While nonetheless main the securities litigation, hedge fund and SEC protection nationwide practices at my final regulation agency, BakerHostetler, my observe workforce members and I’d put together an annual listing of key developments and instances within the space every December.
It was normally a high 10 listing that was then revealed by Wolters Kluwer in a single of its CCH publications and by BakerHostetler as a separate publication to our regulation agency shoppers. Now that I’m formally “retired” from regulation agency observe and as of late dedicate most of my skilled consideration to the blockchain and crypto area, my editor, Max Yakubowski, and I assumed it made sense to do one thing related for Cointelegraph’s readers.
Powers On… is a month-to-month opinion column from Marc Powers, who spent a lot of his 40-year legal profession working with complicated securities-related instances within the United States after a stint with the SEC. He is now an adjunct professor at Florida International University College of Law, the place he teaches a course on “Blockchain, Crypto and Regulatory Considerations.”
So, right here is my high 5 listing for 2021. It has some caveats hooked up. For one, the blockchain area has so many dimensions, some implicating finance and many that don’t. The use instances for this ledger know-how broaden annually, constrained solely by human ingenuity. This listing focuses on developments this yr that have an effect on monetary transactions and programs. It additionally focuses on what I understand as key regulation, laws and litigation affecting the ecosystem. Next, this can be a high 5 listing, not a high 10 one. While sure, there are dozens of points and objects which can be transformative, that might be a for much longer piece. Finally, some of the objects on the listing I’ve already written about in prior columns, so they are going to be acquainted to common readers. As a end result, I don’t really feel the necessity to present prolonged explanations as to why an merchandise made the listing.
1. El Salvador adopts BTC as a nationwide foreign money
Back in June, on the Bitcoin 2021 convention in Miami, Salvadoran President Nayib Bukele introduced he would search to have El Salvador undertake Bitcoin as a nationwide foreign money. At the time, the nation had used the U.S. greenback as its official foreign money since 2001, abandoning on the time its native foreign money, the colón. In brief order, the nation’s legislative physique adopted legal guidelines mandating that starting in September, all business institutions should settle for Bitcoin as legal tender, with some exceptions. Wallets containing $30 in BTC have additionally been made out there to residents by the tiny nation’s banks. This was not a voluntary alternative for companies; reasonably, it was required, which makes this occasion so important.
It was a watershed second for sovereign nations, as different international locations have begun efforts to do the identical, together with Panama and Ukraine. While different international locations have adopted blockchain know-how for components of their monetary and governmental programs — equivalent to Georgia mandating that authorities actual property auctions happen on a blockchain — that is totally different and extra important. It is for the complete nation’s financial system.
2. The United States’ “woke” laws on blockchain transactions
In November, Congress lastly handed the Biden administration’s $1.2 trillion infrastructure laws— not less than the piece of the proposed laws that really was directed at constructing and rebuilding our bridges, roads, rails and telecommunications. As half of the invoice, formally known as the Infrastructure Investment and Jobs Act, there’s an modification to Section 6045 of the tax code, which requires the reporting to residents engaged in securities transactions, with an excessively broad definition of “brokers.” It mandates tax reporting data by conventional brokerage corporations of their prospects. However, the invoice arguably could possibly be interpreted to impose this important reporting requirement on blockchain miners and builders, which many in Congress imagine is dangerous for crypto and overbearing.
The significance of this tax provision is that it’s one of the primary efforts of the federal authorities “to better incorporate digital assets, like virtual currency, into our nation’s tax code,” in accordance to a Dec. 14 letter from six senators to Treasury Secretary Janet Yellen, whether or not Yellen does as they ask or not. These senators are Rob Portman, Mark Warner, Kyrsten Sinema, Cynthia Lummis, Pat Toomey and Mike Crapo — members of each main political events. It can be important that not solely is there assist for the know-how within the Senate, there’s now additionally a Congressional Blockchain Caucus.
The caucus is a bipartisan group of members of the House of Representatives devoted to advancing the know-how with “a light touch regulatory approach,” in line with its mission assertion. Back in August 2020, it wrote to the Internal Revenue Service in search of readability on how the company can be taxing the block rewards arising from the proof-of-stake validation course of. As of this writing, the caucus web site lists 35 members of the House, a big quantity.
3. Federal Reserve Chair Powell is open to the advantages of blockchain for the monetary system
On a couple of event this previous yr, Federal Reserve Chairman Jerome Powell has said publicly and in congressional hearings that he sees sure advantages for the world and U.S. monetary programs in using blockchain and digital property. Back in March, he said on CNBC that whereas Bitcoin was not an excellent retailer of worth or foreign money, it was a speculative asset like gold. Thereafter, he made clear that the Fed has no intention of banning crypto.
A number of days in the past, Powell acknowledged that he doesn’t envision the Armageddon that crypto haters see. He made clear he doesn’t see crypto as a hazard to the monetary system at the moment. Regarding stablecoins, he mentioned they “can certainly be a useful, efficient consumer-serving part of the financial system if they’re properly regulated.”
If you assume again just a few years, cryptocurrencies — and the blockchains from the place they arrive — had been verboten within the federal authorities. No one was allowed to embrace them. So, it appears to me that there was a transparent evolution and maturation of considering on the half of Powell about this stuff and the helpful points of digital property for our financial system and the world’s monetary system. Given Powell’s appreciable affect over our financial system and financial stability, probably much more so than our president, this can be a very optimistic growth. All of this discuss looks as if a precursor to a central financial institution digital foreign money being issued by the Fed.
4. SEC permits Bitcoin ETF for retail prospects
The new Securities and Exchange Commission chairman, Gary Gensler, has a transparent bias towards his former employer, the Commodity Futures Trading Commission, the place he served as chair from 2009 to 2014. Yet, he’s nonetheless advancing the ball for crypto, albeit slowly.
For a number of years now, numerous monetary firms have sought to promote exchange-traded funds primarily based upon Bitcoin and different digital property. ETFs maintain a basket of securities or property, such because the S&P 500 ETF, which holds all of the securities within the S&P 500 Index. ETFs are usually less expensive funding merchandise for retail buyers than mutual funds. Yet, pointedly in the course of the chairmanship of former SEC Chair Jay Clayton, every time one of the greater than a dozen ETFs had been offered to the SEC, it didn’t approve the effectiveness of the general public providing, successfully killing it.
In October, nevertheless, issues modified. The SEC allowed the primary Bitcoin-based ETF to commerce in public U.S. markets: the ProShares Bitcoin futures ETF. Yet, there was a catch. The ETF authorized is predicated upon Bitcoin futures, not the underlying BTC itself discovered within the spot market, revealing Gensler’s biases from his years on the CFTC. To me, there isn’t a official rationale for permitting a futures-based ETF however not a spot-based one. Indeed, a futures-based ETF, which requires a rolling over of futures contracts, is costlier to handle.
Also, it’s restricted within the quantity of contracts that may be bought below present CFTC place limits guidelines. There isn’t any related restriction for spot ETFs. The declare that the markets for Bitcoin have been in regulated marketplaces such because the CME for years and thus the futures market is a extra secure and orderly market for an ETF is bunk. Nonetheless, sooner or later, a spot ETF shall be authorized, and the truth that all retail buyers can now purchase Bitcoin, even when derivatively, is a big development for each the know-how and different asset.
5. Ripple fights the SEC in courtroom
In the waning days of the lame-duck Clayton-led SEC in December 2020, the Commission licensed and filed a lawsuit in opposition to Ripple and two of its principals, alleging the defendants engaged in unregistered public securities choices of XRP over a interval of years. As mentioned in a single of my columns earlier this yr, it was an ill-advised, overly aggressive motion that didn’t have to be introduced.
Among different causes, it’s questionable whether or not the XRP token was a “security” below the federal securities legal guidelines. Also, one other authorities regulator, the Financial Crimes Enforcement Network, had beforehand complained in 2013 to Ripple that its choices constituted “currency” exchanges, thus subjecting Ripple to register as a cash providers enterprise “exchanger” with the company. So, Ripple registered and was fined $700,000 by FinCEN as a penalty for registration and AML violations in 2015, solely to have a separate federal company — the SEC — declare 5 years later that the identical choices had been public choices of “securities.” Repetitive actions by a number of U.S. regulators for related underlying transactions are unfair and pointless.
If I used to be a betting man, which I’m, I’d say the SEC will lose this battle — by which I imply the courtroom both will discover that XRP shouldn’t be a “security,” that the gross sales of XRP by Ripple’s principals weren’t public choices right here within the United States, or that an injunction in opposition to the defendants is neither obligatory nor granted. This battle and the following choice by Judge Analisa Torres could possibly be monumental.
There you will have it, readers — my high 5 listing.
Enjoy the vacations, and might we quickly defeat COVID-19 worldwide. You will quickly be listening to my ruminations once more in 2022!
Marc Powers is presently an adjunct professor at Florida International University College of Law, the place he’s instructing “Blockchain, Crypto and Regulatory Considerations” and “Fintech Law.” He just lately retired from working towards at an Am Law 100 regulation agency, the place he constructed each its nationwide securities litigation and regulatory enforcement observe workforce and its hedge fund trade observe. Marc began his legal profession within the SEC’s Enforcement Division. During his 40 years in regulation, he was concerned in representations together with the Bernie Madoff Ponzi scheme, a current presidential pardon and the Martha Stewart insider buying and selling trial.
The opinions expressed are the creator’s alone and don’t essentially replicate the views of Cointelegraph nor Florida International University College of Law or its associates. This article is for common data functions and shouldn’t be meant to be and shouldn’t be taken as legal or funding recommendation.