Crypto news & regulatory update: November 5 – 22, 2024

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 Securities and Exchange Commission (SEC) announced that its 33rd Chair, Gary Gensler, will step down from the Commission effective on January 20, 2025.
• A federal judge ruled that the SEC had exceeded its statutory authority in adopting a rule that expanded the definition of “dealer” under the Securities Exchange Act of 1934 in a manner that could have potentially included traders and other participants in decentralized finance (DeFi) protocols.
• FTX cofounder Zixiao “Gary” Wang was sentenced to time served followed by three years of supervised release for his role in the collapse of FTX. Wang is the fifth and final former FTX executive to be sentenced.
• Eighteen Republican attorneys general sued the SEC, arguing that the agency’s policy of treating secondary transactions in common digital assets as uniformly “investment contracts,” and of treating platforms that facilitate such transactions as intermediaries subject to registration requirements, constitutes unlawful executive action and violates the Administrative Procedures Act.

🌽 Commodity Futures Trading Commission

• The Commodity Futures Trading Commission’s Global Markets Advisory Committee advanced a recommendation to expand the use of non-cash collateral through the use of distributed ledger technology.

🛡️ Consumer Financial Protection Bureau

• The Consumer Financial Protection Bureau finalized a rule that expands its oversight over nonbank providers of major digital payment apps, but excludes transactions in digital assets from its coverage.

🦅 Congress

• House Representative French Hill (R-Ark.) sent a letter to various federal regulators calling on them to immediately cease all ongoing rulemaking actions and suspend the proposal or promulgation of any regulations.
• House Representative Sean Casten (D-Ill.) and others sent a letter to the Department of the Treasury requesting information about the ongoing use of cryptocurrency mixer Tornado Cash after sanctions were imposed on it in 2022 and posing questions about Treasury’s efforts to mitigate the continued illicit use of the software. 
• House Representative John Rose (R-Tenn.) and others sent a letter to SEC Chair Gary Gensler expressing concerns regarding Prometheum Capital’s “soft-launch” of custody services for ether.

⚖️ Department of Justice

• As mentioned in “tl;dr,” FTX co-founder Zixiao “Gary” Wang was sentenced to time served followed by three years of supervised release for his role in the collapse of FTX. Wang is the fifth and final former FTX executive to be sentenced.
• A New York resident was sentenced to five years in prison for his involvement in a money laundering conspiracy arising from the hack and theft of approximately 120,000 bitcoins from cryptocurrency exchange Bitfinex. The wife of the New York resident was also sentenced to 18 months in prison for her role in helping to launder the stolen funds.
• A Russian-Swedish national was sentenced to 12½ years in prison for money laundering and other crimes in connection with his operation of darknet cryptocurrency mixer Bitcoin Fog, which processed transactions involving approximately $400 million worth of bitcoin at the time the transactions occurred.
• An Ohio resident was sentenced to three years in prison for money laundering conspiracy in connection with his operation of darknet cryptocurrency mixer Helix, which processed transactions involving more than $300 million worth of cryptocurrency.
• The Department of Justice (DOJ) charged the former CEO of a cryptocurrency mining company, which now does business as BIT Mining, with violations of the Foreign Corrupt Practices Act for his alleged role in a scheme to bribe Japanese officials. BIT Mining entered into a deferred prosecution agreement with the DOJ, and the SEC brought parallel civil charges against the company.
• The DOJ charged five alleged members of the “Scattered Spider” cybercrime group for using a phishing scheme to access confidential data of at least 12 media and technology companies and steal $11 million worth of cryptocurrency from digital wallets.
• The DOJ seized PopeyeTools, an illicit website and marketplace dedicated to selling stolen credit cards and other tools for carrying out cybercrime and fraud, and cryptocurrency associated with the marketplace.
• A dual citizen of China and St. Kitts and Nevis pleaded guilty to one count of conspiracy to commit money laundering for his role in a scheme to launder more than $73 million from the victims of cryptocurrency investment scams.

💰 Federal Reserve

• Federal Reserve Board Governor Christopher J. Waller discussed the roles of the private sector and Federal Reserve in payments, noting that the Fed is currently engaged with the private sector in exploring how tokenization might be used to facilitate cross-border payments in a faster and cheaper manner.

📈 Securities and Exchange Commission

• As mentioned in “tl;dr,” the SEC announced that its 33rd Chair, Gary Gensler, will step down from the Commission effective on January 20, 2025.
• As mentioned in “tl;dr,” a federal judge ruled that the SEC had exceeded its statutory authority in adopting a rule that expanded the definition of “dealer” under the Securities Exchange Act of 1934 in a manner that could have potentially included traders and other participants in DeFi protocols.
• The SEC delayed its decision for the second time on whether to approve certain options on spot Ethereum exchange-traded products.
• The SEC delayed a decision on a proposed exchange-traded product that would hold both bitcoin and ether.
• Chair Gary Gensler delivered remarks at PLI’s 56th Annual Institute on Securities Regulation, which included a discussion about crypto.

🌍 State

🐻 California

• The California Department of Financial Protection and Innovation revoked crypto lender BlockFi Lending LLC’s California Financing Law license.

🐎 Kentucky

• As mentioned in “tl;dr,” eighteen Republican attorneys general sued the SEC, arguing that the agency’s policy of treating secondary transactions in common digital assets as uniformly “investment contracts,” and of treating platforms that facilitate such transactions as intermediaries subject to registration requirements, constitutes unlawful executive action and violates the Administrative Procedures Act. 

🌍 International

💰 Bank for International Settlements

• A team from the Bank for International Settlements published a working paper that explores the role of sophisticated and unsophisticated participants in providing liquidity on decentralized exchanges.

🇭🇰 Hong Kong

• The Hong Kong Monetary Authority issued an alert reminding members of the public to be cautious about overseas crypto firms, which are not licensed banks in Hong Kong, making representations in Hong Kong that they are banks, or using the word “bank” in the descriptions of their products or services.

🇬🇧 United Kingdom

• The UK’s Financial Conduct Authority secured convictions against two individuals for their roles in a £1.5m investment fraud in which the individuals cold-called consumers and directed them to a professional-looking website that offered high returns for fake investments in crypto.

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