Bitcoin lawyer warns: election outcome could determine fate of crypto in US

(Kitco News) – After more than a decade of being ignored by regulators, the cryptocurrency ecosystem has seen a barrage of enforcement actions over the past couple of years, resulting in fines and jail time for some of the most popular projects and influencers. 

 

While scrutiny from law enforcement is never a welcomed occurrence, the uptick in oversight suggests that the asset class has reached a tipping point in terms of adoption and the threat it poses to the established financial order. 

 

For a boots-on-the-ground perspective from a legal expert who has been fighting for crypto folk amid the crackdown, Kitco Crypto spoke with James Koutoulas, an investor attorney advocate and CEO of Typhon Capital Management. 

 

Koutoulas started the conversation by providing a little background on his advocacy for inventors, noting that he is “best known for covering all $6.7 billion in customer assets, pro bono in the MF Global bankruptcy.”

 

He said that case was against President Obama’s biggest donor, John Corzine, who mentored current SEC Chair Gary Gensler, who happened to be serving as head of the CFTC when the lawsuit took place.  

 

“Gensler and I have hated each other 13 years now,” Koutoulas said. 

 

He is also the trustee of the Let’s Go Brandon (LGB) coin foundation and is the lead on a lawsuit filed against NASCAR for “maliciously revoking the sponsorship and then defaming” the project.

 

“The thing that no one talks about is if you declare everything and unregistered security, there’s no framework for brokers to become regulated,” he said, referring to the Security and Exchange Commission’s (SEC) lack of clear guidance on cryptocurrencies. “Even if you were able to somehow register a coin as a security, you couldn’t trade it anywhere. It would essentially be dead and banned from trading.” 

 

“So, we don’t have a crypto statute,” he said. “The SEC hasn’t been authorized by Congress to promulgate regulations, but they are basically trying to put a death sentence on any project that they want to deem an unregistered security. That’s the opposite of investor protection.” 

 

Discussing several recent rulings that went against the SEC – including the regulator being called ‘arbitrary and capricious’ by an Appellate Court when they denied Grayscale’s application to convert the Grayscale Bitcoin Trust (GBTC) into an ETF, and being charged with gross abuse of power for false statements made in its case against Debt Box – Koutoulas said the regulator also “lied in a sworn affidavit in reply to my motion to quash their unconstitutional subpoena.” 

 

“My case has been fully briefed since July and I just keep adding supplemental authority of misconduct by the SEC and other cases, like Grayscale’s ‘arbitrary and capricious’ ruling, and the pervasive misconduct on the Debt Box case,” he said. 

 

He noted the ongoing Supreme Court case involving the Chevron doctrine, which was the last case that “gave deference to administrative agencies in being able to trust their judgment.” He said the judgment on that case could alter the regulatory landscape and diminish the leeway that agencies like the SEC have in oversight. 

 

“Most legal experts think that the Chevron doctrine is going away,” he said. “The SEC didn’t even cite it in my case, but if the Supreme Court strikes down Chevron, my case looks pretty good because they didn’t even allege Let’s Go Brandon coin is a security.”

 

He said the regulator attempted to obtain information regarding his bank accounts and the bank accounts of influencers like Candace Owens and Madison Cawthorn. “If you don’t even claim it’s a security, how does the SEC think it has jurisdiction” to access that information, he questioned. 

 

Ether ETF

 

When asked if the ruling against the SEC on Grayscale could have implications in the Ethereum ETF debate since the crux of that argument centered on Bitcoin getting an ETF since Bitcoin futures had already been approved, Koutoulas said: “People are making that argument already.” 

 

He noted recent reports that there are documents that show Gensler “said internally he thought ETH was a security six months before they approved the ETH futures ETF.” 

 

“How do you go in and approve a publicly registered ETF knowing that you want to take an enforcement action and basically say the product is illegal?” he questioned. “It’s just absurd. 

You can’t go and approve this product that’s not a security future, it is a future, so it’s got to be considered a commodity. So, one part of the SEC has approved ETH as a commodity. The CFTC has argued it’s a commodity.”

 

“How do you come now, a decade after Ether was released when it has hundreds of billions in market cap, and say ‘it’s illegal and you can’t trade it anywhere other than Prometheum, who are our buddies and who never traded a contract,’” he questioned. 

 

Adding to his point, Koutoulas noted that Coinbase, who is the surveillance sharing agreement partner on the Bitcoin ETFs, and who sells confiscated Bitcoin for the government, “can’t get clarity on rules.” 

 

As for whether an Ether ETF will eventually be approved, Koutoulas said, “Hopefully, we get an administration change in January, and hopefully Gensler is gone before then.” 

 

The need for regulatory clarity

 

“I’m hoping I actually get sanctions against the SEC in the Let’s Go Brandon case because that would be the ultimate humiliation for that corrupt agency,” he said. “They blatantly lied in a sworn affidavit.”

 

Koutoulas explained that at one point, the SEC told one of his lawyers on the Let’s Go Brandon coin that they “could make a limited voluntary production explaining why it’s not a security,” but then ignored their submission for four months. After that, they switched and said the token was a security, and when Koutoulas sued them with a motion to quash, the SEC said in a reply letter that they never said they could make a limited voluntary production explaining why it’s not a security.

 

He called Hester Pierce the “adult in the room” at the SEC for advocating for things like giving projects a safe harbor and a couple of years to get to the point where they’re decentralized before implementing reporting requirements. 

 

“When you have the absence of any kind of regulation, if you try to build proper internal controls and functionality into projects, but they say you are a security, there’s no way to register the security,” he said. “And if you were registered as a security, there’s no one who is registered to trade the security.”

 

“Unless you are going to say the entire industry is illegal, then you need to give people rules and a safe harbor,” Koutoulas said. He called statements made by various SEC representatives that they are open and welcome registration by digital asset projects “A complete sham.” 

 

“Where are the procedures? How does Coinbase become a special-purpose broker-dealer?” he questioned. “If we wanted to make the Let’s Go Brandon coin a security by giving people a share in the profits from the coin – which it doesn’t have currently, it’s a straight meme coin with no functionality – how would we register it? What’s the procedure?” 

 

“I’m a securities lawyer; I comply with securities laws in the U.S. I’m registered in the CFTC. I comply with all the CFTC rules in the U.S. I’m registered with the Cayman Islands Monetary Authority. I’m registered with the U.K. Financial Conduct Authority. Guess what? Those all have rules you can comply with,” he said. “JPMorgan is custodying its assets on an illegal, unregistered futures exchange using Coinbase. It’s nonsensical.” 

 

He suggested many in the government, such as Elizabeth Warren, don’t want crypto to succeed and only want a central bank digital currency (CBDC) that they control and can “shut off and debunk you” if you say or do something they disapprove of. 

 

“It’s a politically driven attack that I estimate has cost Americans about $500 billion in losses in the name of investor protection,” he said. 

 

Another motivation for the lack of clear regulations is so that “banks can catch up,” Koutoulas said. “This is the first real, innovative financial-esque type industry that wasn’t started by the big banks on Wall Street. So they hate that nerds and technologists have this multi-trillion-dollar industry without them.” 

 

He warned that the approval of the spot Bitcoin ETFs could open the door to large amounts of BTC being confiscated by the government – as they did with gold in the 1930s – if an unfriendly administration decides to declare Bitcoin and other cryptocurrencies as illegal and say the only form of currency people can use is a CBDC. 

 

“These ETFs are re-centralizing Bitcoin in an avenue where it’s a lot easier for the government to go in and do something nefarious like that,” he said, “That’s why I’m a huge supporter of John Deaton in his race in Massachusetts against Elizabeth Warren.  He’s someone who genuinely cares about the industry, and the upgrade for our industry to have John in and Elizabeth Warren out is incalculable.” 

 

Diminished impact of halvings 

 

Bitcoin recently underwent its fourth halving, which decreased the block reward to 3.125 BTC. When asked if the halvings will start to take a back seat to macroeconomic concerns when it comes to influencing Bitcoin’s price, Koutoulas said, “Absolutely.” 

 

“There’s such a high level of geopolitical risk right now – Middle East tensions, Taiwan tensions, it’s a big election year – so anything is on the table,” he said. “They are teasing there could be an EMP event that knocks out all the computers worldwide for three days. That could be a huge risk for cryptos. There are even murmurs about a fake alien invasion. We could have martial law. This next six…