Court rejects SBF, CFTC targets states: biggest crypto regulations update

Crypto regulations are moving fast, and Washington is not taking a summer break. From a congressional hearing on digital asset taxes to a fresh CFTC lawsuit and a final court blow to Sam Bankman-Fried, the past week delivered one of the busiest crypto regulations updates in recent memory.

Key takeaways

• The House Ways and Means Committee held a hearing on digital asset tax bills, with bipartisan engagement but many unresolved policy questions remaining.
• The CFTC published a proposal to regulate prediction markets and is accepting public comments, while simultaneously suing New Mexico over sports-related prediction market contracts.
• Gary Gensler filed an amicus brief arguing that “swaps” regulations should not extend to sports betting-like contracts.
• The SEC’s innovation exemption proposal has been delayed and is drawing legal concerns over its structure.
• Sam Bankman-Fried’s appeal of his 2023 fraud and conspiracy conviction was rejected by a Second Circuit Court of Appeals panel.

House Ways and Means Committee Advances Crypto Tax Discussion

Crypto tax legislation is shaping up to be the next major legislative battleground after the market structure bill works its way through Congress. Last Tuesday, the House Ways and Means Committee held a hearing on digital asset tax bills that, by Washington standards, was notably civil.

Bipartisan Hearing on Digital Asset Tax Bills

Lawmakers asked substantive questions about the discussion draft bills presented at the hearing, working through the different dimensions of the crypto tax debate. There was no partisan sniping, no pointed jabs at President Donald Trump or his family’s crypto interests, and no dramatic clashes between members. The tone was conciliatory and focused on understanding how crypto taxation might work mechanically, and where the gaps in existing tax policy are most pressing.

A handful of lawmakers did raise questions about whether crypto is a sufficiently urgent issue given current broader economic pressures — a signal that the political window for moving this legislation is not unconditional.

Outstanding Issues and Legislative Prospects

Despite the collegial atmosphere, the hearing made one thing clear: there is still a significant amount of work to be done before crypto tax legislation can realistically move through a markup process and reach the House floor. The hearing was a diagnostic exercise as much as a policy debate — useful for mapping the terrain, but far from a clear path to a vote.

Whether bipartisan agreement can be reached on the most contested sticking points remains an open question. For the crypto industry, the stakes are high. Tax treatment of digital assets has long been a source of uncertainty, and any legislative framework will carry lasting consequences for investors, exchanges, and developers alike.

CFTC Pushes Regulation of Prediction Markets

The Commodity Futures Trading Commission has been equally active. In a week that saw multiple regulatory developments touching prediction markets, the CFTC emerged as the central actor in a fast-moving and legally complicated space.

Public Proposal on Defining and Regulating Prediction Markets

The CFTC published a proposal last week outlining how it intends to oversee prediction markets. A central element of the proposal is the agency’s definition of “gaming” — a definitional exercise that determines which prediction market contracts fall under federal swap regulation and which do not. The regulator is now seeking public comment, giving industry participants, legal experts, and ordinary citizens a formal window to weigh in before the rules take shape.

The proposal marks a first meaningful step in a process that has been playing out across multiple courtrooms simultaneously. Public comments will be closely watched as a gauge of how the industry — and legal community — views the boundaries the CFTC is trying to draw.

Lawsuit Against New Mexico Over Sports Betting-Related Markets

Even as it seeks input on its regulatory framework, the CFTC is not waiting to assert jurisdiction. On Friday, the agency filed a lawsuit against New Mexico, arguing that sports-related prediction market contracts are legally swaps and therefore fall under federal oversight rather than state gaming regulation. The lawsuit reflects an ongoing tension between federal regulators and state authorities over who gets to govern this emerging category of financial product.

That tension is significant. If states move to regulate prediction markets under gaming law while the CFTC insists they are swap contracts, the result could be a prolonged jurisdictional conflict that creates legal uncertainty for platforms operating in the space.

Gary Gensler Files Legal Brief on Swap Definitions

Gary Gensler, the former chair of both the SEC and the CFTC who played a major role in shaping the Dodd-Frank Act, stepped into the legal debate by filing an amicus brief alongside a number of other entities and states. His argument: the term “swaps,” as defined in federal regulation, was never intended to cover contracts that resemble sports betting. Gensler’s involvement adds weight to the position that prediction markets regulation should not automatically extend swap-contract rules to every event-based financial product, and it sets up a meaningful legal counterweight to the CFTC’s more expansive interpretation.

The fact that Gensler — an architect of the very regulatory framework being debated — is publicly arguing against a broad reading of swap definitions says something about how genuinely contested this legal territory is. Courts and regulators will be navigating his arguments alongside the CFTC’s position for some time to come.

SEC Faces Delays on Innovation Exemption Proposal

On the securities side, the SEC’s innovation exemption proposal has run into trouble before it even reached the public. Its release has already been delayed, and legal experts have raised concerns about the structural approach the agency appears to be taking. The details of those concerns remain limited, but the delay itself is notable — it suggests the proposal is not as straightforward to implement as regulators may have initially hoped.

For crypto firms watching the SEC’s posture closely, the delay is a reminder that regulatory relief, when it comes, rarely arrives on a clean timeline. The innovation exemption was expected to give certain digital asset projects more flexibility to operate without triggering full securities compliance. That runway, for now, remains on hold.

Sam Bankman-Fried’s Fraud Conviction Appeal Rejected

Sam Bankman-Fried lost his appeal of his 2023 conviction on fraud and conspiracy charges. A panel of the Second Circuit Court of Appeals reviewed the case and found that District Judge Lewis Kaplan had not overreached his authority or made procedural errors in overseeing the criminal trial. The ruling closes off one of the last remaining legal avenues Bankman-Fried had to challenge the conviction.

The decision lands at a moment when the broader crypto industry has worked hard to distance itself from the FTX collapse and its aftermath. The appellate rejection reinforces the legal finality of that episode — and signals that the courts are not inclined to revisit a case that was argued carefully and decided on the merits at trial level.

FAQ

What was discussed at the House Ways and Means Committee hearing on crypto taxes?

Lawmakers asked substantive questions on digital asset tax bills to better understand how crypto tax mechanisms would work and to identify gaps in current tax policy. The hearing was bipartisan and focused on several discussion draft bills, though many unresolved issues remain before legislation can advance.

What is the CFTC’s approach to regulating prediction markets?

The CFTC published a proposal defining the concept of gaming contracts to determine which prediction market products fall under federal swap regulations. The agency is currently seeking public comments as part of this regulatory process.

Why did Gary Gensler file an amicus brief regarding swap definitions?

Gensler argued that “swaps” under federal regulation should not include contracts that resemble sports betting. As a former chair of both the CFTC and the SEC and a key architect of the Dodd-Frank Act, his brief carries significant legal weight in the ongoing debate over prediction market regulation.

What was the outcome of Sam Bankman-Fried’s fraud appeal?

The Second Circuit Court of Appeals panel rejected his appeal, affirming that District Judge Lewis Kaplan had not overstepped his role or made mistakes in overseeing the original criminal trial. The ruling upholds Bankman-Fried’s 2023 fraud and conspiracy conviction.

Article produced with the assistance of artificial intelligence and reviewed by the editorial team.