The thing I'd like to leave with industry is just that there is real joy in being able to make something that other people can use and that can make their lives better.
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Welcome to the Policy Protocol, your weekly shot of the latest in fintech law and policy. Everything that happened distilled down to what actually matters. How are you, Ronaldo? Good to see you.
Good to see you back again, Rebecca.
Good to be back. Definitely a very interesting time in crypto. We were talking before we hopped on that the timeline on X feels very doomer-esque. I was saying this feels in some ways as existential as it did during FTX where everyone's like where is the industry going and at the same time there was an article in the FT today called Wall Street loves blockchain. So you know I think seeing the adoption versus token prices and sentiment in the industry is a little disorienting I guess. What are you seeing? What do you think?
Yeah, I mean I actually think it's part of the evolution of the industry. I think evolutions are painful at times and you know some body parts get discarded, new ones form perhaps an evolution and you know maybe we're evolving to a new phase where crypto is going to be more hand in hand with tradfi and more integrated into tradfi and that's okay.
Yeah, I just wrote something about this and used the word maturation, so you know,
Maybe maybe that's where we're at.
Yeah. Well, we're gonna have to talk more about that once that's out. I'm interested in reading that for sure.
Okay, so hot topics of the week. Ronaldo, do you want to kick us off?
Absolutely. I cannot resist making George Santos my hot topic of the week. George Santos, former congressman, convicted fraudster, has agreed to a settlement with the CFTC in which the CFTC has ordered the disgorgement of $17,000 in profit, fined him an additional $17,500 for essentially insider trading on the State of the Union market. Essentially he indicated he would be there at the State of the Union publicly. Then he traded on himself effectively not being there. And I know it's going to surprise you to learn, Rebecca, he does have control at least over his physical presence, although not always on what he says. And he was trading of course on Kalshi and now is publicly blasting Kalshi, which I think perhaps is a mark of that, and other prediction markets who are now being bashed by George Santos after he made money off of them.
Well, what I will say about this actually is to say that this is actually very consistent with how the CFTC has been asserting its jurisdiction over prediction markets. It has other insider trading cases that it is working on and has been very clear that these prediction markets are within its exclusive jurisdiction. We just saw this come up at the end of last week too after the New York Attorney General sued Kalshi, saying that Kalshi has violated the New York gambling laws. This is one in a long line of cases going on all around the country where states are contesting the rights of prediction markets to operate in the state because they said, you know, what's going on in prediction markets is gambling. I think much of that is tied to the fact that a lot of what we're seeing on Kalshi and Polymarket is I think well over 90% relating to sports. Interestingly enough especially because we just saw the World Cup happen, the combined volume on Kalshi and Polymarket was the highest ever in a month. So I think we're seeing a lot on prediction markets and to tie it back to the CFTC we saw Chair Celig make a statement that he already has asserted his jurisdiction and he will be pushing back on the New York case against Kalshi as well. So definitely a lot to watch there. We will be continuing to see everything about prediction markets and what is going on.
My hot topic of the week is the cold card hack which is much less light-hearted in terms of its interest. This was a hack of Bitcoin hardware wallets. We've seen a lot of software hacks going on in the space. It's also been reported about a lot of software hacks but this is very difficult because it is a hardware self-custody wallet. As you can see on the screen I think hundreds of millions of dollars in Bitcoin have been lost. I think this hit about a thousand wallets. The company behind the cold card wallets has been asking customers to do upgrades and things like that. But I think this is really really telling because the question now especially with your point about the integration of Wall Street and the maturation is well you know the original premise behind Bitcoin and crypto and the cypherpunk ethos was about self-custody, not having intermediaries, not having to rely on anybody separate that you needed to trust for your economic transactions, and this looks like we may be turning things around. I think I saw something on X over the weekend that people are voting to say that they'd rather custody in centralized exchanges than do self custody. So there is definitely, you know, some sort of evolution going on. What's your take, Ronaldo?
Yeah, really smart take, Rebecca. I think look to me that you hit the nail on the head. I mean, this is part of, you know, first of all, this is part of the design of self-custody. I mean, it's not clear what recourse there is for folks who are suffering a loss here. It's not like there's a broker dealer out there, you know, who's got capital set aside and getting examined and things like that. You know, this is a Canadian company. There's terms of use out there. It's not clear what you can do if you have suffered a loss here, which is unfortunate for people who are impacted. And really more broadly, this really makes me think about a third of the Bitcoin holders out there that could or the third of the Bitcoin supply that could be impacted by quantum when that rolls out. I mean here in this particular hack exploit there is a fix but it requires you to make a new wallet and transfer your Bitcoin to a new wallet. Well, of course, a lot of people aren't going to be on top of this. A lot of people aren't going to do that. And really, that's the same issue with that portion of the Bitcoin supply that is vulnerable to quantum. I mean, there are proposals out there like BIP 361, but there's no centralized person to make those decisions. And I really just I think it's arguably part of the design there as well. So, I think there's a lot of questions that people are asking right now. And I think that's part of that evolutionary process that we discussed at the beginning of the show.
That's right. And you're not alone in your quantum concerns. Jim Cramer said he's selling all of his Bitcoin because of quantum. So do with that recommendation as you like. Of course, not financial advice from us. So now turning to our special guest of the week. This guest is top tier or S tier most special guest. I am super honored that she is with us. Commissioner Hester Peirce is joining us. Has had a prolific career at the SEC being sworn in January 11, 2018. So nearly a decade in service this time around. Commissioner Peirce, thank you so much for joining us today.
Rebecca, Ronaldo, it's great to be with you. Of course, I got to start with my disclaimer, which is that my views are my own as a commissioner, not necessarily those of the SEC or my fellow commissioners.
I you know I was telling myself oh I should have teed up your disclaimer because I knew it was coming but I let you take in on your own.
Glad that my days of giving it are soon over.
I know but we'll all remember it very very well and we know you are leaving the SEC soon. So this is one of your, you know, before you head off into academia. But you know as I noted you have had a very prolific career at the SEC this time around. I know you were there previously as well. But you know, you've left us with a lot of writing, a lot of thought pieces, a lot of great speeches, but if you have to pick one thing that you hope people take away, not just in crypto, but anyone, if there's one thing that you hope people take away from your tenure at the SEC, what would it be?
I think it's really the importance of letting people try things. This country is about letting people make decisions for themselves, try things, sometimes fail, pick themselves up and try again. We are a very now risk-averse nation. And I think that that's somewhat in conflict with our founding principles, which is really about people who want to take risks because they really want to embrace liberty. And so just reminding ourselves that even in financial markets, it really is important for people to have freedom to make decisions and sometimes to get things wrong.
