The Scenius State of Regulation (Issue #2)
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 🇺🇸
Michael Saylor & Microstrategy Sued for Tax Fraud
The District of Columbia is suing MicroStrategy (MSTR) founder and Executive Chairman Michael Saylor for allegedly never paying any income taxes in the district in the more than 10 years he has lived there, Attorney General Karl A. Racine announced in a tweet.
SEC Fails to Practice Regulatory Transparency
The SEC has yet to begin any kind of formal effort to issue rules directing crypto exchanges to register as securities exchanges. In the absence of that formal rulemaking effort, we’re left looking at how the SEC seems to be approaching cryptocurrencies it sees as securities.
Crypto Regulations Are Coming—From All Sides
Although the SEC has taken the lead in trying to regulate crypto, several agencies are vying for jurisdiction, including the CFTC, Treasury, and FinCEN.
Alabama’s Securities Commission Fights Back Against Metaverse Scammers
Citing an alarming trend in metaverse real estate scams, Alabama’s Securities Commission issued an advisory to investors to be wary of metaverse real estate. The agency advised that it would take action against fraudulent actors.
Binance Under Investigation for Potential Bank Secrecy Act Violations
US authorities have an ongoing investigation into whether Binance violated the Bank Secrecy Act, after federal prosecutors began probing the company and its CEO in December 2020.
SEC Chair Gensler Supports CFTC Jurisdiction Over Crypto
Securities and Exchange Commission Chairman Gary Gensler signaled that he would support Congress handing more authority to the SEC’s sister markets regulator to oversee certain cryptocurrencies such as bitcoin.
Coinbase Funds Lawsuit Challenging Tornado Cash Sanctions
Coinbase is funding a lawsuit brought by six people challenging the United States Treasury Department’s sanctions of the Tornado Cash smart contracts and asking the Court to remove them from the U.S. sanctions list. Coinbase believes the Tornado Cash sanctions will harm innocent people and threaten the future of decentralized finance (DeFi) and web3.
United States Calls Out Crypto Mining & Implies It Would Consider Outright Ban
United States’s Office of Science and Technology Policy issued a report outlining the impacts that crypto mining has on climate change. In a veiled threat, the Office said “Should these measures prove ineffective at reducing impacts, the Administration should explore executive actions, and Congress might consider legislation, to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining.”
SEC Opens New Office to Find Soft Targets
The US Securities and Exchange Commission (SEC) wants to sharpen its focus on crypto via a new office designed to scrutinize company filings. Its Office of Crypto Assets, under the Division of Corporation Finance’s Disclosure Review Program (DRP), is expected to streamline SEC reviews of documents submitted by crypto firms by folding them all under one roof.
United States Government Recovers $30MM from Axie Infinity Hack
"With the help of law enforcement and leading organizations in the cryptocurrency industry, more than $30 million worth of cryptocurrency stolen by North Korean-linked hackers has been seized. This marks the first time ever that cryptocurrency stolen by a North Korean hacking group has been seized, and we’re confident it won’t be the last," said Erin Plante, senior director of investigations at Chainalysis, who worked with law enforcement officials were able to recover the funds from Lazarus Group, a North Korean hacking entity tied to multiple crypto thefts over recent years.
OFAC Issues Guidance on Tornado Sanctions
OFAC declares that will not prioritize prosecution of wallet addresses that received dusting attacks. However, OFAC advised that those wallet addresses must still report the digital assets received and comply with other applicable regulations.
Blockchain Association Launches Pro-Crypto PAC
The Blockchain Association launched a new political action committee aimed at promoting pro-crypto candidates. The trade association is launching BA PAC as crypto regulation heats up in Washington.
SEC’s Gensler Claims that the Merge Makes Ethereum Subject to SEC Jurisdiction
Securities and Exchange Commission Chairman Gary Gensler said that cryptocurrencies and intermediaries that allow holders to “stake” their coins might pass a key test used by courts to determine whether an asset is a security. Known as the Supreme Court’s Howey test, it examines whether investors expect to earn a return from the work of third parties.
Head of CFTC Preparing to Be Crypto Watchdog
Rostin Behnam, the head of the U.S. Commodity Futures Trading Commission, said he has already directed his agency to begin preparing to be the major, fully funded regulator for much of the crypto market, as anticipated in Senate legislation.
Coinbase Updates Trading App to Show Which Politicians are Pro-Crypto
In August, Coinbase launched a policy education initiative that included a voter registration tool. The initiative will now be incorporated into the company's crypto trading app.
Environmental Groups Spend $1MM on Ads to Pressure Bitcoin to Become More Energy Efficient
Environmental groups pledged to spend another $1 million on online ads to pressure the Bitcoin community to change the network's code in order to reduce energy consumption.
SEC Says It Doesn’t Need to Promulgate Rules
Framing the issue as one of investor protection, Chair Gensler said the rules and regulations that crypto issuers and service providers must abide by have been clear for years. “Nothing about the crypto markets is incompatible with the securities laws,” Gensler said in his prepared remarks to the Practicing Law Institute. "Investor protection is just as relevant, regardless of underlying technologies.”
SEC Sues Crypto Broker & Salesmen for Offering Unregistered Securities
Chicago Crypto Capital and three of its personnel were accused of defrauding investors by offering unregistered cryptoasset securities. The crypto broker’s owner Brian Amoah and former salesmen Darcas Oliver Young and Elbert “Al” Elliott allegedly functioned as illegal broker-dealers by offering unregistered Beaxy tokens (BXY), helping them raise $1.5 million from 100 inexperienced investors between Aug. 2018 and Nov. 2019.
Crypto Industry Remains Uncertain Following OFAC Lawsuit Against Tornado Cash
“Unfortunately, the national security hawks in Congress way out number the privacy hawks, and by a very large portion,” Ron Hammond, director of government relations at the Blockchain Association, said during the webinar. “Capitol Hill will always be more about taking more privacy rights slowly away in the name of national security.”
United States White House Issues Framework on Crypto Regulation
The report covered various issues, but namely reiterated the support of regulatory enforcement actions and advised that the Department of the Treasury will spearhead a project on a United States CBDC.
Treasury Recommends Further Enforcement Actions
The Department of the Treasury issued three reports in response to President Biden’s March 9, 2022 executive order on digital assets. In one report, the agency recommended additional enforcement actions. In another, the agency also recommends regulators provide additional rules and guidance for projects that want to comply with the law.
Department of Commerce Issues Report Responding to President Biden’s Executive Order
The Department’s framework is based on two key pillars of U.S. competitiveness: first, leadership in operating a regulatory environment that has rules for safe, efficient, and equitable markets; and second, technological leadership encompassing research and development, technical standards development and promulgation, innovation, and large- scale activities.
Office of Science Technology & Policy Issues Report Responding to President Biden’s Executive Order
The Office’s report lays out the policy objectives for a U.S. CBDC system, and proceeds to analyze technical design choices for a U.S. CBDC system with respect to those policy objectives.
United States Justice Department Forms Network of National Crypto Prosecutors
The Justice Department has tapped more than 150 federal prosecutors across the country to bolster law enforcement’s efforts to combat the rise in crime linked to the use of cryptocurrencies such as bitcoin. The Digital Asset Coordinators Network is intended to designate subject-matter experts in U.S. attorneys’ offices on the complex technical and legal complications posed by cryptocurrency cases.
Senator Warren Sends Letter to Treasury Condemning Crypto
Senator Warren continued her crusade against crypto, issuing an 83-page letter to the Department of the Treasury providing several arguments why crypto poses a substantial risk to investors worldwide.
Treasury Issues Three Reports in Response to President Biden’s Executive Order
One report addressed stablecoins, the second report covered market trends, opportunities, and risks in the industry, and the third provides a plan to address the illicit risks of financing digital assets.
United States Sanctions Neo-Nazi Russian Wallet Addresses
The U.S. Treasury's Office of Foreign Assets Control sanctioned digital currency addresses associated with a Russian military task force. The sanctioned addresses included BTC, ETH and USDT that OFAC said belong to Task Force Rusich, a sabotage and reconnaissance group with neo-Nazi ties that goes by a number of aliases. In total, 22 individuals and 2 entities have been sanctioned for facilitating aggression in Ukraine.
Treasury Requests Public Comment on NFTs & DeFi
The agency’s request lists 23 questions touching on a number of topics, including the risks posed by NFTs (tokens used to represent ownership over digital items) and what the government can do to prevent crime related to DeFi—the world of decentralized, non-custodial trading, lending, and borrowing.
Bill Could Ban Stablecoins for Two Years
Legislation to regulate stablecoins that’s being drafted in the House would place a two-year ban on coins similar to TerraUSD, the algorithmic stablecoin that collapsed earlier this year. Under the latest version of the bill, it would be illegal to issue or create new “endogenously collateralized stablecoins.”
SEC Claims that it Has Jurisdiction Over All Ethereum Transactions
In a complaint against crypto promoter Ian Balina, the SEC claimed it had jurisdiction because a greater majority of Ethereum’s transactions occur in the United States, where about 45% of all node activity is located.
Tether & Bitfinex Ordered to Disclose Documents Related to USDT
A New York judge ordered Tether and Bitfinex to produce documents showing the backing of the USDT stablecoin. The order comes as part of a three-year-old class action lawsuit from a group of investors against stablecoin issuer Tether Limited and its sister crypto exchange Bitfinex.
CFTC Sues OOKI DAO, Claims that All DAO Members are Jointly & Severally Liable
The Commodity Futures Trading Commission has issued an order filing and settling charges against blockchain software protocol bZeroX and its founders. The order penalizes the protocol and its founders Tom Bean and Kyle Kistner $250,000 for offering illegal, off-exchange trading of digital assets, registration violations and neglecting to adopt a customer ID program required by the Bank Secrecy Act compliance program. The CFTC has simultaneously filed a civil enforcement action charging the Ooki DAO, the successor to bZeroX, with violating the same laws as bZeroX. It seeks restitution, disgorgement, civil monetary penalties, trading and registration bans and injunctions against further violations.
Nexo Faces Several Legal Challenges from Various States
Certain states issued cease-and-desist letters targeting Nexo’s interest bearing account products. New York’s attorney general filed a lawsuit claiming that Nexo is not a registered broker dealer and is selling unregistered securities. Vermont published a cease-and-desist order and Washington released a statement of charges ahead of a cease-and-desist order of its own. Following the publication of this report, Maryland, Oklahoma, South Carolina and Kentucky published their enforcement action documents.
California’s Governor Newsom Vetoes Bitlicense Bill
In California, Assembly Bill 2269, which was sponsored by Assemblyman Tim Grayson (D-Vallejo), would have created a licensing regime for anyone seeking to facilitate crypto transactions, similar to how money transmissions are overseen by the state's Money Transmission Act.
Chairman Powell Claims that DeFi Needs Regulation
Federal Reserve Chairman Jerome Powell talked about the regulation of decentralized finance (defi) Tuesday during a panel discussion on digital finance hosted by Banque of France. “The monetary policy normalization that we’re seeing all over the world,” Powell began. “All it did was simply reveal what we’ve long pointed out as significant structural issues in the defi ecosystem and conflict of interest.”
SEC Files Enforcement Action For Market Manipulation of Crypto Asset Securities
SEC announced charges against The Hydrogen Technology Corporation, its former CEO, Michael Ross Kane, and Tyler Ostern, the CEO of Moonwalkers Trading Limited, a self-described “market making” firm, for their roles in effectuating the unregistered offers and sales of crypto asset securities called “Hydro” and for perpetrating a scheme to manipulate the trading volume and price of those securities, which yielded more than $2 million for Hydrogen.
Canada 🇨🇦
Canada’s Conservative Party Elects Pro-Bitcoin Head
As the CPC’s new leader, Ontario Member of Parliament Pierre Poilievre is now poised to battle current Prime Minister Justin Trudeau for Canada’s top job in the 2025 federal election. This means Canadians may soon have the opportunity to elect a pro-bitcoin prime minister – a first in North American politics.
Latin America 🌎
Paraguay’s President Vetoes Crypto Mining Bill
Paraguay’s President, Mario Abdo Benitez, vetoed a bill that would have recognized cryptocurrency mining as an industrial activity. Had it been approved, it would have imposed a 15% tax on mining’s related economic activities.
Peruvians Are Buying Crypto to Hedge Against Political Instability
In the last 15 years, Peru has been one of the fastest-growing economies in Latin America. But political turmoil and rising inflation over the past year has unsettled Peruvians, leading many to turn to crypto as a safe haven.
Bybit Barred from Brokering Securities in Brazil
The Brazilian Securities and Exchange Commission (CVM) banned the Singapore-based cryptocurrency exchange Bybit from brokering securities. The CVM ordered the suspension of “the public offering of any securities intermediation services, directly or indirectly, including through the use of websites, applications or social networks” by Bybit to Brazilians.
El Salvador Might Issue Bitcoin Bonds Next Year
Officials have not broken ground on President Nayib Bukele’s promised “Bitcoin City,” a bitcoin bond-funded hub to be run on volcanic power. The elusive ‘volcano bonds,’ as President Bukele calls them, once advertised as sovereign, are now securitized corporate blockchain bonds. If they get off the ground, it will be the first such offering. The bonds, which require a minimum investment of $100, were originally slated to launch in March 2022.
Middle East 🌍
Afghanistan Shuts 16 Crypto Exchanges
The Afghanistan government shut down 16 different cryptocurrency exchanges. Sayed Shah Sa’adat, head of the police’s counter-crime unit, told reporters that the central bank banned crypto trading as the practice spawned issues and scams. All people involved in the local crypto businesses were arrested and their shops were closed.
Saudi Arabia Hires Crypto & CBDC Expert
The Saudi Central Bank has hired former Managing Director at Accenture, Mohsen AlZahrani, to lead the bank’s crypto and CBDC efforts. AlZahrani has previously worked for the central bank from March 2015 to October 2018, where he managed the innovation center with initiatives including cryptocurrency and CBDC.
Central Bank of Bahrain Testing Bitcoin Payments
OpenNode, a "Bitcoin-as-a-payment-network" infrastructure company, has started testing a Bitcoin payment processing and payout solution in Bahrain, with the Central Bank of Bahrain’s regulatory Sandbox.
Europe 🌍
EU Declines Proposal for PoW Alternatives
EU lawmakers shot down a Green Party proposal to research alternatives to the proof-of-work (PoW) mining that underpins bitcoin. The Green Party effort followed an unsuccessful attempt by some members of the European Parliament to impose restrictions on the energy-intensive PoW consensus mechanism that some had characterized as a bitcoin ban.
United Kingdom Judge Agrees to Extradite Money Launderer Hamilton to the United States
Legal action against OneCoin took a major step forward when a U.K. judge agreed that Christopher Hamilton, a major player in the international Ponzi scheme, could be extradited to the U.S. While Hamilton can now look forward to some international travel at the taxpayer’s expense, his co-defendant, Robert McDonald, will not be joining him.
Credit Suisse Held $31MM in Digital Assets in Q2 2022
The Swiss megabank recently reported holding CHF31 million (roughly $32 million) in assets and liabilities it cryptically described as the following: “of which digital asset safeguarding assets.”
IMF Pushes for a Global, State-Backed CBDC Payment System
Tobias Adrian, director of the IMF’s monetary and capital markets department, wants the IMF to develop a new system to cut the costs of international transfers. The platform would accept CBDC payments, hold them in escrow and issue tokens against them.
Bank of Russia Might Legalize Crypto Payments
Deputy Finance Minister Alexei Moiseev revealed that the Bank of Russia and the finance ministry decided to give a green signal for crypto-related cross-bored payments.
U.K. Crypto Firms Must Now Report Sanctions Breaches & Account Freezes
Crypto companies must freeze assets and report them to the Office of Financial Sanctions Implementation (OFSI), an authority within the Treasury, if they suspect they are from a sanctioned entity.
Russia Working on Stablecoin Settlement Platform with Friendly Allies
Russia's Finance Ministry has reportedly begun working with the governments of “friendly” nations to establish a cross-border stablecoin-based payments platform. Deputy Finance Minister Alexey Moiseev said the government was looking to create the settlement platform to avoid the use of U.S. dollars and euros.
Russian Startup Plans Ruble Stablecoin
Alexander Lebedev, the former owner of Russia’s National Standard Bank and publisher of U.K. newspapers The Independent and Evening Standard, InDeFi – the decentralized finance (DeFi) startup he founded – plans to introduce a ruble-backed stablecoin on the Ethereum blockchain.
Norwegian Bank Says CBDC is Based on Ethereum
The central bank of Norway has hit a major milestone in digital currency efforts, releasing the open-source code for the country’s central bank digital currency (CBDC) sandbox. Available on GitHub, the sandbox is designed to offer an interface for interacting with the test network, enabling functions like minting, burning and transferring ERC-20 tokens.
Google Ordered to Pay $4B Fine on Open-Source Protocol
EU court upheld an anti-trust violation resulting in a $4 billion fine for open source software. The ruling may have effectively constrained open-source developers by restricting controls on how their creations evolve.
Coinbase Gains Regulatory Approval in the Netherlands
Coinbase becomes the first major global crypto exchange to successfully register with the Dutch Central Bank (De Nederlandsche Bank — DNB), allowing us to offer our crypto products and services to the Dutch market.
Asia 🌏
Signapore to Adopt Stricter Regulations for Crypto
The Monetary Authority of Singapore may adopt stricter rules for retail crypto market participants. Singapore is often seen as being at the forefront of the crypto industry, with licensing and regulatory framework, but the regulations are focused on money laundering and terrorist financing risks rather than consumer protection.
Thai Regulators Fine Bitkub Executive for Insider Trading
A top executive of Thailand’s cryptocurrency exchange, Bitkub, was fined over $234,000.00 and barred from serving as the exchange’s CTO for twelve months.
Japan Proposes Tax Breaks for Crypto Investors
Japan’s financial regulator, the Financial Services Agency, proposed that companies should be exempted from paying taxes for paper gains on crypto coins that they hold after issuing them. The agency also called for boosting a program that gives tax breaks to individual investors.
Reserve Bank of India Set to Launch Trial for CBDC
The Reserve Bank of India (RBI) is in talks with fintech companies and state-controlled banks about a trial run of a central bank digital currency (CBDC). The trial may precede an RBI launch of a CBDC this fiscal year.
South Korea to Announce Guidelines on Security Tokens in Q4 2022
South Korea’s Financial Services Commission will announce guidelines on crypto security tokens in 4Q. The agency will establish a regulatory system for security tokens by amending existing laws.
Singapore Believes that an Outright Ban On Retail Trading is Not a Viable Solution
The head of the Monetary Authority of Singapore (MAS), the body overseeing crypto regulations, has conceded banning retail access to cryptoassets is “not likely to work” given its borderless nature and ability to circumvent restrictions placed upon it.
Crypto Exchange Woo Network Secures AML Approval in Taiwan
The approval means that Woo Network can implement AML compliance measures in line with regulatory provisions in Taiwan, according to the announcement. As such, the platform can offer crypto trading and custody services in Taiwan. Chloe Tsai, Woo Network’s legal chief stated that the AML approval was a precursor for the platform securing a banking partner. This partnership will see the crypto exchange able to offer cryptocurrency to fiat trading.
South Korea Issues Arrest Warrant for Do Kwon
A court in South Korea issued an arrest warrant for Do Kwon, the founder of the Terraform Labs cryptocurrency ecosystem, whose implosion earlier this year sparked a global crypto rout.
Thailand’s Financial Regulator Bans Crypto Firms from Offering Staking & Lending
Thailand's Securities and Exchange Commission (SEC) has banned crypto companies from offering staking and lending services. The decision to ban "depository services," which includes paying returns to depositors, was made to protect traders from the risks associated with crypto lenders.
South Korea Looks to Void Do Kwon’s Passport
The Korean Ministry of Finance announced that it is working on voiding the passport of Terra co-founder Do Kwon along with five other members connected to the now-defunct crypto project.
Japan’s SBI Wins License in Singapore
SBI Digital Markets, a subsidiary of the digital asset arm of Japan's financial services giant SBI Holdings, has been granted a Capital Markets Services (CMS) license to offer securities and futures trading services in Singapore.
Australia 🇦🇺
Australian Law Enforcement Introduce Crypto Unit
The Australian Federal Police has set up a dedicated unit for tracing and seizing cryptocurrency linked to criminal activity, operating as part of its Criminal Assets Confiscation Taskforce (CACT). The national manager of the CACT, Stefan Jerga, told the Australian Financial Review that the taskforce felt a standalone team was necessary to tackle the growing use of crypto by criminals, “rather than a lot of officers picking up some of this skill set as part of their overall role.”
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