Hodder Law Newsletter - March 16, 2022

Hello everyone,

I hope you are all having a great week. The price of Bitcoin is currently $39, 513.

The crypto news has been coming in fast and furious lately, I wanted to take a moment to go over a few topics that have been relevant to a lot of our community.

Sanctions. We’ve seen some unprecedented sanctions placed on the banks in Russia, as well as certain individuals. As an American company, you can no longer do business with these banks or people, but it is not illegal to do business with all Russians, only the ones on the Sanctions list. However, over 300 US companies have ceased serving the Russian civilians, including Apple, Google ads, automakers, Netflix, and highly important cloud storage services.

Many of the crypto exchanges have pushed back and said they will abide by the sanctions regulations, but will continue to serve any non-sanctioned individuals, even if they live in Russia.

Bitcoin has been a saving grace to both sides of this war, Ukraine has raised considerable donations (over $54 million as of March 3) and used that money to buy rations and medical supplies to help their people. Bitcoin has also allowed Russians to flee with their wealth intact.

Senator Warren and others have raised concerns in a letter to Secretary Yellen as to whether bitcoin poses a danger for evading sanctions, and without even waiting for the response due on March 23, 2022, Warren has begun drafting a bill asking exchanges to choose to do business with Russia or the US, and potentially creating rules requiring exchanges to identify the wallets that their customers are interacting with. This raises some constitutional questions under the third party doctrine because typically, a warrant is required for the government to obtain information about a customer’s customer. Meanwhile, FinCEN published statements indicating they have not seen any widespread evasion of sanctions using cryptocurrency.

Biden’s Executive Order. The highly anticipated Executive Order on digital assets was published last week. It was under development for months, but didn’t deliver the punch crypto twitter had predicted. One of the most interesting takeaways for me was the perceived eagerness for a Central Bank Digital Currency (CBDC). The Justice Dept. is now determining whether the FED has the authority to issue it. The danger of CBDCs is that if we ever move towards a social credit system like China, this type of monetary tool will make it very easy to freeze a person’s funds or deny them access to services like what is happening to the Russian people. WSGR published a helpful summary of the interagency research to be conducted.

SEC sets its eyes on NFTs. The SEC is apparently scrutinizing creators of NFTs and the crypto exchanges where they trade to determine if these works of art could be considered securities. I think the NFTs that fractionalize ownership might run afoul of the Howey test, but hopefully they won’t paint the whole industry with the same brush. Historically, NFTs have escaped the harsh and unfriendly SEC regulations because the token is the art, and the traditional rules for selling physical goods or services (like baseball cards) apply.

Virginia legislation. The Virginia state legislature passed a first of its kind crypto banking bill that allows its banks to custody crypto assets, so long as the bank has adequate protocols in place to effectively manage the risks. I personally will not be rushing to give my crypto to a bank, especially given the backdrop we’ve seen in the past few weeks. Always remember, #notyourkeysnotyourcoins! Custodying the crypto may prove challenging enough for the banks, but it raises the question of how they will technologically implement the CBDCs. It will be a tall order to transport their existing systems over to one that handles the CBDCs. If we ever get there, I reckon that would signal peak centralization, which Strauss estimates will happen around 2026, to be followed by peak decentralization after the fourth turning.

MiCA. The EU voted on a proposal that would have effectively banned crypto mining due to its energy intensive mining, 23 voted in favor, 30 against, and six abstained. This language gave me chills.

Gregg Braden recently posted a video that quantified the Bitcoin energy output as 113.89 terawatt hours of electricity. The traditional global banking system uses 263.72 terawatt hours, more than double, to create a currency that can be heavily manipulated, used to fund wars, and inflated to the point it loses its purchasing power. Here in the US, we are tapping into what has traditionally been ‘stranded’ energy from natural gas flaring, and ciphering it off to power bitcoin miners. El Salvador is mining with their geo-thermal volcanic energy. Bitcoin might actually be the best use of energy that we’ve ever seen!

Make it a great week!

Sasha