Bitcoin
Report Analyzes Blockchain, Cryptocurrency News and Developments
Our last update included a flurry of activity, with the surprisingly bipartisan vote in the House of Representatives on FIT 21 and the SEC’s approval of certain Ether spot ETF rule change proposals occurring in quick succession. This update is back to normal: pending industry litigation continues to move toward a final resolution, and the president has made good on his promise to veto a bill that would have reopened the door for most banks to be able to take custody of digital assets.
These developments and some other brief notes are discussed below.
President Biden vetoes bill to nullify Personnel Accounting Bulletin 121 (“SAB 121”): May 31, 2024
Bottom: President Biden made good on his threat and vetoed the bipartisan bill approved by the House and Senate to nullify Staff Accounting Bulletin 121. The bill would have revoked SEC accounting guidance that requires SEC-registered companies to treat digital assets held on behalf of customers as liabilities, effectively making it unfeasible for most banks to meet to other regulatory requirements if they hold digital assets. This veto came after a bipartisan group of Lawmakers urged President Biden not carry out its threat to veto the measure.
Analysis: President Biden’s statement that “[m]The administration looks forward to working with Congress to ensure a comprehensive and balanced regulatory framework for digital assets” apparently hollow rings in a statement vetoing a bill that had bipartisan sponsorship and was approved with 60 votes (including Chuck Schumer) in a Democratic-controlled Senate. SAB 121 is internal SEC guidance that the The Government Accountability Office has already determined that it failed comply with the Administrative Procedures Law. It’s also unclear how eliminating reliable custody options protects consumers. After a few weeks in which it appeared that the administration may have begun to reverse course on encryption policies, which are increasingly becoming a major issue heading into the upcoming election, it was disappointing to see the veto of a bill that counted on the support of traditional banks and participants in the digital asset industry.
Coinbase Finalizing Briefing on Regulatory Appeal: May 31, 2024
Bottom: Coinbase has now concluded its briefing on its appeal to the SEC’s denial of regulation by presenting the Response in support of your petition. Coinbase’s chief legal officer summarized the order on Twitter, claiming “[t]The SEC is bent on stifling the digital asset industry and refuses to provide the necessary rules the industry has requested to tighten the grip.”
Analysis: Coinbase faces an uphill battle on this, as Congress did not mandate that the SEC approve such regulation. The best-case scenario for the industry would be for the Court to force the agency’s action, but it would still be a huge victory if this resulted in dictates about digital asset participants’ inability to comply with existing rules. For those who missed it, it’s The three-part Paradigm series is worth reading about why “sign in and register” is not possible, with citations of specific rules and reasoning.
Dapper Labs Settles NBA Class Action Top Shot Securities
Bottom: Dapper agreed to a tentative settlement of US$4 million in the class action alleging that the sale of NBA Top Shot NFTs were securities transactions. While the agreement still needs to be approved by the Court, if so, it seems a good result for the company after losing your motion to dismiss largely due to the Court’s conclusion that the centralized flow of blockchain makes certain securities arguments matters of fact for adjudication. Dapper likely would have spent over $4 million on litigation and discovery if taken to trial, so this is an easy way out for them.
Analysis: Dapper gets liability protection for all sales from when it was the only marketplace in town to buy and sell its NFTs and can now use the existence of additional marketplaces as a defense to future lawsuits. Looks as a win for Dapperas $4 million should barely make a dent in the company’s bottom line. Dapper CEO Roham released a tweet claiming that the agreement states that it was agreed that the Flow blockchain was a decentralized public network and Top Shot NFTs are not securities.
Briefly noted:
SEC Private Funds Rule Overturned by 5th Circuit: The Fifth Circuit vacated private fund advisor rules this would have greatly increased compliance burdens and overheads for many fund managers. These would have applied to investment advisors registered with private funds and may have disproportionately affected managers of crypto-enterprises, most of whom cannot rely on the exemption from registration for venture capital fund advisors. Our detailed alert is available here.
Industry Participants Support Super PAC: Coinbase has also donated $25M for crypto super PAC Fairshakebringing your financing up to US$75 million in Coinbase, Ripple and a16z alone. Fairshake is a PAC that supports crypto-friendly candidates through funding, research, and advertising. In the latest Harris poll, 33% of respondents said they take a candidate’s stance on crypto into considerationand 77% believe a US presidential candidate should have an informed perspective on cryptography.
House Subcommittee Holds Hearing on Asset Tokenization: The House Financial Services Subcommittee on Digital Assets held a hearing on the tokenization of real-world assets. While the hearing had notable detractors, most of the focus was on the various benefits for cheaper, faster settlements and greater transparency that integrating blockchain technologies into transactions can offer.
SEC Faces Lawsuit Over Responses to Document Requests: The American Securities Association filed a lawsuit against the SEC in the Middle District of Florida alleging that the agency failed to comply with certain Freedom of Information Act requests regarding the agency’s enforcement actions of broker/dealer off-channel communications during COVID when these individuals were unexpectedly transitioned to working from home. This adds to the list of declaratory legal actions filed against the agency.
Robinhood Buys Crypto Exchange Bitstamp: Robinhood is buying Bitstamp crypto exchange to expand crypto operations outside the United States. It appears that companies are shifting focus and funding away from the United States, with American industry regulation still evolving, unlike in other countries.