Source/Foxbusiness
Compiled by/Ning
According to Fox Business Channel, the cryptocurrency industry has launched a counterattack against US regulatory agencies to resist the current suppression of the digital asset industry by the Biden administration.
Insiders said that this resistance is mainly in the form of lawsuits, lobbying Congress, and challenging enforcement actions by the US Securities and Exchange Commission (SEC) and other federal agencies, but there are no organizers of the activities. Insiders added that in recent months, more than six cryptocurrency-related companies have raised objections to government regulation, and this momentum is growing as the price of Bitcoin continues to rise. Just on February 29, Bitcoin briefly broke through $64,000, reaching its highest point since December 2021, rising more than $10,000 in just 2 days, and is now at $62,427.
Previously, the US Securities and Exchange Commission (SEC), known as the "police" of Wall Street, and its chairman Gary Gensler, who is skeptical of cryptocurrencies, launched multiple lawsuits against industry participants. Gensler stated that cryptocurrency companies are not complying with securities laws and are refusing to register their securities business. In response, cryptocurrency companies stated that the existing registration process is incompatible with their business's underlying blockchain technology, so there is no violation of the law.
The final result is: both sides express their views, the SEC has taken legal action, and has also faced questioning and resistance from cryptocurrency companies big and small.
Interestingly, most regulated industries tend to retreat or engage in secretive lobbying to resist excessive regulation when facing government enforcement actions. However, the cryptocurrency industry's approach is the opposite, with industry professionals openly confronting regulatory authorities in various public forums, including the courts.
Industry executives interviewed by Fox Business Channel stated that they have enough funds and legal regulations to deal with the government's improper regulatory actions. They believe that cryptocurrency is a unique business that cannot be fully integrated into any existing regulatory framework.
"There was a time when the SEC could be considered the gospel of the industry, but that situation is gone," said Paul Grewal, Chief Legal Officer of Coinbase. "The cryptocurrency industry is using the judicial system to counter excessive regulation and to seek clear guidance for the industry—and it is having an effect."
01. Legal precedents are on the side of cryptocurrency
A spokesperson for the SEC declined to comment, but major participants in the cryptocurrency asset industry believe that they have legal precedents after Grayscale's victory in August, which ultimately led the SEC to approve 11 spot Bitcoin exchange-traded funds last month, marking a compliance watershed for the cryptocurrency industry.
Looking back at recent lawsuits, the SEC has been in decline.
In July last year, Ripple Labs partially won a lawsuit, with a federal judge in the Southern District of New York ruling that the sale of the digital token XRP in the secondary market cannot be considered a security and is to some extent beyond the jurisdiction of the SEC.
Currently, other cryptocurrency participants believe that the legal basis of the US Securities and Exchange Commission and other regulatory agencies is not stable enough, and the timing for legal challenges has matured. From this year's perspective, cryptocurrency companies have been taking frequent actions.
Coinbase, the largest cryptocurrency exchange in the United States and an active advocate for cryptocurrency policies in Washington, D.C., is currently in a legal battle with the SEC in the federal court in New York, challenging the regulator's claim that it is operating an unregistered securities exchange by selling cryptocurrency tokens on its platform, thus objecting to the claim that it is operating an unregistered securities exchange.
Judge Katherine Polk Failla of the Southern District of New York will decide whether to fully dismiss Coinbase's lawsuit or allow the Commission's case to enter the discovery process.
Last week, the second-largest cryptocurrency exchange in the United States, Kraken, announced that it had filed a motion in the Northern District of California to dismiss a lawsuit filed by the SEC in December, accusing Kraken, like Coinbase, of operating an unregistered securities exchange and selling similar unregistered securities to investors.
Kraken stated that it is fighting back because it believes that, under current law, the tokens it offers do not constitute securities, as Congress has not yet legislated on whether digital assets are securities, commodities, or belong to a unique category. Kraken stated that the SEC's filing is based on a theory of regulatory expansion that effectively "securitizes" a wide range of common assets and commodities.
The US Securities and Exchange Commission also sued Binance in June last year, accusing the world's largest cryptocurrency exchange, its founder Changpeng Zhao, and its US exchange Binance.US of selling unregistered securities to US investors, and the case is still ongoing.
On the other hand, industry participants and trade groups express support for their peers by submitting "amicus curiae" statements, which are written arguments by individuals or organizations who have a strong interest in a case and seek to influence the court to make a decision favorable to one party.
In Ripple's case, the cryptocurrency industry submitted 14 amicus curiae statements, 8 of which were submitted on behalf of Grayscale and 6 on behalf of Coinbase. Kraken submitted a non-party amicus curiae statement on Tuesday, supported by the cryptocurrency trade organization Digital Chamber of Commerce, stating that it will intervene to end the SEC's attempt to regulate the industry without legislative authorization.
James Murphy, founder of the Web3 consulting firm Ludlow Street Advisors LLC and a cryptocurrency lawyer, said, "It seems that the cryptocurrency industry has finally begun to organize and counter the SEC's excessive expansion in a coordinated manner."
02. Miners are the first to fight back
Fox Business Channel reported last Thursday that another major player in the cryptocurrency market—Bitcoin miners—filed a lawsuit in the Western District of Texas against the Energy Information Administration (EIA) and the Office of Management and Budget for "illegally" collecting proprietary data from 82 Bitcoin mining companies.
The lawsuit was filed by the Texas-based blockchain mining company Riot Platforms, along with the Texas Blockchain Association and the Digital Chamber of Commerce, in response to the Office of Management and Budget granting the EIA approval to collect energy consumption data from miners for a new study analyzing the energy impact of US cryptocurrency mining.
On Friday afternoon, the defendants obtained a temporary restraining order against the EIA, prohibiting the agency from conducting the investigation of Bitcoin miners for the next four weeks.
District Judge Alan Albright wrote in the motion granting the temporary restraining order, "The Court finds that the Plaintiffs have successfully demonstrated that the facts alleged by the Defendants in support of the emergency request are insufficient to establish the reasonableness of such action. Therefore, this decision may violate the Administrative Procedure Act and be considered 'arbitrary, capricious, [or] an abuse of discretion.'"
The judge also found the EIA's estimated 30-minute completion time for the investigation to be "extremely inaccurate and highly misleading," and cited the defendants' claim that they spent over 40 hours attempting to answer the survey questions.
EIA declined to comment on this matter.
A preliminary injunction hearing was scheduled for February 28, with Riot and its co-plaintiffs planning to testify in court to overturn the investigation. The subsequent hearing scheduled for the evening of February 27 was canceled after a teleconference involving representatives from all parties reached a "principle agreement" on the potential dispute, with some believing that the EIA plans to completely withdraw the investigation.
"We cannot disclose details at this time," said a spokesperson for the co-plaintiff Digital Chamber of Commerce. "But we can share the latest news in the coming days."
03. Is regulation considered "arbitrary and capricious"?
This is not the first time a government agency has been called "arbitrary and capricious" by a federal court.
Last year, the Washington, D.C. Circuit Court of Appeals stated that the SEC's refusal to allow the cryptocurrency asset management company Grayscale to convert its Bitcoin trust funds into spot ETFs was "arbitrary and capricious." A panel of three judges unanimously agreed that the agency's argument about the significant differences between spot ETFs and futures ETFs tracking the daily price of Bitcoin was not sufficient to justify the refusal, as the SEC approved the first Bitcoin futures ETF in 2021.
Grayscale's victory ultimately led to the SEC approving 11 spot Bitcoin ETFs, bringing the world's largest digital assets into traditional ETF form for traditional Wall Street investors, thus creating a growth myth in the past two days.
Ripple Labs, hailed as the first major cryptocurrency company to fight the SEC, achieved victory in its three-year legal battle with the SEC in July last year, when Judge Analisa Torres of the Southern District of New York ruled that the sale of the digital token XRP in the secondary market is not a security product.
Another government regulatory agency that found itself targeted by cryptocurrency law is the Federal Reserve. Custodia Bank, based in Wyoming, sued the Federal Reserve in June 2022, when its member bank, the Kansas City Fed, delayed the decision to grant Custodia access to its banking services.
Custodia's lawsuit in the Wyoming district court alleges that the Federal Reserve Board intervened in the Kansas City branch purely because of its relationship with cryptocurrency, refusing Custodia access.
Due to the liquidity risk associated with the industry, the Federal Reserve advised banks to be cautious when conducting business with cryptocurrencies, but a Federal Reserve spokesperson declined to comment.
A district judge is scheduled to rule on Custodia's motion for summary judgment (a request for a judge to rule on a case without going to trial) next month.
04. SEC, mired in multiple lawsuits
At the same time, lawsuits against the SEC continue to pour in from cryptocurrency companies.
The new cryptocurrency trading platform Lejilex filed a lawsuit against the SEC in the federal court in Texas last week, along with the Texas Cryptocurrency Freedom Alliance, claiming that the digital assets sold on its platform are not securities.
Hodl Law, a law firm specializing in cryptocurrency, recently filed a lawsuit in the Ninth Circuit Court of Appeals, arguing that its lawsuit against the SEC for unclear cryptocurrency policies is justified.
The company's argument stems from the SEC's decision to reject Coinbase's 2022 petition, which sought to establish new comprehensive rules for the cryptocurrency industry, arguing that these rules are incompatible with existing regulations governing traditional assets such as stocks and commodities.
The Commission voted 3-2 in December to reject Coinbase's petition, stating that it fundamentally disagrees with Coinbase's argument that the current SEC regulatory framework is "unworkable" for the cryptocurrency industry.
Former SEC lawyer Marc Fagel said, "I disagree that the SEC's actions are beyond its jurisdiction; so far, their enforcement actions have legal basis. But when it comes to secondary market trading, the novelty of cryptocurrencies makes the law even more ambiguous."
Industry participants and lawyers in the cryptocurrency space believe that the so-called "emerging factors" of cryptocurrencies—a nascent industry that traditional securities laws are not easily equipped to regulate—can be addressed through comprehensive legislation by Congress specifically for digital assets. Currently, there are some bills pending in the House and Senate, but cryptocurrency lobbyists on Capitol Hill say that passing any legislation related to cryptocurrencies in an election year will be very difficult, given the pressing issues of rising national debt and border crises.
"While we continue to work with lawmakers, the cryptocurrency industry also has to adapt to the current situation. We are seeking legal avenues to ensure that the industry's voice is heard and to ensure that the cryptocurrency industry can continue to innovate," said Taylor Barr, Senior Policy Assistant at the cryptocurrency advocacy organization Digital Chamber of Commerce. "As Congress shifts its focus to other urgent matters, our determination will only grow stronger."
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