The Chairman of the SEC, Gary Gensler, recently claimed in an interview that all cryptocurrencies, except Bitcoin, fall under the agency’s jurisdiction. However, his comments have been disputed by lawyers for the cryptocurrency industry who argue that the SEC must prove its case in court for each token individually before it can claim jurisdiction over them.
Jake Chervinsky, a lawyer and policy lead at the crypto advocacy group the Blockchain Association, argued in a tweet that Gensler’s opinion is not the law, despite his claimed command over the crypto sector. He further stated that until the SEC proves its case in court for each individual token, it lacks authority to regulate any of them.
Another lawyer, Logan Bolinger, also pointed out that Gensler’s opinions on what is or isn’t a security are not legally dispositive, meaning that it’s not the final legal determination. He added that judges, not SEC chairs, ultimately determine what the law means and how it applies.
The policy lead at the Bitcoin Policy Institute, Jason Brett, said that Gensler’s comments should be feared rather than celebrated. He stated that there are ways to win other than via a regulatory moat.
Gabriel Shapiro, the general counsel at investment firm Delphi Labs, outlined in a series of tweets the enforcement difficulties the SEC would have to carry out on the industry to cement its rule. Shapiro pointed out that according to Gensler, over 12,300 tokens worth around $663 billion are unregistered securities that are illegal in the U.S. The SEC would have to file a lawsuit against each token creator, which would be seemingly impossible to enforce.
Shapiro also noted that the SEC has handled crypto in two ways: either fining token creators and requiring the issuer to register, or fining them and ordering the created tokens to be destroyed and delisted from exchanges.
The comments made by Gensler have sparked concern in the cryptocurrency industry. Lawyers have highlighted the need for the SEC to prove its case in court for each token individually before it can claim jurisdiction over them. Meanwhile, the SEC faces the seemingly impossible task of enforcing its rule against over 12,300 tokens. The situation remains unresolved, and the crypto industry will be closely watching to see how it develops in the coming weeks and months.
As the COVID-19 pandemic forced many lawyers to work remotely, more law school students are signing up for legal tech courses to enhance their abilities in a rapidly evolving job market.
The pandemic certainly presented a new challenge for the legal landscape, as courtrooms and firms just weren’t prepared to go remote and were forced to adopt new digital technologies as basic as Zoom and Microsoft Teams. With more law students feeling comfortable leveraging video conferencing platforms, there seems to be a bigger focus on how technologies like Bitcoin can help solve legal challenges, but with little execution by many law schools.
Having conversations about blockchain helps students explore more fundamental questions about finance and transactions both in the U.S. and abroad. These are questions that help us understand what Bitcoin is about.
Here are three reasons why, in our post-pandemic world, law schools should be teaching their students about the world of Bitcoin.
#1 – Stop Teaching To The Bar Exam And Start Preparing Students For The Real World
When it comes to preparing students for the bar exam, law schools and academics need to step it up. As it stands today, there just aren’t enough academics that are currently engaged in research on Bitcoin and other digital currencies.
Law schools have an obligation to their students to not only prepare them for the bar exam, but to also be competent to sit for job interviews, whether you take a traditional or non-traditional legal route. Often what we see is that when a student graduates law school, they have only been trained to take the bar exam — nothing more. There is very little real world experience, even with an internship, clerkship or externship under their belt.
Universities such as Massachusetts Institute of Technology, Cornell, Stanford, Harvard, Columbia, New York University, University of Southern California, Duke, University of Texas at Austin, Vanderbilt and Georgetown have all implemented their own curricula, teaching students about the world of Bitcoin, digital currency and blockchain technologies.But are they teaching it in a way that is of value to students as they prepare to graduate and apply for jobs?
Probably not, but it’s a start in comparison to those lower-ranked universities that seem to be setting law and graduate students up for failure. I can tell you that when I graduated law school in 2015, I was not prepared for these newer technologies. I had to teach myself and ended up returning as an adjunct law professor to teach Bitcoin and Blockchain 101 to my Cyberspace Law students at the end of the semester, hoping to give them an advantage over their classmates.
#2 – Understanding Regulatory Bodies Helps Provide For A More Competent Lawyer
While attorneys are a self-governing trade, it is equally as important to understand the regulatory bodies and institutions that attorneys may come across in practice (though hopefully not as a defendant).
Institutions like the U.S. Department of the Treasury, the U.S. Securities and Exchange Commission (SEC) and the U.S. Congress play a very big role in the future of Bitcoin and the expansion of our traditional finance system.
Let’s explore some of the more relevant governing bodies as they relate to Bitcoin governance.
U.S. Securities and Exchange Commission
Since as early as 1934, the SEC has been tasked with overseeing the trading of various assets on the market, previously focused on stocks and bonds.
In recent years, the SEC added cryptocurrency, including Bitcoin, to its purview, helping to regulate U.S. exchanges. The SEC has an extensive jurisdictional reach, with the power to introduce less- or more-stringent laws regarding cryptocurrencies, take legal action against fraudulent individuals or companies and prevent launches of dubious initial coin offerings (ICOs).
The “regulation holdup” so to speak, from the eyes of the SEC, comes from its hesitation to avoid over-regulating cryptocurrencies, given how new the technology is in mainstream commerce. While many consider the SEC to be opposed to the technology, it has expressed numerous times its optimism for digital currency, indicating its desire to apply the entire spectrum of securities laws to both the physical and virtual aspects of the crypto market.
In the eyes of the SEC and the Commodity Futures Trading Commission (CFTC), bitcoin is considered to be a “commodity” with respect to the Howey Test.
Commodity Futures Trading Commission
Whereas the SEC is focused on various securities traded in the U.S., the CFTC is an independent agency of the U.S. government that regulates the U.S derivatives markets, which includes futures, swaps and certain kinds of options.
In March 2018, a federal judge ruled that digital assets such as Bitcoin should be viewed as “commodities” and can be regulated by the CFTC. Since the groundbreaking ruling, the agency has provided instructions to cryptocurrency exchanges and similar entities launching cryptocurrency derivatives.
The approval of bitcoin-backed futures and derivatives remains the CFTC’s biggest decision in the U.S. as it pertains to the crypto space. Recently, the CFTC along with the SEC have warned investors of the risks of investing in funds with exposure to bitcoin futures.
“Investors should consider the volatility of bitcoin and the bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying bitcoin market,” according to the SEC’s June 10, 2021 investor alert.
U.S. Department of the Treasury
As the Treasury is responsible for the country’s flow of money, its policies and decisions regarding bitcoin have started to make sweeping changes for purposes of tax collection and reporting.
The Financial Crimes Enforcement Network (FinCEN), a smaller division of the Treasury, also issued a statement setting forth its approach to enforcing rules and regulations under the Bank Secrecy Act, in efforts of minimizing and preventing money laundering. made crypto exchanges subject to the Bank Secrecy Act in order to prevent money laundering and other criminal dealings.
On July 6, 2021, FinCEN announced it recruited Michele Korver, formerly of the U.S. Department of Justice, to serve as the agency’s first chief digital currency advisor. Michael Mosier, FinCEN’s acting director, commented on Korver’s vast experience in helping craft digital currency legislation:
“Michele brings a wealth of digital currency expertise, and will be a tremendous leader in coordinated efforts to maximize FinCEN’s contribution to the innovative potential for financial expansion of opportunity while minimizing illicit financial risk.”
This is helpful for those students taking securities law courses or who intend to practice in the world of corporate law.
Internal Revenue Service (IRS)
The IRS previously stated in 2014 that digital assets like Bitcoin don’t fall under the umbrella of “real currencies” and should instead be considered “property” for tax purposes. It has not changed its position on Bitcoin’s categorization since its initial 2014 statement.
Consumers were shocked when the IRS indicated its intention to learn more about the “property” after it ordered Coinbase to hand over the details of 14,000 of its users in February 2018 in order to check the tax records for tax evasion.
The Office of the Comptroller of the Currency (OCC)
Back in March 2020, former Coinbase Chief Legal Officer Brian Brooks was appointed as the then-acting comptroller of the currency, serving from May 29, 2020 to January 14, 2021. This signified the Treasury’s seriousness toward understanding Bitcoin and that any subsequent legal and compliance programs would be tailored towards these technologies.
One major body to follow is a subsidiary of U.S. Congress. The U.S. House Financial Services Committee, which helps oversee why and how other agencies like the IRS and FinCEN will continue addressing bitcoin and its counterparts.
This is just a hand-selected number of agencies that are involved in the world of Bitcoin and digital money. This is not an exclusive list. For a quick review, here is a list of the regulatory bodies and their leaders under the current Biden Administration:
Treasury – Janet Yellen
SEC – Gary Gensler
CFTC – Rostin Behnam (acting leader)
OCC – Michael Hsu (acting leader)
FinCEN – Michael Mosier (acting leader)
Office of Foreign Assets Control (OFAC) – Andrea Gacki (incumbent from Trump Administration)
Federal Reserve – Jerome Powell (incumbent from Trump Administration)
Federal Deposit Insurance Corporation (FDIC) – Jelena McWilliams (incumbent from Trump Administration)
Consumer Financial Protection Bureau (CFPB) – Dave Uejio (acting leader)
No matter the trade you are in, attorneys should understand the concept of regulation on bitcoin by bodies such as the SEC or the U.S. House Financial Services Committee.
Understanding the importance and distinction between an IPO and an ICO makes a difference.
#3 – Your Ethical Obligations May One Day Depend Upon It
Regardless of what area of law you are practicing, you are bound to come across a client who mentions the words “cryptocurrency,” “digital assets” or “Bitcoin.” And according to the ethical rules, “a lawyer shall provide competent representation to a client.” What this means is that attorneys are required to have the legal knowledge, skill, thoroughness and preparation reasonably necessary for adequately representing their client.
In other words, if you aren’t familiar with the concept of Bitcoin and why it’s important in areas involving criminal law, real estate, contracts, entertainment, securities and every other legal landscape it touches, you better make sure your malpractice insurance is up to date, because those are the waters you’re headed if you aren’t prepared.
And it’s more than just saying the word “Bitcoin”; you need to be prepared to have a real conversation about it, because an answer of “I’m not familiar with that” or “I don’t believe that comes into play” just won’t cut it when it comes to ensuring that you are holding up your ethical obligations to your client.
Take corporate law where, traditionally speaking, the stock market and mainstream financial instruments were the centers of conversation — but not necessarily any more. In applying concepts of Bitcoin and other digital money, this is already transforming how investors trade, changing discussions around liability and historical ownership of shares.
Diving a bit deeper into securities law, understanding how bitcoin is viewed, regulated, and monitored by the SEC is imperative in competently practicing in this area of law. In the past five years, the SEC has taken some serious steps in its efforts to clarify the digital currency space by focusing on how Bitcoin impacts our global economy.
At the end of the day, it is our academia that will serve to shape the future of consumer finance and the role Bitcoin, blockchain and other digital asset technologies will play in our everyday lives.
This is a guest post by Andrew Rossow. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.