Intro/Disclaimer: Since late 2022, I’ve prepared weekly updates for attorneys at my firm to stay abreast of the latest Web3 legal developments. The biggest stories are included in Bi-Weekly posts on the renowned BitBlog, where we provide concise tl;dr overviews and insights into how these developments might ripple through the industry. In pursuit of a more thorough and personal discourse, I also share expanded versions of these updates on my personal blog every Tuesday. Here, you’ll find my unvarnished perspectives, offering a deeper dive into the nuances of these legal narratives. Please note, the views and opinions I express, both on BitBlog and my personal blog, are solely my own. They do not reflect the official stance or endorsement of my firm.
Last week was the annual World Economic Forum in Davos, Switzerland, and if the cabal of monetary elites lost your invite in the mail (like I am assuming happened to mine) there were some developments in digital assets discussed below including JP Morgan’s Jamie Dimon questioning if Satoshi was going to reappear and either create more Bitcoins or take the network down entirely (spoiler alert: that’s not how this works. That’s not how any of this works.).
Here’s everything that happened last week in Web3 law:
Coinbase Faces Off with SEC on Motion to Dismiss Oral Arguments
Oral arguments on the Coinbase Motion for Judgment on the Pleadings occurred on January 17. The hearing lasted over 4 hours, and interestingly the SEC agreed that the tokens themselves are not securities, something they have previously disputed with their allegations of “crypto-asset securities” in various pleadings. The oral arguments focused on three major issues: (1) what the judge should be considering for purpose of a 12(c) Motion for Judgment and what can be judicially noticed; (2) the status of the tokens named in the Complaint and why sales on Coinbase would be security transactions as the SEC alleges; and (3) does this lawsuit raise Major Question Doctrine or Fair Notice issues?
Tl;dr: One thing that stood out early was the Court clearly playing attention to the amicus briefs, giving flowers to the description of staking by various briefs as being more understandable than the SEC’s description. This includes a wonderful moment where the judge asked: “what if your description of staking in the Complaint was demonstrably wrong? Can I take judicial notice of that?” The Court did not rule from the bench on any of these tough questions, as would be expected it would not. While Judge Failla seemed to express more skepticism towards the SEC’s arguments than Coinbase’s, it is impossible to know a Court’s ruling based on questions alone, and the SEC has a heavy advantage on the standard for dismissal at the pleadings stage.
Other Stories
The Morrison Cohen litigation tracker is the single best litigation resource in the space. They updated it recently so I suggest everybody grab a copy. Well done by that team.
Mercedes-Benz teased a new in-car assistant feature which will allow users to display their NFTs on the car’s dashboard. Every little bit of adoption is good adoption, but I don’t know how much having jpg’s on your car’s dashboard moves the needle.
I know spot Ether ETFs are still a good year away and the SEC is going to fight like hell to stop them. But what if they aren’t? Either way, all this ETF talk has me thinking how I need to organize my retirement funds which is just such a CHORE that I will be happy to see tokenized assets fix.
I am waiting on Stephen Rutenberg to give me the tl;dr on this law review article about the use of debt tokens in bankruptcy proceedings.
This explanation of the Universal Data License is an old but good read. Bonus points for the helpful flow chart graphic.
Circle is apparently betting on the U.S. passing stablecoin regulations this year. This would make sense with the ICO timing, but I am not sure I am as confident as the Circle CEO is for anything getting passed this election year. Especially with regulators like the CFPB attempting to expand jurisdiction over the belts and suspenders of digital assets like self-custodial wallets.
Coin Center responded to the Senator Warren letter in the perfect way. Respectful, but understandably indigent about the Senator’s bullying tactics.
Cantor Fitzgerald’s CEO went out of his way at Davos to say he manages lots of Tether’s assets and that they have the billions to accommodate redemptions if needed. Tether might be trying to get their service providers to push good press to drown out the brad press surrounding the UN’s illicit activity report for USDT.
This is the best and most comprehensive article discussing how cross-chain bridges will be regulated under MiCA to-date.
Not crypto specific, but the Supreme Court heard arguments this week in Loper Bright Enterprises v. Raimondo which the Court has been asked to clarify the level of deference federal agencies have under the Chevron doctrine. Apparently crypto was mentioned during the oral arguments, though. “There’s an agency head out there that thinks that he already has the authority to address this uniquely 21st century problem with a couple of statutes passed in the 1930s. And he’s going to wave his wand and say the words “investment contract” are ambiguous and that’s going to suck all of this into my regulatory ambit even though that same person when he was a professor said this is probably a job for the CFTC.”
The head of JPMorgan is concerned that Satoshi is going to show up one day and erase all Bitcoin. In other news, the head of JPMorgan apparently has close to zero knowledge of how blockchain technologies work.
Is MetaMask changing how swaps are handled in its wallet because of the Coinbase case? Combined with how they structured their new staking feature, it certainly seems like they are heading off any SEC arguments against them.
SBF’s parents are trying to toss a lawsuit seeking to recover funds they were issued by FTX prior to the exchange’s collapse. Hard to feel bad for Mr. Bankman with the allegations alleged about receiving multi-million-dollar properties and his involvement and likely knowledge of the issues around FTX prior to the collapse.
Blackrock’s spot Bitcoin ETF has already hit over $1 billion in assets under management in under a week and Fidelity was right behind them. As people over the year meet with advisors to talk investment strategies, I would be shocked if Bitcoin exposure isn’t a topic of many of those discussions. Bitcoin has already passed silver as the second largest ETF commodity, and I wouldn’t be shocked to see it pass gold within the year.
This 2023 Crypto Developer Report is fascinating. What should be a shock to nobody: due to the current U.S. regulatory environment, the U.S. has lost its developer market share down to 26% when it was at 40% in 2018.
This Twitter thread on the state of crypto tax in the U.S. is a must read for a quick catch-up. As previously reported, the IRS is not requiring compliance with crypto business tax reporting rules which went into effect January 1, 2024 until the agency issues guidance and the appropriate form for such transaction reporting.
This was a great article from Katherine Kirkpatrick Bos about navigating compliance issues in a new era where regulators are increasingly paying attention to, and gaining an understanding of, digital assets.
This is the first time I have seen the “God made me do it” defense to a cryptocurrency fraud scheme. Freedom of religion means that if God told him to sell worthless crypto to his followers to fund a new kitchen remodel, he can’t be guilty of a crime. That’s law 101.
Here’s another DAO legal counsel story. There are so many issues regarding attorney/client privilege, who the necessary decision makers would be, and conflicts issues that need to be worked out for these types of arrangements. Really interesting to see how the various DAOs are handling these sticky issues.
FTX is trying to pay customers back using U.S. currency value from November of 2022 (near all time lows in the market) rather than in-kind for their assets. To the extent the receivers converted crypto to cash when they first took over to stop the bleeding this makes sense, but many of these assets have been held in the crypto throughout the process. FTX’s investors who were asleep at the wheel shouldn’t get the boon of crypto price recovery to the detriment of innocent depositors.
In other FTX news, the Third Circuit has ruled that there needs to be an independent examiner for the FTX bankruptcy. Which based on the shenanigans above, seems very warranted.
Terraform Labs filed for bankruptcy which raises the question: Terraform Labs wasn’t already in bankruptcy?
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 