The Crypto President has arrived. Amidst ballyhooed executive orders and pardons President Trump the biggest move is being overlooked. While pardons of Silk Road founder Ross Ulbricht and January 6ers made headlines the CBDC issue is more salient.
Trump has (for now) ended work on a US Central Bank Digital Currency (CBDCs). The move comes among a flurry of crypto-related actions from the White House and other executive agencies, notably the SEC.
Trump signs executive order stopping CBDCs
The Strengthening American Leadership in Digital Financial Technology executive order includes:
Sec. 5. Prohibition of Central Bank Digital Currencies.
(a) Except to the extent required by law, agencies are hereby prohibited from undertaking any action to establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad.
(b) Except to the extent required by law, any ongoing plans or initiatives at any agency related to the creation of a CBDC within the jurisdiction of the United States shall be immediately terminated, and no further actions may be taken to develop or implement such plans or initiatives.
A CBDC would harm Americans
The order states CBDCs “threaten the stability of the financial system, individual privacy, and the sovereignty of the United States.” Yes.
The threat CBDCs pose to the American public have long been recognized by certain policymakers like Rep. Tom Emmer (R-MN) and wonks like Natalie Smolenski of the Bitcoin Policy Institute, European academic Patrick Schueffel, and yours truly.
Privacy is a big one. As researcher Natalie Smolenski wrote for the Bitcoin Policy Institute, when government functionaries speak of “privacy” in the CBDC context they don’t mean from the state. “Rather, the state is presumed to be an essentially good and trustworthy overseer of markets at every scale, including at the level of individual transactions—and a desire for privacy from the state is implicitly equated to criminal intent.”
But that’s not all. CBDCs place American’s financial sovereignty at the mercy of (at times) partisan bureaucrats at an historically precarious time. Post-COVID, government balance sheets are bleak. Global debt-to-GDP ratio had risen 356 percent by the end of 2021. CBDCs offer a way out.
With real-time access to the total money supply, officials could implement any number of policies deemed in the public interest or necessary for the next crisis. This could include negative interest rates, instant tax collection for every transaction, restrictions on the purchase of disfavored products like firearms, cigarettes, or sugary foods or carbon-based limits on travel.
The bureaucrat’s mind races.
Trump stops CBDCs but global bureaucrats love them
It is interesting to see who actually supports CBDCs. So far proponents include supra-national and global bureaucrats at the European Central Bank and the International Monetary Fund. ECB executive board member Piero Cipollone stated the EU “needs” a digital euro to counter Trump. IMF managing director Kristalina Georgievastates of CBDCs, “We’ve left port and are now on the high seas. This calls for courage and determination.”
The “we” Ms. Georgieva refers to is people like herself. And the “courage” required is to force CBDCs on populations that clearly don’t want them. Even in China, where CBDC implementation has gone the farthest and citizens get the smallest say on such matters the verdict is clear.
After a strong push by the People’s Bank of China for the digital yuan (e-CNY) Chinese adoption, according to one official has been “low, highly inactive.” Part of the reason is China already has mature payment systems like WeChat and AliPay. It’s also likely the result of Chinese seeing e-CNY for what it is—a further step toward a totalitarian social credit system. They won’t use it unless the government forces them. So far the CCP hasn’t forced them, but that won’t likely last.
Trump to his credit has chosen the opposite route, giving Americans monetary freedom by banning a CBDC.
Mark Andreesen and Ben Horwitz of the famed venture capital firm a16z posted a blog last July that is gaining renewed attention. The incoming administration’s deregutoary focus is driving the conversation. Broadband Breakfast will focus on “The Little Tech Agenda” in an upcoming discussion.
The Little Tech Agenda explores the various problems with the current state of the economy, specifically regulatory barriers startups face. Large firms embed themselves with government agencies, often hiring former agency officials to lobby for the benefit of the powerful. Inserted rules or tainted enforcement decisions make open competition harder for startups. They typically don’t have the means or the energy to focus on compliance. Instead, they’re occupied with more pressing matters like surviving another month and becoming profitable. This phenomenon is known as regulatory capture
Corporatism harms Little Tech
Regulatory capture and similar concepts like ‘Concentrated benefits/Disbursed Costs’ are part of a larger governance structure known as corporatism. Corporatism is a malleable term but generally involves the biggest private firms combining with a strong central government to write the rules for society, leaving little room for the individual or startup.
Corporatism has long been the preferred governing and economic structure in the West. Even in America corporatist tendencies date back to Woodrow Wilson and “War Socialism.” During WWI, “Dollar-a-Year-Men”—titans of industry—colluded with government to set prices, production levels, and entrench powerful players. Two decades later the New Deal permanently cemented corporatism through the administrative state.
Regulatory agencies have been green lit to use brute force investigations, prosecutions, intimidation, and threats to hobble new industries, such as Blockchain.
Regulatory agencies are being green lit in real time to do the same to Artificial Intelligence.
Regulatory agencies are applying direct pressure to banks to cut off disfavored startups and founders from the financial system.
Regulatory agencies are punitively blocking startups from being acquired by the same big companies the government is preferencing in so many other ways.
The federal government as a customer in critical sectors like defense and intelligence is more wired than ever to favor big incumbents over innovative startups.
And, the government is currently proposing a tax on unrealized capital gains, which would absolutely kill both startups and the venture capital industry that funds them.
Andreesen and Horwitz join other uber-successful “tech bros” like Elon Musk, Jeff Bezos, and Vivek Ramaswamy in lamenting the overregulation of the American economy. Musk and Ramaswamy have the new president’s ear with DOGE. Bezos recently decried regulatory burdens in a New York Times DealBook Summit. And Andreessen has released a manifesto on X called, A Call to Arms Against the Oligarchy.
It’s Time for Little Tech
What all this means for Little Tech remains to be seen. Clearing out the morass of petty rules and the bureaucrats who write them won’t happen overnight. Entrenched special interests like the three-million federal workers know how to work the system to survive the occasional political upheaval.
But for the first time the country’s most successful entrepreneurs are coalescing around the problem and trying to address it. If they succeed it will be Time for Little Tech.
Is $HAWK, the meme coin launched by Hailey Welch, the “Hawk Tuah girl,” who became internet famous for a bawdy sex joke, a scam? X’s Community Notes declared it was stating, the “team” and insiders have actually been selling their tokens since launch . . . Hailey is lying and will have to “talk tuah” a judge about this.” YouTuber and crypto scam hunter CoffeeZilla asserted outright it was “rug pull.” Rolling Stone declared, “virtually nobody in the crypto industry” thinks it’s legitimate.
Looking into it, I expected to fully agree. But I’m not so sure.
At first blush it looks bad. Upon launch last week, $HAWK market cap exploded 900% to almost $500 million before quickly collapsing to $25 million and since rebounding slightly to $28 million. There is no doubt the team botched the optics. This has created the usual hysterics about SEC complaints, and lawyers itching to file class actions.
Step right up, get your lawsuits
Hawk Tuah scam? Maybe
In reviewing what’s publicly known, let’s start with the Tokenomics, as produced the project team, and assume it’s accurate.
Accordingly, only 17% of the tokens were distributed pre-launch to “insiders” or “strategic advisors.” This was a few million tokens and according to Welch, included no one from the “team.” These “insiders” comprised around 80 interconnected wallets. They sold at launch and profited between $10k and $360k. Who owns these wallets and what they did for the project are currently unknown. If Hailey or the team own these wallets or got kickbacks from them, then they are lying.
The project—through a Caymen Island foundation—also benefited from transaction fees, which were unusually high. In the X stream, the project team stated the high fees were there to deter “snipers.” These are buyers who quickly purchase huge amounts on the open market and then immediately sell for a profit. One sniper grabbed 17.5% of the open supply and then dumped it in 1.5 hours for a $1.3M profit. It appears most of the “pump and dump” occurred in this way although most media conflate the “insiders” and the “snipers.”
Hawk Tuah Scam? Maybe Not
If the majority of the profit went to “snipers” who bought the tokens on the open market and quickly sold them, and the project team took measures to prevent this (as they claim), it’s hard to see how this is a “rug pull.” According to the Tokenomics, Welch herself cannot sell any tokens for one year. Her lawyer states she received $125k to promote the tokens.
There is much we still don’t know. But the fallout has already included calls for an SEC crackdown on meme coins, running them through the dreaded Howey test, and throwing people in jail.
Kathryn Umi, a junior partner at crypto law firm OnChain Advisors said that if allegations were proven and the tokens were securities, then a list of potential legal violations may include inadequate disclosure charges, failing to register as a broker, unregistered broker-dealer activity, violations of the investment advisors act, and if the team failed to adhere to AML/KYC laws, they could also be charged under the Bank Secrecy Act and Patriot Act.
Good Lord.
This is exactly the wrong approach. Prosecuting fraud should be the extent the extent of the federal and state government’s crypto involvement, particularly for something as unserious as meme coins. As attorney Gregory Zerzan testified in 2022, the Federal Trade Commission Act (FTCA) already protects Americans unfair and deceitful practices, this surely applies to online activity.
If fraud did occur, the FTC should prosecute. But as Cointelegraph states “There is however no clear evidence of wrong-doing at this time.” And there actually may not be any. We should wait for the facts and leave Howey to the orange groves.
A prominent crypto professor and a former SEC lawyer discussed the digital-asset landscape in a recent Federalist Society webinar. President-elect Donald Trump’s victory ensures new blood and new policies with invade the staid commission.
In fact, Chair Gary Gensler, the crypto community’s Lord Voldemort, together with Native Ice Queen Elizabeth Warren have spent the past four years trying to subjugate the emerging industry into the Wall Street prison both prefer.
Once there, they can regulate it into oblivion if they don’t pay their political Dark Lords tribute in the form of campaign contributions, staffers-turned-lobbyists, and overall obeisance.
But something happened on crypto’s path to the pokey. Having defeated Lord Gensler and exiled Queen Warren, the upstarts are starting to explore their new fear-free lives. Attorney Wallace DeWitt and Professor JW Verret discussed what Crypto’s Brave New World may look like now that 2025 won’t be regulatory 1984.
This assumes the SEC will remain the federal agency that oversees crypto. It’s no secret the SEC and CFTC have battled to be the crypto regulator.
Conventional wisdom states the CFTC is more industry friendly, but Verret avers that may not be the case, given one CFTC commissioner’s insistence DeFi would have to include KYC rules. “I don’t know what KYCed DeFi is, but it’s not DeFi. You can’t have a Chief Compliance Officer to a decentralized protocol, that’s not a thing.” Indeed.
This also excludes the Federal Trade Commission, which as attorney Greg Zerzan stated in 2022 written House testimony already protects Americans from “unfair or deceptive acts or practices in or affecting commerce,” which would include Web3 activity. Thus the most hands-off approach would have the FTC prosecute hacks and rug pulls and leave the disclosure to the innovators and public.
Will the SEC oversee Crypto?
Assuming arguendo, the Gensler-less SEC gets the nod, then what? Verret, a veteran academic crypto advocate discussed various proposals that may await the newly composed board with a yet-to-be-named new chair.
Verret’s first fitting suggestion was to learn from the open-source ethos of blockchain development to open the process to the wizards heretofore sidelined under Lord Gensler.
This is apt on two counts. First given crypto’s technical properties: open source, permissionless, censorship resistant, and decentralized, allowing fresh ideas to infuse regulatory thinking suits.
Second, it would break from Lord Gensler’s insistence that entrepreneurs and their legal teams must fit crypto projects into factors created by an ancient Supreme Court case, which the SEC famously bungled further in 2019.
SEC Crypto Proposals
Some specific proposals the webinar discussed:
“Regulatory Sandbox” echoing Commissioner Hester Peirce’s idea. New projects would get a regulatory grace period for a certain number of years, whereby they would have the ability to sufficiently decentralize and escape SEC jurisdiction.
“Reg X” the brainchild of lawyers Gabe Shapiro and Sara Brennan. This proposal also includes a Safe Harbor but includes certain disclosures about token ownership, tokenomics, and other basic disclosures.
Exemptive Reliefs for DeFi and Air Drops, which acknowledge that protocols are code they are not publicly traded companies. Their governance and rules is available at all times for anyone to view. And that giving away tokens for free does not constitute a securities offering.
Inviting TradFi and CeFi into the space through ETFs and other financial instruments without as Gensler wanted and as Verret explained as his “nightmare” the “TradFi-zation of crypto. In other stripping crypto of its technical properties like decentralized and permissionless.
Verret also suggests regulators dive into cypherpunk philosophy. Read Timothy May, Vitalik Buterin, Satoshi Nakamoto, Gabe Shapiro, Zooko Wilcox, and Nick Szabo.
This may be the only chance to get crypto regulation right, the next four years may decide the future of individual financial sovereignty.
Amid stubborn inflation, economic uncertainty, habitual ‘Everything’s great!’ government pronouncements, one industry keeps building and growing: crypto. A new report by prominent venture capital firm Andreessen Horwitz, details how crypto keeps expanding its footprint beyond cypher punks and day traders into realms that spark innovation and aid the world’s poorest.
Some highlights from the report:
Crypto activity has hit an all-time high
In September, 220 million addresses interacted with a blockchain at least once, more than triple the end of 2023
Estimated 617 million estimated global crypto owners
Monthly mobile crypto wallet users hit an all-time high of 29 million
Low transaction fees have spurred this activity among a number of prominent Layer 1 blockchains. Ethereum and Solana continue to lead in development and energy, including a number of Layer 2 apps that work on top of Ethereum.
The State of Crypto 2025: The Rise of Stablecoins and DeFi
Two other important aspects of the crypto boom are stablecoins and decentralized finance (DeFi). Stablecoins have experienced a meteoric rise since Tether first emerged in 2014. Stablecoins are digital assets pegged to a stable monetary value almost exclusively the US dollar. They have become a critical pillar of the crypto ecosystem. As the report notes, “By enabling fast, cheap, global payments, among other uses, stablecoins have become one of crypto’s most obvious ‘killer apps.’” Indeed, the growth is astonishing. Stablecoin payments now dwarf Visa and PayPal and are starting to challenge ACH transfers.
But that’s just the start. Stablecoins are also starting to dollarize the global financial system—a phenomenon I wrote about in 2022, that benefits US citizens. But it’s not just Americans, by converting their holdings to stablecoins, the world’s poorest in places like Venezuela and Argentina can maintain their purchasing power despite central bank mismanagement of native currencies. (Of course, this assumes the US won’t follow these spendthrifts into oblivion.).
Decentralized Finance (DeFi) has been another remarkable story. DeFi opens the heretofore, esoteric, closed, rent-seeking banking industry. Ironically, much of crypto’s bad rap comes from fraudsters like Sam Bankman-Fried recentralizing and closing crypto functions that DeFi make transparent. Finance can now be open-source, permissionless, censorship resistant, and decentralized. Conducting banking activities can now take place through a digital wallet on a transparent platform without traditional finance (tradfi) say so or interference. Moreover, DeFi introduces new forms of finance like staking that allow ordinary people to earn rewards on their holdings. DeFi protocols now have $169 billion in value locked in, this number will keep growing. The sector is also attracting a huge chunk of programmer talent.
Crypto’s Future is Bright in 2025 and Beyond
Like the first internet bubble in 2000, the hype around crypto and Web3 has attracted scammers, embellishers, hackers, and more. But the core promise of this new technology remains. Whilst asset prices fluctuate and overhyped projects fail, the developers keep working and new users keep onboarding. Governments cracking down, afraid of losing population control through central bank policies, is the only way crypto can be stopped. Smart regulation and free innovation are the way forward.
Does ‘Ruin Get Crypto Right? Yes, Mostly (until the end)
Bloomberg has released, ‘Ruin,’ a documentary about the rise and fall of Sam Bankman-Fried and the bankrupt FTX crypto exchange. The former wunderkind “Crypto Fro” is on trial in New York for the stealing customer funds and using them to among other things, political campaigns and paying off pay sister company Alameda Research debts.
The program narrated mostly by Bloomberg reporters mixed in with sundry crypto players covers Bankman Fried’s rise from the privileged sire of Stanford law professors to Jane Street quant to crypto entrepreneur to the stars. Bankman-Fried’s carefully cultivated image as a devil-may-care do-gooder who played by his own rules, eschewed the trappings of wealth, and did everything for the greater good is aptly covered.
The documentary, though annoyingly overproduced, deftly reveals the disconnect between white hat image including his oft-highlighted Toyota Corolla and the reality of his multi-million Bahamas condo and private jet. In the process it exposes the ridiculousness of his “Effective Altruism” world view. For the blissfully unaware, Effective Altruism provides moral cover for people in tech to get rich as possible whilst ignoring rules and proper risk assessment for the distant promise to give away their wealth and save humanity. It’s a kissing cousin to ESG, the moral cudgel CEOs use to proclaim they shouldn’t be judged on shareholder performance because audiences laud them at international conferences for “saving the planet.”
Bankman-Fried and his merry band of altruists never gave away anything. They did, however, spend big on celebrity and political endorsements, and apparently tried to sway capital-markets nonprofits to increase exposure and sway regulators toward them and away from competitors. FTX collapsed before the latter goal came to fruition. (Bankman-Fried’s meetings with SEC Chair and fellow MIT-er Gary Gensler go unmentioned. They also have no criticism for FTX promoter Kevin O’Leary, “Mr. Wonderful” who assured the public based on his own due diligence that FTX was solid. CNBC was less deferential to Mr. O’Leary.)
‘Ruin’ gets crypto policy prescriptions wrong
Where the doc fails is with the attitude of Bloomberg itself towards crypto. Despite securing the Twitter handle @crypto, Bloomberg has consistently been anti-crypto. This makes sense given their position as an institutional organ for TradFi. A constant theme throughout the doc is crypto’s lack of regulation that makes it unsafe, dangerous. It’s inferred proper government policing could have saved this debacle.
This familiar view of finance is expected from Bloomberg even if it’s baseless. Regulations did not stop Bernie Madoff or any other scammer. Anyone thinking regulations stop fraud should visit the SEC’s website any random day and note how many of their most recent press releases involve enforcement actions against an alleged fraudster.
The beauty of crypto if it’s allowed flourish is that it can take away the element of human greed and the temptations that come from having access to boatloads of other people’s money. Indeed, DeFi can take out human management completely. Transactions can happen peer-to-peer based on permissionless, open-source code. The code, as the saying goes, is the law.
Crypto done right challenges TradFi
This is the real promise of crypto that Bloomberg doesn’t understand or care to learn. It’s not having the SEC approve a Bitcoin-ETF or BlackRock investing in a crypto fund. It’s eliminating the need for traditional finance altogether. Of course, this comes laden with its own issues, namely lurking hackers. But AI-based code auditing and insurance markets could alleviate much of that risk.
The best possible future is not to integrate crypto into the existing corrupt system run by human-beings with all their flaws and fallibility to temptation and moat building. It’s for people to be able to remove themselves from that system completely if they wish. But that would ‘Ruin’ Bloomberg’s TradFi worldview.
