. She's very smart. She's very thoughtful. She's not a radical. like she's not going to they would not drop every enforcement action because like speaking personally and just from from a state from a standpoint of like what's right and wrong like there's a

lot wrong in crypto and a lot of it has to do with pyramid schemes like actual pyramid schemes and pump and dumps and things like that and I want to see those people investigated and charge if there's real wrongdoing but you know we need to not waste time going after folks who have been doing a good faith effort to comply, who have been the sort of adults in the room who've been like listing fewer tokens than some of the overseas exchanges, right? Those shouldn't be the targets if we don't have a really good argument that they actually transgress the law and the law had been clearly stated beforehand. So if, you know, if a crystal ball, what will we see? I would tell you there's no crystal ball, but there are all of Hester Purse's excellent dissents from all the enforcement

actions that the commission voted on and just go ahead and read them. usually very well written and quite entertaining. Is that what you think is the best guess of what gets dropped? It's a good. I mean, it's not going to be one to one, you know, but it is going to be a guide. Because I'm like, didn't she dissent in like almost everything? No, no, not everything. I mean, not the fraud. Yeah, okay, this is like a pump and dup or a fraud. Like, yeah, I don't think she dissented. But you think of like the landmark cases like, you know, Uniswap or, you know, Coinbase or, you know, most of these, I feel like Hester Purrst was the dissent. Well, I guess, I mean, yeah, but I wouldn't call that everything.

And I would call that the areas where you have, like, very strong arguments that the SEC is enforcing a law. It never made clear against a person who probably hasn't done anything that they're morally culpable for, right? Sure, sure. So, okay. Go ahead, Tom. Oh, I was going to say, I mean, speaking of these headline cases, there was also, obviously, nothing announced yet, but OpenC announced that they received this well. notice a few months ago. And I saw David Sacks, the AI and Cryptos are on TV today talking about the fact that, hey, like, NFTs are not either collectibles, they're not securities. And so clearly even

from the executive branch, at least for Sacks, it seems like, hey, there's, let's roll back some of the absurdity of, you know, the previous administration when it comes to how these assets are defined and sort of the rules around them. Yeah. I mean, the SEC has finite resources like any government agency. And you need to, in our space especially, you need to allocate those resources to the truly bad actors, right? And not go on goose chases where the law is uncertain and there isn't like clear investor harm at work. And so if we reorganize on that principle, I think the SEC can do a lot of good in this space, cleaning up the fraud and the outright securities, unregistered securities issuance that's not in a gray area. And then they can also draft

guidance on where that gray area stops and work with Congress on that as well so that we can also police the middle better without surprising defendants with a Wells notice because we said clearly this is something in the CFDC's jurisdiction or this is something in the SEC's jurisdiction. And once we said it clearly, then we should hold you responsible. But until we do that, it's sort of against due process to hold your responsibility. Okay. So there's a couple of things I'd like you to entangle for me in just trying to understand where we should expect the SEC to go. There's a few pieces, one of them being, of course, that Atkins is not confirmed yet, right? And I'd assume that the expectation for the interim chair or for, you know, the commissioners in the

interim is chill, don't do too much until the new commissioner or the new chair comes in because you don't want to necessarily step on his toes or end up having to reverse something that you just did. How much authority should they feel in being able to just kind of go hog wild, create rules, like drop cases before Atkins gets confirmed? I don't know enough about internal politics at the SEC to speculate. That's an interesting but a tough question. I think I could seek coordination if, you know, Atkins, who is, you know, awaiting confirmation is looped in and the other voting commissioners and the acting chair all

agree. But there's a lot of, there are really interesting questions there about how much can and should done before you have someone actually in that position program. Okay, so hard to know. All right. Second question I have is, you know, one of the things that Trump has signaled very clearly is that he wants to pull crypto regulations away from SEC and have them live within CFTC.

Now, as her purse has also signaled very clearly that she wants to create some rules for the road through the SEC. Now, one thing you could imagine the SEC saying is that these are not securities or like, you know, a very small portion of these are securities. Most of these are commodities. We're punting. You know, go ask CFTC, like, is not our problem. And that's clearly what the president is signaling he wants.

That seems, like, obviously, none of this has happened yet, right? Trump, but this was all stuff that he said on the campaign trail. He has not said this as president that he wants to pull this out of the ambit of the, of the, of the SEC. But also, it seems like the CFTC is less well equipped to be able to do any rulemaking, They don't have the open cases, right? The SEC has the open cases. So how do you think about this and where you expect that to go? I mean, I actually have in some ways a simpler landscape to describe, which is when it comes

to who has subject matter jurisdiction between the agencies, that's not something that the president nor the agency heads can actually really resolve. That's something that's Congress's territory, right? And so, you know, to the extent a cryptocurrency is not a security. and at least some are definitely not securities, right? They really don't have an issue or upon which investors are reliant for expectation of profits, rather. Those are commodities, but the CFDC doesn't have, they have spot market authority over commodities only if there's fraud and manipulation. Otherwise, they only have authority over derivatives markets and commodities, right?

So the typical company in the space that's just doing spot markets in Bitcoin, if you will, like a Coinbase or a crack in, where do they fit in? Do they fit in with the SEC or the CFTC? It all comes down to whether the assets is security. And then if it's not a security, it all comes down to whether the CFTC has been given new authority from Congress to regulate spot markets. So we've seen past Congresses work on quote unquote market structure bills. If you hear that phrase, what we're really talking about is, is, is the way that the intermediaries in the space, the exchange-like entities, the broker-like entities are going to be regulated. And some of those were excellent pieces of legislation, but it was a really contentious time in Congress and things like crypto were even more contentious. So some of the sponsors of those bills like Fit 21 or the DCEA, they were great, you know, they were well drafted and they were well advocated for, but they couldn't make it. Now that we have more unified control, a party control over Congress and the presidency,

now is the time when Congress could pass a market structure bill. It's an interesting question whether we start base text with something like Fit21 or the DCEA that's come before, or whether we try and be more ambitious or move in different directions that were less compromised by those earlier political negotiations. I don't have a dog in that fight. I think we just should have clear rules for the road. road as to which regulator has subject matter jurisdiction and what are the hopefully very reasonable responsibilities of a person getting licensed or registered in that context. Sure.

I mean, she said very clearly in her statement that she wants to create paths for registration, which implies that, okay, there is a way, there is a crypto asset security concept and there should be some legible path for people to be able to say, I have a crypto asset security. Now, of course, I remember also, Hester Purrst was known for her advocacy of this regulatory sandbox thing that basically, you know, you can launch a token, you have some period of time to decentralize. This was a concept that I think she raised in a speech or something, but obviously it was never implemented. Obviously, under Gensler, there was no chance that anything like that would get approved. Now she is presumably at the helm of this digital asset group or whatever task force. Do you expect something like that to materialize, or do you think that's also really the purview of Congress

and that she should properly hear the message of stand down, maybe give some advice, but that's like too much lawmaking rather than rulemaking? So the purse safe harbor was originally internal to the SEC. It was her proposal. It was at one point picked up in Congress and introduced as a bill in the House, sort of more of a messaging bill, like, let's take Hester's Safe Harbor and turn it into law. There are things, I think, that could be done and done well within existing SEC authority to create a quote-unquote registration category for new projects that have done things like issue to investors that are accredited or done a reg D offering and then help them figure

out like how long they need to keep checking in with the SEC and filing disclosures, while they're on this road towards actually building a fully decentralized network. And what is fully decentralized for the purposes of the SEC jurisdiction even mean? It would have to be a lot less woolly than it is in the actual crypto space, right? And then once you reach that point, it would effectively be discharged from SEC subject matter jurisdiction because your thing is effectively a commodity now, and that's a handoff at the CFTC, to the extent they have any kind of spot market authority. This is why the Hester Perth Safe Harbor would have paired very well with a market structure bill that would have handed the CFTC spot market oversight authority because you'd have a common sense way for projects that are on a progression towards decentralization to get good investor protection regulations from the SEC.

But then when they fall off the cliff, i.e. the company could disappear and the token or the asset continues on truly is a commodity. there isn't no one effectively at the switch in the federal government. You just get for secondary markets, which there still will be centralized, secondary markets even for these issuerless commodities, those would still be regulated for things like market manipulation and investor protection by the CFTC. If you don't have that market structure pill that creates that CFTC spot authority, I do think some people are going to say we can't just have an SEC that hands off authority to nobody when the thing becomes decentralized.

There's going to be a lot of hard questions about, you know, how does that work? So probably it sounds like what I'm hearing from you, she's likely to chill on the safe harbor thing because Congress already is aware of it and it's a complicated interagency handoff thing. I wouldn't. I don't know her plans at all well enough to suggest that I could say you're right or not right. Sure.

But we're on we're here. to speculate. So give me your best guess. I don't want to psychoanalyze people, though. So when we're talking about like a commissioner who is going to have the pen on something very important, I want to be very respectful to let her be the first to talk about it. I think she's great, too. I completely agree. Completely agree. Okay. So last thing, I think shifting away from the SEC in regulation, obviously one of the things that the market is still anticipating and looking forward to is a strategic Bitcoin Reserve. The expectation is that, okay, maybe this presidential working group is where the strategic Bitcoin Reserve is going to come from. How do you see

this playing out? What do you think given just the way in which government works and the way in which committees and committees of committees end up forming around these things? What do you think the process looks like? How long do you think it takes before there's clarity around what a strategic Bitcoin Reserve is going to look like? Just paint a picture for us. You don't have to commit to a time. I'm not asking to bet money on this. Just paint a picture for me what you think a reasonable rollout where the Gigi Bickrower Reserve might look like. The timeline depends on the substance.

And so maybe it'd be better to start with like a layout of what the substance could look like. And the only thing I have to say really about that is just as a lawyer who has a generally good grasp on which powers the executive branch has been delegated by Congress already and which powers a reserve for Congress, I think, you know, there are things that the Trump administration could do to establish a strategic Bitcoin reserve that would not require Congress to act. And those would be the, and we've seen these proposals sort of vaguely suggested, like just a moratorium or an outright end to all sales of lawfully seized cryptocurrency, or maybe just Bitcoin or whatever,

that's a choice that I think is fully within the power and the discretion of the president to make. So that could happen quickly if there's political will to make that happen quickly. When it comes to actually taking from the general fund or having appropriations spent on purchasing strategically Bitcoin or any other or any other asset or commodity really, I think at that point, you know, our founding fathers. reserves reserve the power of the purse strings within Congress and specifically within the House for budget purposes. So, you know, if it was going to be something bigger, like the government accumulating cryptocurrency, which I'm not even sure is necessarily a particularly good idea. All right. I think that's obviously not. I don't know. You tell me if you disagree, but I think that's like such a remote possibility that this Congress is in the mood to spend more money.

I think that's right. The whole vibe of Congress is that they're, cutting expenses. I think that's right. And that's simply why I point out that, like, this is a pretty clear divide in how these things could move forward. Like, if it's something simple, like, stop selling Bitcoin. So let's say, that's a pure moratorium on selling Bitcoin, and we, you know, call that strategic Bitcoin Reserve. Play out what a timeline might look like. I'm not sure there are that many blockers to it. I can imagine it could be fast. But it also depends on how interested, you know, Trump is in this and what a priority it is for sacks in the CryptoZar role. And then again, where are there blockers? Where are there issues

with existing agency authority that would tie up that those seized funds and maybe planned auctions that were already in progress or things like that? It becomes fairly boring administrative procedure questions. A month, two months. Give me it just you. You said you're not betting on it, man. I'm not betting on it. I'm just asking you. You're going straight to Polly Market. You're looking for alpha from me. Tom, what does Polly Market? Does Polly Market have a a date? Is there a market for the strategic there is a market?

I don't know what the data set. Let me check. There's the first hundred days. I think it might be binary. Which is now down to 16% sadly. 16. Yeah. Oh shit.

Maybe you buy. How do they define the strategic? No, we shouldn't. I don't want to go into this. They have the definition. How the contract describes the thing would be really important to whether it's a likely. The market rules are up to yes.

If the U.S. government holds any big. Bitcoin in its reserves at any point between February 20, 2025 and April 19, 2025. Note that the U.S. government confiscating Bitcoin does not count as holding Bitcoin reserves. So this would not count is a moratorium. Well, no, no, no. I think it would not count unless it were like designated as the Bitcoin Reserve as opposed to just, okay, the government's always seizing Bitcoin all the time.

Yeah, yeah. Oh, I see. So even if it's purely executive branch and there's no appropriations or no net new Bitcoin being bought. If it's not called the reserve, then, yeah, it doesn't count. Okay, that's, that's pretty bearish. Sounds like what Polymark is saying is that committees breed more committees, that breed more process, that, you know, this will, I don't know. I would say more likely than not probably like 70% chance that we do see a strategic Bitcoin Reserve. I'm reading the Polymarket comments right now, and there's a whale with 72,000 yes shares

saying between 60 to 100 days from today is the window. So Hummingbird fight, whatever. the polymarket whale is saying we need a little bit more time. Okay. There's your authoritative source. Thank you, hummingbird whale, for bringing us the gospel. Wow, Peter, are you when you take the over or under on that? No comment. Okay.

All right, fine. Okay, so if you're looking for alpha from the show, I'm sorry, we have zero alpha. That's kind of what we're about on the shopping block. Okay, let's switch gears a little bit. So one of the big stories happening lately is around the Tornado Cash case. So Pornado Cash, of course, one of the privacy protocols on Ethereum, they were notorious because of the amount of hacked funds that flowed through there after the Ronan hack in particular in 2022.

Traneo Cash contracts were sanctioned and there were charges brought against Roman Storm as well as the other co-founders of Tornado Cash who were two of the Russian nationals. Roman Storm is, I think a green card holder. in the U.S. So Roman Storm, his case was delayed. I think it's going to happen this summer. But very recently, there was big news, not particularly to the criminal case, but to the OFAC sanctions on tornado cash. So OFAC, the Office of Foreign Asset Control, sanctioned tornado cash contracts, saying that these contracts are, American citizens are not allowed, or anybody under the effect of OFAC sanctions, are not allowed to touch.

or interact with the Tornado Cash contracts, more contracts that live on Ethereum. These were overturned by the Fifth Circuit in November, saying that Tornado Cash is not property and therefore cannot be sanctioned. And then just recently, a few days ago, I guess the district court in Texas that was responding to the Appeals Court,

my understanding this correctly? No, it's, so the- Explain to me. Yeah, the recent news item is that the appeals court, the Fifth Circuit, published that November opinion, and put it under mandate to go back to the district court, which forecloses. It's a procedural thing. Well, it forecloses the possibility that the Fifth Circuit is going to give another go

and allow the government to have another chance to argue their point and have en banc review where more of the Fifth Circuit judges get to work together. Is that like a mini appeal, basically, this en banc review? Yeah, it's like it's kind of like a mini appeal. You still stay at the same circuit level. You don't go up at the Supreme Court, but you get more judges in the room and they can completely overturn the previous opinion. That's not going to happen anymore. So that is actually a very good way. Does that mean the government didn't request an en banc review or does that mean that it was denied? That I'm not actually certain about. I don't think they did request. And I think it's now like they just can't now. But I'd have to check the actual court filings for that. And so this means it does go back to the district court and the district court will rule on remedies. So the circuit court said the law, you got wrong district court, we're overruling you. OFAC does not have the authority to sanction immutable smart contracts. Now you need to decide how to make the plaintiffs better. And that could be two things. That could be the plaintiffs who are suing the government in this case. They can use tornado cash. They can use the immutable smart

contracts. Or it could be something called national vacator, which is a nationwide injunction on OFAC enforcing the sanctions against anyone. So that means anyone in the country can use tornado cash, at least the immutable smart contracts, and they wouldn't be violating sanctions anymore. And I know this sounds very lawyerly and kind of weird. If it was limited to just the plaintiffs, anyone else, certainly in that Fifth Circuit, would be able to bring their own case for quick judgment that they too can use the contracts. And I'm getting in the weeds here and I don't need to. What we need to root for is national vaguer and a nationwide injunction. That basically means you take it off the list.

It's no longer on the sanctions list. And, you know, it's also possible as far as like Crystal Balls again that recognizing this loss, OFAC backs down. And if you combine the fact that OFAC is now, you know, within the new administration, and we'll find out, you know, who ultimately is the deputy undersecretary for terrorism and financial intelligence, and we'll find out who, you know, and Bessett will get confirmed. And so maybe the tone changes at OFAC and they just think,

this is actually a reasonable loss that we just had. So we'll just take it and not even wait for the district court to have an injunction. That's possible. I'm just speculating. So in parallel, and maybe seemingly in response to this, there is a case that is being supported by Coin Center that was recently filed of Michael Lewelin versus Merrick Garland. And so let me, actually, you know what, I'm not going to try to summarize the case.

Why don't you summarize the case very briefly? But it seems like very parallel of like sort of a baby tornado and getting some, you know, preliminary injunction or relief and saying, hey, this person should not get treated the way the Traneo Cash developers were treated. That's right. So we've got two big policy problems that stem from the tornado cash developments over the last two years. One is Americans are banned from using the smart contracts, which, you know, if you just wanted to pay your friend or you just wanted to get paid your salary, it's unfortunate because that

was the best way to get privacy while using Ethereum. And CoinCenter, you know, we're a nonprofit. We survive on donations, generous donations from people who like the work that we do. We received donations via Tornado Cash in the past, and we want to continue to be able to use that tool because it's it's honestly a First Amendment right to actually have privacy over the organizations that you support and the list of donors that support you as an organization. So that policy problem is in part resolved maybe by the Fifth Circuit, at least currently their opinion is the good one that says actually Americans can use those immutable smart contracts so long as they're not enriching a foreign person who's sanctioned like North Korea or something like that. We actually sued on that

question as well. There's this Fifth Circuit case, Van Loon. We also sued Point Center v. Yellen in the 11th Circuit, and we're still awaiting a decision, actually, in that case. We're optimistic that it'll match the Fifth Circuit. So that's one bookend to talk about with respect to Tornado Cash, is this optimism now that will win on the sanctions question. The other thing that happened over the last few years is the developers of the tool, Roman Storm, also Alexei Pertsoff and Roman Seminov, but Roman Storm is charged in the Southern District of New York for three different things. Conspiracy to commit unlicensed money transmission, conspiracy to launder money, and conspiracy to violate sanctions. We set aside those two latter ones, just to narrow the

discussion and focus on the Llewellyn case. Conspiracy to do unlicensed money transmission is is this criminal claim that you were doing money transmission and the government requires you to have registered with Bin Sen to do that money transmission. Bin Sen in 2019, long before any of this, said the only people that need to get registered with us and are treated as financial institutions are people who have total independent control over customer funds. They're like Coinbase, custodians or, you know, custodial exchanges. And so answer me this, if FinCin said non-custodial developers don't need to get licensed or registered, why is the DOJ going after the Tornado Cash developers for unlicensed conduct?

Maybe, and I'm not at all agreeing with the other charges, but maybe those other charges stand, why are you charging somebody with unlicensed conduct when the regulator said you don't need a license? So that's this other really big problem. And it's not a problem that's just local to Ethereum or local to privacy coins because the DOJ's theory of what is money transmission, if it's more than just custody people's funds or moving it on their behalf, is effectively that anyone who facilitates the movement of coins on chain is doing money transmission. And like AT&T and Verizon facilitate the movement of coins on chain because they relay my transaction messages from my phone. So this is an unlimited set of potential liability for unlicensed money transmission that definitely extends to Bitcoin core developers, the wallet developers, to folks like Roman Storm who are developing smart contract-based privacy tools that are non-custodial. And it's not an isolated incident.

They've also brought charges against in USV Rodriguez, the developers of the samurai wallet tool, which was a Bitcoin wallet that used coin joint transactions to. to affect some level of privacy. So the DOJ has it out for non-custodial debs right now on this theory of unlicensed money transmission, even though FinCEN, the federal regulator, has in the past said, these people don't need to get a license. This is to me the top threat

to somebody building this tech in the U.S. So if we want to talk about American competitiveness, and if we want to talk about civil liberties, these people are arguably doing nothing but speaking. They're publishing code. They might be operating a front-end website as well, although there's a good argument that that speech under the current Supreme Court jurisprudence. So there are First Amendment concerns here. There are due process concerns because you're being told you don't need a license and then you're being arrested for not getting a license.

And there's statutory law arguments as well that they're just stretching the interpretation of the underlying money transmission license statute. How do we get at this? Well, we wrote an amicus in Roman Storm's case. Unfortunately, Judge Fala of the Southern District of New York didn't side with us, didn't side with the defendants. She sided uniformly with the prosecution in their interpretation of the law. That case is still going to trial, but there was a motion to dismiss, and the judge basically ruled against this reasonable, I think, theory that this prosecution is off base for the unlicensed money transmission charge. So if we can't move the needle in the Southern District of New York, at least not until they appeal up to the Second Circuit, what else can we do? At this point, last fall, last winter, late last year, I ran into Michael Llewellyn, who is a friend.

He's a Coin Center fellow. The first time I met him was actually when the sanctions were first announced at ZCon. It was a Zcash conference, and I like pinged him for information about how the Tornado Cash smart contracts work. because he was working at Open Zeppelin for a time, and he's just been in, like, crypto development and consultancy for like 9, 10, maybe 11 years now. Anyway, he wants to build this cool tool called Ferros, which would be on-chain assurance contracts for supporting charities and good causes

for supporting public goods. It's like Kickstarter, basically. You set an amount you want to raise and a time during which, you want to raise it and everyone puts money in and they all get a refund if the target isn't reached and the money goes to the charitable organization if the target is reached. He wants to build that, make it fully non-custodial and potentially use privacy pools to make donor privacy a thing. This would be an amazing tool that Coin Center would also very much want to use as the public good that's being funded. Michael lives in Fort Worth, Texas as well and is interested in, he's actually like

who knows Roman Storm personally, he's not good friends, but he's met him before. He knows how scary government prosecutions are, and he doesn't really want to publish a non-custodial privacy tool without some assurances that he won't end up on the wrong side of a DOJ prosecution. So he filed an action with our support for declarative judgment that the DOJ is wrong about their theory of money transmission and that he has a first amendment. right to move forward and publish this code and that he has a due process right to not be surprised by a prosecution when the government has directly contradicted itself in the past as to what requires a license. So I think we have a good chance of bringing some balance to the force because

the Southern District of New York has really gone, I think, off the deep end as far as how much criminal liability they're imposing on the space with such a broad theory of money transmission. And I do think that this action in Fort Worth could actually put balance back in and put pressure, I think, on the DOJ to rethink these prosecutions and maybe get the administration interested in like what the rule of law here should be as well. So let's draw that line out a little bit. Let's say that you guys bring the case in Texas. You win the case.

And they say, yes, the DOJ must give you assurances that they're not going to prosecute you. obviously that's not going to affect the case in STNY directly, but once it potentially, let's say Roman Storm loses the case, goes up to appeal, now there's a circuit split. Now there's been one judge over here that viewed this way. There's a judge over here in New York that viewed it differently. That gives a path to potentially appealing to Supreme Court. Am I understanding the logic there correctly?

Yes, because the way the two cases disagree would be pretty fundamental. It would be on how broad the statutory authority is. and also how strong the First Amendment protections and due process protections are with respect to that statutory authority. And so I think we would be set up for that. It would sort of force the issue, which we want the issue to be forced. I don't want, you know, unfortunately, the way a lot of things happen in the Southern District of New York is it's a very prosecutorial friendly district. And so you get a lot of plea deals, honestly. You get a lot of people who don't want to waste away in prison. And so they make the thing go away by pleading out.

And that's not like, this is not just about Roman Storm. Like I feel for Roman Storm. I don't want him to go to jail for things he shouldn't be culpable for or wasn't culpable for it didn't do. This is also, though, about the larger question of like, what actually do you need to get a license for? Because if we don't have an answer to that question, we're not. just talking about the kind of civil liability that came with a Wells notice and subsequent SEC

enforcement action. Talking about personal felony liability. And so if there's one thing that could effectively chill all innovation in the space in the U.S. at least is the feeling that if you publish your GitHub repository to the blockchain as a smart contract, that's the step where suddenly now you're going to go to jail for five years. Yeah, this is something that I have come to understand the longer I've been in the space and seeing the legal maneuvering that happens is there's this constant fight between the government wanting the law to get decided in New York or in D.C. And for the industry to want to get the law, get decided in Texas, which it turns out, Texas is like notoriously civil liberties favorable, whereas New York and D.C. are notoriously

government favorable. And that just ends up being the tug of war. the same thing with consensus? If I had to, yeah, if I had to characterize what the real difference is, it's mostly actually the judicial theory of statutory interpretation that's preferred by each side of the spectrum. And it does somewhat correspond with left, right, but it's really more about whether you think that the way to read a statute is by its plain meaning, like the words on the page, or the way to read a statute is to think about what the legislators were thinking of trying to stop

and get at and then pretend that the words on the page actually mean more what you think the legislators thought they met, which gives you a lot of leeway to say, yeah, they didn't say custody or control, but, you know, they probably wanted to cover more things, right? Yeah, yeah, yeah, yeah, yeah. So it's actually a very interesting question of academic legal philosophy that does happen to have a lot of ramifications for the administrative state, but I wouldn't short sell it by suggesting that it's more like left-right politics. Sure, sure.

Well, you know, the one thing we're known on for the chopping block is academic legal theories of construction, statutory construction. So I'm glad you were able to bring that out of us. You got Gorsuch on next episode, right? That would be awesome. I think our audience would love that. I'm sure most people on our audience know who Neil Gorsuch is.

All right. So I think we're at time, so we have to wrap. Just as a final thing, tell us what are you focused on looking forward to in 2025? Give us in less than a minute. Yeah. I mean, I've been joking with people that were the doge that caught the car because it suddenly seems like there's a, you know, the dog that catches the car. What does the dog do with the car afterwards? That part I got that.

I got that. That was why I was making that face. It's a bad joke. I'm a dad now. So you have to give me a pass. Great joke. I think the question is now that there's so much pro-crypto energy in members of Congress, in the administration, how does it get manifested?

It could get manifested in a really good way. It could get manifested in a really messy way that might be worse than having enemies, right? Like, we have to be very careful right now. And so I'm optimistic because on a lot of the things that are big problems for us, like say liability for software developers, the Roman storm problem. We now have three potential paths to get there. We have an administration that's interested and wants to honestly protect people from prosecution, so maybe they can apply pressure to the DOJ or have the Office of Legal Counsel say that

money transmission actually involves custody. That'd be great. If they're not interested, we also have the Avenue of Congress. Tom Emmer, a great member of the House of Representatives, had a bill years ago called the Blockchain Regulatory Certainty Act that created a safe harbor for non-custodial developers. let's bring that back. Let's attach it to reconciliation if we can. Let's attach it to market structure. Let's get it on something that's actually going to move through Congress and pass. And if that doesn't work, we have Llewellyn v. Garland. We have maybe the appeal for Roman Storm if, unfortunately, he loses his case in the SD&Y. We have three paths to a really important victory on clarity for software development and making sure people don't end up in jail for publishing code. that's a lot more past victory than we had just two years ago when this whole thing started. So I feel them pretty good.

That's great. How can people support CoinCenter? People can visit us at CoinCenter.org. Donate, read our materials, share them. Reach out if you have questions or you want to get involved. We're a real open book and we'd love your support. Fantastic. Well, thank you for all the work that you guys do.

You guys are one of the pillars of the industry, helping make sure that we all keep our heads on straight and have our priorities oriented around what matters. So thank you and appreciate you coming on and sharing that with our audience. It was a lot of fun, guys. Thanks for having me. Great. See, everybody.