Crypto regulation decided by Congress, not the SEC: Blockchain Association

February 15, 2023 Coin Telegraph

Advocacy

The group's policy head doubted a divided Congress can create crypto legislation but said it doesn’t give regulators absolute authority in the interim.

Despite attempts to police cryptocurrency through enforcement actions, United States financial regulators “are bound by legal reality” and Congress will ultimately decide crypto regulations the policy expert for the crypto advocacy group Blockchain Association has suggested.

The association's chief policy officer, Jake Chervinsky, shared his views in an extensive Feb. 14 Twitter thread on the state of crypto policy.

He noted neither the Securities and Exchange Commission (SEC) nor the Commodity Futures Trading Commission (CFTC) “has the authority to comprehensively regulate crypto.”

14/ No matter how many enforcement actions the SEC and CFTC bring, they are bound by legal reality:

Neither has the authority to comprehensively regulate crypto, neither can obtain it through any amount of enforcement, and neither will ever have it without an act of Congress.
— Jake Chervinsky (@jchervinsky) February 14, 2023

Chervinsky believed a deal on crypto legislation seems “unlikely, given the ideological gap between House Republicans and Senate Democrats.” He accused the SEC and CFTC of overstepping their authority in an attempt to “get things done” without Congress.

Chervinsky called for the industry to remain calm following the recent flurry of activity from “crypto’s chief antagonist,” the SEC, and pointed to its crackdown on staking services as an example.

13/ The SEC's main tactic is regulation by enforcement, and it struck again last week by labeling Kraken’s staking service a security.

That's frustrating, but it doesn't change much for anyone else. Settlements aren't the law, and every set of facts is unique. Others will fight.
— Jake Chervinsky (@jchervinsky) February 14, 2023

The SEC’s Feb. 9 settlement with crypto exchange Kraken, that banned the exchange from ever offering staking services to U.S. customers, was publicly rebuked by SEC Commissioner Hester Peirce.

In a Feb. 9 dissenting statement, Peirce argued that regulation by enforcement “is not an efficient or fair way of regulating” an emerging industry.

Chervinsky suggested litigation is one way the crypto industry can push for good policy, noting the judiciary plays an important role in dictating policy that has been “ignored.”

20/ FIFTH, we can litigate.

Policy is made in all three branches of government, and we’ve ignored the judiciary for too long.

At the core of crypto is a fight for civil liberty, a fight that calls for impact litigation.

Our best allies may be in the courts. Let's go find them.
— Jake Chervinsky (@jchervinsky) February 14, 2023

Crypto exchange Coinbase also faces an SEC probe similar to what resulted in Kraken’s settlement.

Coinbase CEO and co-founder, Brian Armstrong, has taken a more resolute stance, claiming that getting rid of crypto staking would be terrible for the U.S.

Armstrong argued in a Feb. 12 Twitter post that Coinbase’s staking services are not securities and would “happily defend this in court if needed.”

Coinbase's staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3
— Brian Armstrong (@brian_armstrong) February 12, 2023

Judge’s rulings in landmark cases create a legal precedent. If such a case were brought to court and a judge decided Coinbase’s staking services did not classify as securities, other crypto companies in a similar position could use the precedent as part of their defense.

‘Agent of an anti-crypto agenda’ — Community slams Gensler over Kraken crackdown

February 10, 2023 Coin Telegraph

Adam Cochran

SEC's recent charges against crypto exchange Kraken over its staking program have sent tremors through the crypto industry.

Members of the crypto community seem outraged over the recent charges laid against crypto exchange Kraken in relation to its staking-as-a-service program in the United States.

On Feb. 9, the United States Securities Exchange Commission (SEC) announced it had settled charges with Kraken over “failing to register the offer and sale of their crypto asset staking-as-a-service program,” which it claims is qualified as securities under its purview.

Kraken agreed to settle the charges by paying $30 million in fines and to immediately cease offering staking services to U.S. retail investors, though they will continue to be offered offshore.

The move appears to have attracted the ire of not only the general crypto community but also of investors, politicians and industry executives.

Cinneamhain Ventures partner and Ethereum bull, Adam Cochran, called out SEC chief Gary Gensler, describing him as “an agent of an anti-crypto agenda” rather than a regulator, and questioning why the same standards weren’t applied to Sam Bankman-Fried and FTX:

2/2

Gensler is not a regulator. He is an agent of an anti-crypto agenda, who only aims to wield his power as cudgel for those he doesn't agree with.

So the big question then, is why didn't FTX get this treatment?

Whose pocket is he in?
— Adam Cochran (adamscochran.eth) (@adamscochran) February 9, 2023

In a Feb. 9 statement shared on Twitter, Kristin Smith, CEO of the Blockchain Association, argued that the situation at hand is a textbook example why Congress — not the SEC — should be working with industry players to forge appropriate legislation:

The following statement is attributed to @KMSmithDC in response to today's settlement between the SEC and Kraken:https://t.co/32KysvKfz0 pic.twitter.com/8vkWZXB6a2
— Blockchain Association (@BlockchainAssn) February 9, 2023

U.S. Congressman Tom Emmer — who has long been a critic of Gary Gensler — reiterated the importance of staking in the crypto ecosystem.

In a Feb. 9 Twitter post, the lawmaker explained that staking services will play an important role in “building the next generation of the internet” and argued that the “purgatory strategy” will hurt “everyday Americans the most,” as they may soon be forced to fetch such services offshore.

Meanwhile, Ryan Sean Adams, the founder of the Ethereum show Bankless, suggested to his 220,800 Twitter followers on Feb. 9 that the SEC could have taken other measures rather than charging Kraken out of the blue:

You could have:

- Mandated proof-of-reserves
- Required staking transparency
- Supported decentralized staking

Instead, we just got another gary g. ban hammer to the head. And we have no confidence you won't come for decentralized staking next.

You're driving it all offshore.
— RYAN SΞAN ADAMS - rsa.eth (@RyanSAdams) February 9, 2023

Other members of the community questioned how Kraken could possibly have registered with the securities regulator, as there was “no clear path” to approve crypto staking.

Others suggested it could impact Ethereum’s consensus layer, given Kraken is the fourth-largest validator on Ethereum, according to on-chain metrics platform Nansen.

However, not all were against the SEC’s decision. Prominent Bitcoin bull Michael Saylor — who has long considered ETH and other proof-of-stake cryptocurrencies to be securities — agreed with Gensler’s analysis that retail investors “lose control” of their tokens when they’re delegated to external staking service providers:

"Not your keys ... " - @GaryGensler. The @SECGov understands the importance of self-custody. https://t.co/oxPkFeJ77k
— Michael Saylor⚡️ (@saylor) February 9, 2023

Meanwhile, attorney and chief policy officer of the Blockchain Association, Jake Chervinsky, noted that such “settlements are not law” and that Kraken’s decision to settle was likely an economic decision rather than a legal one:

Settlements are not law. They're a decision that the economics of settling are better than fighting, no more.

The SEC thinks staking-as-a-service is a security. Kraken didn't admit or deny either way.

It may be a tough question, but the SEC hasn't answered it either way today.
— Jake Chervinsky (@jchervinsky) February 9, 2023

The debate comes as the SEC’s charge towards enforcing action against staking service providers prompted Coinbase CEO Brian Armstrong to say that “regulation by enforcement” would be a “terrible path” for U.S. innovators, as they’ll be forced to push more of their services offshore.

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Investors increasingly confident of Ripple’s victory over SEC: CoinShares

November 8, 2022 Coin Telegraph

Blockchain Association

XRP investment products have seen a third consecutive week of inflows, suggesting investors may be increasingly confident of Ripple’s victory.

Recent developments in the Ripple vs. Securities and Exchange Commission (SEC) case appear to have bolstered investor confidence in XRP (XRP)-tied investment products, according to investment data from CoinShares’ head of research, James Butterfill.

In its latest Digital Asset Fund Flows published on Nov. 7, Butterfill noted that XRP investment products have seen a third consecutive week of institutional inflows, clocking $1.1 million.

Butterfill said the figures imply “improving investor confidence as the SEC case against Ripple looks increasingly fragile.”

The last few weeks have seen Ripple Labs gaining increasing support from heavy hitters in the crypto industry including Coinbase and the Blockchain Association.

In a Nov. 4 post, General Counsel for Ripple Stuart Alderoty announced to his 89,000 followers that, “A dozen independent voices - companies, developers, exchanges, public interest and trade assoc’s, retail holders” had offered their help to explain how “dangerously wrong the SEC is.”

A dozen independent voices - companies, developers, exchanges, public interest and trade assoc.’s, retail holders - all filing in SEC v Ripple to explain how dangerously wrong the SEC is. The SEC’s response? We need more time, not to listen or engage, but to blindly bulldoze on. https://t.co/PRgvwI9m2X
— Stuart Alderoty (@s_alderoty) November 3, 2022

Other entities in support of Ripple include nonprofit organization Investor Choice Advocates Network, crypto mobile app SpendTheBits and the Crypto Council for Innovation, as well as the XRP “decentralized community.”

In total, there are 12 independent entities pledging legal support for Ripple.

However, despite the support and both sides calling for a summary judgment , the case could still take months, according to Ripple CEO Brad Garlinghouse, who spoke at DC Fintech Week on Oct. 11.

Garlinghouse speculated that the case could be wrapped up by the first half of 2023, but admits that is only a guess.

A recent ruling by the United States District Court in favor of the SEC against blockchain-based file-sharing and payment network LBRY could complicate the Ripple case as well.

Jeremy Hogan, Partner at Hogan & Hogan, told his 238,000 followers he expects the results of his case to “make its way into the SEC’s final brief in the Ripple case.”

LBRY fought the good fight but lost at summary judgment.

The Judge hung his hat largely on the fact that there was essentially no use for the tokens at the time of the sales.

I would expect this case to make its way into the SEC's final brief in the Ripple case. https://t.co/IDlq8J4RMS
— Jeremy Hogan (@attorneyjeremy1) November 7, 2022

Crypto lawyer John Deaton appears to still be bullish about Ripple’s chances of winning the case.

In a Twitter post, Deaton said the recent ruling “doesn't shake my confidence AT ALL,” teasing a lengthier explanation for his 224,000 followers on Nov. 8.

Blockchain Association throws support behind Ripple in SEC duel

October 31, 2022 Coin Telegraph

Blockchain Association

The United States-based crypto industry advocacy group the Blockchain Association has said it will stand with Ripple Labs amid its ongoing legal battle with the Securities and Exchange Commission (SEC), claiming the case could be very important for the future of the industry.

United States-based crypto advocacy group Blockchain Association has come out in support of Ripple Labs amid its ongoing legal battle with the Securities and Exchange Commission (SEC), claiming the case could be very important for the future of the crypto industry.

In an Oct. 28 post, the advocacy group announced it will "stand" with the American crypto economy by filing an amicus brief, also known as "friend of the court" in the SEC enforcement action against Ripple.

Nearly two years ago, the SEC announced they were suing Ripple (XRP), former CEO Christian Larsen, and current CEO Brad Garlinghouse in Dec. 2020 for allegedly raising $1.3 billion through unregistered securities sales through XRP.

"This case, which is just one in a long line of SEC efforts to regulate by enforcement, highlights the SEC's efforts to cement and legitimize its overly broad interpretation of the Howey test,” wrote the association.

The Howey Test determines what qualifies as an investment contract and is therefore what is subject to U.S. securities laws.

In their brief, the Blockchain Association outlined why in their view, the SEC and Chairman Gary Gensler's views of securities laws could have "devastating effects" on the crypto industry.

They argue blockchain technologies have many uses across the crypto industry; tokens can be used to pay for goods and services, conveyance of intellectual property rights, inventory tracking, and for a specific purpose in a given blockchain project.

"Applying the securities laws to those tokens – whether or not through the prism of the Howey test – would significantly restrict those networks from functioning."

The association also claimsSEC is disregarding clear Supreme Court and Second Circuit precedents stating transactions aboard are beyond the jurisdictional reach of the SEC.

"Though the blockchain industry is global in nature, the federal securities laws are not. The Second Circuit has repeatedly re-emphasized the Supreme Court's lesson on this subject."

"Accordingly, both for liability and (if necessary) damages purposes, this Court should be mindful of the limits of the securities laws," it added.

Kristin Smith, executive director of the Blockchain Association, believes this case could have wide-reaching ramifications for the future of crypto, calling the SEC's interpretations of the securities laws, “the single greatest threat to the future of this rapidly growing industry."

"By erratically applying these outdated standards to a modern and innovative technology, the SEC continues its "regulation by enforcement" pattern, punishing crypto companies with little justification or warning,” she said.

The Blockchain Association said the case gives the industry the chance to push back against what they see as the "SEC's regulation by enforcement agenda" and potentially open the door to modernized standards for the industry."

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Blockchain Association executive debunks rumored crypto crackdown by Treasury

April 19, 2021 Coin Telegraph

Blockchain

A United States blockchain lobbying group executive says there is no danger of a crypto crackdown in the country.

Kristin Smith, executive director of the Blockchain Association has dismissed fears that the United States Department of the Treasury was close to cracking down on Bitcoin (BTC) and cryptocurrencies.

Indeed, rumors of the Treasury bringing money laundering charges against some financial institutions using cryptocurrencies began circulating on social media over the weekend.

The report emerged during a period of massive selloffs in the crypto space, with the market capitalization dropping over $240 million as Bitcoin slid to $52,000.

In an interview with CNBC, Smith debunked the reports, stating that it was the Department of Justice’s remit to charge companies with money laundering.

Janet Yellen, the secretary of the U.S. Treasury, is a noted crypto critic, who in February characterized the apparent misuse of cryptocurrencies for illegal activities as a growing concern.

Meanwhile, several studies show the criminal usage of cryptocurrencies accounts for a minute proportion of global crypto commerce. Indeed, Michael Morell, a former acting director of the Central Intelligence Agency, recently published a paper showing that the broad generalization of digital currencies as conduits for criminal financing was exaggerated.

Morell’s paper also concluded that blockchain forensic tools are sufficiently robust to detect illicit crypto transactions.

Commenting on the efforts by crypto stakeholders to remedy the disinformation in Washington regarding the industry, Smith remarked that several market actors are contributing more resources in positive lobbying efforts on the Hill.

Earlier in April, prominent organizations in the cryptocurrency space like Coinbase and Square announced a new lobbying initiative dubbed the Crypto Council for Innovation. Apart from the Blockchain Association, other groups like Coin Center are also pushing for sensible digital currency regulations in America.

For Smith, events such as the Coinbase listing on Nasdaq offer proof of the growing market validation for the crypto industry, a phenomenon that authorities in Washington can hardly overlook.

Blockchain Association

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