Well, that was a roller coaster of a week. While Market Structure’s failed cloture vote was a bummer, the SEC and CFTC have kept their promises to move quickly to act regulating digital assets using existing authorities after Congress failed to pass digital-asset specific legislation. While the Senate process stalled, the House Ways and Means committee passed a digital asset tax package on a widely bipartisan vote, and single stock perpetual futures are coming.
Here’s everything that happened in Crypto Law last week:
Market Structure is Dead; Long Live Market Structure
The Clarity Act failed its cloture vote which effectively ends debate and consideration on the Senate floor. While Senator Tillis changed his vote last minute to join the majority and give him the chance to bring the bill back to consideration at some future date, it is effectively dead with no real opportunity to be heard before the November mid-term elections and likely too big of a bill to have a chance during lame duck session post-elections. There are some sections of the bill, however, which have a chance to be attached to must-pass legislation such as the Keep Your Coins Act or aspects of the agriculture provisions of the bill which are largely unobjectionable. There is no denying this was a major blow to digital asset policy after stacking up a ton of wins through GENIUS Act and other positive legislative and regulatory developments.
Tl;dr– There will be a lot of finger pointing about why the vote failed. People are blaming everything from the January mark-up delay, the President’s personal business involvement in crypto, a banking lobby that was pushing for no bill over a bill that allowed the yield status quo to stay, or Democrats refusing to take yes for an answer after getting 95% of the concessions they demanded. And it probably was some unknowable combination of those things that lead to the failed vote last week. No matter who is to blame, the real victims are the American people who will continue to have this increasingly important aspect of American financial markets without purpose built regulations. While there is still theoretically a chance for the bill to come back during lame duck session, in all likelihood this was the last and best chance for market structure legislation to pass in the foreseeable future. Senator Lummis going scorched earth on Democrats who voted against the bill on Twitter has at least been cathartic.
No Clarity, No Problem for SEC and CFTC
While Clarity Act failed, the SEC and CFTC were ready releasing a slew of rulemaking proposals which would provide regulatory certainty for certain blockchain-enabled products and services. The SEC released their long-awaited innovation exemption which would allow for the trading of tokenized equities, while the CFTC released further relief which would allow digital asset wallets to connect users directly with CFTC-regulated Designated Contract Markets (“DCM”s) without being required to register as introducing brokers. The CFTC also has some rulemaking under Executive review which is listed as providing rules for Crypto Asset Markets and Crypto Asset Transactions but which is not public yet.
Tl;dr– While the CFTC’s expansion of their prior Phantom Wallet No-Action Letter to the market writ large is great, the SEC’s long-awaited innovation exemption got the lion share of the media coverage for good reason. It allows qualifying Tokenized Securities Venues (“TSV”s) to facilitate trading tokenized National Market System (“NMS”) stocks using automated market makers (“AMM”s) with certain restrictions such as requiring the stocks not be synthetics, and the ability of the issuer to opt-out/reject that tokenization for their stocks. Meanwhile, the CFTC’s more exciting development is the yet-to-be-public rulemaking which I am predicting will be what Chair Selig proposed at the Innovation Council meeting as “enable[ing] current registrants as well as non-registrant crypto exchanges to be designated by the CFTC as a type of DCM known as a crypto asset market and offer crypto asset trading on a leveraged or margined basis subject to purpose-fit rules under the CFTC’s regulatory oversight.” The market is going to get clarity with or without new laws which is great to see.
OTHER STORIES
Tax Bill Clears Ways & Means: The Digital Asset Certainty Act passed through House Ways and Means and while it will provide some guidance which is helpful to exchanges and ETF issuers, it did not include the previously included staking and mining realization changes that the industry was hoping for be included. If the standard is “better than the status quo” then it probably clears that, but seems like the industry is giving up a lot through closing wash sale ability for very little in return for the everyday user.
Single Stock Perpetual Futures Here: Crypto.com, Kalshi, and Coinbase have filed to list perpetual futures on single stocks which would open a new way for investors to gain exposure to those companies. I personally will be staying away from the leverage these products will enable, but good for investors to have greater optionality on how they invest their money.
Another Crypto-Native Bank Approval: The OCC has granted a conditional national trust bank charter to Bastion, which plans on offering stablecoin custody, wallet, and payment services under their new federal license. Love to see it.
23/5 Trading Coming to Stocks: While not exactly breaking news, it looks like the plan to facilitate trading for 23 hours a day, 5 days a week is coming to various major U.S. stock exchanges in December. There is zero chance this happens if those venues weren’t gearing up to be able to compete with 24/7 trading which will be facilitated through tokenized stock trading.
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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