Outdated Rules Are Holding Crypto Back

Transcript

How do we determine when the bottom is in? And there's a 100% track record if BTC crosses the 200 day moving average and BTC crosses its short-term [music] holder basis. >> You have three of the best research teams saying the bottom is not in, it may be in or it's definitely in. My view is that [music] is the bottom in is actually the wrong question to ask. >> Barring any big macro shift, I I think we're still [music] going to be range trading between 60K and 80K. there was something in the news regarding SEC's rescending some some rules that they put like 20 years ago. I I think this is another step on us continue to see the agencies uh pushing forward not only in terms of improving the market

environment for crypto but I would say the market environment in general if they don't modernize their rules what they will start to see is more and more of US equities markets trading in dark overseas exchanges as long as those accredited investor rules stand the way they are um you're going to continue to see the best opport Opportunities go to the wealthiest 1%. Nothing said on inflection point is a

recommendation to buy or sell securities, tokens, or any other assets. nor does it constitute a solicitation or offer to invest in any fund, product or financial instrument. This podcast is forformational purposes only. The views and opinions expressed by hosts and guests are their own and do not necessarily reflect the official positions or views of their respective employers or affiliates. Hosts and guests may hold positions in companies, funds, tokens, or projects discussed. Hey everyone, welcome back to another episode of Inflection Point. I'm joined as always by Matt Hogan, David Lewant, and Michael Mark Antonio. Um, this this episode I'm going to kick it off with something um different. So, I tweeted out recently that M&A activity in crypto

had reached record highs. So, this quarter isn't even done. And in the first two quarters of 2026, we've already eclipsed all of the M&A activity from the entire of 2025, which in itself was a record year as well. And the reason why I'm bringing this up too is because I wanted to announce well bring to the attention that Block Works and Misari are actually merging. So Blockworks has acquired Misari. And I mean this is big news for me. We're we're combining two leading crypto media research and data infrastructure platforms to serve both sides of the market now. And so we're going to be helping asset issuers build trust and helping investors, platforms, AI powered tools better understand and evaluate

digital assets. And I think this leans into our mission towards bringing a more more trust and transparency to the onchain markets. So yeah, pretty excited to announce that here. >> Congrats. It's a a fantastic deal. Uh two powerhouses coming together to build the leading crypto data and media place. Um I'm really excited for it. Lot lots lots of good to come. >> Love to see it. Fantastic acquisition. I can see the great fit. Uh Misari has great products. Uh and yeah, amazing to see what they're going to do in the bigger blocks umbrella.

>> Yeah. No, I love it. And then so that's going on. I mean, it makes sense in in in this market with the M& activity, lower prices, maybe a little bit more attractive valuations. Consolidation is part of it. >> I I think it's probably just beginning. I don't think that trend is going anywhere. There are a lot of lot of companies uh for sale, a lot of a lot of uh activity in the water. You see this in every major crypto market cycle. You see a spike of consolidation and new leaders emerge. And uh it's it's nice to see Block Works rising to the top here. Um and uh I suspect we'll see more M&A activity. I don't think those those that periods behind us.

>> Yeah, 100%. There was the Kao Amber data, there was Robin Hood wonderfy, there was there was so many I can't even list them right now, but the the numbers speak for themselves. Uh so yeah, um let's kick it off. But before I see where we have two rival competing jerseys here, Argentina and Brazil. Um David, you're actually from Brazil. Michael, you're probably a Messi fanboy if I had to assume. >> I am. I'm originally from Brazil. And for for those who are who don't have the video on, I'm wearing a Brazil jersey.

This is the one from the Confederation Cup 2024. And yeah, World Cup is exciting. I I plan to wear soccer jerseys between now and July 19th. Let's see which ones. I hope I hope the Brazilian one uh as further as I can, but we'll see how how far it goes. Yeah, we'll we'll get you a US uh Stars and Stripes jersey to put on as the US pro proceeds through the tournament, David. Don't worry, it's all good. >> Oh, 100%. I I I'm already getting a US jersey. I I hope to watch one games and um I actually have bets on prediction markets. I think my my World Cup bets are doing better than my crypto portfolio. One of them is that the US

will get to the quarterfinals at least. >> That seems like a good bet. You weren't the million-dollar bet on Spain, were you? Uh did you see that on poly market? >> That was insane. >> Million dollar bet. Spain would beat >> Cabo Verde and I think he put the bat at like half through the game. Uh the game was tied 000 45 minutes in and he just put a million dollars. I think his best outcome would be to win $80,000 and lose a million. But yeah, we never know who's behind those things, right?

So yep. >> There there are better ways to make 80 grand with a million dollars than uh than that. That's for sure. Insane. >> So, incredible to watch. And kudos for whoever was on the other side of that. It's actually interesting because Poly Market has triple the volume in terms of World Cup betting as Kali does. So even though it's happening in the US, you think that would bring some greater attention, but you know, football and when I say football, I mean soccer is is is probably more of the other world kind of market. So I I think it kind of makes sense from that angle.

So, I don't know if we want to discuss the teams and all of that, but one thing I'm loving about this World Cup. I'm sure you guys are seeing all these posts from foreigners discovering America and going to Bies and Waffle House and saying how everything is huge in Texas. I'm just loving the vibe. I mean, it's been it's been so great. >> It's been a super fun vibe. Those those are fun posts and the atmosphere at the games is good. It's been it's been a it's been a great start to the World Cup. Really fun.

>> Yeah, 100%. I'm really liking this new extended format to kind of see teams play against each other who you wouldn't normally see. Bring some excitement instead of the same same old that happens every four years. But yeah, >> that's true. That's >> agreed. What a what a what a week for sports. Uh just an incredible week for sports across >> Yeah, we got we got to talk about the Knicks. My Knicks. [laughter] >> So great. So amazing, well-earned, overdue, beautiful to see. Uh not a Knicks fan, but uh but was cheering for them and and great to see the city take it home.

>> Long time in the making. >> Oh, yeah. >> Was any of you expecting a 5-1 uh sorry, a win in five? >> I was calling it was going to go much it's going to be much tighter. No, the the crazy thing was San Antonio basically had every game won and then kept giving them away. I thought there was no way they would do that again in game five, but sure enough, they figured out how to do it. I guess that's I guess it's youth and inexperience, but um yeah, I was pretty sure it was going to at least go to six.

Uh but kudos to the Knicks, right? They buckled down. >> I was calling Nixon Nixon four. >> Nixon four. >> Oh, wow. That >> is a true fan. >> Yeah. Aggressive. Oh yeah, Brunson is the man. He's the man. [snorts] >> He really is. It's great to see. It's great to see. And the Nova teammates, the whole thing is great. >> It's such a good story because they were the underdogs. Brunson's a small small guy. And in a era when everyone was talking about WBY as the future of the league, um, and therefore saying to most kids, you got to be 75 to compete. Um Brunson coming in at, you know, they say

he's 6'2, but he's probably closer to 6'1 or 6 feet. Um and just such a humble, nice guy, being so dominant. It's really exciting. And being on the ground in New York City, um I can tell you I've never seen the the city happier than they are right now. And we really needed it because things have been bleak since CO. [laughter] >> Very good. Yeah, he's he's a he's a great person to cheer for. Um yeah, even as as someone outside the city, it was it was great to cheer for Bronson and the whole team.

Team's really likable. >> Lovely. Feel like a a news program on on from sports onto markets. >> There you go. >> Um so I mean since last we spoke, I think the markets have recovered a bit. They're up like 7% in the last week. Um nothing to write home about. I'm going to show a slide looking at BTC ETF lows. I mean, you can see that we're in this era of constant downflows. Um, yesterday was actually 8, you know, 80 million in the positive for BTC. So, I'm hoping that this is the turnaround here. And, you know, I I was looking for at the bottom and I looked at how do how do we determine when the bottom is in and there's a 100% track record if BTC

crosses the 200 day moving average and BTC crosses its short-term holder basis. Um, and I was it was very close to doing both last month, but it it failed to hit either. And you know, that's why we're where we are now, 20% down. I was trying to look for another source. So, we we had this model um at Blockworks, but my colleague Daniel Shapiro put out. It uses 100 different factors across stable coins, options, um, derabit options, ETFs, and you know, green shows that we're in the expansion phase. So his this model in particular is highlighting that we are have seen a bottom but again a lot of there's been a lot of

breakdowns in models recently like BTC is no longer correlated to money supply it's no longer correlated to the ISM so the efficacy of these models which have historically worked is being put into question but uh how how are you guys feeling uh Matt we could start with you >> yeah I mean look the the short answer is it's very hard to call bottoms I read three great research reportes over the last week. Uh one from from Galaxy Digital which said the bottom will be 40 to 50K. Uh you know one from Naidig which said maybe it's the bottom maybe it's not.

One from Standard Chartered that said the bottom is definitely in. So you have three of the best research teams saying the bottom is not in it may be in or it's definitely in. And I think that reflects what you said which is this is a you know different scenario. Calling the bottom is very difficult. My view is that is the bottom in is actually the wrong question to ask. That the right question to ask is what is the top? Because if you think Bitcoin is going back up to 100K, 200K or a million dollars as I do, then the question of whether the bottom is 40K in Galaxy Digital's case or 59K in Standard Charter's case is irrelevant. Not quite irrelevant, but basically irrelevant.

You want exposure. So I think people need to focus more on the question of is the top in or where is the top than is the bottom in. The bottom is really hard to call. It's probabilistic. My guess is we chop sideways for a few more months. But what I have confidence in is that the top is not in and that indeed we are going to get to new all-time highs because government debt is accelerating. Faith is in institutions is falling. All the OG reasons that we love Bitcoin are still increasingly true. The world is more digital. young people are getting older and wealthier. All of that is still true. So my view is that the top is not in and that's actually more important than the question of where exactly is the bottom which is just hard to call.

Fully agree with that. The the the other thing I would highlight is that a lot of the Bitcoin price action now has been macro driven, right? the the reason why Bitcoin is trading at 66K now versus 60K uh a week ago is basically because of the uh Middle Eastern uh conflict situation that got a lot better over the weekend. Um so so there's a lot of these factors at play. There's also obviously the we talked about this the AI capital drag and the AI let's say adjacent teams the giant IPOs and SpaceX. So there's a lot of noise in the market in the short term. I know I've been saying this everyone's every every quarter or so for

for a while, but if you talk to any macro investor, he will say that this is one of the toughest environments to predict because there's just so many variables, some of them are fundamental, some of them are strictly flow oriented that it's just very hard to predict what the market is going to do in the short term. Um, having that said, um, and and we've been saying this, there is this buy pressure that seems to come whenever Bitcoin touches the 60K range or the 200 moving average level. Uh, you can see this in many different ways. You can see how the Bitcoin uh order book gets skewed to the to the buy side. I mean, if you work at a trading desk like us or

or or or Michael the Galaxy folks, I'm sure they've seen a ton of buy activity from very large investors. Whenever Bitcoin starts to flirt uh with the 60K level, you start to see indicators like the Coinbase premium and some of these things kind of showing that uh there is very strong appetite for buying certain important corners of the market. So, uh, I I would say that unless we have a big macro break, and this is a very big if because again, there's a lot to happen. We're recording this on a Tuesday, uh, as Kevin Worsh is heading his first FOMC meeting. We can probably talk a little bit about that. So, there's a lot of moving parts uh on the macro side, but barring any big shift,

any macro shift, I I think we're still going to be range trading between 60K and 80K, which is what we've basically been doing since we started the podcast and even a little longer. >> Yeah, 100%. Um, and I I was looking to see if this was this this macro was affecting all of crypto. Was it just a Bitcoin story? Um and yet to date there are three sectors in crypto that are up. Um one is PEPS and if you look at the per sector it's only one and it's hyperlquid. Um the second sector that's up is AI is miners crypto miners and that's because a lot of them have pivoted to HPC to AI. So they've jumped

in that story and it's almost no longer like idiosyncratic to you know it's no longer correlated with crypto per se. And then the last category again is DeFi and one and it's again thanks to Hyperlquid mostly and somewhat somewhat as well thanks to Moro which also just raised $175 million. Pretty big round. Um, congrats to them and you know you Matt you're asking you you phrased it earlier as the question we should be asking is you know whether we're in the top and you know there's local tops there's you know there's there's more longer term but then I'm looking at it for hyperlquid hyperlid is approaching those again and when I was looking at the ETF data I saw that actually

Bitwise's hype ETF is the number one ETF by assets under management so congrats there as Well, but how how we how are we feeling about hype? >> I mean, I feel extremely bullish on hype. Uh, you know, whether whether the price is at an all-time high top uh market cap isn't because there's been so much buyback or at least it wasn't until recently. Uh, I think perpetual futures are still early in their journey. They're still a tiny fraction of global derivatives. They clearly have product market fit. They're winning every new incremental sort of challenge in the market. Right? We saw huge volume in SpaceX pers uh around the IPO. I think it's it's all guns blazing on

Hyperlquid. I I still think it has a long way to go. And I'll add specific to the ETF, yes, we're very happy that Bhype is the largest most liquid Hyperlquid ETF, but most institutional investors haven't even heard of Hyperlid yet. Right? when I go talk to financial advisors or even family offices, there's very low penetration into that audience. So, there's a huge part of the market that doesn't even know hyperl exists. Um, so I'm bullish both from a flows perspective as they learn about this asset and from a fundamentals perspective as it continues to win. Yes, it faces more competition. And yes, it faces regulatory questions, but look at

the facts on the ground which are just consistently winning market after market after market. Um, uh, until that stops, I'm I'm I'm I'm bullish and the price is is relatively contained versus the fundamentals. Um, so yeah, I'm I'm positive hyper liquid here. >> Okay, love it. Um I I I know David we there was something in the news regarding SEC's I mean looking at resending some some rules that they put like 20 years ago if I'm if I'm not mistaken specifically 6 610 and 610E um care to get to go into what they are and what the potential

implications this are specifically for like DeFi and AMMs. Oh yeah. Uh this was a massive announcement. Um I think I would love to hear uh other folks opinions, but I I can just give a stab on uh what what's going on here. So I I think this is another step on us continue to see the agencies uh pushing forward not only in terms of improving the market environment for crypto but I would say the market environment in general and I think this is a great example. So basically just last week the SEC announced that they want this was a proposal. So they they are proposing to resign the uh two uh rag NMS rules. So that's rule 611 and 610E.

Um these rules were put in place I think in 2005. So they're like 20 years old. and and and the background around those is that they they actually uh there's a very nice introduction uh in the document and they talk a little bit about the historical context uh of these regulations and they were put in in in place in a market that was rapidly evolving the the market structure in the early 2000s especially for equity markets but I would say for the market in general was was changing a lot um I think is it's kind of crazy to think now but it was just a little over it was just over 25 years ago that we moved to pennywide spreads. Spreads used to be in

in quarter of a dollar. I mean if you see those old quotes right you would see a number let's say 25 and 38 25 and 78. Uh it was in the early 2000s that we moved to uh pennywide uh pennywide co quotes. Uh we started to see a lot of other innovations. Uh the NASDAQ only became an exchange in 2006. it was already rivaling the New York Stock Exchange in terms of volumes, but it looked a lot more like an OTC market than an exchange. So, there was all these uh changes going on. So, it does feel like the uh SEC felt like they they want to do something in order to uh improve the market structure and make

sure that all these uh all these innovations that were taking place at the time would steer the market in the right direction. So that was basically the spirit of uh regulation NMS and and these rules that were put in place way back in the day. Um what the SEC is arguing now is that a lot of these rules while they were probably well intended uh in the beginning today they they're more a hindrance than a help for the market. So basically uh these specific rules that the SEC is proposing uh to resign they are basically related to a best execution guarantees that brokers need to provide uh to market players and and yeah I don't want to spend too much

time here but uh in the in in traditional markets mostly in securities right this applies for equities it applies for options it doesn't apply for things like commodities or futures or crypto but for um a lot these traditional markets, you have these best execution guarantees that and basically ended up becoming a very strict set of rules that requires all these broker dealers to be connected to this huge number of exchanges and they need to comply to these this order that is just like a penny better than the other. So they end up kind of being uh counterproductive and I think they've they have generated probably more market inefficiencies than market transparency

and market efficiency. Uh so a lot of things have been uh happening over the past 20 years. The market has obviously modernized from there. But basically the idea here is to move from these best execution guarantees that are very strict and rules-based to something that is more principles-based and will sit at the broker and not necessarily operate within each specific trade level. So that's basically the change. Uh I would say that this is important not only for crypto, this is important for the whole market. uh there's there's a reason why we have seen a lot of flows in equities moving from listed exchanges to off exchange flows right so you have these

dark pools you have pay for order flows a lot of these things are a consequence of a listed market that I think got too constrained and that had rules that at the end of the day were counterproductive for investors but there's a very clear benefit here for crypto especially for tokenized securities right this is where we're talking about in terms of uh uh best execution duties from brokers. Uh to the extent that you are in the tokenized security realm, you have to comply to all the securities regulations and things like AMMs for example, they cannot comply to best execution rule because they don't they don't they don't have they're not aware of this uh this

this external price that they need to comply with. Right? So I think that's basically uh the idea here. The idea is to make this market more flexible so it helps the whole market. But there is a specific uh interpretation here for tokenized securities because it is a key piece uh of of uh legislation that needed to be changed in order for us to fit a good chunk of the tokenized securities markets into the traditional rails. Uh if I understand correctly, uh the proposal is going to go through uh a public uh public feedback gathering process in like 60 days or so. Then they're going to vote on it. So it's probably something that I think is going

to come online probably in the next few months. And I see it as very positive for the market. >> Yeah. Uh let me add a few things on that. So uh 611, the recision of 611 is the big one. This has been an issue and an enemy of uh certain members of the SEC namely Atkins and Pur for for years. Pur has written about this uh pretty extensively. uh some of the issues with reggg NMS um 611 requires that any securities venue um it uh quote um securities according to a protected quote the best quote that's available nationally which sort of in effect collapses all different markets into one

unified market but is very burdensome and difficult for different venues to comply with. Um and uh the the recision of that rule um and this is I think you know David you hit the nail on the head. It goes from a rulesbased system to a principlesbased system. But what that really means is if you resin 611 then the fallback rule is under FINRA um I think the rule is um I think it's like 5310 in FINRA which is the best execution rule and the best execution rule is not a uh black and white test.

It is a bunch of principles that a quote needs to comply with but they're contextual and they're factors based. Um there there are no necessary conditions. There is just a a bunch of sufficient conditions that a uh that a quote must comply with. Um, so now it's going to be a more, if this rule is in fact rescended, it's going to be a more holistic test, which is definitely, to your point, David, good for crypto because, as you said, um, AMMs would struggle to ever list tokenized equities if they needed to quote those tokenized equities, um, in accordance with a protected quote listed on a nationally

reg registered exchange like the NASDAQ. um for the reasons you just mentioned, David, 100% uh AMMs are responsive to the market. They're not necessarily, at least today, uh leading the market in price discovery. Um and so they would never be able to lawfully exist, um because their quotes would always lag, um NASDAQ, um or at least that is what we suspect. Um I will say a lot of people um are framing the recision of rule 611 as a big step forward for tokenized equities. Um and that logic is that you know an AMM can't comply with 611 um because a bonding curve cannot uh respect the national best bid and offer.

Um and so killing this trade through rule is a big step forward and I think it I think that's true. Um but even if that rule is rescended um you the for for AMMs to lawfully under the current rules uh list and trade tokenized equities um they'd still have to ru uh meet rule 3b16. Um they'd still uh which is the definition of exchange. So they'd have to meet the definition of an exchange under the exchange act. Um they'd have to register under section six as an ATS.

um an ATS has to be operated of course by a broker dealer. And so even if 611 is rescended, um there's still an uphill battle for AMMs to comply with the Securities and Exchange Act as currently written without the innovation exemption. So the whole hope here is that the innovation exemption can provide a blanket exemption from all of these different rules or alternatively um that these rules are clarified with respect to crypto. Um but even the exchange act rules um still provide for some I think um you anacronistic protections that don't really apply in a

blockchain setting. So for example um right now today securities must uh sit in a qualified custodian. Um if they trade on a blockchain obviously they will not be sitting in a qualified custodian. They also must be maintained by a transfer agent. Um and so if an AMM is transferring tokens um where is the role of the transfer agent? Um you know a permission permissionless contract on chain can't be any of those things. Uh it can't register as a broker dealer. it can't comply with the clearing agency.

The blockchain is the clearing agency. Um, and transfer agent um, transfers are going to be novel and unique and perhaps totally different. So, I think there is still some room to go, but this could be a very strong step forward if if 611 is rescended. >> That's a fantastic point by Michael. Uh, it there's still a lot of hurdles to clear and I think we're still on the same theme, right, Michael? We're we're clearing the easier questions and we're moving forward um uh I think consistently here. There's a lot of requirements that would need to be filled for a decentralized uh exchange to fit in traditional rails uh registration requirements, compliance

uh regimes and all those things. Uh it is a step forward though. Yeah, it it begs the question if there's a regulation that is meant to protect an inefficiency in the market and market practitioners fix that inefficiency through technology, is the regulation still appropriate and should the regulation still exist? Um, that is the question of crypto, right? That is the fundamental question. Um if crypto is fixing through code and through technology historical issues that affected inefficiencies in the market um should those rules apply to those new technologies that have fixed those issues.

>> Yeah, that is that is the fundamental question. I would just add two things. I think this for a lot of people answers a tension that they've had in their mind which is why isn't this technology which seems inevitable just completely sweeping the market? It's because you know I mean just think about the numbers that were mentioned uh 611 that's a lot of regulations just to get to 600 and 3B16 I mean you know most people who are like ah DeFi will win haven't thought about rule 611 there's just so much wood to chop between here and there it's a reminder of why it takes a while but I'll add the other piece which is and I'd be interested in in Michael and David's thoughts if you had to design a regulatory moment where it was possible

possible to come over these hurdles. It feels like this is the necessary conditions, right? You need someone like Atkins. You need the current climate. They're willing to do innovative things. Um it's actually such a hard thing to imagine regulators doing in a short period of time, but this feels like one of the moments where it's not guaranteed, but is possible. And maybe all the pieces including Wall Street interest in tokenization, etc. are aligning to make this uh potentially true.

>> Absolutely, Matt. I will say that the success and you know, we can't pop champagne yet, but the success of the Genius Act with respect to stable coins gave a lot of people confidence that modernization in crypto regulation actually can be a net positive um for all markets. And so on the tailwinds of the Genius Act and the wide recognition that stable coins are a tremendously beneficial technology and that they should be brought into the light and under US jurisdiction. I think the SEC um is both being very very innovative and also very practical

because if they don't modernize their rules, what they will start to see is more and more of US equities markets trading in dark overseas exchanges and more US persons being subject to regimes that they themselves, the SEC does not have any oversight over or jurisdiction of. So I think it's a perfect time, but it's no coincidence given when you see the Wall Street Journal talking about hyperlquid, how it's traded over the weekend, the SEC has to start thinking about, well, if equities per become significant enough on hyperlquid that

they impact US markets, there's a problem with the regulations pushing hyperlquid overseas. Yeah, that's that's the remarkable thing about this moment. You've seen uh overregulation restricting the market in multiple ways and you see the market working around it and it's forcing regulators to adapt. Uh the other example is all the efforts to gain exposure to private shares whether in traditional systems or in cryptonative systems. a clear response to the uh massive difficulty of being a publicly traded company and sort of the market is is curing itself and crypto is playing a key role in that. It's kind of kind of fun to see from an ecosystem. One, one other thing that I think is not talked

about enough is that the default rule in the United States for my entire lifetime, all of our entire lifetimes, has been that um if retail um if mom and pop, if widows, widowers, and orphans, as my securities regulation professor would always say, if they want to buy a security, it can it must be registered as a public security. And um that worked pretty well when capital markets were ve relatively thin and you needed to be a publicly traded company to raise real capital in today's environment. Um it is an outrage. I think people will look back on this era as outrageous that retail could not buy the most important securities that are

affecting our economy, namely Anthropic, Open AI, SpaceX, um that they could not buy them lawfully for their own protection under the current rules. um and that only um accredited investors and institutions had access to buying those stocks um when they were private. Um these securities are um as important um not just for our economy but for our political system, right? And the more publiclyowned they are, I think the more democratically controlled and run those companies will be and the more legitimate those companies will be seen in the eyes of the public because right

now anthropic and open AI um they have some serious political issues um with Gen Z and with millennials um that they need to address and them being private companies still um is uh is I think a big issue for them. So that's why, of course, um, one of the reasons they're going public, but by the time they go public, they're already trillion dollar companies. The SEC, if these are trillion dollar companies today, um, the SEC really has to look, take a hard look in the mirror and say, what about our rules did we get wrong here? Um, and so, uh, I I think that's an important piece.

>> 100%. Um I'm while you you guys were talking I was looking for this stat which is in the SEC document in this uh 610 and 611 regosals uh recisions uh they themselves were saying that uh in 2005 which is when these rules were approved only 13% of the volume of the New York Stock Exchange happened off exchange in 2026 this number is almost 50%. >> And and a big part of the reason why this happened is because what Matt and Michael were saying because the market finds a way around it, right? You end up finding solutions to to to get around

this constraining factors. The issue is that a lot of these mechanisms, they sometimes will benefit a few select companies or a few select insiders in at expense of um of a much broader public. Um but yeah, but I think uh it's great to see that we're seeing progress. Uh one other topic that I think kind of is tangential to what Michael said is that and and Brian Armstrong just tweeted this yesterday is that uh investor accreditation rules in the US, they should probably be revisited. Uh it does feel like this is a little bit of a very unanimous topic. I have never seen anyone who agrees with the state of of our accredititation rules. So, so there's a lot of improvements to make

and it does seem like this um uh this SEC administration is the one who's willing to to tackle them head on. >> If you're a PhD in finance adjunct professor making 60,000 $80,000 $100,000 a year, you are not an accredited investor and therefore you are not capable competent under the current rules to buy private securities. Um, and that's crazy because if you know in this example, you're a PhD in finance, right?

You are smart enough to uh make these decisions yourselves. So, of course, to be to be fair, these rules were born during an era when knowledge was not widely distributed. It was before the internet. It was before um even most people had access to the basic things that you need to make a prudent investment. But those days are over, right? I mean, the, you know, you don't need to be a PhD in finance to be a prudent investor today. Um, and so I think, um, as long as those accredited investor rules stand the way they are, um, you're going to continue to see the best opportunities go to the wealthiest 1% and the 99% get crowded out. Um, and

maybe the 99% would have dealt with those uh rules and that economic inequality in good times, but if AI is going to be as prolific as we all assume it will be and starts displacing jobs, um it's going to be quite a a black mark on the regulators records that the people whose jobs were lost could not own those very stocks uh to cushion the blow that that had happened. uh that will happen. >> That's really fascinating to so to to kind of summarize it's basically there are these different grocery stores and they have to do price matching according

to rule 611 and it's very hard because they have to see what the diff the grocery store in another state is is quoting it at and it becomes very cumbersome. So instead, they've opened up these rooms in the back where they say, you know, we don't have this in stock here on the shelves, but you can go in the back rooms and now you now you can purchase it over here. And like David was saying, the SEC's own admission is that these back rooms have become just as large as the grocery stores as the front ends were supposed to be. And so this is not even not this is not just specifically a win for crypto, specifically the AMMs. It's also just a win for the market in general.

And then it's one of the many symptoms of these old laws that are are now having serious consequences for investors and exchanges alike that need to be changed. And this is just probably the first step of what likely needs to be many more changes in order to bridge the old economy with what's what the markets are reflecting now. Yes, I would add that the 611 as it currently exists creates significant fragmentation because anyone can spin up a venue but not have to provide meaningful liquidity in order to get the best quotes from other exchanges that do have that liquidity. So um this fragmentation is

costly um but of course it is um costly on the exchanges where liquidity is provided. It is also costly for um for regulators to have to oversee and comply with. Um and the smaller venues that are fragmenting liquidity are being subsidized in effect um by the larger venues that are providing uh liquidity. >> Yeah, just a small detail here. The reason Michael is talking about 611 specifically because this is the rule that avoids like these crossing orders being executed. The 610E, which is the one we're we're not talking too much about, is the one that allow that that prohibits you from even providing quotes that are crossing the the the protected

the national uh best bid ask and offer price. So, one is about uh showing quotes to the market. That's a 610E. And then the 611 is that is the one that actually prohibits you from trading uh uh across the the national protected uh price. And and then Michael, you were saying that if this were to be rescended, there's still a fall back. I can't you said 53. I you said so many letters and numbers I'm I'm losing track. But there's still a there's still existing regulations that can be as a fallback which is more like holistic based more instead of rules >> 5310. It's a FINRA rule that all FINRA members need to comply with. Now I think that this is not issueless. Okay?

Because FINRA rules imply that you need to be a FINRA member in order to make markets in securities, which is itself a burdensome standard for market makers to comply with. But putting that aside, the FINRA rule is a principlesbased rule. It has five or six or seven different uh conditions that a best executed quote can comply with. Um and it's a holistic query um that uh takes into account market conditions and a host of other factors.

>> Okay. And this is why it would be be a lot easier with the SEC well the previously proposed innovation exemption which I don't know where we stand on that right now. it's been pulled back or delayed and I don't necessarily see any information of when it's going to be resumed but I that's probably the biggest regulation in terms of market structure that we could hope for for for tokenized stocks at least in in the near term. >> Yes, that is a a very important one. Now, to be clear, the reason why that's so important is because of all of these other rules that we could spend hours talking about that AMMs or even small cryptonative market makers cannot even hope to comply with. Right now, and over

the last five years, we've been living in the golden age of market making. Anyone can be a market maker on Hyperlid. Anyone can be a market maker on Salana or on Ethereum. Um and um it rewards the best best quotes, the fastest execution. Um but in the equities world, um they can't even get a foot in the door if they're not a registered broker dealer. And a registered broker dealer effectively requires an entire compliance arm. And um to comply with uh the broker dealer rules is very significant. Um and so uh you need a sledgehammer in my judgment

um to cut through all these rules for a brief period of time to just see if they can work without the rules to see if innovative technology actually has solved a lot of the things that these rules were meant to address. Okay, this is definitely something that's probably under discussed and like Matt was saying um you know when when when we just think we just think about the technology side of it like oh AMMs are great they're permissionless they can they can do this without any licenses registries but at the end of the day those regulations are needed especially if we say you know the institutions are coming and if if that mantra is to be believed and their flows matter then this the regulations matter

even more so yeah def definitely important Um, on a on a slightly different note and and and I don't know if regulations I don't think regulations can help with this. I was looking at some some data and Q2 and I'll just pull it up here on the on the screen. Q2 2026 was actually the most number of hacks in any quarter ever. And it's not necessarily highest dollar value. I mean there, you know, there was this L2, this gaming L2 that was, you know, got hacked by North Korea a couple years ago that was a large dollar amount, but it's the number of hacks happening that are concerning. And this inflection in Q2 specifically, I

can't help I I don't have any data to I I want to dive into it more to see what the causes of the hacks were. You know, was it key management or was it like smart contract bugs? But I have to believe that this is AI related. And I I remember we talked we spoke about the threats of AI um to DeFi a couple like a couple months ago in an episode and I was saying it seemed like DeFi was the first target. It was the biggest honeypot. It was the most untested and the blockchain it's you know it's immutable. So I I don't do we have any you know we said AI sorry we said that DeFi was coming back. It's going through this moment right now of hardening and every hack makes everybody else stronger. But h has the have the

dynamics flipped here with AI and should we expect or are you all expecting this number to increase even more in Q3 or do we think that actually now that the genie out of the bottle so to speak in terms of these agents that they can actually be used as the white hackers or use on the defensive end of it? Um yeah, anybody with any thoughts there? >> So the hacks that happened in Q2 were pretty significant. Um, most of them, if not all of them, were not the result of bad code or flawed code. If it was, I would say you're right. It has something to do with AI. Um, it it had to do with human error or key management or in the case of Drift, a

complex, sophisticated, almost espionage level North Korean operation. Um now securities that trade on chain solve a significant problem that crypto has faced with these exploits and with these hacks because um securities on chain will increase the value of nonbearer assets on chain. And non-bear assets are important because if they are robbed, if they are stolen, if they are the subject of an exploit, the issuer can just burn them and reissue them to the proper party thereby reducing the value of any potential

exploit. You know, if you steal, let's say Drift, when the Drift hack had happened, they had stolen a six $300 million worth of Tesla stock issued by Ono. Ono would not let them just trade that Tesla stock. It would just burn those tokens and reissue them, right? It would be a very simple issue. Um, and so I think this will change as more real world assets get on chain. Um, but yeah, for bearer assets, it's going to remain a problem and I think AI does uh pose a potential problem in the future. I don't necessarily think it was a problem for the last quarter.

>> Interesting. Yeah, I I I fully agree with Michael in that um I I mean kind of a feeling, but it does feel like most of the hacks were not related to smart contract code uh but they were mostly related to key management issues. uh the two things I would say here is that first these are the centralization points in a decentralized system. So so so a lot of the problem here exists because there's a relatively small number of players in some cases just one player that has this admin key that can exert a lot of power over the protocol.

So I think a lot of the problem has been in these uh centralization choke points. Um, and the other thing I would say, I don't know, maybe this is just a lowhanging fruit. Maybe maybe folks are using AI to go for the easier hacks, but at least so far, I've been kind of encouraged to see that AI hasn't been able to find any catastrophic bugs in the blockchain smart contract codes itself. Um, let's see how things go, how things evolve. Um, we're definitely in a transition phase. To me, two things are clear. Number one, we're going to be in a much better spot, let's say six to 12 months from now. I don't know what the

exact timeline here is, but once we survive this transition phase, we're going to be in a very good spot. The other thing, and I I I I would agree with Michael here, is that the next six to 12 months can still be rocky because we don't know, right? Um, some of I mean, these models are kind of getting launched and they get pulled back. So we don't know how much of their power is already out there exploiting every single bug that can be exploited. Uh also the um the defenders will also start to use those models to protect their own systems. So I'm very sure we're going to land in a much better spot. Um I'm still cautious from between now and the path till there which could

be 6 n 12 18 months. Hard to tell at this point. Yeah, I think you guys are technically right about them not being AIdriven than being human flaw driven, but practically wrong on the impact. I think the world is freaked out about AI cyber hacks, right? We just had anthropic pull fable from the market. Uh there's there's a huge amount of hype and fear. So the fact that we had such a large quantum of hacks at the same time that people are panicking about AI leading to more creates risk that we're like one AIdriven hack of DeFi from a really big collective freakout. So I I do think there is a real world element of what's

going on. I like David's long-term optimistic vision, but I don't want to see a major hack of DeFi in the near term. I think that would be uh confidence damaging particularly for institutional adoption of of crypto. I think we have to be realistic that that's one of the material risks just because there's so much societal level freakout about what's going on with mythos and fable and and potential hacks. I think it's raised the level of concern.

>> I think we I agree, Matt, 100%. Nobody wants to see other hacks in DeFi. And I do think that Mythos or Fable um and we haven't even mentioned if China open sources a model as powerful as those, right? I mean, Anthropic can safeguard and pull their very powerful models, but China is um, you know, not that far behind on any of these models, and they open source those models to undercut US markets. So, that could be an issue. But I think it's worth noting and repeating over and over again that um the hacks that we see on DeFi are so visible and so widely discussed because DeFi is

open, public, permissionless and we don't know how many hacks have taken place in private markets outside of crypto that um lack total transparency, right? Um and so uh the reason why we see exploits that feels like every quarter you see some new big exploit um is not because in my judgment crypto is uniquely risky. It's that it's actually uniquely safe in that if there's an issue you and everyone else sees it on chain. And the reason that's a benefit I think in the long term is that when a new model comes out, when mythos comes out or fable comes out or when a new

protocol is launched, every person in the world can underwrite that code and can uh can fuzz that code and try to understand um if there's any vulnerabilities in that code. Um, and while in the short term that creates vulnerabilities and potentially exploitable risks, in the long term it actually creates overall fortification of these protocols. I remember in 2022 there used to be exploits every single day. I mean, if our if our um audience is interested, go to wreck.com, rekt, Google it. Um, it is a great website that chronicles all of

the exploits in DeFi. And there used to be so many of them that took place and they were very complex, very sophisticated, and very damaging. But those types of exploits that happened in 2022 don't happen today. Um because people learned the hard way about how to structure and design these programs on chain and um they were able to correct those issues long term. Yeah, that's fascinating. I I'm just having I'm having my model look through the data right now and they're saying a lot of of the last 77 hacks and I'm getting this data from DeFi Lama by the

way. 63 88 Let me let's just do talk percentage. 88% have been protocol logic and 12% have been private keys compromised. So [clears throat] I and I what does protocol logic mean? I don't really understand. I'm not a cyber security expert, but I don't know. >> The dollar value though, right? Like so >> yeah number yeah >> dollar value just because I think the biggest hacks recently were the private keys. So the dollar value is going to be facilitated towards that. Um >> but I was more I was more looking at the number of hacks because I think and we have more poison addresses now. I just think that it's just becoming maybe easier. Maybe you can use AI to get to smaller protocols that like we've never

heard of or never looked at before from, you know, entrepreneurs who are new to the game. It's it's hard. I mean, everything that you all have said made sense, but it's just hard for me to believe that that this spike is a coincidence just like everybody's getting their private key compromised at the same time. But then again, like I said, not a sec cyber security ex expert, so I don't know. But it's still fascinating. Um maybe next week I'll have a little bit more um nuance data to report backwards. >> Mark, I mean I I don't disagree. When you look at that chart, it doesn't feel it doesn't seem like that could be a coincidence. Um so I agree with that. Uh I I I actually think that it it you know I don't know how useful that metric is

because I think what we care about is like big established protocols getting hacked, not brand new ones that you know Yeah. >> No, there's no liquidity or volume on it. But yes, I uh I think that this is something that is very serious. >> Yeah. Yeah. Hacks are bad. A almost broke. I mean it's been a bad stretch, right? Like like super bad. Uh, it needs to be less bad in the future. >> There's my sophisticated analysis. >> Super bad. >> But I think Michael has a good point because I mean you you we're going to continue to see these mole hacks. I'm I'm looking at the Defalama database and you have a bunch of hacks that are for $10,000,

$50,000 here or there on a protocol that you never heard of. I think those will probably continue to exist. Uh the question is whether we're going to see the kelp dowo and nav contasian type hacks that we already covered extensively. These are the ones that really hurt and and these are the ones that I I don't think we can see anymore. >> Yeah. I mean banks used to get robbed all the time and then technology advanced and now banks don't get robbed that often. Um, and you know, this is a brand new industry, a brand new market, and these exploits are the equivalent of a robbery. Um, and so, you know, that's going to happen at first. I'm not trying to be I'm not being flippant or

dismissing it by any way. I just want to contextualize it that if I were to ask you Mark the same question, how many traditional institutions over that period were exploited? You wouldn't be able to find any data on it, but that doesn't mean that none of them were, right? Yeah, that's a good point. Yeah, and probably a lot a lot smaller ones too around the world are always getting attacked and they but they're not large. They don't have to report it. Some of them don't even know it happened. So, yeah, it's a good comparison. Um, I'm just going to end it on one last note there because this is something that excites me specifically. Uh, I saw that the SEC is approving for the first time an actively managed multi-asset crypto ETF. Um, and you know, I I used

to work in the ETF space like you, Matt, and this is something I've been I've been waiting for for many years now. Um, I'm I'm I'm finally glad we have it. Gives investors a way to get exposure to multiple assets at the same time with active ETFs. So, there's some kind of there's some kind of attempt to get some alpha behind it as well. And I I don't know. I think it's probably, you know, for for for maybe younger investors who want to get exposure to this, it's good to have maybe this as some percentage of your portfolio because I'm always asked always being asked which ones to buy, which cryptos to buy. Most of the time I reply S&P 500 just by if you if you're asking me which cryptos to buy, you should probably just stick to stocks

index fund. But this might be these kind of entities might be more suitable for retail. I I think it's I think it's great for the market. It also, you know, hopefully introduces a sound voice who is out there with positive views on the market. That's one of the things that active managers do in the equity space is you have uh Kathy Wood talking about Tesla, you know, hundreds of dollars ago uh pre-split and uh and that's that's important for the market cycle. Look, any mature market has both active and passive uh funds in it and they both play a key role. I'm excited to have the, you know, Peter Lynch of crypto emerge from one of these active

managers. God bless. And um I think it'll be great for the space. So happy. >> Do you think do you think that this is going to look like uh the traditional active managers um you know dominating or is it going to be a new class of active managers? Do you think? >> I I think everything indicates it'll be a new class of active managers. If you think about the great active managers, they're specialists in one area, right? Like it was Bill Gross in bonds. Bill Gross didn't do stocks, he didn't do commodities, he did bonds. Uh Peter Lynch did stocks. Kathy Wood did innovation. Um it's not typically born, but I think it's idiosyncratic to the individual actually more so than the

firm. It's really about who is sees the mantle of this and who who makes the right calls and and gets a name. And I'll I'll introduce my index bias. I think it's somewhat random. Like most active managers underperform over time, but sometimes one catches lightning in a bottle. So I think it's idiosyncratic to the individual and whether they catch lightning in a bottle with their first few allocations will determine sort of who ends up on the cover of Fortune uh as the the Pedro Lynch of crypto.

>> Nice. The the other thing I want to highlight is that uh the asset manager that got the ETF approved is Chiro Price which is one of the largest ETF issuers in the US. Uh very interesting to see that they went for an active management strategy straight out of the bat and not for an indexing or single asset strategy. Uh the list of assets to me still is still a little bit constrained because it feels like they're more concentrated on the crypto commodities basket. So things like BTC and Soul and XRP and uh Cardano, Avalanche and things like that. I I don't think things like Hyperlquid for example are yet in the approved asset list that they have mentioned uh in their documents, but

again this will definitely come uh with the maturation of the market. Um I know Blue Masalari from the Troll Price team, we should have her over as a guest. She's she's amazing. Uh very very excited for what this team is going to do here. Yeah, she is amazing. It'll be really interesting to see how much active share they take. Crypto is a very challenging market because it's so BTC dominated uh that the degree of active drift you can take can be truly massive, but that's also risky. So, it'll be fun to watch. But I agree, the team at Tro is uh is excellent. Blue knows the space extremely well and uh excited to have them in the mix.

>> Amazing. The other thing I would say is that um I think it was just yesterday that Black Rockck's covered call Bitcoin covered call ETF listed and I think there's one by Goldman Sachs coming soon which is also another it's another active management strategy right so here we're not talking about active stock picking we're talking more about like this active synthetic yield extraction strategy but it's also an active strategy in the sense that uh you need to be aware of the market regime you need to size your positions you need to select the instruments. So overall, I think it's been a very good week for the the crypto active management complex.

>> Okay, love it. Another good week for crypto active management regulations and luckily two prices. Um we're on time there everybody. So I'm going to call it. Um thanks for joining me and for listeners at home. Uh if you have not yet, please subscribe, like, five stars, all of that good jazz. It really helps us show out a lot. Um but yeah, thanks again. Thanks for listening and guys, I'll see you next week. >> [music]