To say it was a big week in crypto legal developments would be an understatement. We got the long awaited Clarity Act text, including new ethics provisions, but questions remain on if there is enough time to get the 60 votes needed to pass the Senate in the little time left before Congress goes on its August recess. Also, The Digital Chamber sued Illinois over its proposed crypto tax which is set to go into effect in 2027. This is in addition to some developments from the SEC and CFTC on two hot topics: vaults and prediction markets. Busy busy!!
Here’s everything that happened last week in crypto law:
New Market Structure Text Released
At long last, we got the combined Banking and Agriculture crypto market structure text, coming out to a combined 616 pages. While the banking provisions of the draft stayed largely the same, there were some pretty big additions regarding providing law enforcement resources to fight crypto crime which is what turned the Fraternal Order of Police from opposed to the bill to supportive. There were also fairly significant changes to the Agriculture portions of the bill, and huge shout out to the David Polk law firm that put out the best redline comparison to old bill text I have seen. And while the bill is over 600 pages, the main things people are talking about are on the last few pages regarding ethics restrictions. It is crazy that even Russia has been able to put into place spot crypto market regulations before the United States has.
Tl;dr– This is the final push to try to get market structure passed this year. While there is certainly some hope if there is enough progress made in August it could still pass in September, anybody being honest will tell you that will be an extremely difficult road in a midterm year. If this had another week of time in August then the chances of passage would drastically improve, but either way it looks like there is going to be a vote on the record on market structure which the furthest it has ever gone in the Senate. Anybody who tells you, even if all their asks were not answered, that this is not a dramatic improvement over the status quo is lying. To let this get held up by partisan politics would be extremely disappointing when there are wins for both sides in the bill, but while the buzzer still hasn’t gone off everybody should be doing everything they can to tell their Senators to pass market structure.
The Digital Chamber Sues Illinois Officials Over Crypto Tax
Last week The Digital Chamber sued various Illinois officials in their official capacities to prevent the Illinois 0.2% tax on digital asset transfer, storage, and sales from going into effect as it is set to do in 2027. As a reminder, this was a tax which was thrown into an Illinois budget bill early in the morning on the last day of the Illinois legislative sessions without any industry feedback or prior warning. Because of that lack of substantive review prior to passage, the tax is riddled with inconsistencies and key undefined terms which makes enforcement of the tax unconstitutional under both the Illinois and federal constitutions. In addition to being illegal for a variety of other reasons as provided in the Complaint.
Tl;dr– This law does not just effect Illinois. Due to a rebuttable presumption as to the location of transactions, anybody who is in the digital asset industry with any business which may possibly touch an Illinois customer would need to put into place tracking and compliance functionalities or risk felony liability for violations of the tax. Even though the tax takes effect in 2027, it was important to start the challenge now because without an injunction companies will be forced to spend millions of dollars to create and implement the technologies needed to abide by the tax which has never been imposed by any other state or federal taxing authority. This is such a giant waste of taxpayer and industry resources to overturn a tax which is facially invalid and should have never been passed to begin with.
OTHER STORIES
Commissioner Peirce Vault Statement: Commissioner Peirce put out a statement regarding vaults which may see as a warning shot from the otherwise crypto-friendly Commissioner. With or without market structure, there are going to be a ton of questions on vaults not just when they hold and deploy tokenized securities but also generally the legal status of users deploying digital assets in vaults for yield-generating purposes.
FOIA Request Settlement: There were a couple settlements regarding requests for damages from Coinbase in needing to litigate so fiercely to obtain records it was entitled to under the Freedom of Information Act (“FOIA”). Disclosure for thee but not for me shouldn’t be how an agency like the SEC operates.
BitMEX Shutdown: The original crypto perps platform has shut down after 11 years in operation. While in operation, it was plagued with outages at the most inconvenient times such as during major liquidation events, which is a large reason traders moved to other platforms for their activities. But still, while they failed to execute on their vision, they are an undeniable pioneer so always sad to see one of those OG platforms shutdown.
Bitcoin Security Group: It is about time some of the biggest Bitcoin holders and most at stake in Bitcoin got together to respond to quantum and other threats to Bitcoin’s long term security. Excited to see what solutions are proposed and implemented by this group.
CFTC Advisory Notice on Self-Certified Contracts: The CFTC issued a not-so-subtle advisory notice that it believes certain registrants may be cutting corners in their self-certification materials in an attempt to get contracts up faster. I wouldn’t be surprised to see some slaps on the wrist be doled out to show they are acting as a cop on the beat on these issues.
House Hearing on Prediction Markets: The House Agriculture Committee held a hearing on prediction markets which is worth watching for anybody interested. This is something that I doubt continues to go without some legislative push from Congress, but that place is in separate legislation and not attached to Clarity act which is a spot crypto market bill and doesn’t deal with the CFTC’s existing powers to regulate swaps like event-contracts.
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.
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