The Scenius State of Regulation (Issue #4)
Crypto Policy & Regulation
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Welcome to The Scenius State of Regulation — a monthly publication prepared by Ian Corp, a consultant to Scenius Capital.
Our aim with this publication is to provide a snapshot of evolving regulation affecting digital assets globally.
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United States 🇺🇸, Canada 🇨🇦, & Caribbean 🌎
SEC Commissioner Denounces Agency’s Approach to Crypto
SEC Commissioner Hester Peirce believes her agency is treating crypto unlike any other sector, with an aggressive approach that deviates from how the agency typically regulates.
Coinbase Submits Amicus Brief in SEC v. Ripple
Crypto exchange Coinbase filed for permission to submit a brief in the ongoing case between the Securities and Exchange Commission and Ripple Labs, saying the lack of clarity in crypto enforcement actions is putting U.S. exchanges at a disadvantage.
JP Morgan Chase Conducts First Crypto Trade
JPMorgan has used the Polygon blockchain to trade tokenized cash deposits — the latest instance of banks moving into DeFi markets. The trade occurred as part of the Monetary Authority of Singapore (MAS) Project Guardian pilot, first announced in May. The tokenization experiment completed trials for foreign exchange (FX) and the trading of government bonds, powered by crypto lending protocol Aave and decentralized exchange (DEX) Uniswap.
New York Federal Reserve Bank to Design CBDC
The Federal Reserve is taking the first steps toward making cross-border payments faster and more secure. The central bank’s New York branch is developing a framework for a potential wholesale central bank digital currency (CBDC) and exploring design choices.
Canada Moves to Protect Financial Sector for Crypto “Challenges”
In Canada, the government is entering consultations with crypto industry stakeholders to address the digitalization of money, which it sees challenging democratic institutions around the world. The North American nation, which includes 10 provinces and three territories, said in its 2022 budget announcement that digital assets continue to play a pivotal role in sanctions evasion while simultaneously facilitating illegal activity.
Healthcare-Focused DAO Launches to Test Experimental Treatments
Love Health DAO says it will work with established companies to coordinate clinical trials. The DAO would have its own token, which would ostensibly accrue and deliver value back to investors—though Breslow said there’s no promise of upside.
The US Department of Justice has seized roughly $1 billion worth of bitcoin (BTC) from a man who “unlawfully obtained” more than 50,000 bitcoins from the Silk Road dark web internet marketplace in 2012.
SEC Charges Trade Coin Club for $295 Million Ponzi Scheme
The U.S. Securities and Exchange Commission today hit four people with charges for allegedly swindling investors out of nearly $300 million in a “fraudulent crypto Ponzi scheme.” The SEC said Trade Coin Club raised 82,000 in Bitcoin—worth $295 million at the time—from over 100,000 investors worldwide between 2016 to 2018.
Hundreds of Crypto Tax Cases Coming
The IRS’s Criminal Investigation division is building “hundreds” of crypto cases, and many of them will soon be public. The cases involve areas like “off-ramping” transactions, in which digital assets are exchanged for fiat currency, as well as people being paid in crypto and not reporting.
DOJ Seizes $3.36 Billion in Crypto Connected to Silk Road
Damian Williams, the United States Attorney for the Southern District of New York, and Tyler Hatcher, the Special Agent in Charge of the Internal Revenue Service, Criminal Investigation, Los Angeles Field Office, announced that James Zhong pled guilty to committing wire fraud in September 2012 when he unlawfully obtained over 50,000 Bitcoin from the Silk Road dark web internet marketplace.
Federal Judge Rules that LBC Tokens are Securities
Crypto startup LBRY violated securities laws by selling its native LBC tokens without registering with the U.S. Securities and Exchange Commission (SEC).
Department of Treasury Updates Tornado Cash Sanctions
Treasury updated its FAQs to better define whether Tornado Cash is still subject to sanctions.
US Senate Moving Forward with DCCPA Despite FTX Collapse
Embattled FTX CEO Sam Bankman-Fried had been the strongest industry proponent of the bill, known as the Digital Commodities Consumer Protection Act. The bill would grant the Commodity Futures Trading Commission, one of the two U.S. markets regulators, more power over cryptocurrency markets and exchanges.
Miami Eyes Potential FTX Fallout of its Iconic Arena
Officials in Florida's Miami-Dade County are keeping an eye on the fallout from FTX's liquidity crunch and analyzing any potential impact it may have on the iconic arena where the NBA's Miami Heat plays. Known as the FTX Arena since a $135 million naming rights deal announced and signed last year, the complex sits in the heart of downtown Miami on Biscayne Bay and hosts non-basketball events including concerts and conferences
FTX Collapse Scrambles Midterm Agenda
“Recent developments show that even the crypto companies that fashion themselves as the most responsible and legitimate actors in the industry appear to be selling the public false goods. Policymakers and regulators should strengthen rules to protect consumers and should be skeptical of the industry’s efforts to write their own regulations,” Sen. Elizabeth Warren, D-Mass., said in a statement.
FTX Will Supercharge Regulatory Discussions
Democratic control of the Senate, and a likely Republican but closely divided House, means that the battles over what regulation will look like are likely going to get more heated than the industry expected just a week ago. It could also mean crypto’s time as a subject of “pre-partisan” curiosity could be drawing to a close.
New York Regulator Warns Congress of Overreach
New York's head financial services regulator wants Congress to look at her state's rules around crypto when thinking about a national model and warned against federal laws overriding state regimes. “When we go to the Hill, we say we want there to be a state path,” said Adrienne Harris, the New York Department of Financial Service’s superintendent. “We would like for there to be a framework nationally that looks like what New York has, because I think it is proving itself to be a very robust and sustainable regime.”
SEC Delays Decision on Ark 21Shares Spot Bitcoin ETF
The U.S. Securities and Exchange Commission delayed a decision on whether to allow a spot bitcoin exchange-traded fund by stock-picker Cathie Wood's Ark Invest and crypto investment product firm 21Shares US to list and trade on Cboe Global Markets (CBOE.Z) until Jan. 27.
BlockFi Prepares for Bankruptcy
Cryptocurrency lender BlockFi Inc. is preparing a potential bankruptcy filing after halting withdrawals of customer deposits and acknowledging it has “significant exposure” to bankrupt exchange FTX.
Bahamian Supreme Court Approves Liquidators for FTX Assets
The Supreme Court of the Bahamas has approved two insolvency experts at PricewaterhouseCoopers as provisional liquidators overseeing FTX's assets.
Crypto-Friendly Congressman Wins House Majority Whip
Rep. Tom Emmer, R-Minn., won the race for House GOP whip. A current member of the House Financial Services Committee, Emmer filed a bill in January to ban the Federal Reserve from issuing a central bank digital currency directly to individuals. He more recently took aim at the Securities and Exchange Commission after the collapse of crypto exchange FTX.
Class Action Lawsuit Filed Against Celebrities that Promoted FTX
A group of investors filed a class action lawsuit against the collapsed crypto exchange FTX, its founder Sam Bankman-Fried, as well as several celebrities, alleging they were part of a “fraudulent scheme” designed “to take advantage of unsophisticated investors from across the country.”
Crypto-Friendly Congressmen Head to Washington
As the crypto community faces what many are calling its biggest crisis yet, a slew of new politicians are lining up to take their place on Capitol Hill as more-stringent regulation likely looms.
Significant Fallout on Crypto Regulation Thanks to FTX
In a major setback for its regulatory future, the crypto industry has lost what likely was its biggest and most-connected cheerleader in Washington.
FTX Bankruptcy Filings are Bad Investor Omen
FTX has been slower than other bankrupt crypto companies to publicly detail the ailing company’s plans to make creditors whole. More clarity around FTX’s balance sheet and creditors is needed to properly parse the odds of the exchange returning funds, according to the attorneys involved in the bankruptcy.
Jamie Dimon: Regulators Have Done Nothing to Stem Crypto Fraud
JPMorgan CEO Jamie Dimon said Sam Bankman-Fried will probably end up in jail — adding that regulators “haven’t focused on crypto at all” and have instead “done nothing,” according to a source familiar with the matter.
Highlights from the FTX Bankruptcy Filings
As FTX’s new CEO John Jay Ray III put it, the internal management of the company was “a complete failure.” “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” he said. Ray III also shared some other insight into how the Bahamas-based cryptocurrency exchange that has fallen from grace operated.
Emmer Declares that FTX is Not a Crypto Failure
"This is not just a failure of FTX," Emmer said on a Tuesday night Fox Business broadcast. "It's a failure of centralized finance and a failure of Sam Bankman-Fried." The U.S. congressman and newly appointed Republican majority whip also condemned the collapse of FTX as a failure of business ethics, government oversight, and regulatory procedures, pointing to a March 23 meeting between Bankman-Fried and Gensler.
The first legally recognized decentralized autonomous organization (DAO) in the United States is taking on the Securities and Exchange Commission (SEC) over its 2021 token registrations. American CryptoFed DAO will represent itself without an attorney in response to SEC allegations that it omitted and misstated information in a securities registration last year.
Kraken Settles Iran Sanctions Dispute with Treasury
Crypto exchange Kraken agreed to settle with the Treasury Department's Office of Foreign Assets Control over the firm’s apparent violations of sanctions against Iran. Kraken, which voluntarily disclosed the violations, has agreed to pay $362,000 and will invest another $100,000 in compliance controls, according to OFAC.
First Congressional Hearing on FTX Set for December 13
The House Financial Services Committee will hold its first FTX-focused hearing on Dec. 13. The hearing, titled “Investigating the Collapse of FTX, Part I,” is likely to be part of a series. The committee did not release a list of witnesses for the December hearing. Waters and Ranking Republican Rep. Patrick McHenry, R-N.C., have previously said they want former FTX CEO Sam Bankman-Fried to participate, along with companies involved including Bankman-Fried’s Alameda Research trading firm and rival exchange Binance. McHenry, the likely chair of the committee next Congress, told The Block earlier this month that he expects Binance's role in the collapse to also be a focus of the hearing.
Latin America 🌎
Fintech Uala Launches Crypto Trading in Argentina
Argentine fintech Uala, which is backed by the likes of billionaires George Soros and Steve Cohen, ventured into crypto for the first time, allowing customers to buy and sell Bitcoin and Ether with pesos through its app.
Latin America’s Largest Bank Partners with Galaxy Digital
Itaú Asset, the investment fund arm of Latin America's largest bank by AUM, is offering a physically backed crypto ETF listed in Brazil. Via a partnership with Mike Novogratz's Galaxy Digital, the IT Now Bloomberg Galaxy Bitcoin ETF will start trading as markets open today on Brazil's B3 stock exchange.
El Salvador Paves Way to Bitcoin-Backed Bonds
El Salvador's national assembly is considering a draft bill to regulate digital securities, indicating the country is going ahead with plans to issue bitcoin-backed bonds.
Middle East & Africa 🌍
Binance Helped Iranian Firms Trade $8 Billion Despite Sanctions
Crypto giant Binance has processed Iranian transactions with a value of $8 billion since 2018 despite U.S. sanctions intended to cut Iran off from the global financial system, blockchain data show. Almost all the funds, some $7.8 billion, flowed between Binance and Iran's largest crypto exchange, Nobitex, according to a review of data from leading U.S. blockchain researcher Chainalysis.
Binance Secures Financial Services Permission in Abu Dhabi
Binance, the leading global blockchain services provider, has announced today that it has received a Financial Services Permission (FSP) from the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM), the international financial centre of the UAE’s capital.
Kenya Establishes Taxation for Crypto
An amendment was introduced to the Kenyan Capital Markets Law on Nov. 21 that would require those who own or deal in cryptocurrencies to provide the country’s Capital Markets Authority with information on their activities for tax purposes, local media reported. This is the first time Kenya has extended financial regulation to cryptocurrency.
Europe 🌍
EU Delays Vote on MiCA Until February
European Union lawmakers won’t vote on the Markets in Crypto Assets regulation (MiCA) until February, likely meaning further delays in the landmark licensing regime for crypto companies within the bloc.
Santander Bank Blocking UK Transfers to Crypto Exchanges
Santander will block UK customers from sending real-time payments to cryptocurrency exchanges next year as part of measures to protect customers from scams.
Russia’s Central Bank Promotes Crypto to Internationalize its Economy
The Central Bank of Russia is working on integrating crypto assets into the local financial system. The CBR released a report on digital assets, focusing on integrating them into financial systems. Main areas of concern included proper taxation and regulation of digital asset issuance — familiar themes in crypto regulatory discussions worldwide.
EU Parliament Passes Cybersecurity Legislation for Crypto
The European Parliament passed the Digital Operational Resilience Act, which creates new rules on cybersecurity for crypto asset service providers.
Ripple Urges UK to Craft Bespoke Regulatory Framework for Crypto
Ripple is hoping to make inroads with politicians in the UK amid its ongoing dispute with the SEC in the United States. The firm has issued a new regulatory whitepaper ahead of expected revisions to the UK’s Financial Markets and Services Bill, which is set to define the nation’s crypto regulation framework.
MiCA Negotiator Says Governments Should not Over-regulate in Response to FTX
The European Union should hold off on more crypto regulation following the collapse of exchange giant FTX, European Parliament member Stefan Berger said on Twitter. The lead negotiator on the Markets in Crypto Assets (MiCA) file added that regulators should wait until new EU laws about crypto come into force.
EU Passes Digital Decade Policy Program
The European Parliament passed a vote on the Digital Decade policy program, which will help businesses and public services digitalize their work and promises support for a “pan-European blockchain-based infrastructure."
Asia 🌏
Hong Kong Plans to Legalize Retail Crypto Trading to Become Hub
Hong Kong is pivoting toward a friendlier regulatory regime for cryptocurrencies with a plan to legalize retail trading, contrasting with the city’s skeptical stance of recent years and the ban in place in mainland China.
The Reserve Bank of India, the country's central bank, began a pilot wholesale digital currency with the goal of reducing transaction costs and the need for collateral when trading government securities.
Hong Kong Seeks Public Comment on Crypto ETFs and Trading
Hong Kong’s Securities and Futures Commission is set to conduct a public consultation on how to give retail investors access to digital assets.
Singapore Launches CBDC Trials
The Monetary Authority of Singapore will begin trials for CBDCs to determine potential benefits for its government.
Hong Kong Might Authorize Crypto ETFs
Hong Kong’s Securities and Futures Commission looks set to allow the launch of exchange traded funds tracking cryptocurrency futures for retail investors, citing the increasing sophistication of investor safeguards.
Binance Pledges to Create Crypto Recovery Fund
Binance chief executive Changpeng Zhao said the cryptocurrency exchange plans to launch a fund to help crypto projects facing a liquidity crisis as the collapse of rival FTX ricochets through the industry.
Bank of Japan To Start Trial of Three CBDCs
Despite Japan’s uncertainty on whether to issue a central bank digital currency (CBDC), the Bank of Japan (BoJ) continues experimenting with a potential digital yen. The Japanese central bank has started a collaboration with three megabanks and regional banks to conduct a CBDC issuance pilot.
Singapore’s Largest Bank Uses JPMorgan’s Onyx Platform
DBS Group Holdings Ltd (SGX: D05), the largest financial institution in Singapore has announced it has completed a trade financing deal using the Onyx blockchain protocol from JPMorgan Chase & Co (NYSE: JPM). As unveiled by the Singapore offshoot, it comes off as the first bank in Asia to utilize such financial products to boost its liquidity.
Australia 🇦🇺
Australia Suspends FTX’s Financial Services License
The Australian Securities and Investments Commission has suspended FTX Australia's financial services license in the country until May 15, 2023. "Until [December 19] 2022, FTX Australia can continue to provide limited financial services that relate to the termination of existing derivatives with clients," the securities regulator said in a statement.
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