1/ Grayscale's victory over the SEC is *massive.*

It's very rare for a federal circuit court to find that an agency has violated the APA by acting arbitrarily and capriciously.

The DC Circuit just delivered a huge embarrassment for the SEC.

But the ETF isn't approved yet 🧵 2/ The DC Circuit soundly rejected the SEC's view that Grayscale's ETF proposal was not "designed to prevent fraudulent and manipulative acts and practices."

The SEC has spent a full decade denying spot bitcoin ETF proposals under this reasoning. That era has now come to an end.

1/ SEC Chair Gary Gensler has wrongly prejudged that all digital assets are securities.

As a result, federal law requires that he recuse himself from all enforcement decisions related to digital assets.

@MTCoppel and I wrote a paper explaining why 👇
theblockchainassociation.org/chair-gensler-… 2/ Every SEC enforcement action must follow the “Wells process.”

In that process, the SEC Commissioners are meant to act as neutral arbiters, impartially weighing the evidence and arguments presented by SEC staff (the prosecutors) and the enforcement target (the defendant).

1/ Today, @BlockchainAssn sent FOIA requests to the Fed, FDIC, and OCC, demanding information about the unlawful debanking of crypto companies.

We are also collecting evidence of debanking. Share your story with us:

debanked@theblockchainassociation.org

Here's the situation 🧵 2/ There are troubling reports of crypto companies having their bank accounts closed, often with no notice and no explanation. They've struggled to open new accounts too.

This disturbing trend suggests that regulators are trying to cut crypto entirely out of the banking system.

1/ Today, @KMSmithDC and I sent a letter to Congress from @BlockchainAssn urging prompt action on stablecoin legislation.

There is already bipartisan, bicameral support for new laws on stablecoins. The US is falling behind on crypto. It's time to act.
theblockchainassociation.org/blockchain-ass… 2/ In the letter, we explain what stablecoins are and why they represent such a categorical improvement on legacy payment infrastructure.

We also explain how important stablecoins are for the US dollar's status as global reserve currency, given China's focus on the digital yuan.

Today, the SEC proposed changes to the investment adviser custody rule that seem designed to prohibit US firms from investing in US crypto companies.

This proposal would flagrantly violate the SEC's mission by making investors *less* safe and by *discouraging* capital formation. Commissioner Uyeda explains:

"This approach to custody appears to mask a policy decision to block access to crypto as an asset class. It deviates from the Commission’s long-standing position of neutrality on the merits of investments."
sec.gov/news/statement…

1/ After a streak of hostile moves by US regulators, with rumors of more to come, fears of a crypto crackdown have never been higher.

It may be tough, but we can chart a path through it.

Let’s discuss the state of crypto policy: what’s happening, why, and what we do next 🧵 2/ Before we start, some comfort for the concerned:

The recent flurry of activity is jarring, but it's not a surprise and it doesn't spell doom for crypto in the USA.

Far from it: we have champions in key roles across government, and our industry is strong and ready to fight.

1/ Yesterday, @fund_defi filed a reply brief in the Ooki DAO case, challenging the CFTC's improper attempt to serve a DAO via forum post and chat box.

In short, the CFTC is pushing a nonsensical theory of DAO liability in court. We say why it's wrong. 🧵
drive.google.com/file/d/1Czh3wn… 2/ In September, the CFTC brought two related enforcement actions:

- one against bZeroX LLC and its founders for operating an unregistered margin trading platform, the bZx protocol; and

- another against "Ooki DAO" for the same offense, based on supposedly running the protocol

I want to know how many whistleblower complaints were filed with the SEC tipping them off to FTX's fraud.

I want to know how many were filed before FTX met with Chair Gensler's office to talk about a sweetheart deal.

I want to know why our "cop on the beat" was blind to this. For as long as I can remember, the crypto industry has called for the SEC to focus its resources on bad actors, to go after the frauds and scammers.

Instead, it focused on harassing US firms acting in good faith with endless investigations and unjustified enforcement actions.

FTX's fraud wasn't a failure of US regulation.

There are many laws on the books that prohibit US exchanges from trading customer funds. FTX was a Bahamian exchange, not a US one.

But, if FTX had US customers (by VPN), then it *was* a failure of US regulators, both SEC and CFTC. FTX allowed trading of tokenized stocks that were obviously within the SEC's jurisdiction, if offered to the US retail market.

But what was the SEC doing? Prosecuting LBRY, doing media hits on Kim Kardashian, and harassing upstanding US firms with pointless investigations.

@RyanSAdams We tell the truth.

We explain that this wasn't a US regulatory failure or a flaw in the underlying technology, it was a historic fraud perpetrated by a conman in the Bahamas.

We uncover in detail exactly what happened, honestly and ruthlessly, to lay bare the crime in full. @RyanSAdams We take responsibility for not calling out the red flags, for not pushing back harder while the criminal crowned himself the king of the industry.

We help with the investigations. We show how open-source public blockchains offer an unprecedented ability to root out bad actors.

FTX's failure doesn't justify a rush to regulate in the US.

FTX is a non-US exchange based in the Bahamas. By design, it didn't have any US customers so that it wouldn't be subject to US jurisdiction.

There is no law Congress can pass to prevent the failure of an offshore firm. I don't think these facts are well understood in DC.

SBF undertook his lobbying efforts under the banner of FTXUS, an entirely separate US firm that employed his DC policy team and (so far) remains solvent.

I doubt he spent much time explaining the difference to policymakers.

1/ I’m proud to announce that @BlockchainAssn has filed an amicus brief in the SEC’s case against @Ripple.

In short: the SEC is wrong on the law, and its pattern of regulation by enforcement is harmful to both US crypto companies and the investors that it's meant to protect. 🧵 2/ From our introduction and summary of argument:

“SEC Chair Gary Gensler recently opined, without significant explanation, that the ‘vast majority’ of tokens are securities. Put simply, that view should not be—cannot be—the law.”

Read the brief here: theblockchainassociation.org/wp-content/upl…

Contrary to widespread belief, traditional finance is not "safe" for consumers or investors.

Sure, it's dressed up to look that way, but its neat and tidy image is a thin veil for institutionalized discrimination, exclusion, and exploitation.

Crypto offers a different approach. Traditional finance is dominated by large institutions — trusted third-party intermediaries — who make a business of extracting value from the system at the expense of their customers and in service of their shareholders.

They keep all the profits and socialize all the losses.

Policymaking behind the scenes is a hugely complex negotiation among many parties with different goals.

As with most negotiations, striking a deal involves some compromise & leaves most parties feeling less than fully satisfied.

This is how crypto legislation will happen too. If you imagine a scale from 1 to 10 where 1 is absolute crypto-pessimism & 10 is absolute crypto-idealism, you should expect legislation to fall somewhere from 4 to 6.

That's how it always works. Getting to 3 or 7 means one side wields way more power than the other. That's rare.

I'd say I haven't heard a compelling argument as to why staking makes an asset more like a security under the Howey test...

...but actually I haven't heard any argument at all. It's just something people say without regard for either (1) how staking works or (2) what the law is. The general idea seems to be "if you squint hard enough, staking sort of looks like a dividend or interest, & some actual securities have those, so maybe staked assets are securities too."

That's not how the law works. That just means holders of staked assets expect profit...

1/ The Senate Agriculture Committee (@SenateAgDems & @SenateAgGOP) held an important hearing today on the Digital Commodities Consumer Protection Act (DCCPA), a bill to regulate crypto spot markets.

It's a good bill, but it needs some work. Here's why. 🧵 2/ What is the DCCPA?

The heart of the bill is a grant of exclusive jurisdiction over crypto spot markets to the CFTC.

This reflects a bipartisan, bicameral consensus that the CFTC is the right regulator for crypto. @CFTCbehnam made clear today that the CFTC is up to the task.

1/ Today, OFAC published FAQs related to Tornado Cash sanctions: home.treasury.gov/policy-issues/…

We’re glad that OFAC has heard our concerns & appreciate their effort to clarify these important issues. Yet, the FAQs don’t fully address the collateral damage caused by the designation. 🧵 2/ The FAQs acknowledge that US persons should presumptively be granted licenses to recover frozen funds. Good!

But, the FAQs require each person to file their own individual license request. That shouldn’t be necessary: US persons shouldn’t have to “apply” for their own money.

The SEC claims to be a "cop on the beat" for crypto. It should be!

But unfortunately, as Jim Chanos puts it, they're more archaeologists than detectives: they wait until things go wrong & then show up to dig for details.

Case in point: ignoring Celsius, but going after BlockFi. This is not a new problem.

The SEC was famously warned about Enron years before it collapsed, but did nothing to stop it. Same with Madoff. Same with Theranos. Same with many other frauds & scams reported by whistleblowers.

A decent "cop on the beat" doesn't turn & look away.

It's been a full week since Dutch authorities arrested a Tornado Cash developer for allegedly "concealing criminal financial flows."

They still haven't said he did anything but write code.

This is a grave injustice. It is unacceptable, full stop. We deserve an explanation, NOW. Dutch authorities have given incomplete & indefensible answers in response to questions from @fund_defi.

They agree that developing a tool is not prohibited, but vaguely & falsely suggest that Tornado Cash was created "for the sole purpose" of crime.

https://twitter.com/fund_defi/status/1559906169082499073?s=20&t=0N-7DZGtUZFUxIe35NGrMA

It was suggested to me that my tweets re: Tornado Cash have been "inflammatory."

I don't think so, but to be clear, my goal is not to "inflame." It's to clearly & forcefully point out the uncertain & (hopefully) unintended consequences of targeting software & those who write it. In my view, whenever possible, it's appropriate to give the benefit of the doubt to government officials making these decisions.

We don't know what information or analysis they're acting on. If incomplete or incorrect, our job is to help correct the record, not blindly attack.

1/ Four members of the Senate Agriculture Committee just introduced the Digital Commodities Consumer Protection Act, the third bill this year making the CFTC primary regulator for crypto spot markets.

It's a good bill overall & confirms a growing consensus for CFTC regulation. 2/ The heart of the bill is a requirement that "digital commodity platforms" like exchanges & brokers register with the CFTC & follow certain rules aimed at protecting consumers, disclosing risks, & preventing manipulation.

Sounds reasonable! Most people are on board with this.