The Crypto Regulation Winner? EU Holistic Framework vs. US Activity-Based Approach

Hansen and Cameron

At last week’s Converge22 conference in San Francisco, crypto regulation was top of mind for attendees and there was no shortage of relevant content across three days of programming produced by Circle, keepers of the USDC stablecoin.

In a panel titled “View from Across the Pond: Regulatory Change in the EU and UK,” participants reviewed where things stood in relation to the United States.

The panel’s premise was also a helpful reminder of how Facebook’s Libra/Diem project in 2019 inspired fearful regulators across the globe to urgently consider guardrails for the digital asset ecosystem.

As of June 2022 in the European Union, the passage of Markets in Crypto-Assets or MiCA regulation as well as the Transfer of Funds Regulation (TFR) delivered the first holistic regulatory framework for crypto for a large swath of the global population. (For a U.S. corollary, one might point to the proposed Lummis/Gillibrand “Responsible Financial Innovation Act” – a broad framework. Of course, it’s far from being signed into law.)

Patrick Hansen, who is arguably the top source of European Union regulation trends on crypto Twitter as well as an advisor to Presight Capital, joined the panel discussion along with Dr. Lisa Cameron, UK MP and Chair of the Crypto and Digital Assets.

Circle’s VP of Policy and Regulatory Strategy, UK/EU, Teana Baker-Taylor, steered the conversation.

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CFTC Action Brings DAOs Into The Enforcement Crosshairs

Up until last week, few had ever heard of bZeroX, let alone Ooki DAO.

But what a difference an enforcement action makes as the Commodity Futures Trading Commission (CFTC) announced on Thursday a $250,000 penalty against bZeroX and its founders, Tom Bean and Kyle Kistner, as well as charges for members of the decentralized autonomous organization (DAO), Ooki DAO, for offering “illegal, off-Exchange digital-asset trading, registration violations, and failing to comply with Bank Secrecy Act.”

Wait… a DAO? Oh yes. Time will tell if the action creates a chilling effect for Americans participating or having an interest in DAOs. Many think that if they join a particular DAO’s Discord channel, they are now a part of a DAO.

But, the CFTC took it a step further saying Ooki DAO members were defined “as those holders of Ooki tokens that have voted on governance proposals with respect to running the business.”

The basis of the CFTC charges for the DAO suggest that the alleged offending assets of bZx Protocol may have been transferred to what was pitched to DAO members as a decentralized structure that could overcome today’s regulatory requirements:

“…On approximately August 23, 2021, bZeroX transferred control of the bZx Protocol to the bZx DAO, which subsequently renamed itself and is currently doing business as the Ooki DAO. The Ooki DAO operates the Ooki Protocol (formerly the bZx Protocol) in the exact same manner as bZeroX and thus is continuing to violate the law in the same manner as bZeroX. By transferring control to a DAO, bZeroX’s founders touted to bZeroX community members the operations would be enforcement-proof—allowing the Ooki DAO to violate the CEA and CFTC regulations with impunity, as alleged in the federal court action. The order finds the DAO was an unincorporated association of which Bean and Kistner were actively participating members and liable for the Ooki DAO’s violations of the CEA and CFTC regulations.”

One of the Commission’s five members, Summer Mersinger, dissented (see the detailed release) on the part of the order related to token holders in the DAO but agreed on the punishment for bZeroX and its founders.

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Rep. McHenry Tempers Expectations On Imminent Stablecoin Legislation

Rep. Patrick McHenry

Rep. Patrick McHenry (R, NC) was the focal point of Politico’s “Writing the Rules of Crypto” event today at Washington, D.C.’s Hotel Washington.

The congressman clearly wanted to temper expectations on whether a bill on stablecoins could be forthcoming from the House Financial Services committee where he serves as Ranking Member along with Chairwoman Rep. Maxine Waters (D, CA).

Politico reporter Sam Sutton guided the panel discussion and cut right to the chase with McHenry asking him, “What’s the hold-up with stablecoin legislation?”

McHenry launched in eagerly saying, “A lot.  First, it’s an election year – big policymaking in an election year is hard.” Then, he provided a brief history on why regulatory guardrails were needed as well as revealing the influence of state stablecoin legislation – in particular, New York’s – which has helped inform the work undertaken thus far by the Financial Services committee in coordination with the Fed and Treasury.

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Senator Thune Talks Controls on SEC Purse and Personnel

Senator John Thune

This morning in Washington, D.C., Senator John Thune (R, SD), the Senate Minority Whip, spoke on a variety of investment topics circulating through Capitol Hill at a Punchbowl News event sponsored by American Investment Council.

With mid-term elections less that two months away Thune remained sanguine about Republican prospects to overtake the majority in the Senate.

Nothing was mentioned about his recent co-sponsorship of the bipartisan Digital Commodities Consumer Protection Act, which gives regulatory authority over bitcoin and ether to the Commodity Futures Trading Commission (CFTC).

But, he did speak about general dissatisfaction with recent practices of securities regulators – namely the Securities and Exchange Commission led by Biden Administration appointee Gary Gensler, its Chair.

Overall, the SEC’s commission tilts Democratic with a 3-2 edge.

Thune was interviewed by Punchbowl News Founder, Anna Palmer and elaborated on the dynamics between the SEC and Republicans today.

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Executive Order Responses on Digital Assets Signal Interest, Caution Across Government

EO reports

Deadlines were met last Friday as several departments of the U.S. government delivered their reports on digital assets as required by President Joseph Biden’s Executive Order 14067 (EO) in March.

The goal of the EO is to ensure that the United States stays in front of innovation especially as it relates to the U.S. financial system. And, perhaps more importantly, the goal appears to be understanding a framework necessary for risks inherent in crypto markets and ensuring the ongoing global supremacy of the U.S. dollar and protection of the financial system.

The White House kicked things off with a “Fact Sheet” titled “White House Releases First-Ever Comprehensive Framework for Responsible Development of Digital Assets” (read it) in which it says nine reports have been “submitted” to-date – below are five that were released publicly on Friday.

U.S. Treasury Department (3 reports)

Treasury Secretary Janet Yellen trumpeted the release of three reports from her department adding in a press release that if risks are mitigated, “digital assets and other emerging technologies could offer significant opportunities.”

The “Crypto-Assets: Implications for Consumers, Investors, and Businesses(get the PDF) report from Treasury looks at “developments and adoption of digital assets and changes in financial market and payment system infrastructures for U.S. consumers, investors, businesses, and for equitable economic growth.”

As part of its recommendations, Treasury sees a need to “Provide Guidance through Individual Actions” and elaborates that the OCC, FDIC and SEC have all taken such actions recently including “the SEC’s special purpose broker-dealer statement on digital asset custody that identifies the circumstances in which the SEC will not take certain enforcement action against broker-dealers with respect to digital asset securities.”

Of all the reports released, “The Future of Money and Payments,” provides the broadest and most hopeful overview and loops in the CBDC debate from a U.S. Treasury perspective. (get the PDF).

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Bitcoin and Ether Get Commoditized At Senate Ag Hearing

DCCPA Hearing

The Digital Commodities Consumer Protection Act (DCCPA or S.4760) took centerstage at a 2-1/2 hour hearing of the Senate Committee on Agriculture, Nutrition, and Forestry featuring many of its committee members including Senators Debbie Stabenow (D, MI), Chairwoman, and John Boozman (R, AR), Ranking Member.

Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam, a former Stabenow staffer, led off testimony on DCCPA which he helped create in partnership with the Committee.

Back in February, shortly after Behnam was sworn in as CFTC Chair, a Senate Ag hearing on digital assets laid the groundwork for themes of the bipartisan bill which will classify the cryptocurrencies Bitcoin and Ethereum as commodities and therefore within the jurisdiction of the CFTC.

Senator Boozman stressed during the hearing that DCCPA is not meant to erode the jurisdiction of the SEC over securities.

    • Video of today’s hearing is available here.
    • Behnam’s testimony is here which includes a section titled, “The CFTC: The Right Regulator.”


Overall, there were few surprises in the Senate Ag hearing – after all, it’s a bipartisan bill co-sponsored by the Democratic Chair and the Republican Ranking member.

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Coming This Fall, New SEC Office of Crypto Assets

SEC Office of Crypto Assets

On Friday, The Securities and Exchange Commission (SEC) announced that rather than having everyone in the SEC understand how crypto assets should be treated across their company filing review organization – known as the Division of Corporation Finance’s Disclosure Review Program (DRP) – they’ll create an office to specialize in it.

From the release:

“The Office of Crypto Assets will continue the work currently performed across the DRP to review filings involving crypto assets. Assigning companies and filings to one office will enable the DRP to better focus its resources and expertise to address the unique and evolving filing review issues related to crypto assets.”

Concentrating knowledge with specialists may help improve the agency’s expertise in the growing blockchain industry. At the same time, there was no mention of how many full-time employees will be assigned to the office. As of September 12, 2022, there were four open positions listed on for the SEC’s Disclosure Review Program although not explicitly for crypto.

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SEC Commissioner Uyeda Challenges Gensler’s Regulation by Enforcement

SEC Commissioner Uyeda

One of the new Securities Exchange Commisssion (SEC) commissioners appointed last May, Mark Uyeda, said at this week’s “SEC Speaks 2022” conference that regulation by enforcement is not in the public’s interest for creating effective guardrails for crypto.

By doing so, Uyeda joins fellow SEC commissioner Hester Peirce in taking issue publicly with Chair Gary Gensler’s current approach for regulating cryptocurrency.

His view isn’t a total surprise given the politics. Gensler is part of the 3-2 Democrat majority on the SEC’s Commission. Uyeda is a Republican along with Peirce.

Nevertheless, Uyeda is not new to the inner-workings of the SEC having worked on its staff since 2006 as an advisor to Chairman Jay Clayton among others as well as serving a securities counsel to the Senate Committee on Banking, Housing, and Urban Affairs’ minority staff and as an advisor to House Speaker Nancy Pelosi (D, CA) according to Bloomberg.

The speech

Uyeda’s speech on crypto zeroed in on the potential loss of innovative firms in the United States. Just yesterday, Chair Gensler stated in answer to a related question by former Commerce Secretary Penny Pritzker at NYC Summit that innovation only occurs in the public sector with the help of academics and “tinkerers.” It was an awkward moment considering the room full of entrepreneurs gathered in front of him. Risk-taking entrepreneurs are often considered the heart of innovative products and companies in crypto or any industry.

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