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Report Blockchain Reviews, Cryptocurrency News, Developments
Our last update featured a flurry of activity, with the House of Representatives’ surprisingly bipartisan vote on FIT 21 and SEC approval of some proposed Ether spot ETF rule changes coming in quick succession. This update brings things back to normal: pending disputes in the industry continue to move toward a final resolution, and the President has kept his promise to veto a bill that would reopen the door for most banks to take custody digital resources.
These developments and some other brief notes are discussed below.
President Biden Vetoes Bill to Overturn Personnel Accounting Bulletin 121 (“SAB 121”): May 31, 2024
Background: President Biden followed through on his threat and vetoed the bipartisan bill passed by the House and Senate to overturn Staff Accounting Bulletin 121. The bill would have repealed SEC accounting guidelines that required SEC-registered companies to treat digital assets held on behalf of clients as liabilities, effectively making it impossible for most Banks meet other regulatory requirements if they hold digital assets. This veto came after a bipartisan group of lawmakers urged President Biden not to follow through on his threat to veto the measure.
Analyses: President Biden’s statement that “[m]y The Administration looks forward to working with Congress to ensure a comprehensive and balanced regulatory framework for digital assets.” hollow rings in a statement vetoing a bill that had bipartisan sponsorship and passed with 60 votes (including Chuck Schumer) in a Democrat-controlled Senate. SAB 121 is internal SEC guidance that The Government Accountability Office has already determined that it failed comply with the law on administrative procedures. It’s also unclear how eliminating reliable custody options protects consumers. After a few weeks in which it appeared the Administration had begun to reverse course on cryptocurrency policies, which are increasingly becoming a crucial issue in the upcoming elections, it was disappointing to see the veto of a bill that had the support of traditional banks and participants in the digital assets sector.
Coinbase Final Briefing in Regulatory Appeal: May 31, 2024
Background: Coinbase has now completed its briefing in its appeal of the SEC’s rejection of regulation by filing Response in support of your petition. Coinbase’s head of legal summarized their documentation on Twitter, supporting “[t]The SEC is intent on stifling the digital asset industry and refuses to provide the necessary rules the industry has requested to tighten the crackdown.”
Analyses: Coinbase faces an uphill battle in this regard, because Congress has not mandated the SEC to pass such regulation. The best-case scenario for the industry would be for the Court to force the agency’s hand, but it would still be a huge victory if this resulted in dicta regarding the failure of digital asset participants to comply with existing rules. For those who missed it, it is the three-part Paradigm series is worth reading on why “enter and register” is not possible, with references to specific rules and arguments.
Dapper Labs has settled a class action lawsuit over NBA Top Shot titles
Background: Dapper agreed a tentative settlement of $4 million There were securities transactions in the class action lawsuit related to the alleged sale of NBA Top Shot NFTs. While the the transaction still needs to be approved from the Court, if so, it seems like a good outcome for the company afterwards losing the motion to dismiss largely due to the Court’s conclusion that the centralized flow of blockchain makes some securities arguments questions of fact for trial. Dapper would have likely spent more than $4 million in litigation and discovery if taken to court, so this is an easy way out for them.
Analyses: Dapper gets liability protection for all sales since it was the only marketplace in town buying and selling its own NFTs, and can now use the existence of additional marketplaces as a defense for future lawsuits. It seems as a win for Dapperas $4 million should barely make a dent in the company’s profits. The elegant CEO Roham posted a tweet stating that the agreement states that it was agreed that the Flow blockchain was a decentralized public network and that Top Shot NFTs are not securities.
Briefly noted:
SEC Private Funds Rule Overturned by 5th Circuit: The Fifth Circuit abolished rules on private fund advisors this would have significantly increased compliance burdens and overheads for many fund managers. These would have applied to registered investment advisors at private funds and could have disproportionately impacted cryptocurrency managers, most of whom cannot rely on the exemption from registration for venture capital fund advisors. Our detailed warning is available here.
Industry players support the Super PAC: Coinbase has now also donated $25 million to crypto super PAC Fairshakecontributing its funding up to 75 million dollars from Only Coinbase, Ripple and a16z. 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 the candidate’s position on cryptocurrencies into considerationand 77% believe a U.S. presidential candidate should have an informed perspective on cryptocurrencies.
House subcommittee holds hearing on asset tokenization: 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 attention focused on the various benefits that integrating blockchain technologies into transactions can offer in terms of cheaper and faster settlements and greater transparency.
SEC faces lawsuit over responses to records requests: The American Securities Association has 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 out-of-channel broker/dealer communications during COVID when such individuals were unexpectedly moved to work from home. This adds to the list of declaratory court actions taken against the agency.
Robinhood buys crypto exchange bitstamp: Robinhood is buy Bitstamp cryptocurrency exchange to expand crypto operations outside the United States. Companies appear to be shifting their focus and funding outside of the United States, with regulation of the American industry still changing, unlike in other countries.