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 tl;dr overviews and insights into the biggest stories from the past two weeks. I post the weekly updates on my personal blog every Tuesday, where I also provide links to more obscure legal developments and otherwise discuss industry trends and stories. 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.
The end of year remains hot in crypto, with BTC passing the $100k mark (before dropping yesterday, fml) and actions in the House Financial Services Committee and SEC v. Binance case which are likely to have fairly significant implications into 2025. But, shockingly, the Hawk Tuah girl’s memecoin did not end up being the next iteration of the future of finance, and debanking remains a hot topic in the industry.
Here’s everything that happened last week in Web3 legal:
New Proposed SEC Chair Announced
President-elect Trump has officially announced he plans to nominate Paul Atkins for SEC Chair to replace current Chair Gary Gensler. Atkins is a former SEC Commissioner, advisor to the Digital Chamber, and the co-chair of the Digital Chamber’s Token Alliance. He also was on a podcast entitled “Keep Your Government Hands Off My Crypto” if that gives you any sense on how he personally feels digital asset regulation should be handled.
Tl;dr: It is impossible to overstate what a change this is expected to be at the SEC. Already, there is an expectation that the Ethereum ETF products will be permitted to participate in staking and share those staking rewards with holders, along with a host of other changes to existing policies. While it is fair to be cautiously optimistic, after the industry was burned by Chair Gensler despite his experience as a professor at MIT teaching a course on digital assets, it appears that there will be a workable path to compliance for digital asset participants in the near future.
House Financial Services Committee Holds Hearing on FinTech
The final committee meeting of this congress for the House Financial Services Committee was entitled Innovation Revolution: How Technology is Shaping the Future of Finance, and was dedicated to discussing developments in financial technologies, including blockchain-enabled technologies. The Digital Chamber sent a letter ahead of the hearing to request certain digital asset focused efforts are made a priority in the next congress. There was also testimony from the CEO of the Stellar Foundation, and the CEO/Co-Founder of Anchorage Digital. This was Chair McHenry’s last hearing as he is set to retire, so he asked it to be dedicated to an issue he is passionate about regarding improving the financial sector through technological innovation. Many in attendance on both sides of the aisle wore his trademark bowtie, in recognition of his Congressional leadership over the years.
Tl;dr: The hearing had a few interesting moments, like French Hill’s questioning to the digital asset representatives about how both had been debanked due to their industry. Or Brad Sherman bringing out a poster board of President-elect Trump’s prior tweets on crypto calling it a scam. The general theme from Republicans was building on Chair McHenry’s groundwork in trying to encourage American FinTech, while the Democrat’s theme was bipartisan collaboration on things already in the works like the stablecoin bill that passed Committee (albeit, on a mostly partisan vote due to certain objections from President Biden’s administration). Since we are not expecting any crypto legislation to pass in the lame duck session, this was mostly just setting the table for what to expect in 2025.
SEC Files Response in Opposition to Binance Motion to Dismiss
The SEC has filed its memorandum in opposition to the latest attempts by the Binance entities in the case that the SEC accuses those entities as being registered securities brokers/dealers. As we previously covered in my firm’s regular updates, the Binance entities focused their dismissal efforts on the seemingly arbitrary nature of the SEC classifying ETH/BTC as commodities but the named tokens as securities, as well as a lack of pooling claiming the SEC’s allegations are “investment of money and a common enterprise” instead of the required “investment of money in a common enterprise.” The SEC’s response claims the issuers of the tokens at issue “are targeting secondary market investors with widespread promotions touting purchases of the assets as investments in an enterprise whereby the issuers’ ongoing efforts to increase demand for the assets may lead to an increase in their value.”
Tl;dr– If the Binance entities don’t make the SEC say what applies to these tokens which doesn’t also apply to ETH, I am going to riot. Also, as a drafting nit to the SEC, memorandums which ask questions of the readers (like the SEC’s brief on page 13) is just poor form. Give answers, not questions. More pictures in memorandums, less questions. The SEC also tries to pull a checkmate of “secondary market sales, by definition, mean an investor does not put funds ‘in the hands of the issuer.’” (pg. 15) ignoring that the vast majority of investment contract law is regarding the sale of goods combined with some sort of service agreement, which could be sold in a secondary market transaction and would still result in the issuer (who also provides the services) getting money. Of the exchange cases, this judge seems to be the only one willing to push back on the SEC’s positions at the motion to dismiss stage, so we will wait to see how this pans out.
Other Stories
Coinbase and Gemni Announce Blackball of Former SEC Staff: Coinbase and Gemini have both announced they will not work with firms that hire former senior SEC staff, with Coinbase’s CEO stating “It’s an ethics violation in my book to try and unlawfully kill an industry while refusing to publish clear rules” and urging others in the industry to “Let your law firms know that hiring these folks means losing you as a client.”
Former Celsius CEO Pleads Guilty: Alex Mashinsky has pleaded guilty to two counts of fraud in federal court for his role in the crypto-lender’s eventual downfall. The fact that true DeFi lending like Aave and Compound were able to survive the harshest market conditions while centralized entities all failed showed the resilience of the platforms.
Corporate Transparency Act on Pause: While not directly crypto related, the injunction issued against enforcement of the Corporate Transparency Act is certainly important for crypto companies, especially those who do not have the identifying information for their participants that could be deemed control persons under the Act. We’ll need to wait to see if this is a temporary respite or if something more permanent is on the horizon.
Fed Chair Says Bitcoin is Gold, not USD: Federal Reserve Chair Jerome Powell gave remarks that he considered the asset a competitor of Gold, and not a replacement for the U.S. Dollar.
CFTC Commissioner Discussed Digital Asset Regulatory Issues: CFTC Commissioner Pham gave a speech stressing the urgent need for clear regulatory frameworks for digital assets in the United States. In the meantime, can Commissioner Pham stop voting in favor of suing DAOs to create bad case law? Thanks!
Podcaster to be Crypto/AI “Czar”: David Sacks will be the “White House A.I. and Crypto Czar” in charge of organizing the implementation of President-elect Trump’s policies for those areas. While I would have preferred it was somebody with government experience in that role and not combined with AI, Sacks is invested in and seemingly understands the digital asset space, so at least there is that.
Hawk Tuah Rug Pull: Is it the best look for the “future of finance” that the Hawk Tuah girl launched a cryptocurrency and in a seemingly pump and dump scheme? Probably not. But we also have sitting members of Congress in the memecoin trenches now, so good with the bad I guess.
Treasury Sanctions Russian Money Laundering: Wait, it is possible to sanction criminals without saying everything those criminals use to commit those crimes is illegal for people to use for non-criminal activity? Who knew.
Heavily Redacted FDIC “Pause Letters” Revealed: The court overseeing the Coinbase FOIA action against the FDIC has released the heavily redacted responsive letters. These are so redacted to be rendered meaningless, but it’s a start! Debanking is certainly something that is going to be looked into.
Lawsuit Over Exit Taxes: Bitcoin whale Roger Ver has moved to dismiss the tax evasion case against him, arguing the IRS exit tax for renounced US citizens with over $2 million in assets is unconstitutional and “impermissibly vague.”
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 