House Dem switches sides

today's tips for July 1, 2024

quick tips:

The court system was ablaze with rulings and filings affecting the digital assets industry on Friday.

A dismissal of an element of the Securities and Exchange Commission's (SEC) case against Binance appears to have positive implications for crypto in secondary markets.

The SEC filed a complaint against crypto software maker Consensys. Registration and securities status of certain tokens are listed violations and echo previous SEC complaints against the industry.

The Supreme Court's decision on Friday to rescind the so-called "Chevron Doctrine" would appear to have positive implications for crypto advocates.

The IRS is moving forward with its new crypto broker rules, but not for decentralized finance (DeFi) - yet.

House Democrat Rep. Jonathan Jackson (IL) appears to have changed his mind about the SEC's Staff Accounting Bulletin 121 (SAB 121). In May, he voted against the resolution rescinding SAB 121. But as of mid-June, he's co-sponsoring Rep. Mike Flood (R, NE) 2023 bill which also rescinds SAB 121. Are there more Dems like Rep. Jackson?

| courts - SEC v. Binance

In a court case that may have far-reaching implications across SEC complaints against Coinbase, Kraken and others, District Court Judge Amy Berman Jackson partially dismissed a complaint by the SEC which said, in part, secondary sales of Binance's BNB stablecoin token qualify as securities under the Howey test. Read more on X.

Read: SEC v. Binance full decision, June 28, 2024 (PDF) - courtlistener.com

Willkie Farr counsel Mike Selig said on X, "Big loss for the SEC in Binance litigation. Court rejected SEC’s viral theory of securities. Sales of tokens as part of an investment contract security don’t become infected by or embody the contract’s security status. Secondary sales of tokens aren’t necessarily securities."

Katherine Minarik, chief legal officer of Uniswap Labs (another company in the SEC's crosshairs), commented about the decision on X:

"[Judge] Jackson expresses concern with the SEC’s approach — not giving issuers a chance to defend themselves, not identifying the full set of assets about which the SEC takes issue. No court wants a dozen cases baked into one case, esp without the right parties or all the facts. (...) This is also why the SEC’s approach to crypto is rightly called regulation by enforcement, not just enforcement. Rulemaking can be built on examples. Court judgments cannot. Judicial opinions and jury verdicts are necessarily fact-specific. It’s basic due process..."

Read her tweet thread on X.

more tips:

U.S. Judge Lets Most of SEC Case Against Binance Proceed, Dismisses Secondary Sales Charge - CoinDesk

| courts - SEC v. Consensys

The Wells Notice which was issued by the SEC weeks ago and warned MetaMask (self-custody wallet) owner Consensus of a possible enforcement action, came to fruition late Friday. Read more in Fortune.

The Wall Street Journal notes the multi-faceted elements of the new SEC complaint: "The agency said Consensys operated as an unregistered broker through its MetaMask Swaps platform, which let users directly exchange one cryptocurrency for another. (...) The regulator also alleged that Consensys illegally sold securities by offering Lido and Rocket Pool, which are decentralized staking programs that let investors earn interest by locking up their cryptocurrencies." Read it.

more tips:

SEC Charges Consensys Software for Unregistered Offers and Sales of Securities Through Its MetaMask Staking Service - SEC.gov
Does the SEC have a weak case against Consensys? Experts weigh in - The Block

what you should know: The timing of the filing by the SEC the day after the presidential debate seems intentional -it's less likely to inspire a crypto question on the debate stage where the Biden Administration and former President Donald Trump may take opposing views that could rile an important voter base.

| courts - Chevron

On Friday, among many decisions coming down from the highest court in the land, the "Chevron doctrine" met its demise as the Supreme Court voted down a 40-year-old ruling that gave regulators a wide berth on how they adjudicate decisions outside the judicial system.

Katherine Haun, CEO of crypto venture firm Haun Ventures, said on X, "Today’s overturning of the decades-old Chevron doctrine, under which courts were compelled to defer to agency interpretations of ambiguous statutes, is the most significant court case for technology policy in the US in years. The impact, especially on frontier tech industries like AI, biotech, crypto, clean energy, and beyond, can’t be overstated." Read her threat on X.

Crypto publication Decrypt found one skeptic in regards to impact on digital assets policy: "... legal implications for crypto may be overblown—that's according to Lee Reiners, who teaches at Duke Law School. The scope of the SEC’s authority in regulating crypto is still tied to questions around their classification as securities..." Read more.

Miles Jennings, chief legal officer of venture firm a16z crypto, commented on X, "Overturning Chevron likely won't slow the pace of SEC enforcement, but it could seriously hinder agency attempts to make new expansive rules that enable them to attack the industry..." See the tweet.

Crypto Council for Innovation CEO Sheila Warren added in a statement, "[Friday's] Supreme Court decision imposes clear limits on the regulatory overreach that has hampered innovation in crypto in the United States. This marks a fundamental shift."

Congress, your move?

| Treasury - broker rule

On Friday, in yet another ruling -but this time from U.S. Treasury's Internal Revenue Service on the "broker rule" or rules. From the IRS press release:

"As part of the Biden-Harris Administration’s implementation of the bipartisan Infrastructure Investment and Jobs Act (IIJA), the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) today released final regulations on the IIJA’s reporting requirements for brokers of digital assets, which align these requirements with longstanding reporting requirements for traditional financial services..." Read the release.

But, the story is more about what isn't in the rule. Crypto brokers will need to report customer transactions, but not users of, for example, self-custodial wallet MetaMask - at least not yet.

Variant Fund chief legal officer Jake Chervinsky said, "This is an unexpected but huge policy win for DeFi The proposed rule implementing the infrastructure bill’s tax provisions would have required non-custodial DeFi front-ends to KYC users. Treasury just finalized the rule but only for custodians, leaving DeFi for another day."

Read the rule: "Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions" - FederalReigster.gov

DeFi Education Fund's Miller Whitehouse-Levine offered his "take" on X saying, "Treasury has finalized its proposed broker rule and appears to have punted on DeFi completely at this stage. While 'the Treasury Department and the IRS do not agree that non-custodial industry participants should not be treated as brokers... the Treasury Department and the IRS would benefit from additional consideration of issues involving non-custodial industry participants.'"

Finally, read more about previous concerns regarding the broker rules proposed by the IRS from Cointelegraph.

| new co-sponsor signal

Rep. Mike Flood's (R, NE) Uniform Treatment of Custodial Assets Act [H.R.574 1] has added three co-sponsors in the past few weeks: Reps. Jonathan Jackson (D, IL), Claudia Tenney (R, NY) and Donald Davis (D, NC).

The bill - originally introduced in 2023 - is another standalone effort by the House to rescind the SEC's Staff Accounting Bulletin 121 (SAB 121) similar to House Joint Resolution 109 that was passed by both Houses of Congress but was vetoed by President Biden. Similar to H.J.R.109, this bill would also likely be blocked by the White House if it ever made it through the 118th Congress.

Nevertheless, H.R.5741 still allows new co-sponsors to affirm their interest in digital assets which could be important on the campaign trail with voters or for fundraising.

In March, Rep. Flood told blockchain tipsheet about H.R.5741, "I do believe that that bill laid a foundation for the CRA and we did not know that at the time when we introduced H.R.5741 -that SAB 121 was going to be deemed a rule for the purposes of the CRA..." Read the interview.

Reps. Jackson, Tenney and Davis all voted in favor of the Financial Innovation and Technology for the 21st Century Act (FIT 21) [H.R.4763]. Tenney and Davis also voted in favor of H.J.R.109, but Jackson did not and voted with Dem leadership at the time.

Is Jackson's new co-sponsorship a signal that some Democrats ready to change their vote on the SAB 121 resolution? At least one is apparently.

what you should know: A related question may be whether some congressional Democrats want to put distance between themselves and President Biden given his debate performance last Thursday night and its down-ballot effects. If they do, Republicans in the 118th Congress could have an opening for attracting new support across the aisle on previously partisan issues and bills. But, the pre-election politics for Republicans would seem to say... why not pick up more seats rather than pass more bills and possibly put Democrats in a better light?

| still more tips

Talking With SEC Commissioner Hester Peirce - Capitol Account

Bitcoin & Taxes - 6.28.24 - Cap Hill Crypto

Opinion: Crypto lobbyists are polluting the US election - Financial Times

| DC events

July 10 - "Criminal Code? DeFi, Illicit Finance, and the Future of Financial Freedom" - Cato Institute

Congressional Calendar 2024 - Roll Call