The Wall of Brussels

There is an old, paradoxical lesson that civilizations find hard to swallow. The more you try to tie citizens down with rules, the faster you lose them.

The Romans discovered this when farmers began abandoning their land in droves due to sky-high taxes. Emperors made leaving a punishable offense, but the exodus didn't stop. On the contrary, it accelerated. Centuries later, Louis XIV did the same when he forbade the Huguenots from emigrating. The talent left anyway, and France bled dry economically. Time and again, the same reflex kicks in: when people or capital flee, the state locks the door instead of asking why.

That reflex is alive and well in Brussels. In late October, the Netherlands and France circulated a so-called non-paper. This is an informal discussion paper that EU countries use to gauge whether others share their concerns. This time, it was about tax-driven migration by individuals: citizens with mobile wealth who shift their tax residency to pay less tax, either on paper or by actually emigrating. According to the authors, this threatens to lead to lower tax morale and a race to the bottom. And that... is particularly inconvenient at a time in history when the EU wants to make enormous expenditures and is struggling to balance its budgets.

The proposal: let's tackle this revenue leak together as a Union.

The reasoning is familiar. First came the hunt for multinationals shifting profits, and now the focus has turned to citizens who simply leave. But the question no one is asking is why they do it. The economist Arthur Laffer provided a clue decades ago. His famous curve shows that there is a point at which higher tax rates no longer lead to higher revenues, but instead to less economic activity. Above that tipping point, people adjust their behavior: they work less, invest less, or leave. This isn't a moral choice, but a rational one.

If you extend that insight to society as a whole, you see that the problem isn't limited to tax rates. It's about the entire incentive structure: how predictable policies are, how efficiently governments handle money, how complex regulations are, and how much room is left for entrepreneurship. As soon as the balance tips, people react exactly as the Laffer curve predicts; not just on their tax returns, but with their feet.

That is the core of what Frank Knopers describes in his analysis of the non-paper: the cause isn't citizens who are "escaping," but policy choices that are pushing them away. Repressive regulations, rising costs, and an expanding government make entrepreneurship more expensive and less attractive. Europe's mistake is that it sees this reaction not as feedback, but as betrayal. Instead of asking themselves why people are leaving, officials in Brussels are looking for ways to block the exit.

This is the bureaucratic version of the Laffer curve: the more you try to control, the faster public support disappears. The United Kingdom is already flirting with a twenty percent exit tax, and it’s not hard to predict that such ideas will also land on the table in The Hague. But every fence you build only confirms that people no longer want to stay voluntarily.

History is bursting with examples of regimes that tried to hold their citizens captive with rules. It rarely worked. Capital, talent, and entrepreneurial spirit cannot be forced. So Europe doesn't need to learn how to hold on to people, but rather why they would want to stay in the first place. That answer doesn't lie in sanctions or solidarity pacts, but in policy that is predictable, reasonable, and efficient.

Because people don't run from taxes. They run from getting poor value for their money.

More Alpha

Are you a Plus member? Then we'll continue with the following topics:

1. The bear market has begun... or has it?
2. Political America tries to understand crypto
3. After the shutdown, will crypto start to move?
4. Lawsuit against MEV exploiters declared a mistrial: jury in despair

1️⃣ The bear market has begun... or has it?

Contribution by Peter

Every time the market reaches a crossroads, you can feel the tension in the air. Especially when its recent history is peppered with red numbers. Is a big move coming? And if so, how deep will it go?

Since no one can predict the future with certainty, we work with scenarios. We then assign probabilities to them. This allows you, if you feel it's necessary, to make your own decision about your market exposure. In last Friday's Markets edition, we painted this picture:

1. Resumption of the bull market: 30%
2. A period of sideways movement: 40%
3. A mild bear market: 20%
4. A deep bear market: 10%

The last few times we were at such a crossroads, we were fortunate to find coherent indicators outside the financial world to support these scenarios. This time is no different—the indicators are there, but they often contradict each other. The result? There are now excellent arguments for every scenario, leading to evenly spread probabilities.

This leads to an interesting spectacle on social media, where exaggerated sentiment shows that everyone has their own favorite scenario. One person smirks, expecting Saylor's downfall, while another repeats that the current price level is merely a rounding error on the way to greater heights. Yet another simply observes that bitcoin holders are in pain, and in the middle, there seems to be only room for cynicism: 'crypto' has become the forgotten, unwanted child.

The funny thing is, they could all be right. We don't mean that as a cop-out, but as the conclusion after chewing on all the data—macroeconomic, on-chain, sentiment, and more—at our disposal.

This is one of those moments when the market explicitly puts the ball in your court. Only you can choose a side. Ideally, you do this based on a plan you made before the market put you at this crossroads. Do you have one? Then you can use it as your guide. Was the emergency brake part of it? Then read the update we sent out this morning:

Of course, using the emergency brake also brings a follow-up question. What do you do next? You'll hear more about that on Friday!

2️⃣ Political America Tries to Understand Crypto

Contribution by Peter

Europe has done its homework for a while now. MiCA is a law that regulates everything. From the issuance of tokens to the licensing of exchanges, and from stablecoins to custody. Companies wanting to do something with crypto know exactly which forms to fill out and who to send them to. For the officials in Brussels, that's a success; it offers oversight, order, and control. And, admittedly, for consumers, that's not an unnecessary luxury either.

Across the ocean, the picture is very different. The United States is still grappling with a more fundamental question: what is crypto, anyway? And therefore: who gets to regulate it?

For bitcoin, that has become clear. Both the SEC and the CFTC acknowledge that it's *not* a security, but a digital commodity. Except… that’s not written in any law. The market has to make do with statements from regulators, not with rules written in black and white. And that is precisely why financial institutions remain cautious. No one likes to bet billions on a legal interpretation.

On Tuesday, there was finally some movement in that swamp. The Senate Agriculture Committee – which oversees the CFTC – published a draft version of its Market Structure Bill. A collaboration between Republican John Boozman and Democrat Cory Booker. That alone is remarkable: in a political climate where they can't even agree on the color of the sky, this is a rare bipartisan initiative.

The core idea is quite simple. Bitcoin and ether will be officially classified as digital commodities and will therefore fall under the CFTC. This finally gives institutional investors something tangible to build on. "This is the most concrete roadmap to date for institutions looking to engage with digital assets," Cody Carbone of the industry group Digital Chamber told CNBC.

In addition, the draft bill imposes stricter requirements on the industry itself. Crypto companies must strictly separate their various business activities, with their own teams, resources, and responsibilities, in much the same way that banks do it to prevent conflicts of interest. That sounds dull, but it's precisely the kind of measure that builds trust with large institutions.

The CFTC will also be authorized to collect supervisory fees, and guidelines will be established for which tokens can be traded: only those that are "not easily susceptible to manipulation." With this, the bill aims for a clear and professional trading landscape.

But the proposal is far from finished. Large sections of text are still in [square brackets]. In Washington, that's the convention for indicating that there is no political consensus yet. The chapters on DeFi and anti-money laundering rules, in particular, are thin. The hope is that the Senate Banking Committee will fill in those blanks later, creating one overarching law that everyone can live with.

What's on the table now is the product of months of pushing, pulling, and endless lobbying. Because in Washington, language is power. A single wrong definition can determine who gets oversight, which rules apply, and which companies are even allowed to exist. There has been a long struggle over the words 'blockchain' and 'digital commodity' alone. Hence the square brackets: the battle over language is not yet over.

And even if this bill passes, the United States will still not be on equal footing with Europe. MiCA is a complete framework that covers the entire crypto industry; the American proposal is just a beginning. It establishes who is in charge, not how everything should be done. These are the first few miles of a marathon that Europe has already finished.

3️⃣ After the Shutdown, Will Crypto Start to Move?

Contribution by Peter

White smoke, finally. The U.S. Senate has reached an agreement to end the longest shutdown in history. Once the House of Representatives also agrees, the government can reopen.

Millions of civil servants will head back to the office to get to work. For the crypto market, this means the roadblocks surrounding oversight, approval of investment products, and new legislation will be gradually lifted. With fresh energy, progress will hopefully be made on key initiatives that have been on standby for months.

At the SEC, for example. There, Chairman Paul Atkins is eager to breathe new life into his so-called innovation exemption. Behind it lies a temporary exemption that gives companies the space to experiment with digital assets without immediately having to navigate the legal minefield. As long as Washington was on lockdown, it was all just talk. Now, that policy can become a reality, preferably before the end of the year.

SEC Aiming to Formalize ‘Innovation Exemption’ by End of Year, Chair Atkins Says

While the government shutdown is slowing the SEC’s work, Atkins said he still intends to initiate formal rulemaking by the end of 2025 or beginning of 2026.

CoinDeskNikhilesh De

New exchange-traded products will also come back into focus after the reopening, such as the long-awaited wave of new spot ETFs. It seems XRP will be first in line. Canary Capital's application could become the first of its kind on Wall Street once the SEC is back at full speed. This is not only symbolically important—we're happy to remind you of the years-long battle between the SEC and Ripple—but also a sign that the regulator is charting a new course: less prohibition, more permission.

Across the street, at the CFTC, the reopening means that Mike Selig's nomination can finally proceed. He is seen as a pragmatic regulator who doesn't want to slow down crypto but rather integrate it into existing markets. His appointment would open the door for clearer rules on derivatives and spot markets, which is exactly the clarity institutional investors have been asking for.

In short, the reopening of the government won't change everything overnight. But the brakes are coming off American crypto policy. Regulators can regulate again, policymakers can write again, and market participants can plan again. In a market where trust is sometimes scarcer than capital, that alone can be enough to set the tone.

4️⃣ Lawsuit Against MEV Exploiters Declared a Mistrial: Jury in Despair

Contribution by Erik

An American jury could not reach a verdict in the criminal case against the Peraire-Bueno brothers, who were accused of making off with $25 million using MEV bots on Ethereum. Anyone familiar with this world might immediately think: how is the clever manipulation of a protocol fraud? And indeed, one could argue that clever trading isn't fraud. In any case, the jury was deadlocked, and on November 7, the judge declared a mistrial, as if the case had never happened.

A few weeks ago, we wrote about the documentary Code is Law. It clarifies that hacks fall on a spectrum, from the blatant exploitation of technical flaws on one end to trading strategies tailor-made for a specific trading environment on the other. Where on this spectrum does the Peraire-Bueno market manipulation fall?

The Exploiters Exploited

MEV is the profit that someone, usually a bot trading automatically on behalf of its owner, can capture from the mempool by cleverly using their knowledge of transactions in the queue. The case revolves around the accusation that the Peraire-Bueno brothers' system lured such bots into a trap.

This specifically concerns so-called sandwich bots. These bots profit from a large purchase on a decentralized exchange. They try to have their transaction included *before* the large order they see waiting in the mempool. This pushes the price up, and they sell immediately after. The large buyer is then 'sandwiched' between the two transactions and pays more than necessary. In other, traditional trading environments, this would be called insider trading. As you can imagine, many in the blockchain world also see it as problematic for a fair trading environment.

The victims in this lawsuit are therefore… the sandwich bots. An understandable first reaction might be: who cares? If you think that, you're in good company: it's also the opinion of Ethereum founder Vitalik Buterin:

What happened?

Sandwich bots usually send their transactions as bundles to specialized block builders. These builders combine all the bundles into a single valuable block and then send it to a relay, which ensures that validators can accept the block blindly without knowing its contents. This prevents abuse.

But in April 2023, there was a vulnerability in that process. A validator could sign an invalid block header and thereby gain access to the full block body; all transactions, including all the MEV bundles from the bots.

That is precisely what the Peraire-Bueno brothers did.

As soon as the relay revealed the block, they quickly built their own block in which they pulled apart the sandwich bots' transactions and executed them themselves. Normally, they would have had to race against the original block, but because their block header was invalid, the relay couldn't publish the original block. Their own block thus won automatically.

So the damage wasn't in unincluded transactions, but something much more subtle: the bots were drained because their entire sandwich strategies were stolen and reversed by the validator.

It's MEV on hard mode: the hunters were eaten by the validator itself.

“We are under stress”

That is indeed very ingenious, but is it 'wire fraud' or 'money laundering'? The indictment in 'The United States v. Peraire-Bueno' was based on these charges. Had fraud been committed, as the prosecutors claimed?

The defense countered that pretending to be an honest Ethereum validator is a nonsensical claim. Validators are just software, they reasoned, and software cannot pretend to be something. Everything is public.

The thorny question for the jury was therefore: can code be dishonest? Unfortunately, the Ethereum code in question is very complex. "We are under stress," the jury wrote to the judge at the end of their deliberations. "Yesterday, some of us cried. Others couldn’t sleep."

Judge Clarke was sympathetic to the jury's situation: "This is their eleventh note," she told the lawyers. "No progress. I am going to declare a mistrial."

Dangerous Precedent Avoided (For Now)

As is often the case, Coin Center, a non-profit lobby group for blockchain and crypto, weighed in. It published a so-called amicus brief, which argues that no protocol rules were violated.

Amicus Brief in Support of Peraire-Bueno’s Objections to “Honest Validator” Theory of Fraud

A PDF version of this filing is available here. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK UNITED STATES OF AMERICA,Plaintiff, v. ANTON

Coin CenterCoin Center

Coin Center believes a conviction would set a dangerous precedent. If the prosecutor were to win, it could mean that any behavior within blockchain protocols could come under criminal scrutiny, even if it is technically permissible. This could stifle innovation, as developers and participants would constantly wonder: "will this later be deemed illegal?"

Although Coin Center does not advocate a strict 'code is law' defense, CEO Peter van Valkenburgh argues that eating each other's lunch is an essential ingredient in the blockchain world:

…in these [blockchain] communities, being an "honest miner" is about obeying strict mathematical rules while otherwise engaged in cut-throat competition. It's not some larger notion of "fairness" or "truth." [...] these protocols only work for censorship resistance when their rules are simple and exclude outside, normative (or legal) influence.”

It's clear that this won't be the last lawsuit on the question of whether software is law, and where on the spectrum the honest execution of a protocol ends and fraud begins.

Juries in the US have an interesting task ahead of them... and some more restless nights.

🍟 Snacks

To wrap up, a few quick snacks:

• America gives crypto funds the green light to stake. Secretary of the Treasury Scott Bessent made the announcement on Monday. Funds are allowed to lock up their purchased assets for staking, provided they hold only one coin, use a qualified custodian, and always allow investors to exit. This provides crucial clarity for ETF issuers: staking is now officially recognized as a legitimate, tax-compliant source of returns.
• Michael Saylor debunks rumors of alleged Strategy sale. Social media was buzzing with rumors that Strategy had liquidated part of its bitcoin reserve. The amount was said to be nearly 47,000 BTC. None of it is true, states Saylor. To underscore this, the Strategy CEO appeared on CNBC to explain. There, he said that his company's purchases have actually accelerated. More information on this is expected to be released on Monday.
• Canary’s XRP ETF (XRPC) is off to a flying start. The fund launched on November 13 and booked more than $58 million in trading volume on its first day. According to Bloomberg analyst Eric Balchunas, that's the strongest ETF launch of 2025. The fund thus takes the top spot from Bitwise's Solana fund, which set a record in October. The launch of XRPC coincided with over $1 billion in outflows from bitcoin and ether funds.
• Czech central bank experiments with bitcoin purchase. The Česká národní banka put about $1 million into an experimental portfolio with bitcoin and stablecoins. This is being done outside of its official reserves and serves as a learning exercise for managing digital assets. Some analysts are calling it a remarkable signal: even central banks now want to understand how to manage bitcoin.

Thank you for reading!

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We appreciate your continued support and look forward to bringing you more comprehensive analysis in our next edition.

Until then!