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 firm’s 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.
Things are moving in the House of Representatives, as we got multiple updates on crypto bills in the House. Now getting the Senate or Executive on board is a different story…At the same time, Coinbase continues its multi-front battle with the SEC, as the agency filed responses in both the district court case against Coinbase and in opposition to the Coinbase denial of rulemaking appeal.
Also, this week I will be in D.C. speaking on Wednesday at the D.C. Blockchain Summit about branding in the metaverse, and then on Thursday directly up to Chicago to speak about web tracking technologies at the Polsinelli Privacy Summit. That’s called range, baby. Hope to see some of you all at one of those events!
Here’s everything that happened last week in Web3 law:
House Passes Bill Overturning SEC Staff Accounting Bulletin (“SAB”) 121
In the first crypto bill to reach a full vote in either chamber of Congress, the House passed Joint Resolution 109 to overturn SAB 121, the controversial guidance from the SEC that the custody of crypto assets should be treated as liabilities on banking balance sheets unlike cash and other assets held on behalf of customers. The bill was sponsored by Democrat Wiley Nickel (NC) and Republican Mike Flood (NE), but was largely voted on party lines with only 21 Democrats voting in favor of the bill due to a Whitehouse statement that it intends to veto the bill if it reaches the President’s desk.
Tl;dr: Whether you like crypto or hate it, there is simply no argument to be made that taking away trusted banking options as asset custodians is good for consumers. Major props to the 21 Democrats who crossed party lines for what should be a no-brainer. Now this moves to the Senate, where it only requires a simple majority to pass due to this bill being proposed under the Congressional Review Act. The bill will require some level of bipartisan support in the Democrat controlled Senate to pass, so it will be interesting to see if President Biden makes good on his threat and uses political capital on a veto for this should it pass in the Senate. Crazy this neutral technology has become a partisan issue.
Other Stories
The SEC was forced to argue why interlocutory appeal is unnecessary in Coinbase after previously arguing the uncertainty of crypto laws made the agency’s request for immediate appeal necessary in Ripple. Oh, how the turn tables.
At the same time, in the Coinbase appeal of the SEC’s rejection of rulemaking proposals, the SEC argues that they have no requirement to make securities laws compatible with crypto, as their requirement to facilitate capital formation is balanced against their requirement of investor protection. In other words, the SEC is not a merit-based regulator, but the agency has deemed crypto as something consumers shouldn’t be given safe access to.
According to Politico, the FIT for 21st Century Act is going to receive a full vote in the House, likely the week of May 20-24. It has a negative 100 chance of passing the Senate as a standalone bill and even less of a chance of being signed into law by the President, but it would force House members to go on record as to their positions in an election year which is good.
Speaking of election year issues, Harris Poll published a survey on crypto voter analytics in swing states and found that 20% of voters considered cryptocurrency a major issue in the 2024 elections with 76% also saying crypto has a positive impact on their financial wellbeing. Maybe candidates should start taking note? Mark Cuban is on board.
The House Financial Services Capital Markets Subcommittee held a hearing entitled SEC Enforcement: Balancing Deterrence with Due Process. Still upsetting this is seemingly a partisan issue when it’s a technology issue.
Gary Gensler claims that his goal is investor protection for people buying crypto who lack needed disclosures. Which makes total sense that he would sue Coinbase and cite to the platform’s disclosures about various crypto assets as proof Coinbase is selling securities. The old if she floats, she’s a witch test.
Representative Casten demonstrating technological incompetence with new bill aimed to prevent financial institutions from touching any digital asset that at any time passed through a “mixing service.” Like, 6% of Bitcoin in existence at one point touched Bitcoin Fog alone. Coinbase/exchanges act as mixing services (just centralized versions). I get wanting to fight illicit finance, but this ain’t it.
On the other side of the coin, Senators Lummis (R-WY) and Wyden (D-OR) sent a great letter calling the DOJ out on their radically expansive new position on money transmitters in the context of third-party software developers. Good work by the advisors who helped them with this letter.
Robinhood’s CEO has vowed to fight any action brought by the agency. Good to see more and more players standing up against regulatory overreach.
Grayscale pulled its Ether futures ETF application previously filed with the SEC. Some people much smarter than me are saying this is effectively Grayscale taking its ball and going home leaving the spot ETF applications with one less bullet in the chamber for the eventual appeal of any SEC rejection for those products. Makes business sense in the short-term, making others stop free riding Grayscale’s legal expenses, but also a seemingly middle finger to anybody holding ETH which is bad for Grayscale in the long run (one would think).
People who bought FTX bankruptcy claims for pennies on the dollar are basically the only ones who are winning, despite reporting that creditors are getting claims paid back plus interest. In reality, depositors (who should have never been considered “creditors” to begin with) are getting paid back based on price of crypto when crypto was at historic lows despite the company not selling said crypto until later. Gotta pay the lawyers somehow, I guess.
Looks like the SEC figured out that trading assets which are on the blockchain require paying transaction fees in that blockchain’s native currency as they delay the listing of Exodus’ stock (tokenized on Algorand blockchain) on the NYSE.
Honestly, can we get to the appeal already in Ripple? All these jabs over damages are tired at this point when everybody knows the appeal is coming. It’s seemingly bet the company litigation either way.
DWF Labs has denied the reports that it did $300 million in Binance wash trading, while Binance pulled a Boeing-lite and fired the employee that whistle blew on it. Whistle blowing snitches get stiches (or, in this case, probably a severance package).
Better late than never, as TradFi is increasingly realizing they need to understand and implement blockchain technologies or be left behind.
Kraken has finished their briefing on their Motion to Dismiss against the SEC. It is scheduled for oral argument on June 12, and hopefully it is one we can listen in on. I was just glad to see them call out the “intrinsic value” argument for why land cases are different for the fugazi it is.
Conclusion
If you have any questions or would like me to write about anything else, let me know on Twitter (X?) or Warpcast. 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 