Congress is back this week after their break for America’s birthday, and all eyes turn to the sprint towards the first week of August which will be the last opportunity to pass market legislation at least until September and likely this year due to mid-term politics taking over after the August recess. But in the meantime, the SEC and CFTC continue to be busy with their rulemaking agendas and there were big updates in a crypto property rights case which had largely flown under the radar.
Here’s everything that happened last week in crypto law:
New York Dormant Bitcoin Case Heats Up
A few months ago, a case was filed which flew largely under the radar where a group of Plaintiffs in New York sought to use a New York lost property statute to claim ownership over billions of dollars of Bitcoin held in largely inactive wallets including wallets believed to be connected to Satoshi and the Mt. Gox hack. Now, not only has a pro se Defendant emerged to defend their assets, but both The Digital Chamber and Bitcoin Policy Institute have entered the matter as amicus and interveners (respectively) to defend the property rights of absent wallet controllers.
Tl;dr– As provided in our proposed amicus, the Plaintiffs’ theory of the case is ludicrous. They put a bunch of public wallet addresses on a flash drive and delivered it to the New York police department and think that entitles them to ownership over the contents of those wallets. Plaintiffs’ argument that inactive self-custodied wallets can be deemed “abandoned” and claimed by others is not only legally unsupported, it would have massive consequences outside of just Bitcoin/this case if accepted. The fact that 44 wallets have moved funds since the lawsuit was filed proved Plaintiffs’ theory that those wallets were “abandoned” is just flat out false. I couldn’t be more proud of the work of member firms Brown Rudnick and CahillNXT in their briefing for TDC and ensuring the property rights of the public at large are protected against troll lawsuits like Plaintiffs’. Also, respect to attorney Ian Cohen who was the first attorney to file on behalf of the absent holders in this case. It takes a lot of courage as an attorney to lead that charge from a boutique firm, so credit where credit is due.
OTHER STORIES
Bonk Governance “Attack”: Lots of debate this past week on if the vote to send $20 million from the DAO supporting the Bonk token ecosystem was an “attack” or just the result of governance votes working even if we don’t agree with the end results. With $20 million at stake, it seems unlikely this ends without some court intervention, so interesting development to watch in the “code-is-law” debate.
SEC Rule Change Agenda: The SEC released its updated rule proposal agenda for the remainder of the year and lots of crypto topics still seem front of mind for rule changes regardless of market structure. While it is obviously preferred to have market structure legislation passed once and for all, it is clear the agencies are not going to wait 2-4 years to start modernizing rules to address crypto topics.
Market Manipulation: Interesting developments in prediction markets with recent reporting on traders (allegedly) trying to game the numbers on Spotify streaming markets and short term bitcoin markets. While everybody is focused on sports, not enough attention is made to how markets will certify they are not susceptible to manipulation and how disputed markets will be settled.
Coinbase Loses CLO: It is hard to point to any lawyer that has had a bigger impact on crypto regulations than Paul Grewal, who has been the head of legal for Coinbase for the past six years and helped the company navigate all the legal disputes and issues effecting crypto for that entire time. While the succession plan in place is solid, it is tough to see such a titan in the space take his much deserved break while others step up to fill the gap he is leaving.
Swift Tokenized Deposits: While Swift’s announcement that it is launching a pilot program for banks to transfer deposits 24/7 through blockchain rails is cool, until true final settlement also occurs through those rails it has limited impact on actual settlement finality. Still a positive forward step, though.
New Paradigm Fund: Paradigm announced its next fund, which will be $1.2 billion deployed into crypto, AI, and robotics. This is less a pivot away from crypto, and more a thesis that these various techs are going to be increasing intertwined.
Commissioner Vacancies: One of the topics which has been brought up frequently in market structure negotiations is filling the empty commissioner spots at the SEC and CFTC. The Administration recently pushed back at claims it was holding up the process, in an open letter claiming they haven’t received names for consideration for the Democrat roles at those agencies. The fact this is even being discussed shows market structure negotiations have hit some of the final outstanding points.
Joint CFTC Letter: While the joint letter from both Phantom and Hyperliquid to the CFTC isn’t especially complex or novel, the fact they are submitting it means they believe the CFTC is actively open to modernizing registration requirements to allow DeFi protocols to serve U.S. consumers which would be huge.
Democrat Support for DeFi Protections: It was great to see Senator Wyden, who is also the co-sponsor of a stand alone developer protection bill that could be attached to other legislation is full market structure isn’t passed, come out in favor of a developer protection provision which has been hotly debated in the Senate. But it is unclear if this means he is a vote in favor of the market structure bill as a whole.
Vault Update: Gauntlet was one of the vaults I trust most on platforms like Morpho, so seeing the curation company get an injection of capital just furthers my thesis that this year will be the year vaults hit mainstream consciousness.
CONCLUSION
If you have any questions or would like me to write about anything else, let me know on Twitter (X?) or Farcaster. Any typos or errors are intentional to prove I am not AI. As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.
Outro/Disclaimer: In late 2022, while I was at Polsinelli, I started preparing weekly updates for attorneys at the firm to stay abreast of the latest Web3 legal developments. I now 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 are solely my own. They do not reflect the official stance or endorsement of the Digital Chamber or any of its members.
The NFTtorney 