[00:03:02] Joe Carlasare: So you’ve got that whole piece of it, right. Then you got this document dump from documents going back, you know, multiple years ago when this speech was given by Director Hinman, where he introduces this concept of sufficiently decentralized, which previously had no precedent under US law, right? The idea that something could start out as a security in unregistered offering and somehow morph into something else, and all the documents show confusion and a lot of questioning at the SEC.

[00:03:31] Joe Carlasare: And then on top of all that, then you get this additional fight that continues to go on with Coinbase where they’re petitioning the third circuits for something called the writ of mandamus, which is effectively a rulemaking position trying to get out in front of the public narrative and trying to convince people that you need to act government, you need to put in new rules in the current rules for this space are insufficient.

[00:03:52] Joe Carlasare: So you’ve got all of this blowing up. You’ve got obviously issues in legacy markets, which are sort of related and liquidity issues that we can, we can talk about how that may or may not be affecting some of the crypto basic issues. But man, blockbuster all over the place. And on top of all the litigation filed, you’ve got a TRO hearing as of just a day ago that we talked about Preston very briefly about literally orders to freeze Binance assets.

[00:04:15] Joe Carlasare: So I’ll leave that to Hodl to unpack how he wants to pull on that thread of tons of stuff going on. There’s so much there and I think to me it’s like none of it is surprising. I’ve been in the space now for eight and a half years, and I think all of this was expected. Now, it all happening in one fell swoop I think was certainly like, wow, we’re in the, we’re in the center of the, the hurricane here.

[00:04:37] American Hodl: But to me, I look at the moves that Gary Gensler made and SEC enforcement made, and they were very well telegraphed. I mean, basically he told you over and over again repeatedly, like I, in my view, in the view of the agency, these things are all illegal securities offerings. And you know, some people will say, well, wasn’t he capricious about the Bitcoin spot, ETF?

[00:04:57] American Hodl: And it’s like, no, if, if you read through the documents like I’ve gone through with Joe before, You look through the documents and he says, basically, listen, we need surveillance agreements between these shady offshore exchanges. Things like Binance, who, yeah, while they may have us surrogates, I mean, it’s a wink and a nod to us consumers while they’re advertising during the Super Bowl that says, Hey, yeah, Binance, you, us, whatever.

[00:05:19] American Hodl: Really, you’re one VPN away from the really good stuff. And if you just get a VPN, then you can trade on a hundred x leverage and you can trade illiquid illegal securities. And that was just a bridge too far for the agency. And they finally came in and enforced and did something about it. And obviously the way you’re going to do enforcement is you’re going to go after the bottlenecks and the bottlenecks.

[00:05:40] American Hodl: What are they? They’re the exchanges. They’re the Binance, the coin bases, the FTXs. That’s the easy pickings. That’s the low hanging fruit for them.

[00:05:48] Joe Carlasare: Can I, can I share something guys real quick? Yeah. That’s really funny on this. Okay, so to exactly, to your point, Al, there’s this hearing that that goes on, right yesterday, and it’s with Judge Amy Berman, Jackson Federal Court Judge, right?

[00:06:01] Joe Carlasare: They’re kind of like, many of them think that they they breathe rarefied air, right? They have the ability to literally stop presidential orders with some of their rulings. So she has this emergency hearing and she’s questioning the Binance lawyers and I, I highlighted this part. I thought it was funny.

[00:06:16] Joe Carlasare: She brings them in and is basically is, you know, saying, okay, you’ve got serious claims here. Let’s figure out how to deal with this. Let’s figure out how to protect customer assets. We need to do this immediately on a temporary restraining order. And then she says, makes this comment, she says you know, some of your claims that you’re shocked, the SEC thinks you’re dealing in SEC securities.

[00:06:35] Joe Carlasare: They, they ring a little hollow. The surprise you’re expressing, especially in light of CZs statements over the years, she’s saying, and the fact that SEC banned Binance from doing business in the United States in 2019. This appears to be an extension of that and overlapping ownerships and relationships.

[00:06:52] Joe Carlasare: So she’s basically, she’s going in there literally questioning him saying, how are you guys realistically saying you’re shocked that this enforcement was coming? Right? Literally, like it’s been all over the papers. It’s been in every public statement, every public interview that he’s given, Gary Gensler says, I look around at these exchanges and I see nothing but unregistered securities.

[00:07:09] Joe Carlasare: I mean, isn’t that really kind of a little absurd to go out and say, you’re shocked that the SEC is filing suits? And by the way, Coinbase by extension is saying some of the same stuff with their public statements, but they’re so surprised that the SEC would go down this path.

[00:07:22] Preston Pysh: Well, you also have this video that surfaced of Brian Armstrong, c e o of Coinbase, saying that he had a conversation with, was it Ginsler or the SEC?

[00:07:34] Preston Pysh: And they informed him a year ago that there’s Bitcoin and then everything else is a security was like he communicated in a recent video that he was in. This was disclosed to him a year ago.

[00:07:47] Joe Carlasare: Oh, yeah. So this is the disingenuous nature of some of these arguments. And I, and I really think it’s a PR campaign at this point, guys.

[00:07:52] Joe Carlasare: Yeah. Yeah. So let’s just take public statements. Let’s take them at their own words. So there’s no debate. Brian Armstrong said in his own public statements on Twitter that he has met with the FCC 30 times. So whoever’s saying, you know, that they won’t sit down with them or give him a meeting, that’s total nonsense because Brian Armstrong is saying, we have met with them and sat down 30 times.

[00:08:12] Joe Carlasare: Okay. And then you now know that Brian Armstrong’s taking the position, well, they won’t give us a path to register. They won’t give us a path to compliance. So how do you reconcile those two statements combined with Gary Gensler’s statements that everything in your platform is a security? I. I’m not in those meetings.

[00:08:26] Joe Carlasare: I don’t know for sure, but just speculating, being in similar meetings, what happened in the meetings where, where they said, listen, you’re not going to violate the law and come in here and beg for forgiveness and ask for us to give you an easy path to become compliant. We’re not going to do that. If you want to get compliant, remove it from your platform.

[00:08:42] Joe Carlasare: Seek proper registrations. Don’t come after you’ve violated things and begged for forgiveness. And we’re not just going to, you know, slap you on the risk. So that’s what happened. And if your Coinbase and your business model is built on trying to push these things on the public, and that’s how you make profit, there’s no way you’re going to give that up.

[00:08:58] Joe Carlasare: Right? Instead, you’re just going to complain about how you don’t like the rules. And this is the confusion in the space. They’re shifting the narrative from, there’s no regulatory framework they’re trying to push. There’s no regulatory framework. We don’t know when in reality they just don’t like the current framework and they’re trying to move around it.

[00:09:13] Joe Carlasare: Yeah, that’s, that’s a major distinction.

[00:09:15] American Hodl: So there’s, yeah, there’s so much to unpack here. So let’s just go through a little bit of it. In the old days, right? In the early two thousands, traditional tech VC was basically like, you know, you planted a bunch of seeds and most of them were going to go to zero or near zero, and you might have one unicorn in there, but you weren’t going to get liquidity on that unicorn for a decade, right?

[00:09:36] American Hodl: It was a really hard game to play. So when these token economics came in, when in 2017 when the ICO era popped up, you basically had this incentive mechanism where the key phrase that the VCs were using was short time to liquidity. This was all throughout the valley and all on Sandhill Road. Everybody was saying it.

[00:09:53] American Hodl: If you came in with a startup idea and your pitch deck didn’t have a token in it, it was suggested heavily to you that you add a token to it. Because that token allowed the VCs to take liquidity directly out of the public markets day one. And then they didn’t have to go for the ride. They didn’t have to take the risk, right?

[00:10:11] American Hodl: And so this was a panacea. For Silicon Valley vc, I mean this fixed the, the core thing that was wrong with their industry. So you can see why they were so heavily geared up behind it. Now you have this problem. The SEC has a big problem with what’s going on, and they deemed all of this behavior illegal securities, and they say, listen, we went through this in the 1920s and we know what is and is not a security contract.

[00:10:35] American Hodl: And it doesn’t matter that you slapped a bunch of digital mumbo jumbo on it. These are still at base level regulated securities that, and you need to come in and you can’t do this anymore. This was unpalatable to the Sandhill VCs, the guys like Andreesen Horowitz and A16Z and they basically said, you know what, we’re going to do a regulatory end run around Gary Gensler and the SEC.

[00:10:55] American Hodl: And in fact, this went so far that they were actually championing a new enforcement agency that would allow them to continue to play three card Monty with the general public. Now this is something obviously that was a bridge too far and it went on and got so big post the liquidity that came in after Covid that it had to be shut down eventually.

[00:11:15] American Hodl: But you can see why the VCs thought that an Uber style approach, right, where you basically, you break all the rules, you, you do what Joe was talking about. You come in and ask for forgiveness after the fact. They thought that this was going to be their best shot forward. And this was an all out blitz from them.

[00:11:31] American Hodl: They bought lobbyists in dc They did everything they could to try and get the SEC to see their view. And if the SEC was not going to see their view, then they wanted a new agency which would see their view. Obviously this was never going to be allowed to take place because the SEC is not a paper tiger, like the taxi cab authority, the SEC is a strong financial regulator and they’re going to come in and clean your clock.

[00:11:55] American Hodl: And it took them a long time to do so, but they finally did so, and I think they had a lot of tailwinds on this, like for instance, You know with Rideshare? Yeah. The tax cab authorities didn’t like it. Local authorities didn’t like it, but riders loved it. Well, retail investors got hosed during this last cycle and they got hosed in 2017.

[00:12:12] American Hodl: And you know, it seems like basically twice was enough for most people. And if you look at the polling on, you know, cryptocurrency, it’s negative basically across the board because the public, it took them two cycles, but they finally got wise to the game that was being played and they realized that they were the suckers at the table.

[00:12:27] Preston Pysh: Dang. So Jason and I talked about back when before FTX blew up, you had Sam Bankman freed, they’re working the hill and getting the CFTC to have a much larger, stronger position. To Hodl’s point, there, was this all part of the VC like charade that was being played, the circumnavigate, the SEC? Or is this was that?

[00:12:52] Preston Pysh: Because I mean it, Jason was very scared about like what was basically being brewed out of s SPFs antics on the hill. This is probably two months before FTX collapsed where everybody on the hill was basically taking money from the guy. He was shaping the regulatory side, the laws that were being, or not the laws, but the, the bills that were being shaped wa was that what was happening, Joe, in your opinion or ho like what was wa was, where was that something

completely different?

[00:13:22] Joe Carlasare: To touch on that real quick, I think we can get to Binance from there because something that happened during the FTX Depas, yeah. Sam Bankman Freed was donating to both parties across the aisle, and he had also promised up to, I think a billion dollars, which was reported in the headlines for the 2024 election.

[00:13:38] American Hodl: So this guy was a major player in Washington and basically everybody had taken money from him. Okay? So when FTX blew up, there were a lot of very powerful people that had a lot of egg on their face, and that’s never a good thing. Now, if you remember, the way this blew up was on Twitter, and where do the political elite hangout?

[00:13:54] American Hodl: They hang out on Twitter. So this was, this happened in the public square, in full view in front of everybody. And the perception was, whether this was right or wrong, the perception was that CZ Binance, okay, took Sam Bankman freed out in the middle of the street and shot him in the head. That’s what everybody saw on Twitter.

[00:14:10] American Hodl: That’s what people in Washington saw. And when you do something like that, you paint an extremely large target on your back. And there had been investigations in the CZ Binance from US regulators beforehand, but now it was like, the game is on. We are coming for this guy.

[00:14:23] Joe Carlasare: We’re going to get this guy. I’ll just tell you, I do not think these cases would’ve been filed if they would’ve gotten a bill through Congress, some sort of crypto omnibus bill.

[00:14:32] Joe Carlasare: And as Hodl knows, I’ve been saying this for months, that I think that the green light to file these litigations, which just so happened to coincide with the collapse of FTX and a lot of upset investors and a lot of politicians who had a on their face for through associations with FTX and with with SBF.

[00:14:49] Joe Carlasare: They said, okay, we need to do something now. You regulators go take care of it. We’re going to do what’s best as politicians, you know, pretend like we’re doing something and not, not actually do anything. Right. That, that’s the genesis of it. Because there was real optimism from the more procr lawyers and more pro crypto lobbyists in the space that we could really get something done in 2022 that SBF was throwing money through lobbyists to try to manipulate the Congress into doing something.

[00:15:11] Joe Carlasare: And there were a lot of very positive Procr bills that had support, bipartisan support, you know, among Republicans and Democrats. But again, once it all blew up, I think that all fizzled and they said, okay, take the gloves off. Go get them. SEC CFTC DOJ.

[00:15:27] American Hodl: Let’s also not forget that a valid criticism that the, you know, the crypto guys who were rightfully very upset at Gary Gensler might have against Gary Gensler, is that he was real cozy with that whole FTX thing that was happening.

[00:15:38] American Hodl: And there was actually talk, it never went through, but there was talk of FTX getting safe harbor treatment for what we now know to be absolute insane. It’s worse than Enron. The guy who took over said, it’s worse than Enron. So imagine giving safe harbor to a, a shady offshore exchange run by millennial drug addicts.

[00:15:54] American Hodl: That’s worse than Enron. It’s absolute craziness when you and you would know.

[00:15:59] Preston Pysh: Right, right. Well, so these are, these were super high powered VCs that we’re talking about here that had all these investments that were trying to just, I love the Uber example, cause I think it’s a perfect example that everybody can understand where they’re just trying to move so fast that they just out flank the, the regulators.

[00:16:19] Preston Pysh: But when we think about the revolving door between high powered financiers and government bodies, like the SEC, I guess I’m surprised to see them come down, especially when you have such high powered people at play here, like Andreessen Horowitz, like my Lord, and I mean, they’re just, they’re just one of many that were involved in this, this total scam with quote unquote crypto.

[00:16:47] Preston Pysh: Do you guys, are you surprised that they’re coming down so hard considering the people that are at play or do the rest of the people that are the participants in the market? The, the traditional financiers, the Wall Streeters are leading the charge against some of these VCs.

[00:17:03] American Hodl: To me, I think it’s obvious that there is sort of a covert cultural war going on between elites in America and it’s very east coast, west coast.

[00:17:11] American Hodl: It’s very old money, new money, right? And I think this was the, you know, east coast traditional elite establishment, basically saying no to the West coast. Like, no, you do not get your own rule sets, you do not do rulemaking, we do rulemaking. And they basically crack the whip on them. So to me it was expected, it was always going to end this way because the power is still in New York.

[00:17:32] American Hodl: It’s not in Silicon Valley.

[00:17:35] Preston Pysh: Joe, there’s some ripple stuff that’s been brewing too. I know. When you went down through your overview, does Ripple play the, the case that’s been ongoing there, does that play into any of this as kind of a precursor to what they need for case law or anything like that? Let’s tackle this a couple ways.

[00:17:53] Joe Carlasare: So just, just for to clear the record. Okay. About the SEC and their success rate. You know, they filed more than 150 cryptocurrency related actions to this date. They have not lost a single one, despite the folks that have been continuing to to focus on Ripple Labs, which, which admittedly is a very long, drawn out suit.

[00:18:09] Joe Carlasare: I mean, it was filed back in December of 2020, and we don’t have a motion for summary judgment. I’ve been on this podcast a few times talking about it at least, and even when we get the order, guys, I’ll just guarantee you, one thing I know for certain is if the SEC wins, it will most certainly be appealed by Ripple Labs to the next level.

[00:18:25] Joe Carlasare: And if Ripple Labs wins, they will appeal the order as well. The SEC will to take it to the next court. I don’t think this is resolving anytime soon, but I guess the, the big news and how this is all playing in is because I referenced the earlier release of the so-called Hinman emails, which I, I referenced earlier.

[00:18:41] Joe Carlasare: Those have been all over the, the XRP armies, you know, Twitter feed these days. Talking about how there was confusion about the status of Ethereum and Ethereum was referenced as potentially at the time not being a security because it had been quote unquote sufficiently decentralized, whatever that means.

[00:18:59] Joe Carlasare: But aside from that, that doesn’t really affect Ripple directly, right? There aren’t documents, or at least extensive documents where the SEC is opining in the legal status of XRP that’s there. There’s some mild references, but they’re not anywhere near as supportive as some of the things they were said about XRP.

[00:19:15] Joe Carlasare: And, and I guess the, the argument that’s being advanced in Ripple Labs to the extent that it relates is this notion of fair notice. Okay? There’s this defense under the law. It’s a constitutional defense. That says if it’s too hard to understand the law, if we can’t understand what an unregistered securities is, then we of course cannot comply with it.

[00:19:36] Joe Carlasare: It would be unconstitutional for you to bring in enforcement action when it’s not capable of being known. There’s major problems with that. Okay. One of which is that we know from the SEC’s own documents that they obtained from Ripple Labs that their own lawyers advised them that these things were potentially securities.

[00:19:53] Joe Carlasare: So it’s pretty hard to go forward with a straight face and say, we had no idea these things were securities. When your own lawyers are revealing to or telling you that they could be securities, and then you’re taking that document guys and you’re pushing it towards exchanges to try to get XRP listed, that’s how it became, you know, what would ordinarily be attorney client privilege would only be between the client and the law firm.

[00:20:13] Joe Carlasare: They were turning it over to exchanges to say, list our token. Here’s some arguments why it might not be a security, but we kind of think it is holy.

[00:20:22] Preston Pysh: So there’s no way to run from that.

[00:20:24] Joe Carlasare: I mean, listen, so there’s been a lot of discovery, a lot of rulings. We’re going to get an order on it. I don’t expect it to resolve it, like I said, because there’s going to be appeals.

[00:20:32] Joe Carlasare: But at the end of the day, the securities laws in the United States are fact specific. So even if you get an order that says XRP in the original token sale is in fact a investment contract, it was unlawful. Garlinghouse and Larson have to pay a ton of money back and have to be disgorged of any profits.

[00:20:50] Joe Carlasare: It’s just for that particular sale and token, right? It’s not, it gives us some precedent, right, for other things, but it wouldn’t apply retroactively lead to everyone else who issued an ICO. There’d have to be separate actions filed against all those different folks. So it would be good, right, to the extent that it gives you clear precedent.

[00:21:08] Joe Carlasare: But you know, in some of these other tokens, they didn’t do some of the egregious allegations that Larsen and Garlinghouse are being accused of, like literally intervening in the spot market. One of the allegations in Ripple Labs case is that the s SEC found documents that they would go and prop up the price whenever there was a sell off and also pumped the price to attract retail attention.

[00:21:27] Joe Carlasare: That’s the SEC’s allegation and, and they put forward documents to support it.

[00:21:31] Preston Pysh: Could some of that be used, let’s say they do get a ruling. Let’s say they don’t appeal it. Could they then take that and use it as they’re fighting some of these exchanges to say, look, this token is just like these other 10 tokens on your exchange and they’re all security, so like, stop it.

[00:21:49] Joe Carlasare: Or Yeah, no, I mean, listen, if they have a ruling from a federal court judge finding implicitly that a certain token or asset is a security Yeah. And then they turn around and file a lawsuit against an exchange, it’s pretty easy for that issue to be, have been resolved in the other form, right? This underlying issue about what the thing is is precedential and has been resolved by another court, but you gotta remember the Coinbase loose lawsuit.

[00:22:13] Joe Carlasare: So we can, we can get into it some of the, the, the allegations, but it’s really three parts. And this is the, the thing that I think it would be helpful for the listeners to understand, the Coinbase suit alleges, number one, okay? That they have this Coinbase earn program where they’re using the proceeds of staked assets and they’re paying effectively a yield.

[00:22:32] Joe Carlasare: And the SEC is saying that itself, that activity is in fact a security, it’s an investment contract, and you can’t do that. The second part of the suit is you’re listing all these various different tokens and you’re aiding and abetting the sale and facilitating the sale of these things. And those things that you’re selling are in fact securities.

[00:22:52] Joe Carlasare: The third argument that they’re making is that you as an exchange itself, okay, you are not properly registered, you don’t have the proper qualifications and accreditations to be in exchange, a broker dealer, a clearing house. You don’t have the proper registration statements. So it’s really like three parts to that court argument.

[00:23:11] Joe Carlasare: And any one of them, in my opinion, is very bad for Coinbase that they prevail on any of those theories.

[00:23:17] Preston Pysh: Let’s talk about the staking in a little bit more detail so they’re acting on behalf like anybody can go out there and state coins. And I, I’m, I’m just going to try to argue the, the counterpoint here and then I’m going to let you take it from there.

[00:23:32] Preston Pysh: Hot or Joe. If I have, I think the number’s around like $50,000 worth of eth. If I like around $50,000 of ETH and I’ve got a lot of coding experience, I guess I could stand up my, my own stake to validate transactions and earn yield with my own, you know, set up here at my house, because that’s such a high threshold for, for most investors, they’re outsourcing that to exchanges to do that on their, on their own behalf.

[00:24:03] Preston Pysh: You know, when I’m looking at a stock, let’s say it’s Apple stock, I don’t have a choice whether I’m going to collect the dividend or not. I’m going to get the dividend if I hold that particular stock. With Ethereum, that’s not the case. Like Ethe, if I’m holding Ethereum and I don’t stake it, I don’t collect any yield, but if I do decide to stake it and put it to work, I am collecting the yield.

[00:24:29] Preston Pysh: So it is slightly different from like the mechanics of how you’re collecting the yield there. Like you’re not guaranteed a yield unless you’re doing certain engineering functions. Right. And so like, I guess I’m trying to look at it from the SEC’s vantage point of like how they’re saying that’s like a security when it, it is a little bit different, the, the mechanics of it.

[00:24:52] Joe Carlasare: The mechanics are different, right? There are, depending on which asset you’re talking about, there’s different mechanisms and vehicles through which they can do it. But overall, I think the SEC’s issue is this the very activity of doing the backend, right? Staking it yourself through chain. They’re saying that the customers are relying on you to do that technical part of it.

[00:25:12] Joe Carlasare: And that then, you know, Coinbase is taking commission on that. As a alleged, in the SEC complaint, it’s somewhere between 25 to 35%. So you wouldn’t even get the amount, the same amount, a commensurate amount if you were doing it natively on yourself. Right. They’re, they’re skimming off the top.

[00:25:27] Joe Carlasare: So that’s a concern, right? You built a business model off of being a middleman and doing, doing the hard part for them, and then taking a portion of that and re refunding it back. But the other problem from the SEC standpoint, if you either complaint is that they’re saying, well, you’re putting this out into the marketplace and you’re encouraging people to stake your assets there.

[00:25:45] Joe Carlasare: And in many cases, they’re offering yields higher than they would natively on chain. How’s that work? Right? Like that, that’s an interesting little wrinkle in it. If you, it’s not the same as if you were to go out and do it on your own. Some, through some backend, maybe pooling of assets or issuing loans.

[00:26:00] Joe Carlasare: Somehow they’re monetizing that beyond what the native protocol yield would be, and they’re taking a commission out the mask.

[00:26:06] Preston Pysh: How’s that possible? How’s that possible?

[00:26:08] American Hodl: Well, no. They are, they are reating in the Ethereum ecosystem. So the minute you stake your eth you get a proxy token, you, well, you, you don’t get one, but you have to go to the market to get one, a proxy token called staked eth.

[00:26:20] Joe Carlasare: So if you can prove that you’ve staked your eth, you get a proxy token called s t e. And so basically they just immediately re-located all of the state and it’s, it’s a massive problem in Ethereum. If the St eth peg ever unwinds it’s catastrophe, essentially.

[00:26:36] Preston Pysh: I’m, I’m like mouth wide. I, I can’t even like comprehend what you guys just said. That’s insane.

[00:26:42] Joe Carlasare: This, listen to this part. This is from allegation 319, that based complaint. Running a validator note is often expensive for, this is at the SEC’s allegation. They say it’s often expensive due to the cost of the equipment and the software needed to stake. But through the Coinbase staking program, investors are paid those expenses and are avoid paying those expenses because Coinbase operates its own validator nodes to earn and pay investor awards.

[00:27:05] Joe Carlasare: For example, GI Coinbase is February 21st, 2023 annual report on a Form 10K filed with the SEC states quote, staking independently requires a participant to run their own hardware, software and maintain close to a hundred percent uptime. We provide a service known as delegated proof of stake, which reduces the complexities of staking similar.

[00:27:26] Joe Carlasare: Coinbase acknowledge on this website that becoming a validator is a major responsibility and requires a fairly high level of technical knowledge. The reason all that allegation is in there, right, is because the whole core of the Howie analysis, the core of the securities analysis is that you are making money, you’re getting an expectation of profit based on the hard work of others, and Coinbase is going out into the marketplace and putting on their 10K that they’re doing all this hard work for you.

[00:27:50] Joe Carlasare: They’re making it much more simple. They’re doing it. And you can expect a yield. Guys, that’s, that is Howie. That’s, that’s a security, that’s the whole point. Don’t buy the orange groves directly. Buy shares of our orange grove and we’ll give you some of the profit. That is a security.

[00:28:04] Preston Pysh: Yeah. But so, so I’m still battling this, right?

[00:28:07] Preston Pysh: So when I think of a security, there’s employees that are inside that corporate veil that are performing a pro, they’re building a product or they’re making a service, right? That’s adding value to a customer. Right?

[00:28:23] Preston Pysh: This would be equivalent to, let’s just, let’s just go to like Robinhood, right? Let’s say I, I own Apple stock and I have it on the Robinhood.

[00:28:34] Preston Pysh: The productivity that’s happening inside of Apple, the company, and let’s just say Apple’s paying a dividend. That is earnings, that is profit, that’s being generated by Apple employees. That’s then being paid to an owner, which would be me in this example that we’re talking about with Coinbase. This would be like me taking that Apple stock, sticking it on, Robinhood, them Reating, and doing all these financial gymnastics, which are completely independent of Apple, completely independent of Apple.

[00:29:07] Preston Pysh: To create a yield by borrowing and lending through a fractional reserve, you know, disaster. But they’re doing it and they’re creating some type of yield, and then they’re paying me that yield from Robinhood, like Robinhood employees are performing those actions and then paying me, which I see as being very different than Apple’s security token or stock, or whatever you want to call it.

[00:29:30] Preston Pysh: In this case, I see those activities as being very different.

[00:29:34] Joe Carlasare: Yeah, I mean, they, they go into pretty fine detail right on how that, that the actual native staking on chain and what you see with the Coinbase run program are very different things. For example, there’s a quote in here in the complaint that talks about how Coinbase no longer purports to maintain reserves of sta stackable assets.

[00:29:50] Joe Carlasare: In and around October of 2022, in a response to an FIQ on this website, can you trade or send funds while earning rewards? Coinbase states you’ll typically be able to cash out your cryptocurrency. That’s earning rewards as you would any other currency. It is not natively staked. Cashing out may be, may be subject to different factors, including not, but not limited to your account history, transaction history, and banking history.

[00:30:11] Joe Carlasare: So that there’s a lot going in under the hood with the management of the assets where the, the, the Coinbase employees in your example, they are doing things. There are, you know, there’s pools. They’re lending, they’re all engaging in various different activities that is not just, okay, we’re going to stake it on change.

[00:30:25] Preston Pysh: Well, so now let me argue with myself. So in the example that I described earlier, if Robinhood was performing these functions, I would be paid in dollars from Robinhood employees. I would not be being paid in additional Apple stock from Robinhood employees. And when we look at the Coinbase scenario, you’re being compensated in additional e.

[00:30:49] Joe Carlasare: That’s coming out of the protocol and stuff. That’s not coming outta the protocol. That’s, that’s the point. There are bonuses for their staking program as well. They’re contributing additional crypto from God knows where into the stake services to make it more attractive for customers stake. It says called they offer staked bonuses to participants during special periods.

[00:31:08] Joe Carlasare: For example, there’s a, there’s a quote from June, 2022, stake at least 10 a hundred dollars. Earn a $10 bonus, will deposit $10 an ETH to your account within 45 days. That’s it. You don’t have to do anything else. That’s from a promotional item on Coinbase website.

[00:31:23] Preston Pysh: So that’s a customer acquisition marketing scheme. Yeah. Which is independent from the protocols payout. They’re, they’re going to have to buy that themselves and then pay that to the customers. And so if I’m just trying to play devil’s advocate, right? And, and I’m looking at this and I’m saying, well, you know, I. This is different than stock like Apple stock, right?

[00:31:44] Preston Pysh: Like if I, going back to the example that I had with Robinhood, like them paying me or getting something issued out of the company that’s like programmatic to issue more stock for basically depositing and not moving the equity around is basically why they’re paying it out is so that it drives the price up, right?

[00:32:06] Preston Pysh: That’s the mechanism that’s being employed here. I don’t know that you’ve necessarily seen something like that. I think they’re, I think they’re better case from, if I’m playing the SEC’s role. Is to really go after that. There’s all these videos of Vitalik, and I’m just going to use ETH as an example.

[00:32:25] Preston Pysh: There’s plenty of others tokens that we could use as examples, but the ETH one is so well documented with Vitalik. I mean, there’s, there has to be five or six videos that just clearly demonstrate that this was an equity from day one as they were, you know, using Bitcoin to basically finance them standing it up.

[00:32:43] Preston Pysh: They, they’re stating that they have marketing teams, that they have this many coders. Like I would think that that would be such a stronger case to say, Hey, Coinbase, you have a, a listed equity token here on your platform, and you can’t have those because you’re not even a registered exchange. Don’t, don’t you think that that’s a much stronger case than the staking piece?

[00:33:03] Preston Pysh: It, it almost seems like it’s an attack on proof of, of stake.

[00:33:07] Joe Carlasare: I, I would agree with that, but keep in mind that’s in this suit. I mean, the, they list numerous assets. Okay, forget the earn program. Forget the staking program. In this particular suit, they list numerous assets they believe are in fact unregistered securities, and Coinbase is selling them so that that’s part of this suit.

[00:33:25] Joe Carlasare: That’s the first category we were talking about. And then they have even a broader category, which is okay. Let’s assume that just one of these things is in fact a security. You have to register in the United States as an exchange. And that falls within our jurisdiction as the SEC. And you never did that.

[00:33:42] Joe Carlasare: Yeah. Never properly registered as an exchange. Right. It’s like a, it’s a massive complaint when we, I think it was on the Bitcoin layer talking with Dr. Jeff Ross about this. And you could have filed a complaint like you’re suggesting, where it’s very narrow, it’s just, just going after the staking or just going after a few tokens, or, you know, just going after certain, you know small amount of their business.

[00:34:02] Joe Carlasare: This is the whole gamut. Right. They filed the complaint, literally questioning their right to exist as an exchange. Yeah. You could not get more broad than this. The only way I think you could tailor a more broad complaint is if you added in a every token on the platform that could even potentially be a security.

[00:34:17] American Hodl: And, and just to clarify, it seems to me that it’s not necessarily an attack on proof of stake, but it’s an attack on delegated proof of stake. Is that correct? Right. And also I think Preston, when you go back to the, the initial ICO for Ethereum, I, it is my belief, Joe, you can correct me if I’m if I’m wrong here, but that it falls outside the statute of limitations, right?

[00:34:36] American Hodl: It is. I mean, yeah, the SEC will probably not be going after them, right. For the original ICO launch of Ethereum. But I do think ETH two, is there something there? Could they go after them for the transition to proof of stake?

[00:34:48] Joe Carlasare: That’s an interesting, yeah, I mean that, that’s the question. I mean, so one of the emails that we got, it was kind of fascinating, I tweeted it out.

[00:34:56] Joe Carlasare: It talked about how, you know, their current understanding of how Ethereum is presently constituted back in 2018, they didn’t think it was a security, right? Based on our current understanding of how this thing is constructed, they’re commenting in all those emails and Director Hindman is opining on proof of work Ethereum, right?

[00:35:12] Joe Carlasare: It’s changed radically. And then the question becomes, well, why did it change? Who is leading the change? Does someone control the change? And that’s where you have potentially securities laws get involved. And if folks that were leading the change and were, you know, cultivating that, that upgrade and they were, they still to this day maintain that.

[00:35:30] Joe Carlasare: And it doesn’t work without the man behind the curtain making it work that raises issues. And I think that’s why they’ve tried to left, leave the door somewhat open. You’ve noted, like in public statements, Gary Gansler has been far more reluctant than some of his predecessors to speak on the legal status of Ethereum today as presently constituted.

[00:35:47] Joe Carlasare: That is, in my opinion, intentional.

[00:35:50] American Hodl: Yeah, for sure. I, I do think, I, I do think Ethereum has potentially the most political cover of any one of the cryptocurrencies or the al coins. Right. But it still is not, you know, it’s not bulletproof, essentially. Like there are a lot of people that think that, you know, what Hinman said back in 2018 is like case closed.

[00:36:06] American Hodl: That’s gospel. Like, to Joe’s point, it is not-

[00:36:10] Joe Carlasare: so can we go back to what you said a moment ago? How about the delegated proof of stake? Right. And I think it’s a fair point that you have to distinguish between proof of stake and an attack on proof of stake versus delegated proof of stake. But Okay. Just to steelman the other side, do you believe, I mean, what do you think as a market participant?

[00:36:26] Joe Carlasare: The natural weight, this, this goes, I, I view it more as, as delegated proof of stake being dominant as long as it’s allowed to be. Right. Why do I have to mess with all this? I’m going to put it all onto Coinbase and they’ll do it for me and I can just, you know, take a dividend just like Preston says, and use the familiarity with the equity market to, in the same way with, with theorem.

[00:36:45] Joe Carlasare: So to me, attacking delegated proof of stake is an indirect attack on proof of stake.

[00:36:52] American Hodl: No, I, I, I absolutely agree, and I, I think that, you know, running a, an Ethereum archival node or doing something like proof of stake is just, it’s well beyond the technical capability of the average market participant, even possibly the above average market participant.

[00:37:05] American Hodl: I mean, I don’t even think Vitalik Buterin runs a full archival Ethereum node, right? So that’s pretty telling when the creator of the coin doesn’t even, you know, run a node that’s validating the entire chain state.

[00:37:16] Preston Pysh: Mark Cuban and his son run one, evidently, is what he told me.

[00:37:20] American Hodl: It’s a very, it’s a very expensive proposition to run one, I mean, in order to be an Ethereum validator.

[00:37:25] Joe Carlasare: Do you believe that, Preston? Do you believe that?

[00:37:26] Preston Pysh: Oh, yeah, totally, totally.

[00:37:29] American Hodl: In order to be an Ethereum validator, it’s, you need about a $20,000 computer and, you know, $54,000 worth of Ethereum. So you’re looking at 75 grand before you get in the door. So I hope you have enough money for a nice Mercedes.

[00:37:41] American Hodl: Otherwise you’re not going to be a full participant on the Ethereum network or ecosystem.

[00:37:47] Preston Pysh: Let’s transition and talk to the points made on Binance. So there’s a temporary restraining order. Joe, get into this. Explain why this makes the Binance situation very different than the Coinbase situation, and just get into some of the nuances of that.

[00:38:04] Joe Carlasare: Yeah, so this is the blockbuster of the week, right? If there’s one story in the legal crypto world and the market world as a whole, you, we need to get to maybe some of the market effect with CZ having to defend the BNV token. We’ll talk about that in a moment. But, so the one story is this, this issue with Binance.

[00:38:20] Joe Carlasare: When you normally file a lawsuit, guys, you file the complaint, you, you walk up, or actually you don’t walk up to the courthouse anymore, you just file it online. You, you get the stamp and then you go work and serve the defendant. And the whole process at the get go is very slow moving. It can take months before you even get service on the defendant.

[00:38:39] Joe Carlasare: And then after you get service, it can take months before the defendant even appears and they may file a motion to dismiss and that might get briefed. I mean, I’ve had cases where my clients have have been sued and real, the case doesn’t even get moving for a year. After the sue is filed, literally one year after it’s filed, we finally start getting into discovery and moving.

[00:38:59] Joe Carlasare: This is the exact opposite. This is Rocket Docket. This is, they filed the complaint and within days, They had a TRO on file, which is an order. It’s a seeking immediate relief from the court, basically saying you need to act right now because Americans deposits in Binance are at risk. We are nervous that, that the control of Binance US is really under the control of a foreign national in CZ, who is openly flouted US jurisdiction, who has used it as his piggy bank move funds in and out of the United States.

[00:39:30] Joe Carlasare: Who has basically retained control over all of the assets. There’s allegations in this thousand page submission that was put forward with tons of citations and documents that that show, you know, CZ had most of the shards or access to most of the shards for all the crypto assets held by Binance us. He was a signatory on tons of accounts belonging to Binance us and even though openly he’s saying, no, we don’t have any control, it’s an independent exchange that has no association with the broader binance.com.

[00:39:57] Joe Carlasare: They put forward compelling evidence, which the judge even cited saying there’s a lot of evidence here that they put forward showing that there was substantial control by the international of the domestic. In particular one, one thing I’ll just highlight is that they actually showed almost a billion dollars flowing out of the United States from certain accounts that were supposedly belonging to Binance US in March and April.

[00:40:18] Joe Carlasare: What happened in March and April? Obviously there was that banking issues and there’s, there’s allegations about Signature in here and some other big US banking institutions, so a lot of stuff there that needs to be figured out. So the SEC files this emergency relief. They say we need to be heard immediately in court.

[00:40:35] Joe Carlasare: We need to safeguard US deposits, we need a full accounting. We need to freeze all of bin’s assets. We need to have a receiver in there to look at things to know if the data we’re being given about what, what assets are held and you know, the, the balances certain accounts is in fact true and we need to do it now.

[00:40:51] Joe Carlasare: So they filed this, it was presented yesterday before the Judge Binance did the smart thing. They conceded a lot saying like, we’ll agree to make sure this is all in the hands of US persons. We’ll agree that we were going to have an accounting at some point of all the US-based entities, but they fought on what they needed to fight on.

[00:41:08] Joe Carlasare: So what do you think they need to fight on? They don’t want any of CZ’s personal assets froze and they don’t want the international frozen. Those are the key issues that they fought on vigorously and it was smart. So it all resolved yesterday. With the judge saying, well, look, you guys agree on a lot.

[00:41:23] Joe Carlasare: There’s some issues that need to be carved out and resolved. I’m going to refer you to a magistrate judge, which is also a federal court judge, but someone has is not appointed by not appointed in the same stature as the district court judge. And they can go handle this discovery dispute and try to come back and come up with some agreed order rather than the judge throwing down an order to freeze all these things.

[00:41:44] Joe Carlasare: And to handle this, let’s just see if you can agree through a mediation to some consent decree, some consent order to safeguard assets. That’s where it stands. How much time did they give them for that?

[00:41:55] Preston Pysh: 48 hours. Wow. Okay. So this is going to going to air-

[00:41:59] Joe Carlasare: So we’re about it tomorrow?

[00:42:00] Preston Pysh: Yeah. Okay. Wow. So it, it seems like they’re going to play nice so that they can protect those two major interests that they have on the international front and CZ’s personal interests.

[00:42:11] Preston Pysh: Where does it go after that, Joe? Like, does this get really messy?

[00:42:15] Joe Carlasare: I think it’s getting, get extraordinarily messy. Let me just say, there are a couple things that, that I think, and we talk about this quite frequently, huddled that really sort of, when I, when I saw the notation on the docket, my my eyebrows perked up because I’m like, okay, something’s going on here.

[00:42:31] Joe Carlasare: They’re a little nervous. There was an appearance filed by a notable criminal defense attorney in this case. Which the SEC case is civil. But what happens frequently in a lot of civil litigation is that you have a criminal attorney in the background. Most of the time you don’t even want them to file an appearance, but they’re looking over what records are produced.

[00:42:49] Joe Carlasare: They’re advising the client to say, listen, if you turn over these records, you could face criminal liability. And sort of they’re in the shadows saying, my one job is to make sure this an indictment does not come. And that stems from, I think an earlier report a couple months ago that the DOJ Department of Justice was split on whether to indict CZ and indict finance.

[00:43:10] Joe Carlasare: So my guess is in, I’ll just qualify this with some supposition, but. I think the d OJ has looked at this rather closely. I think the DOJ which typically would move before a civil organization, a civil complaint, they would, they would file the DOJ indictment and the civil would sort of take a back seat to the DOJ.

[00:43:27] Joe Carlasare: I think that they, they smell something here. They think there’s something we need to look at, but I don’t think they have all the records. And my guess is they green lit the civil enforcement actions to put pressure on violence, to get as much records as possible. And then the SEC as they can, normally they can do a criminal referral.

[00:43:44] Joe Carlasare: So I, I, I would not, I would not at all take off the table the potential of a criminal indictment at some point in the future. I can’t say it’s guaranteed, I think you need to get records. But to your point, how does it all play out? It plays out where the SEC will push as hard as they can to do a full accounting of all records.

[00:44:02] Joe Carlasare: And at some point, Because there’s been co-mingling of assets and that’s, we didn’t mention that clearly, but there’s this overarching allegation that the binance.com entity has co-mingled assets with the US entity. If I’m a federal judge, and I hear that and I see substantial evidence of that, how, and Preston, I open the door to everything.

[00:44:21] Joe Carlasare: If you’re mixing and matching across accounts, across entities, the other side gets to see it all. And my guess is it will come to a head when at some point they will show the trail from dot Binance, do us to the international and say, we need to see behind the curtain over there what’s going on with the international.

[00:44:38] Joe Carlasare: And that’s kind of a black box, right? That what is behind the curtain at binance.com.

[00:44:43] Preston Pysh: But I would think to me, oh, go ahead. No, go ahead Hodl.

[00:44:45] American Hodl: Oh, I was just going to say to me, when I saw the the Reuters article about the, the Department, department of Justice being split, my immediate first thought was this thing is a PS IOP to get this guy on US soil so that they can arrest him.

[00:44:58] American Hodl: Like that was what I immediately thought. Maybe that’s too, that’s overtly conspiratorial. But I think there is a, there, there, and there’s definitely criminality at Binance. I mean that, that seems obvious to everybody who’s been paying attention.

[00:45:11] American Hodl: Well, you can say things I can’t, but I’ll just tell you you know, just my personal opinion, Joe. Just my personal opinion, not a legal opinion.

[00:45:19] Joe Carlasare: Yeah. I’ll just tell you like, you know, if you’re in these financial cases, right? I mean in particularly financial crimes, it’s really important to get a full accounting of the records. And I think Preston, I know you were really frustrated, like how is this guy SBF not in handcuffs, like immediately after the whole thing blew up and it was obvious everybody knows what was going on.

[00:45:36] Joe Carlasare: How is he not indicted and, and doing a per walk. Okay. And the answer is because they want to have all the records. Yeah. They don’t move off half cock. They want to have every single piece of paper so that when somebody’s in handcuffs, they know I got my standard of proof. Beyond a reasonable doubt, there’s no no way we lose this case.

[00:45:54] Preston Pysh: How about the bam trading and bam management part of this Joe?

[00:45:59] Joe Carlasare: Yeah, well that’s, that’s the US entity. I mean, that’s the whole, whole basis of the suit. I mean, the US entity is in the documents that have been released. It’s basically a front for the international, well, I guess where I’m going is more in the them trading against customer bonds.

[00:46:15] Preston Pysh: Oh, the wash trading. Yeah, the wash trade. Sorry.

[00:46:17] Joe Carlasare: Yeah, yeah. No, no. So that’s the entity, right? The ban trading is, is the, the entity we’re really talking about by us effectively, and the shocking allegations and the, the best part of it guys, is this, it’s not just the allegations. It’s not just to get a complaint and, well, let’s see what evidence they have.

[00:46:34] Joe Carlasare: They’ve put forward hundreds of pages of chat logs of records internally saying, you know, we’re running an effing unregulated exchange here in the United States chat records from the, the senior leadership of Binance, us saying there’s wash trading going on in our platform. There aren’t safeguards in place to prevent this.

[00:46:54] Joe Carlasare: Can we do something about this? Can we address it? And it’s not years ago. Some of these allegations and documents are from May and April of 2023. And it’s shocking to me that, you know, they’ve known this for years. They’ve known this was a problem. CZ himself, if you follow him on Twitter, he goes out and says, our customers want to know there’s not wash trading on the platform.

[00:47:13] Joe Carlasare: And now we know there’s internal records that there is. And they didn’t have safeguards in place, they didn’t have surveillance agreements. And by the way, this plays perfectly into the SEC’s hands for the denial of the Bitcoin’s spot. Yeah. Let me explain why. Cause their core, I think Hodl alluded to this earlier, their core argument is you got one of the exchanges that has massive amount of spot buying of Bitcoin and spot selling and it’s a black box.

[00:47:37] Joe Carlasare: They’re not even making sure the trades are real and legitimate. So this will be exhibit A in that action.

[00:47:43] American Hodl: Now, I’m glad you brought that up because I, I wanted to touch on that as well. We’re a long way off from a Bitcoin spot etf, and what it’s going to take is essentially a well-regulated US entity that is Bitcoin only.

[00:47:55] American Hodl: That has significant volumes. And until we get something like that, hopefully several of them. But until we get something like that, you’re not going to see a spot ETF anytime soon. Because, like Joe alluded to, and as we all know, is, you know, market participants here, this, this stuff is the Wild West. Right?

[00:48:11] American Hodl: And if you’re operating at a you know, a foreign exchange, not only are you in the wild West, you’re in the Wild West Saloon and it’s past midnight and everybody’s got their six shooters out and you’re about to be killed because there’s no rules on these exchanges. None at all.

[00:48:25] Joe Carlasare: Can we, can we talk about that for a second?

[00:48:27] Joe Carlasare: And I love your, take Preston on this, and this is the one question I had for you tonight. Okay. We, as Bitcoiners and, and we’re passionate about the asset, we th we understand the importance of Bitcoin. It’s frustrating to me. For so long that we’re so deep into this thing and you don’t have a real solid Bitcoin exchange in the United States.

[00:48:47] Joe Carlasare: And I know there are exceptions and, and people don’t bite my head up because I know you, you can think of two or three that are Bitcoin only. Right? But we’ve heard allegations tonight about the Prime trust, right? You’ve heard other issues in the past recently developed about the Prime Trust. We can get into those, but why do you guys think that we’ve had so much difficulty having you know, we talked about this, a gacs type real a p i backend exchange for Bitcoin in the United States after all these years.

[00:49:15] American Hodl: Yeah, I mean, everybody that I know, you know, who’s worked at Kraken says that Jesse Powell is a, you know, pretty hardcore Bitcoin maximalist. He is one of our guys. But the lure of all of the money coming in from these illiquid Ponzi scheme tokens is, it’s just too great. And, you know, if everybody else was going to do it, then you might as well do it too, and you might as well make hay while the sun shines.

[00:49:36] American Hodl: And, and that’s been sort of the, the modus operandi for this entire space. And, you know, it, it was good business for the people who could get it while it was going on. But, you know, ultimately we were kneecapping ourselves as an, as an industry. And the people like Brian Armstrong who were running Coinbase started off very strong Bitcoin only.

[00:49:54] American Hodl: And over time these, these lures of adding new coins and suckering in retail investors, I mean, the earn program was basically a brainwashing tool where they would pay you to read propaganda about illegal illiquid securities. I mean, when you spell it out like that, it’s pretty damning, right? And that, that was, that game was going on for a long time.

[00:50:14] American Hodl: And like I said before, it was basically a game of three card Monty with the general public. Those days are over now. So it is time for everybody to take a good, hard look in the mirror. I mean, this is, to me, this reminds me of the moment, post.com bubble collapse when the real, you know, next gen companies are going to be built when the, the Googles and the Facebooks are going to come out of this thing.

[00:50:34] American Hodl: And that’s exciting to me as, as a Bitcoin. But the people that succeed in this industry, and I’m using that in air quotes, if you’re listening to the podcast, the people that succeed in this industry are going to be people that focus on Bitcoin, not people that focus on illegal securities.

[00:50:49] Preston Pysh: Very similar message to what sailor’s been saying for probably the last six months to a year is people are way overestimating crypto and way underestimating Bitcoin.

[00:51:01] Preston Pysh: I think it’s on full display. To echo your point, Hodel Joe, I think when I look at that, you know you have Fidelity, which is a major legacy financial organization that is now allowed buying Bitcoin. You can’t withdraw it. They’re going to self custody it now available to the general public that have Fidelity accounts.

[00:51:25] Preston Pysh: They are the odd man out on Wall Street compared to everybody else, I think. I think everybody else on Wall Street is still looking at this like, what a bunch of degenerates trading, imaginary money, acting like it’s going to compete with the dollar. We have total control over the financial world and if these kids think that they’re going to like program some fake magic internet money and compete with the dollar, like we’re going to snuff them out with style and enjoy every second of it.

[00:52:02] Preston Pysh: I actually think that they find it entertaining to think that a Bitcoin or could even remotely think that they could compete with legacy Wall Street Finance.

[00:52:12] Preston Pysh: I think that’s, that’s the, that’s the mindset.

[00:52:15] American Hodl: I think you’re absolutely right. And I, I think to people that hold that view, I would say that, you know, if I was in your position, I would feel the same way probably.

[00:52:23] American Hodl: But the world is changing. I mean, you know, secretary Yellen came out the other day and said that we’re planning on the dollar essentially losing its reserve currency status. That’s, that’s a pretty crazy statement by treasury. I mean, that’s nuts. That’s nuts. You know, I can’t believe I heard something like that come out of her mouth, but obviously she’s right.

[00:52:40] American Hodl: And she’s being a realist about what’s coming. Right. And I think as we look you know, towards the Russia u Ukraine conflict, and obviously China is rising, they’re ascending. While we’re descending, there’s going to be a conflict between the superpowers at some point. And when you look at these conflicts, you know, in the modern day, they’re not going to look like World War II.

[00:52:57] American Hodl: They’re not going to be like the 20th century conflicts. These are going to be hybrid wars. And hybrid wars are cyber, they’re biological, and guess what? They’re, they’re economic. And our traditional financial system is, is a joke. It’s full of holes. I mean, from, from a cybersecurity perspective, you can just come in there and do whatever you want, basically.

[00:53:14] American Hodl: So we need an upgrade to make this tradify system more robust. And I think the thing that is non-intuitive at this point, and still very contrarian, that’s the thing I love. By the way, Preston, we still have our edge. It’s all these years later, we’re still the contrarians in the room. We’re still the guy saying, no, it’s just Bitcoin.

[00:53:31] American Hodl: You gotta focus on Bitcoin and the underlying Bitcoin technologies. I think in the coming decade we’re going to be able to use these underlying Bitcoin technologies to not only strengthen Bitcoin in the world, but also strengthen the traditional financial system, create a robust financial system that’s able to withstand attacks.

[00:53:47] American Hodl: And these attacks are coming from adversaries outside of America. So if you’re the type of person thinking, Hey, it’s never going to come from me. I’m at the center of Rome and this is the Roman Empire, the winds have changed shift mightily. They come for you fast, much faster than you’re expecting.

[00:54:02] Preston Pysh: So it’s time to to, to that point Joe, to to, to huddle’s point.

[00:54:06] Preston Pysh: When we look at the legacy financial, the JP Morgans, the Bank of America’s, all of them, right? For the last 40 years, anybody who actually has real buying power that’s secured, that buying power either in equities or bonds, the value has, has performed. They haven’t seen it get eroded for 40 years until Covid from, from Covid till now.

[00:54:32] Preston Pysh: They’ve actually started to see, and I’ve, I’ve called it deflection in the bedrock of finance. Actually Sailor is the one that that initially started saying this, and then I just been chirping it since. But they finally started this to see the deflection, and it hasn’t been enough for, for them to be shaken out of their chair to act like the, the holders of all this buying power, the people that are truly controlling a large portion of the buying power.

[00:54:57] Preston Pysh: They haven’t gone to your traditional Wall Street banks and said something is seriously wrong. We need a solution to this right at all. And so there’s no reason for Legacy Wall Street to take anything serious. I think we’re on the precipice of that changing in the coming three to five years. Like I think it’s about to get disgustingly volatile, especially in the bond market.

[00:55:22] Preston Pysh: And I think what’s going to make it really hard for people was, I think you’re going to have a total melt up in equities in the coming five years. Like you’re going to see prices in equities that you can’t even imagine, especially from like a PE standpoint. Like if you’re using traditional PE ratios, like you might as well just throw those things in the trash can because they’re going to, they’re going to be in multiples that you like, make your eyes bleed because that’s how these things play out from a currency standpoint, which is only going to add more confusion for a lot of legacy folks as to like where they need to position themselves for the changeover in currency.

[00:55:58] Preston Pysh: But in the bond market, it’s going to be extremely evident that something is melting down. And I love your chart that you’ve been posting where you basically take the equity market and instead of putting dollars on the bottom, you put long duration bonds on the bottom. because I think it’s a really interesting and neat chart to look at.

[00:56:16] Joe Carlasare: Have you looked at it recently? I haven’t looked at it recently. Oh my gosh. It’s absurd. It’s just exploding, right? Yeah, no, I wish I could share it, but let, let me ask you a question, okay. For both of you. The consensus view. I think right now, and I don’t know if this is your, your, your two views, but the consensus view is that you’re sort of in the, the late stages of the bear market here.

[00:56:35] Joe Carlasare: You’re building a base in Bitcoin and, and we’re going to be heading much higher over probably the next year beyond that, after the having, if you believe cycle theory, that sort of thing. I don’t, but let’s put it that aside. Let’s just assume we’re, we’re nearing the end of a bear marker. Longer consolidation, and I don’t think these cases are going to resolve at any point in the near future.

[00:56:54] Joe Carlasare: I think it will carry over into 2024, potentially into 2025 and thereafter. Do you think this changes the dynamics of the Altcoin Bitcoin market? Are we going to get another Bitcoin bull market where you know, you have the alts popping off again and you track capital and dumb money into the alts? I know that we have a friend, obviously Brad Mills, who talks about very, very vocal, he’s been saying for like the better part of two years that he thinks there will never be another altcoin bubble, that it’s dead.

[00:57:21] Joe Carlasare: I’ve heard you Hodl say things that you think there’s going to be an AI altcoin bubble or, or identity altcoin bubble. Identity. Identity, yeah. Identity. That’s right. What do you think, do you think that this is, is meaningful, all this legal bs or where, where do you see it?

[00:57:33] American Hodl: Well, I thought about this quite a bit actually when these actions started coming down.

[00:57:37] American Hodl: And I, I think that unfortunately my take on this is that there will be an alt season. It will exist largely outside of America, largely outside of developed markets. Right? So, I mean, Andreesen Horowitz announced that they’re moving some operations to London. You know, London is another financial hub in the world that’s, you know, part of the developed world.

[00:57:57] American Hodl: But I think unfortunately a lot of the people that are going to be getting fleeced in this next cycle are in the global south. And you know, that makes me really sad because I’m already starting to see American investors operate out of these Caribbean entities so that they can take part in these kinds of things, basically unencumbered.

[00:58:13] American Hodl: So yeah, I think unfortunately you’re going to end up in this situation where like much of the world is still hooked on these decentralized Ponzi schemes and there’s not a whole hell of a lot that we can do about it. So I do believe that you’re going to see these things pump yet again. Now there’s going to be some energy where inside of America, at least some of the people that are smart, sober, and rational will wise up.

[00:58:36] American Hodl: And they will either leave the space or they will double down and refocus efforts on being Bitcoin only. And you’re already seeing a lot of the people that, you know, I consider to be more fly by night moving from crypto into the new trendy stuff like ai, right? You can take a GPU farm that you were using the mine cryptocurrency and you can use it to do AI stuff.

[00:58:57] American Hodl: So it’s a real easy phase shift for these guys. I think that we’re going to get rid of a lot of the bad elements, but I think unfortunately the bad elements are going to go overseas and they’re going to prey on the underbanked in emerging markets. And that’s going to be like a moral tragedy. And I will continue to speak up against it every time I see it, because I don’t think it’s right.

[00:59:14] American Hodl: And if you’re an investor, I, I think that that’s something that, you know, should weigh on your conscious and you, you should actually give heavy consideration to.

[00:59:23] Preston Pysh: I agree with everything pot just said. And I would say that the primary marketing for this is going to be Bitcoin is X price, which is way too expensive for you to ever make any kind of money in it.

[00:59:38] Preston Pysh: And, but this token that I just made is 5 cents and it could go to 25 cents or a dollar like in two months. Like that marketing pitch, how many times I talked to people, said that basically same thing. Like, oh, I, I wish I would’ve gotten in the Bitcoin seven years ago or eight years ago. It’s just too expensive.

[01:00:00] Preston Pysh: I can’t afford one of those, like how many times I personally heard that.

[01:00:04] American Hodl: And I just, just like, oh my God, my head hurts. It’s, it’s a lottery. It’s a lottery pitch, right? Yeah. And I mean, I like to play the lottery too. I love when the lottery gets to like a billion dollars and I buy a ticket and for five bucks or whatever, I walk around for two days having this dream of like, how great will it be?

[01:00:22] American Hodl: Oh, when I’m a billionaire, I’ll buy a sports team. I’ll do this, I’ll do that. I walk around for two days thinking this, right? That’s fine. That’s a cheap dream. Everybody likes to do it. The problem with these altcoin things is that you buy that dream and they suck you in, and then you end up spending way more than five bucks.

[01:00:37] American Hodl: You spend tens of thousands of dollars. You get your friends’ family hooked up into it like it’s an MLM, and then all of a sudden your entire reputation and identity and your community are all wrapped up in these things. And if you’re part of like the XRP Army or something, you’re going to fight to defend this because this is you at this point.

[01:00:54] American Hodl: It feels like you’re fighting to defend yourself, not like you’re fighting to defend a scam, which is what they’re, what they’re doing in actuality.

[01:01:01] Preston Pysh: Wow. Would you both give the same answer?

[01:01:03] Joe Carlasare: There are rumblings of enforcement actions against VCs. That are coming down the pipeline. Would you give the same answer if that, if the SEC does end up going forward and filing enforcement actions in the realm of crypto against notable VCs? Believe it at that.

[01:01:18] American Hodl: Yeah. I think that some of the mid-level VCs are easy pickings. I I don’t think these guys are very smart or sophisticated. There’s a lot of guys who, you know, went from being a bartender to a crypto vc. I mean, let’s, let’s face facts. That’s how it was. It was pretty ridiculous. And some of these guys ended up having, you know, their, their funds entire AUM on FTX, because obviously they’ve never heard of counterparty risk.

[01:01:41] American Hodl: These are not serious people, right. But I think Andreesen Horowitz and the Sequoias are going to be harder to go after because these guys know how to keep things at arm’s reach. It was never suggested, like, you know, what they would do basically is, and I’d heard this from friends who were startup founders, you would go in with a great idea for a startup.

[01:01:58] American Hodl: And you would have it back channeled to you that, you know, it really? Oh yeah. We’re not, we’re not really thinking about it at this time. But, you know, honestly, if there was a token on your roadmap, it would be a lot more interesting. Right. And so it’s, it’s sort of this implicit understanding that you need to add a token.

[01:02:13] American Hodl: And a lot of the impetus was put on the founders in that case. So I think it’s going to be hard to tie it back to the A16Zs of the world. They’re, they’re very sophisticated.

[01:02:22] Preston Pysh: So crazy to me. Joe, what’s the chances of an asset freeze on Binance for customers? So if somebody’s listening to this and they have funds on Binance, like you need to get those off.

[01:02:37] Joe Carlasare: That’s right. But Well, what are you doing? Don’t stop listening to the podcast.

[01:02:42] Preston Pysh: Stop, hit pause.

[01:02:43] Joe Carlasare: Go now. Go now.

[01:02:45] American Hodl: Yeah, exactly.

[01:02:46] Preston Pysh: What’s the probability of something like that? Through everything you’ve seen from a legal sense, is, is that like highly probable coming next?

[01:02:54] Joe Carlasare: We have heard from Binance. That they are on the cusp of losing some of their banking partners and their ability to withdraw miss Binance US, to be clear, their ability to withdraw dollars in the United States off the Binance US platform.

[01:03:11] Joe Carlasare: So they’re actively encouraging people, get your dollars off. We’re going to be probably crypto only moving forward. So that’s, that’s one part of it. So if you’re talking about the assets on Binance US that are crypto assets, my understanding is if the consent order goes through, it will allow them to withdraw.

[01:03:29] Joe Carlasare: Customers who withdraw crypto assets on the binance.us platform, and I think the SCC has agreed to that. Now the, if you’re thinking a more comprehensive freeze, which I still think is on the table, I th see that coming down from Binance under two scenarios. Scenario one, which is probably the most probable is if there is a, an accounting or records, as I mentioned, because of the commingling issue that identify US based accounts that are somehow held in off the US platform in the, in custody of binance.com, the international, I think a judge would look at that and say, wait a second, this is outside of the United States.

[01:04:04] Joe Carlasare: We need to get back this money immediately. I’m going to issue an order because they’ve consented to the court that this needs to be frozen immediately. That will be subject to additional, additional records. And I still think the SEC is not confident that they have all the records, you know, during the lead up, even as late as June 2nd of, you know, this month.

[01:04:23] Joe Carlasare: They were, they were getting contradictory information from Binance lawyers and their auditors about how much assets were actually held by the Binance side US platform. Never a good thing when you’re contradicting your own auditors about how many assets you hold on the platform, and that’s put forward with some compelling evidence by the SEC.

[01:04:39] Joe Carlasare: So the scenario number one is just to recap, is if they’re new records that show co-mingling between international and us. In my opinion though, the bigger issue and the more likely scenario where you see a total freeze of the assets is if there are some documents or evidence that is uncovered through this process that is referred to the DOJ and the DOJ acts on a criminal basis, that I would rate it if they move forward with an indictment, a very high probability that those assets are totally frozen.

[01:05:08] Joe Carlasare: You know, if you’re using these platforms right, and you understand there’s an active investigation and there’s a federal judge, compelling violence on a daily basis to turn over records, you can’t sleep good at night having any money on that exchange. And I’m not trying to be, you know, a fear monger here, promote a bank run.

[01:05:23] Joe Carlasare: That’s not what I’m doing. I’m just saying, practically speaking, it’s in an uncertain situation where it can develop very quickly. I mean, look at, look at ftx, right? We heard rumors online about FTX, and as HODL alluded to this back and forth with CZ, and within what, a week, two weeks, it was insolvent, effectively hodel.

[01:05:41] Joe Carlasare: It was like three days. It was like three days. Yeah. It seemed like a week, like overnight.

[01:05:45] American Hodl: And people were flying down to The Bahamas doing sketchy stuff to try and get their money out. I mean, people were trapped, you know what I mean? You don’t want to let that be you. And the cost of self sovereignty here in this space is like about a hundred bucks, 150 bucks for a good hardware wallet.

[01:06:00] American Hodl: That’s well worth it. If you got, you know, tens, thousands of dollars on one of these exchanges. Get yourself a hardware wallet. Look up some great tutorials online. Our buddy Ben at BTC sessions on YouTube does a phenomenal job. Stefan, Lara does a phenomenal job. They’ll walk you through it. Go to the cold card website, coin kite, cold card, buy one, look up a tutorial on YouTube.

[01:06:22] American Hodl: Boom. You’re self sovereign. Easy.

[01:06:25] Preston Pysh: Guys, I think we’re going to wrap it up there unless you have any other highlights or things that you think we need to cover on this particular topic for right now. Give people a handoff. If you guys are good, give s Give yourself a handoff where people can learn more about you or follow your Twitter account.

[01:06:39] Preston Pysh: Both are just awesome places for people to learn more. Oh, I know. I’m sorry. Before we do that, one last thing that I, that I wanted to cover Bitcoin in all of these documents, which there’s been a lot of documents and a lot of pages to plow through, Joe, I know you’ve pretty much plowed through all of them.

[01:06:56] Preston Pysh: Bitcoin is addressed very differently than anything else that is addressed as far as all these tokens. So real fast, if you can just kind of cover for people that are listening to this, the, you know, we only cover Bitcoin on this show for the most part. What would you say to a Bitcoin or that’s, that’s seeing all this and saying, well, my God, this sounds really scary.

[01:07:16] Joe Carlasare: The first thing I would say is that just, just look at how Bitcoin came into being, and that’s the big distinction between what the SEC has said. Versus all these other tokens. They lay out very carefully in the Coinbase suit and in the Binance suit about how all of these things are brought to market with promises of expected return.

[01:07:34] Joe Carlasare: They’re brought to market in a very centralized way, a very top-down, controlled way. That is the complete antithesis of how Bitcoin came to market and how Satoshi developed this in, they developed it in a open source, decentralized way where everybody had a right. There was no pre mind. Everybody could have came and main mind on the chain.

[01:07:51] Joe Carlasare: So really you see very different origins and very different incentive based structures. So the SEC in statements that are now public, Versions of the speech that Director Hyman gave that we alluded to earlier. He speaks in, in a very praiseworthy way about Bitcoin and how Bitcoin is very different from all these other things.

[01:08:08] Joe Carlasare: And, and how it came to the marketplace is really key. And that’s at the core of what the s SEC’s about, right? They’re, they’re trying to say, we want to make sure that there’s no incentive structure here where people can just put this into the market, pump something, make a quick buck, and take advantage of customers.

[01:08:23] Joe Carlasare: Bitcoin is not that there, then it’s not brought to market to take advantage of people. Hodl, anything else?

[01:08:28] American Hodl: Yeah, I, I think the way I think about it is, you know, there’s been a lot of posturing, especially on Twitter, about the crypto guys being like, oh, look at you, you Bitcoiners, we thought you were libertarians.

[01:08:37] American Hodl: We thought you were free market guys. We thought you were laissez-faire capitalists. And look at you, you’re cheering enforcement. Okay? Are you against the free market? And one of, one of the framings I always say is, listen, free speech is part of a free market and I don’t like your behavior particularly.

[01:08:52] American Hodl: And so, you know, if you’re selling snake oil in the western town, I’m going to stand next to you and be like, Hey, This is gasoline, this is formaldehyde. You shouldn’t drink this, don’t drink it. This guy is scamming you. Right? And I think that, you know, it’s easy for them to say that they’re coming for Bitcoin next.

[01:09:08] American Hodl: And you know, there are going to be some battles. There are many battles left with the US government over the fate of Bitcoin. I think one of the battles is, you know, the curtailment of mining emissions potential, different tax rates for mining electrical use. I think there are potential different tax rates coming for you as an individual on cap gains.

[01:09:26] American Hodl: I think that there’s a strong desire to docks all of the coins and all of their whereabouts, and that you may have to self self-report that in the future, both for national security interest and for the interest of taxation from the IRS. There are many battles that Bitcoiners are going to fight with many different regulatory agencies.

[01:09:43] American Hodl: Some of them were going to lose, some of them were going to win. But eventually Bitcoin is going to win the war and Bitcoin is here to stay. Bitcoin is a major part of this century. And not just for America, but for the world, because this is a global phenomenon.

[01:09:59] Joe Carlasare: One, one thing real quick, president, this is the, the quote I’ll just read for the audience here.

[01:10:03] Joe Carlasare: This is from that speech I referred to director, him and speech years ago, right? And this is the SEC talking about Bitcoin. He says, and so when we look at Bitcoin, we do not see a third party whose efforts are a key determining factor in the enterprise. The value of Bitcoin turns on the efforts of decentralized miners and independent market participants, assessments of an open source payment mechanism, applying the disclosure provisions of securities laws in this situation, which seem to add little value.

[01:10:33] Joe Carlasare: So he’s basically saying that they get it right. They understand how bitcoin’s different from all the rest of this stuff.

[01:10:39] Preston Pysh: We know Gary gets it. I mean, he’s literally taught the class at MIT and people can watch the class at MIT of everything that’s ever been said about it and his thoughts on Ethereum and some of the others and how they don’t pass the Howie test.

[01:10:52] Preston Pysh: And this was sailor’s sailor’s interview with Raul Powell was just incredible to look back and think that that was two years ago and just how on point he was with respect to how this was going to shake out eventually.

[01:11:08] Joe Carlasare: You’re both just too optimistic about what, what’s coming in store. I’ll just say this, I come down far more.

[01:11:13] Joe Carlasare: I think this is going to be really impactful guys. This, this litigation is going to have far reaching consequences and I think everybody’s looking at this saying it’s FUD and the crypto universe, and they’re saying it’s not going to be a big deal. It is a big deal. It will have their US is, is not the only game in town, right?

[01:11:28] Joe Carlasare: But they’re the 900 pound gorilla in financial markets and many economies, many regulators globally will follow the US’ lead. So the folks in the crypto verse that are have incentives to say this doesn’t matter. I’ll take the other side of that bet. Yeah, I’d agree with you Joe.

[01:11:43] Preston Pysh: Alright guys give a handoff to Twitter or any other things that you guys want to highlight.

[01:11:49] American Hodl: You can find me on you can find me on Twitter, @america_nhodl, or I’m on I’m on Nostr a lot these days. Nostr’s a really cool new emerging, decentralized social network that you should definitely check out if you haven’t checked out so far. So you can find me on there too and give it to Joe.

[01:12:04] Joe Carlasare: Yeah, I’m also on Twitter all the time at @JoeCarlasare. You can contact me on there if you have sort of fun, macro or legal issues. I would prefer you contact my firm, right? I am a litigator practicing this space. If you have a litigated dispute you can Google my name, find my firm’s website, happy to help anyone.

[01:12:22] Joe Carlasare: I’m represent a ton of Bitcoin miners, people building on Bitcoin, people involved in litigated disputes involving Bitcoin. So I have about half my practice now adjacent to to Bitcoin. So I always want to help Bitcoiners and I accept Bitcoin.

[01:12:35] Preston Pysh: So I love that. I love that. Yeah. We’ll have a link to that in the show notes and we’ll have a link to social connections on the show notes as well.

[01:12:44] Preston Pysh: Gentlemen, we need to do this more often. I really enjoyed this chat and thanks for your time tonight.

[01:12:49] American Hodl: Thanks, Preston.

[01:12:50] Joe Carlasare: Thanks, Preston.

[01:12:52] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm.

[01:13:12] Preston Pysh: So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

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