Episode Summary
Executive Summary: The episode centers on Coin Center’s Peter Van Valkenberg criticizing the IRS’s proposed crypto broker rule for overreaching to software developers and smart contract publishers, arguing it violates First and Fourth Amendment principles and should instead use technology-neutral, relationship-based definitions. The conversation then expands to a new paper attacking the Bank Secrecy Act as an unconstitutional delegation of legislative power, plus a discussion of Coin Center’s Tornado Cash appeal. A brief news roundup covers ETF filings, hacks, bankruptcies, tokenization, and Disney’s NFT partnership.
Main Topics: IRS crypto broker rule and tax reporting (Priority: 5/5): Peter explains the IRS proposal to define 'broker' so broadly that it could include software publishers and smart contract deployers, not just custodial intermediaries like Coinbase or Kraken. He argues the rule misreads Congress’s intent and would make compliance unrealistic for DeFi participants. First Amendment challenge to compelled reporting (Priority: 5/5): Coin Center argues the rule compels speech by forcing software developers to collect and disclose user tax data and personal information, which they do not otherwise do and which conflicts with privacy and civil-liberties norms. Fourth Amendment and warrant concerns (Priority: 5/5): Van Valkenberg says non-custodial software developers are not agents of users, so the government should not obtain user financial data through third-party reporting without a warrant, unlike ordinary broker relationships. Bank Secrecy Act and non-delegation doctrine (Priority: 5/5): A new Coin Center paper argues the BSA gives Treasury overly broad lawmaking power over who counts as a 'financial institution,' raising constitutional separation-of-powers problems under the non-delegation doctrine. Practical policy alternatives for DeFi taxation and surveillance (Priority: 4/5): He suggests the IRS should focus on custodial on-ramps/off-ramps, improve guidance for real brokers, and use targeted investigations for noncompliant DeFi activity rather than sweeping software into the reporting regime. Tornado Cash sanctions appeal (Priority: 4/5): Coin Center’s lawsuit challenging OFAC’s sanctions against Tornado Cash smart contracts was dismissed at district court, but the organization is appealing and remains optimistic at the circuit level. Weekly crypto roundup (Priority: 3/5): The second half covers BlackRock’s ether ETF filing, a fake XRP trust filing, FTX/BlockFi/Genesis litigation, a Poloniex hack, tokenization initiatives, and Disney’s NFT collaboration with Dapper Labs.
Key Arguments: Technology-neutral legal standards are preferable because broker definitions should depend on a customer-professional trust relationship, not on whether software is used. The IRS broker rule improperly resurrects earlier, broader language Congress removed, expanding reporting obligations to people who merely publish software or smart contracts. Forcing developers to collect and report user financial data compels speech and conflicts with their privacy and civil-liberties beliefs. Third-party reporting fits ordinary custodial brokers because they act as agents of customers, but it does not fit non-custodial software publishers. The government can still enforce tax law in DeFi by targeting cash-outs, using existing third-party reports from custodians, and funding more investigations for areas with low reporting. The Bank Secrecy Act is not just ambiguous; it is excessively broad and delegates too much legislative power to Treasury, making it vulnerable under non-delegation principles. Coin Center is not opposed to tax collection or regulation per se; it wants clear, constitutionally bounded rules that apply to actual intermediaries. Coin Center is pursuing both legislative fixes and litigation, including the Tornado Cash appeal, to limit overbroad crypto enforcement. The organization sees the Supreme Court climate—major questions doctrine, limits on Chevron deference, and skepticism of broad delegation—as favorable to its arguments.
Data Points: Episode date: November 17, 2023 - The Unchained episode featuring Peter Van Valkenberg. Original crypto broker language: Removed after a Senate fight in 2021 - Van Valkenberg says Congress stripped out language that would have swept in decentralized exchanges and non-custodial actors. Coin Center paper length: 60 pages - The new paper on the Bank Secrecy Act and constitutional infirmities. BlackRock ether ETF filing impact: Ether briefly rose 2% to $2,079 - Market reaction to BlackRock’s spot ether ETF application. Ether price after filing: Around $1,983 - Price stabilized after the brief spike. FTX vs. BlockFi claims: $1 billion+ claimed lost by BlockFi - BlockFi alleged FTX’s collapse cost it over $1 billion. BlockFi tied up at FTX: $355 million - Funds BlockFi says were trapped on FTX. BlockFi owed by Alameda: $671 million - Additional claim BlockFi says it is owed by Alameda Research. FTX transfer to exchanges: $13.5 million in SOL - Wallets believed controlled by FTX moved Solana to Binance and Wintermute. Additional transfer: $4 million USDT - Other funds moved alongside the SOL transfer. Poloniex hack: $125 million stolen - Security firm and Justin Sun said hackers hit Poloniex hot wallets. XRP spike from fake filing: 12% in 30 minutes - A bogus BlackRock XRP trust filing briefly boosted XRP. Leveraged long liquidations: $307 million - Crypto market liquidations during the week. Crypto investment product inflows: $1.1 billion+ - CoinShares data for the year to date. Bitcoin inflows last week: $240 million - Leading crypto investment inflows. Ethereum inflows last week: $49 million - Crypto investment product inflows into ETH. GBTC discount: About 13% - Narrowed from an all-time low discount of 49%. Finality funding: $95 million - FinTech specializing in tokenized cash raised in a round led by Goldman Sachs and BNP Paribas. SuperState Series A: $14 million - Startup raising money to build compliant tokenized registered investment funds.
Pivotal Quotes: "It’s much better in all legal areas and policy areas generally to have technology neutral standards." — Peter Van Valkenberg: Opening argument for why broker rules should remain relationship-based rather than software-based. "This rule ... would include all kinds of people, including people who merely publish software." — Peter Van Valkenberg: Describing why the IRS proposal is overbroad and reaches non-custodial developers. "The BSA is not ambiguous. It’s just extremely broad." — Peter Van Valkenberg: Explaining why Coin Center emphasizes non-delegation rather than only Chevron-style ambiguity arguments.
Implications: If adopted, the IRS rule could pull many DeFi developers into tax-reporting duties and trigger constitutional challenges. More broadly, Coin Center is positioning crypto regulation as a test case for limits on administrative power and for technology-neutral policymaking.