The Senate has yet to take action on the 21st Century Act (FIT21) (H.R.4763) which passed the House by a comfortable margin of 279-136 on May 22, 2024. FIT21 is a proposed landmark piece of legislation that would enact a comprehensive regulatory framework for the digital assets industry. Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand's (D-NY) Lummis-Gillibrand Responsible Financial Innovation Act (S.2281) also awaits consideration in the Senate. On August 14, at an event titled "Crypto4Harris," a number of high-ranking Democrats including Senate Majority Leader Chuck Schumer expressed support for crypto. Majority Leader Schumer also said that he believes a crypto bill can pass the Senate this year, a signal that Democrats are steadily moving in a pro-crypto direction. Following the Democratic National Convention which ran from August 19 to August 22, Vice President Kamala Harris is now officially the Democratic nominee for President. Vice President Harris and her running mate, Minnesota Governor Tim Walz, have not been especially active on crypto to date. In contrast with the 2024 Republican Platform, the 2024 Democratic Platform, which was released on August 19, also did not mention crypto or digital assets.
In August, there were several updates in connection with cryptocurrency litigation and regulatory enforcement actions that have been brought by U.S. regulators against digital asset companies. First, in late August, in connection with the SEC's ongoing litigation against the crypto platform, Kraken, which the SEC originally filed in November 2023, the Court denied Kraken's motion to dismiss the SEC's complaint. With parallels to the Ripple case, the Court found that none of the tokens trading on Kraken are per se securities, but agreements associated with a token could be. Next, on August 28, 2024, OpenSea, one of the largest NFT marketplaces, announced that it received a "Wells notice" from the SEC alleging that OpenSea is operating as an unregistered digital asset platform because at least some of the NFTs it markets could constitute securities. This year, the SEC has sent numerous Wells notices to crypto firms, including UniSwap Labs and Robinhood Crypto, the financial services company's crypto arm. Last, cryptocurrency settlements have led to record-high judgments—illustrated most recently by the CFTC's announcement of the $12.7 billion judgment against FTX and Alameda.
Key Developments
South Korea Enacts Comprehensive Regulation on Virtual Assets
On July 17, 2024, the South Korea Financial Services Commission announced that the Act on the Protection of Virtual Asset Users (the Act), which intends to establish a sound order in the virtual asset market and ensure protection for users, would take effect on July 19, 2024. The Act contains provisions protecting users' deposits and virtual assets, and investigating and taking appropriate actions against those engaging in unfair trading activities. The Act also regulates unfair trading activities, such as price manipulation, and authorizes financial regulators to supervise, inspect and sanction virtual asset service providers.
The Financial Services Commission's press release can be found here.
US Senator Introduces Strategic Bitcoin Reserve Legislation
On July 31, 2024, U.S. Sen. Cynthia Lummis (R-WY) introduced the Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act in the U.S. Senate. The BITCOIN Act establishes a strategic Bitcoin reserve to serve as an additional store of value to bolster America's balance sheet and ensure the transparent management of Bitcoin holdings of the federal government. According to Lummis, "it is time for us to take bold steps to create a brighter future for generations to come by creating a strategic Bitcoin reserve". According to Sen. Lummis's press release, the legislation would establish a decentralized network of secure Bitcoin vaults operated by the U.S. Department of the Treasury with statutory requirements ensuring the highest level of physical and cybersecurity for the nation's Bitcoin holdings, implement a 1-million-unit Bitcoin purchase program over a set period of time to acquire a total stake of approximately 5% of total Bitcoin supply, be paid for by diversifying existing funds within the Federal Reserve System and the Treasury, affirm self-custody rights of private Bitcoin holders and emphasize that the strategic Bitcoin reserve shall not infringe upon individual financial freedoms.
Sen. Lummis's press release can be found here and the full text of the BITCOIN Act can be found here.
Abu Dhabi Global Market Issues Proposed Regulatory Framework for Issuance of Fiat-Referenced Tokens
On August 20, 2024, the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) published Consultation Paper No. 7 of 2024 containing proposals to enhance its regulatory framework to allow the issuance of Fiat-Referenced Tokens (FRTs) from the ADGM. The consultation paper is open to public feedback and comment until October 3, 2024. According to the ADGM's press release, the FSRA is proposing to adopt a risk-based and proportionate approach to FRT issuance in response to industry demand, based on appropriate regulatory requirements that incorporate the necessary safeguards to ensure that FRT issuers operate in a safe and sound manner and are informed by current practices in leading jurisdictions.
The ADGM's press release can be found here and the consultation paper can be found here.
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