Intro/Disclaimer: In late 2022 I started preparing updates for the attorneys at my firm practicing in the Web3 space regarding what legal stories people were talking about the prior week. I believe eventually we are going to do monthly or bi-weekly posts on the award winning BitBlog summarizing the top stories with tl;dr breakdowns on the stories’ importance and general thoughts on their ripple effects on the industry. In the meantime, I thought I would start putting the weekly updates on my personal blog as well on Tuesdays. Note, any opinions from these (or any of my other) blogs are mine alone, and are not adopted or endorsed by my firm.
After a few quiet weeks in crypto, this past week it picked back up with the US House of Representatives beginning in earnest to craft the digital asset legislation that Financial Services Committee Chair Patrick McHenry promised would be passed by the House in the next few months. Coinbase also once again leads the news with their push against regulation by enforcement for the industry. I also included a rare visual addition to the update that isn’t my pfp. Certainly it’s just a coincidence that countries which are providing regulatory clarity are seeing increases in investment while countries which aren’t are seeing decline.
Here’s everything that happened last week in Web3 law:
House Holds Joint Subcommittee Meeting on Digital Assets
The House of Representatives held a joint Financial Services/Agriculture Subcommittee hearing entitled: The Future of Digital Assets: Measuring the Regulatory Gaps in the Digital Asset Markets. You can view the background memorandum here and the opening statements of the witnesses here. It is unusual to see a joint hearing between committees like this, so it shows that the House is making digital asset regulation a priority this year.
Tl;dr– House Financial Services Committee Chair Patrick McHenry appears be holding up his promise to have a digital assets bill through the House in the next few months. I didn’t watch the entirety of the hearing, but I did watch the opening statements (Andrew Durgee from Republic Crypto had an especially good statement) and I am hopeful that US can get something workable for the industry through the House (including potential stable coin legislation). The issue will remain getting something passed in the Senate and signed into law by this current Executive. It seems like in all versions of the legislation, the CFTC is going to get expanded powers over the industry and the SEC is going to get their powers curtailed (much to the chagrin to the authors of this leaked memo to House Democrats). Congrats, SEC Chair Gensler. You played yourself.
Various Amicus Filed in Support of Coinbase Writ of Mandamus Action
This week, the Third Circuit issued an order granting all of the amici’s motions for leave to file in support of Coinbase that have been filed thus far. Those motions include those filed by the US Chamber of Commerce, the Crypto Council for Innovation, and Paradigm Operations LP. Neither Coinbase nor the SEC opposed the filing of these motions to submit amicus briefing.
Tl;dr– I’m not going to lie, this wouldn’t have been a major story if it wasn’t for the participation by the US Chamber of Commerce filing a memorandum which starts “As it stands today, nobody knows for certain which digital assets, if any, are ‘securities’ under federal law. That is no small question. It has immense implications for every person involved in the $1 trillion digital-asset economy, and it is the threshold regulatory question from which all others flow.” The Chamber’s legal team is led by one of the attorneys for Petitioners in the West Virginia v. EPA case, so certainly somebody who understands the Administrative Procedure Act. I still think the SEC likely gets out of this on jurisdictional grounds, but they have a formattable fight ahead of them and I can certainly see a dicta bench slap happening on the SEC’s way out the door which Coinbase/others can use for fair notice defenses. “Just come in and register” may be a talking point of the past.
Other Stories
This week, PayPal disclosed nearly $1 billion in cryptocurrencies on its balance sheet in a 10-Q filing with the SEC. This is a 3X increase from the disclosures for the period ending in March, 2023. This comes the same week as a few major firms like Goldman Sachs and Deloitte put their support behind their own financial blockchain network and Robinhood announced plans to make stock markets operate more similar to 24/7 crypto markets.
The Texas House of Representatives overwhelmingly passed a proposed amendment to the Texas Bill of Rights to add “the right of the people to own, hold, and use a mutually agreed upon medium of exchange, including cash, coin, bullion, digital currency, or scrip, when trading and contracting for goods and services shall not be infringed.” No idea where the federal laws end up, but from this, the below New York bill, the Florida attempts to ban CBDCs, and others it seems like we are in for a federalism fight eventually.
This technically happened last week, but the New York Attorney General has revealed a draft bill which she says is to “protect customers and investors in digital assets from fraudulent practices, eliminate conflicts of interest and increase transparency.” The issues with the bill are too numerous to count, including directly conflicting with New York’s existing BitLicense framework. I didn’t cover it because New York is going to New York, but it has gained some national attention so worth including as an update for continued monitoring.
The Blockchain Association, Coinbase, the Small Business Association, JPMorgan, the Wall Street Blockchain Alliance, and a16z submitted comment letters in opposition to the SEC’s safeguarding custody rule. A16z’s in particular didn’t pull punches saying “[i]n the rare instance where the Commission specifically considers the crypto markets, it is only to propose and over-broad and unworkable restriction…”
It is now possible, through the use of zero-knowledge cryptography, to prove that certain withdrawals from certain digital asset mixing services were not connected to a list of suspected criminal deposits. We need this type of tech to continue to improve and be accepted by regulators if people have any hope of preserving privacy in an otherwise fully transparent blockchain ledger.
This was a pretty good article on the differing approaches taken by EU and other legislators as opposed to US legislators when it comes to blockchain regulatory policies. Speaking of random articles I enjoyed, this was a great/simple rundown on the MakerDAO Endgame plan.
Bittrex has filed for bankruptcy following the SEC complaint against them on their way out the door winding down US operations. They were already dead in the US, but now with bankruptcy and associated costs what was going to be US users getting their full value may now result in getting something less than that. But remind me again how the SEC is protecting consumers with these types of actions?
SBF’s legal team has filed seven motions to dismiss in the disgraced FTX founder’s criminal case. The only charges they didn’t file for dismissal from were: 5- Conspiracy to commit commodities fraud; 6- Conspiracy to commit securities fraud; and 11- Conspiracy to commit money laundering. He’s obviously going to go to jail still for basically ever, but I don’t doubt he has some meritorious arguments regarding the DOJ’s rushed charges and continued adding on of charges after-the-fact.
Thanks to Bitcoin ordinals and BRC-20 tokens on the rise, for the first time in years the transaction fees paid to miners exceeded the validator rewards. This is good news for miners, but bad news for anybody forced to pay these fees to have their transactions go through.
The former Coinbase employee accused of “insider trading” and plead guilty to two counts of conspiracy to commit wire fraud has been sentenced to two years in federal prison. Anybody with some crypto skeletons in their closet would do well to get a solid criminal defense attorney on retainer now with the DOJ promising to crack down on the industry bad actors.
A federal judge has approved a preliminary injunction against a cryptocurrency promoter after previously approving the same promotor be served via airdropped NFT and Discord post.
Roblox, a popular immersive metaverse game, sold $774 million of digital currency tokens in Q1 to 66 million active users. It is only a matter of time until a platform without a walled garden and with true digital asset ownership breaks through. It is why I think things like gaming and music/ticketing will open the floodgates to Web3 adoption. This is why Metaverse related products and services could contribute to 2.4% of the US’s GDP in just over ten years.
NFT project Pudgy Penguins raised $9M in a seed round to expand and further develop the brand’s IP. It’s a success story after the brand was purchased from the original developers a little over a year ago. This was a part of the $56m+ in funding which poured into Web3 projects this past week.
Coinbase announced its Global Advisory Counsel and it includes Republican retired Senator Patrick Toomey and Biden pollster John Anzalone. Does this mean there is somebody with ties to Biden that can make his administration see the error of their ways? Too soon to say.
Conclusion
If you have any questions or would like me to write about anything else, let me know on either of my twitter pages! As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.
The NFTtorney 