CryptoLaw Newsletter #26

Crypto and Glass-Steagall, Infrastructure Bill passes, Korea won’t regulate NFTs, Huobi moves spot TXs to Gibraltar, Swedish body wants EU ban on energy-intensive crypto mining, Singapore’s retail CBDC

Hello CryptoLawyers,

Lots of news again on crypto & law this week, including on central bank digital currencies. Much news from the US as usual, but also from various other areas of the world. Let’s dive in:

Thanks for buying me a coffee!

Digital assets

  • BIS  – The Bank for International Settlements’ Basel Committee plans to launch another consultation next year on capital requirement rules for crypto exposure. The announcement comes as the Committee’s initial proposal was met with criticism, both from the crypto industry and from banks. The initial proposal on the prudential treatment of banks’ cryptoasset exposures was published in June. The Committee now announced that, after reviewing feedback on that initial consultation, it “will further specify a proposed prudential treatment, with a view to issuing a further consultative document by mid-2022.”

  • US  – The long-awaited Infrastructure Bill passed Congress, including s. 6045 on who qualifies as a ‘broker’ with IRS reporting duties, which ignited the first organised lobbying effort from the crypto industry in the US. The other crypto-relevant provision, s. 6050I, has also been adopted unamended. That provision requires recipients to record information about a sender for certain transactions exceeding $10,000 and has been described as “impossible” to comply with for some crypto transactions. (Coindesk) All eyes are now on the Treasury to give guidance on how broadly it plans to interpret those provisions.

  • US – Acting Comptroller Michael J. Hsu singled out crypto-exchange Binance and stablecoin Tether as particularly risky in a recent speech. He fired a warning shot about “universal” crypto firms, raising the question  “whether there ought to be Glass-Steagall-like separation of activities in the crypto space”. See our blog post here for a summary of his speech.

  • Nigeria – The Central Bank of Nigeria ordered banks to freeze the accounts of at least two Nigerians accused of crypto-trading. Banks were previously ordered to cut ties with crypto exchanges operating in the country, although CBN clarified this order did not amount to a crypto-ban as such. (Peoples Gazette and Cointelegraph)

  • Estonia and Nigeria – A crypto-exchange that left Nigeria after the country’s crypto crackdown has set up shop in Estonia. It is now raising $50 million. (Bloomberg)

  • China – A similar story in China: Huobi, China’s largest crypto-exchange, decided to move its spot-trading activities to Gibraltar after the most recent crypto crackdown in China. It has already obtained the required licenses from the Gibraltar Financial Services Commission. Huobi is facing a 30% loss of revenues due to China’s crypto crackdown. (BNNBloomberg)

  • Sweden  – The Swedish financial supervisor called for a ban on energy-intensive crypto mining. The Finanzinspektion said that the use of renewable energy for crypto-mining is no solution: “increased use by miners threatens our ability to meet the Paris Agreement.” It calls for a ban on “energy-intensive mining” of crypto-assets, adding that the Swedish Environmental Protection Agency shares this view. It wants the EU to impose an EU-wide ban on such crypto-mining, adding that Bitcoin and Ethereum can switch to “other methods for mining crypto-assets … that are estimated to reduce energy consumption by 99.95% with maintained functionality.” That latter part is questionable: Bitcoin and Ethereum (currently) rely on energy-intensive Proof-of-Work, which is deemed to be more secure than alternative consensus mechanisms such as Proof-of-Stake. Although Ethereum has been working on a Proof-of-Stake alternative, it has not yet made the switch away from its current proof-of-work system. The Swedish regulator also thinks the “social benefit of crypto-assets is questionable”, although other regulators have acknowledged potential benefits of crypto-assets such as financial inclusion or competitive pressure on traditional financial service providers.

  • EU  –  Can the draft Markets in Crypto-Assets Regulation (MiCAR) make life easier for crypto companies? Coindesk gathered some views. It also interview MEP Eva Kaili, who said discussions on MiCAR are expected to be drawn to a close by early 2022, “without any major changes” to the current version of the draft law.

  • Kazakhstan – Lawmakers in the upper chamber of parliament passed a law extended financial monitoring to crypto companies. If approved, the law would extend anti-money laundering (AML) rules to crypto service providers. (Cointelegraph)

  • US – BlockFi filed its application for a physically-backed bitcoin ETF. (Cointelegraph) Thus far, the US Securities and Exchanges Commission has only approved bitcoin futures ETFs (ProShares’ Bitcoin Strategy ETF and Valkyrie’s Bitcoin Strategy ETF), notwithstanding a very long list of bitcoin ETF applicants queueing up. The SEC is expected to decide on the VanEck spot bitcoin ETF this Sunday.

  • Canada – Canadian regulators have been much more receptive to a crypto spot ETF than their US counterparts. Now one of the spot crypto ETFs wants to offer carbon offsetting to investors, to appeal institutional players. (Cointelegraph)

  • US – The Treasury added another crypto exchange, Chatex, to its list of sanctioned entities over its alleged role in ransomware attacks. The Office of Foreign Asset Control (OFAC) also added a Ukrainian and a Russian individual to its sanctions list for their alleged role in a ransomware attacks against at least 9 US companies, receiving payment in bitcoin and monero coins.

  • Zimbabwe – The government is weighing options of adopting cryptocurrency as a legal payment. Consultations with the private sector on a crypto-framework have already started, according to a government official. (Bulawayo and Cointelegraph)

  • US – Scammers are increasingly directing victims to use physical cryptocurrency ATMs and digital QR codes to complete payment transaction, the FBI warns.

  • US – Senator Ted Cruz submitted a proposal to allow crypto payment within the US Capital (Cointelegraph)

  • US – And more crypto payments news: the mayor-elect of New York, Eric Adams, wants his first three paycheck in bitcoin and sees a future in which every New Yorker can get paid in cryptocurrencies.  (Bloomberg) Adams also wants New Yorkers to be able to invest in the city by buying NYCCoins, which can be minted as from this week. Miami already has MiamiCoins. (Decrypt)

  • Iran – The head of Iran’s blockchain association wants to see a dedicated council to discuss crypto rules in the country. (Cointelegraph)

  • Brazil – Parliamentarian Luizão Goulart wants employees to have the option to request payment in crypto. He submitted a bill to legalize crypto payments as a mode of payment for public and private sector workers. (Cointelegraph)

  • Global – Binance wants to go after the scammers that ran off with $2 million after launching the infamous SQUID coin. The scammers launched the coin, named after the popular Netflix series Squid Games, promising an earn-to-play platform for SQUID holders. The token’s price boomed to astronomical heights before dropping to nearly zero, after a rug-pull: the developers shut down the websites related to SQUID and disappeared with $2 million worth of funds. The token was launched on Binance Smart Chain. Binance is resorting to blockchain analytics to identify the scammers, although it was quick to add that Binance Smart Chain is open-source. (Decrypt)

  • Global  – Bots are distorting trading in cryptoassets, including NFTs, and brought the booming Solana network to a halt for 17 hours. Bots try to outmanoeuvre human users when new tokens or NFTs are minted. Civic, which focuses on digital IDs, offers a solution: link NFT users to a digital pass that proves they are human, similar to reCAPTCHA or hCAPTCHA. (Decrypt)


DeFi

  • Global  – DeFi founders debate whether to resist or embrace regulation, writes The Defiant.

  • Netherlands  – Dutch bank ING is in the very early stages of developing a “DeFi” lending service using non-volatile crypto assets as collateral – it does not plan to accept bitcoin. ING is working with the Dutch financial regulator AMF and hopes to bring its peer-to-peer service to AMF’s regulatory sandbox. (Ledger Insights) It’s difficult to see how this could be genuine ‘DeFi’, rather than another peer-to-peer service with ING in the middle. The fact that the ING employee referred to it as DeFi doesn’t mean much, other than that institutional investors seem to be eager to jump on the bandwagon.


Blockchain/DLT

  • EU – The central banks of Italy and Germany participated in a workshop on how to use DLT to settle assets in central bank digital currency, according to a shared press release. The mechanism preserves the delivery-versus-payment mode of settlement to minimize counterparty risk.


CBDCs

  • Singapore is exploring a retail Central Bank Digital Currency. According to Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), sees a retail CBDC as a counterweight to private stablecoins or even foreign CBDC. He doesn’t see the project as urgent and warned that a retail CBDC comes with challenges  although he thinks the use case is “not urgent”. (Bloomberg)

  • Russia plans to roll out its digital rouble in early 2022, according to Central Bank Governor Elvira Nabiullina, in a pilot test that will help the country decide whether it wants a CBDC. (Reuters)

  • China will continue to develop its eCNY (the digital yuan or e-renminbi), said People’s Bank of China governor Yi Gang. R&D will focus, among other things, on improving the eCNY’s privacy protection and anti-counterfeiting feature and increase its interoperability with existing payments tools, he added. (Reuters)

  • China developed a machine that allows foreign currencies to be converted into digital yuan (eCNY) without requiring a local bank account. Only a passport is needed. (Coindesk)

  • EU  – A digital euro would “likely” become legal tender, said European Central Bank president Fabian Panetta. (BloombergQuint) Many people may be surprised to hear that the alternative is even considered (a digital euro that is not legal tender). Slides accompanying Panetta’s presentation are available here.

  • UK – The Bank of England and Treasury will launch a consultation on the desirability of a digital pound next year. If adopted, a CBDC will be rolled out at the earliest in the second half of the decade, the BoE added.

  • Switzerland  – The Swiss Central Bank is technically ready to roll out a wholesale CBDC in January 2022. All that’s needed now is a policy decision to do so, according to a governing board member. (Coindesk)

  • France  – Banque de France published its findings about the latest steps in its CBDC assessment. A wholesale CBDC can help with cross-border and multi-device payments, it found. There are still important questions about a potential wholesale CBDC to address, however, the central bank said in a press release. The questions include the impact on financial intermediaries and on the implementation of monetary policy. (Banque de France and Coindesk)


NFTs

  • Korea  – NFTs will not be regulated in South Korea, confirmed the Financial Services Commission. (Cointelegraph)


Trading places

  • US – Former Comptroller of the Currency Brian Brooks will become CEO of Bitfury. The new crypto position comes after Brooks’ very brief stint at crypto exchange Binance, citing “differences of opinion” for his sudden departure there. (Decrypt

  • Crypto-exchange Binance hired a former IRS employee Amjad Qaqish to head its suspicious activity reporting division. (Decrypt) Binance has drawn the ire of regulators around the globe. Acting Comptroller Hsu singled it out in a recent speech (see our blog post), even as the exchange is trying to boost its compliance reputation.

Thanks for reading! And if you liked it, thanks for buying me a coffee!

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