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Speaker 1: What's up, everybody. Welcome to financial Heresy. My name is

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Speaker 1: Joe Brown, and we talk about how many works so

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Speaker 1: that you can make more, keep more, and give more. Today,

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Speaker 1: some news, some news started breaking in the crypto space

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Speaker 1: that is very important for us to cover. So the

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Speaker 1: first thing that happened on so this was you know,

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Speaker 1: this was Tuesday. So I'm recording this on Tuesday at

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Speaker 1: airs on Wednesday, so yesterday, you know, as of the

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Speaker 1: day that this podcast goes live, the SEC sued Coinbase

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Speaker 1: for allegedly acting as an unregistered crypto broker. In other words,

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Speaker 1: they are they are charging Coinbase with operating an unregistered

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Speaker 1: securities exchange. So basically what Coinbase offers, the service, the

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Speaker 1: product that they have. They are saying, hey, that's an

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Speaker 1: exchange for securities. So what is a security. Let's take

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Speaker 1: a look at the definition of a security. Now, this

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Speaker 1: is this comes from the Supreme Court actually, because there's

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Speaker 1: not like there's not a legal definition of what counts

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Speaker 1: as a security and what doesn't, and so there's a

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Speaker 1: little bit of gray area, there's a little bit of interpretation.

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Speaker 1: And so back in nineteen forty six, it was the

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Speaker 1: case of Howie versus the sec this was about. It

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Speaker 1: was the sale of land and agricultural services, and the

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Speaker 1: Supreme Court concluded that this constituted an investment contract even

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Speaker 1: though there's there was no like stocks or bonds involved,

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Speaker 1: but they decided, hey, this does count as a security.

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Speaker 1: So the reasoning that they used to come up with

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Speaker 1: that is now called the Howie test. And so if

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Speaker 1: something checks off all for these boxes, then then it's

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Speaker 1: considered a security. So number one, there's an investment of money.

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Speaker 1: Clearly with cryptocurrencies, it's like, obviously you definitely checks box

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Speaker 1: number one. You're investing money, you're purchasing these things. And

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Speaker 1: then not only are you purchasing them because obviously, like

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Speaker 1: if you go to McDonald's and buy a cheeseberg, you're

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Speaker 1: purchasing something, but there's there's an investment of money when

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Speaker 1: the initial purchase that's made goes to the creator and

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Speaker 1: it is used to develop or increase, you know, like

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Speaker 1: imagine like a stock when when a stock IPO's, they're

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Speaker 1: selling let's say fifty percent of their company to the public,

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Speaker 1: and they're using that money then to grow the company,

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Speaker 1: to hire people, to invest in research and development, marketing,

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Speaker 1: whatever it is, to grow the company. So that is

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Speaker 1: like the investment of you know, of money into into

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Speaker 1: the company. And then you know, the the things that

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Speaker 1: you purchased and in that case, those shares they can

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Speaker 1: be bought and sold on a secondary market and if

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Speaker 1: the price of those goes up, then that increases the

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Speaker 1: total value of the entire pie. And just from the

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Speaker 1: investment of money standpoint, it's like very clear. Cryptocurrencies check

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Speaker 1: off that box number one. There's an initial coin offering,

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Speaker 1: there is all that money is you know, goes towards

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Speaker 1: whoever the original team was that created and sold those

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Speaker 1: those tokens. There's you know, those those that cryptocurrency can

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Speaker 1: be sold and bought on a secondary market through an

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Speaker 1: exchange like coinbase, and then as they go up in value,

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Speaker 1: then that increases because these tokens are fungible, so it

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Speaker 1: increases the value of all of all the the whole

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Speaker 1: entire network of the coins. Number two, the investment is

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Speaker 1: made into a common enterprise. So think of another company again,

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Speaker 1: It's like you've got a your c suite, your CEO,

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Speaker 1: you've got your management team, you've got your employees, you've

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Speaker 1: got everybody working together for a common enterprise. They're working together,

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Speaker 1: you know, different different jobs. You got marketing, you've got engineers,

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Speaker 1: you've got whatever, all working together to try and make

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Speaker 1: this thing work. And you they're you know, uh, they're

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Speaker 1: developing a product or service that will you know, increase

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Speaker 1: in value. So many cryptocurrencies check off that box as well.

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Speaker 1: You've got you've got like you know, just look at

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Speaker 1: like ethereum. It's it's very clear. It's like that's a

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Speaker 1: common enterprise. You've got the engineers, you've got the marketing department,

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Speaker 1: you've got the owners, the insiders. They are working on this,

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Speaker 1: trying to make it, trying to make it, you know, work.

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Speaker 1: Number three, The investors expect to make a profit from

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Speaker 1: their investment. Okay, so this is like a slam dunk. Obviously,

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Speaker 1: ninety nine percent of people would never have bought any

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Speaker 1: cryptocurrency ever if they didn't expect that or at least

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Speaker 1: hope to make a profit from their investment. Actually, you know,

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Speaker 1: they wouldn't have bought it if they didn't think have

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Speaker 1: at least a fifty one percent confidence rate that they'd

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Speaker 1: make money from it. So well, even if they say,

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Speaker 1: well I think it's a long shot, it's like they

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Speaker 1: still think it's worth it, So they think that it's

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Speaker 1: if they thought if they thought they were definitely not

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Speaker 1: going to make a profit on their investment, they wouldn't

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Speaker 1: have made that purchase. So number three checks off the box.

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Speaker 1: The only cryptocurrencies I would say don't check that box

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Speaker 1: would be ones that you're buying specifically for like the

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Speaker 1: for the use as payment and so not necessarily that

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Speaker 1: you're gonna have a dollar profit, but like you're you're

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Speaker 1: buying it in order to send a payment either more efficiently,

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Speaker 1: or that's censorship resistant, something that can't be tracked, something

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Speaker 1: that can't be stopped, you know, for you know, ease

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Speaker 1: of cross border payments, whatever, something like that. So those,

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Speaker 1: you know, if you're you know, those, you could make

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Speaker 1: a good argument don't check off box number three here

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Speaker 1: for definition of a security. And then the fourth thing

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Speaker 1: under the Howie test is that any expected profits or

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Speaker 1: returns are due to the actions of a third party

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Speaker 1: or a promoter. And so it's like again going back

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Speaker 1: to the example of a stock, a common stock, you

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Speaker 1: give them money and they go and they take your

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Speaker 1: money and invest in the company and do a bunch

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Speaker 1: of actions. They're your third party. They've got a marketing

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Speaker 1: team whatever, and profits result. So it's not because of

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Speaker 1: your involvement or your actions. You're just the investor. And

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Speaker 1: so if it checks those four boxes, then they say, hey,

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Speaker 1: that counts as a as a security. The timing of this, well, okay.

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Speaker 1: So the second thing that happened on the same day

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Speaker 1: that we need that we need to I need to

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Speaker 1: make sure that I mentioned here is what It wasn't

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Speaker 1: just Coinbase. They also went after Binance, So the SEC moved,

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Speaker 1: they filed a court filing to freeze all of the

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Speaker 1: US assets of Binance. So we're really seeing like this

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Speaker 1: noos around the neck of crypto. It's just tightening and

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Speaker 1: it's accelerating recently. And it's kind of odd because when

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Speaker 1: you think about the last you know, ten years, big

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Speaker 1: money for a long time, especially like twenty sixteen, twenty seventeen,

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Speaker 1: like there were a lot of big players that were saying,

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Speaker 1: we need the government to step in and start giving

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Speaker 1: us some frameworks, a regulatory framework, start making some laws here.

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Speaker 1: The reason for that is because most Americans and companies

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Speaker 1: they actually like laws. Now I disagree, I don't just

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Speaker 1: leave me alone, let me do what I want. But

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Speaker 1: the fact is that when you live in a nation

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Speaker 1: where the government likes to make laws and corporates want

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Speaker 1: those laws, than any area where you don't have any

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Speaker 1: sort of regulation, it actually keeps innovators in big money

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Speaker 1: and big players out of that space because you know,

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Speaker 1: we didn't. We didn't see Apple go in and start,

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Speaker 1: you know, working on a crypto wallet like they they

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Speaker 1: They could have. They could have crushed Coinbase, you know,

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Speaker 1: in a month with the resources and the capabilities that

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Speaker 1: they have if they launched a a crypto wallet or

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Speaker 1: exchange where you could you know, buy and sell bitcoin

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Speaker 1: and maybe a couple others within Apple Wallet, Like, can

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Speaker 1: you imagine the impact that would have on the industry.

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Speaker 1: But they didn't, And part of the reason for that,

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Speaker 1: maybe the whole reason is because they don't know what

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Speaker 1: the laws are going to be. And in a nation

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Speaker 1: where everybody loves laws, everybody knows, hey, these regulations are coming.

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Speaker 1: So we're not going to touch this until we know

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Speaker 1: what the rules are going to be, because we may

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Speaker 1: end up like Coinbase, which has been trying to pioneer

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Speaker 1: this space for a long time. And I don't get

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Speaker 1: me wrong, I hate the company. I don't use it.

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Speaker 1: I don't recommend it. I do not like Coinbase. I

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Speaker 1: think they went wrong many, many, many times. But they've

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Speaker 1: been trying to push forward here. They've been trying to

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Speaker 1: innovate in this space. They've been trying to be that

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Speaker 1: leader in the wild West and pushing that frontier and saying, hey,

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Speaker 1: we've you know, this is what you know America is

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Speaker 1: all about. It's about the freedom and the wild West

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Speaker 1: and innovation and new technology and let's do this. And

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Speaker 1: now look what's happening to them. There was no regulatory framework.

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Speaker 1: They've been if you've been falling this for the last

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Speaker 1: couple of years. They've been trying to work with the

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Speaker 1: SEC very closely and be very transparent and very straightforward

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Speaker 1: and say, hey, we want to follow the rules, but

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Speaker 1: we don't know what the rules are, so let's work

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Speaker 1: this thing out. And so everybody is in the industry

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Speaker 1: has been watching and look at that Coinbase and thinking, man,

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Speaker 1: I don't want to wind up like that because now

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Speaker 1: they're just getting slammed. The SEC is going after them hard.

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Speaker 1: And to be honest, like it makes sense, right because

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Speaker 1: you on coin like, that's what coinbase is. It is

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Speaker 1: an exchange and these things, most of them are securities

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Speaker 1: and they're not registered with the SEC so it's like, yeah,

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Speaker 1: they're operating an unregistered securities exchange. But it's not for

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Speaker 1: lack of trying, and it's not because they were intentionally

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Speaker 1: trying to do that. It's just because there's not been

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Speaker 1: a clear regulatory framework laid out, and it seems like

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Speaker 1: it's been on purpose because you had this whole entire

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Speaker 1: time where it's caused all the big players to stay out.

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Speaker 1: You see the big bubbles happen, you see the scams

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Speaker 1: happen like the FTX, you see you know, Sam bankmin

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Speaker 1: freed and so you see the scams and the bubbles,

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Speaker 1: people losing money from both of that. And then once

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Speaker 1: all that collapses, well now you have regulators come in

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Speaker 1: and say, all right, now we're gonna clamp down. So

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Speaker 1: you already wiped out a bunch of people's interest in

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Speaker 1: crypto because the bubbles just themselves from you know, the

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Speaker 1: government printed money that caused euphoria and a bunch of

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Speaker 1: speculative assets they went up, they crashed, a bunch of

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Speaker 1: people lost a bunch of money. So you buy by

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Speaker 1: just the wild West and the money printing, you you

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Speaker 1: eliminated a lot of interest in future interest in crypto.

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Speaker 1: And then by not regulating it, you you allow that

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Speaker 1: space to attract people with malicious intent, and so you

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Speaker 1: attract those fraudsters that create the Ponzi schemes and the

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Speaker 1: people who want to just defraud people. And so everybody

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Speaker 1: that caught up got caught up in one of those scams. Also,

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Speaker 1: now that eliminates all their future interest in crypto. So

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Speaker 1: those two things alone just buy themselves are like, all right,

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Speaker 1: we've we've, we've you know, relegated this to the sidelines somewhat.

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Speaker 1: And then by not you know, by not establishing that

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Speaker 1: regulatory framework, you keep the big players out. So it

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Speaker 1: keeps away the sense of legitimacy. So any serious investor

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Speaker 1: and any serious business person in any serious company, they're

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Speaker 1: not gonna touch this stuff because it's still viewed as illegitimate.

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Speaker 1: It's the wild West, and so it's you know, it

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Speaker 1: seems like this whole thing has been set up to

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Speaker 1: kind of try and crush it as big as possible.

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Speaker 1: So now after all that interest has left, and after

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Speaker 1: all the money's been lost, and after all a lot

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Speaker 1: of these projects have failed. Now regulators are stepping in

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Speaker 1: to lay down the law and try and crush whatever

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Speaker 1: is left. And don't get me wrong here, I mean

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Speaker 1: this conversation requires nuance. I don't like crypto. I am

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Speaker 1: not a proponent of crypto. I do not recommend crypto.

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Speaker 1: Bitcoin bitcoin alone. That that's it. So it's like bitcoin

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Speaker 1: has the potential to become the base money, the global

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Speaker 1: reserve currency, the money that everybody uses at some point

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Speaker 1: in the future. Nothing else does. So it's it's either

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Speaker 1: bitcoin or nothing, and probably, just looking at probabilities, it's

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Speaker 1: probably not going to be bitcoin. Bitcoin will probably go

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Speaker 1: to zero. I think it's worth a small allocation in

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Speaker 1: everybody's account just in case. I also think it's good

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Speaker 1: for if you need to send payments because it's censorship resistant,

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Speaker 1: international payments, it's cheaper, so there are a lot of

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Speaker 1: There are a lot of reasons why I do think

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Speaker 1: you should have a small amount of bitcoin. But that's it.

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Speaker 1: So all of the stuff that I'm saying about, it's

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Speaker 1: not because I think that people should be investing in

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Speaker 1: crypto that I think that companies should be there. There's

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Speaker 1: still not been any innovation yet that has uh with

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Speaker 1: with crypto that has been able to show hey we've

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Speaker 1: got you know, either more efficiency or better user interface

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Speaker 1: or like any sort of advantage over any other technological

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Speaker 1: application of the utility. So like a decentralized social media

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Speaker 1: website just doesn't make any sense. The technology is way

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Speaker 1: too an efficient, and if you increase the efficiency enough

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Speaker 1: to operate a functional social media website, you don't get

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Speaker 1: the network effects of the social media website. So doesn't

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Speaker 1: solve that you can't compete there like Twitter has people

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Speaker 1: on it, because Twitter has people on it, and so

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Speaker 1: you still have to overcome that hurdle. And then finally

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Speaker 1: it's like if you make it efficient enough so that

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Speaker 1: it can it can actually you know, be usable, well

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Speaker 1: then you get rid of all the security benefits of

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Speaker 1: having something decentralized. And so it just doesn't make sense.

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Speaker 1: There's no application. Blockchain is a monetary technology. It doesn't

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Speaker 1: make sense to be used for anything else. And anytime

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Speaker 1: people have tried, it's like gimmicky and fun, but it's like,

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Speaker 1: we could do that exact same thing, like like NFTs

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Speaker 1: for example, for you know, concert tickets or backstage access.

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Speaker 1: It's like, well, we have QR codes and QR codes

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Speaker 1: are free, and NFTs are not very expensive and very inefficient,

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Speaker 1: and the user interface just isn't there. It's it's difficult

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Speaker 1: for people to use. So those problems may be solved

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Speaker 1: in the future. But I say all that just to

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Speaker 1: show that I'm not a proponent of crypto, but I

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Speaker 1: am a proponent of freedom, and I think that people

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Speaker 1: should have the freedom to be able to, you know,

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Speaker 1: make mistakes and lose money and learn the lessons. And

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Speaker 1: that's how profits are ultimately made. That's how all wealth

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Speaker 1: is generated. It's by innovation and iteration and attempting to

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Speaker 1: predict the future. And when you when you do this

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Speaker 1: whole process, like the government has done with crypto, you

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Speaker 1: stunt all that from being able to happen. And and

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Speaker 1: so that's why a lot of people have described this

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Speaker 1: as something called Operation Chow Point, where it seems like

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Speaker 1: the government is intentionally trying to crush crypto because of

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Speaker 1: the way that this has played out, the lack of

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Speaker 1: regulation to allow the big wipeouts to happen. And then

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Speaker 1: now that it's all started to crash and burn, then

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Speaker 1: you step in and start laying down the laying down

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Speaker 1: the law. This is not this is not something that

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Speaker 1: is conducive to innovation. But there's a couple of there's

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Speaker 1: a couple of other things going on besides this, Because

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Speaker 1: the CFTC disagrees with the sec and the CFTC does

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Speaker 1: not think that a lot of these cryptocurrencies should be

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Speaker 1: classified as securities. They think they should be classified as

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Speaker 1: as a commodity, and they think that there they should

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Speaker 1: have jurisdiction. So what is a commodity. A commodity is

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Speaker 1: typically something like gold, oil, silver copper, natural gash, but

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Speaker 1: it is also expanded to things like indexes, you know,

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Speaker 1: deriv some certain derivatives, bandwidth, even like frequencies like you know,

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Speaker 1: Internet and so uh, and so there are other things

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Speaker 1: technological applications that are applied that that are given the

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Speaker 1: label of commodity, and understanding that broader scope that includes

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Speaker 1: other things as commodities, you could make an argument that

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Speaker 1: something like bitcoin is you know, more of a commodity

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Speaker 1: than than a security. But either way, I think the

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Speaker 1: point is that I'd like to make is that all

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Speaker 1: of this is actually a violation of the Constitution. So

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Speaker 1: the Constitution, Article one, section one says that all legislative

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Speaker 1: power rests with Congress, and that Congress is made up

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Speaker 1: of a Senate and a House of Representatives, and so

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Speaker 1: legislative power means the power to make laws. So if

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Speaker 1: a law is going to be made, the only people

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Speaker 1: who are allowed to do that per the Constitution is Congress.

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Speaker 1: So every one of these three letter agencies that dictates

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Speaker 1: your life, the EPA, the FDA, the ATF, the SEC,

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Speaker 1: all of these are in their existence is in violation

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Speaker 1: of the Constitution because they operate by creating laws and

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Speaker 1: regulations and they are not Congress. Congress has abdicated its

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Speaker 1: responsibility to create these laws because they don't have the

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Speaker 1: time or the expertise to do this. But that is

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Speaker 1: a violation of the Constitution, and the Constitution did that

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Speaker 1: on purpose in order to say, hey, if you don't

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Speaker 1: have the expertise for the time to make a law

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Speaker 1: about this, then there shouldn't be a law about it.

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Speaker 1: That's the point. It's always leaning towards freedom, and the

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Speaker 1: state can do that if they want. If you know,

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Speaker 1: if the if the Congress for the United States cannot

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Speaker 1: does not have the resources to do that, leave it

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Speaker 1: up to the states. And if the states individually want

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Speaker 1: to make their own laws about it. That's you know,

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Speaker 1: up to them. And so we have unelected and unaccountable

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Speaker 1: bureaucrats that are making laws and regulations that affect the

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Speaker 1: daily lives of every American and they can't and we

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Speaker 1: can't do anything about it. We can't vote them out

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Speaker 1: of office, can't change it. And so the establishment and

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Speaker 1: the existence of these agencies, it violates both the letter

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Speaker 1: and the spirit of the Constitution. And so now we

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Speaker 1: live under rule of law of man rather than rule

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Speaker 1: of law. Rule of laws. Hey, there's a set of rules,

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Speaker 1: a set of laws that govern what can happen. And

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Speaker 1: regardless of who comes into power, nothing can change that

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Speaker 1: because you can't make a law that violates the base law,

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Speaker 1: the Constitution, that foundation. But now we live under rule

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Speaker 1: of man. Whatever man comes in power, they get to

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Speaker 1: set the rules and they disregard that foundation, the Constitution.

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Speaker 1: And and so we have rule of man. Whoever's in

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Speaker 1: charge gets to make the rules, and that that way.

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Speaker 1: There's in this in this uh uh set up, there's

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Speaker 1: always volatility. Laws are constantly changing. There's a lot more uncertainty,

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Speaker 1: and there's a lot more laws that it becomes a

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Speaker 1: much much bigger burden. There is one law that one

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Speaker 1: bill that's introduced to Congress, and this is actually is

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Speaker 1: actually good a good thing because we need Congress to

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Speaker 1: take charge here. And this bill defines what is a

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Speaker 1: security for specially like specifically for crypto. It lays like

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Speaker 1: a framework for crypto. And so it's just introduced. Who

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Speaker 1: knows where it'll go from here, but it is uh uh,

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Speaker 1: it is. It is introduced. It's very specific with what

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Speaker 1: counts as a decentralized network, what counts the security it gives, like, hey,

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Speaker 1: if there's twenty percent ownership from insiders and you know

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Speaker 1: in the last twelve months if this has happened, which

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Speaker 1: is very good. The more clear and explicit you can

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Speaker 1: get on what the rules are, then you lay that

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Speaker 1: groundwork and then suddenly the big players can come in

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Speaker 1: and then you can see if it's viable and so

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Speaker 1: get you'd get Apple and Google rolling out in their wallets,

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Speaker 1: the ability to purchase and transfer bitcoin, you'd get those

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Speaker 1: sort of things, and then you'd actually be able to see, hey,

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Speaker 1: is the lack of innovation in the space that we've

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Speaker 1: seen because we just couldn't attract the best players because

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Speaker 1: they were afraid of, you know, getting crushed like coinbase,

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Speaker 1: or is it because there's actually nothing to be done

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Speaker 1: here and any attempt is doomed, doomed to fail, doom

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Speaker 1: to history. And so I think this is a really

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Speaker 1: good thing. But one interesting thing about this bill is

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Speaker 1: that it makes an exclusion for stable coins and stable

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Speaker 1: coins for payment. I think these are the real trojan

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Speaker 1: horse for a CBDC because in this environment where everything

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Speaker 1: is kind of getting crushed, they let everything collapse. Now

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Speaker 1: the new laws are trying to crush everything else that's left.

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Speaker 1: Bitcoin will stick around because of its size and its

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Speaker 1: network effects. It's like you can. Passing a law and

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Speaker 1: enforcing a law are two very different things. It's easy

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Speaker 1: the government tomorrow could could shut Ethereum down if they

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Speaker 1: wanted to. Enforcement of that law would be very easy,

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Speaker 1: or any cryptocurrency. But if they wanted to shut down Bitcoin,

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Speaker 1: they couldn't. It's it's it's not it's not possible. It

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Speaker 1: would take the individual, voluntary choice of every single bitcoin

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Speaker 1: operator over the entire world to decide that that would

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Speaker 1: be enforced. You couldn't go after it. There's no CEO,

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Speaker 1: there's no management team, there's no servers. There's no you know,

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Speaker 1: centralized location that you could attack. There's no surface area

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Speaker 1: of attack large enough to stop bitcoin. So they could

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Speaker 1: pass a law outlawing it, but enforcing it would be

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Speaker 1: entirely different. And so they're going to They're going to

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Speaker 1: crack down on everything that they can crack down on,

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Speaker 1: and there'll be an exclusion for a couple of stable

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Speaker 1: coins and they will be then co opted and a

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Speaker 1: central bank digital currency will either replace them or they'll

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Speaker 1: be co opted into a CBDC, and that'll be the way.

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Speaker 1: I think that a CBDC has rolled out in the

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Speaker 1: United States, but we will see. That's what it looks

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Speaker 1: like is happening at this point, and right now the

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Speaker 1: crackdown has begun, it is accelerating, it continues, and we'll

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Speaker 1: see where it goes. As always, thanks so much for listening,

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Speaker 1: and we'll see you next week.