New Crypto Laws Are Unconstitutional
Fight for the Fourth Amendment
This week Coin Center, a leading non-profit focused on crypto policy, filed a lawsuit against the US Treasury Department for acting unconstitutionally. In the Infrastructure Investment and Jobs Act passed last year, an amendment was made to Section 6050I of the Tax Code that would require individuals and businesses to report payments $10,000 or more in crypto. The reporting requirements forces the collection of sensitive information including a person’s birthdate and social security number, and Coin Center argues that demanding this financial information without a warrant is unconstitutional and violates the Fourth Amendment:
“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”
There are already laws mandating that banks and 3rd party institutions report such transactions in USD, and these pass the constitutionality test if you squint really hard, due to something called the Third-Party Doctrine — It says that once you allow a 3rd party to have your data, you no longer own it. That 3rd party (in this case, a bank) is free to do what they want with your data once they have it, and the government is also free to coerce these 3rd parties to hand over this information without needing a warrant.
When these same $10,000 reporting requirements were applied to p2p cash transactions, where no 3rd party exists, they were considered unconstitutional by many. However, due to logic of dispersed costs and concentrated benefits, there was never significant pushback against this law as it applied to cash. Now that the same law is being applied to the crypto world, you can expect a big fight to be mounted and tremendous lobbying power put behind it.
Best of luck to Coin Center in their fight to protect our rights!
One Small Step for Crypto
U.S. Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) have introduced a new crypto bill that would make crypto transactions of $200 or less tax-free and put the Commodity Futures Trading Commission (CFTC) in a watchdog position.
The Lummis-Gillibrand Responsible Financial Innovation Act was labelled in its press release as “landmark legislation” that aims to tackle many issues such as:
Officially defining digital asset terminology
Extending safe harbor for non-US traders
Designating DAOs as business entities (as a condition to qualify for potentially beneficial default assumptions on DAO tax issues)
Clarifying that digital asset lending agreements are not taxable events
Requiring the IRS to clarify and/or adopt guidance on long-standing issues
Requiring the Government Investment office to conduct an analysis of retirement-investing in digital assets and report it to congress
Declaring that digital mining and staking do not count as gross income until the disposition of said assets
The bill adopts the McHenry/Ryan proposal to amend the crypto provision in last year’s Infrastructure Bill. It also includes a modified version of the Digital Commodity Exchange Act (DCEA), a bill proposed earlier this year, making the CFTC the primary spot market regulator for crypto.
Jake Chervinsky, head of policy at the Blockchain Association, noted:
“Perhaps most important of all, it's amazing to see a bipartisan effort like this. Senators Lummis & Gillibrand are on opposite sides of many political issues in DC, but the fact that they can work together on sensible crypto policy is a *huge* positive sign for the future.”
Reactions from the crypto community have varied with many agreeing that, although it’s an improvement, it’s far from ideal.
Most notably, it doesn’t address CBDCs or privacy concerns.
The bill is vast and will not pass this year, so there is time for the crypto community to weigh in and improve it.
Yes Virginia, Inflation Has Gone Up Again
According to the latest CPI report, US inflation has reached 8.6%, breaking the 40-year high once again.
Contrary to expectations that CPI would decline to 8.2%, prices rose 1% in May. The Fed raised rates by 50 basis points in May, and it’s now suggested they could be eyeing an adjustment of 75 basis points at their next meeting on June 14-15 to try to control inflation.
Crypto markets have taken a hit along with the stock market, and BTC dipped from $30,000 to $29,500 in the minutes after the report. Meanwhile gold has finally started to move, with gold futures rising 1.2% on Friday. Meanwhile, Snowden tweeted out this week:
“Gold is just bitcoin that can't be sent over the internet.”
As much as we agree, it seems that most people are still treating bitcoin more like stocks.
Neal Stephenson says “Hold My Beer!”
Neal Stephenson, the conceptual father of the Metaverse and author of the 1992 book “Snow Crash”, is creating his own Metaverse - Lamina1. Recently, Neal has been hinting at something coming amidst his tweets, which have been noting that “Snow Crash” is celebrating its 30th anniversary this year.
Stephenson will serve as chairman, and Bitcoin Foundation co-founder Peter Vesseneswill be named CEO. In an official blog post, Vessenes expressed his excitement for the project, which he envisions will be a more accurate representation of the Neal’s Metaverse than current projects in existence:
“There’s a lot to say about LAMINA1, and we’ll be talking about it a lot this year. In brief, I think of it as the base layer for the Open Metaverse: a place to build something a bit closer to Neal’s vision — one that privileges creators, technical and artistic, one that provides support, spatial computing tech, and a community to support those who are building out the Metaverse.”
Terra’s New SEC Developments
New reports reveal that the SEC is investigating whether Terraform Labs violated U.S. laws regarding how it marketed TerraUSD and the original LUNA coin before they crashed.
Meanwhile in a separate investigation, Terra CEO Do Kwan has been ordered by the US court of Appeals for the Second Circuit to cooperate with SEC subpoenas regarding Terra’s Mirror Protocol. Mirror Protocol is a DeFi platform which permits users to trade “mAssets” — “Mirror versions” of noteworthy stocks such as Amazon or Apple. Do Kwon’s attorneys had initially appealed this subpoena saying that Terra was out of the US jurisdiction, but the courts ruled:
“Appellants purposefully availed themselves of the U.S. by promoting the digital assets at issue in the SEC’s investigation to U.S.-based consumers and investors.”
There is currently a lot of backlash against Kwon on crypto twitter, and many view their poor financial decisions as his responsibility. This has led to a constant barrage of accusations in his direction that are worth unpacking:
First there were conspiracy headlines about documents revealing that Terraform labs was being “dissolved” prior to the crash. It was well known that Terraform Labs was moving to Singapore — Shutting down the South Korean company would be expected in order to complete the move to Singapore. The documents in question were no conspiracy, but simply outlined the dissolution of their old office in South Korea and a restructure under Singapore.
Some have questioned why the company would liquidate the assets rather than just do a purchase or a transfer of assets, but it’s worth noting that South Korea has some really strict requirements around corporate structure and process — Terraform Labs hired a liquidator to shut this down and dissolve the company because they likely wanted to keep a clean divide between the South Korean entity and the Singaporean HQ, something that would have been more difficult with just a transfer of assets.
Now there are revelations from Terra employees that Do Kwan began sending massive payments to crypto wallets in the months just leading up Terra’s recent crash. The optics don’t look great. We don’t have access to the facts needed to draw a definitive conclusion of what actually happened, but given the crypto internet’s vendetta against Kwon and their resolution to point the finger of blame in his direction, we encourage people to take what they read with a grain of salt until more facts come to light.
Solana Gets on the VC Train
Blockchain infrastructure giant, Solana, has announced the creation of a 100M fund which will focus on South Korean crypto projects. With virtual gaming at the forefront, the funds raised will also be invested in NFT and DeFi projects. The fund, managed by Solana Ventures and the Solana Foundation, plans to provide seed money “across all Web 3 verticals”, but has particular interest in the South Korean blockchain industry. In an interview with TechCrunch, General Manager of Games at Solana Labs explained the rationale behind investment decisions:
“A big portion of Korea’s gaming industry is moving into web3. We want to be flexible; there’s a wide range of project sizes, team sizes, so some of [our investments] will be venture-sized checks.”
The Solana community treasury is backing the fund, as well as Solana Venture, according to the head of communications at Solana Labs, Austin Federa.
Part of the new plan also includes improving the actual fun-factor in play-to-earn gaming. The current model allows players to earn real-world blockchain rewards (usually in crypto) in exchange for hours of grinding gameplay - an experience many who participate agree is not really fun at all. Addressing this topic specifically, Mr. Lee said:
“We’re confident that is about to change.”
He then said that “high-quality and fun games” may be launching during the second half of 2022 on the Solana blockchain.
By Will Sandoval, NBTV Associate Producer, and Naomi Brockwell.