Last week, everybody was rightfully focused on the midterm elections and mapping out what that means for crypto-related legislation next year as well as considering how prediction markets compared to polling data on these elections. But there were some major legal developments outside of Congress as well with The Digital Chamber and Illinois Blockchain Association filing a Motion for Summary Judgment in litigation challenging the Illinois Digital Asset “Privilege” Tax Act, TDC responding to the SEC’s transfer agent rule change proposal, and the SEC issuing no-action relief regarding Canton Coin.
Here’s everything that happened in Crypto Law last week:
The Digital Chamber and Illinois Blockchain Association File MSJ in Illinois Tax Lawsuit
The Digital Chamber, alongside our co-Plaintiff the Illinois Blockchain Association (IBA), filed a Motion for Summary Judgment challenging the constitutionality of Illinois’ Digital Asset Tax Act, the nation’s first tax specifically targeting the exchange, transfer, and storage of digital assets. The motion provides the legal argument and support for the Court ruling in our favor and overturning the tax once and for all. Our brief’s central argument is that a dollar is a dollar, whether it moves through a bank account or across a blockchain. The challenged Illinois tax arbitrarily imposes different tax burdens on substantially equivalent economic activities merely because one uses newer technology. This is not permitted under either the Illinois or U.S. Constitutions nor under federal law protecting online commerce from discriminatory tax treatment.
Tl;dr– This tax has nationwide implications. As stablecoins and blockchain-based financial infrastructure become increasingly integrated into mainstream financial services, allowing states to impose discriminatory taxes on digital asset activity could create a fragmented and economically burdensome national market. A favorable ruling could establish an important precedent protecting technological neutrality in state taxation and preventing other states from adopting similarly discriminatory digital asset taxes. The Crypto Council for Innovation and Blockchain Association filed their separate MSJ the same day raising largely similar points as they raised in their preliminary injunction briefing.
OTHER STORIES
Staking as a Service in New Jersey: The New Jersey Bureau of Securities has dropped its Complaint against Coinbase which prevented the exchange from offering staking as a service offerings to New Jersey residents. The SEC said over a year ago that staking services are as ministerial as ministerial comes, so glad to see New Jersey residents finally having access to these vanilla technical services.
CFTC Approves Single Stock Perps/Immediately Sued: The CFTC approved (or, better stated, deemed approved through no denial) a host of equity perpetual futures products (and was promptly sued for such approvals). The CFTC’s response to the Cboe-backed lawsuit using the Cboe’s own filings with the CFTC has to sting a little. But these products are already available overseas, so having them in America under federal oversight is a no-brainier to me.
SEC Answers DAO Questions: The SEC added additional guidance to its staff FAQ’s regarding what satisfies a “central party.” Combined with the Canton Coin no-action letter and the SEC is taking an extremely narrow view of what a group of coordinated actors is for securities law purposes, which is generally good but I do have worries if we stretch the term too far.
SEC Transfer Agent Rule Change Filings: The comment period for the SEC’s proposed transfer agent rule change has closed and were largely supportive of the SEC’s recognition that blockchain technology can be used to maintain a master securityholder file. Great to see the SEC taking this step to modernize rules to allow for use of blockchain technologies with more rule changes on the way.
FinCEN Withdraws Trump 1.0 Travel Rule Proposal: FinCEN has formally withdrawn its proposal which would have made crypto a part of travel rule reporting meaning every crypto transaction would need to have an identifiable counterparty. This rule change proposal has been dead for a while because there is no way to actually enforce it, but good to see the formal withdrawal so it is removed from the books entirely.
Anchorage Swap-Dealer Registration: Great to see Anchorage getting into the CFTC dealer-registration game. One of the biggest hold backs from use of crypto as margin support is the lack of crypto custodians, so combined with their trust charter this makes Anchorage extremely capable of handling those types of trade support services. Love to see it.
Bring Back Requiring Warrants: Not blockchain-specific, but big fan of this latest request that SCOTUS determine whether clicking a third-party’s terms of service eliminates the need for federal authorities investigating you to obtain a warrant to get that third party information. Requiring law enforcement to get a warrant to get information is not a big ask and something which is explicitly required in our Constitution. It has been a right whittled away over time and due for a hard reset.
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.
