The SEC Resets Its Crypto Relationship

The U.S. Securities and Exchange Commission (SEC) is seeking to redefine its engagement with the cryptocurrency sector, even prior to the Senate confirming a permanent chair. The recent initiative was a roundtable discussion held at the SEC’s Washington, D.C. headquarters, which included a diverse group of attorneys presenting various perspectives within the crypto arena.

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Key Points

The SEC’s strategic shift commenced under Acting Chair Mark Uyeda, who established a crypto task force, led the agency to rescind Staff Accounting Bulletin 121, abandon several ongoing lawsuits, pause others, and release multiple staff statements regarding the agency’s stance on memecoins and proof-of-work mining.

Significance

The SEC is presently the foremost federal oversight body in the crypto space. While the Commodity Futures Trading Commission (CFTC) may eventually govern crypto spot markets, currently, most entities in the sector turn to the SEC for clarity on permissible actions.

Discussion Overview

The roundtable event was organized into two segments (or three if you include the introductory comments from the three commissioners): a moderated panel discussion lasting approximately 90 minutes, led by former SEC Commissioner and founder of Paredes Strategies, Troy Paredes, followed by a 90-minute town hall that was also moderated by Paredes, with inquiries from the public included.

The primary focus of the discussion remained — as it has been for several years — the criteria under which a cryptocurrency or a cryptocurrency transaction qualifies as a security. Panelists addressed a range of topics, including the role of crypto in facilitating ransomware attacks and operational strategies for companies.

Chris Brummer, CEO of Bluprynt and a professor at Georgetown Law, kicked off the dialogue with his interpretation of the Howey Test, highlighting that when individuals hold savings, issues surrounding investor protection emerge. He noted that the common enterprise component aims to address fundamental information problems.

“It boils down to information asymmetries, where considerations of profit reflect investor psychology, encompassing emotions like greed and fear that can cloud judgment,” he stated. “When all these factors are at play, mandated disclosure rules come into effect.”

According to Sarah Brennan, General Counsel at Delphi Ventures, the SEC’s current approach has constrained many crypto initiatives. She pointed out that although many projects aim for extensive initial distribution, “the looming threat of securities law applications” compels many to behave more like traditional public companies, rather than embracing their crypto foundations fully.

“We increasingly see the token being recognized as the product… there are various methods that people use to artificially manipulate prices, which has often proven detrimental to the market,” she remarked.

John Reed Stark, a former SEC attorney, emphasized the importance of understanding the “economic reality of the transaction.”

“No matter how you slice it, the individuals purchasing crypto are not collectors,” he noted. “It’s common knowledge that they are investors, and the SEC’s mission revolves around investor protection.”

How the SEC’s initiatives will evolve is yet to be determined, but the agency is clearly becoming more proactive in addressing these issues publicly, with industry responses indicating positive engagement. The SEC auditorium was notably well-attended, filled to about 75% capacity at various points, not to mention those who viewed the event via livestream.

• While Congress Discusses a Revolutionary Crypto Bill, Agencies Are Already Implementing Policy: Federal agencies are moving ahead with crypto regulation without waiting for Congress or their permanent leaders, as indicated by recent analysis ahead of the SEC’s statement on proof-of-work mining.
• SEC Clarifies Proof-of-Work Mining is Not Subject to Securities Laws: The agency stated that both pooled and solo proof-of-work mining fall outside its jurisdiction, according to a staff release.
• U.S. Bank Agency Removes ‘Reputational Risk’ from Examinations Following Crypto Sector Concerns: The Office of the Comptroller of the Currency informed national banks about eliminating “reputational risk” from its supervision manual.
• XRP Surges 10% as Ripple CEO Indicates SEC is Dropping Case: Ripple CEO Brad Garlinghouse mentioned that the SEC has agreed to discontinue its appeal relating to a July 2023 ruling that determined Ripple did not infringe federal securities laws in selling XRP through exchanges.
• Digital Chamber Announces New Leadership as Crypto Advocacy Grows in Washington: Founder and CEO Perianne Boring will transition to the chair position next month, with the organization’s president, Cody Carbone, stepping in as CEO.
• Crypto Exchange Bithumb Faces Raid by South Korean Prosecutors over Embezzlement Claims: Bithumb is under investigation by South Korean authorities regarding allegations of embezzlement.
• Pump.fun Unveils Plan to Lead Solana DeFi Trading: Pump.fun is launching a token swap platform aimed at capturing a portion of the fees generated by automated market makers on Solana.
• Gotbit Founder Pleads Guilty to Wire Fraud and Market Manipulation Charges: Aleksei Andriunin, who previously disclosed operating a wash trading scheme to make cryptocurrencies appear more liquid, admitted guilt in a plea bargain.
• Nasdaq Moves Towards 24/7 Trading in Part Due to Cryptocurrency’s Influence: A Nasdaq executive stated that both Nasdaq and the New York Stock Exchange are working toward all-day trading, partly motivated by the continuous nature of crypto trading.
• SEC Chair Nominee to Appear Before Senate Committee Next Week: The Senate Banking Committee will conduct confirmation hearings for SEC Chair nominee Paul Atkins and Comptroller nominee Jonathan Gould next week.
• U.S. Government Lifts Sanctions on Tornado Cash: Following a Fifth Circuit Court decision stating that the Treasury Department’s Office of Foreign Assets Control could not sanction smart contracts, OFAC revoked sanctions against the crypto mixer.

Tuesday

• 15:30 UTC (11:30 a.m. ET) The federal judge presiding over the Department of Justice’s case against the founders of Samourai Wallet held a brief status conference. According to reports, the hearing was brief and dealt with procedural matters without addressing the case’s substance.

Thursday

Friday

• 17:00 UTC (1:00 p.m. ET) The SEC convened a roundtable with legal professionals from the crypto sector alongside SEC officials.

• (Reuters) A new strain of bird flu — H7N9 — has appeared in the U.S. for the first time since 2017, adding to the existing H5N1 outbreak.
• (CNN) Amtrak CEO Stephen Gardner announced his decision to resign from the company following direction from the White House.
• (Bloomberg) Coinbase is reportedly in advanced negotiations to acquire the derivatives platform Deribit, following earlier reports regarding their interest in the company.
• (Wired) A former Meta employee published a revealing book about her experiences, prompting Meta to take strong measures to limit its availability. The book has since climbed the charts to become a best-seller on Amazon.
• (Bloomberg) Bloomberg featured a profile on Senator Kirsten Gillibrand’s influential role in advocating for crypto legislation.
• (Politico) The Trump administration’s plans for USAID propose significant reforms, including utilizing blockchain technology to ensure secure transactions, as outlined in a leaked document. “All distributions would also be secured and traced via blockchain technology to significantly enhance security, transparency and traceability,” the document states. If you’re among those advocating for blockchain’s integration with U.S. governmental processes, let’s connect.
• (The Guardian) The Trump administration deported over 200 men from Venezuela to a prison in El Salvador, which may have contravened a court order and occurred without any formal hearings or trials. Public statements indicated that all 238 men were linked to the Tren de Aragua gang, supposedly receiving directives from Venezuela’s government, while court documents revealed that many of those deported lacked any criminal backgrounds. Family members contend that many among them were not criminals and had no gang associations. Some individuals reportedly signed papers for deportation expecting to be returned to Venezuela. Intelligence sources also indicated that the Tren de Aragua was not affiliated with the Venezuelan regime, according to reports from the Times.