Robinhood’s Chief Legal Officer Daniel Gallagher criticized the US Securities and Exchange Commission’s (SEC) approach to crypto regulation in written testimony submitted for a Sept. 18 hearing before the House Financial Services Subcommittee on Digital Assets.

Gallagher detailed Robinhood’s efforts to comply with SEC regulations, citing over a dozen meetings and calls over 18 months. However, despite these efforts, the company received a Wells notice from the SEC’s Enforcement Division in May.

He pointed out that the SEC staff were often unresponsive to Robinhood’s requests for guidance on moving forward with its registration proposal.

‘Scorched earth approach’

Gallagher labeled the SEC’s strategy a “scorched earth” approach that negatively impacts US crypto investors.

He argued that the lack of clear guidance on which digital asset transactions qualify as investment contracts remains a fundamental issue. This uncertainty has led to multiple lawsuits by the SEC against crypto firms, further hampering industry progress.

Gallagher added that “regulation by enforcement” harms American consumers seeking greater access to digital assets. It also stifles innovation in blockchain and erodes the US’s competitive edge in global digital asset markets.

He contrasted the US with Europe, where the Markets in Crypto-Assets (MiCA) regulation provides a unified framework for crypto markets, enabling innovation to flourish overseas.

Next steps for SEC

Gallagher suggested that the SEC could use its existing authority under Section 36 of the Securities Exchange Act of 1934 to create a framework for registering and overseeing platforms that facilitate trading in digital assets deemed investment contracts.

He noted this rulemaking could address key issues such as registration, consumer protections, custody requirements, and transaction reporting. These measures, he added, could have mitigated some of the damage caused by the FTX collapse in 2022.

Congress roles

Gallagher emphasized the need for Congress to establish a clear, comprehensive regulatory framework for digital assets.

He argued that only Congress can provide the long-term regulatory clarity needed to ensure token issuers, exchanges, and other market participants can operate without fear of constant enforcement actions.

Such clarity, according to Gallagher, is crucial for maintaining the US’s leadership in responsible blockchain innovation and well-regulated digital asset markets.

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OpenSea CEO Devin Finzer announced that the firm received a Wells Notice from the US Securities and Exchange Commission (SEC) because the regulator considers the NFTs on its platform securities.

In an Aug. 28 statement on X, Finzer expressed surprise at the SEC’s broad action against creators and artists. He stated:

“We’re shocked the SEC would make such a sweeping move against creators and artists. But we’re ready to stand up and fight.”

$5 million fund

Finzer emphasized that the SEC’s move ventures into uncharted territory. He warned that targeting NFTs could stifle innovation on a larger scale, jeopardizing the livelihoods of hundreds of thousands of online artists and creators.

He also noted that many do not have the resources to defend themselves. Due to this, OpenSea is pledging $5 million to help cover legal fees for NFT creators and developers who receive a Wells Notice from the financial regulator.

Finzer argued that NFTs are fundamentally creative products, including art, collectibles, video game items, domain names, and event tickets. He asserted that digital art should not be regulated like financial instruments such as collateralized debt obligations.

The OpenSea CEO expressed concern that regulatory threats could discourage creators from making digital art.

Wells notice

The Wells Notice issued to OpenSea signals a continued regulatory crackdown on digital assets in the US.

A Wells Notice is a preliminary announcement by the SEC indicating its intent to recommend enforcement action. This notice allows the recipient to respond before charges are formally proposed.

Over the past year, the SEC has issued similar notices to several crypto-related firms, including Robinhood, Paxos, and Uniswap Labs. However, the notice to OpenSea is the first directed at an NFT-related company, showing that the regulator is closely scrutinizing NFT markets.

The outcome of this case could set a significant precedent for how NFTs are treated under US securities law, potentially affecting a wide range of digital artists and collectors.

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A US appeals court has partially overturned the dismissal of a class-action lawsuit against Binance.US, the United States subsidiary of the global Binance exchange, according to an Aug. 12 court filing.

The court found that the plaintiff, Ryan Cox, had valid claims against both Binance.US and CoinMarketCap over accusations that the crypto platforms manipulated the price of the Hex token.

The lawsuit

In 2021, Cox filed a class-action lawsuit against Binance Capital Management and Binance.US, accusing them of manipulating HEX’s ranking on CoinMarketCap—a digital asset price-tracking platform owned by Binance.

Cox claimed that HEX was “the best-performing cryptocurrency of 2020.” He alleged that the defendants unlawfully suppressed HEX’s value for their financial benefit while inflating the value of other crypto.

In February 2023, a district court judge dismissed the case, stating that Cox had not proven a direct connection between Binance.US’s activities and Arizona, where the case was filed.

However, the appellate court reversed this decision. It noted that the district court had personal jurisdiction over the defendants due to their significant presence in the US. The judges stated:

“The panel concluded that the district court had personal jurisdiction over the US defendants under the Act because they had sufficient contacts with the United States to satisfy due process.”

Price manipulation

Further, the appeals court upheld Cox’s claims of price manipulation against Binance.US and sent the case back for further legal action. The ruling stated:

“The panel also concluded that the complaint alleged colorable price manipulation claims against the U.S. defendants. The panel therefore reversed the district court’s dismissal of the claims under the Act against those defendants and remanded for further proceedings.”

HEX is a digital asset launched in 2019 by Richard Heart. Since its launch, it has been the subject of several controversies and labeled a security token by the US Securities and Exchange Commission (SEC).

Heart has also been sued for violating federal securities laws and defrauding investors of at least $12.1 million.

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The United States House of Representatives has unanimously passed the Financial Technology Protection Act, which aims to curb the use of digital for illicit activities and terrorism financing.

Representative Zach Nunn introduced the bill on April 27, 2023, and it was approved on July 22, 2024.

The bill

The bill aims to establish a governmental working group composed of key federal agencies and private sector experts. This group will focus solely on combating terrorism and illicit financing on digital platforms.

The proposed group will operate under the Treasury Department and include experts from US law enforcement and the private sector. It will feature five crypto industry leaders from financial technology or blockchain intelligence companies.

Rep. Nunn emphasized the bill’s importance in protecting Americans while ensuring access to digital assets. He said:

“This bipartisan bill will help ensure the United States is prepared to address security risks and prevent illicit money laundering while also protecting consumer choice for all Americans. We must do both simultaneously to ensure the long-term integrity of digital assets.”

Interestingly, Senators Kirsten Gillibrand (NY) and Ted Budd (NC) introduced a similar bill in the Senate. However, it has not received the same level of attention from the Senate.

US lawmakers increasingly pro-crypto

The bill’s passage reflects growing support among US lawmakers for crypto regulations, marked by the recent approval of the Financial Innovation and Technology for the 21st Century Act (FIT21).

Additionally, lawmakers attempted to overturn the SEC’s Special Accounting Bulletin (SAB) 121 advisory with a resolution. However, President Joe Biden vetoed this resolution, and efforts to repeal the veto were unsuccessful.

Market observers note that these actions highlight the bipartisan support crypto has gathered in Congress, primarily as the 2024 elections draw nearer.

Editor Editor

Liam ‘Akiba’ Wright

Senior Editor at CryptoSlate

Also known as “Akiba,” Liam is a reporter, editor and podcast producer at CryptoSlate. He believes that decentralized technology has the potential to make widespread positive change.

A US court has granted Binance US permission to invest certain customer fiat funds, currently held at BitGo, in US Treasury Bills.

Earlier this week, the exchange requested court approval to invest about $40 million in $10 million increments over four weeks. These investments will be made through a trading account on TreasuryDirect in US Treasury bills that will mature on a rolling four-week basis.

On July 19, Judge Amy Berman Jackson approved the exchange to invest its customer fiat funds, provided it maintains enough funds on its platform to meet all expected customer withdrawal requests and updates its terms of use to notify customers accordingly.

Other requests

The judge also granted the exchange other requests which included the authorization to engage third-party investment advisors to manage its corporate assets and transfer its custodied assets to a non-affiliated third-party custodian in the United States.

Meanwhile, the Judge stated that the firm must ensure that the new private and administrative keys for those wallets are maintained and directed solely by its employees in the United States or by the third-party custodian located in the United States.

Additionally, the Judge ordered that the exchange must conduct reasonable diligence to ensure that the advisors that would be managing its assets do not qualify as Binance Entities.

Binance US, the subsidiary of the global Binance exchange, is currently embroiled in an ongoing legal battle with the US Securities and Exchange Commission (SEC).

Recovery

In a parallel development, the international Binance exchange said it assisted the US Federal Bureau of Investigations (FBI) San Diego in investigating a pig butchering scam that recovered $2.5 million in USDT.

Pig-butchering schemes are scams where fraudsters use manipulative tactics to gain victims’ trust online. Once trust is established, the unsuspecting victims are lured into investing in a fraudulent crypto scheme.

The scammer often persuades the victim to make additional payments before the fraud is discovered. The “butchering” happens when the scammer steals the victim’s assets, causing severe financial and emotional harm.

According to the US Department of Justice, these types of scams have become somewhat prevalent, and over $2 billion were stolen via the schemes in 2022.

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Justin Sun, Tron’s blockchain founder, has called on the crypto community to support a pro-crypto candidate in the forthcoming US presidential elections in November.

Sun made this appeal in a May 26 social media post, emphasizing the importance of aligning with a candidate who endorses cryptocurrencies to ensure the industry’s voice is heard and interests protected. He said:

“We should support a presidential candidate who endorses cryptocurrencies. We need to demonstrate to the candidate that the cryptocurrency community, companies, and protocols are significant stakeholders whose voices should be heard and whose interests should be protected.”

So, the upcoming election presents a crucial opportunity for the crypto community to influence the regulatory environment by backing a candidate who supports the industry’s growth and integration into the broader economy.

Biden, Trump jostle for crypto

Sun’s statement comes amid a changing regulatory landscape in the US regarding cryptocurrencies.

Recently, crypto has become a hot political topic, with bipartisan support for two crypto-related bills—SAB121 and the FIT21 Act. These bills aim to enhance the industry’s regulatory framework and provide the necessary clarity for it to thrive.

Additionally, the traditionally crypto-skeptic Securities and Exchange Commission (SEC) unexpectedly approved spot Ethereum exchange-traded funds (ETFs) 19-b filings, marking a pivot from its previous stance on the asset.

Stakeholders see these developments as a significant shift for President Joe Biden‘s administration, which previously favored strict regulation of the emerging industry. The White House has also shown interest in collaborating with Congress on effective crypto regulations.

Experts attribute these changes to former President Donald Trump‘s newly acquired pro-crypto stance, which has bolstered his re-election prospects. According to Polymarket, Trump has a 56% chance of winning the election, compared to Biden’s 38%. While Trump was president, he was overtly against crypto, calling it “based on thin air.”

In recent months, Trump’s chances have risen following a series of pro-crypto actions and statements. This weekend, the former president said the United States must be a leader in the crypto sector while pledging to release the imprisoned founder of Silk Road, Ross Ulbricht. Furthermore, his re-election campaign now accepts crypto donations in various digital assets, including Bitcoin, making him the first major candidate to do so.

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Former President Donald Trump has begun accepting crypto donations for his re-election campaign, making him the first US Presidential candidate to adopt digital assets for funding.

According to a May 21 statement:

“This addition to President Trump’s already groundbreaking digital fundraising operation marks the first time a major party Presidential nominee has embraced cryptocurrency for donations.”

The website’s available information showed that crypto users could donate in different digital assets, such as Bitcoin, Ethereum, XRP, Cardano, Dogecoin, Shiba Inu, and others.

Crypto has become a pivotal topic in the lead-up to the November elections, with former President Trump and President Joe Biden expected to be the primary candidates for their respective parties.

The candidates have taken a diverging stance toward the emerging industry, with Trump openly supporting crypto and promising to foster its growth through proper regulation. Trump stated:

“Democrats, like Biden and his official surrogate Elizabeth Warren, continue to believe only government has the answers to how our nation leads the world.”

However, recent events suggest that the Biden administration may shift its long-standing hardline stance against the space.

Ethereum ETF

On May 20, reports surfaced that the US SEC might approve spot Ethereum exchange-traded funds (ETFs) — a stark pivot from earlier expectations.

Bloomberg Intelligence Analyst Eric Balchunas noted that the SEC’s turnaround might have political motivations, a view shared by many in the crypto community.

Variant Fund chief legal officer Jake Chervinsky said:

“If the spot ETH ETF is approved, it will be a true shock to everyone I know in DC who’s close to this process. That doesn’t mean it won’t happen. It means approval could signal a major shift in US crypto policy.”

Congressional development

Last week, US lawmakers from both parties united to overturn the SEC’s Staff Accounting Bulletin 121 (SAB 121) resolution despite President Biden’s stated intent to veto the bill.

Several crypto stakeholders have argued that the bulletin was controversial, as SAB 121 required financial institutions to safeguard customer assets and keep them on their balance sheets. Notably, the American Bankers Association (ABA) pointed out that the regulation made it difficult for banks to act as spot Bitcoin ETF custodians.

This rare bipartisan event precedes the upcoming Senate vote on the Financial Innovation and Technology for the 21st Century Act (FIT21), widely considered the most significant piece of crypto-specific legislation likely to become law.

The FIT21 bill will establish a comprehensive regulatory framework for the digital assets industry in the US. The bill has widespread industry support from key players, including Coinbase, Kraken, and Andreessen Horowitz.

Moreover, the bill will establish a baseline for classifying digital assets as securities or commodities. It expands the CFTC’s authority to register and regulate digital commodities and requires the FTC and SEC to jointly issue rules for assets not otherwise classified.

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US lawmakers have proposed a new bill that aims to temporarily prevent financial institutions from engaging in transactions involving funds that have been through crypto mixers.

Congressman Sean Casten (IL-06) introduced the bill on May 7 and received support from Representatives Bill Foster, Brad Sherman, and Emmanuel Cleaver.

Blockchain Integrity Act

The proposed legislation, dubbed the Blockchain Integrity Act, seeks to impose a two-year moratorium on financial institutions, such as crypto exchanges, virtual asset service providers (VASPs), and other registered money service businesses (MSBs), from accepting incoming funds routed through a mixer. It also aims to bar outgoing funds from being withdrawn directly to a known mixer address.

During this period, the bill mandates the Treasury Department, SEC, CFTC, and DOJ to conduct a comprehensive study on digital asset mixers, privacy coins, and anonymity-enhancing technologies. This study includes analyzing statistics on their illicit uses, insights into legitimate applications, and crafting tailored legislative suggestions to counter illegal activities by specific perpetrators.

A crypto mixer is a service used to “mix” diverse crypto funds with others to obscure their origin. Typically, this involves pooling source funds from various inputs over an extended random period before redistributing them to destination addresses.

Congressman Casten expressed the opinion that digital asset mixers should be treated as potential tools for money laundering unless subjected to rigorous audits. He claimed that digital assets have been used to finance terrorist activities globally in recent years, adding that:

“A temporary ban while we study this technology will help us better understand how it is used for illicit purposes, prevent future crypto-funded terrorism, and inform future policymaking.”

Similarly, Congressman Foster emphasized that mixers enable malicious actors to perpetrate financial crimes undermining US security. Meanwhile, Congressman Sherman noted mixers aid in achieving crypto’s objective of facilitating concealed transactions.

Notably, this bill emerges amidst heightened scrutiny by US authorities on mixers, alleging that these privacy-enhancing services facilitate illicit financial activities.

Monero’s XMR token has fallen to its lowest point against Bitcoin in the last eight years amid regulatory pressure on privacy-focused blockchain networks.

According to CoinMarketCap data, the XMR-BTC chart reached as low as 0.001954 BTC today, down 50% on the year-to-date metric. Moreover, the digital asset’s US dollar value has also been struggling, falling by more than 20% in the past year to less than $120 as of press time.

Nevertheless, Monero developers are intensifying efforts to enhance the network privacy features despite the regulatory challenges.

FCMP

A recent announcement on its website unveiled a novel privacy mechanism, “Full-Chain Membership Proofs (FCMP),” designed to supplant the current Rings system. While the Rings system secures sender privacy, it’s marred by vulnerabilities like EAE attacks, chain reorganization complications, and susceptibility to statistical analysis.

FCMP eliminates these risks, ensuring comprehensive user anonymity. It added:

“Full-Chain Membership Proofs prove the output spent is one of any output on the chain, effectively removing all of these risks. This means every input goes from an immediate anonymity set of 16 to 100,000,000.”

Notably, two significant proposals have emerged for implementing FCMPs. The first proposal aligns with the forthcoming Seraphis upgrade, aiming to bolster efficiency and privacy with tailored proofs. Meanwhile, the second proposal, devised as a countermeasure to spam attacks, introduces functionalities like transaction chaining, outgoing view keys, and forward secrecy autonomously from Seraphis.

Privacy under attack

Monero’s network reinforcement efforts coincide with heightened regulatory scrutiny on privacy-focused crypto tools.

US Treasury Deputy Secretary Adewale Adeyemo noted the exploitation of anonymity-enhancing tools like mixers by terrorist organizations and rogue states like North Korea to obscure the origins of illicit digital assets.

In a bid for compliance, the US government initiated legal actions against developers of Tornado Cash, a crypto-mixing service. More recently, the government arrested the co-founders of Samourai Wallet, a privacy-oriented service provider, for allegedly operating an unlicensed money transmission business.

Consequently, several crypto platforms, including Binance and OKX, have delisted privacy-focused digital assets from their platforms to comply with the evolving regulatory standards.

Despite these developments, prominent figures in the crypto space, including Ethereum co-founder Vitalik Buterin, have continued to advocate for the sector’s legitimacy and innovation.

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The financial behemoth had initially greenlit BTC ETF purchases following approval earlier this year. However, these transactions were strictly initiated by customers, necessitating them to proactively engage with their advisors to delve into this asset class.

Now, the institution is contemplating a shift to allow its brokers to actively promote BTC ETFs, potentially amplifying demand for these investment vehicles. However, such a move also comes with added exposure to legal ramifications.

Meanwhile, the Wall Street giant is working on establishing clear guidelines, or “guardrails,” for solicited purchases. These guidelines may include risk tolerance assessments and allocation and trading frequency limits.

An unnamed Morgan Stanley executive reportedly said:

“We’re going to make sure that we’re very careful about it…we are going to make sure everybody has access to it. We just want to do it in a controlled way.”

The executives did not provide a specific timeline for when the bank would finalize its policy review.

Bitcoin ETFs