Lowenstein Crypto advises leading digital asset and cryptocurrency projects, exchanges, and trading firms. Our practice covers regulatory advice, transactions and structuring advice, investigations, and adversarial matters including commercial disputes, bankruptcy, and related litigation. As these markets continue their rapid growth and market participants continue to evolve and mature their businesses, we are providing this weekly digest as a resource that highlights and summarizes a selection of key recent legal regulatory developments.
CFTC Issues Advance Notice of Proposed Rulemaking on Regulation Crypto Asset Transactions and Regulation Crypto Asset Markets
On October 5, the Commodity Futures Trading Commission (CFTC) released an advance notice of proposed rulemaking (ANPRM) addressing transactions subject to Section 2(c)(2)(D) of the Commodity Exchange Act (CEA), announcing its intent to establish “fit-for-purpose” rules for leveraged, margined, or financed retail transactions in crypto assets. The ANPRM previews two likely upcoming regulation proposals: (i) Regulation Crypto Asset Transactions, which would set out the CFTC’s preliminary interpretation of when crypto asset transactions are subject to CEA Section 2(c)(2)(D), and (ii) Regulation Crypto Asset Markets, which would create a tailored subcategory of designated contract market registration called a crypto asset market (CAM). CAM designation would be limited to exchanges that list only these covered crypto asset transactions. The ANPRM also expressly positions the CFTC’s proposals as a complement to the Securities and Exchange Commission’s (SEC) proposed Regulation Crypto Assets, released on August 18, 2026. Read together, the three regulations would create a division of labor in which the SEC addresses capital formation and investment contract status and the CFTC provides a federal market regulatory regime for crypto assets subject to CEA Section 2(c)(2)(D) that trade freely in secondary markets. See the press release here and Lowenstein Sandler’s client alert here for additional information.
FinCEN Withdraws Proposed Crypto Mixing Rule
On October 6, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a notice of its withdrawal of its finding that international convertible virtual currency (CVC) mixing is a class of transactions of primary money laundering concern under Section 311 of the USA PATRIOT Act. The 2023 proposal would have required covered financial institutions to report CVC transactions they knew, suspected, or had reason to suspect involved mixing outside the United States. Those reports would have covered amounts, wallet addresses, transaction hashes, and IP addresses, and institutions would also have had to keep detailed customer identity records. The proposal defined “CVC mixing” broadly to include pooling funds, splitting transactions, using single-use wallets, and swapping between digital assets. FinCEN noted that its decision was informed by commenters’ concerns that the broad definition could chill legitimate activity and place a heavy reporting burden on financial institutions. See the notice here.
IRS Updates Safe Harbor for Staking by Crypto Exchange-Traded Product Trusts
On October 6, the Treasury and the IRS issued a revenue procedure that clarifies, modifies, and supersedes a prior revenue procedure that granted a safe harbor for trusts qualifying as investment trusts under Treas. Reg. § 301.7701-4(c) and grantor trusts in connection with their digital asset staking activities, without putting either tax status at risk. The update responds to industry requests for clarity, including which proof-of-stake protocols are covered, the use of multiple custodians, how much slashing protection is required, unstaking ahead of distributions, consistent treatment of staking rewards, and digital asset borrowings. To qualify, among other requirements, a trust must trade on a national securities exchange, its staking disclosure must be in an effective SEC registration statement, it must hold only cash and a single type of proof-of-stake digital asset kept by one or more custodians, stake through unrelated staking providers on arm’s-length terms, and generally stake its digital assets at all times. See the revenue procedure here.
ESMA Sets Compliance Deadline for Crypto Asset Service Providers to Stop Servicing Non-MiCA-Compliant Stablecoins
On October 8, the European Securities and Markets Authority (ESMA) published an opinion clarifying its supervisory expectations of crypto asset services involving stablecoins that do not comply with the requirements under the Markets in Crypto-Assets Regulation (MiCA). ESMA’s position is that crypto asset service providers (CASPs) should not provide any services in connection with noncompliant stablecoins. CASPs are expected to put technical, contractual, and organizational controls in place so that EU clients cannot acquire these tokens or increase their positions in them. Regulators may permit strictly limited, time-bound residual services needed for an orderly wind-down, such as sell-only, conversion, transfer, or withdrawal of existing holdings. Any remaining legacy exposures must be remediated no later than three months after publication, which falls in early January 2027. See the opinion here.
