CryptoLaw Newsletter #27

Poll on crypto usage (US); Spanish banks asked to publish 3-year crypto plan; SEC rejects bitcoin spot ETF rule change; Kazakhstan tries to reconcile crypto mining and energy need; privacy ≠ secrecy.

Hello CryptoLawyers!

Here’s our highlight of legal cryptonews of the past week:

Digital assets

  • Indonesia – Muslims should not use cryptocurrencies, according to the national council of religious leaders in Indonesia. The National Ulema Council (MUI) called cryptocurrencies ‘haram’ due to its uncertainty, wagering and harm. Crypto assets and crypto commodities that abide by sharia rules and demonstrate a clear benefit could nevertheless be acceptable, the Council stated. (Bloomberg)

  • US – The first legally recognized DAO in the US saw its securities application halted by the Securities and Exchange Commission. The SEC alleged that the Wyoming DAO LLC, American CryptoFed, made a “materially deficient and misleading registration” application to have two tokens registered as securities. According to the SEC, the DAO LLC’s application contained inconsistent statements about whether the two tokens are securities and about the DAO LLC’s purported intention to distribute one of the tokens. American CryptoFed’s securities registration is now stayed pending a determination by an administrative law judge whether to deny or suspend the token registration.

  • Australia – Banks are dressing up anti-competitive behaviour as regulatory compliance, says Sen. Braggs. The lawmaker lashed out at Australian banks de-banking (=refusing banking services to) crypto companies in the name of compliance. (Cointelegraph) Recently, a crypto-trader obtained a settlement from ANZ bank for de-banking him due to his crypto activities. The trader has a second lawsuit pending against another bank on the same de-banking grounds.

  • US  – The SEC rejected a proposal by CBOE BZX to change the rules to allow to list and trade a spot Bitcoin ETF by VanEck. The SEC said the rules of a national securities exchange must be “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest”. BZX had not met that burden of proof when requesting the rule change, the SEC said. The SEC has approved futures bitcoin ETFs, but has so far refused to approve any of the spot bitcoin ETF applications. It has delayed a decision on VanEck’s spot bitcoin ETF application twice. VanEck is now going live with its bitcoin futures ETF, which has received SEC approval recently. (Reuters and Coinbase)

  • US  – Congress will hold another crypto-dedicated hearing, this time entitled: “Demystifying crypto: Digital Assets and the Role of Government”. The hearing, which will take place on Nov. 17, will be chaired by Rep. Don Beyer. Among those testifying before the lawmakers are Tim Massad, former chair of the CFTC, Wharton’s Kevin Werbach and Coin Center’s Peter Van Valkenburgh. (Cointelegraph)

  • Spain – The Central Bank is asking commercial banks to report their 3-year cryptocurrency plans. The aim of the data collection is to get a clearer picture on the impact that cryptoassets may have on financial services, according to sources quoted. (Cointelegraph and El País)

  • Spain – Thieves ran away with a bitcoin ATM in Barcelona. (Reuters)

  • Singapore – Crypto exchange Huobi will expel users in Singapore, citing compliance reasons. (Coindesk and Huobi)  

  • Kazakhstan – China’s latest crypto crackdown has pushed its crypto miners into other countries, including Kazakhstan, which has become the second most popular destination for crypto miners, after the US. The influx of crypto miners has led to a surge in electricity consumption and even power shortages in the country that produced enough energy to export it to neighbouring countries before crypto miners started pouring in earlier this year. The government has proposed a law that would ration electricity for new crypto miners, although a minister clarified the law would only apply to new crypto miners, not to existing miners already operating lawfully in the country. The government has called on the crypto mining industry to find green energy alternatives to power their operations. (Decrypt and Coindesk)

  • Austria – Crypto will be taxed like stocks and bonds, with a capital gains tax of 27.5% starting in March next year. (Bloomberg)  

  • Russia – Two ministries and the Duma want a clearer legal framework on cryptoassets, and on crypto-mining specifically. The Central bank, however, remains staunchly opposed to such an attempt to legalize crypto. The Duma is pushing through, creating a working group to identify legal gaps on crypto activities. The main concern is that the absence of a clear legal framework helps crypto mining companies avoid paying taxes. (Cointelegraph and Coindesk)  for crypto mining rules.

  • China  – A party official in the province of Jiangxi was expelled from his position for, among others, violating the country’s crypto ban. The official allegedly engaged with crypto mining companies, undermining the government’s effort to stamp out crypto mining. (Cointelegraph)

  • Global – Crypto investors are defying legal uncertainty to profit on the right to privacy, according to this Forbes article. Privacy coins have outperformed more well-known tokens such as bitcoin and ether, writes Hailey Lennon. “In many ways, regulators seem to equate the desire for privacy with someone who has something to hide,” Lennon writes. However, privacy and secrecy are not one and the same, according to one source quoted. That’s an interesting point – and an important one for rule-makers to understand.

  • FATF  – Crypto travel-rule expert Notabene published 12 key takeaways of FATF’s Updated Guidance on Virtual Assets and VA Service providers.


DeFi

  • US – An SEC Commissioner Caroline Crenshaw shared her thoughts on DeFi regulation and this time it’s not Hester Peirce. Commissioner Caroline Crenshaw wrote a contribution on DeFi for the inaugural edition of the Global Blockchain Business Council’s (GBBC’s) International Journal of Blockchain Law. The article has a clear warning: “Many DeFi offerings and products closely resemble products and functions in the traditional financial marketplace,” Crenshaw writes. In her view, DeFi “is fundamentally about investing. This investing includes speculative risks taken in pursuit of passive profits from hoped-for token price appreciation” or seeking a return in other ways. She does not hide her preference for greater regulation and disclosure in DeFi markets: “in the brave new DeFi world, to date there has not been broad adoption of regulatory frameworks that deliver important protections in other markets.” Although transactions on-chain may be visible, “in important ways, DeFi investing is not transparent.” VCs and professional investors reap most of the benefits and Commissioner Crenshaw is not certain “how well known this is in the DeFi retail investor community”. DeFi “exacerbates” inequality between retail and professional investors that also exists in traditional financial markets, she argues, as only the latter have the resources to audit the code of DeFi projects before investing. Commissioner Crenshaw is also concerned about manipulation: pseudonymity, in her view, makes it harder to distinguish between organic interest and artificially created demand. Don’t agree? Send her feedback on her dedicated mailbox Crenshaw-defi@sec.gov.

  • FATF – What does FATF’s Updated Guidance on Virtual Assets and VA Service Providers mean for DeFi stablecoins and self-hosted wallets? Coindesk explains.


Learning corner

  • Empirical data on (US) crypto users – Who uses, buys and trades crypto? Do we see mostly  well-educated, well-off people investing in crypto? Or is crypto use dominated by minorities, suggesting it may be a tool for financial inclusion? We have very limited empirical data so far (see our earlier posts on empirical research by the BIS and Chainalysis and the FCA’s crypto consumer survey ). Pew Research is adding another valuable sample of empirical insights, focused on US users. 16% of the US adults surveyed say they personally have invested in, traded or otherwise used one. However, for the age group between 18-29, that number shoots up to 31%. And within that age group, men are much more likely than women to have invested in, traded or used crypto (43% v. 19%). In other words: almost 1 in 4 women between 18-29 have had exposure to crypto, while more than 4 out of 10 men in that age group do. The survey found minorities (Asian, Black and Hispanic adults) are more likely than White adults to have had crypto-exposure. Unlike previous empirical data, this survey found no statistically significant differences by household income.

  • Reuben Bramanathan asked his followers on Twitter whether anyone was already working on onboarding and education on crypto for lawyers. LexDAO was mentioned in several responses. We’ll keep you posted if we learn more!

  • Interested in learning Ethereum’s programming language Solidity? LexDao (yes, the same LexDAO) offers an intro for lawyers.

  • Next week, we’ll add our list of crypto- and blockchain-related books, both easy-reads on the early days of Bitcoin and Ethereum and academic books. Stay tuned!

Thanks for reading! And if you liked this newsletter, please share it or buy me a coffee!

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