Are Crypto Airdrops Illegal?
Weekly News Recap: 📉 Fed cuts rates, ⚖️ SBF files appeal, 🏛️ SEC grants crypto custody exemptions, and more!
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The SEC Thinks Crypto Airdrops Are Securities. Here’s Why This Lawyer Thinks It’s Wrong
Congressmen Tom Emmer and Patrick McHenry sent the SEC a letter demanding clarification on how crypto airdrops are securities offerings. Amanda Tuminelli of the DeFi Education Fund breaks down why she thinks the SEC is wrong on its interpretation.
This week, Republican Representatives Tom Emmer and Patrick McHenry sent a letter pressing SEC Chair Gary Gensler for clarity on how securities laws apply to airdrops.
With billions of dollars worth of tokens airdropped this year alone, projects need clarity more than ever.
In this episode, Amanda Tuminelli, Chief Legal Officer of the DeFi Education Fund, dissects the SEC’s stance on airdrops, why her organization believes the SEC has stretched the legal definition of “compensation” too far, and what Congress might ask Gensler in his upcoming hearing.
Plus, she talks about how the SEC “regrets” any confusion it caused for using the term “crypto assets securities,” since the agency now admits that tokens themselves are not securities.
Listen to the episode on Apple Podcasts, Spotify, Pods, Fountain, Podcast Addict, Pocket Casts, Amazon Music, or on your favorite podcast platform.
Weekly News Recap
Fed Cuts Interest Rates for First Time Since 2020
In a significant macroeconomic development, the U.S. Federal Reserve has cut interest rates by 50 basis points, marking the first reduction since March 2020. While the move is primarily aimed at managing inflation and economic activity, it has strong implications for cryptocurrency. Rate cuts can often signal a more favorable environment for risk assets like bitcoin. Even though the initial market reaction was muted, bitcoin surged from $60,000 to around $63,500 on Thursday morning.
Arthur Hayes, co-founder of BitMex, warned that crypto markets might initially drop after the rate cut, citing narrowing interest rate differentials between the U.S. dollar and other currencies. Mike Butler, an options trader, added that volatility in fiat currencies might drive more people to crypto, reinforcing its role as an alternative to traditional financial systems.
Sam Bankman-Fried Appeals Conviction, Cites Judge's Bias
Sam Bankman-Fried, the former CEO of collapsed crypto exchange FTX, has filed an appeal against his conviction on fraud and money laundering charges. Bankman-Fried, who was sentenced to 25 years in prison, argues that the trial was unfair due to alleged bias by U.S. District Judge Lewis Kaplan. According to the appeal, Kaplan consistently favored the prosecution, ridiculing Bankman-Fried's testimony and undermining his defense team.
Bankman-Fried’s lawyers claim that Kaplan’s actions created an atmosphere of prejudice, which influenced the jury’s decision. They also allege that the court unfairly restricted evidence showing FTX’s potential solvency, which could have painted a different picture of the company's financial state. His legal team is pushing for a new trial to be conducted under a different judge.
Vitalik Buterin Says Crypto’s Usability Era Has Begun
Speaking at the Token2049 conference in Singapore, Ethereum co-founder Vitalik Buterin said that while the crypto industry is no longer in its infancy, it is now entering a phase where usability is vastly improving. “We are not in the early days anymore,” Buterin said, highlighting how cryptocurrencies such as Bitcoin and Ethereum have existed for over a decade, yet practical adoption has lagged due to issues such as high transaction fees and difficult user experiences.
Buterin pointed out that Ethereum’s fees have significantly decreased thanks to upgrades like EIP-1559 and layer 2 solutions, such as Optimism and Arbitrum. “Current ETH transaction fees are basically zero,” he noted, underscoring the impact of these developments on user adoption.
He further argued that crypto doesn’t have to compromise decentralization for mainstream usability, saying, “We need to satisfy the needs of mainstream adoption while holding on to decentralization values.”
Coinbase Denies Allegations of Bitcoin IOUs to BlackRock
Rumors surfaced recently accusing Coinbase of issuing uncollateralized bitcoin IOUs to BlackRock, fueling concerns of potential market manipulation. Crypto analyst Tyler Durden claimed the exchange allowed BlackRock, which manages the largest spot bitcoin exchange-traded fund (ETF), to borrow bitcoin without proper collateral, allegedly enabling price manipulation. These accusations gained traction after Tron founder Justin Sun criticized Coinbase’s wrapped bitcoin product, cbBTC, for its lack of proof of reserves and susceptibility to government seizures.
In response, Coinbase CEO Brian Armstrong swiftly refuted the claims, clarifying that all ETF transactions are settled onchain within one business day. Armstrong explained that institutional clients have access to trade financing and over-the-counter options before trades are fully settled. Durden has since deleted his original tweet.
Industry experts, including Bloomberg ETF analyst James Seyffart, dismissed the rumors, calling them baseless conspiracy theories. Seyffart also emphasized the importance of transparency, urging ETF issuers to share digital wallet addresses to prevent misinformation and increase trust in the market.
Trump Promotes Crypto on X Space, Advocates for DeFi Project World Liberty Financial
On Monday night, Donald Trump appeared on an X Space to promote his DeFi project, World Liberty Financial (WLF), and reiterated his strong support for the cryptocurrency industry. Trump criticized the Biden administration and the SEC for their "hostile" stance on crypto, warning that the U.S. risks losing its leadership in the sector if Democrats win in November. He emphasized the need for a legal framework to regulate crypto while maintaining innovation.
Despite the event being billed as an opportunity to reveal major details about WLF, Trump and his team provided limited details. They announced the project’s governance token, WLFI, which will be sold to accredited investors, with 63% going to the public. However, the lack of clarity led to skepticism among many in the crypto community. Odds that Trump would launch a token before the election plummeted from 71% to 24% on Polymarket, as users bet against the token launch, citing vague promises and concerns over the project's viability.
SEC Grants Exemptions to Crypto Custody Rule, Raising Industry Concerns
The SEC has revealed that certain financial entities have been granted exemptions from SAB 121, a controversial accounting rule that has faced backlash for its stringent requirements on crypto custody. Introduced in 2022, SAB 121 mandates that institutions holding crypto assets must list them as liabilities on their balance sheets, making crypto custody cost-prohibitive for many firms.
In a recent speech, SEC Chief Accountant Paul Munter disclosed that some banks, brokerages, and blockchain entities have been exempted from this rule. For instance, banks working with state regulators and ensuring asset returns in the event of bankruptcy can avoid these liabilities. However, the lack of transparency around which companies have received exemptions has led to criticism from industry experts.
Crypto advocates, such as Senator Cynthia Lummis, voiced frustration, accusing the SEC of making policy through closed-door meetings rather than revising SAB 121 directly.
BlackRock Highlights Bitcoin as a Unique Hedge in New Report
BlackRock, the world’s largest asset manager, has released a report describing bitcoin as a "unique diversifier" against global risks. In the nine-page whitepaper, the firm explains that bitcoin, while volatile, operates independently from traditional asset classes and is minimally affected by macroeconomic factors. This detachment, BlackRock argues, makes bitcoin a valuable tool for hedging against risks such as monetary instability, geopolitical tensions, and fiscal concerns.
The report notes that bitcoin has outperformed other major assets in seven of the past ten years, despite remaining risky. BlackRock, which launched one of the most successful spot bitcoin ETFs earlier this year with over $21 billion in assets, sees bitcoin's potential to serve as a "flight to safety" during global uncertainties. The firm also highlights bitcoin’s decentralized nature, free from traditional counterparty risks, as a key factor in its appeal to investors seeking alternative financial assets amid growing economic challenges.
Mashinsky Seeks Witness Testimonies; CZ Set for Release
Former Celsius CEO Alex Mashinsky, facing a potential 115-year prison sentence, has requested testimony from six key witnesses for his defense. His lawyers argue that Mashinsky never intended harm and relied on his Celsius team for decisions, including those regarding Celsius' token, CEL. Among the proposed witnesses is former Chief Revenue Officer Roni Cohen-Pavon, who pled guilty to charges of manipulating the price of CEL. Mashinsky’s defense maintains that Cohen-Pavon and other employees acted without his knowledge.
Meanwhile, Binance founder Changpeng "CZ" Zhao is set for release from prison on September 29, after serving nearly four months for violating the Bank Secrecy Act. Zhao pled guilty to failing to establish proper KYC protocols at Binance and agreed to a $50 million fine. Following his guilty plea, Zhao stepped down as CEO, and Richard Teng, a former regulator, took over leadership of the exchange.
Revolut Prepares to Launch Its Own Stablecoin
London-based fintech giant Revolut is reportedly in the advanced stages of creating its own stablecoin, according to sources familiar with the matter. The move aligns Revolut with other major players like PayPal, which launched its PYUSD token in 2023. However, the stablecoin is unlikely to be available in the United States due to Revolut’s previous exit from U.S. crypto services amid regulatory challenges.
Revolut, which has grown to 45 million users and recently secured a U.K. banking license, is focusing on expanding its crypto offerings. A spokesperson for the company told CoinDesk, “Crypto is a big part of our belief in banking without borders, and we aim to become the safest and most accessible provider of crypto asset services.”
