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. The firm has started turning these into 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. But for more comprehensive and unfiltered thoughts, I have been 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.
It was a great week personally, as I was able to get out to Kansas City to speak at the BlockchainKC Conference which was an awesome chance to catch up with local founders and leaders in the space. Lots of cool stuff in the blockchain industry coming out of KC. Additionally, the news of the BlackRock projecting a potential spot ETH ETF has made me happy as somebody who has been watching longingly from the sidelines as the BTC investors saw their assets pump while my ETH just sat there doing nothing. In other news, the CFPB has entered the digital asset regulatory fray, and the SEC was as busy as always.
Here’s everything that happened last week in Web3 law:
Consumer Financial Protection Bureau (“CFPB”) Proposed Digital Wallet Regulations
The CFBP has proposed new federal oversight rules for non-banks which provide digital wallet or payment applications. Read the proposed rule and request for public comment here. In the release announcing the proposal, CFPB Director Rohit Chopra stated “Today’s rule would crack down on one avenue for regulatory arbitrage by ensuring large technology firms and other nonbank payments companies are subjected to appropriate oversight.” House Financial Services Committee Chair Patrick McHenry released a statement vehemently opposing the proposed rule.
Tl;dr: The CFPB estimates that this rule will affect 17 non-bank financial institutions, but of course it doesn’t name those and the definitions are broad enough that this number seems low. Assumedly they only mean to encompass the PayPals and Venmos of the world, but they expressly include bitcoin transfers as a payment so any company which allows for digital asset transfers would seemingly also fall in these rules.
SEC Responds to Binance Motion to Dismiss
The SEC has responded to the Motions to Dismiss filed by the various Binance entities back in September. While Binance was sued a day before Coinbase, due to some strategic lawyering from Coinbase’s attorneys, Coinbase has led the way in the briefing on the cryptocurrency exchange litigation. This latest briefing kept with that theme with the SEC largely restating the points they made against Coinbase in its case against Binance.
Tl;dr: The SEC predictably led with their arguments that securities laws are intentionally flexible, without stating any actual limiting principal on what separates a security from something that a person subjectively buys with at least some profit motivations (like a car, house, our countless other assets which value largely comes from actors other than the purchaser/owner). Interestingly, the SEC seems to have finally backed off its position that ETH is a security, stating BTC and ETH are the “largest crypto assets in existence but [are] not at issue here.” (Pg. 47).
Other Stories
As stated above, with the spot Bitcoin ETFs all but approved at this point, we saw the next jump with BlackRock making moves which seem to indicate a spot ETH ETF on the horizon for the financial giant.
The SEC cannot find people to hire in crypto because of an Office of Inspector General rule which says an individual cannot own any crypto at all if they participate in crypto enforcement actions. It is a bad rule, but the rule comes from the same people as those currently dictating the agency’s digital asset agenda, so they won’t get any tears from me on their hiring woes when there is an easy solution to just stop treating all crypto the same.
Speaking of the SEC, Commissioner Uyeda recently released a statement expressing concern about the SEC’s use of administrative subpoenas without objective and articulated standards for enforcement staff to abide by. “The SEC could have proactively contributed to the creation of a body of law regarding cryptocurrencies and digital assets. Unfortunately, the SEC did not take this approach and instead is pursuing a case-by-case approach through enforcement actions.” Just need one more Commissioner to take the side of common sense…
The DeFi Education Fund issued their tax proposal comment letter, and because Jason Schwartz is one of the authors you know it is the best cogent explanation with all the things the proposal gets wrong. With over 115,000 comments so far, the IRS has their work cut out for them.
The Federal Reserve is still researching stablecoins, but with everything else going on in the world it seems slim that even once promising stablecoin legislation can be passed this year.
As a noted Illuvium Land bag holder, it was phenomenal news to wake up and see the game listed on Epic Games. There are a few front runners for what digital asset native game will be the first triple A rated breakthrough into non-native gamers, and I like Illuvium’s odds of being the first to break through that barrier based on the years of production and team behind it. And that’s my obligatory crypto gaming will be huge weekly reminder.
Tom Emmer was looking out for his digital asset industry friends when he snuck a provision into the House Budget Bill which prevents the SEC from using the budget it is given to go after digital asset companies until there are additional congressional regulations giving them such powers. And for that, we thank him.
Speaking of political tomfoolery, during these budget proposal times it is always worth checking out my friend over at CapHillCrypto to stay up on these legislative efforts effecting the industry.
Binance is launching its own self-custody wallet to match the wallets offered by Coinbase and MetMask. Kind of surprised it took them this long, to be honest.
It goes without saying for the people reading this regular update, but no, FTT token will not have any value even if FTX is able to relaunch some form of an exchange out of bankruptcy.
This academic article on the high-impact problems in the DAO ecosystem and ideas for solutions crossing a wide range of academic specialties is one of those articles I have to share to preserve for posterity even if it is way over my head in many aspects.
The title of this Forbes article, How Misinformation On Hamas And Crypto Fooled Nearly 20% Of Congress, says it all. As stated by Senator Lummis, “Crypto is not the problem, bad actors that exist in every industry are.”
A couple of the FTX executives who have come out relatively unscathed (former GC Can Sun who testified against SBF at his trial, and Armani Ferrante) are starting their own cryptocurrency exchange. Honestly, if FTX had just stuck to being a boring exchange instead of playing shell games with SBF’s hedge fund as well it was a profitable business, so seemingly these would be good people to set up a U.S. exchange.
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 