Blockchain Legal Resource

On May 20, 2021, the U.S. Department of the Treasury announced a proposal that would require any cryptocurrency transaction of $10,000 or more to be reported to the Internal Review Service. As a supplement to President Biden’s American Families Plan, which focuses on investments in American children and families, the Treasury detailed the cryptocurrency reporting requirement and other tax compliance initiatives in a new report titled The American Families Plan Tax Compliance Agenda.

On May 11, 2021, staff in the Division of Investment Management (IM) at the Securities and Exchange Commission issued a statement (the Statement) on “Funds Registered Under the Investment Company Act Investing in the Bitcoin Futures Market.” The Statement provides a series of warnings to retail investors about certain risks associated with investments in registered mutual funds whose portfolios include Bitcoin futures. But the Statement also provides further insight into the way SEC staff analyze the market for Bitcoin Futures more broadly.

In a wide-ranging hearing before the House Financial Services Committee on May 6, 2021, SEC Chairman Gary Gensler addressed a number of SEC regulatory priorities, including the recent short-squeeze on so-called “meme stocks,” gamification of securities trading, broker-dealer payment for order flow, and climate change disclosure. During his first testimony before Congress as SEC chair, Gensler also answered a series of questions on cryptocurrency and digital asset regulation.  The statements on crypto regulation begin to shed some light on his official approach to regulating the digital asset security ecosystem.

A recent rulemaking petition to the SEC requests that the agency issue a concept release on nonfungible tokens, or NFTs. The petition is hopeful that an SEC rulemaking paired with an opportunity for public input will resolve regulatory uncertainty for parties looking to create NFTs and facilitate their sale.

Texas is seeing considerable momentum with respect to a proposed digital asset law that is being considered in the 2021 legislative session in the form of House Bill 4474 (the “Virtual Currency Bill”). As the second largest economy in the United States, and the ninth largest economy in the world by GDP, the legislation could have one of the biggest impacts on digital asset industry since the New York BitLicense was introduced. In short, the Texas Virtual Currency Bill provides a basic legal framework for companies dealing with virtual currencies.

A recent Bloomberg article reported that average prices for nonfungible tokens, or NFTs, are down approximately 70 percent from recent highs.  NFTs are the latest innovation in digital assets and encompass digital representations of unique works of art, music, or other goods and experiences stored on blockchain.  Unlike other digital assets such as bitcoin, in which each bitcoin is the same as every other one (and thus “fungible”), each NFT is theoretically unique and different from every other one (and thus “nonfungible”).  A wide range of NFTs have begun to enter the marketplace over the past several months.  A digital work of art represented by an NFT recently sold at auction for over $69 million, and even a professional sports league has begun to issue NFTs.  A fascinating debate about the social and economic utility of NFTs has emerged, but what are some of the legal issues associated with this new digital asset class?

On March 9, 2021, a bipartisan bill was reintroduced that would, among other things, exclude digital tokens from the definition of a security under federal securities laws. As introduced, H.R. 1628, known as the Token Taxonomy Act, would define a “digital token” as a token that is created pursuant to rules for which the creation and supply are not controlled by a central group or single person, among other requirements. To qualify as a “digital token” under the bill, the transaction history must be able to resist modification or tampering by a single person or group or persons under common control. Moreover, the digital token must be capable of being transferred between persons without an intermediate custodian.

As we have previously reported, the New York Attorney General has been in protracted litigation to enforce an investigative subpoena under New York’s expansive Martin Act against cryptocurrency exchange Bitfinex and its affiliated companies that issue the Tether stablecoin. On February 23, 2021, the Attorney General announced a definitive settlement of the matter.

In some of her first remarks on the subject of digital assets since Senate confirmation, Treasury Secretary Janet Yellen sounded an alarm on Bitcoin. Her views on the regulation of digital assets more broadly are sure to influence policy in the coming years at the various offices and bureaus within the Treasury Department that oversee the asset class, including the OCC, IRS, OFAC and FinCen.

The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) settled with BitPay, Inc. for $507,375 to resolve 2,102 apparent violations of multiple US sanctions programs for allowing individuals located in sanctioned jurisdictions to use digital currency on its platform to transact with merchants in the United States and elsewhere.