June 13, 2023

Examining the intersection of cryptocurrency and government

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Welcome to State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. I’m your host, Nikhilesh De.

Binance, Binance.US and Changpeng "CZ" Zhao published their first responses to the SEC’s lawsuit against them and, taken at face value, the stakes appear to be dire. But by the end of the day, we may get a better sense of how the case is proceeding and what a judge thinks about the arguments so far.

On a related note, I’m in D.C. today covering the SEC v. Binance hearing on a temporary restraining order. Unfortunately it’s only today but if anyone is around the D.C. District Court after the hearing ends, feel free to say hi.

Early arguments

(Vadim Artyukhin/Unsplash)

The narrative

Binance.US and Binance filed their first responses to the U.S. Securities and Exchange Commission (SEC) Monday, arguing that the regulator's push for a temporary restraining order would prevent it from paying employees, vendors or anyone else. The filings also previewed their defense against the SEC's actual charges.

Why it matters

The SEC made some pretty serious allegations against Binance last week. Those allegations will get put to their first test in court today.

Breaking it down

Binance.US filed a dramatic response to the SEC's restraining order motion, saying it could end the business if granted.

"The SEC seeks unnecessary and unjustified relief. Far from requesting relief that is 'carefully calibrated' to 'maintain[] the status quo' ... the SEC’s proposed remedies would effectively end BAM’s business," the filing said, calling the proposed temporary restraining order “draconian.”

District Judge Amy Berman Jackson, of the D.C. District Court, ordered Binance and Binance.US to describe any differences in their proposed stipulations by 1:00 p.m. ET (17:00 UTC), an hour before the hearing is set to begin.

She also ordered the SEC to describe what changes it wants from the Binance.US proposal that would make it acceptable to the agency “in lieu of the proposed” temporary restraining order.

“No additional argument or explication may be submitted by any party at this time,” the judge ordered.

At the risk of reading too much into the tea leaves, this minute order also suggests how the judge might approach at least the initial issues in the lawsuit. The order suggests that Judge Jackson may not want to sign off on a full temporary restraining order but is willing to enact some sort of restriction on who can access Binance.US’s funds.

There's no real differences between the Binance.US and Binance proposed stipulations – mostly things like capitalization, though the Binance filing also specifies root access to Amazon Web Services instances as part of the software that may be involved.

The SEC’s filing calls for any restrictions to also cover staking services and the AWS access.

Stories you may have missed

Mt. Gox's Hackers Are 2 Russian Nationals, U.S. DOJ Alleges in Indictment: The U.S. Department of Justice identified two Mt. Gox hackers for the first time after unsealing a 2019 indictment.
U.S. SEC Out-of-Bounds in Dragging DeFi Into Proposed Exchange Rule, Industry Says: The SEC’s deadline for proposed rulemaking is today. Early comments from industry suggest it’s less than thrilled with the idea that decentralized finance may be dragged into SEC regulations on trading platforms.
New Stablecoin Bill Drafted by House Republicans as Compromise With Democrats: Ahead of today’s House Financial Services Committee’s stablecoin hearing, lawmakers published a new compromise bill on the issue.
CFTC Wins Lawsuit Against Ooki DAO: Ooki DAO officially lost its case against the Commodity Futures Trading Commission after never showing up in court. The CFTC won a fine and an injunction against Ooki DAO, which geofenced the U.S. last year after the suit was first filed.
EU’s Landmark Crypto Law MiCA Published in Official Journal: The European Union’s Markets in Crypto Assets (MiCA) legislation will start taking effect by next June after the bill was published in the Official Journal of the European Union.

Hinman’s emails

Ripple, which also faces an SEC lawsuit, published emails from officials deliberating the text of former SEC Director of Corporation Finance William Hinman’s famous 2018 speech in which he said Ether was not a security, probably.

I wrote about the emails themselves here and my colleague Shaurya Malwa noted the immediate price reaction here.

Something that’s striking is just how much deliberation there actually was over the emails. We’re also granted a rare look into the deliberative process – SEC officials debated how clear the speech actually was and made suggestions about the Howey analysis.

Perhaps most interestingly, to me at least, an early version of the speech didn’t discuss ether (ETH) at all. The May 25, 2018 draft referenced bitcoin (BTC) but largely focused on how tokens might morph from securities to non-securities in the abstract.

This Week

Tuesday:

13:30 UTC (2:30 p.m. BST) The U.K. Parliament held its third reading of the Financial Services and Markets Bill.
14:00 UTC (10:00 a.m. ET) Treasury Secretary Janet Yellen is testifying before the House Financial Services Committee.
18:00 UTC (2:00 p.m. ET) A federal court will hear arguments in the SEC’s effort to secure a temporary restraining order against Binance.US, freezing its assets.
18:00 UTC (2:00 p.m. ET) The House Financial Services Committee will hold a hearing on stablecoins.

Wednesday:

18:00 UTC (2:00 p.m. ET) The Federal Reserve will announce its latest interest rate decision.

Thursday:

12:15 UTC (2:15 p.m. CEST) The European Central Bank will announce its latest interest rate decision.
14:30 UTC (10:30 a.m. ET) There will be an oral argument in the ongoing U.S. vs. Sam Bankman-Fried case.
14:30 UTC (10:30 a.m. ET) There will be a creditor meeting in Bittrex’s bankruptcy case.
15:00 UTC (11:00 a.m. ET) There will be a hearing in Genesis’s bankruptcy case.

Elsewhere

(The Wall Street Journal) The Journal took a look at North Korea and its efforts to steal crypto to fund its nuclear weapons program.

Today's Tweet

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde.