Kyle Lawrence [00:00:02]:
Coinbase Perplexes. Senator Lummis introduces a new tax bill and Bitcoin with an all time high. Hell yeah. Coming up on Block and Order. Welcome to Block and Order, the show that delves into the legal side of all things digital assets. I'm your host, Kyle Lawrence and with me, as always, he's doubling as a producer tonight, Mr. Moish Peltz. I think you are up to the task and you're doing a phenomenal job, if I may say, thus far.

Moish Peltz [00:00:37]:
Oh, thank you.

Moish Peltz [00:00:39]:
Appreciate the kind words.

Kyle Lawrence [00:00:40]:
And we got to start with the big elephant in the room. Bitcoin, baby. All time highs. And, and it's still going bitcoin all time high.

Moish Peltz [00:00:49]:
Over the weekend, I think it hit $123,000. That's about the top. So here we are, July 14th. I'm sure it'll go even higher at some point, whether that's tomorrow or a year from now, you know, you know.

Kyle Lawrence [00:01:04]:
It's funny because I'm sure you have this too. Whenever I talk to people about it, and I'm not somebody who goes around espousing it and telling everybody they need to buy it and all that, but almost every time, no matter what the price is, people say, oh, it's too expensive, I'm not going to buy it now. But it just keeps going up.

Moish Peltz [00:01:21]:
So, yeah, look, I mean everyone, no matter how belligerent or how much they listen to Michael Saylor or don't listen to Michael Saylor, like everyone's in the black, like everyone's made money on bitcoin. There's a lot of people I think that feel like, well, like told you so.

Kyle Lawrence [00:01:42]:
And what could possibly go wrong? Nothing at all.

Moish Peltz [00:01:46]:
What could possibly go wrong? Can't imagine anything.

Kyle Lawrence [00:01:48]:
Exactly. Well, first up on the order, Moish, Robinhood and OpenAI. This is a really interesting one and reading about this is kind of fascinating. So Robinhood's so called stock tokens aren't actually tied to the shares. According to OpenAI, this could mean the traders who are buying misbranded paper and not equity. This of course is Robinhood's announcing that they're selling OpenAI and they have their new platform. But we're going to unpack why digital asset labeling matters now more than ever. So Moish, is this just a semantic argument? What's going to happen now that this sort of position, for lack of a better word, is out there?

Moish Peltz [00:02:29]:
Well, look, everyone's trying to tokenize everything, right? So tokenizing stock, I think in some respects is the holy grail of tokenization. It's like, well, if we can just put a tokenization layer over the stock market, then congratulations, we've upgraded the financial system, job done, we can all go home. Right? But I guess Robinhood announced for everyone except for US investors because, you know, we might as well be in Iran or something. Everyone else can buy OpenAI stock on the Robinhood platform, except as you mentioned, right, it's OpenAI said, actually we don't know what that is, but it's not our stock. So one, I think that's hilarious, but I mean, two, I think it's just the reality that OpenAI's saying, well, whatever, stock tokens, whatever you're tokenizing is not equivalent to actually holding equity in the company. So I don't know, Kyle, like, what does that mean when someone offers for sale something that isn't actually what it is purported to be?

Kyle Lawrence [00:03:31]:
I mean, that's a problem that faces regular and traditional markets, not just crypto as well. But it's interesting here that the focus of discussion is on kind of tokenized stocks. That's all you hear about these days. I was just listening to, I forget the guy's name, but Bankless just had an episode about this, tokenizing real world assets. And there are benefits to tokenizing stocks. They're still stocks.

Kyle Lawrence [00:03:55]:
It's just a different vehicle for delivering it as opposed to buying shares on the public market and going through a transfer agent and you know, going through all their rigmarole of removing stop legends and all that. Now you just go on a regular exchange like you would any other crypto asset. So there are benefits to this. It's just interesting that mislabeling it could somehow be viewed as some kind of securities law violation. You know, if we're saying that if you call it a stock, regulators need to treat it like that. But it's more the. The other way almost.

Kyle Lawrence [00:04:28]:
It's that if you say you're saying this is not stock, this is not securities, that to me that's where the problem comes in. Because if you're doing that, it's because you're trying not to fall into the purview of the securities laws. Right? So I think it's kind of the opposite approach.

Moish Peltz [00:04:41]:
This is where it gets confusing, because Robinhood is saying that it's tokenized stock. I mean, I don't know what they're, I guess we have to dive into the legal terms and conditions of what they're actually offering and what it looks like. But I mean, the SEC, who I guess Robinhood is saying they're not subject to the regulation of this particular product on, has also said, right, if you're, if you're tokenizing something that is an equity, it's a stock.

Kyle Lawrence [00:05:05]:
Yeah.

Moish Peltz [00:05:06]:
The securities rules that apply to that asset should be the same.

Kyle Lawrence [00:05:12]:
Yeah. I mean, it's worth noting that the tokens mimic the price of stocks, but there's no voting rights, dividends or legal ownership, which to me that's the real linchpin. I mean, you can buy stock in a company that doesn't necessarily have voting rights or any dividend rights. I mean, people do that all the time. But it's the lack of legal ownership that I think presents a sort of interesting avenue here into this. You know, how you analyze what is and what is not a stock, you know, when is a token a stock. And I think there's a lot of legal gray area here and, and a lot of it comes down to what we've chastised the SEC about all these years and saying, well, if the Howey test doesn't fit, they just go to the economic realities. And that's, that's kind of what this is.

Kyle Lawrence [00:05:52]:
If you just look at the totality of the circumstances. If it walks like a duck and talks like a duck, then guess what? It is interesting here.

Moish Peltz [00:06:00]:
Yeah. But I think there's weird components of this, including that OpenAI is. I forget what exactly what they call themselves, but it's a capped vehicle. It's a quasi non profit.

Kyle Lawrence [00:06:12]:
It's like a somewhat profit.

Moish Peltz [00:06:13]:
Yeah, it's a benefit company, but it's kind of not. And there's capped profits. But then you're right. I mean, do consumers really care if they have voting rights, if they have dividends, if they have legal ownership, so long as they have the proportionate financial ownership of the ad, as long as it has the financial exposure. I think most stock market like, like retail investors now, they don't care about all those other things.

Kyle Lawrence [00:06:40]:
I mean, look, generally people just want the number to go up and beyond that, they don't. I mean, what do they need voting rights for? You think the average person wants to vote on Robinhood's governance? I mean, or OpenAI's governance? They don't, they don't, they don't want that. Right. And they don't need it.

Moish Peltz [00:06:53]:
Yeah. So then I think it just gets down to what Robinhood's actually marketing and whether investors are feeling misled or not. I guess. I guess we'll see.

Kyle Lawrence [00:07:01]:
I guess we'll see.

Moish Peltz [00:07:03]:
All right. Well, the next topic up on the order is Cynthia Lummis's tax bill, which is crafting crypto tax clarity. Senator Cynthia Lummis introduced sweeping crypto tax reforms, clearing up past staking, mining, and personal transactions might be taxed in a future where this bill is actually passed. It targets real pain points. But, Kyle, does it go far enough?

Kyle Lawrence [00:07:29]:
I will maintain that she shunned me at Bitcoin 2025. I'm not going to let that go. That was her. I know she has like an Anna Wintour thing going on, but that was her putting that aside. And I don't know if you can hear the thunder raining down on me for saying that, but the bill exempts up to 600% of $600. $600, not 600%. See, it's the thunder.

Kyle Lawrence [00:07:54]:
Personal crypto transactions from capital gains tax, which I think is nothing new. And staking and mining rewards would be taxed at the time of sale, not on receipt, which aligns with how farming crops are typically taxed. I think it treats staking like farming income and gaming the system. But it provides much needed guidance. You know, we've been to a lot of these conferences, and the common thread is, what about staking? What about staking? So I think this is a good step.

Kyle Lawrence [00:08:21]:
As with all these things, it's a good step in the right direction. And I'm glad that Senator Lummis, with bipartisan support on the Hill, it seems, is going to try to push this through. She's the one to do it.

Moish Peltz [00:08:31]:
Yeah. I mean, we should talk about the idea that this week is actually crypto week in D.C. and I think we're going to see at least the passage of the Genius Act. Very, very stable. Genius Act.

Kyle Lawrence [00:08:46]:
It's a little stupid. I'm sorry.

Moish Peltz [00:08:49]:
Such a great name. So stupid. It's so stupid. It's actually kind of good. It's true. And then. And then I think the other. I mean, this tax bill is now kind of a little bit further.

Moish Peltz [00:08:58]:
I mean, there's a market structure bill that would be behind the Genius act, which I'm less confident will pass, but I guess we'll see this week. And then this would be kind of off on the horizon. A tax bill to provide, yeah, as you said, like, a little bit of clarity. One of the things I really like was the deferral of token trades with a like, kind crypto swap type transaction. And well, 1031 for crypto. If I can swap my Bitcoin into Ethereum and then back into Bitcoin or do other defi transactions without having capital gains like that's just going to unlock so much ecosystem activity.

Moish Peltz [00:09:34]:
I think there's a lot of people that are stuck in one asset because there's just so much capital gain.

Kyle Lawrence [00:09:40]:
Sure.

Moish Peltz [00:09:40]:
They don't want exposure to so they can't make that kind of swap.

Kyle Lawrence [00:09:43]:
Not just the people who are stuck in one asset. But I mean we've talked to accountants who have had these problems where you have very active traders and they're just moving assets back and forth, sometimes hundred times per day. A lot of it is programmatic, they're not even doing it. So they hand their accountant 200,000 transactions for them to sift through and they get this crazy tax bill when they have a couple thousand dollars worth of gain. This to me is a no brainer. And this to me I'm glad to see them getting in front of that because that just made no sense. I don't care how you feel about whether these things should or should not be taxed. That's stupid.

Kyle Lawrence [00:10:15]:
And I'm glad to see that there's some forward progress on that front.

Moish Peltz [00:10:19]:
Yeah, I think that's right. No matter what. There just needs to be more clarity. Even if it doesn't come with all the bells and whistles that the industry wants, at least there's like rules of the road even if we can disagree with them or evolve them over time.

Kyle Lawrence [00:10:34]:
Don't let perfect be the enemy of the good. Up next, Coinbase teams with Perplexity AI to deliver real time crypto market data in a chat style format. It's supposed to democratize insight. So is this the analogous to a Bloomberg terminal? Interface will integrate live order book info, token volumes, price changes and this partnership offers a free for now conversational alternative to expensive analytics platforms. You know Moish, you know, what do you think? I thought they kind of had this already, but I guess they didn't. Shows you what I know.

Moish Peltz [00:11:04]:
Well, I think Perplexity has over the past few months really expanded their platform to include a lot of financial data and allow people to really quickly generate like really astounding financial insights with using real time market data. Just not specific necessarily to crypto. It's just a more general product and I think the idea is this would sit on top of and embedded within the Coinbase product. And so you have kind of the best of both worlds at least as it's pitched where you have a Coinbase trading experience and you have a perplexity financial AI, democratized data system, real time insights into whatever's happening in the crypto market, you would think for consumers is really powerful levels of playing fields against Jane street or whoever else. Is Institutional capital gaming the system?

Kyle Lawrence [00:11:58]:
Well, yeah, if the information is right. I mean, we, you know, we have to assume that it is and I mean, a lot of times we do research and the AI gives us some great information and then we get down to the third topic and it's a completely made up case or made up fact pattern. So, you know, I guess it's worth keeping an eye on. But is this for the regular exchange or is this only for Coinbase One members?

Moish Peltz [00:12:20]:
I don't know who it's supposed to be unveiled to. I haven't seen it in my trading experience yet. But you know, look, I think it's one of these things that this is like Coinbase trying to be a infrastructure cloud provider competing with Google, Bloomberg, you know, other AI products. I just love the intersection of crypto and AI and a lot of those are like blockchains that are offering like. But I think actually a consumer product that combines both of them is pretty interesting.

Kyle Lawrence [00:12:55]:
Yeah, Coinbase is. I applaud them for trying to expand their reach and expand their horizons, especially as crypto regulation moves forward in the United States. Finally, you know, Coinbase is obviously well positioned to broaden their horizons a little bit. So, you know, this is certainly worthwhile. But, you know, I feel like Kraken and the other exchanges also offer things like this, you know, Gemini, I believe does. So, I mean, are they catching up or, I don't know, like, where do they land on the spectrum of the, of the exchanges here?

Moish Peltz [00:13:26]:
Now, I don't know if one of our listeners knows which other exchanges have implemented which levels of AI inside the trading experience. I'd love to hear that. I mean, I've been using Perplexity for a while. I think it's a really cool product because it lets you try out a bunch of different models all at the same time. And a lot of the financial tools are really cool.

Kyle Lawrence [00:13:48]:
Weren't you wearing the shirt a couple episodes ago? The Perplexity shirt? I remember.

Moish Peltz [00:13:52]:
I have, I have some Perplexity merch.

Kyle Lawrence [00:13:54]:
We'll flash that up on the screen.

Moish Peltz [00:13:55]:
That's cool. Yeah, I'll put it, put it right here. And yeah, I think, I think if you're a Perplexity subscriber, you can actually get discount merch. So just pro Protip.

Kyle Lawrence [00:14:04]:
There you go. Hey, listen, discount, merch me up.

Moish Peltz [00:14:06]:
All right, well, next topic up is Tornado Cash. So the treasury has quietly dropped its appeal in the Tornado Cash sanctions case. But, Kyle, does this signal a retreat or tactical repositioning in the broader crypto privacy war? Also just mentioned, the backdrop of this is Roman Storm's case, I believe, is starting today, this Monday, this the 14th of July, in New York. So there's a bunch going on the Tornado cache ecosystem.

Kyle Lawrence [00:14:41]:
Well, it's interesting here. You know, the decision effectively ends the lawsuit challenging the treasury sanctions. The treasury had voluntarily withdrew its appeal in the case of crypto investor plaintiffs. And as we've talked about in the past, you know, the SEC and the DOJ and the other regulatory bodies just dropping these cases, it's great in a vacuum, but it doesn't change the enforcement precedent. We're still kind of in the same weird lane that we were a couple months ago prior to the inauguration, where, you know, privacy tools still operate in these legal gray zones. And it's great for Tornado Cash and it's great for its investors, but for us, and trying to figure out what the next step is and how to advise people and how to tell people this is how you need to be set up. You're almost back to square one.

Kyle Lawrence [00:15:27]:
Yes, there's a more favorable administration and regulation is coming, but we're still in the same boat that we were in last year. It's kind of crazy to think of it that way, actually.

Moish Peltz [00:15:36]:
Well, I do think this has pushed the boundary a bit. I do think that there was a ruling, right, that the Tornado Cash Smart contract was not really a property, was not really, quote, unquote, property that could be sanctioned as such. And I think it does create a bit more of this privacy first technology deserving space where people can push, continue to push the boundaries. Now, there obviously are very, very severe consequences to not getting it right. That hasn't changed. I agree. But I think. I think the idea that this OFAC sanction kind of just gets reversed and then treasury has to drop its appeal and, like, here we go.

Moish Peltz [00:16:28]:
Does kind of put us at a new state of play.

Kyle Lawrence [00:16:31]:
Well, and Also, you know, OFAC had sanctioned tornado cash in 2022 for. And alleging that they were being used by North Korean hackers. Is that not the case anymore or are they just dropping the case? Like, what happened there?

Moish Peltz [00:16:42]:
No, I mean, they're still being. Of course they're still being used. So, like, yeah, the problem for the government doesn't go away. They still have to figure out a way to not allow North Korean hackers to get tons of crypto cleared into a bank account. So they're still preventing laundering of money. They just can't do it in a way that sanctions tech developers. Really. I mean, that seems like a good outcome, like, try harder government. Do it in a more creative way.

Moish Peltz [00:17:12]:
We know that takes a tool out of your tool belt, but there's a reason you can't use that tool. It's because there's. There has to be preservation of privacy.

Kyle Lawrence [00:17:20]:
Yeah, I mean, I guess that's fair. I don't really have a valid counter to that other than I would like to see the North Korean hackers get squeezed. But yeah, I guess you can't have everything. The only perfect be the enemy of the good once again.

Moish Peltz [00:17:32]:
No, I think, I think everyone on all sides of this, like, doesn't want to see North Korea, like be funded because of crypto. It's not good for crypto industry to have that be the headline. Right? So there needs to be a, you know, the industry also needs to figure out, like, okay, what else can we do to make sure that these tools are not being used for purposes that most, I think, civilized people agree, shouldn't be used for? So that doesn't get rid of the problem.

Kyle Lawrence [00:18:00]:
Kick the can down the road. Last up, Celsius Network and Celsius Network Ltd. The bankrupt crypto lender sued Tether Ltd. And its affiliates, alleging the Tether improperly demanded and seized collateral nearly 40,000 BTC, worth over 800 million at the time, a couple years ago, violating their lending agreement and defrauding Celsius. The suit arises from events leading to Celsius's 2022 bankruptcy. Tether moved to dismiss the complaint, claiming lack of jurisdiction and failure to state a claim. They're set up in the BVI in Hong Kong and they're claiming, oh, we're not a US Company, we're not subject to US law. More on that later.

Kyle Lawrence [00:18:33]:
The bankruptcy court, in a recent decision, allowed much of the case to proceed, including the preference and fraudulent transfer claims, while partially dismissing account for breach of good faith under BVI law. Moish, why are we talking about a bankruptcy court decision here? What's going on?

Moish Peltz [00:18:50]:
Well, look, there's a lot of lawsuits in the cryptocurrency ecosystem that because of the new administration, for good reason, have been dismissed. The Tether versus Celsius case is not one of those. And the Celsius bankruptcy case continues to proceed independent of anything else going on in the world. Basically it's its own universe of which there's a lot going on. Now the reason we're talking about it I think today is because the 40,000 bitcoin that Tether took and that Celsius alleges they improperly took and retained is now worth over $4 billion. And tether had moved to dismiss the claims, as you mentioned. Right.

Moish Peltz [00:19:33]:
Both on the idea that they were a foreign company incorporated in BVI in Hong Kong and that there should be no US jurisdiction as you mentioned. Right. The bankruptcy court Judge Glenn found that there actually was sufficient US activity, including their dealings with US based Celsius staff and their US bank accounts to proceed. So they're going to be subject to jurisdiction in the US and then on the merits of the dispute, the lawsuit also most of the claims survived dismissal and will be at issue at trial in, in the bankruptcy case. So, so here we are talking about whether Celsius can effectively claw back $4 billion from Tether. For Tether, it probably doesn't matter. I think $4 billion is like a drop in the bucket to them essentially. It's like seven minutes of profit. To the Celsius estate, it does matter.

Moish Peltz [00:20:28]:
And you know, that, that could really, you know, move the needle in terms of whether the creditors in that case see a windfall or just like some of their money back.

Kyle Lawrence [00:20:39]:
The thunder is insane. I can't believe you can't hear it. But there's a salient lesson in here, Moish, and it's something that we've talked about with our clients and people that we've met on the road. There was this common belief that if you just set yourself up in the bvi, even though you had US employees, US investors, you were relying on US markets and trying to, you know, use the secure and safe banking rules that we have to better yourself that you were not subject to US law. That is not true. And this case illustrates that as well as anything else. And I, people would look at me like I was crazy when, you know, when I would tell them that. So here you go, everybody.

Moish Peltz [00:21:17]:
Well, and that's, and that's the other point, right, is even if you think you've insulated yourself in the commercial sense, like there's just, there's so many areas of the law, like, oh, who would have thought that the bankruptcy law was the one that was going to rope Tether in, in someone else's bankruptcy? Like it's not like Tether went bankrupt, right? One of their commercial vendors and like, hey, give us $4 billion. Like, no, thanks. We're not in the U.S. no, no, seriously, you still have to do it, so. You're exactly right. It's, it's, it's not just like, hey, let's set up shop elsewhere and we don't have to worry about the U.S. that's not how it works.

Kyle Lawrence [00:21:53]:
Like, the IRS got Al Capone. They didn't get him for murder. They got him for tax evasion. You got to start somewhere. Listen.

Moish Peltz [00:22:00]:
Well, here we are 2022, it's now 2025. We'll see when and if Tether actually has to give back $4 billion. Over under 2027.

Kyle Lawrence [00:22:14]:
I'll take the over. Thank you for joining us on this very special episode of Block and Order with producer Moish. I love not going to get used to saying that. Don't forget to like and subscribe to our channel. And if you have any requests for information or things that you want to cover, please comment down below. We take it very seriously. Please note that this show is meant for informational and entertainment purposes only. Nothing that we talk about here is meant to be construed as legal and or financial advice.

Kyle Lawrence [00:22:40]:
Please hire your own representatives if you're going to take the plunge. Neither the discussion of nor the fact that Moish and I may own any of the assets that we discussed is meant to serve as an endorsement of such assets. Very special thank you to producer Moish. Without him, the show would not be possible. So on behalf of producer Moish, I'm Kyle Lawrence.

Moish Peltz [00:22:58]:
Thank you.

Kyle Lawrence [00:22:58]:
Take care, y'. All.

Moish Peltz [00:22:59]:
See you all next time.