ASH BENNINGTON: Coinbase and Kraken hit with investigations. All eyes on the Fed, a regulatory scramble. Welcome to the Real Vision Crypto Daily Briefing, freshly rebranded today. It's not just the name that will be changing on the show in days to come. Let us know what you want to hear about, what stories from the crypto space you most want us to deep dive into. Send us your thoughts, comments, and questions in the chat.

Today we will discuss the broader macro environment for crypto as well as some interesting and potentially precedent-setting legal battles. I'm Ash Bennington and I'm joined today by David Nage, portfolio manager at ARCA, and Ari Redbord, head of legal and government affairs at TRM Labs.

Let's get right into the price action so we can get a sense of what's happening right now in these markets. Bitcoin is stable around 21,000 after the recent rally started fizzling. It remains down, well, about 10% on the week according to Coin Market Cap. Ethereum is once again outperforming Bitcoin, rising a little over 6% in the last 24 hours.

Lots of talk about the merge, the widely anticipated move for Ethereum from proof of work to proof of stake and obviously significant changes underneath the surface happening with that. It's been the primary driver of ETH's recent price surge. We'll do a deep dive on it on Crypto Daily Briefing in the coming weeks.

Many in the crypto space are wondering whether we have hit bottom or if there's another big sell off around the corner. A catalyst for it could be today's Fed decision. It's widely expected that the Fed will hike interest rates by 75 basis points. But a historic 100 basis point rate hike is not completely off the table. Look, we've got a lot of stories right now that are developing in the legal sphere, each one of them very different in its own right.

Our first stories involving Coinbase parallel complaints filed, a criminal complaint by DOJ, and a complaint from SEC. And also this is revolving around an insider trading case at Coinbase but the case has broader implications than just the allegations of wrongdoing by the co-conspirators or I should say the alleged co-conspirators in that case.

Second, we have a story about Kraken and international sanctions and, third, a story about being reported by Coinbase-- excuse me-- by CoinDesk and The Block that a new draft of stablecoin regulation is coming. Let's bring in Ari. Ari, you have exactly the background we'd most like to talk to when we're thinking about stories like this. You're head of legal and government affairs at TRM Labs.

And prior, you were an assistant US attorney for the District of Columbia and a senior advisor to the Undersecretary for Terrorism and Financial Intelligence. A lot of relevant experience here. Ari, how would you characterize what's happening in some of these cases? Let's start with Coinbase.

ARI REDBORD: Yeah. No. It's just a really extraordinary moment. We've seen so much action from really DOJ and then, to only a slightly lesser extent, SEC over the last two weeks. But starting with the situation with Coinbase-- and really, to be clear, this is not a Coinbase situation. Right. What you had here is you have an individual that was charged with wire fraud by the US Department of Justice.

And stepping back for a moment, it really is important to take these cases separately. So starting with the Department of Justice case, the criminal prosecution, basically, what happened here is an individual who was working at Coinbase has been charged with wire fraud for using insider information to essentially trade on tokens that he knew were going to be listed on the exchange.

Obviously, when a coin is listed by Coinbase, the coin tends to go up in value. And he traded on having that information with co-conspirators. That is a criminal prosecution. It doesn't matter what the definition of that token is, whether it's a commodity, or a security, or a currency, or really anything else.

It's the activity, the criminal activity here, wire fraud, that is at issue. And the Department of Justice is going to have to prove their case beyond a reasonable doubt, that they had access to this information, that they used this information and ultimately traded on it for a profit.

ASH BENNINGTON: Ari, is it fair to say-- obviously, here in the United States, these are allegations. Innocent until proven guilty. But when you read the facts associated with that case, my first take on it was if this were a case where someone was being charged, for example, an employee at Goldman Sachs for US security, this sounds precisely the kind of conduct that in that hypothetical that I've just set up would likely be charged as insider trading. Now they're not securities so tell us a little bit about what you're alluding to earlier about how these have been charged under wire fraud statutes.

ARI REDBORD: Yeah. No. Absolutely. And look, I spent 11 years as a federal prosecutor at the Department of Justice. There's nothing more important than to say that everything in an indictment is allegation and only an allegation. That said, these are pretty strong allegations.

I think one of the sort of unique things about this case and really about the nature of crypto and blockchain is that, arguably, this case came from a tweet. You had a sort of Twitter sleuth who was watching transactions and saw a lot of activity, a shocking amount of activity, on some of these coins that were going to be listed by Coinbase right immediately prior to the event and put it on Twitter.

That doesn't happen in the traditional world. We don't have visibility on financial flows the way we do in crypto. And that's really also what makes the case so strong. Right. You can actually see the wallet addresses where these funds flowed. Coinbase likely had information on those wallet addresses in the form of know your customer information, and is able to ultimately work with law enforcement to provide that type of information. So these cases are very strong when it comes to cryptocurrency, because you are able to take that alphanumeric address and watch the flow go in and out of that address. And that's what really makes these allegations very strong.

Pivoting slightly to your question and that is, look, the SEC case is very different. You don't have the same standard. But the SEC also has to prove something very different when it comes to insider trading. And it has to prove that each of the assets that were traded were securities. And essentially, what does that mean? And it's important because if they are not securities, if they're commodities or something else, then the SEC doesn't have jurisdiction over those tokens.

ASH BENNINGTON: Ari, this split in many ways really comes to the core of the implications for this case. On the one hand, we have some individuals who've been accused but not convicted of some type of criminal conduct. But on the other, this implication that potentially could be much broader about whether or not digital assets that are being traded on Coinbase are, in fact, securities.

ARI REDBORD: Absolutely. And it's interesting. When I was a prosecutor, it was literally misconduct to say to a jury, make a statement. Send a message. You don't do that. In this case against these co-conspirators, the US Department of Justice, the federal prosecutors who are involved, are focused on only their case. They are only looking at those individuals and their conduct.

It's different when it comes to regulators. The SEC is very much trying to send a message here. And what it's saying here is, look, there are certain crypto assets, tokens, that we believe are securities. And we're going to prove that through this enforcement action. And that's why it's going to have the sort of reverberations or repercussions potentially because, hey, there are other tokens here that are not named but have some of the similar qualities to these. I think we're going to get potentially to a point where we're going to consider-- actually have definitions, are these securities or are they not?

That's the broader implication. Absolutely. And that's what the SEC is going to have to show here. But I will say one thing that's really important is crypto moves faster than anything we've ever seen in our lifetime. But the courts do not. And this is not going to be something we're going to have answers for in the coming days, weeks, or potentially even months.

There's a case currently pending involving Ripple and its asset XRP which, again, a lot of the same kind of questions around that is it or is not a security. Just because that case has been pending longer, we may get some insights into ultimately that sooner than this case. But this case is going to take some time.

There's legislation that is out there in the world. That potentially that has some implications on ultimately how this is decided. But one thing that you just take away that is still so interesting about these court cases is at least the SEC case is going to come down to a 1946 Supreme Court decision that interpreted 1933 and 1934 securities law.

ASH BENNINGTON: And this is the Howey test.

ARI REDBORD: This is the Howey test. And it's so important but also so interesting. Again, I'm a lawyer so I like to geek out on this stuff. But look, Howey was about investors in an orange grove. And what it really said is, look, those investment contracts in that orange grove were securities because you guys aren't farmers. You needed a third party to ultimately create the result for you. And that's really what an investment contract is. Is a third party promoter ultimately responsible for the profits or not profits.

ASH BENNINGTON: Ari, lots to cover here but I want to make sure we're able to bring in David in a few minutes.

ARI REDBORD: Absolutely.

ASH BENNINGTON: I just wanted to ask one other question as we teed up these cases. 60 seconds or less, what's happening-- and by the way, which as you said at the top of the show, obviously, these are all very different cases, very separate. In the case of the CoinBase case, we've got the actual text from the Southern District of New York that we can rely on for their press release. But there are also this reporting from sources saying that there is an investigation going on into Kraken. Talk a little bit briefly if you could about what is at stake in terms of these sanctions regimes and why this could be-- highlight could be-- problematic for Kraken.

ARI REDBORD: Sure. And again, this is even below allegations. Right. This is just sort of sources are reporting. But I think what this really just shows-- and I think it's in a broader conversation-- and that is the Office of Foreign Asset Control, OFAC, which is part of the US Treasury Department, they're the sanctions regulator-- is very, very focused on digital assets and digital asset service providers.

There's a guidance from October of last year that really delves into what is the expectation for a cryptocurrency business when it comes to mitigating the risk of sanctions using blockchain analytics tools, using geolocation, having compliance professionals in place. And it's so important because there are places in the world-- Iran, North Korea, Sudan, Cuba-- where you are absolutely not allowed to transact with any individual or entity in that location.

So what is really required today from OFAC, from Treasury, is that if you're a crypto business, it doesn't matter who you are, Kraken or anybody else, you have to mitigate the risk of individuals or entities transacting with you from those jurisdictions. And what this shows, if nothing else, is that they're taking that obligation very seriously and are potentially investigating to bring enforcement actions.

ASH BENNINGTON: Yeah. Important points there. And obviously, much more to come on this story, the general framework in what's happening with Kraken both. I wanted to bring in David Nage. David, you've heard these conversations that Ari and I have been having. Obviously, some significant questions, significant potential legal cases here, and existing legal cases. You're a venture capitalist. Talk a little bit about what the implications that you see are for markets and price action around cases like this.

DAVID NAGE: I think, first and foremost, I think about navigation. I'm about to take a two hour drive. And I'm going to rely on my GPS. And my GPS is going to tell me where there's traffic and where there's an accident. It's going to give me guidance on where I need to go to get to my destination the fastest, the most expedient way possible.

And I think of regulation. I think a policy that we're starting to see right now in the same vein is that this is giving us GPS for the future. For the founders out there that are building new innovation, new businesses, new companies in digital assets, this is incredibly important for them because this will give them guidance for the future. What we've seen from the venture perspective, last year you saw a predominance of raises that were SAFTs, Simple Agreements for Future Tokens.

What you've seen now due to the market downturn is you've seen a change to what we call SAFEs, so that's what Y Combinator fashioned a few years ago, plus warrants. Warrants are for tokens to be distributed in the future. Again, the vision here and the mission here is to decentralize, and distribute, and to further incentivize those that are participating in these networks. And so having a warrant basically is a promissory for future delivery of a token.

This is important, again, because, for founders, they will have some patterns, some guidance, some GPS, if you will, on what is going to be allowed and permissible and what's not going to be. And so this is a fantastic time for them to be able to have that discovery, have that information, and be able to really do things that are in a regulatory and legal compliant way.

ASH BENNINGTON: Obviously, lots of news flow today. We mentioned at the top of the show the Fed hike that is alleged to be forthcoming today, pricing showing 75 basis points or thereabouts in terms of what overnight index swaps are showing. How do you think about what's happening right now in monetary policy relative to price action?

Obviously, we should say if you look at a correlation between, say, the NASDAQ 100 and the cryptocurrency constellation broadly, you see a great deal of correlation there. How are you thinking about that monetary policy more broadly and its implications for crypto asset prices?

I've been around markets long enough where I know the market likes to know and is actually very keen to what's going to happen in the future as regards to policy. Markets become very volatile when the market participants don't have a very good sense of what the Fed is going to do. And so I think what we've seen over the last few quarters is there's been a slight imbalance between what the Fed is doing and what the market believes it's going to do.

I think you saw the 75 basis point move last time around as a positive. It fell in line with what the market thought was going to happen. There were those that thought that 100 basis point move was actually more justified, that let's just take the Band-Aid off and let's just get to a point of neutrality.

This next 75 basis point shift if we see it today brings the benchmark to 2 and 1/4% or about 2 and 1/2% to the target range, which is equaling the estimate of the neutral rate that neither stimulates nor restricts growth. So I think we're getting to a point where the market is starting to believe that this may be the last bout.

If you're taking medicine, this may be your last bed of antibiotics. The infection may be coming to a close. And we're starting to see your sentiment out there that market participants think that a 50 basis point shift may happen next time around. And you might start seeing a bit of a slowdown in terms of that.

There's definitely an effect out there. I think it's really interesting that most market participants out there and most sentiment I read out there is not taking into account that there's a bit of a bifurcation.

In terms of the last two and 1/2 years, people around the world have been effectively in lockdown in various forms. They've been in their houses, their apartments. They haven't been able to freely roam around. They haven't been able to travel. They haven't been able to enjoy lifestyles that they're used to.

And when the vaccine started to be rolled out and people started obviously getting immunized, you start to see this pent up demand for going out and travel. And you start to see that now with airline rates with obviously seat occupancies at all time highs. You're starting to see this pent up demand that's still coming in.

And so there's a bit of a dichotomy where you have the Fed on one side basically trying to squash this new demand. And you have all of these people in the world that are trying to go out and enjoy themselves for the first time in two years. And so I think we're in a really interesting point in time for that. As it relates to markets, as I said again, markets really are keyed up on visibility and transparency. They want to what's going to happen and when it's going to happen.

And we've seen time and time again over the last few cycles here with this new Fed with Powell that there's been a bit of a disturbance there. They haven't really been lockstep as they used to with Greenspan and others before.

ASH BENNINGTON: Well, it's interesting. You bring up this core paradox of what's happening right now with expectations on interest rates. So one of the things that I think is most intriguing about this state that we're in today, if you get the pricing of overnight index swaps, and you can see something similar in the structure of the curve going forward.

What you see is this expectation that we're going to reach a terminal rate of about 3% to 3.25% on the Federal funds rate. And then you start seeing the expectation of rate cuts after that. And this is the challenge that we talked about across capital markets today, which is this Scylla and Charybdis that the Fed is caught between.

On the one hand, you have 9 plus percent CPI prints. And on the other, you have indicators beginning to show recession in the economy. So this challenge that you have where you have inflation being way high, sky high, 40 year highs, and, on the second, you have this obvious slowing, based on the data that we're seeing, had a negative print in terms of the contraction of GDP from the prior quarter, how do you balance this out, because it is a really sort of almost a world where you see the immovable force and the unstoppable object butting heads?

DAVID NAGE: I think that's a question to be answered. It's one that I wish I had the answer to right now. Some of the things that we look at, for instance there's about $5 trillion that consumers have on the sideline. I think that's according to CNBC. They recently reported that a few months ago. We see that there's just a tremendous amount of capital on the sidelines. And that's also for the investors out there.

We see that-- you're going to talk about stablecoins as