Seeds of Wisdom RV and Economic Updates Friday Afternoon 9-13-24
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Legal Experts React as SEC Regrets Confusion Over Its Crypto Asset Security Claim
The U.S. SEC expresses regret for any confusion it may have created through the use of its invented term, “crypto asset securities.”
In an interesting development, Coinbase’s Chief Legal Officer (CLO) Paul Grewal called the public’s attention to the SEC’s recent efforts to backtrack on its claim that crypto assets themselves constitute securities.
SEC Regrets Confusion Over Its Crypto Asset Security Definition
Per Grewal, the SEC made this move in footnote six of the amended complaint in the Binance lawsuit.
Notably, the SEC said it regrets any confusion it may have invited by repeatedly using the term “crypto asset securities.”
According to the SEC, the term does not imply that the crypto assets are inherently securities themselves. Instead, it uses the term as a shorthand for the expectations, set of contracts, and understanding surrounding the sale and distribution of the token.
Interestingly, the SEC vowed never to use the term in the proposed amended complaint (PAC) to avoid further confusion.
SEC Backtracks
Last year, the SEC labeled ten crypto assets, including Solana (SOL) and Cardano (ADA), as securities in its lawsuit against Binance. A year later, the regulator requested that it wished to amend its complaint, eliminating the need for the court to issue a verdict characterizing the tokens as securities.
The SEC officially filed the amended motion yesterday, expressing regrets for the confusion its use of the term crypto asset securities has created in the lawsuit.
Notably, Binance is required to file a response to the SEC’s motion for amendment by October 11, 2024. The world’s largest exchange is expected to either consent or oppose the SEC’s request.
Legal Experts React
Expectedly, top legal experts reacted to the SEC’s backtracking and admission of its wrong usage of crypto asset securities.
Grewal, who called the public’s attention to the development, criticized the SEC, questioning how Ethereum (ETH) transactions were no longer classified as securities while the ten tokens at issue in the Binance lawsuit remain under scrutiny. He asserted that the SEC might reveal this sudden change only when it takes legal action against an entity.
The Coinbase CLO added that the SEC has a long history of treating tokens as securities, questioning why the regulator chose to mislead the court with its recent filing. Interestingly, Grewal mentioned Ripple’s CLO Stuart Alderoty in the X thread, humorously stating that the SEC’s admission of wrongdoing would leave him perplexed.
Reacting, Alderoty noted that the SEC admitted two things in the Binance lawsuit. First, the agency acknowledged that crypto asset security is a made-up term. Second, it requires a bundle of contracts, understandings, and expectations to prove that a crypto asset security is an investment contract.
He added that it is about time the SEC admitted that the agency has become a twisted “pretzel of contradictions.”
Furthermore, prominent legal expert James Murphy (a.k.a. MetaLawMan) expressed outrage about the SEC’s recent admission.
The pro-XRP lawyer criticized the SEC’s “make it up as you go along enforcement strategy,” suggesting that the approach has harmed U.S. investors, damaged the country’s reputation for innovation, and harmed American companies.
@ Newshounds News™
Source: The Crypto Basic
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SEC Surprisingly Details Exemptions From SAB 121, Further Muddying the Waters
Paul Munter, Chief Accountant at the SEC, revealed in a speech earlier this week that the SEC has granted exemptions to rules relating to the custodying of crypto assets that have been widely reviled in the industry.
Earlier this week, the SEC’s Chief Accountant revealed in a public speech that the agency had granted exceptions to SAB 121, the controversial accounting rule that’s been heavily criticized in the industry for making it impractical for financial institutions to custody crypto assets.
Issued in March 2022, SAB 121 requires that a bank custodying crypto put the assets on their balance sheet and create a corresponding liability equal to the worth of the crypto, which is unusual as other custodied assets are typically listed off the balance sheet.
The result of this rule means that financial institutions must hold an enormous amount of capital just to custody crypto assets, making it prohibitively costly to do so.
In a speech at a conference on Monday, however, SEC Chief Accountant Paul Munter disclosed that certain companies had been granted exemptions from SAB 121, and did not need to create a liability on their balance sheets when custodying digital assets.
Munter mentioned that several entities had received this exemption — including a bank and various brokerage houses and blockchains — without specifying who they were.
In Munter’s speech, he described the different ways that the three types of entities could receive an exemption.
In the case of a bank, the pathway involved working with a state regulator first to ensure that crypto assets being custodied would return to the customer in the event of a bankruptcy, and that activity with customers would only comprise institutional custody with sufficient controls in place to manage risk.
For a brokerage, an exemption could apply if the broker is not in possession of the cryptographic key and works directly with the customer — essentially, not custodying any crypto itself.
Finally for a blockchain, Munter highlighted how a distributed ledger tracking holdings and transfers of digital assets, without custodying any crypto, could exempt it from SAB 121.
Political Backlash
Senator Cynthia Lummis (R-WY), a longtime supporter of the crypto industry, strongly criticized the moves in a statement to Unchained.
“The SEC is clearly trying to sidestep Congress and the Congressional Review Act by having one-on-one meetings to determine whether or not it will enforce SAB 121 on a case-by-case basis,” Lummis wrote.
Lummis has been trying to overturn SAB 121 reversed for some time, asking the Government Accounting Office (GAO) in early 2023 to determine whether the SEC did more than provide guidance and actually created a rule.
The GAO subsequently released a report at the end of October 2023 agreeing with her, and Lummis then argued that the SEC had violated the Congressional Review Act (CRA) because it did not follow the correct process for establishing a rule (the CRA requires federal agencies to submit rules to the House and Senate before they take effect).
Lummis subsequently worked with Rep. Mike Flood (R-NE) and Rep. Wiley Nickel (D-NC) on a resolution to overturn SAB 121 on the grounds that it violated the CRA.
The resolution passed, but was then ultimately vetoed by President Biden on the grounds that overturning SAB 121 would jeopardize the well-being of consumers and investors.
On Wednesday, Lummis further noted that Munter’s speech “seems entirely political, as the SEC staff should be transparent with issuers, investors and Congress by revising or rescinding SAB 121 directly, not making policy through speeches. I am incredibly concerned with the approach the SEC is taking and will continue to ensure it is not unfairly targeting the digital asset industry.”
Industry Reaction
Aaron Jacob, CEO of TaxBit, a company that provides tax and accounting compliance solutions for digital assets, mockingly described the SEC as using a “ready, fire, aim” approach to accounting guidance for crypto custody. He pointed out the confusion initially caused by the release of SAB 121, and then the additional confusion created by Munter’s speech.
“[SAB 121] is not very extensive guidance,” Jacob said. “It’s only about a page-and-a-half long, clearly targeted towards folks like Coinbase and…publicly-traded companies that are ‘safeguarding customer assets,’” said Jacob.
Jacob said he was shocked when he realized that Munter had revealed exceptions to SAB 121 in his speech. “A lot of people are scratching their heads saying, ‘Well, what was the point of this to begin with? Some banks argue with the SEC behind closed doors, and apparently get a free pass [from SAB 121].’” In Jacob’s view, the SEC’s exceptions were a way for the agency to acknowledge that it had overstepped.
In a post on X on Friday, Alex Thorn, head of research at Galaxy, agreed that the exceptions seemed to be a way for the SEC to backtrack without totally abandoning SAB 121.
“If I’m being honest, it looks like the SEC never thought banks would want to play in crypto, intended this rule to apply only to crypto-native companies (perhaps punitively), and has now crafted a way to let traditional banks off the hook in a way that saves face by not reversing their posture of the last 2 years,” Thorn wrote:
Industry trade associations also expressed concerns with Munter’s speech.
“Unfortunately, SEC staff have reaffirmed their stance on SAB 121, but have now outlined certain scenarios they consider outside of its scope – with the announcement coming in a speech at a conference,” said Patrick Kirby, Policy Counsel for the Crypto Council for Innovation. “SAB 121 limits consumers’ options to safely custody their digital assets and upends decades of bank custody practices.”
Taylor Barr, Senior Policy Associate from the Digital Chamber, agreed. “The SEC’s cherry-picking of a few scenarios where firms fall outside the scope of SAB 121 doesn’t change the fact that SAB 121 is fundamentally flawed and untenable,” Barr said. “These exceptions only highlight how arbitrary and inconsistent the rule is,” said Barr.
One source from a bank who wished to remain anonymous because of ongoing discussions with regulators, agreed it is accurate to note there are scaling hurdles because of SAB 121, in that it has been difficult to grow and expand the business of digital asset custody due to the accounting requirements of SAB 121.
For his part, Jacobs suggested the SEC just needs to be clear about its stance on requirements for crypto custody. “I think they should, whether it’s repeal or amend [SAB 121], do something to make it more clear… and people will applaud those efforts,” Jacobs said.
@ Newshounds News™
Source: Unchained Crypto
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England High Court Rules Tether USDT Stablecoin is Property
In what is certainly an important development for the digital asset sector, England’s High Court of Justice has ruled that Tether’s USDT stablecoin is property. Indeed, the asset has officially fallen under the distinction as the UK continues to establish key property rights for these tokens.
Just a day earlier, a UK bill was introduced to establish all cryptocurrency as property. This would provide key legal protection for holders within the country. Now, England is following suit, with the key designation being given to the largest stablecoin by market cap.
England Rules USDT is Property in Key Decision
The ongoing push for regulatory clarity regarding cryptocurrencies has been a vital effort. The growing industry has too long suffered from a lack of standards that has only obfuscated the potential impact of the technology. With the prominence of these assets growing, that has begun to change in 2024.
Now, legislation is coming to the forefront, greatly shifting how these assets are perceived. Specifically, England’s High Court has ruled that Tether’s USDT stablecoin is to be considered property. Moreover, this comes after the UK introduced legislation clarifying crypto as personal property.
In a new filing, Deputy High Court Judge Richard Farnhill said “USDT attracts property rights under English law.” Moreover, he added that “it can be the subject of tracing and can constitute trust property in the same way as other property.
This ruling reinforces the introduced legislation that would classify cryptocurrencies as property. That bill was read for the first time in Parliament on Wednesday. However, they note it is not a thing ‘in possession,’ as money would be considered, or a thing ‘in action’ like shares.
Yet, that doesn’t change the fact that it is property, nonetheless. Such a judgment should be vital for the industry’s continued growth. Proving the necessity to observe crypto as its own entity. It isn’t an existing object, it is the evolution of finance as we know it.
@ Newshounds News™
Source: Watcher Guru
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EU Regulator: Stablecoin Standards Will Become Official Before Year-End
The European Banking Authority has provided an update on the journal publication of stablecoin standards. The EU regulator said Wednesday that 15 technical standards, including those for stablecoin issuers, will become official before the end of 2024. The technical standards will be published under the European Union’s Markets in Crypto Assets (MiCA) Act.
The new rules will cover standards for authorization, stress testing, and methods to estimate the number and value of transactions for stablecoin issuers. The MiCa rules were passed last year.
The commission is reportedly looking over the standards. needing to decide whether to adopt the texts as is or to request changes. Once the commission has signed off, the rules will need to be looked at by the European Parliament and European Council before implementation.
Following the EU Parliament and EU Council’s observations, the rules have to go through translation and formal adoption before being published.
Circle was the first global stablecoin issuer to comply with MiCA. Circle’s Electronic Money Institution license enables both USDC and EURC to be issued in the EU in compliance with MiCA’s regulatory obligations for stablecoins or e-money tokens. It also gives Circle a top position in grabbing market share among the 27-nation trading bloc’s 450 million people
@ Newshounds News™
Source: Watcher Guru
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CBI UPDATE | Youtube
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Source: Seeds of Wisdom Team - Currency Facts
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THE STRIKES HAVE BEGUN | Youtube
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Source: Newshounds News
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