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.
It was another busy week in digital asset legal developments, as litigation continues in the SEC v. Coinbase matter, and the incoming administration starts implementing its digital asset policy objectives. Even with a seemingly more friendly U.S. legal environment for digital asset companies, there are still a ton of regulatory and legal hurdles to overcome for digital assets to be implemented into ordinary consumer goods and services. That said, it seems like companies that built during the bear market have positioned themselves well to be targets in M&A and to onboard users during this current respite from administrative enforcement actions.
Here’s everything that happened last week in Web3 legal:
SEC Forms Crypto Rulemaking Task Force
On his first day on the job, acting SEC Chair Uyeda “launched a crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets.” Commissioner Peirce has been tapped to lead the task force, and according to the press release “will collaborate with Commission staff and the public to set the SEC on a sensible regulatory path that respects the bounds of the law.” Further, its focus will be “to help the Commission draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.”
Tl;dr– The Peirce Token Safe Harbor Proposal 2.0 from 2021 is still probably one of the most thoughtful and best structured regulatory approach to digital asset from any regulator, so there couldn’t be a better choice to lead this task force. I do not know how this will interplay with the Third Circuit rulemaking ruling from the week before, but it appears all roads will lead to some regulations on crypto coming out of the SEC in the upcoming months or years. They do not have an easy task, as defining “decentralization” and ensuring oversight to prevent fraud and abuse while not stifling innovation from good actors is a tough needle to thread. But if anyone can do it, it would be Commissioner Peirce.
Coinbase Files Petition for Permission to Appeal at Second Circuit
The lower court in the SEC v. Coinbase matter previously stayed the matter and granted permission for Coinbase to ask the Second Circuit to hear its interlocutory appeal of matters decided on its Motion for Judgment on the Pleadings. The Second Circuit still has to agree to hear the matter, and in its opening brief Coinbase implores the appellate court to weigh in whether digital asset transactions in secondary markets are investment contract transactions.
Tl;dr– There were also amicus filed by the Blockchain Association and the Chamber of Commerce also encouraging the appellate court to take up this issue. Newly appointed Chair of the Senate Finance Services Digital Asset Subcommittee, Senator Lummis, also weighed in asking for the Second Circuit to take up the issue. Administrations come and go, but case law is enduring, so this is still a very important case and will set legal precedent for years to come. The “ecosystem theory” provided by the SEC and endorsed by the lower court makes no sense. Bitcoin, Ether, and other assets which the SEC had admitted are not securities have gigantic “ecosystems” and it also makes no sense as to how an “ecosystem” can register with the SEC. Strong appellate case law on these issues would alleviate the need to rush into expansive legislation that could have unknown externalities (including benefitting incumbents to the detriment of new entries), even if they do provide a level of clarity.
President Trump Signs Executive Order on Crypto
President Trump has signed and released an Executive Order titled Strengthening American Leadership in Digital Financial Technology. The EO calls for technology-neutral regulation, well-defined regulatory boundaries, and transparent decision-making to foster an inclusive, innovative digital economy. It also expressly prohibits the creation of a Central Bank Digital Currency (“CBDC”) and creates a new interagency group which has 180 days to propose a federal regulatory framework for digital assets (including stablecoins) and explore creating a “national digital asset stockpile” from government-seized cryptocurrencies.
Tl;dr– Let’s not forget that President Biden also issued an Executive Order on digital assets, and we know how that turned out. However, based on prior communications, and the appointment of digital asset investor David Sacks, it’s believable that the results of this Executive Order will be positive for the industry. That said, I don’t particular care about digital asset stockpiles and some of the other side quests in the Executive Order. Just make it not illegal to write software (including privacy preserving software) and let people self-custody their assets and I am good.
OTHER STORIES
SAB 121 Repealed: The Controversial SEC Staff Accounting Bulletin 121 (“SAB 121”) which essentially foreclosed publicly traded banks from taking custody of digital assets for their customers by requiring digital assets be listed as liabilities on the banks’ balance sheets, has been withdrawn. This comes after both the House and Senate passed a bipartisan resolution to withdraw the rule, but which was vetoed by President Biden. Nature is healing.
Inauguration Shakeups: As expected, when President Trump took office he appointed new acting chairs of various administrative agencies including Mark Uyeda as acting chair at the SEC and Caroline Pham at the CFTC. Still a lot to be determined as to how these agencies address digital asset issues under the incoming administration.
Ethereum Foundation Changes: Big news the past few weeks is the current leadership at the Ethereum Foundation and potential need for changes there. All I know is there has been drama all year around EF leadership/decisions, so without knowing who is to blame for those issues, it seems like a change at the top is a good idea to try to move past them.
Chokepoint 2.0 to be Investigated by Congress: The House Committee on Oversight and Government Reform has sent a letter to various digital asset participants asking for information to assist the committee in investing allegations of industry debanking. Sunshine is the best disinfectant.
Silk Road Founder Pardon: It seems like President Trump made good on his promise to pardon early Bitcoin marketplace Silk Road’s founder (Ross Ulbricht). While he did some…less than moral things, at the end of the day, he was mostly just an idealistic kid computer programmer who got in over his head and doesn’t deserve jailing forever for that.
Bug Bounty Arbitration: Love this idea from Immunefi, launching a blockchain-based arbitration system for bug bounties. Digital issues call for digital solutions.
Circles Acquires RWA Tokenization Company: Circle has acquired Hashnote, which is most well known for their tokenized U.S. Treasury product USYC. The difference between tokenized dollars back by treasuries and tokenized treasuries themselves is minimal, so this seemingly makes sense. I wonder what this does to Circle’s plans to IPO, though. Certainly, adds some complexity.
Tornado Cash Sanctions Lifted: It looks like the U.S. government will likely not be appealing the decision which overturned the OFAC sanctions of Tornado Cash, and there is no en banc review, so it is heading back to the District Court for either a nationwide vacatur or a more limited ruling. I don’t know who is going to be hosting the front end, and the protocol never went down throughout the drama, but it would be nice for it to not be a criminal offense to merely use privacy preserving software.
Crypto.com Coming to America: It looks like Crypto.com is expanding to America, beginning with institutional services. I predict many products/services which walled off U.S. consumers will be made available in the coming months, which is great for U.S. users to have additional options.
Ledger Co-Founder Kidnapped: Thankfully, Ledger co-founder David Balland was rescued, but it shows how important it is for individuals in crypto to have access to privacy preserving technology. These risks are very real.
Coinbase Moves to Dismiss wBTC Delisting Case: Coinbase successfully prevented a restraining order being instituted against it over delisting wBTC (a wrapped version of Bitcoin that competes with Coinbase’s own cbBTC) and is now moving to dismiss the case entirely. Combined with its amicus in the SEC v. Cumberland case, and Coinbase’s litigation team has been busy.
Regulatory Sandbox Proposal: I really enjoyed this article on a proposed regulatory sandbox solution to gap fill while more comprehensive legislation is weighed and prepared. I don’t agree with all the proposals, but I highly recommend anybody in policy at least give it a read.
Jupiter Aggressive Growth/Expansion: Jupiter brought on one of the best legal minds in the space, Rebecca Rettig, and has wasted no time in aggressively expanding. They acquired Moonshot, and are looking to use revenues for token buy-backs. Seems like a bad idea to bet against this team.
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 