The X-Factor | Week 3: The Responsibility of Power

[00:00:04] [SPEAKER_01] Welcome to the X-Factor with the Crypto Hipster, where we look beyond the headlines to examine the institutions, technologies and decisions shaping the future of our financial world. My name is Jamil Hasan, this is week three of the revamped, revised, re-brought back to you, X-Factor.

[00:00:29] [SPEAKER_01] And I'm looking forward to this new, this bring back, this call back, this new direction that we're headed. Because there's a recurring question that's running through those ten stories that we're examining each and every week, especially this week. And it is not whether Bitcoin is going up or it is going down.

[00:00:57] [SPEAKER_01] Or whether Ethereum is outperforming the market, or which crypto might become the next big thing. It's not about elections. Bad elections this week, but it's about, it's a question about power.

[00:01:18] [SPEAKER_01] More specifically, what happens when an institution acquires the power to make decisions that affect millions of people? But the consequences of those decisions extend far beyond the institution itself.

[00:01:38] [SPEAKER_01] So we see that question playing out in cryptocurrency exchanges, in government regulatory agencies, international financial organizations, as well as decentralized blockchain networks. No one's exempt.

[00:02:03] [SPEAKER_01] We see it when a government accuses another government of orchestrating a massive cyber attack. We see it when sophisticated security systems are compromised through something as ordinary as a fraudulent job interview. And we see it when regulators establish rules that determine who can and who cannot participate in financial markets.

[00:02:33] [SPEAKER_01] What products they can access, and what happens when the rules change. And we see it when they're in the future of Ethereum, where developers are preparing for technological threats that may not become fully apparent until years from now.

[00:02:58] [SPEAKER_01] The common thread underlying everything is responsibility. Responsibility. Responsibility, because having the authority to make a decision is not the same as accepting responsibility for its consequences.

[00:03:18] [SPEAKER_01] And possessing technology to operate a financial system is not the same as earning the trust required to sustain it. So this week we will examine 10 developments through four institutional lenses. The four lenses that I put forward in my book, The Lambs Lie Down.

[00:03:43] [SPEAKER_01] Trust, protection, consensus, and stewardship. Also, my book, Inheriting Saturn is all about stewardship. Not just the need to have stewardship, but stewardship as a system. I think I was one of the first people to ever do that, by the way. We'll begin with the question of who gets to establish the truth.

[00:04:11] [SPEAKER_01] We'll move into the responsibilities of institutions charged with protecting financial assets. We will examine how governments and regulators attempt to establish common rules across an increasingly fragmented global economy.

[00:04:29] [SPEAKER_01] And we will conclude by asking what responsible stewardship actually looks like when institutional decisions affect the opportunities and freedom, freedom's, because we have more than one freedom, of regular ordinary people like you and me.

[00:04:50] [SPEAKER_00] So let's begin. Act one is trust.

[00:05:01] [SPEAKER_01] Who establishes the truth? First article is North Korea has denied responsibility for the Binance hack. While the rest of the world is blame traitor, traitor out of North Korea. Let's talk about this and let's go to where one of the most difficult questions in international finance is.

[00:05:31] [SPEAKER_01] How do we establish accountability when the accused refuses to recognize the authority of the investigator? North Korea has denied allegations connecting it to reported $6.3 billion finance cryptocurrency theft. While directing accusations toward the United States.

[00:06:01] [SPEAKER_01] American investigators have attributed the attack to North Korean linked cyber criminal activity. While blockchain analytics firms have examined transaction patterns and movements of the stolen assets. But there is an important distinction here going on.

[00:06:22] [SPEAKER_01] Again, tracing cryptocurrency through a blockchain is not the same thing as establishing, beyond a reasonable doubt, which government or individual controlled the wallets involved. Blockchain records can provide a detailed account of transactions. Investigators can follow funds, identify patterns and examine relationships beyond, between addresses, right?

[00:06:51] [SPEAKER_01] But attributing those transactions to specific people, or in this case, state sponsored organizations requires additional evidence. And, you know, that is where, you know, the institutional question becomes very interesting.

[00:07:21] [SPEAKER_01] The U.S. can announce its investigative conclusions, right? And North Korea can reject those conclusions, and they have. Independent researchers can publish their own findings. But none of those statements, simply by virtue, settles the question of responsibility. The strength of attribution depends on the evidence supporting it.

[00:07:52] [SPEAKER_01] So, we have to distinguish between a denial and a rebuttal, right? Denying an allegation is not the same as disproving the evidence behind it. For the crypto industry, the implications extend far beyond this particular investigation.

[00:08:08] [SPEAKER_01] If blotching technology is supposed to improve transparency and accountability, then the institutions interpreting blotching and evidence must also be accountable for their conclusions. Otherwise, transparency simply risks becoming another form of institutional authority rather than a mechanism for testing that authority.

[00:08:37] [SPEAKER_01] And that brings me to the first question of the week. Let me know your thoughts. There's a common phrase you had heard on my first rendition of the X Factor. So let me know your thoughts. When governments disagree about responsibility for financial crime, who should have the authority to establish the truth?

[00:09:00] [SPEAKER_01] And what evidence should the public demand before accepting that conclusion?

[00:09:18] [SPEAKER_00] Act two is protection.

[00:09:20] [SPEAKER_01] Protection is often discussed as a technical responsibility. We imagine stronger encryption, right? Better passwords, more sophisticated monitoring, and increasingly powerful cybersecurity tools. But the next three stories demonstrate that protection is also an organizational responsibility.

[00:09:46] [SPEAKER_01] It involves people, incentives, communication, and the willingness to anticipate problems that way before they become disasters. We're going to stay on this thread of North Korea and Binance because Binance's fake job interviews and compromised AI tools are next topic. So we're not looking at who carried out the attack.

[00:10:17] [SPEAKER_01] We're examining how it allegedly happened. According to Binance's investigation, the October 29th theft of approximately $6.3 billion, the largest in crypto history, was the culmination of a campaign that began months earlier.

[00:10:39] [SPEAKER_01] In June, an engineer reportedly downloaded a compromised software package while setting up an artificial intelligence coding tool. Binance detected the malware and replaced the affected computer. But the attackers allegedly obtained information about the exchange's wallet operations.

[00:11:05] [SPEAKER_01] Then, in September, another engineer encountered what appeared to be a legitimate recruitment opportunity. The supposed employer provided a coding assignment. That assignment was malicious. By October, according to Binance's account, the attackers had exploited compromised systems and stolen credentials to penetrate wallet infrastructure.

[00:11:31] [SPEAKER_01] The eventual result was one of the largest cryptocurrency thefts in history. Consider what that sequence tells us. And I know this happens because I, too, was once sent a link to join a job interview. And I feel comfortable with that link because it asked me to paste it into my command prompt.

[00:12:00] [SPEAKER_01] Anyway, it wasn't a real interview. It was a scammer disguising himself as an interviewer. And the interview didn't happen because I didn't put the code in my command center. But that command center code could have wiped out my wallets. So I put that as a context first. So let's talk about what the sequence tells us about Binance.

[00:12:29] [SPEAKER_01] The attackers did not need to defeat the mathematical foundations of blockchain technology. That wasn't necessary. Quantum's going to do that. Maybe they allegedly exploited ordinary workplace activities. Someone installed the software. Someone participated in that job interview. Job interview. Job interview. Someone trusted a professional interaction that appeared legitimate.

[00:13:00] [SPEAKER_01] And these are activities that happen in technology companies every single day. And not just technology companies, but any company. And that's the institutional vulnerability. An organization can spend enormous, enormous, enormous amounts of money protecting its infrastructure or remaining exposed to the people who are authorized to operate it.

[00:13:27] [SPEAKER_01] But we shouldn't confuse this observation with blaming individual employees. The purpose of institutional security is to anticipate that people will occasionally make mistakes. A properly designed system should limit the consequences of those mistakes.

[00:13:48] [SPEAKER_01] It should prevent a compromised employee's computer from becoming a pathway to unrestricted financial authority. Like how? Like that just makes common sense. Right? It should establish boundaries between ordinary development activities and critical asset infrastructure. And it should recognize that attackers will exploit trust wherever they can find it. Wherever they can attack it, they'll find it. Right?

[00:14:19] [SPEAKER_01] AI adds another dimension because developers increasingly rely on tools, packages, and automated systems they may not fully understand. Especially behind the scenes. The question isn't whether AI is inherently dangerous. Everybody's going to have their own unique opinion on that.

[00:14:43] [SPEAKER_01] It's whether institutions are adapting their security packages and practices to the tools their employees actually use. So, here's my next let me know your thoughts.

[00:14:57] [SPEAKER_01] If a multi-billion dollar financial institution can be compromised through an apparently ordinary job interview, are we investing enough money and resources in the human dimensions of cybersecurity and not just the technical dimensions?

[00:15:23] [SPEAKER_00] Let me know your thoughts. Three, I haven't been on Twitter in a long time.

[00:15:33] [SPEAKER_01] I shut my account down July 1st, 2026 at 12.01am. But one of the people I used to follow on that site, whose name is ZachXBT. So, let's talk about Zach. ZachXBT and the alleged $133 million European cryptocurrency theft. It's not quite on the scale of Binance theft. It's still theft.

[00:16:03] [SPEAKER_01] So, it concerns a suspected cryptocurrency theft of an unidentified European entity. Blockchain investigator Zach, who, quality work by the way, very strong work. He initially identified approximately $106 million in suspicious activity before increasing his estimate after discovering additional transactions.

[00:16:31] [SPEAKER_01] He also raised concerns that the affected institutions might be concealing the incident. That's a no-no. Now, we need to be careful about accusations. The identity of the alleged victim has not been independently established. And the allegation of a cover-up remains unverified.

[00:16:57] [SPEAKER_01] We cannot treat suspicion as proof. What has been reported is that Kraken restricted accounts associated with the suspected theft and began cooperating with law enforcement. Crypto.com is also reported taking steps to block related funds. Kraken specifically stated that its own system and customer service accounts or customer accounts, not customer service accounts, not customer service accounts, not customer service anymore.

[00:17:28] [SPEAKER_01] I'll tell you stories about companies that lack customer service. Customer accounts were not compromised. That distinction matters because an exchange through which stolen funds travel is not necessarily the institution from which those funds were stolen. It just cleans them a bit. But beyond the investigation, there's an important question about the responsibilities of financial institutions when security incidents occur.

[00:17:59] [SPEAKER_01] Okay, imagine that an organization discovers evidence suggesting that its systems may have been compromised. Its executives face several competing pressures, don't they? They need to establish what happened. They need to protect remaining assets. They need to cooperate with the investigators. And they also need to notify customers and regulators. Customer service.

[00:18:27] [SPEAKER_01] Proactive customer service. Oh, that ain't going to happen, right? Is it? And, you know, they must consider that possibility that premature disclosure could spread inaccurate information or interfere with recovery efforts or cause panic. And you don't want to have panic when you're trying to do some diligence, do some research.

[00:18:51] [SPEAKER_01] At the same time, you know, unnecessary secrecy can prevent customers and other institutions from taking protective action. It's a balance. So, responsible disclosure, therefore, requires judgment. It isn't necessarily much about, you know, announcing that every suspicion immediately.

[00:19:15] [SPEAKER_01] It's about establishing clear obligations, documenting decisions, and communicating material information about when doing so becomes necessary. And determining when that moment that is necessary happens. Judgment. The institution's reputation is important, right?

[00:19:42] [SPEAKER_01] But the reputation alone cannot become a substitute for accountability. In fact, an institution that responds transparently and competently to a breach may ultimately demonstrate more credibility than one claims to be invulnerable. No security system is perfect.

[00:20:12] No security system is perfect.

[00:20:13] [SPEAKER_01] What matters is how an institution behaves when its protection fails. And so, let me know your thoughts. When a financial institution discovers a possible breach, how should it balance the need for accurate investigation against the public's right to timely information?

[00:20:36] [SPEAKER_00] I want to know. I want to know. Let me know what you think. Ethereum. Number four.

[00:20:51] [SPEAKER_01] Ethereum's post-quantive and post-AI transition, which they're gearing up for, it's going to be years away, but they're doing it now. So, we're going away from security failures that have already occurred and toward threats that will emerge years from now.

[00:21:12] [SPEAKER_01] Ethereum researcher Justin Drake has expressed the hope that Ethereum can complete its post-quantum and post-AI transitions by December, 2028. Two years from now. A little over two years from now. The important word there, the big word is hope. Hope. That's an ambitious objective, not a guaranteed deadline.

[00:21:40] [SPEAKER_01] And hope is that when Pandora opened her box, or I forget the exact mythology story that Pandora's box was opened, all the evil came flying out. Despair, fear, greed, all these things came out of the box. And the one little thing that was left in the bottom, the very, very, very bottom, wasn't completely empty. It was the little thing left at the bottom of the box. That little thing was hope.

[00:22:12] [SPEAKER_01] Hope remained. The Ethereum Foundation's longer term quantum resistance roadmap has been identified, has identified 20, December 2029, not 2028 as its target. Developers are attempting to prepare Ethereum for a technological environment in which advances in quantum computing could threaten some of the cryptographic methods that are used today.

[00:22:42] [SPEAKER_01] The transition also involves broader questions about how AI may change the security landscape. But quantum computing and AI are different technologies with different capabilities and different threats. We should not combine them into a single imaginary danger and lump them both as hope.

[00:23:07] [SPEAKER_01] And we should not suggest that Ethereum's cryptography has already been broken. I could give you a lecture on, I might be wrong though, on Shure's, Grover's, you know, algorithms. But crypto systems don't depend on my lecture, I mean my description.

[00:23:33] [SPEAKER_01] It is to depend on mathematical assumptions and some assumptions could become vulnerable if sufficiently capable quantum computers are developed. Possible. Replacing crypto infrastructure across a decentralized network is not as simple as updating an application on a smartphone.

[00:23:55] [SPEAKER_01] I think that some applications on a smartphone would be more, that are non-crypto related, would be much more at risk. But developers must design new methods regardless. Test them. Secure agreement around upgrades. And consider how existing wallets and assets will migrate once they make that changes happen.

[00:24:25] [SPEAKER_01] And this introduces a fascinating stewardship problem within our protection framework. Who is responsible for preparing a decentralized network for a threat that has not yet arrived? There is no single executive who can order every participant to upgrade. There is no universal administrator who can guarantee that every wallet owner will take the necessary precautions.

[00:24:56] [SPEAKER_01] The system depends on cooperation among developers, validators, infrastructure providers, application builders, users, everybody. The greatest challenge may therefore be organizational rather than purely mathematical.

[00:25:17] [SPEAKER_01] Ethereum has to coordinate protection across a network whose participants have different incentives, different resources, and different levels of technical understanding. Not everybody has the same level of understanding. And the closer a future threat becomes, the more difficult that coordination may become as well. So let me know your thoughts.

[00:25:42] [SPEAKER_01] Should decentralized networks begin making potentially disruptive security changes years before a threat becomes practical? Or should they wait until the technology and risks are better understood?

[00:26:02] [SPEAKER_00] Those are two very different things. We're headed into Act 3.

[00:26:12] [SPEAKER_01] Act 3 is we've examined the challenges of establishing the truth and the responsibility to protect financial systems. And now we turn to consensus. Consensus is not simply about everyone agreeing. You think it is. You'd like it to be. Consensus, let's all agree. Well, in institutional terms.

[00:26:34] [SPEAKER_01] It concerns how independent participants establish rules, recognize obligations, and cooperate when their interests differ. And the next three stories demonstrate just how complicated that becomes when financial technology crosses national boundaries. Story five. The FATF. The FATF.

[00:27:03] [SPEAKER_01] The FATF targets gaps in global cryptocurrency compliance. The FATF, don't confuse FATF with FAT Albert. The Financial Action Task Force is preparing targeted reviews of jurisdictions with significant cryptocurrency activity. The objective is to examine whether governments are actually enforcing the anti-money laundering standards they have agreed to adopt.

[00:27:31] [SPEAKER_01] And the distinction between adopting a rule and enforcing it is central to this story. According to FATF's reporting, many jurisdictions have introduced legislation implementing the travel rule. I've had podcasts talking to people about the travel rule. If you want more information, please research on the Crypto Hipster podcast.

[00:27:59] [SPEAKER_01] Search on travel rule. Because the travel rule requires certain information to accompany qualifying virtual asset providers and transfers. Right? But a substantial number have taken little or no supervisory or enforcement action concerning compliance.

[00:28:19] [SPEAKER_01] The Financial Action Task Force targeted review will examine jurisdictions with materially important value asset service provider activity. With initial findings expected in June 2027. I am so looking forward to that report. Because I have a vested interest. Not that I travel anymore right now.

[00:28:46] [SPEAKER_01] But that I want to see if the people I talked to in the past were right. And I suggest check out some of those podcasts. Now, consider the institutional problem, right? Governments can agree that financial crimes should be prevented. They can also endorse international standards, right? They can pass legislation incorporating standards into domestic law.

[00:29:12] [SPEAKER_01] But none of those actions guarantees that the rules are being followed. Enforcement requires trained supervisors, technical capabilities, cooperation with financial institutions, and the willingness to act when violations occur. All four are very important. And jurisdictions do not possess, they don't have the same identical resources.

[00:29:40] [SPEAKER_01] Some have sophisticated financial regulators and established compliance infrastructure. And others are still developing those capabilities and that expertise. The result? A global system in which formal agreement can coexist with inconsistent implementation. For crypto, that matters because transactions do not necessarily remain with the jurisdiction where they originate. We saw that earlier.

[00:30:10] [SPEAKER_01] An exchange operating under strict supervision may interact with counterparties in countries applying different standards. It's a problem. A financial criminal may discover and exploit those differences. But there's another side to this discussion as well.

[00:30:30] [SPEAKER_01] That international standards must also respect legitimate privacy concerns, operational reality, and the costs that are imposed on smaller businesses. More regulation does not automatically produce better enforcement. You can write it down in law, but you need to have the people who can apply that law, right? And better enforcement does not necessarily require identical regulatory structures everywhere in the world.

[00:30:59] [SPEAKER_01] The challenge is developing standards that are effective, proportionate, and capable of being implemented across different legal systems. So let me know your thoughts. If governments agree on international financial rules but enforce them inconsistently, have they achieved meaningful consensus or merely created the appearance of cooperation?

[00:31:31] [SPEAKER_00] Article 6.

[00:31:33] [SPEAKER_01] Moscow exchange plans cryptocurrency trading out of Russia. Let's talk about crypto in Russia. Let's talk about crypto in Russia because we haven't talked about crypto in Russia for quite some time. The Moscow exchange has announced plans to introduce trading in Bitcoin, Ethereum, and USDT, Tether, beginning December 1st.

[00:31:58] [SPEAKER_01] The proposed market will use existing exchange infrastructure with clearing through the National Clearing Center. Non-qualified investors will face restrictions, including a knowledge test. That's good. It's good. Knowledge test, all in favor of that. And an annual cryptocurrency purchase limit of 300,000 rubles per broker. I don't know what that is in dollar terms, and I'm not going to guess, and I didn't look it up.

[00:32:28] [SPEAKER_01] So we have to assume it's small, but I don't know. Russia's framework permits regulated cryptocurrency trading while maintaining restrictions on using crypto to pay for domestic goods and services.

[00:32:44] [SPEAKER_00] Hmm.

[00:32:45] [SPEAKER_01] Okay. And there's another complication as well. The Moscow exchange operates under Western financial sanctions. This is why we don't talk about them. This creates a very interesting contradiction with the broader cryptocurrency ecosystem. Bitcoin and Ethereum were designed to operate across national boundaries. The underlying networks do not require governments to agree on a common foreign policy.

[00:33:13] [SPEAKER_01] But the institutions through which people access these assets remain subject to national law. Sanctions, licensing requirements, and in Russia's case, financial restrictions. A crypto transaction may be technically possible while the institutions facilitating that transaction face legal prohibition.

[00:33:40] [SPEAKER_01] And establishing a domestic trading venue does not automatically resolve those restrictions. What does that mean? It means Russia may develop its own regulated cryptocurrency market, but it doesn't mean international institutions will be legally permitted or commercially willing to participate.

[00:34:03] [SPEAKER_01] I think the latter is more likely they're not commercially willing to participate. Right? So, nor does the existence of a regulated market establish that sanctions concerns have disappeared either. The larger issue is the difference between technological interoperability and institutional consensus.

[00:34:30] [SPEAKER_01] Two countries can use the same blockchain while disagreeing fundamentally about the legal status of transactions involving their citizens or financial institutions. And that raises a difficult question for the future of global finance, doesn't it? Does the existence of shared technology make international cooperation easier? Or does it simply reveal how deeply divided national financial systems are?

[00:34:59] [SPEAKER_01] We should also remember that domestic regulation can serve multiple purposes, including consumer protection, market development, financial surveillance, which everybody's afraid of, and national economic strategy. Those purposes are not always aligned and not aligned by nation. Let me know your thoughts.

[00:35:44] [SPEAKER_00] Article 7. Article 7.

[00:35:58] [SPEAKER_01] CFTC opens the door to equity perpetual futures. And that brings us back to the US, right? Where an instrument popularized in crypto markets is entering TRAFI. When, in which case, when you say TRAFI, my Wednesday show has a different name, Pop-Tart. But I digress.

[00:36:24] [SPEAKER_01] The Commodity Futures Trading Commission has announced that perpetual futures tied to individual stocks can be offered on approximately or appropriately registered American exchanges. Perpetual futures allow traders to gain exposure to an asset's price without owning the underlying asset, right? Or holding a contract with a conventional expiration date. These instruments become particularly prominent in crypto markets.

[00:36:55] [SPEAKER_01] American regulators are establishing a pathway for similar products involving equities. According to the CFTC, qualified exchanges must possess the necessary regulations under both the CFTC and the SEC. Securities Exchange Commission, right? The decision has also generated legal opposition from established market participants. Who would have thought that?

[00:37:22] [SPEAKER_01] But this is where the story becomes a little more interesting than just the launch of another financial product. For years, the crypto industry has been told that it needs to adopt the standards and safeguards of TRAFI, of the Pop-Tart world. But here, we have traditional finance adopting a market structure associated with cryptocurrency. So in the opposite direction here.

[00:37:50] [SPEAKER_01] Innovation is moving now in both directions. The important question is how regulatory institutions respond when financial products evolve beyond the categories around which existing laws were constructed. Do you have another Gary Gensler situation where you just point back to the 1933 Act or the 1940 Act?

[00:38:15] [SPEAKER_01] Or do we actually create responsible regulation? Is that a wonderful idea? An honorable thing to do? The CFTC and SEC have overlapping responsibilities in certain areas of the derivatives market. Coordinating those responsibilities requires legal clarity.

[00:38:41] [SPEAKER_01] It also requires recognizing that investor protection involves more than just determining which agency supervises the product. Perpetual futures can include leverage, liquidation risk, complex pricing mechanisms, and substantial losses. Because a regulated trading venue may provide safeguards.

[00:39:07] [SPEAKER_01] But regulation does not eliminate the underlying economic risks. Nor does regulatory approval establish that every investor should use the product. My way of thinking is only buy the stuff you know. It's simple. If you don't understand it, leave it alone. That's, hey, but who am I?

[00:39:37] [SPEAKER_01] This one person, right? What matters is whether the market participants, not me, understand the risks, whether exchanges manage those risks responsibly, and whether oversight responsibilities are sufficiently clear. And there is an institutional lesson here too. Regulators do not necessarily have to choose between permitting innovation and protecting investors.

[00:40:05] [SPEAKER_01] But they do have to demonstrate how both objectives can be pursued together. So when financial innovation moves from cryptocurrency into traditional financial markets, should regulators adapt existing rules?

[00:40:28] [SPEAKER_01] Or should the products themselves be redesigned to fit established regulatory structures? Regulators. Let me know your thoughts. Regulators.

[00:40:45] [SPEAKER_00] I'm very intrigued on what you think on this topic. Act for stewardship.

[00:41:00] [SPEAKER_01] We've examined trust, protection, and consensus so far. Now we arrive at stewardship. Stewardship.

[00:41:09] Stewardship.

[00:41:09] [SPEAKER_01] And to get my idea, and to get my background on stewardship, stewardship as a system i have this book here it's called inheriting saturn okay what happens when a founder steps away every successful system eventually outgrows its creator inheriting saturn explores how organizations communities and ideas survive through stewardship

[00:41:39] [SPEAKER_01] rather than ownership blending memoir philosophy organizational behavior and conversations with founders from around the world that's me crypto hipster podcast Jamil Hasan it crypto hipster examines leadership government and succession and the responsibility of carrying systems forward this is not a book about cryptocurrency it is a book about what every enduring system eventually

[00:42:06] [SPEAKER_01] requires that's someone willing to inherit it harry saturn available on amazon ingram spark i hope to see it brought to a conference near you sometime now institution responsibility when the hair is

[00:42:36] [SPEAKER_01] saturn becomes highly personal because the decisions made by regulators exchanges and governments do not exist only in legislation or enforcement notices was popular before or corporate announcements

[00:42:59] [SPEAKER_01] they affect people's access to financial services their ability to manage their assets and the opportunities available to them when i came into crypto in 2017 i was on the skinny branches set aside pushed aside the perfect for people who fall out of the normal system now it's becoming more

[00:43:28] [SPEAKER_01] acceptable but our final three stories concern different jurisdictions and different regulatory circumstances and every regulatory circumstance is either different unique new and let's look at them because they share one important question though despite being unique who accepts responsibility for the

[00:43:57] [SPEAKER_01] consequences of institutional decisions made by you guessed it pop tart new jersey i grew up in new jersey so let's talk about new jersey

[00:44:14] [SPEAKER_01] new jersey withdraws coinbase staking offer order state regulators have withdrawn a 2023 assist and desist order against coinbase's staking service the original action restricting the company's ability to offer staking to residents of the state now more than three years later the new jersey bureau of securities has withdrawn the order and an associated

[00:44:42] [SPEAKER_01] five million dollar penalty good for coinbase right but there's a critical legal distinction here the withdrawal was made without prejudice that means regulators have preserved the ability to bring other enforcement action the withdrawal also did not establish that coinbase's staking service complied with securities law

[00:45:09] [SPEAKER_01] interesting coinbase estimates that new jersey customers missed out on more than 15 million in potential staking rewards during that period of restrictions that figure represents coinbase's estimate and not a judicial determination of damages we should not automatically also conclude that the original enforcement action was unjustified

[00:45:33] [SPEAKER_01] simply because it was it was withdrawn regulators have a legitimate responsibility to investigate financial products and protect consumers from unlawful or harmful activity but then that creates another obligation right when an institution exercises the power to restrict economic activity

[00:45:56] [SPEAKER_01] it should also be prepared to explain the reasoning behind its decisions and account for their consequences consider the position of an ordinary customer right a financial product becomes unavailable because a regulator raises legal concerns years pass right the regulator withdraws its order

[00:46:18] [SPEAKER_01] without establishing whether the product was lawful or unlawful the customer is left with a practical outcome but little resolution on their original question was the restriction necessary did it prevent meaningful harm were less restricted alternatives available at the time those are legit questions even though

[00:46:48] [SPEAKER_01] the regulator acted in good faith and this is where stewardship differs from authority authority permits an institution to make a decision stewardship requires the institution to consider whether that decision served its intended purpose and what can be learned from its consequences financial regulation should also protect the public but public protection also

[00:47:19] [SPEAKER_01] requires transparency about how regulatory powers are exercised so let me know your thoughts here when a regulator withdraws an enforcement action without resolving its underlying legal merits what responsibility does it have to explain itself and explain the consequences of the original restriction oh we're all good now

[00:47:47] [SPEAKER_01] without telling you why let me know your thoughts are you just okay with receiving we're all good now or here's why

[00:48:04] [SPEAKER_00] i prefer the his why but that's just me right so

[00:48:16] [SPEAKER_01] number nine is crypto.com withdrawals hong kong consumer app it will it will on crypto.com will discontinue its consumer application there on february 1st 2027 affected customers have been notified and will receive instructions concerning account closers and asset withdrawals at the same time a separate crypto.com entity continues pursuing regulatory approval

[00:48:46] [SPEAKER_01] for an institutional virtual asset trading platform the company has cited regulatory changes and communications concerning its consumer service but the specific regulatory developments responsible for the decision have not been established publicly this distinction is important right because we shouldn't just assume that hong kong regulators directly ordered the consumer

[00:49:15] [SPEAKER_01] application to close nor should we conclude that the government deliberately favored institutional investors over retail customers although we can have a hunch and be wrong you know so hong kong has been has been working really

[00:49:44] [SPEAKER_01] let's examine the outcome actually first consumer facing crypto service is preparing to leave the market right while the company's institutional ambitions remain alive so that raises a question about the relationship between regulatory development and financial access hong kong's been working to establish itself as a regulated digital asset center

[00:50:13] [SPEAKER_01] it's wanted to be the hub of crypto for a while them in Singapore so the objective includes attracting financial businesses encouraging innovation and creating a framework in which digital asset activities can operate under supervision those are legitimate institutional goals do they have retail goals not so sure

[00:50:43] [SPEAKER_01] success of a financial marketplace cannot necessarily be measured only by the number of institutions it attracts we should also ask who can participate what services remain available to ordinary residents what happens when regulatory compliance becomes sufficiently expensive or complicated that companies narrow their offerings and how should governments assess the trade-offs

[00:51:13] [SPEAKER_01] between stronger safeguards and broader access to me I don't think there's a simple answer to that consumer protection may justify restrictions on certain products institutional markets may require different rules you know because their participants possess different resources and risk management capabilities but a regulatory framework should be evaluated partly through its practical consequences a financial center

[00:51:43] [SPEAKER_01] a financial hub can be more sophisticated while some consumers experience fewer choices now whether that outcome is justified depends on the risks being addressed and the alternatives that can become available because those considerations must definitely should be part of the public discussion so let me know your thoughts here when a jurisdiction builds more regulated digital

[00:52:13] [SPEAKER_01] asset industry how should it measure success if institutional participation expands while consumer services disappear

[00:52:23] [SPEAKER_00] story 10 story 10 is France

[00:52:38] [SPEAKER_01] madame croque madame croque monsieur bonjour oh french i know steak frites France rejects proposed cryptocurrency exit tax our final story goes to France where lawmakers are debating the country's 2027 budget the french national assembly has rejected proposals that would have expanded exit tax treatment to certain crypto holdings

[00:53:07] [SPEAKER_01] certainly the proposals form much you know part of a much broader debate about taxation public finance and the movement of assets across national boundaries meanwhile lawmakers have considered other changes affecting financial assets and crypto transactions the budget process remains unresolved with the assembly facing a November 17 deadline for completing its first reading examination

[00:53:37] [SPEAKER_01] the rejection the rejection of a particular amendment does not mean that every cryptocurrency related tax question has been settled but the details illustrate a growing challenge for governments how do you design a tax system for assets that can move internationally without relying on traditional financial intermediaries historically governments have exercised substantial

[00:54:07] [SPEAKER_01] oversight through banks brokers custodians and other regulated institutions and digital assets complicate that arrangement an individual can hold crypto directly assets can move between wallets and maybe the travel rule here applies maybe financial activity can cross jurisdictions without following the same operational pathways as traditional

[00:54:36] [SPEAKER_01] securities transactions none of this eliminates tax obligations right but it creates questions about how those obligations should be defined monitored and enforced an exit tax is particularly interesting because it concerns the relationships between taxation and mobility governments may seek to prevent individuals from avoiding tax obligations by changing their residents

[00:55:05] [SPEAKER_01] taxpayers meanwhile have legitimate interests in legal certainty proportionality and the ability to make financial decisions without unpredictable consequences the challenge is balancing those interests now a tax system that cannot be enforced consistently may undermine confidence in the law but a system that creates excessive uncertainty

[00:55:34] [SPEAKER_01] may discourage investment or encourage people to move activities elsewhere and the stakes extend beyond crypto they concern the ability of governments to adapt long-standing institutions to a financial environment that is becoming increasingly digital and international international and that brings us back to the theme of the week governments possess the authority of the tax

[00:56:03] [SPEAKER_01] but responsible stewardship requires more than exercising that authority it requires developing rules that are understandable that are administratively workable and that are sufficiently predictable for people to organize their financial lives so let me know your thoughts as financial assets become increasingly mobile how should governments

[00:56:33] [SPEAKER_01] balance their legitimate tax interest against the need for predictable rules and individual financial freedom let me know

[00:56:44] [SPEAKER_00] your thoughts and stories

[00:56:56] [SPEAKER_01] for institutional frameworks and one question runs through all of them what does it mean to exercise power responsibly we began with trust we then examined protection we looked at consensus and we finalized with stewardship

[00:57:25] [SPEAKER_01] right each of the ten situations involves decisions that affect people beyond the institutions making them and that is where responsibility becomes unavoidable because institutions are not merely a collection of laws technologies policies or financial assets they are arrangements through which people exercise authority over activities that matter to other people

[00:57:54] [SPEAKER_01] a crypto exchange is responsible for more than just processing transactions

[00:58:02] regulations

[00:58:03] [SPEAKER_01] a regulator is responsible for more than just issuing enforcement orders a government is responsible for more than just collecting taxes although they can do that and the decentralized network is responsible for confronting the consequences of the systems that its participants collectively maintain none of those responsibilities guarantees perfect outcomes

[00:58:32] [SPEAKER_01] institutions will make mistakes technologies will develop unexpected vulnerabilities regulations will produce unintended consequences and governments will disagree about how financial systems or any other system for that matter operates the measure of institutional responsibility cannot be whether every decision produces a perfect result it must also involve how

[00:59:02] [SPEAKER_01] institutions confront uncertainty explain their choices correct their mistakes and respond to people affected by their actions so perhaps the question that we should carry forward you know if you look at the relationship between authority and accountability and that question you know should be one that we consider as digital assets globally become increasingly

[00:59:31] [SPEAKER_01] integrated right are we building institutions that are merely powerful enough to shape the future or institutions responsible enough to deserve that power I'm Jamil Hassan this has been the X Factor and as always let me know your thoughts I will see you on Monday

[01:00:02] [SPEAKER_01] for the weekend roundup have a great weekend weekend