ROLLUP: Macro Bearish Report | Biggest Hack In History | SEC Drops Crypto Cases

Joining us this week is Alex Thorn to break down why crypto markets are taking a hit. Major hacks, bearish macro signals, and fresh tariffs from the U. S. all played a role. But it’s not all bad news: the SEC is backing off from lawsuits against Coinbase, OpenSea, and Uniswap, signaling a potential shift in regulatory pressure. Plus, Bybit suffered the biggest crypto hack ever, losing $1.5B—how did it happen, and who’s behind it? Follow Alex: https://x.com/intangiblecoins ------ 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium ------ BANKLESS SPONSOR TOOLS: 🪙FRAX | SELF SUFFICIENT DeFi https://bankless.cc/Frax 🦄UNISWAP | SWAP ON UNICHAIN https://bankless.cc/unichain ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🌐CELO | BUILD TOGETHER AND PROSPER https://bankless.cc/Celo 🦋MORPHO | CRYPTO-BACKED LOANS https://bankless.cc/Morpho ----- ✨ Mint the episode on Zora ✨ https://zora.co/coin/base:0xca607e1fcbdf83f893891742bf2f4933a609a9a2?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E ------ TIMESTAMPS & RESOURCES 00:00:00 Intro To Alex 00:01:21 Market Breakdown https://www.cnbc.com/2025/02/25/how-trumps-tariffs-on-mexico-and-canada-will-sweep-across-us-states.html 00:09:43 Treasuries vs Equities 00:22:12 The Largest Hack In History https://x.com/Bybit_Official/status/1892965292931702929 https://x.com/smyyguy/status/1893007399687958586/photo/1 https://x.com/benbybit/status/1892969284587966869 https://x.com/benbybit/status/1893102137711960486 https://www.chainalysis.com/blog/bybit-exchange-hack-february-2025-crypto-security-dprk/ https://x.com/StefanDGeorge/status/1894781521803858353 https://x.com/hasufl/status/1894772256179405158 https://x.com/arkham/status/1893033424224411885?s=46&t=v4MeJk18PFydz-g2BpdAVg https://x.com/arkham/status/1893033424224411885?s=46&t=v4MeJk18PFydz-g2BpdAVg https://x.com/Jesseeckel/status/1893047605133037905 https://x.com/mudit__gupta/status/1893290720603050121 https://x.com/Bybit_Official/status/1893687749229563958 https://x.com/benbybit/status/1893865556840775758 https://x.com/lookonchain/status/1893840256342040727 https://x.com/TimBeiko/status/1893412457567383559 https://x.com/ethena_labs/status/1892971552565805309 00:34:12 Ethereum Hard Fork Backlash 00:43:03 SEC Drops Lawsuits https://x.com/coinbase/status/1892923603814936896 https://x.com/dfinzer/status/1893086281300582772 https://x.com/Uniswap/status/1894452298698358989 https://x.com/econoar/status/1894501626209271973 00:48:32 Hester Peirce Update 00:54:46 Bullish Or Bearish? 01:04:48 A16Z’s Newest Hire https://x.com/patrickmchenry/status/1894735546213171378 01:06:30 Stablecoin Issues 01:12:31 US Treasury Updates https://x.com/Bitcoin_Laws/status/1893399549454229690 https://bitcoinlaws.io/ 01:15:58 Find Alex on Twitter https://x.com/intangiblecoins ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:03David Hoffman?

  Bankless Nation, welcome to the weekly roll up. Each week I'm bringing on a different co-host to help me go through the news. And this week, I have the pleasure of being joined by Alex Thornton, the head of research at Galaxy Digital. Alex, happy Friday, really happy to have you here today.

• 0:17Speaker 01

  Yeah, great to see David. I mean, what a crazy, exciting time. I'm excited for the roll up because there's a lot of wild news happening in markets and in crypto. So it should be a fun one.

• 0:26David Hoffman?

  Yeah, two very big things that really marked the last week are the fact that just markets are down bad. Total crypto market cap is now below 3 trillion. Bitcoin is now below 85,000, which, I mean, 85,000 is still pretty high, but it's been above 90,000 for a long time now. And so it has broken through that 90,000 number. What's going on? What caused this? We're going to talk about that. Also, the largest hack in crypto's history, Bybit, a $1.5 billion hack exploit by North Korea. So we're going to talk about how that happened and how everyone is responding to this. In addition to all of this, though, there's definitely some good news on the horizon as well. A wave of lawsuits dropped by the SEC. Four different US crypto companies got the all clear from the SEC.

• 1:11David Hoffman?

  We'll talk about all of the reactions to those different lawsuits getting dropped. And then also some regulatory capture going down in DC. Which stablecoin company is playing dirty? We're going to talk about all of that and more. But maybe I just want to get Alex's take here on the markets. Trump confirmed that 25% tariffs are going to be imposed upon all Canadian and Mexican imports. In addition to that, consumer confidence plunged in February amid rising economic concerns, which you would make me think that the traditional equities market really took a beating. And it wasn't green, they were definitely in the red. But then if you look at the crypto markets, the crypto markets were down way worse. So Alex, how do you just analyze the markets of the last like seven days or so?

• 1:56Speaker 01

  Yeah, I mean Bitcoin's down 14%, Ether is down 15.5% over the last seven days. Obviously, you can see how.

• 2:06Speaker 01

  Bloody the market has been, right? Basically, all cryptos were down a lot. And, and by the way, stocks have been down, right? Like, all markets were down. In fact, on Tuesday, when I was looking at it, it was basically every single asset class was down, except for treasuries. Even gold was down. People somewhere were selling gold to... So it is, I would say that, like, look, if we think about Bitcoin as the example, like, it had touched like 91K in this range we've been in since, you know, November, like, eight different times and successfully rebounded. And like, so even just, everything else aside, if it touches it a ninth or a 10th time, it's always possible it doesn't hold and then you get a little bit of a, you know, a sink that pulls it down further.

• 2:49Speaker 01

  And like, so I'm not surprised, but, but beyond that,

• 2:54Speaker 01

  you have, of a, I think the Bitcoin and crypto stories are a little bit different in the market at the moment, but still, you also have something like Bybit, like, we're going to talk about, and, and then just material weakness. I mean, some softness truly starting to appear in the US economy, which is causing risk assets generally to sell off. So it's kind of a perfect storm and, you know, markets trade on the margin. And when you're looking here at, you know, looking for the next catalyst, right? Markets are very frenetic. What's the next catalyst that's going to drive Bitcoin higher? You know, we only got to, only got to, I'm laughing, right? We only got to 109K? Like, well, it can't go to 150? We need something, the market thinks, and it's not seeing it yet.

• 3:36Speaker 01

  So now it's like, path of least resistance, I think, for Bitcoin was, is, was lower. I think, I don't think it goes personally much lower, but, you know, 200-day moving average is at 81K. Like, there's, there's reasons it could go to 75 or 77K. People have talked about. It's, it's hard to know. There's a big air pocket in ownership here. Like, we rocketed up to... Ninety so fast that like nobody owns, nobody bought Bitcoin in between seventy-five and eighty-five. Like, there's literally, if you look at the, I tweeted this, like, the, we would call the U R P D, the U T X O realized price distribution, which is basically just the Bitcoin supply, every unit of supply, at the price at which it was last moved, really, at which the U T X O was created, but in, in sort of simpler terms,

• 4:22Speaker 01

  at the price at which the current supply last moved on chain. And there's literally no supply that was last moved when the price was that, because the price has never really been that.

• 4:31David Hoffman?

  Right.

• 4:31Speaker 01

  So I think it's reasonable for the market to hunt, like, why is there demand? What is the level of demand between seventy-five and eighty-five? It's almost like a C M E gap, like, it never really traded here, and at some point, the market's gonna decide, now it's trading here a little bit, and so that chart will look different, and we'll figure out what the price discovery is in this range. But I do think there is like a longer-term macro question, and then there are two minds of this, but like, the bearish one, which I think is, you know, not like long-term, but like in the sort of, you know, the rest of this year, like, there are huge questions about unemployment, because if Doge does cut an enormous number of U S job, of, of government jobs, like, that's unemployed people, right? That means they can, they will have less money to spend, it can hurt consumer,

• 5:16Speaker 01

  the consume, consumption sector, which is an enormous part of the U S economy. But also, if you actually take out government jobs from the employment numbers over the last few years, there hasn't been that much private sector job growth at all, right? It's almost all been governments, the federal government, state governments. So if you not only slow the hiring there, but in fact roll back, right? Then that could cause, I think, a lot of, that, that could make unemployment go up. If unemployment goes up, people can spend less, they have less appetite, they have less money, they have less appetite for risk assets, like cryptos and stocks, right? And I think that's partly what you're starting to see, and now, there's, that can be solved, quote-unquote, I mean, one, they might not fire as many people from the federal government as it may seem they would.

• 6:01Speaker 01

  If inflation, which is mostly under control, it's not quite at target, but I mean, it's not really like a fear. And by the way, on a, you know, a bad economy is typically deflationary. People have less money to spend, so they don't spend as much, you know? What's inflationary is giving people free money and then they go out and spend it, right? So if we assume that inflation stays, you know, relatively under control or even fully like gone as an issue, the Fed has a dual mandate and it's control inflation and maximize employment in the economy. So if unemployment goes up and inflation is relatively low, then our old friend is coming back. David, rate cuts are coming, so, and I think we think there'll be three or four rate cuts this year,

• 6:42Speaker 01

  which helps make things cheaper and can put liquidity into the system. And so where that balance, I mean, the Fed's tools are very blunt in response. You know, they can't make people get hired, like literally, but they can make the cost of borrow money cheaper and thus stimulate a bit. So I think you're, and there is a whole other view that's more of like what Howard Lutnick and President Trump are arguing will happen and what they want to happen, which is, you know, new skilled labor, bring American jobs back home, have a domestic manufacturing boom, helps us grow, simultaneously cut a trillion dollars out of the deficit while adding a trillion dollars in surplus through new tax revenues from business explosion in the US, which could offset it. We just don't really, we don't know yet, but in general, like there's significant uncertainty

• 7:26Speaker 01

  about the US economy's path forward. Not, not that it's like we're on the brink of some disaster, but just like, right? I mean, you're pricing in future cash flows when you buy stocks. So I think the question of the future is, is one that's a little bit less certain now. You combine that with everything in crypto, you know, the fact that David Sacks didn't, you know, buy $5 billion of Bitcoin for a strategic Bitcoin reserve with his checkbook, right? Like the markets are a little like frenetic. There was, I think, room for this. So that's sort of my overall view as to why. I mean, I think there's intra crypto stuff. We could talk about ETH weakness, Sol weakness, like, I mean, meme coin. Market ending, I'm not sure, coming down like that sort of also play a factor.

• 8:06Speaker 01

  But I would say broadly, this is a, this is a risk off market for traditional assets and for crypto at this moment.

• 8:13David Hoffman?

  Alex, I think there's a really good just lay of the land of everything. And I think maybe one thing I'm taking away from all of this is there just seems to be a confluence of a variety of different factors that the market still needs to process. We are still on the back of the Libra debacle, following the Melania, just extraction out of the Solana meme coin ecosystem, which was the hot ball of money. And I think crypto investors are looking at that hot ball of money leaving the arena and thinking that is a sell off event. Like, let's just, let's just wait for this dust to settle. We'll see where it settles. Maybe Bitcoin, when that settles, ends at 75,000, maybe it ends at 85,000. We don't really know. Let's just see what happens. And I do really take, I really like your analysis of the Bitcoin current price.

• 8:58David Hoffman?

  If you look at the Bitcoin chart over the year, it was completely flat from March until November. It just, it just bounced around like 58 to 70,000 until the election came. And then, like you said, it just teleported from 60,000 up to 90,000. And what we're seeing is just we're seeing like maybe just a random walk go back down to the election prices. That's where we currently are. We have not seen Bitcoin at 85,000 or lower since the election. And so we're just randomly walking back there, along with some internal to crypto negative events, like the Libra thing, now this Bybit hack. And then in the macro world, I kind of am just personally having a hard time really seeing what is in the driver's seat. Like, what's really, what's the tail wagging the dog of the markets?

• 9:43David Hoffman?

  My, my broad stroke analysis is that I think people are realizing that last Trump presidency, not this one, but the one before. He was, you wanted to align yourself with the stock market. You, if you wanted exposure to Trump's policies, you bought SPY, you bought stocks. He wanted the stock market to go up. This Trump administration has different priorities. They are aligning themselves. This is from some of the analysis that I've heard around crypto Twitter and around. Trad by commentators is that the Trump, if you want to align yourself with the Trump administration this cycle, it's actually long-term treasury yields. We want not short-term treasury yields, but long-term treasury yields to do well. And that is materially different from buying equities or risk assets.

• 10:27David Hoffman?

  And I think maybe over the last week, or maybe two weeks, or even in the last like three or four days, the market has really started to process that and digest that and price that into the market. This is just kind of my loosely informed takes. How do you, how do you accept that?

• 10:43Speaker 01

  Yeah, I mean, and I'm not an expert in fixed income, but I sometimes am forced to play one. And I, we've got smart people like my friend, Bimnet ABB, who helps me with this question as well. But, um, look, they, we, Janet Yellen created a situation where the treasury was issuing enormous amounts of short-term paper and like in general, they need to term that out better. They gotta get that under control because when it's short and rates change and those bonds mature and then like they're subject to shorter-term rates and you want, you also want long-term people to hold your treasuries. And there, I think there's been some talk, I'm not sure if this is actually the thing. I know Jim Bianco has talked about this idea of the Mar-a-Lago Accords, which among other

• 11:26Speaker 01

  big ideas could include, as part of negotiations on trade and commerce, such as on tariffs, could include forcing or getting foreign countries to buy more of our long-dated debt. Right? So I agree. It's part of the question. We have to figure out a way to, they gotta get the debt under control in general, which they're trying to, through the deficit reduction stuff with Doge and, and other ideas that I've heard them say, like I said, about like, you know, bringing in high skilled labor that's been on this, apparently there's 250,000 incredibly high skilled people that have been waiting in some immigration queue that we have that we could let in, that could start businesses and generate revenue and whatever. So I think it's all part of it. And yeah, I mean, what do you want? Do you want a?

• 12:09Speaker 01

  Uh, innate object like gold or Bitcoin for that matter that yeah Bitcoin has like real appreciation potential. It certainly has. Um, but if you're uncertain, why not buy something that's backed by the government and pays a good yield? I mean, that's, that's the, especially as, uh, you know, rates come down, like there's gonna be, um, I don't know, it's, it's gonna be tricky though. Think about this, like, it's like the scales, right? I mean, if, if, if rates come down a lot, that's, that can be stimulative, right? And that's good. If, I mean, if we were to chart the Bitcoin price against the Fed's, you know, policy rate, it's, you can see a pretty decent correlation, um, that Bitcoin tends to do better when the Fed prints more money, you

• 12:52Speaker 01

  know, or eases its monetary policy. However, if the Fed does have to cut a lot, that typically also might mean that the economy is not doing great, which is also bearish, right? So, um, I don't know. It's like what Hester Peirce said, like there, there must be some way out of here. Like, I think the market, if you looked at Nvidia's like stock performance over just during their earnings call yesterday, it was just totally frenetic. Like, I mean, it was like the after hours trading I saw was like, people just trying to figure, like, people don't know how to position right now. I think that's really fair. And that causes uncertainty, like, yeah, like literally, like this, this yesterday. And, I mean, it was up a lot to begin on the day anyway, but I just mean, like, people are unsure about how to position because there's a lot of uncertainty,

• 13:36Speaker 01

  like, there's uncertainty in the data, like the macro data, there's uncertainty about the president and their plans, which are very disruptive, maybe good, but certainly not, you know, sort of simple, stay the course, do what we've been doing, right? So who knows how those play out, right? All of that stuff is contributing to uncertainty and markets hate uncertainty. And I think that's just what we're dealing with here. And again, like, you know, Bitcoin crashed to 82K, I saw, 84K.

• 14:04David Hoffman?

  Crashed, all the way down to 82K.

• 14:07Speaker 01

  Yeah. So, I mean, it's kind of like, look, I think if you're long-term in Investing and you're looking at something like Bitcoin, then we can get a little more tenuous when we talk about ETH or Sol or others because they have different dynamics. But I think pretty confident that dips are meant to be bought up if you're a long-term holder of Bitcoin. But you know, if you're an investor, a fund manager, a hedge fund, like sometimes the market tells you, hey, man, we should probably raise cash right now, right? In which case, people also like to sell their winners and not their losers, right? And so like Bitcoin's been on a huge tear. It's reasonable if you are up a lot and you say, well, you know, 91, like I said, if you look at the chart, 91 like just held for so long. I mean, really not so long, three months or so.

• 14:51Speaker 01

  It basically, you could do, you could have done well, short-term trading. If you bought 91 and sold like first 108, then sold 102, then sold 98, then even sold 95, like over and over again, that worked for like eight different times. And then this time it didn't work. And at some point, it's just like something's got to give, like markets want to go a direction. Bitcoin's not a stable coin. It wants to go up or down usually. And so when everything is flashing, not necessarily red, but uncertain, you know, people want to raise cash for that. So I think it is the long bond is part of it.

• 15:27Speaker 01

  And but there's also just like data and like we, multipolar world seems pretty obvious right now. And like there's, it's just, it's just a weird time.

• 15:37David Hoffman?

  Something I'm noticing in the market, obviously this was a red week and there are some very red numbers. I think Mantle, the MNT token, which is associated with Bybit, took the worst of it in the top 100 crypto assets. So down 27%. The Trump meme coin down 24% and it's supposed to have been going down forever. Bitensor down, Solana down 20%. Solana's taking a huge beating, Hyperliquid. But then even Dogecoin and XRP, and then of course Bitcoin are really up there in some of the biggest losers of the week. At the same time, Alex, there are some very strong winners. Story Protocol is on this huge pump, it's a brand new token. So its chart is very recent, but Maker Dow has gone from $900 to $1,700.

• 16:19David Hoffman?

  The Celestia token in the midst of the Bitcoin dump actually went up in price. Athena is actually doing okay. So while there's definitely big weakness in some of the blue chips, there's also pockets of strength. And my interpretation of that is that we don't think, I don't think this is over. I think there's a lot of vitality found in pockets of the crypto market. Until, wow, some people are, of course, just a complete weather vane about sentiment, saying like, oh, it's so over, like, bull market's over. I'm actually seeing pockets of optimism in select down-market parts of the crypto industry, which gives me some optimism that many different sectors of crypto are very much still alive.

• 16:56Speaker 01

  Yeah, I think they are alive, to be clear. I think there's a lot of like, I mean, look, Sol went to 290 something, 295 on Trumpcoin launch, like, well, Trumpcoin was denominated in Sol, right? So like, that makes sense. If you bring in a bunch of new people that want to buy something and they have to buy Sol to buy it, just like the ICOs for ETH in 2017, or even NFTs for ETH in 2021, right? A lot of what drove, I think, Ether in 17 and 21, and Sol in 24, was that there were assets net new people wanted to buy that required they buy the underlying token, right? So that doesn't mean the platforms aren't vibrant and the rest of the stuff isn't happening. It definitely is. It's just that, like, you gotta wonder why people were buying to understand why they

• 17:41Speaker 01

  may be selling, right? And so, yeah, there are a bunch of other things. I think that's all, I actually think that nothing has really materially changed here. It's really just like, a bunch of money came in and some of that money is looking to come out at the moment. And I think it will come back in across a range of assets, right? It's not, it won't just be, I mean, I do think Bitcoin has shown like, just an incredible amount of outperformance versus the others. You can see it in dominance, you can see it in ETH BDC. But, you know, there's gonna be generalized blockchains that have apps on them, like, they already are, obviously, and they're gonna continue to be. I don't think this changes that.

• 18:20David Hoffman?

  It's pretty interesting to look at the Solana chart, which on March 1st was $130, March 3rd last year. So, one year, Solana is actually starting to become flat. It's at $137 right now. And so, while Solana has been like, the absolute outperformer, that started a little over a year ago, and then it hit its new all-time high at $262. Actually, I think, I think it's actually even higher. I think CoinGet close.

• 18:44Speaker 01

  Yeah, I think that's like a daily close or something. I think it got to like, 295 or something, to almost 300, basically. But yeah.

• 18:51David Hoffman?

  Flat on the year is pretty interesting for Solana. It's still up, it's still up on the year, but it has erased a lot of its gains because I think just a lot of the energy is coming out of the meme coin market. But like you said, this is a very strong dip. I think if you are sitting in cash, this is Mr. Market is coming to you with some interesting offers at this present moment in time. And you can do with that information what you will. Alex, we're going to talk about the buyback hat next, as well as all the SEC dropped lawsuits. And there's definitely some politics to talk about as well. But before we get into all of those subjects, we're going to talk to some of these fantastic sponsors that make this show possible. Introducing UniChain. Built for DeFi, empowered by Uniswap, UniChain is the fast decentralized Layer 2, designed to tackle blockchain speed and cost challenges.

• 19:34David Hoffman?

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• 20:17David Hoffman?

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• 21:00David Hoffman?

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• 21:43David Hoffman?

  And if you're a user wanting to earn or borrow on your terms, Morpho's newly refreshed app at app.morpho.org makes it simple to tailor your own risk-reward profile. Choose from different vaults and markets curated by trusted third parties. Plus, Coinbase users get access to crypto-backed loans right through the Coinbase app, powered by Morpho, all in just a few clicks. So whether you're a builder looking to integrate Morpho or a user searching for the most flexible DeFi lending experience, it's time to check out the brand-new app at app.morpho.org and experience the future of on-chain lending today. And we're back, going to talk about the largest exploit in crypto's history, the Bybit hack, of course. On Friday, Bybit, which is an Asian exchange, so I don't think too many US-based crypto participants really know too much about Bybit, but it's a very large exchange over from Asia,

• 22:25David Hoffman?

  suffered a massive security breach, flushed about $1.5 billion in ETH, staked ETH, ME, and other ERC20 tokens. Makes the biggest hack ever. 13% of all exploited funds ever were the recent Bybit hack. It's twice the size of the second-largest hack, which was the $600-million hack of the Ronin Bridge in March of 2022. Both the Ronin Bridge and the Bybit were exploited by the Lazarus Group, of course, North Korea. So this is North Korean money now, is in the hands of North Korea. One of the big takeaways, I think, is the Bybit crisis response from Bybit leadership was heralded as the best that we have ever seen in the industry. Ben from Bybit immediately went on a livestream, pretty calm and

• 23:10David Hoffman?

  Collected and just talked about exactly what happened, took ownership over it, talked about the crisis response and really calmed fears. And some people were trying to correlate this to SBF's tweet that FTX is totally fine. But I don't really think those takes really aged very well at all. It turns out Bybit was totally fine. Even with a $1.5 billion loss, I think they had something like 18 to 19 billion dollars in reserves. And so while $1.5 billion is nothing to scoff at, they could actually handle it. And so Bybit was praised for some of the best crisis response ever in the industry, which to me it sounds like a sign of growth for the industry at large. Okay, so let's talk about actually how Bybit was hacked.

• 23:53David Hoffman?

  It was a phishing campaign that targeted Bybit's cold wallet signers using the Gnosis Safe front end. So hackers gained access to the Bybit front end specifically on Gnosis Safe. So everyone else who used Gnosis Safe was totally unaffected. Bybit's use of Gnosis Safe was somehow fished or just was given a malicious version. The hackers intercepted a routine transfer from Bybit's Ethereum's cold wallet, which rerouted 401,000 Ether to the Lazarus Group addresses. Forensic reviews from a few independent auditors found that Safe's wallet credentials were compromised. The attackers injected malicious JavaScript into Safe's AWS infrastructure,

• 24:36David Hoffman?

  deceiving the signers into approving malicious transactions. So Bybit's infrastructure itself was not compromised, but its security controls failed to detect the attack. Stefan George, which is one of Safe's co-founders, says that the Safe wallet was targeted, but the team has secured and reinstated the infrastructure, and also stressed the need for verifiability of transactions to prevent blind signing risks. And I think everyone, maybe not everyone knows what blind signing is, but everyone does it, which is you just get your transaction approved on your ledger or on your metaMask. You don't really know the text that is being shown to you. You don't know what that means. It's very complicated. If you're a developer, you could parse it out with skills and time. But I don't, I don't know what the hell all that stuff means.

• 25:20David Hoffman?

  That's kind of more or less what blind signing is. Hozu criticized Bitbit for failing to verify the message integrity on an air gapped machine despite handling over a billion dollars in fund. And then warned that assuming front ends are secure is a critical mistake in crypto security. And overall, just say maybe the key takeaways here is we are highlighting the importance of message verification, secure signing processes, and we should not treat front ends as inherently untrusted infrastructure. You actually do have to trust that front end. Alex, what was your take when you saw all of this? Biggest hack in crypto's history? What's your analysis?

• 25:56Speaker 01

  Yeah, maybe the biggest theft in world history, actually. We Googled a lot and did some work. I think there was supposedly a billion dollars stolen from the Iraqi central bank sometime after the American invasion of Iraq. But like this rates in general now, that's not including things like, you know, graft and stuff by government officials of various countries or whatever. But like if a pure like broke in, stole money, ran out, like this is up there. Very much need to agree with your assessment of Bitbit's handling of it. There were times during the live stream when Ben had to get up and go do something and they would be like, don't worry, Ben will be right back. And he would literally go do something, come back 10 minutes later. Like, like he's not leaving, they're not closing the stream.

• 26:38Speaker 01

  It was very, I think the level of transparency and disclosure in the actual crisis management after the hack absolutely should be praised. He thanked a lot of industry participants, including Galaxy, for helping them with various aspects of this, of the response, right? And so, and also I should point out, Bitbit has one of the most robust proofs of reserve. They prove every day that they hold in excess for every asset, I think, pretty much that they offer on their exchange, they hold in excess of what their client liabilities are. And they did hold in excess. They had all the ETH. Now, the security part, obviously they don't. So then they had, he had also said that they had Bitcoin in stables as in their own treasury,

• 27:23Speaker 01

  like that's what they keep their, you know, profits or whatever in. But they owe a bunch of ETH to clients. And I think what it looks like was happening is that the industry really stepped up and probably lent them a bunch of ETH so they could honor those withdrawals. And then they have to now they owe ETH back to like lenders and but they have assets. So like they have, I think they said at their own assets. They're also highly profitable. That's what I'm saying. It's a highly profitable business. They have plenty of their own assets, but they didn't have the units of ETH and STEF and METH and whatever the other ones were. And so, look, the industry came together to support them, I think, is materially different than the situation with Sam Bankman-Fried, obviously. Exact opposite.

• 28:05Speaker 01

  Yeah. And then, you know, our, we have a secure, multi-party computation style custodian, Galaxy does GK8, and they did an analysis, I think, again, they didn't know and had no way to know exactly how the hackers did got into the system. Phishing was the assumption. It sounds right. They actually, but you can see the two transactions, right? So the first transaction that was signed was extremely subtle and it looked like, this is based on GK8's analysis of the transactions themselves, it looked like no funds were being moved, right? And it was only this one operator changed literally from a zero to a one. But what it really did was reassign the proxy contract of their safe to the malicious hackers

• 28:50Speaker 01

  one. And then two minutes later after that, and so all the, whatever the signing process is at Bybit for this type of thing, yes, I mean, they should, crypto UX needs to get better. I mean, basically, or you get, because they did sign something that effectively handed control over their ETH cold storage safe to a proxy contract controlled by Lazarus Group. And then they just literally swept all the funds out of the address two minutes later, right? So there's security work, I think, that needs to be done in general in this industry to like make stuff like that better. Your point about blind signing, you go to like OpenSea to buy an NFT and it's like you click the approval button on your MetaMask when it pops up and it's got all this stuff and you're like, well, You know, you're just making sure you're on real OpenSea and it's pretty much all you could really do.

• 29:35David Hoffman?

  That's all you can do. Every time I hit an approval today, I am thinking, is this the one? And I go look at the URL and it's the right URL and I know that secures me a little bit, but not completely. And so anytime I approve something, I'm like, man, is this it? Is this the one?

• 29:49Speaker 01

  I, I think it says, it, it tells good reason, uh, that you should keep your assets in cold storage. Right? So don't go and sign something with a wallet that also has your life savings in it. Right? At least separate that, right? Like at least. And I think that's what's so, I mean, normally with these exchange hacks in the past, it's typically the hot wallet that gets hacked. And so exchanges have, and the hot wallet typically exchanges operate with a sort of two tiered wallet system. They've got a giant amount of cold storage that's totally air gapped and, and safe, like lowercase safe, not no so safe. And, um, and then they have a, a hot wallet that they do have to, that's what they use to process withdrawals and deposits.

• 30:29Speaker 01

  Right? Like someone's got to, and, and so they, they, they take great care typically to keep much fewer assets in the hot wallet. Because the hot wallet basically has to be on the internet in some form, because it has to, you know, go to Coinbase account and click deposit. It produces a QR code and an address for you that is to their hot wallet. So they, they take great care to separate long-term cold storage from a hot wallet. And so, but this isn't that, this does look like their cold wallet, their reserves of ETH or client deposits. Through this, like I said, incredibly subtle and sophisticated attack by North Korea. And this is state actor, like this is, I think there are implications here, like for national security policy.

• 31:14Speaker 01

  I mean, I can tell you, this is not a great headline in policy world. No, it's not good. I mean, and people are. Rightly wondering, well, wait a second. I mean, let's say I'm a big institution. Like, how do I know that my crypto is going to be safe if I, if I do decide to invest in it? And that, that, that answering that question definitely got harder after Bybit. I think there are good answers to the question. It's not like this means that all of crypto custody is forever insecure. But I mean, this is a, this is a bad look for the industry. I don't necessarily, I mean, look, it's also a North Korea story. I mean, honestly, like, these are well-funded, deep-pocketed, um, and highly intelligent, highly. I mean, this, again, multi-step, targeting the right people at Bybit.

• 31:57Speaker 01

  Like, again, if you look, and I don't think, I'm not the technical guy for this, but our G8 guy was explaining to me, showing me the transactions on EtherScan. This looks like you're signing a transaction that does nothing, and it certainly doesn't move any ETH. So if you were blind signing, you wouldn't, you wouldn't know. It's not like, wait a sec, who, the transaction that they signed did not steal the 400,000 units of ETH. It, it just reassigned the proxy, kind of, it's like, very sophisticated. So, um, I think a lot of work the industry has to do and, um, broadly to improve UX. I mean, honestly, I almost think of this as a UX issue ultimately.

• 32:34David Hoffman?

  I think, I think this is definitely a UX issue. I know somebody who, uh, knows quite a lot about this subject and is trying to tackle this problem head-on is Justin Leroux from, uh, GridPlus. Uh, and he's building this, this hardware device that has a very large screen, which it's kind of funny how a, having a large screen is one of the biggest fixes to this issue. Um, and it obviously is not just a fix, uh, but you, in order to have clear signing and understand what signing, we need a large screen so we can read it. And then we also need some backend standards to be able to parse a transaction so that it can actually tell you what exactly you're signing. So we, we need some standards, we need, uh, tools to help parse transaction data to, and to be able to interpret into a human readable language, exactly what's going on.

• 33:17David Hoffman?

  And then we need a large screen to be able to actually read that and like, say that that's okay. Uh, and so there's some sophisticated backend updates that we kind of need for this.

• 33:24Speaker 01

  Yep, particularly with Ethereum transactions, which can, which are very big, like in tech, there's a lot of techs going on. If you're doing smart contract interactions, it's not a simple transfer, Bitcoin transfer, right? And I think one of the other interesting things here is Like, and that, you know, I've, I've, I've explained to people like Bitcoin is not vulnerable to this type of attack. It's certainly vulnerable to having private keys stolen. Everything is, right? But Bitcoin script is so much simpler and it has native multi-sig. So ETH doesn't have native multi-sig Ethereum. So instead, NOS is safe, which is widely viewed as the standard for multi-sig. It has to be built as a standalone application. And that just introduces a lot more complexity.

• 34:02Speaker 01

  So yeah, having ways for actual humans to untangle that complexity when they're signing would be, is, is paramount.

• 34:11David Hoffman?

  Alex, I hate to bring this up, but I'm going to have to do this, which is a lot. I don't even know what name to name these specific flavor of Bitcoiners. But there was this like the laser eyed cyber hornet Bitcoiners out there who started like, trying to meme this idea of an Ethereum rollback into existence. There's this one tweet, which is completely fabricated. This is not true whatsoever. That tweets out Vitalik announced that the EF, the ETH Foundation is going to vote tonight on a chain rollback or delete the hackers ETH supply from circulation. Let's make communism great again, which is one of the recent like Vitalik tweets. This of course did get, did get the community notes on that saying Vitalik did not announce this. Such an announcement appears neither on Vitalik's profile or an Ethereum Foundation social channels.

• 34:55David Hoffman?

  It's just, just clearly fabricated in a very malicious way by this like specific, like internet trench flavor of Bitcoiner. But then it, it took the entire crypto community by storm because it, it got loud because people are saying, oh, like there's going to, we're going to roll back the chain. There's.

• 35:10Speaker 01

  Arthur Hayes said it to.

• 35:12David Hoffman?

  Yeah, Arthur Hayes. I don't know if it was a joke or not. What, what were your, what was your reaction when you saw this happening?

• 35:18Speaker 01

  Yeah, I think, and I have to say, I don't know the, this is the Bitcoin therapist quoting it. I know that account. I don't know who that person is, but, but there are Bitcoiners that I like and I'm friends with who did this and who also said this. And, and to me, I think it is, it is, it's a troll. This is a troll and they're trolling and it's funny. I think it is kind of funny, but I do think it's very important to debunk because it, you know, not everyone knows this. It was here during the DAO hack and not everybody knows the joke. That Bitcoiners and Etheriums have been trolling each other over stuff like this for years, right? I mean, remember the troll that Pierre O'Shaughnessy did really well and humorous where he was trying to-

• 35:59David Hoffman?

  The ETH supply gate?

• 36:00Speaker 01

  The ETH supply gate, right? I mean, again, it's like, look, there's some truth to it. I mean, it's true, the DAO hack did, I don't even say rollback, this is the other thing. It's not even, it's not even actually true.

• 36:11David Hoffman?

  Irregular state transition. And then people were like, what the hell is that?

• 36:14Speaker 01

  Which is kind of a funny, it is a euphemism and like, of course, like they did intervene in the state and take funds from an account. Like, so, and you can criticize that.

• 36:22David Hoffman?

  Property rights of a hacker were violated.

• 36:25Speaker 01

  Correct, correct. And the troll that Bitcoiners have made ever since, not all, but some, is that, well, if sure it was the hackers then, well, by the way, this is hackers now, what, you got to protect the-

• 36:37David Hoffman?

  What's the difference here?

• 36:38Speaker 01

  Yeah, what's the difference? But also separately, it's a degrading of property rights by having that one precedent ever. Now, again, that was eight, uh, seven years ago, right? 2016? No, so it was nine years ago that that happened. It was an enormous portion of Ethereum supply at risk and also only worth $50 million. That's how early that was.

• 36:58David Hoffman?

  Yeah, it was like 15 months into Ethereum's lifespan.

• 37:02Speaker 01

  Yeah, and look, Bitcoin also had a catastrophic error early on that would have created an unlimited inflation bug that Satoshi themselves had too hard-forked to fix. So like, it's not, I know they're not one and one, but also the DAO hack and this is not one and one. And there was a guy, we'll talk, I'll bring this up a little more deeply when we get to talking about policy and politics, but there is a report circulating in Washington by the Consumer Federation for America, written by Gary Gensler's just recently former chief crypto advisor, who now works for a consumer advocacy nonprofit, that is just a giant, mostly incoherent pile of mean things about crypto that they're trying to use to dissuade

• 37:43Speaker 01

  Democrats from voting on any of these legislations, the stable coins or the market structure. And he fell for the troll. He includes that they are actually talking about rolling back the chain and he uses the DAO hack as the example. And I'm saying that is a straight-up category error because first of all, they're not talking about that. I don't, they basically, some Bitcoiners trolled this into existence and I do think that's kind of funny.

• 38:07David Hoffman?

  They're very good at what they want to do.

• 38:08Speaker 01

  Yes, I think it is pretty funny to me, but I can see how like normal people, they don't know. They might not have been around the whole time. They might not get the joke. Was Arthur Hayes in on the joke or did he get trolled? I mean, I don't know. Are they just, I mean, it's, it's, look, it's fun to, for the tribalism can be fun in all directions, but it also can be damaging. That's not what happened during the Dow hack. There was no, this guy was saying in the, in this Consumer Federation for America report that first of all, they maybe should be more flexible to roll back fraud and stuff in blockchains. And the fact that they can't is bad. But then he was saying, but actually they, they might, they're talking about rolling it back for this buy bit hack.

• 38:49Speaker 01

  And that's actually also bad because when they do that, it would revert normal stablecoin transactions and stuff. And that would hurt mom and pop hardware stores.

• 38:57David Hoffman?

  A lot of collateral damage.

• 38:58Speaker 01

  Yeah. So basically this guy, it's a nonsensical argument he's making because he's saying it's inflexibility is bad and it's flexibility is bad. And so it's like, wait, so you're just saying everything's bad. But even he fell for this troll. So, um, you know, or was happy to, I don't know. It's, I think it's funny, but again, like I also debunk it like it's not true.

• 39:19David Hoffman?

  Yeah, that the, my interpretation of this is that Bitcoiners who are, are, I think you, you say it's funny. I, I'm perceiving it more malicious than I, than I think you are, like some, some Bitcoiners know full well what they are doing.

• 39:31Speaker 01

  Oh, no, I think most of them do. They're trolling. I think this is a troll, I think. And I think trolling can be funny. But yes, I mean, this is, this is damaging and like, if people believe that's true, it's, it's totally false and misleading intentionally. So, so I agree. It's not, it's not just ha, ha joke. I mean, it's the joke. I, I think the joke is funny because it kind of worked. And I just think internet trolling is funny, but you are dealing with, you are dealing with 1.6 trillion dollar assets and 300 billion dollar assets. Like it, this can have consequences. It's certainly not the type of way that I talk about, you know, if I want to, you know, argue about Bitcoin versus Ethereum, I don't do stuff like this.

• 40:09David Hoffman?

  Yeah, and maybe just to highlight why the like, kind of the subtext about why this is happening is because one of Ethereum's most valuable properties that almost no other blockchains have, except for Bitcoin, is only Bitcoin and Ethereum have this one property, which is credible neutrality. And Bitcoin gives credible neutrality to BTC the asset, and Ethereum tries to scale credible neutrality to everything, any tokenized asset, any chain that settles to Ethereum, ETH the asset itself. And that is something that both Bitcoin and Ethereum have, and these are decently competitive ecosystems. At least they could be perceived that way. And I think enemies or antagonists to Ethereum really want to tear down Ethereum's credible neutrality

• 40:51David Hoffman?

  because chains like Solana don't have credible neutrality because they're simply more centralized. And this is why I think Raj from Solana tweeted out that tweet that got a lot of flack about how Ethereum should roll back the chain. And so I think this highlights exactly why Ethereum is so valuable and why competitors to Ethereum are interested in trying to convince people that Ethereum doesn't have the very high levels of credible neutrality that it actually does.

• 41:14Speaker 01

  That's right. It is competition between tribes inside crypto for the credible neutrality story. That's absolutely right. And that's all it is. I mean, but look, it's also we all, the Bitcoiners who are doing the trolling, you and I, all the Ethereum's, we're all incredibly online people. So you're just always looking for some, everyone's always looking for some way to talk about their thing. And like, you know, I agree, it's unfortunate, it isn't true. And but that is where it emanates from. It is a competition for mindshare as to what's the best blockchain. Honestly, that's what this boils down to. It's kind of like how David Sacks, or I forget, somebody reported that like David Sacks's

• 41:55Speaker 01

  presidential working group is now not likely to do a permanent advisory council because of crypto infighting. So I do, I do think for the broad success of everything in crypto, and I would prefer Bitcoin and Ether to always fight in the market and in the battle space of ideas and not through regulation or Outlawing each other, it's we should get come together and and not do this type of tearing down. It's not productive in a net basis, right? At best, it's only productive on a relative basis, but like I don't, I don't want Bitcoin to win at Ethereum's expense. If I wanted Bitcoin to win, I just think it should win. Like, it's not that, not that everything else should lose.

• 42:38Speaker 01

  It doesn't need to be. And so from a, from a standpoint of a long time Bitcoin supporter, that's why I certainly never troll ETH like this, because I just don't, first of all, it's rude and it's false. But also, that's just, we can all win. And I think that-

• 42:52David Hoffman?

  It's destructive. It's capital destructive.

• 42:54Speaker 01

  Yes, I believe in growth, okay? Like, not like growth at everyone. I don't believe that it's a zero-sum game. And I don't want to play the game like it is.

• 43:02David Hoffman?

  All right, let's get into some happy news. Some SEC dropped lawsuits. So Coinbase had their case against the SEC dismissed. Brian Armstrong said this is hugely vindicating, especially because so many people questioned my decision to engage in litigation with the SEC on this matter in 2023. People told me the courts would give a lot of leeway to the government, but nonetheless, Coinbase has been vindicated. Also, OpenSea, Devin Finzer tweeted out, "The SEC is closing its investigation into OpenSea. This is a win for everyone who's creating and building in our space. Trying to classify NFTs as securities would have been a step backward, one that misinterprets the law and slows innovation." Not just that, Uniswap, "In April, the SEC

• 43:44David Hoffman?

  issued a Wells notice claiming that Uniswap's labs operated as an unregistered broker, operated an exchange, and issued an unregistered security. As of yesterday, that investigation has officially been closed, and the SEC is taking no enforcement action. This is a huge win for DeFi and reaffirms what we've always known, that the technology we build is on the right side of the law and our work is on the right side of history." In addition to that, Robinhood, Vlad Tenev tweeted out, "The SEC is closing its investigation into Robinhood crypto is a win for justice and the rule of law. Now it's time to focus on pro-innovation policies that unlock the full potential of digital assets in America, not just Robinhood, but also consensus." Joseph Lubin- Been tweeted out, I'm pleased to announce that consensus and the SEC have agreed in principle

• 44:29David Hoffman?

  that the securities enforcement case concerning MetaMask ought to be dismissed. Subject to the approval of the commission, the SEC will file a stipulation with a court that effectively closes the case. So some huge wins for United States based crypto companies, all that received Wells Fargo, no Wells Fargo, Wells notices over the last two years and are all being dismissed in this massive wave. I think this is a huge relief off of crypto companies back. We can stop paying lawyers so much money to fight the SEC and the SEC can get back to doing exactly what they ought to be doing, which is to preserve orderly and efficient fair markets. Alex, what's your take?

• 45:05Speaker 01

  My gosh, what an onslaught of positivity, what a 180 pivot from the SEC. I think one of the ones that really stands out to me is Robin Hood, because Vlad Tenev had said that they had gone in hat in hand to the SEC, like this was years ago, when they saying, we want to do this stuff that we're doing and we want to do it legally. How can we do that? He said something like they had like 13 meetings with the SEC back then and were rewarded with a Wells notice, a threat. So all the information they gave the SEC about what they wanted to do. Gensler's SEC turned around and sued them for it, or said they were going to sue them for it. So what a turnaround. I mean, that's, that was like coming and talk, and if you do, you might get sued. Let alone you might also

• 45:45David Hoffman?

  Come in and talk, leave with handcuffs.

• 45:47Speaker 01

  Exactly. So, and so it doesn't surprise me. I think core to this not only is that a lot of these suits were

• 45:56Speaker 01

  literally rude, like persecuting, they weren't probably going to win all of these suits. The SEC's cases, even under their existing views of the law, were probably not going to win. So they were damaging and oppressive to the industry, no doubt. But also this SEC has said, has made it very clear that then very, one of the very first things they're working on is what is and isn't an unregistered security and that question in crypto and that question is sort of the foundation from which everything else flows, right? Because if it's not a security, then you don't need a national securities exchange license to trade it, right? For example, with like a Uniswap or a You know, an exchange, right? Like Coinbase, right? And they are materially going to change their view on what is and isn't likely to be a security in crypto.

• 46:41Speaker 01

  And so that is part of the reason that if the SEC does change its views on what is and isn't an unregistered security, then many of these cases can't go forward because they're based on the idea that Robin Hood and Coinbase are trading unregistered securities. Well, if they're not unregistered securities, then the case would fail anyway. So it's very expected and positive, man, very positive. Yeah, just like, especially these actors, right? Robin Hood, Coinbase, you know, MetaMask, like, um, I forgot, there's so many. I've already forgotten who the other ones were. Like, these are not, these are not criminals. Like, these are not, there are criminals to go after. I mean, Hester said in her letter on February 4th, we do not tolerate liars, scammers and cheaters. Like, please, we're all begging you to go after the fraud.

• 47:25Speaker 01

  There is plenty of fraud and scam in crypto. Like, please go after that. Like, it's not saying that every business that does something was never breaking the law. Maybe they were, and you should look into that. And we should, the law should be crafted to protect consumers and, but be possible to operate, like, and, but please go after the bad guys. Robin Hood, they went in, like, they went in to say, how do I do this legally? And they said, just kidding, we're suing you for breaking the law. Like, that's just not a way to run a government, and it's not a way to run a regulator. And it's just so refreshing that that's not how Commissioner Purse, Ueda and forthcoming Chair Atkins are gonna run it.

• 48:02David Hoffman?

  Yeah, there's just, the magnitude of the 180 from the SEC post Donald Trump getting elected has been just absolutely astounding. As soon as, it was the next day that Mark Ueda was named acting chair. And then that, next day after that, Mark Ueda named Hester Purse head of the SEC's crypto task force. And then the next day after that, like, Hester Purse unravels SAB 121. And maybe just maybe 10 days, two weeks after that, we are getting just the dismissal of all of these cases against United States crypto companies. I actually had the pleasure of chatting with Hester Purse's brother because he comes to East Denver every now and then. And he was telling me that Hester's like optimism and excitement about.

• 48:43David Hoffman?

  About her own job has gone through the roof now that she has actual like leverage and the green light to do things the right way. And so I think we're just getting some a lot of like optimistic excitement out of the our regulators, which is really, really good to see. So I think just a huge congrats to all these crypto companies that had to go through hell to come out the other side. And I think Alex, we had you on right after Donald Trump was elected and you called it a golden age for crypto in America. And I think we are still waiting for that to really crescendo and we need things like this in order to get there.

• 49:18Speaker 01

  Yeah, we do.

• 49:18David Hoffman?

  It's gonna take time for United States builders to really, you know, start to build things. But this is just another signal that that's on the way.

• 49:24Speaker 01

  Yeah, the SEC has so much work to do to like Hester said in her February 4th statement, "The Journey Begins," which was just great. Go read these two. She also put out one.

• 49:36David Hoffman?

  Prose, prose.

• 49:36Speaker 01

  Yeah, I mean, beautiful. The Journey Begins is legendary. She put out one this past Friday last week that was called "There Must Be Some Way Out Of Here." She's, she's, she's looking at all the issue, how did brokered dealers and custody stuff and investment companies and investment advisors and securities exchange. There's all these rules the SEC has that it should have been spending the last four years figuring out. If you just scroll this, David, like, you'll see how many questions there are. They're bucketed into categories, but it's like,

• 50:06Speaker 01

  like, scroll even more, where you get to security status, all these questions. The SEC is asking the industry and any person, the public, public offerings, custody, investment company, trading, secondary. There's all these questions for in order for the SEC to disentangle the position that it previously held.

• 50:23David Hoffman?

  She lists out every single question and I'm continuing to scroll. I'm down to 32, 34, 39. Oh, my gosh. 48, 48 total questions. I think this is maybe a really good article just for help her to think clearly about what she needs to do.

• 50:36Speaker 01

  That's what I'm saying is that she's taking stock of all the things the SEC needs to figure out in order to allow and incorporate blockchains into capital markets, right? Just in general. It's not saying these are the only questions. She's also saying, by the way, if there's any questions I'm forgetting, please let us know. But she's also begging the industry and the public to help them answer these questions. These are complicated questions. In some cases, she's like, which word in this rule should be changed to allow? Like, right? We don't know. There's so much work to do. The title, there must be some way out of here. I imagine her, she's finally been given the keys to go into the basement of the SEC and the lights are out and she's got a battery with like, you know, low, she's got a flashlight with low battery and she's looking around and she's just like, oh my God, look how

• 51:20Speaker 01

  much stuff we have to figure out. Oh my God, how am I going to get out of here? And so what I'm saying is thankfully, we have such an astute and intelligent and intellectually curious and honorable person like Commissioner Purist to actually be the one undertaking this effort to disentangle and operating this crypto task force at the SEC. Because good, good Lord, there is a lot that they should have been doing. I don't know why. We've never really found out yet why exactly the SEC under Chair Gensler took the approach that it did. Like, we don't have emails or like, he hasn't done the interviews to actually explain, really. All he said was, there's a lot of fraud and 99% of these things are unregistered securities. But that's okay.

• 52:04Speaker 01

  A lot of these questions, a lot of these questions aren't about unregistered securities. He just sat on his hands and said, we're not going to do any of the research as to how. He didn't do any work. He did no work. That's what I'm saying. They didn't do the work to even just figure out how a registered broker dealer might touch cryptos or how a national securities exchange like NISI or NASDAQ might touch cryptos. Other jurisdictions did do the work. The Financial Conduct Authority in the UK has done a lot of this work. The thinking about it, not even saying when you get to a point where you say you're going to allow or disallow. There's all this intellectual work and regulatory, legal work that has to be done that for some reason they just didn't do. I don't know why they didn't do it.

• 52:44Speaker 01

  Yeah.

• 52:45David Hoffman?

  Yeah.

• 52:45Speaker 01

  It's truly shocking.

• 52:46David Hoffman?

  Term ends in 2025, I think in the middle of this year, maybe, maybe longer. So she has like six or seven months left in her term. I, I don't know what, what happens next.

• 52:56Speaker 01

  She can stay on, to be clear, until she is replaced. Yeah, she can stay on for longer. So that's just, um, yes, but that's right. I mean, they're moving fast. I mean, look at this. The first one was, gosh, we have all these big categories to think about in The Journey Begins. That was February 4th. I think this was February 21st, right? So you're talking about 17 days later. She's got now a giant catalog of all the stuff that they're thinking about. Like, what do we think's gonna happen 17 days from now? I mean, like, they're, they're asking right now, by the way, and you can go on the SEC's website and see the disclosed meetings that have already occurred between outsiders, many of them crypto funds or advocacy groups or crypto companies, and the SEC. People are going in to help answer these questions. Like, this is all happening right now.

• 53:38Speaker 01

  And the work that's done here could set the regulatory and legal framework for the capital markets, including blockchains, for the next 50 to 100 years. So it is a, it is a beautiful and exciting thing in the world of crypto policy. And Commissioner Purse is right in the center of it.

• 53:55David Hoffman?

  Yeah. And I think the best thing is we also get to watch this live because she's so transparent. She's already been on two crypto podcasts. She came on Bankless, she came on Castle Island.

• 54:03Speaker 01

  She was on mine.

• 54:04David Hoffman?

  Yeah, she came on.

• 54:05Speaker 01

  I had her on last week, too. Two weeks ago, whenever that was.

• 54:07David Hoffman?

  She's just talking directly to us and being fully transparent and being highly collaborative, which is just exactly what we've been looking for.

• 54:13Speaker 01

  And not to like, you know, simp too hard, but she's quite famous for this view. She wrote a great piece in like 2018 or something when she was on the commission called The Secret Garden, S E secret garden, literally criticizing the, the commission's approach to just transparency in general. And so she's long been an advocate for working in public, doing as much. To the extent possible, as much signaling about what they're working on, why they're doing it, what their line of thinkings are. And so it's, she is a very transparent and intellectual, she's an intellectual giant.

• 54:45David Hoffman?

  I want to loop back around, Alex, and actually kind of bring this conversation into the markets section. So this is a tweet from Eric Connor, who's kind of summarizing some a lot of the current events, especially right after all this wave of dropped lawsuits by the SEC. So he goes, the regulators, bullish crypto, institutions, bullish crypto, asset managers, bullish crypto, crypto Twitter, bearish, retail, bearish. And he concludes with, one of the most interesting spots I've ever seen crypto in, because it's rare that crypto Twitter is bearish. It's, we are usually relentlessly bullish. And retail usually loves crypto. But like, a lot of TradFi, a lot of, you know, traditional Wall Street finance, very excited about crypto. If you go out of the crypto Twitter bubble, people are excited about crypto. What's your take on this?

• 55:30Speaker 01

  I think it's true. I think Eric's right, that that is kind of the sentiment right now. I think, you know, retail, look, I hate to blame it on this, but I do think meme coins have done an enormous amount of destruction on a net basis to sentiment with retail. So many of them, the chart looks exactly the same, right? Spikes up, dumps to zero. Like, in like, speedrunning it too, like, very quickly, sometimes in a matter of hours, sometimes in days. I think, I think, you know, certain incidents like Libra, this thing with, you know, what's the guy's name? Hayden Davis, like, the brazenness of him just admit, it's like that scene in The Big Short, when he's like, why are they confessing?

• 56:13David Hoffman?

  Right.

• 56:13Speaker 01

  Steve Carell, and they tell him, they're like, dude, they're not confessing, they're bragging. Right? Like, the brazen nature of some of the fraud and scams that we've seen in the meme coin complex, I think, has really contributed to a lot of the bearishness. But, but also, look, I mean, there is, I think, I had this, I've been thinking about it like this, like, crypto is kind of like the dog that chased the car. The dog doesn't know what to do once it catches the car. Crypto's been saying, you know, to your government, if only you would take this boot off our neck, we would have like- Tons of value add to society. And now the government's kind of saying, okay, well, the boot is off your neck. And a lot of cryptos being like, actually, we need more time, right? So I think there's some disillusionment, especially in areas like Web three, NFTs, Metaverse,

• 56:59Speaker 01

  D pin, D SOC, all these like truly decentralized like sectors. The idea of expanding the use of decentralized blockchains to do things other than finance, other than tokens, other than. Those may or may not happen, but it's not related to a regulatory boot on their neck that they aren't happening. It's really like, you can't time when someone's going to invent something, right? I mean, it's just.

• 57:22David Hoffman?

  Meme coins can be launched faster than products can be built.

• 57:25Speaker 01

  And that's the thing, you have Bitcoin that's widely owned now and the digital gold story really working at the institutional level and it's deep and it's liquid and it's good. And stable coins also, I think, will, they'll really have caught the car. If the legislation passes that will create an absolute explosion of stablecoin issuance and adoption, but still already at like $216 billion of circulating tokenized dollars, like pretty well entrenched, but that's number state flat technology, not number right? So you can't like really invest in stablecoins. I mean, so, and, and then outside of that, you, you're looking at like technology platform competition between ETH and Solana. And like, by the way, both of them are pretty cheap to use.

• 58:09Speaker 01

  It's the, the, the thing about ETH is that, that I've been thinking about is like the kind of a solve scaling, at least for now. I mean, you got an enormous amount of block space now with all of these L twos. That makes it really a pretty good UX to use even on the L one, right? Like it's cheap again, right? But the problem is if it's cheap, you don't need to hold that much ETH in order to use it, right? And so like that, that's this same thing throughout this entire meme coin run. So a lot of fees to their credit, especially after they figured out that localized fee market thing for like a normal transfer have remained low. So like, it's cheap to use. People aren't buying Sol because they need to use Solana, the network so much and use Sol to be consumed as gas. They're buying Sol because the assets that they want to buy are denominated in Sol,

• 58:53Speaker 01

  just like the assets on ETH in 21 were denominated in ETH and the ICOs on, in 2021 were denominated in ETH. So to me, this is this conundrum outside of the Bitcoin and the stables where it's like. We're not really sure what assets need to be valuable, I think. And people are sort of realizing that without the regulatory headwind, well, gosh, now the market's gonna have to figure it out. And the market doesn't know. And I think that's where a lot of the, when you say crypto Twitter, like, these are people like us that are very online, have thought about this deeply, and I think they're coming to this realization that we really don't know where value is gonna accrue. Like, with this amount of scaling in Ethereum, the fat protocol thesis seems demonstrably wrong now.

• 59:36Speaker 01

  Right? Because you don't need that much ETH to use Arbitrum or Optimism or Base. You don't, it's cheap.

• 59:42David Hoffman?

  And some of the newer Layer 2s are using abstraction, like currency abstraction. So you can pay for gas in USDC. That's on ZK Sync. There's a Paymaster accounts. And I think that's gonna become standard for Layer 2s is just gas abstraction.

• 59:56Speaker 01

  And like Sol and ETH, broadly at the highest level, they work, right? They work, the things are working. So now I think the focus is really turning to like, okay, well, what are we gonna do on these things? What's the durable, fundamentally valuable thing that's gonna be doing? As you're back to that crypto use cases question. Like I said, dude, if Call of Duty added NFTs to that game, NFTs would be back in an instant, right? Like, or if like, you know, like a Farcaster or like some kind of D-Soc or D-Pin thing became literally like widely adopted, that would be huge and it would be back. And that can happen. We just, you can't time it. You don't know when it happens. That's just innovation. You don't know when Thomas Edison's gonna invent some new thing. Like, it just, it happens or it doesn't happen, right?

• 1:00:40Speaker 01

  So like the regulatory, this is why you see a lot of activity now in tokenization, like, right? Whether it's RWA broadly or like even tokenized equities, because that actually has a clear regulatory catalyst. Something, they used to say, no, you can't do it. And now they're saying, now you might be able to do it. And so that people are getting really bullish about like, well, wait a sec, why couldn't like Nvidia or Tesla or Galaxy stock be on the blockchain? Now, there might be reasons why it couldn't, but we've never been able to ask those questions and try. So now people are all asking those questions again. And that has, and by the way, like that probably, if it does happen, happens on ETH and ZL 2s and maybe Sol. So like, maybe there's an answer there. But again, it's, there's a lot of uncertainty. And I think that's people who follow the space really, really closely just see how much uncertainty there is.

• 1:01:24Speaker 01

  And I think that's partly, you know, where the disconnect is.

• 1:01:28David Hoffman?

  And I think that brings us to the last part of this rollup, which we're going to talk about, politics. So former Congressman Patrick McHenry is getting a job, a job in crypto. There's some regulatory capture maneuvers happening in DC. And then OKX has also settled with the DOJ. So there's going to be the last topics that we talk about. But first, before we get there, we're going to talk to some of these fantastic sponsors that make this show possible. In the wild west of DeFi, stability and innovation are everything, which is why you should check out Frax Finance, the protocol revolutionizing stablecoins, DeFi, and Rollouts. The core of Frax Finance is Frax USD, which is backed by BlackRock's institutional Biddle Fund. Frax designed Frax USD for best-in-class yields across DeFi, T-bills, and carry trade returns all in one. Just head to frax.com, then stake it to earn some of the best yields in DeFi. Want even more?

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• 1:04:48David Hoffman?

  And we're back with a tweet from Patrick McHenry, who used to be, of course, our favorite Gary Gensler bully whenever there was a hearing with the SEC, bowtie Pat McHenry. He said, he tweeted out, "I'm excited to share that I'm joining A16Z as a senior advisor. Technology is the future of economic growth, and I'm eager to help innovators navigate the policy landscape so that they can build." So, is it interesting about A16Z? They are losing Brian Quintenz, who used to be a CFTC commissioner. Brian Quintenz was nominated by Donald Trump to be, what cabinet position was that?

• 1:05:21Speaker 01

  The Chair of the CFTC.

• 1:05:22David Hoffman?

  Chair of the CFTC, so he's back in the SEC.

• 1:05:24Speaker 01

  Yes, he is.

• 1:05:25David Hoffman?

  And so, A16Z is losing Brian Quintenz to the government, but they are capturing, they're getting a Patrick McHenry on their board, so the revolving door continues to revolve. Alex, what's your take on this?

• 1:05:37Speaker 01

  I mean, Pat McHenry is also an intellectual giant in crypto policy. So, I mean, he, as Chair of the House Financial Services Committee and as ranking member before that when Democrats controlled Congress, was an important intellectual steward of stablecoins and market structure legislation, and is a, I mean, is a long-time dude. Pat McHenry was a member of my Bitcoin club on Clubhouse in 2021.

• 1:06:00David Hoffman?

  Wow.

• 1:06:01Speaker 01

  Which I, not the backstory, but like, you know, people remember Clubhouse before Spaces. Super early, I'm on this app and I'm like, oh, you can set up clubs. I guess I should park Bitcoin. So like, you know, the Bitcoin SV people don't steal it. That grew into a club still, if you go on there, has 500,000 members and we used to do a weekly meetup and Pat McHenry would be there. So he's a longtime supporter of digital assets and crypto. He's a very smart guy. I think it's a huge win for the industry that he's coming to work directly with us. And you've talked to him.

• 1:06:30David Hoffman?

  Yeah, yeah, he's one of those guys that loves to talk to the crypto community. And so I kind of feel like Patrick is one of us. And now he actually is one of us because he's joining A16Z on their advisory board. Something maybe not so great that happened this week. Vance Spencer tweeted out a tweet that I think rocketed around the crypto Twitter community. He tweeted out, "I don't comment directly on regulation, but I would like to flag an emerging regulatory battle that is happening in DC. The soon to be revealed stablecoin markup apparently has a requirement to shut off access to the treasury market to centralized international stablecoin issuers, which is straight up batshit crazy. This is a blatant attempt at regulatory capture by US players done at the expense of US national interests.

• 1:07:13David Hoffman?

  Please tell me how limiting access to hundreds of billions of dollars of demand for treasuries helps us preserve dollar hegemony across the globe or fix our debt problem. The largest stablecoins today are built overseas. They are the largest source of demand is overseas. That is not changing no matter what. The net effect of a continued hostile regulatory stance towards stablecoins will only be to regulate ourselves out of the picture like Europe did with AI. The future of stablecoins can be US dollar based only if we allow a broader competitive set of stablecoin issuers to flourish and deny gatekeeping/gaslighting by those interested in regulatory capture." A Bloomberg article, I think, made things a little bit more explicit with a headline says, "Circle Says Stablecoin Issuers Should Be US Registered."

• 1:07:59David Hoffman?

  This is the Circle, the issuer behind the second largest stablecoin USDT, behind USDT, which is Tether, which is in fact a offshores stablecoin. So this is a bill that was introduced by the United States Senate, which I think Circle has done a lot of lobbying. And this is of course being pointed straight at Jeremy LaRue and some of his statements about how stablecoins should be built and issued inside of the United States. Alex, what's your take?

• 1:08:25Speaker 01

  I think this is a real thing. I agree generally with Vance's take as well that it would be bad. I will say a couple of things. One, this emanates from a very clear question that is a genuine policy question. It's not solely a political lobbying effort. What to do with Tether, right? In general, if we think about that, we know that that's effectively what this is. I mean, Vance is quite, I think polite by to not name circle or tether, but like ones in the US and is, you know, domiciled here. One is not, right? And I think the issue, first of all, I don't even know what Tether would want to do. I think when that headline, the quote from Jeremy LaRue that they should be registered in the US, that isn't, and I think

• 1:09:09Speaker 01

  he's quite smart to say it this way, that doesn't preclude Tether, to be clear. They, but they would have to have at least some entity that registers under the new bill, right? That comes in and, and does it. I think it's in everyone's interest for them to do that. Um, right? I mean, maybe not Tethers. I don't know. That's the thing. We haven't really heard what Tether may or may not do, given a new legal regulatory framework in the US for stablecoins. I will say it is batshit that he, what he said, that you can't turn people out of the US Treasury market. That would dramatically harm the US Treasury market. It's not a real thing. So I, I don't know what markup he has seen. Um, I would doubt that that, I would bet that that never enters this, that is not a bill that would be signed.

• 1:09:53Speaker 01

  And I'd be shocked if it's even put forth ultimately, literally like excluding, preventing them from owning Treasuries. We don't prevent the Chinese from owning them, and they're supposedly our greatest geopolitical foe, you know, like, or antagonist, or whatever we want to say. So I think that's probably not gonna go in there. But what to do with Tether? And I agree with Vance that like, we, if you want dollar-based stablecoin dominance, but in, in general, you don't want to create unenforceable prohibition with law. It's just bad law, right? It's the reason the war on drugs hasn't worked, right? I mean, it's, it's obvious. It's why you couldn't. If you banned Bitcoin, like, does that mean you're gonna get everyone's Bitcoin? Absolutely not. When they banned gold, did people melt that and bring in their jewelry? Absolutely not. They didn't actually get all the gold, right?

• 1:10:38Speaker 01

  So that's just stupid law and you should construct law in a way that it recognizes the reality of the world, right? So if you want to exert more control over Tether, you should try to figure out how to get them to come in and register. So I think that this is a big question about what would happen. Like, if we get, like, let's say the Genius Act as it was initially proposed, which is the Senate bill about stable coins, or whatever it is we get. If we get something, who's gonna be able to allow to register, uh, onshore or offshore? But also, is it banks? Is it state banks? Like, we, this is all sort of being worked on and thought about in Congress, and we don't really know. And honestly, this is the funny thing, too. This is a massive, massive question. It's not just a crypto question.

• 1:11:23David Hoffman?

  A $146 billion question.

• 1:11:25Speaker 01

  Yeah, but it's not even just a crypto, like, Circle versus Tether-type question. This, I think if, if banks are gonna be able to issue cash-like stable coins, if they look like the ones we use now in crypto, that this has the chance to solidify dollar dominance for the next 100 years. This is a game changer for how money works in the world, and it's, it could be massively disruptive to banks, or to settlement systems, or to capital markets. There's a lot of thinking here that's like, it's not totally clear what this is gonna do. And I do think this, I think there are even bigger questions than that one that are, people are thinking about related to this bill. By the way, if it, if it disrupts banks, that could be a good thing. We, it's not, not saying it's good or bad necessarily, but like, people tend to think

• 1:12:09Speaker 01

  that, like, stable coins is easier than the market structure bill, and I actually think it may be easier politically, it may be more bipartisan. But I think it's actually like an absolutely massive, like, you would need-

• 1:12:21David Hoffman?

  Hairball of issues.

• 1:12:22Speaker 01

  Yeah, I mean, I said the Mar-a-Lago Accords related to Jim Bianco's idea, but like, this, this, you, you need an accord. I mean, this is like Bretton Woods-level stuff.

• 1:12:32David Hoffman?

  And then maybe the last political thing of the of the week is a tweet from you, Alex, that I saw when I was scanning your feed, which you tweeted out, "Congrats to my friend Tyler Williams, Galaxy's now former head of public policy, for being chosen to lead digital assets policy work at the United States Treasury Department. I think it's just amazing that we are getting a digital Alicey policy agenda out of the United States Treasury. I don't know much about Tyler Williams. Maybe you can kind of color in my my understanding of Alex and then maybe what you're hopeful about his role at the US Treasury Department."

• 1:13:02Speaker 01

  Yeah, so Tyler is a great man. He's one of my better, one of my best friends. It's, see, we're friends. We drink beer together. This will put these pictures. And no, he is an expert in digital assets. He's a lawyer, like everyone in Washington is, but a policy lawyer. He worked in the Treasury Department under Trump's first administration, primarily on home finance and digital assets. So overseeing Fannie and Freddie and mortgage stuff and domestic finance, but also on crypto, what, you know, I think little work there was done there back then. He's worked for, he worked for Speaker John Boehner in the House when John Boehner was Speaker. He worked for Senator Tom Tillis on the Senate Banking Committee. And yeah, he ran, he was head of, you know, global head of, I think we called him Senior

• 1:13:45Speaker 01

  Regulatory Counsel or something like that. But basically, global head of policy at Galaxy. He is a big supporter of digital assets and Bitcoin and crypto. And he, think about this, the Treasury has some of its own issues, right? The presidential work, the executive order, it assigned the members of the presidential working group, which include the Treasury, to look at your whole jurisdiction and portfolio of regulations or whatever it is that you do, and bring us back a list of recommendations of what you should undo or do for the first time as it relates to digital assets. So the Treasury Department has a few directly, the IRS, anything related to tax, kind of come out of Treasury, the OCC, the Office of the Control of the Currency, which is a primary prudential regulator for national

• 1:14:28Speaker 01

  banks, OFAC and FinCEN, so issues around tornado cash and Samurai Wallet type stuff, who can be sanctioned. The Bank Secrecy Act is enforced by the Treasury Department. So who needs to register? Remember Elizabeth Warren's horrible idea of making perhaps even software developers have to register like they were financial firms? All of that stuff falls directly under Treasury, but also the Treasury Department is the primary economic spokesperson and think tank for the US government, right? So the Treasury Secretary, although there are other centers, right? There's the National Economic Council, the White House and whatever else, right? Like the Council of Economic Advisers, which is literally another White House one, the CEA, the NEA, the NEC, like whatever.

• 1:15:11Speaker 01

  There's, sure, there's the independent commissions like the SEC and the CFTC and they have their own sort of areas to work on, but the Treasury Department typically is the leader of financial policy for the government. And Tyler's role as I think Counselor to the Treasury Secretary for Digital Assets, I think is a very central role for shepherding, stewarding, being the forcing function across the government to help get work done on digital assets. So, I mean, we're very excited. We're sad that he doesn't work for us anymore, but at least we know we're in good hands, I think. And we've spent the last three years, I mean, I've done, people can look on the Galaxy Brains feed, I've done a dozen interviews with Tyler over the years, so there's plenty,

• 1:15:53Speaker 01

  you can hear plenty of his views on crypto and digital assets and obviously he's supportive, so.

• 1:15:59David Hoffman?

  I think that's maybe a perfect plug to read the last tweet that I'm going to read out on this weekly roll up. So, thank you Bankless Nation for sticking with me and Alex all the way to the very end. This is a tweet, another tweet from Alex Thorne, saying, "Good morning. After eight years with a public and doxed account on this app," the app is Twitter, "50,000 of you have deemed to be worthy of a follow." That is very kind. I'm definitely one of those followers. I'm a proud follower of Alex Thorne. So Bankless Nation, if you're on Twitter, give Alex a follow. He's a great account. He's a wealth of information. And like he also just alluded to, he does the Galaxy Brains podcast where he just talked about interviewing the individual Tyler Williams that we just talked about just now, which we will also link in the show notes. So Alex, if people want to just hear more of you, they like your takes, they like the sound of your voice, where should they go to listen to Galaxy Brains?

• 1:16:42Speaker 01

  Yeah, you can go to galaxybrains.io, just gives you all the links and stuff quite easily. You can follow me on Twitter, IntangibleCoins, galaxy.com/research. My team at Galaxy produce a lot of written research content about crypto markets. We've got a newsletter, gdr.e-mail, galaxydigitalresearch.e-mail, gdr.e-mail, you can sign up. We've got plenty of stuff on there. Feel free. And David, thank you, because I'm a big fan of the weekly roll up and Bankless and the education that you guys do. And it's one of the, the weekly roll up is one of the few podcasts that I, as a podcaster, also listen to. So, thank you for having me on.

• 1:17:16David Hoffman?

  I really appreciate it. Yeah, you definitely make it easy to help go through all the news. Alex, thank you. Bankless Nation, you guys know the deal. Crypto is risky. You can lose what you put in, but nonetheless, we are headed west. This is the frontier. It's not for everyone, but we are glad you are with us in the Bankless journey. Thanks a lot.