Launchy Regulatory Roundup #9 - SEC Leadership Change & Ripple, Coinbase Appeal

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Welcome to our ninth edition of the regulatory roundup. If you know anybody who would benefit from this content, please help us spread the word!

The SEC's recent appeal against Ripple, coinciding with the departure of its enforcement chief, highlights ongoing tensions between regulatory bodies and the crypto industry.

Global regulatory trends are also emerging, from the CFTC's potential acceptance of digital assets as trading collateral to new AML laws in Taiwan. As exchanges navigate complex regulatory environments, the future of crypto regulation in Canada remains uncertain.

In Today's Edition:

• Headline: SEC Leadership Change & Ripple, Coinbase Appeal🚨

• Global Legal Roundup: Crypto as Collateral, Crypto for Tax Payments, etc.

• Case Study: Why Exchanges Left Canada 🇨🇦 

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HEADLINE

SEC Leadership Change & Ripple, Coinbase Appeal

State of play: The SEC filed a notice of appeal on Oct. 2 to challenge a ruling by Judge Torres in its lawsuit against Ripple. The ruling determined that secondary sales of XRP did not constitute securities sales, as XRP did not meet all criteria of the Howey test.

• The appeal comes alongside the resignation of the SEC's enforcement chief, Gubir Grewal.

• The SEC’s chief enforcement officer will step down on Oct. 11, 2024, after a tenure marked by aggressive actions against the crypto industry.

• Grewal led over 100 enforcement actions targeting noncompliance in the crypto sector, including cases against major crypto platforms.

Meanwhile, Coinbase has requested an interlocutory appeal in its lawsuit with the SEC, following the SEC's recent appeal in its separate case against Ripple.

• Coinbase's appeal seeks clarification on how the Howey Test applies to digital assets, a key question in determining if they qualify as securities.

• Coinbase argues that both cases should be presented to the Second Circuit simultaneously to provide a complete legal perspective.

• Despite the SEC opposing the appeal, the Ripple case appeal has strengthened Coinbase's argument.

What’s Next: The simultaneous appeals in both the Ripple and Coinbase cases will provide the Second Circuit Court with the opportunity to clarify how the Howey Test applies to digital assets, both rulings will be influential for the crypto industry.

• Grewal's departure has sparked speculation about a potential shift in the SEC’s approach to crypto, especially amid political pressure ahead of the 2024 U.S. presidential election.

Why it Matters: A legal precedent from the Second Circuit Court could reshape US crypto regulation. If the courts side with Ripple and Coinbase, the SEC’s ability to regulate crypto as securities may be weakened, giving the industry more flexibility.

Our Take: While Grewal's departure is significant, it remains uncertain how the SEC will proceed in high-profile crypto cases in his absence.

GLOBAL LEGAL ROUNDUP

🇺🇲 CFTC Mulls Digital Assets as Trading Collateral

The US CFTC is reportedly considering approving digital assets as collateral for commodities and derivatives trading by the end of the year.

• A subcommittee within the CFTC’s Global Markets Advisory Committee has voted in favor of a proposal allowing digital ledger technology-based collateral in these transactions.

• If accepted, traders could settle transactions using digital assets with the same speed and efficiency as traditional blockchain transactions.

• This move would enable brokers to accept tokenized assets, like BlackRock’s USD Institutional Digital Liquidity Fund, through market-embedded systems.

🇺🇲 Bitwise Files for First XRP ETF with SEC

Bitwise has filed the first Form S-1 for a spot XRP ETF with the SEC, aiming to provide investors with direct exposure to the value of XRP held by the trust, minus operational expenses and liabilities.

• The filing, announced on October 2, indicates that Coinbase Custody Trust Company will hold the trust's XRP assets.

• Coinbase Custody Trust Company is not insured by the Federal Deposit Insurance Corporation (FDIC).

• This filing follows Bitwise's earlier submissions for an XRP ETF Trust in Delaware.

🇺🇲 US Court Approves Election Prediction Markets

A US federal appeals court has ruled in favor of Kalshi, allowing it to list event contracts related to US election outcomes despite opposition from the CFTC.

• This ruling, issued on October 2, permits the operation of election prediction markets, potentially including platforms like Polymarket.

• The CFTC had previously attempted to block Kalshi’s contracts, arguing they were unlawful under state law and contrary to public interest.

• However, the court determined that the CFTC did not demonstrate irreparable harm and that the contracts comply with U.S. financial regulations.

🇺🇲 Ohio Considers Accepting Crypto for Tax Payments

An Ohio state senator, Niraj Antani, has introduced a bill requiring the state to accept cryptocurrency for tax payments and fees. The legislation, proposed on September 30, also allows state universities and pension funds to invest in crypto.

• The bill stipulates that the state tax commissioner will determine which crypto are accepted each year and excludes CBDCs from being considered as cryptocurrencies.

• Ohio previously attempted to accept crypto for tax payments in 2018 but faced regulatory challenges.

• Currently, Colorado is the only state allowing tax payments in cryptocurrency.

🇪🇺 Coinbase to Delist MiCA Noncompliant Stablecoins by Year-End

Coinbase Europe has announced plans to delist stablecoins that do not comply with the EU's MiCA by December 30, 2024. This decision reflects the tightening regulations imposed by MiCA.

• MiCA requires all stablecoins operating in the European Economic Area (EEA) to hold an e-money license from an EU member state.

• Users in the EEA will be offered conversion options to compliant stablecoins, such as USDC.

• Coinbase joins other exchanges in adjusting their offerings to meet regulatory requirements, as the demand for compliant digital currencies rises in Europe.

🇪🇺 European Blockchain Sandbox Welcomes 41 Regulators in New Cohort

The European Blockchain Sandbox Initiative (EBSI) has welcomed 41 regulators and authorities from 22 countries in its second cohort, aiming to foster blockchain innovation and regulatory collaboration.

• Launched by the European Commission, the initiative provides a framework for engaging with distributed ledger technology (DLT) and addressing legal and regulatory challenges.

• Participating regulators will enhance their understanding of blockchain technologies and support up to 20 selected projects annually that align with EU policy priorities.

• One notable project included in this cohort is Iota, which focuses on identity solutions and decentralized finance.

🇬🇧 Bank of England and FCA Launch Digital Securities Sandbox

The Bank of England (BoE) and the Financial Conduct Authority (FCA) have launched the Digital Securities Sandbox (DSS) to explore the use of digital ledger technology (DLT) in the management of financial securities.

• The DSS aims to enhance trading, settlement, and issuance processes for digital securities while ensuring compliance with regulations.

• The initiative is open to all legally registered firms in the UK, with applications accepted until March 2027.

• The sandbox will operate until December 2028, encompassing stages of testing, going live, scaling, and establishing a permanent regime.

🇸🇻 IMF Pressures El Salvador to Revise Bitcoin Regulations

The IMF has renewed its calls for El Salvador to revise its Bitcoin regulations, urging the country to narrow the scope of its Bitcoin Law and enhance oversight of the Bitcoin ecosystem.

• During an October 3 press conference, IMF officials emphasized the need to limit public sector exposure to Bitcoin and adopt more traditional financial practices.

• This push aligns with previous recommendations made by the IMF since El Salvador adopted Bitcoin as a legal tender in 2021.

• The IMF continues to advocate for CBDCs while expressing concerns about non-state-controlled cryptocurrencies like Bitcoin.

🇹🇼 Taiwan Introduces New AML Laws for Crypto Firms

Taiwan's Financial Supervisory Commission (FSC) has introduced new AML regulations that virtual asset service providers (VASPs) must comply with by 2025.

• The regulations mandate that crypto firms register with the government by September 2025 or face fines of up to $155,900 or a two-year prison sentence.

• The updated AML measures will replace existing rules and require VASPs to prepare annual risk assessment reports.

• Additionally, the FSC plans to propose further crypto-related laws by June 2025, with a draft expected by late 2024.

🇧🇷 Brazil Tests DeFi Elements in Drex CBDC Pilot

Brazil is integrating DeFi principles into the development of its synthetic CBDC, named Drex (formerly known as the Brazilian digital real).

• Brazil’s Central Bank President emphasized the need for a multidimensional CBDC that tackles the challenges of decentralization, privacy, and programmability.

• The country aims to introduce tokenization concepts into banks through its Open Finance platform.

• The first phase of the CBDC pilot explored decentralization, while the ongoing second phase focused on digital asset transactions, such as liquidity pools and international trade finance.

• The pilot will continue into 2025.

• Additionally, Ripple has partnered with Mercado Bitcoin to facilitate cross-border crypto payments in Brazil.

More Regulatory Updates:

• Ripple receives in-principle license approval in Dubai.

• Founder of IcomTech sentenced to 10 years in prison.

• SEC wins case against defunct crypto firm over $18M ICO.

• Kraken to end Monero support in European Economic Area.

• Crypto startup accuses SEC of ‘massive regulatory land grab.’

• Hong Kong makes HKVAX the third licensed retail crypto exchange.

CASE STUDY

Why Exchanges Decided to Leave the Canadian Crypto Market

State of play: On September 30, cryptocurrency exchange Gemini announced it would cease operations in Canada, sparking questions about the motivations behind this decision.

• This exit follows the Canadian Securities Administrators (CSA) extending the compliance deadline for crypto trading platforms (CTPs) concerning stablecoins to December 31, 2024.

The CSA has been tightening regulations since December 2022, which has led to several exchanges, including Binance, Kraken, and OKX, withdrawing from the Canadian market due to the challenging regulatory environment.

• The CSA's recent updates require CTPs to comply with specific terms and conditions regarding value-referenced crypto assets (VRCAs) and stablecoins, contributing to concerns among exchanges.

• Although Gemini has left, other platforms, such as Coinbase, have expressed intentions to enhance their presence in Canada.

• Legal experts suggest that the unique regulatory system in Canada and the lack of harmonization with US regulations play a significant role in driving US-based crypto businesses to prioritize their home market over Canadian opportunities.

Our Take: This situation raises concerns about the future of crypto regulation in Canada and emphasizes the need for a balanced approach that fosters innovation while ensuring investor protection.

Take a peek at our referral reward at the bottom of this issue. Share this newsletter and receive our comprehensive database of crypto regulations around the world👇

NOTEWORTHY READS & MEME

• Mr. Purple’s thread on FTX ToS and debtor rights.

• Jake Chervinsky & Daniel Barabander’s article on Geofencing.

• Polygon & Coinbase’s summary on the EU DeFi Policy Roundtable.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.