“Did Coinbase just win?”
We won’t know for (possibly) weeks, but given the tone of the hearing in Judge Katherine Failla‘s chambers, the SEC had weak arguments and Coinbase was nimble and prepared at yesterday’s Motion-To-Dismiss (MTD) hearing in the Coinbase complaint brought by the Securities and Exchange Commission (SEC) in June.
Court observer Kevin Paffrath of ehack.com covered the nearly 5-hour hearing and thinks there’s a 90% chance that Coinbase has won its MTD – he started the day thinking the exact opposite given that MTDs are often unsuccessful. See Paffrath’s written summary.
Available by teleconference, it should be noted how informative the hearing’s public discussion on digital assets was – particularly on The Howey Test, the Holy Grail of securities regulation.
Helpful amicus briefs submitted to the Court in support of Coinbase were brought up throughout the hearing, too. DeFi Education Fund’s brief (PDF) was highlighted by the Judge for its definitional value around wallets and staking, for example.
In that vein, at 1:36:10 of the ehack.com broadcast, Judge Failla, who was appointed by President Barack Obama in 2013, recalls how she had a discussion with Senator Chuck Schumer (D, NY) during her confirmation for the bench that stressed the importance of NOT being an activist judge. Pointing to the amicus brief submitted by Senator Cynthia Lummis (R, WY) in support of Coinbase – see it (PDF) – Judge Failla appeared to feel a “moment of truth” around proving she wasn’t an activist and should “stay in her lane.” Yet, the Judge told the courtroom she could feel Lummis saying, “Don’t do this Failla” and expressed a measure of deference to the Senator.
Reviewing the hearing, crypto counsel James Murphy (a.k.a. MetaLawMan on X) was less sanguine post-hearing on Coinbase’s MTD succeeding. He said, “My guess (and it’s just a guess) is she is going to allow the case to go forward to discovery, like the Ripple case. But, I continue to believe, as noted in my pinned tweet, that Coinbase will ultimately win the case in the end. Congress, of course, could put a stop to the whole thing with adoption of comprehensive crypto legislation but that won’t happen this year.” Read his thoughts.
what you should know: Now, we wait for the Judge’s decision. FWIW, Judge Failla dismissed a case in August against Uniswap by a mysterious collection of six individual investors. Around the same time in a separate DC court, Grayscale won its case against the SEC that got the Bitcoin spot market ETF ball rolling.
Overall, a loss in this case by the SEC would be huge for digital assets and though it could appeal, and appeal, the courts will have spoken on the SEC’s generalized claim that all crypto are securities, let alone other areas of dispute. And the spotlight would be even brighter on Congress to produce a regulatory framework.
AML bills update
Senate Banking Chair Sherrod Brown (D, OH) tells Politico’s Eleanor Mueller that discussion on next steps on anti-money laundering (AML) legislation for digital assets is ongoing, but not imminent. Brown says, “We’re looking at a lot of different proposals, including what we want to do ourselves… But nothing specific yet that I want to talk about.” Mueller postulates that bipartisan support – namely Senate Banking Ranking Member Tim Scott (R, SC) – may be the roadblock. Read more (subscription).
what you should know: Senator Elizabeth Warren’s (D, MA) Digital Asset Anti-Money Laundering Act (DAAML), Senator Jack Reed’s (D, RI) Crypto-Asset National Security Enhancement Act (CANSEE) and Senator Mark Warner’s (D, VA) Terrorism Financing Prevention Act are the likely proposals being considered by Chair Brown. Hard to say “why the delay?” other than a lack of support some place, somewhere (like Ranking Member Scott). No doubt, the Republican-controlled House isn’t helping Brown’s efforts. There remains no hoped-for (by Dem leadership) Republican co-sponsor for DAAML in the House. Rep. Sean Casten (D, IL) has been rumored to be leading the charge and looking for a partner. Last but not least in terms of reasons for delay, Chair Brown may be busy campaigning for his re-election in Ohio.
canary in the coal mine
Newly-approved Bitcoin spot market Exchange-Traded Funds (ETFs) continue to see hundreds of millions of inflows as the Bitcoin ETF appears to show strong traction with retail investors. CoinDesk reports that “net inflows into the newly approved spot bitcoin exchange-traded funds appear to be about 21,000 bitcoin (BTC), or $894 million at the current price of $42,600.” Meanwhile, Grayscale’s Bitcoin Trust has seen nearly as much in terms of outflows and retail flees for lower fees. Read it.
what you should know: Bitcoin price is still flat post Bitcoin ETF launch. A significant move up or down is a potential “canary in the coal mine” that could foreshadow retail voters’ ability to influence a general election on a single issue. “Number go up” arguably puts more power (and numbers) in the pro-crypto army. “Number go down” puts more power in the anti-crypto army.
Fed on stablecoins
A new Federal Reserve research paper released on Tuesday and written by the Fed’s James Clouse reviews “the evolution of financial market structure for monetary policy implementation and transmission” and scoops up the topics of stablecoins and Central Bank Digital Currencies (CBDCs).
Titled, “A Field Guide to Monetary Policy Implementation Issues in a New World with CBDC, Stablecoin, and Narrow Banks,” the 104-age paper’s approach appears even-handed noting, for example (on page 67), “…the expansion of stablecoins can put material upward pressure on funding rates for financial intermediaries and increase the cost of credit to businesses on loans extended by traditional intermediaries. Policymakers could offset some of these effects through appropriate adjustments in the policy rate (and corresponding adjustments in administered rates).”
The Fed economist concludes, “…central banks will continue to find it necessary to adapt their policy tools and implementation frameworks to ongoing structural changes in the financial system. And that process, in turn, will likely have implications for the evolution of the financial system over time.”
still more tips
Opinion: The worst scam of all: how Binance got away with a slap-on-the-wrist – Lee Reiners, Duke, in The Hill
Winklevoss’ crypto exchange Gemini gets nod to launch in France amid clash with U.S. regulators – CNBC
Crypto Developers Dropped 24% in 2023 as Builders Look Beyond Bitcoin, Ethereum – Decrypt