Edition No. 7
The Bear Market of '22; the "Crypto Bill", Elon & Doge v. Investors; Crypto Tax Evasion, EU Regulatory Debate. Here's what happened from 6/12/2022-6/19/2022
Welcome to Around the Blockchain, a weekly letter dedicated to keeping readers up to date on the fast-paced world of Crypto & Law by airdropping current stories and projects directly to your browser.
Table of Contents:
1. On the Docket (Top 5 Stories of the Week)
2. Motion to Compel (Meant to provoke thought and action)
3. Podcasts, Videos, & Blogs (The faces, voices, and pens of Web3’s brightest contributors)
4. Bird Watching (Tweet Tweet)
5. The Public Ledger (Highlights from our weekly library of sources, built by our Feedly AI)
6. Closing Statements
On the Docket
Five things you might have missed last week:
1. Trillion-Dollar Crypto Collapse Sparks Flurry of US Lawsuits – Who’s to Blame?
Blood in the Streets // The Bear of ‘22
Edward Helmore of The Guardian explores the uncertainty of liability considerations in the midst of a 13-figure collapse, noting:
“With inflation and interest rates rising, the best-known cryptocurrencies have been hit with heavy and continuing losses: Bitcoin has lost more than 50% of its value this year; Ethereum, its largest rival, is down 65%.”
This incredible loss of wealth has been at least in part catalyzed and accelerated by the collapses of Terra, Celsius, and 3AC.
The desire to assign responsibility is fueled by concerned and liquidated investors desperately looking for remedy, and no one is safe from the mob. Kim Kardashian, Floyd Mayweather, and Logan Paul are just a few of the numerous “influencers” facing suit for alleged false statements promoting cryptocurrencies, and exchanges such as Binance and Coinbase are facing class action suits for alleged negligence. Amidst all the turmoil, calls for federal protections such as FDIC equivalent compliance standards have ramped up. Unfortunately, investor’s current realities may be rather grim according to Jeanne Sahadi of CNN Business, who states:
“Should the company holding your crypto assets declare bankruptcy or otherwise be unable to meet its financial obligations, you could be out of luck.”
The Bear has arrived.
See Also: Bitcoin.com, Cryptopolitan,
2. Not Securities? Not So Fast: Important Nuances in the Lummis‐Gillibrand Crypto Bill
Every rose has its thorn.
Jack Solowey of the CATO Institute explores the deeper implications of the Crypto Bill brought forth by Senators Lummis (R‑WY) & Gillibrand (D‑NY) earlier this month, writing:
“The question that the Lummis‐Gillibrand bill seeks to answer is less ‘whether’ it is the SEC or the CFTC that has a role to play in crypto regulation so much as ‘when’ each agency does.”
The question of legally classifying a given digital asset has expanded from merely examining the static nature of the asset itself, to examining the dynamic nature of how that asset is exchanged. This new class of asset have been coined (pun intended) “Ancillary Tokens”. Solowey ties the bow nicely as he continues:
“[W]hile a digital asset itself may be a CFTC‐regulated commodity, where that asset is sold in connection with a type of security known as an ‘investment contract,’ the contract still will be considered an SEC‐regulated security.”
Though the Bill — were it to pass in a similar form to its current iteration — represents a major victory for the Crypto Law space, time will ultimately reveal how effective the potential legislation will be.
3. Elon Musk Sued for $258B for Promoting Dogecoin
A class action lawsuit initiated by a man named Keith Johnson is seeking damages of $258 billion dollars from Elon Musk and his companies SpaceX and Tesla after alleging the three entities were part of a “Crypto Pyramid Scheme” and a racketeering ring. According to Johnson:
“Defendants falsely and deceptively claim that Dogecoin is a legitimate investment when it has no value at all,” Johnson said in the complaint.”
In addition to seeking ambitious damages, Johnson also demands Dogecoin trading be declared gambling under NY State Law, and that both Musk and his companies be banned from promoting the currency again.
4. IRS Targeting Crypto Coin Tax Evasion with "Operation Hidden Treasure"
Hollywood title. Real world consequences.
From the Tax Law Offices of David W. Klasing:
“As is implied by the name of the initiative, Operation Hidden Treasure targets taxpayers who attempt to hide their cryptocurrency income from the IRS. Operation Hidden Treasure was announced by Damon Rowe, the Director of the Office of Fraud at the IRS, at a meeting at the Federal Bar Association that took place on March 5th, 2021.”
The IRS is working hard to catch up with the world of Crypto, and this operation is their first notable foray into more aggressive regulations and enforcement. The operation will attempt to mitigate bad practices such as the use of Shell Corporations, “Structuring”, and “Blockchain Cloaking Technologies”. Klasing describes in no uncertain terms the potential pitfalls of failing to report:
“[T]hey will find a way to detect your unreported cryptocurrency income and prosecute you for failure to report your crypto coins.”
5. EU Commissioner Urges Parliament to Adopt Crypto Rules to Protect Consumers
“Power is no blessing in itself, except when it is used to protect the innocent.” - Jonathan Swift
Mairead McGuinness, EU’s Commissioner for Financial Services, addressed members of the European Parliament this past Tuesday in an attempt to persuade the members to take swift action to protect consumers in the midst of an impartial and aggressive market downturn. Citing the recent collapse of several stablecoin protocols, McGuinness firmly believes the EU must take concrete steps to regulate digital assets, and it needs to do so now.
“Part of the attraction of investing in this world is that they feel that they won’t be subject to regulation — but given what we have experienced in the last weeks, it is very important that we regulate.”
See also: The Ledger
Motion To Compel
Thought-provoking questions and arguments for your consideration each week:
Gone are the Old Gods // Behold, a New Temple
The past week has been nothing short of a massacre for markets across the globe, and crypto was not spared in any way, shape, or form. Where do we go from here? I share my thoughts on the state of crypto, raw and uncut.
Read the full length article here.
All views expressed in this section are the sole opinion of the author and are not necessarily reflective of those held by Around the Blockchain managers, editors, contributors, or associates.
Podcasts, Videos, and Blogs
The brightest voices & sharpest pens:
In Episode #50 of the Law of Code podcast, host Jacob Robinson interviews Jordan Teague (@jordanteague), an attorney and smart contract developer. Jordan is one of the core developers behind KaliDAO and a legal engineer with LexDAO.
It’s a 2-for-1 deal with the Law of Code podcast this week. In episode #51, Jacob speaks with SEC Commissioner Hester Peirce. This episode covers almost every pressing issue in crypto law, as Commissioner Peirce shares her thoughts on stablecoin regulation, the future of the SEC, the fourth prong of Howey, and much, much more. You’re gonna want to hear this one:
The Bankless Podcast team break down the crypto crash:
Mika Honkasalo, independent crypto researcher, discusses what is happening with Celsius and Three Arrows Capital. Laura Shin gets the scoop in Ep. 364 of the Unchained Podcast:
Our EU Expert Analyst Ann Sofie Cloots discusses the fall of Terra and Celsius, EU digital asset regulation, de-fi lending practices, and more in CryptoLaw Newsletter #54:
Tweet, Tweet, Tweet!
Times are tough:
A thread on a16z’s “State of Crypto”:
The Public Ledger
Highlights from the hundreds of sources gathered each week by our research AI. Always DYOR - but in case you don’t have time, here’s some of ours:
General News and Opinion
Binance warns of loss of funds for Litecoin transactions that use the MWEB feature
Blockchain redefines the framework for IP with architecture fit for Web3
Microstrategy Debunks Margin Call Rumor — Says Bitcoin Liquidation Unnecessary Even if BTC Falls Below $3562
RocketFuel Blockchain : Receives 3.6 Million of its Shares Back in Settlement of Lawsuit
BitBoy Crypto to Spearhead Class Action Lawsuit against Celsius
Jay-Z’s bitcoin school met with skepticism in his former housing project: ‘I don’t have money to be losing’
Elon Musk advances support for an integrated payment system on Twitter that supports cryptocurrencies
Seth Green Pays $260,000 to Recover Lost NFT That Inspired His New TV Show
U.S. - Federal Law
LBRY vs. SEC to face the same fate as Ripple vs. SEC? Answer can alarm you
SEC Boss Says Investors Need Protection in the Crypto Market
The CFTC’s action against Gemini is bad news for Bitcoin ETFs
No Prison Time for BitMEX Co-Founder Benjamin Delo, Sentenced to 30 Months Probation
US Labor Dept. Urged to Rescind Crypto Guidance as Pushback Grows
Binance.US Accused of Misleading Investors in Class-Action Lawsuit Over Terra
Darren Sandler, Republic Crypto Lead Counsel: The Responsible Financial Innovation Act is a Big Step in the Right Direction
Coin Center sues Treasury and IRS, claims tax-reporting rule unconstitutional
US SEC Made a ‘Big Mistake’ in Its $XRP Lawsuit Against Ripple, Legal Expert Says
U.S. - State Law
Regulators in Five States Target Celsius Over Withdrawal Freeze: Report
New York Lawmakers Passed Cryptocurrency Bills S.6486D and S.8343
SEC settlement with crypto firm BlockFi to provide Iowa $943,000
Gas bans, renewables and crypto: N.Y.'s clean energy struggle
An NYC office building put up for sale as an Ethereum NFT lost $12.2 million in value over 2 weeks. The owner says they’ll relist
BlockFi Can't Move Crypto Loan Suit Out Of Calif., Panel Says **
Crypto Crimes in Russia are booming up to an unattainable stage
'The IMF is evil': Rich countries take aim at nations adopting crypto
Fines, jail terms revealed for people dealing in unlicensed crypto payments or virtual currencies
President of Panama Partially Vetoes Crypto Law Passed by National Assembly
Brazil's Judges Receive Crypto 'Training,' Minister Warns of 'Gaps' in Regulation
Bank of England's Governor Warns About Crypto Amid Bloodbath — 'Be Prepared to Lose All Your Money'
Bank of Kyrgyzstan Issues Warning About Cryptocurrencies, Crypto Payments
Binance Australia CEO: Regulations will establish higher standards in crypto
NOTE: For your convenience, we have started identifying articles that require a subscription or site registration (paid or free) with **
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New layout of letter:
We decided to rearrange some of the furniture in the house this week. Let us know what you think!
Quote of the Week:
“What a cage is to the wild beast, law is to the selfish man.” - Herbert Spencer
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This newsletter is curated, annotated, and edited by Christopher Foreman (Twitter - @CryptlessInSEA) and Kyler Wandler (Twitter - @KylerW56) with consultation and input from Jacob Robinson of the Law of Code Podcast, editing from TΞxas ₿l◎ckchain LawyΞr , in collaboration with Ann Sofie Cloots, and support from the Blockchain Barristers Law Student Collective.
The articles and opinions in this newsletter are not legal or financial advice. For legal and financial guidance, please consult a qualified attorney or financial advisor.
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