Tag: blockchain

SRO on crypto comms

FINRA, the self-regulatory body for securities within the financial industry – and reports into the Securities and Exchange Commission (SEC) – updated its past (November 2022) crypto guidance to members saying this week, “This update does not create new legal or regulatory requirements or new interpretations of existing requirements, nor does it relieve firms of any existing obligations under federal securities laws and regulations. Rather, this update poses questions for firms to consider as they review and supervise their retail communications concerning Crypto Assets.”

The industry body lists off a bulleted list of issues it sees with recent, crypto asset, member communications such as: “Unclear and misleading explanations of how Crypto Assets work and their core features and risks.” FINRA wants its members to do better and, no doubt, is being “encouraged” to do so the SEC. This week’s “update” provides a list of questions for FINRA members to consider before it starts its next crypto asset communications campaign.

Read the guidance.

Pokemon cards are securities

Yesterday, Politico analyzed the recent court news in the Coinbase and Binance complaints brought by the SEC. A partner at the law firm representing Coinbase – William Savitt at Wachtell Lipton – makes the case for overreach by the regulator saying, “The SEC’s regulatory reach does not go beyond securities… And if it’s permitted to regulate here, it’s permitted to regulate everywhere.” – “everywhere” as in your Pokemon cards says Savitt. Read more. Continue reading “FINRA Updates Its Guidance On Crypto Communications; SEC Finds More Fraud”

more sanctions, crypto involved

The U.S. Treasury’s Office of Foreign Assets Control (OFAC) has imposed a new fifth round of sanctions against members of the terrorist organization Hamas coming out of the October 7 terror attacks in Israel.

Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, said in a release, “Hamas has sought to leverage a variety of financial transfer mechanisms, including the exploitation of cryptocurrency, to channel funds to support the group’s terrorist activities.”

The latest action isn’t specific about the dollar levels involved in the terrorist financing identified and how much of it was cryptocurrency. Regarding one of the implicated terrorist financial networks: “Hamas has directly co-opted and utilized some corrupt money exchanges in both the West Bank and Gaza to launder funds for the terrorist group. Since at least 2020, Hamas has also used cryptocurrency to transfer some funding in support of operational costs in the West Bank as a means of mitigating the risks of physically moving cash, circumventing border crossings, and evading monitoring by authorities.”

Read the press release: “U.S., UK, and Australia Target Additional Hamas Financial Networks and Facilitators of Virtual Currency Transfers” – treasury.gov Continue reading “Treasury Sanctions Terrorists, Sees Crypto Involvement; Judiciary Gets Hagerty AML Legislation”

the presidential platform

Last week, former President Donald Trump made digital assets part of his 2024 presidential campaign platform in no uncertain terms.

According to The Hill, Trump told a campaign crowd in New Hampshire, “Tonight, I am also making another promise to protect Americans from government tyranny. As your president, I will never allow the creation of a central bank digital currency.” Read more in The Hill.

what you should know: By vowing to block creation of a Central Bank Digital Currency (CBDC), the President Trump takes up the cause of the myriad pieces of anti-CBDC legislation introduced by Republicans – and some Democrats – in Congress.

Trump’s comment may have also put new momentum behind a House Floor vote for bills such as House Majority Whip Tom Emmer’s (R, MN) CBDC Anti-Surveillance State Act [H.R. 5403] which passed out of a House Financial Services markup in July. Whip Emmer tweeted on Friday, “I agree with President Trump; CBDCs pose a serious threat to Americans’ right to financial privacy.”

Trump’s CBDC comment may be fortuitous for House Republicans who increasingly need some wins while their Caucus struggles to fund the government.

election fundraising

Former President Donald Trump has not been shy about using NFTs (non-fungible tokens) for fundraising. CoinDesk reported that nearly $7 million had been amassed in crypto and NFT licensing fees as of last August.

In fact, over the weekend, three Trump NFT collections tracked by NFTPriceFloor showed a combined market capitalization of approximately 22,000 Ether or $54 million.

Good news for his NFT holders, he’s launching a Bitcoin ordinal NFT, too, which costs a mere $9,900. Read about it in CoinDesk. Continue reading “CBDCs Ascend The Presidential Platform; Illicit Finance Bill From Senators Hagerty, Lummis”

motion-to-dismiss day

“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.

Even better, hear his audio-only broadcast of the hearing with commentary.

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. Continue reading “Coinbase Motion-To-Dismiss Hearing Buffets SEC Counsel; Banking Chair Brown Sees AML Legislation Soon-ish”

IRS relents

The Treasury Department and Internal Revenue Service (IRS) relented yesterday on a new tax rule and said that businesses “do not have to report the receipt of digital assets the same way as they must report the receipt of cash until Treasury and IRS issue regulations.” Read the press release.

At the beginning of the month, Coin Center’s Jerry Brito warned in a blog post about the onerous tax obligations created by a section of the 2021 Jobs Act for digital asset businesses such as miners and validators that became effective Jan. 1. Any transactions above $10,000 – such as staking – would have required a tax reporting submission to the IRS.

Adding fuel to the fire, Chamber of Digital Commerce followed up with a letter to Congressional leaders expressing the threat to the industry and promoted the need for the Keep Innovation in America Act [H.R. 1414] which would provide a legislative fix and was introduced early last year by House Financial Services (HFS) Chair Patrick McHenry (R, NC) and co-sponsored by Rep. Ritchie Torres (D, NY) among a bipartisan group of Members. See the letter.

But, in spite of the good news, Coin Center’s Brito was dumbfounded by the Treasury and IRS press release saying in a tweet thread, “Glad to see the IRS has belatedly listened to us and recognized the impossibility of complying with 6050I using crypto, but its statement on the matter is baffling. They state that the new crypto reporting obligations in the Infrastructure Investment and Jobs Act ‘requires the Treasury Department to issue regulations before it goes into effect.’ There is nothing in that law that says this and we are unaware of any legal reasoning that would have this be the case. For the time being it seems like they will not be enforcing the law, which is a practical win and I’m sure that is welcomed by many confused taxpayers. Still, the IRS has not explained how it’s capable of doing this.” Read more.

what you should know: Yesterday’s news would seem to put new momentum behind H.R. 1414. Or, maybe the IRS and Treasury can figure it out on their own? Expect HFS to make some noise (today?) reminding Treasury it needs Congress to make changes on the rule.

global growth – natsec, China

On Thursday, the Senate Banking Committee will hold a hearing titled, “National Security Challenges: Outpacing China in Emerging Technology.” See more. Given Chair Sherrod Brown’s (D, OH) apparent reticence to discuss digital assets in such a light, don’t expect them to make the agenda.

Nevertheless, China’s HashKey Group, which positions itself as the “Asia’s digital assets leader” and owns a crypto exchange and trading platform in Hong Kong, announced new funding yesterday. The company said that a new Series A funding round of $100 million would support its efforts in the Hong Kong market and claimed the company now held a market capitalization of $1.2 billion. Continue reading “Treasury And IRS Relent On Tax; Digital Assets Getting Global Boost”

tomorrow could be big

Tomorrow is potentially a big day for digital assets.

Oral arguments will begin on Coinbase’s attempt to have the court dismiss the Securities and Exchange Commission’s suit against the company originally filed last June. Coinbase’s dismissal request was in August.

In a tweet thread at the time, Coinbase Chief Legal Officer Paul Grewal said, “Our core argument is simple — we do not offer ‘investment contracts’ as that term has been construed by decades of Supreme Court and other binding precedent.” Read that one.

The Wall Street Journal previewed the court drama within a glowing profile of Coinbase CEO Brian Armstrong over the weekend. Read the profile.

In discussing the prospects for dismissal, former SEC enforcement lawyer Lisa Bragança tells the WSJ, “The case is very unlikely to be dismissed… Coinbase is saying that the types of coins it lists on its platform are not securities, and that is going to be very hard for them to prove.”

But… doesn’t the SEC have to prove the “coins” are securities?

Coinbase chief financial officer Alesia Haas adds, “We are preparing the company for a variety of scenarios… We are investing in the future.”

more tips

4 possible outcomes for Coinbase’s Motion to Dismiss hearing tomorrow – MetaLawMan (James Murphy) on X

what you should know: A dismissal would be an enormous setback for the SEC – if it happened – and poke a significant hole in its mantra that cryptocurrencies are securities. Arguably, the implications for digital assets in the United States would be much bigger than approval of Bitcoin spot market ETFs. This would be a step forward in bringing digital assets underneath the umbrella of the U.S. financial system. Continue reading “Coinbase Attempts To Get SEC Suit Dismissed; Senators Wyden, Lummis Question SEC”

Bitcoin ETF approved

The drama is over.

Bitcoin spot market exchange traded funds (ETFs) now exist so that if investors want to easily invest in Bitcoin through their favorite 401k or brokerage account, they can. Securities and Exchange Commission (SEC) Chair Gary Gensler (D) made the announcement shortly after the stock market closed saying grudgingly in a lengthy statement, “I feel the most sustainable path forward is to approve the listing and trading of these spot bitcoin ETP shares.” Read it.

The Commission’s vote on the ETF applications was 3-2 with Chair Gensler voting with the two Republican commissioners.  See the “Jan. 10” vote here.

what you should know: If you will miss this storyline, the drama will continue when other digital assets such as Ether or XRP and their ETFs come up for review by the Commission.

Bitcoin ETF approved – reaction

Shortly after Gensler, Republican SEC Commissioner Hester Peirce expressed a sigh of relief in a statement of her own: “Today marks the end of an unnecessary, but consequential, saga. More than ten years after the filing of the first spot bitcoin exchange-traded product (‘ETP’) application, the Commission finally has approved multiple applications by exchanges to allow the listing and trading of spot bitcoin ETPs. This saga likely would have spanned well beyond a decade were it not for the DC Circuit-ex-machina.[link] You need not be a seasoned securities lawyer to spot the difference in treatment of bitcoin-related ETP applications compared to the many other ETP applications that have been routinely filed and approved over the past decade.” Read more.

Senator Cynthia Lummis (R, WY) said in a statement, “The SEC’s decision to comply with the Grayscale court ruling and approve the pending Bitcoin spot ETFs to be listed on registered national securities exchanges is a historic decision for the crypto asset community. It will provide millions of Americans with easier access to crypto assets and allow them to benefit from professional managers and more competitive fees.”

House Financial Services Committee Chair Patrick McHenry (R, NC) and French Hill (R, AR), Chairman of the HFS Digital Assets, Financial Technology and Inclusion Subcommittee said in a statement, “While legislation to provide clarity and certainty for digital assets remains necessary, the steps taken today are a significant improvement over the SEC’s track record of regulation by enforcement. We are pleased that investors and our markets will finally be afforded greater access to this generational technology. We remain committed to enhancing consumer protection in the digital asset markets through comprehensive market structure and payment stablecoin legislation.”

Rep. Wiley Nickel (D, NC) said in a statement, “While I’m pleased with Chairman Gensler’s decision, it’s clear that his regulation by enforcement battle is losing in the courts and in public opinion. Congress has a role to play in pushing back against the SEC’s untenable approach on digital assets.”

Rep. Mike Flood (R, NE) said, “As I stated in my September letter to the SEC, the DC Court of Appeals spoke with clarity on this issue: the SEC’s initial denial of Grayscale’s application was ‘unlawful.’ I am glad that in the end common-sense and the rule of law won out, and retail investors across the country will get greater choice as a result.”

Rep. John Rose (R, TN) said, “It is clear that the American people have a desire to invest in this new technology, and our laws and regulations should reflect and welcome that desire – not shun it like SEC Chair Gary Gensler has done for too long. I look forward to continuing our work on the House Financial Services Committee welcoming similar digital asset innovation, like passing the FIT for 21^st Century Act, which will provide much-needed regulatory stability for digital assets.”

more tips:

Financial Services Committee Republicans Demand Briefing from SEC by January 17 on Compromised X Account, Unauthorized Bitcoin ETF Post – house.gov

Continue reading “BItcoin Spot Market ETFs Approved – Finally; SRO Details Compliance For Finance Pros”