Crypto news & regulatory update: June 21 – August 12, 2024

8.12.24

Editor’s note: Our Regulatory Updates series highlights the latest regulatory, legal, and policy happenings relevant to builders in web3 and crypto, as tracked and curated by the a16z crypto regulatory team. The roundups are based on recent news, guidance, legislation, and frameworks released by regulators, industry consortia, professional associations, banks, governments, and other entities as they impact the crypto industry (or applications) around the world. We also occasionally include select resources such as talks, posts, or other commentary — from us or from others — with the updates.

🧠 tl;dr

The Department of the Treasury and the Internal Revenue Service (IRS) released final regulations on reporting requirements for brokers of digital assets, which will require brokers to report gross proceeds on the sale of digital assets beginning in 2026 for all sales in 2025. The regulations do not address non-custodial software, but the IRS indicated that it may issue additional rules later this year.
A federal judge approved a consent order, requiring FTX Trading to pay $12.7 billion in monetary relief to FTX customers and victims of FTX’s fraud to resolve a Commodity Futures Trading Commission (CFTC) fraud enforcement action.
The Securities and Exchange Commission (SEC) approved final S-1 registration statements for ether exchange-traded products (ETPs) to be listed and traded on exchanges. The issuers of the ETH ETPs include BlackRock, Fidelity, Grayscale, 21Shares, Bitwise, Franklin Templeton, VanEck, and Invesco Galaxy.

🌽 Commodity Futures Trading Commission

As mentioned in “tl;dr,” a federal judge approved a consent order, requiring FTX Trading to pay $12.7 billion in monetary relief to FTX customers and victims of FTX’s fraud to resolve a Commodity Futures Trading Commission (CFTC) fraud enforcement action.
A federal judge ordered an El Paso man and his firm to pay more than $31 million in connection with a fraudulent foreign exchange and cryptocurrency scheme. The defendant was previously sentenced to 84 months in prison for wire fraud.
A federal judge ordered an Oregon man to pay more than $83 million to fraud victims in connection with a “classic Ponzi scheme” that involved digital asset commodities.
The CFTC announced a whistleblower award of more than $1 million to a whistleblower who provided significant information and assistance that led the CFTC to bring an enforcement action connected to digital asset markets.
Chair Rostin Behnam encouraged Congress to fill the regulatory gap with respect to digital assets and testified that inaction would not quash public interest in digital assets, but would in fact result in greater risks to financial markets and investors.

🦅 Congress

U.S. lawmakers failed to override President Joe Biden’s veto of a legislative measure to overturn SEC Staff Accounting Bulletin 121, which directed firms safeguarding consumer crypto to track the crypto as liabilities on their balance sheets.
The House of Representatives passed the “Financial Technology Protection Act,” which would establish a working group among federal government departments, intelligence agencies, and private sector experts to help combat terrorism and illicit financing on digital platforms.
House Representative Matt Gaetz (R-Fla.) introduced legislation to require the Secretary of the Treasury to implement a program to allow federal income tax to be paid with bitcoin.
Senator Cynthia Lummis (R-Wyo.) introduced legislation that would require the U.S. government to establish a bitcoin reserve fund.
House Representative Ro Khanna (D-Cal.) discussed crypto on the The Wolf of All Streets podcast.
Senator Cynthia Lummis (R-Wyo.) released an “orange paper” arguing against the Biden administration’s FY 2025 budget proposal request for a new 30% “excise” tax on electricity for bitcoin miners.

⚖️ Department of Justice

Cryptocurrency exchange BitMEX pleaded guilty to violating the Bank Secrecy Act by willfully failing to establish, implement, and maintain an adequate anti-money laundering program.
The cofounder and former chief technology officer of Paxful, an online peer-to-peer virtual currency platform, pleaded guilty to a conspiracy charge for failing to maintain an effective anti-money laundering program.
Two promoters of Forcount Trader Systems, a fraudulent crypto asset pyramid scheme, pleaded guilty to one count each of conspiracy to commit wire fraud for their roles in connection with the scheme.
A federal jury found a Chinese businessman guilty on nine criminal counts, including racketeering, fraud, and money laundering, relating to a $1 billion fraud conspiracy that involved cryptocurrency.
A federal jury found a Florida man guilty in connection with his lead role in an international conspiracy to break into U.S. citizens’ homes, violently kidnap and assault them, and steal their bitcoin and other cryptocurrency.
The former CEO and head of financial engineering of Hydrogen Technology were sentenced for manipulating the price of a security and scheming to defraud investors in connection with the purchase of the company’s cryptocurrency, HYDRO.
The United States Attorney’s Office for the District of Columbia filed a civil forfeiture action to recover more than $2 million worth of cryptocurrency that the Federal Bureau of Investigation seized from foreign perpetrators who engaged in “pig butchering” scams targeting U.S. citizens.
The FBI issued an alert warning of scammers who impersonate cryptocurrency exchange employees to steal funds.

💵 Department of the Treasury

As mentioned in “tl;dr,” the Department of the Treasury and the IRS released final regulations on reporting requirements for brokers of digital assets, which will require brokers to report gross proceeds on the sale of digital assets beginning in 2026 for all sales in 2025. The regulations do not address non-custodial software, but the IRS indicated that it may issue additional rules later this year.
The Financial Crimes Enforcement Network issued an advisory to alert U.S. financial institutions to new trends in the illicit fentanyl supply chain, including the purchase of fentanyl precursor chemicals and manufacturing equipment from China-based suppliers using virtual currency.

💰 Federal Reserve

The Federal Reserve Bank of Philadelphia ordered Pennsylvania-based Customers Bancorp to address “significant” anti-money laundering deficiencies stemming from the company’s relationships with virtual asset service platforms.
The Federal Reserve Bank of New York published a paper evaluating the effect of the Office of Foreign Assets Control’s sanctions against Tornado Cash on usage of the software.

📈 Securities and Exchange Commission

As mentioned in “tl;dr,” the SEC approved final S-1 registration statements for ether ETPs to be listed and traded on exchanges. The issuers of the ETH ETPs include BlackRock, Fidelity, Grayscale, 21Shares, Bitwise, Franklin Templeton, VanEck, and Invesco Galaxy.
A federal judge ordered Ripple Labs to pay a $125 million civil penalty for its failure to register institutional sales of its XRP token with the SEC and enjoined Ripple from future violations of securities laws.
A federal judge ordered the CEO of bitcoin mining firm MGT Capital Investments to pay a $1.1 million civil penalty for making misstatements in connection with a pump-and-dump scheme.
A federal judge ruled that Binance will have to face the “bulk” of a lawsuit from the SEC, but she dismissed the SEC’s claims relating to the offers and sales of U.S.-dollar-backed stablecoin Binance USD, offers and sales made in connection with the Simple Earn token lending program, and secondary sales of the BNB token by sellers other than Binance.
The SEC charged Consensys Software with engaging in the unregistered offer and sale of securities through MetaMask Staking and with operating as an unregistered broker through MetaMask Staking and MetaMask Swaps.
The SEC posted an information page for investors harmed in connection with the collapse of the Terra ecosystem and the bankruptcy of Terraform Labs.
Hiro Systems PBC announced that it received notice from SEC staff that the SEC has concluded its investigation as to the Stacks Blockchain and that the staff does not intend to recommend an enforcement action against Hiro based on the information known to it now.
Paxos announced that it received a formal termination notice from the SEC stating that the staff does not intend to recommend an enforcement action against Paxos Trust Company in its investigation of the company’s issuance of U.S.-dollar-backed stablecoin Binance USD.
SEC Division of Enforcement Director Gurbir S. Grewal discussed enforcement of the securities laws against the crypto industry at the William & Mary Business Law Review’s Third Annual Symposium.

🇺🇸 State

🗽 New York

The Manhattan District Attorney’s Office charged a New York owner of Coin Dispute Network, a purported asset recovery business, with fraud and larceny for allegedly charging customers fees while making false promises to recover cryptocurrencies.

🇺🇸 State Regulators

Financial regulators in 25 U.S. states announced a settlement with cryptocurrency investment platform Abra and its CEO for operating without receiving the required state licensing.

🦡 Wisconsin

The Wisconsin Department of Financial Institutions launched an investment scam tracker to help state residents spot and avoid financial investment scams, including cryptocurrency scams.

🌍 International

🇧🇸 Bahamas

The Securities Commission of The Bahamas announced that the Parliament of The Bahamas passed the Digital Assets and Registered Exchanges Act, 2024, which includes enhanced investor and consumer protection requirements for digital asset exchanges, new provisions relating to custody, and a stablecoin framework, among other things.

💰 Bank for International Settlements

The Bank for International Settlements and the Bank of England published the results of a recent project, which concluded that the balance sheets of asset-backed stablecoins can be supervised.

🇧🇷 Brazil

The Brazilian Securities and Exchange Commission approved a solana-based exchange-traded product.

🇪🇺 European Union

The European Securities and Markets Authority (ESMA) issued an opinion to address the risks associated with global crypto firms seeking partial authorisation under the Markets in Crypto Assets regulation for part of their activities while keeping a substantial part of their activities offshore.
ESMA published a working paper on decentralized finance and the categorization of smart contracts.

🇩🇰 Denmark

The Danish Financial Supervisory Authority issued a report setting forth principles for assessing decentralization in crypto markets.

🇫🇷 France

The Autorité des Marchés Financiers announced that it has started accepting applications for crypto asset services provider licenses. It is the first major European Union economy to open applications.

🇭🇰 Hong Kong

The Hong Kong Monetary Authority released the conclusions from its recent consultation on its legislative proposal to implement a regulatory regime for fiat-referenced stablecoin issuers in Hong Kong.
The Hong Kong Securities and Futures Commission issued alerts against nine crypto trading platforms for illegally operating in the region without operational licenses.

💵 International Monetary Fund

An International Monetary Fund mission to El Salvador released a statement focused on strengthening El Salvador’s medium-term growth prospects and resilience, which also includes efforts to mitigate potential fiscal risks from the country’s bitcoin project.

🇸🇬 Singapore

Paxos announced that it received full approval from the Monetary Authority of Singapore to offer digital payment token services in the country.
Singapore’s Ministry of Home Affairs issued a terrorism threat assessment report, which notes an increasing use of cryptocurrencies in terror financing, although cash and other informal value transfer systems (hawala) remain the predominant means for financial transactions for ISIS and its affiliates.

🇨🇭Switzerland

The Swiss Financial Market Supervisory Authority published new guidance for projects seeking to issue stablecoins and their impact on supervised institutions.

🇬🇧 United Kingdom

The Bank of England published a discussion paper on its approach to innovation in money and payments, including in regards to continued testing of wholesale central bank digital currency models.
The Financial Conduct Authority (FCA) fined CB Payments Ltd., a UK-based subsidiary of Coinbase, more than 3.5 million pounds ($4.5 million) for breaching a requirement that prevented the firm from offering services to high-risk customers.
The FCA issued an assessment of compliance with its financial promotions regime based on how effectively firms implemented requirements on cooling off periods, personalized risk warnings, client categorizations, appropriateness, and due diligence. The assessment provides examples of good and bad practices with respect to each requirement.

The FCA’s Director of Consumer Investments told CoinDesk that the FCA has issued over 1,000 warnings to crypto firms since its financial promotion rules took effect last October.

***

The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the current or enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; a16z has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/.

The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.