Weekly Roundup

Johnson Ascends: Three weeks after Rep. Kevin McCarthy’s (R-CA) ouster, Rep. Mike Johnson (R-LA) has been elected Speaker of the House. Johnson has stated that his legislative priorities include allocating aid for Israel, bolstering border security, and reducing the national debt.

SBF Testifies: In a stunning move, former FTX CEO Sam Bankman-Fried testified in his own defense that his reliance on former members of FTX’s legal team led to the cryptocurrency exchange’s implosion. Bankman-Fried previously pleaded not guilty to seven counts of fraud and conspiracy related to FTX’s collapse and could spend the rest of his life in prison if convicted.

Grayscale Victory: In a significant moment for the digital asset community, the D.C. Circuit Court of Appeals ordered the SEC this week to reverse its rejection of Grayscale’s spot bitcoin ETF application, upholding the court’s prior ruling that the SEC’s decision of the firm’s application was “arbitrary and capricious.” While the SEC could still approve or reject the application for different reasons, numerous sector experts believe that the ruling underscores the growing momentum and demand for spot bitcoin ETFs.

CAT Funding Scrutiny: Questions regarding the size of the CAT funding model grew louder this week following the American Securities Association’s lawsuit against the organization. Among the top concerns of the organization and their supporters is that the CAT’s total expenses ballooned to north of $240 million in 2023, which many industry observers have noted is approaching federal agency-sized scope and is greater than that of 50 federal departments.

 2023 SEC Enforcement Figures: Industry observers noted this week that in fiscal year 2023, the SEC filed over 780 enforcement actions resulting in $5 billion in penalties. While these figures represent a decrease from the previous year’s all-time record of $6.4 billion in fines and disgorgement, this key data point still underscores the agency’s unique strategy to regulating the financial service markets.

IRS Takes on Crypto: The IRS has extended the public comment period for proposed crypto tax reporting rules, which the agency claims will bolster transparency and reduce tax evasion by sector participants, until November 13. While the IRS plans for these rules to take effect in 2026, the department has already faced immense criticism from several key stakeholders throughout the crypto community, including DeFi Education Fund CEO Miller Whitehouse-Levine who called the rules “confusing, self-refuting, and misguided.”

Coinbase vs. SEC: Coinbase is pushing back against the SEC’s attempt to extend its definition of an investment contract and enforce regulatory control over cryptocurrencies, arguing that the agency is exceeding its authority. Coinbase specifically claims that their tokens do not match the SEC’s current definition of digital assets and that the current language is overly broad and could classify various other assets as securities. A decision on this case is expected in early 2024.

In the Mix: This Week’s Top FinTech Thought Leader

  • Rep. Bryan Steil (R-WI), spoke on the “STA Trading Views Podcast about SEC Chairman Gary Gensler’s aggressive regulatory agenda. “I’m concerned that he’s driving forward an agenda that doesn’t really align with the core mission of the Securities Exchange Commission, as well as what the unintended consequences would be of many of these rules being implemented,” said Steil.

  • In a Forbes piece published this week on the possibilities presented – and dangers posed – by generative AI in the financial services space, Deutsche Numis Managing Director and Head Growth Capital Solutions Ash Patelsaid, “The Generative AI sector shows AI’s rapid and explosive potential. Companies here are showing strong Product Market Fit (PMF) and ROI along with hyper scalability, which is driven by a truly exceptional crop of founders. We believe that Generative AI adoption will be quicker than, and catalyzed by, cloud.”