Crypto Fundamentals #025

‍🌞 Gary Gensler testifies on crypto regulations before the United States House of Representatives Committee on Financial Services

Gary Gensler testified before Congress this week on President Biden’s budget request for the Securities and Exchange Commission. At the end of March, Mr. Gensler brought a 2024 budget request of $2.4bn to Congress with the intention of increasing the FTE headcount of the SEC by ~10% from ~4.7k employees to ~5.1k employees. The SEC noted that it has largely maintained a constant headcount since 2016 (FTEs in 2016 were ~4.6k) and that the scope of its role has expanded greatly.

During the April 18th meeting, Gary was challenged on a variety of issues relating to the crypto industry, but continued to maintain that “most cryptocurrencies are securities and [that] crypto firms must comply with securities laws” (Reuters). He stated that “I’ve never seen a field that’s so non-complying with laws written by Congress and affirmed over and over by the courts” (Reuters).

Lawmakers were split on Gensler’s ongoing approach to the crypto industry. Committee Chairman Patrick McHenry (Republic) stated during his opening statement that “Regulation by enforcement is not sufficient nor sustainable. Your approach is driving innovation overseas and endangering American competitiveness” (Yahoo).

Meanwhile, his Democrat counterpart Maxine Waters, “[applauded] Chair Gensler and his staff for the forceful actions the SEC has taken and [how he] dedicated more resources to go after crypto criminals” (Yahoo).

The most interesting moment in the meeting was around a direct question from McHenry on whether Ethereum was a security - to which Gensler repeatedly stated “It depends on the facts and the law” (Coindesk). While not a clear answer, the crypto community appeared to take the comment as a positive - Joshua Klayman, head of Fintech and head of Blockchain and Digital Assets at Linklaters stated that “This was the best we could possibly hope for, and it gives some cover to not just ETH but also other cryptocurrencies” (Coindesk).

Also during this week, Mr. Gensler filed a lawsuit against the crypto exchange Bittrex, claiming that several tokens that they offered were securities, including Algorand (Decrypt). Crypto twitter was quick to pick up that Algorand is a cryptocurrency that Gensler had previously praised while he was still lecturing at MIT. Gary Gensler has been noted for singing the praises of Algorand founder, Silvio Micali, and had worked together with him at the MIT Computer Science and Artificial Intelligence Laboratory (CSAIL). During a conference in 2019, Gensler had stated “Silvio Micali’s Algorand, he’s a Turing Award winner at MIT I work with… Silvio’s got a great technology, it has performance, you could create Uber on top of it” (Decrypt).

💫 Coinbase secures Bermuda license to operate a global exchange, continues to double down on international expansion

Coinbase has secured a Bermuda license to operate a global exchange after the US stepped up regulatory actions against the crypto industry in recent months. These actions follow the issuance of the Wells Notice by the SEC to Coinbase regrading a portion of Coinbase’s listed assets, the Coinbase Earn product, and Coinbase Prime. In Coinbase’s most recent blogpost on its international expansion intentions, the firm outlined a number of ex-US jurisdictions it continues to build avenues into including Singapore, Brazil and Canada (Coinbase). The exchange also stated that it is “in discussion with financial regulators in Abu Dhabi about a potential license” (Coinbase).

Recent crypto development has appeared to largely gravitate towards outside the US. a16z calls out in its latest “State of Crypto Report” that the % of crypto developers in the US has declined from ~40% in 2018 to less than 30% in 2022, while traffic to top crypto websites from US users has decliend from ~23% in 2019 to ~15% in 2022) (a16zcrypto)

While Coinbase builds its brand in ex-US jurisdictions, it continues to work closely with US regulators on both the federal and state level. Brian Armstrong and his team are still active on the DC circuit, and tweeted about his team’s meeting with the SEC on April 21, 2023.

🫡 EU Parliament votes in favor of a new crypto licensing regime: Markets in Crypto-Assets (MiCA)

Across the pond, the EU Parliament voted this week in a bi-partisan matter in favor of a new crypto licensing regime, Markets in Crypto-Assets (MiCA). This action makes the European Union the first major administrative body to establish a comprehensive legal framework for crypto (European Parliament).

The MiCA bill provides regulatory clarity around crypto-assets with four main objectives: to provide legal certainty, support innovation and fair competition, ensure consumer and investor protection and market integrity, and maintain financial stability. The proposal also includes safeguards to address potential risks to financial stability and monetary policy from stablecoins, such as capital requirements and investor rights (European Parliament).

The rules will apply starting from 2024, which lawmakers such as Stefan Berger, Member of the EU Parliament, believe will put the EU “at the forefront of the token economy” (Coindesk). The bill also received positive feedback from the EU Securities Market Regulator (ESMA), a EU financial regulatory body, which stated that it “[welcomed] today’s vote in [European Parliament] plenary to approve the Regulation in Markets in Crypto Assets.

Coinbase affirmed (also in the blog post referred to above) that the “European Parliament’s adoption of MiCA this week is also a pivotal moment for crypto in the region, and the work of European policymakers should be held up as an example.”

As further regulatory clarity for digital assets continues to develop in major jurisdictions outside of the US, it will be interesting to see how the SEC and other US regulatory bodies interact with the still-emerging crypto space.

that’s all folks

Detailed L1 dashboard for people who love more numbers in smaller font:

Note: Revenue represents fees that go to the protocol’s treasury or are returned to tokenholders via a burn mechanism (source: Token Terminal). Weekly commits and weekly dev activity as of 4/8/23.

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