The Scenius State of Regulation (Issue #7)
Crypto Policy & Regulation: February 2023
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United States 🇺🇸, Canada 🇨🇦, & Caribbean 🌎
Judge Dismisses Proposed Class-Action Lawsuit Alleging Coinbase Sold Unregistered Securities
U.S. District Court Judge Paul Engelmayer has rejected claims in a proposed class action by customers who claim Coinbase sold them unregistered securities and also failed to register as a broker-dealer, according to a filing on Wednesday. The case is Underwood vs. Coinbase Global in the Southern District of New York.
Silvergate Faces US Fraud Probe Over FTX and Alameda Dealings
US prosecutors in the Justice Department’s fraud unit are looking into Silvergate Capital Corp.’s dealings with fallen crypto giants FTX and Alameda Research including examining Silvergate’s hosting of accounts tied to SBF’s businesses. Although the crypto-friendly bank hasn’t been accused of any wrongdoing, the review adds to mounting scrutiny of the La Jolla, California-based bank.
Member of St. Maarten’s Parliament Launches Bid to Adopt Tron as Legal Tender
Tron-based cryptocurrency could become legal tender in the Caribbean nation of St Maarten, after pro-crypto member of parliament Rolando Brison initiated legislation to begin the process.
Former Coinbase Product Manager Pleads Guilty in Landmark Case
Ishan Wahi pleaded guilty to wire fraud-related criminal charges. The guilty plea could moot legal arguments about the legal status of tokens that Wahi and associates are accused of front-running the listings of in the case.
Three Arrows’ Founder Refused to Comply With Subpoena, Stonewalling Probe
Kyle Davies refused to comply with a court subpoena for the books and records of his former crypto hedge fund Three Arrows Capital, a New York court was told in a Tuesday night filing.
Bankrupt Lender Genesis and Parent DCG Reach Initial Agreement With Main Creditors
Crypto conglomerate Digital Currency Group (DCG) and its bankrupt Genesis subsidiaries reached an in-principle agreement on terms of a restructuring plan with a group of the firm’s main creditors.
Hermès wins case against Mason Rothschild’s Metabirkins
In a case expected to have far-reaching implications for the use of NFTs by artists and for the protection of intellectual property in the metaverse, a jury awarded Hermès $133,000 in damages after finding NFT artist Mason Rothschild liable for trademark infringement, trademark dilution and “cybersquatting.”
Kraken to Shut US Crypto-Staking Service, Pay $30M Fine in SEC Settlement
Crypto exchange Kraken will “immediately” end its crypto staking-as-a-service platform for U.S. customers and pay $30 million to settle SEC charges it offered unregistered securities.
Crypto Lender Nexo to Stop EIP for US Clients on April 1
Crypto lender Nexo said is will stop its Earn Interest Product (EIP) for all U.S. clients, residents and citizens, effective April. 1. Nexo's decision comes after the lender paid a $22.5 million fine last month to the SEC for failing to register the offering and sale of EIP. The firm also said at the time that it is stopping EIP in eight states and has stopped onboarding clients in the U.S.
Republicans Plan to Reintroduce Legislation to Prevent Crypto Restrictions in 401(k)
U.S. Sen. Tommy Tuberville (R-Ala.) plans to reintroduce legislation that would stop the Labor Department from preventing employers and investment firms from offering crypto as part of 401(k) retirement plans
Coin Cloud Crypto ATM Operator Files for Bankruptcy, Owes Over $100M to Genesis
The operator of Coin Cloud digital currency automatic teller machines in the United States and Brazil, has filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court for the District of Nevada. According to a Feb. 7 filing, the company has liabilities between $100 million and $500 million, with between 5,001 and 10,000 creditors and assets between $50 million and $100 million.
Sam Bankman-Fried Hit With Additional Bank Fraud Charges in New Indictment
The FTX founder faces additional charges, including bank fraud allegations, under a new indictment.
PayPal Pauses Stablecoin Work Amid Regulatory Scrutiny of Crypto
PayPal had hoped to debut the stablecoin, which will be backed one-for-one by the US dollar, in the coming weeks, but will delay that work as it seeks to understand the changing regulatory landscape for such digital assets. New York regulators have been investigating Paxos Trust Co., a cryptocurrency firm PayPal was working with on its stablecoin effort.
Galaxy Digital gets approval for Bahamas subsidiary amid rising US regulatory uncertainty
Galaxy Bahamas, a subsidiary of Mike Novogratz's crypto investment firm, received approval from the Securities Commission of The Bahamas in December for registration as a digital asset business under its Digital Assets and Registered Exchanges Act of 2020.
SEC Proposal Could Bar Investment Advisers From Keeping Assets at Crypto Firms
The SEC proposed a rule that would effectively require RIAs to go outside the crypto industry for storing digital assets, according to its first formal policy push that leans heavily into the cryptocurrency sector. The rule, approved in a 4-1 vote by the SEC, would expand the agency’s existing regulations that say an investment adviser needs to keep customers’ money and securities with a “qualified custodian.” The new version, if approved, would grow that safeguarding requirement to any assets that investment advisers are entrusted with – including crypto. Right now, crypto trading and lending platforms routinely offer custody for crypto customers, but they're not “qualified custodians” under this rule. An appropriate custodian under SEC’s regulations would generally mean a chartered bank or trust company, a broker-dealer registered with the SEC or a futures commission merchant registered with the Commodity Futures Trading Commission (CFTC).
Coinbase, Anchorage Digital Say They'd Be OK Under SEC Custody Proposal, but Risks May Lurk for Others
The SEC is officially working toward forcing investment advisers to make hard decisions about how they keep clients’ crypto assets, but the agency’s Wednesday proposal comes with good-news, bad-news elements now being studied by industry lawyers and lobbyists.
SEC charges Terraform and Do Kwon post Terra collapse
The SEC charged Terraform Labs and its CEO Do Hyeong Kwon over its algorithmic stablecoin Terra USD, which collapsed dramatically last year. The agency said the Singapore-based company and Kwon raised billions from investors by “offering and selling an inter-connected suite of crypto asset securities, many in unregistered transactions.”
NBA-Branded 'Top Shot Moments' NFTs May Be Securities, Judge Rules in Dapper Labs Case
The ruling on a motion to dismiss comes a year and a half after a class-action lawsuit was filed against Dapper Labs and its CEO in New York. The lawsuit alleges violations of federal securities laws by offering a non-fungible token (NFT) collection – the NBA Top Shot Moments – without first registering with the U.S. Securities and Exchange Commission (SEC). Dapper Labs now has three weeks to respond to the lawsuit.
Celsius Debtors Release Sale Plan, Choose NovaWulf as Plan Sponsor
The plan is as part of the overall reorganization plan for Celsius' retail platform and mining business and has the support of the official committee of unsecured creditors (UCC). At the center of the plan is an in-principle agreement with NovaWulf Digital Management, a digital asset investment firm, making it the plan sponsor.
Federal Trade Commission investigates Voyager's 'deceptive and unfair' crypto marketing
The FTC is investigating Voyager and its employees “for their deceptive and unfair marketing of cryptocurrency to the public,” according to a filing in bankruptcy court. The crypto firm filed for bankruptcy protection in July, after the collapse of the Terra.
Wyoming Bill Helps Shield Citizens’ Private Keys From Government Intrusion
Wyoming, a historically friendly state for crypto companies and investors, has passed a bill prohibiting the forced disclosure of private keys. The measure, which will take effect in July, allows investors to withhold private keys “unless a public key is unavailable or unable to disclose the requisite information,” the bill read.
Paxos in 'constructive discussions with the SEC,' Ends Relationship with Binance
Stablecoin issuer Paxos told employees it's in "constructive discussions" with the SEC after getting a Wells notice about the Binance USD stablecoin coin.
DeFi ‘fragility’ Causes and Cures Explored in Highly Technical Bank of Canada Study
The Bank of Canada has released a working paper that examines lending protocols in decentralized finance with regard to sources of instability and their relation to crypto asset prices. Its findings point to potential ways to optimize DeFi lending platforms, or possibly the practical limits of decentralization.
NY Attorney General Sues Crypto Exchange CoinEx, Alleges AMP, LBC, LUNA and RLY Tokens Are Securities
The petition alleged that CoinEx listed various tokens and services that qualify as securities and/or commodities under state law.
How New Jersey’s Crypto Bill Could Impact Industry Firms in the State
New Jersey is looking to follow in New York’s footsteps by establishing a crypto regulatory framework — a move other states may also look to replicate in the absence of federal rule-making.
Kansas Looks to Cap Crypto Political Campaign Donations at $100
The Kansas state legislature is looking to cap individual crypto donations to political campaigns at $100 by amending its campaign finance law.
SEC Objects to Binance.US’ $1B Voyager Deal, Alleging Sale of Unregistered Securities
Federal and New York regulators object to a billion-dollar deal they say may be unlawful and discriminatory as they examine Voyager's VGX token.
Crypto Exchanges Have 30 Days To Register With Canadian Regulators
The Canadian Securities Administrators has asked exchanges that will not adhere to the new policies to halt serving customers in the country.
Montana Senate Passes Bill Protecting Crypto Miners
The legislation will likely upend a Missoula county zoning law that was one of the first in the U.S. to target the mining industry.
Crypto Investors' $28M ‘Black Thursday’ Lawsuit Against DeFi Giant Maker Dismissed by US Judge
A federal judge dismissed a class-action lawsuit that alleged investors on Maker, one of the largest decentralized finance protocols, suffered some $8 million in losses because the platform misrepresented risks.
Blockchain Can Be Public Good, but Crypto Still ‘Disappointment’: IMF
The International Monetary Fund has recently expressed understanding of the benefits of crypto — albeit slight — but still remains skeptical about public blockchains.
Illinois Officials Pushing State Crypto Licensing to Emulate New York’s BitLicense
New bills to set up a digital assets regulation in Illinois are supported by the local regulator, as states continue to surge ahead of U.S. agencies on cryptocurrency efforts.
Robinhood Subpoenaed by SEC Over Brokerage’s Crypto Business
Robinhood Markets Inc. said it was subpoenaed by the SEC as the regulator investigates the firm’s cryptocurrency business.
FTX's Singh Pleads Guilty as Pressure Mounts on Bankman-Fried
Nishad Singh, the former director of engineering at FTX, pleaded guilty to U.S. criminal charges at a court hearing on Tuesday, as U.S. prosecutors ramp up their investigation into members of Sam Bankman-Fried's inner circle.
Latin & Central America 🌎
Argentina's National Securities Commission to Set Requirements and Rules for Crypto Companies
Argentina’s National Securities Commission (CNV) will establish and regulate requirements to be followed by crypto companies in that country, the agency told CoinDesk.
El Salvador Plans to Open 'Bitcoin Embassy' in Texas
The Central American country wishes to open a bitcoin embassy in "new ally" Texas, Mayorga said on Twitter. The embassy will aid "expansion of commercial and economic exchange projects," Mayorga said following a meeting with the state's Secretary of State, Joe Esparza.
Middle East & Africa 🌍
Kraken Shuts Abu Dhabi Office as Crypto Exchanges Shrink
Crypto exchange Kraken has shut its Abu Dhabi office less than a year after winning a local license, part of a retrenchment that involves cutting almost a third of its global workforce. Kraken does, however, plan to keep several employees based in MENA.
Dubai Prohibits Privacy Coins Like Monero Under New Crypto Rules
The issuance of anonymity-enhancing crypto are banned under the Emirate's new regulations for digital assets.
UAE Plans to Issue a CBDC to Promote Digital Payments
The deployment of a digital dirham is one of nine key initiatives of the UAE's new Financial Infrastructure Transformation Program.
Saudi Arabia, The Sandbox Agree to Collaborate on Metaverse Projects
Metaverse gaming platform The Sandbox and Saudi Arabia signed a memorandum of understanding but without revealing details explaining the scope of the agreement. Like the UAE, Saudi Arabia has shown significant interest in crypto and web3.
Why Nigerians Aren't Turning to the eNaira Despite Crippling Cash Shortages
A lack of infrastructure, merchants and interest may all be reasons why more people in the country aren't using the digital currency.
Tel Aviv Stock Exchange Plans to Let Customers of Its Nonbank Members Trade Crypto
The Tel Aviv Stock Exchange, or TASE, which operates Israel's only public equity trading platform, wants to expand authorized activities to allow customers of its nonbanking members to trade crypto. TASE's proposal to change its rules is now open for a period of public comment.
Israel's Central Bank Proposes Rules for Stablecoins Including 100% Reserve Requirement
The Bank of Israel also recommends a ban on algorithmic stablecoins if they become widely used for payments. The proposed rules are open to public comment.
UK’s Economic and Finance Ministry, HM Treasury (HMT), Publishes Consultation and Call for Evidence on Future Financial Services Regulatory Regime for Crypto Assets
In April 2022 the government committed to introducing a new regulatory regime for cryptoassets, reflecting the risks and opportunities they present. This consultation paper sets out proposals for this future regime and marks the next phase of the government's approach to regulating cryptoassets. Responses to the Consultation must be submitted by April 30, 2023.
EU Eases Regulatory Burden for Crypto Smart Contracts in Draft Legislation
The draft shows that sellers or offerers of smart contracts, for example, will no longer need to perform a conformity assessment and sign a mandatory declaration that they comply with EU requirements. Expectations for smart contracts to meet so-called harmonized standards, or technical compliance specifications, were also dropped.
Euro-Pegged Stablecoin Powered by Ethereum Launches in Finland
Finnish company Membrane Finance has released a fully-reserved stablecoin backed by the euro, according to a Feb. 2 blog post from the company. The company is licensed by the Finnish Financial Supervisory Authority (Fin-FSA), which targets to reduce the complexity of converting and paying in volatile cryptocurrencies.
Firms Unlawfully Advertising Crypto in UK Could Face Jail Time
In a new statement from the Financial Conduct Authority (FCA), firms that do not follow one of the four mandated routes for promoting cryptocurrencies could face criminal punishment “by up to two years imprisonment.” Under the new rules, which still need approval from UK Parliament before they come into force, any promotions will need to be made by an FCA-authorized person or approved by one.
UK Government and Central Bank Tease CBDC Consultation
The UK’s Treasury and the Bank of England are preparing the groundwork for a potential central bank digital currency to launch this decade.
UK's Bank of England Launches Digital Pound Project as 'new form' of Money
The Bank of England, the UK's central bank, launched its long-awaited digital pound project, pitching the potential to create a new payment system and form of money.
Craig Wright Loses Bitcoin Copyright Claim in UK Court
The self-proclaimed author of the Bitcoin white paper claims Bitcoin and Bitcoin Cash violate his intellectual property rights. According to a U.K. Judge, the file format of the Bitcoin blockchain can’t be protected by copyright. Claims concerning copyright to the 2008 white paper and whether Wright is really the author will be the subject of later rulings, the judge said.
France to Tighten Crypto Registration Rules Next January
Registration conditions for French crypto firms will be tightened as of January 2024 under plans published by a committee of lawmakers from both chambers of parliament, but not as much as initially sought by the Senate, the country's upper house that would have required companies to seek a license.
Restrictive Crypto Rules for EU Banks Confirmed in Published Legal Draft
EU banks would have to place the maximum possible risk weight on crypto assets under a draft law published by the European Parliament on Friday. Before passing into law, the EU member governments meeting as the Council and the parliament must agree on the proposals.
Self-Hosted Wallet Ban Avoided in New Draft of EU’s Anti-Money Laundering Bill
Self-hosted addresses, formerly known as “unhosted wallets” in the European Union's policies, are back in discussion as European Parliament staff look to clarify that lawmakers do not want an outright ban on non-custodial services.
Euro-backed stablecoin, Euro Coin Set to Trade on Coinbase
The euro-backed stablecoin will be paired against the euro and U.S. dollars on the exchange, with trading expected to go live in phases.
Platypus Finance says French Police Took Suspected Hackers into Custody
The decentralized finance protocol on Avalanche suffered a $9.1 million hack earlier this month. It announced that French police had arrested its suspected hackers after the project assisted in tracing the identity of the attackers to a KYC-verified Binance account that was being used in an attempt to cash out the stolen funds.
UK Banking Regulator to Propose Rules on Issuing, Holding Crypto
The Prudential Regulatory Authority (PRA), which regulates banks in the U.K., is planning to propose rules on issuing and holding digital assets. The country is trying to firm up its approach on crypto, including stablecoins and other digital settlement assets that could pose a risk to financial stability.
DZ, Germany's Second-Largest Bank, Taps Metaco for Digital Asset Custody
This is the fourth such partnership Metaco has made with major financial institutions in eight months.
France passes new crypto registration rules for firms
The provisions will take a milder form than French policymakers originally proposed. French companies offering crypto services must attain a registration more robust than currently offered from the Financial Markets Authority (AMF). France's action is meant to complement the EU-wide Markets in Crypto-Assets legislation, expected to pass a final European Parliament vote in April, essentially bringing French registered firms into compliance with the anticipated law ahead of schedule.
South Korean Prosecutors Arrest Executive Linked to Crypto Exchange Bithumb
Kang Jong-Hyun, who is reported by South Korean media to be a shareholder of and control the exchange has been arrested on charges of embezzlement, breach of trust and fraudulent illegal transactions,. The arrests come during a turbulent period for Bithumb as it is already been investigated for possible tax evasion and last Thursday its offices were raided as part of an investigation into price manipulation.
India’s Retail Giant Reliance to Accept CBDC at Stores
Reliance Retail, India’s largest retail chain, will start accepting retail payments in digital rupee in a move that could supercharge the adoption of the country’s recently launched CBDC.
India Keeps Crypto Tax Provisions in New Budget
India announced its annual budget for the year 2023-24, introducing a penalty for individuals that avoid paying taxes on cryptoassets.
MetaMask Adds Onramp.money to Streamline Crypto Purchases in India
MetaMask wallet is integrating with Onramp.money to allow Indian users to purchase cryptocurrency directly from the in-browser wallet. The partnership is expected to make it easier for Indians to buy tokens on Ethereum, Polygon, and BNB Chain via the wallet.
Kazakhstan's President Signs Legislation to Limit Energy Usage of Crypto Mining
The legislation will limit the energy used by domestic crypto miners for the Central Asian country that has been struggling to meet electricity demand as bitcoin miners, including illegal operators, flocked to its territory in the past couple of years, putting a strain on the grid infrastructure.
South Korea Blacklists North Korean Crypto Thieves, Flags Wallet Addresses
The government sanctions targeted four individuals and seven institutions – some with alleged ties to the elite North Korean hacking group Lazarus.
Hong Kong Successfully Offered Inaugural $100M Tokenized Green Bond
Hong Kong's government successfully issued its first tokenized green bond of 800 million Hong Kong dollars (US$101 million). The bond was offered by the government of the Hong Kong Special Administrative Region of the People’s Republic of China under its Green Bond Program, and is the first green bond to be issued by a government globally, the announcement by the Hong Kong Monetary Authority said.
Hong Kong Plans to Let Retail Sector Trade Larger Crypto Tokens Like Bitcoin
Hong Kong outlined a plan to let retail investors trade digital tokens like Bitcoin and Ether, taking a major step toward its goal of becoming a crypto hub in a policy shift that contrasts with a crackdown in the US.
Hong Kong Proposes Rules for Crypto Trading Platforms
Hong Kong's Securities and Futures Commission (SFC) published its proposed rules for virtual asset trading platforms and is seeking public comment. Aside from setting up a licensing regime for crypto service providers, the regulator is also seeking views on whether to allow licensed platforms to serve retail investors, and under what investor protection measures these services should be offered, an official notice said.
Hong Kong to Establish Task Force to Help Develop Crypto Hub
Hong Kong will set up a task force to provide recommendations on how it can achieve a recently adopted goal of becoming a crypto hub.
Japan Will Launch Pilot for Issuing Digital Yen in April
The move comes after more than two years of proof-of-concept experiments by the BoJ.
Beijing Using Hong Kong as Crypto Testing Ground
The use of crypto is banned in China itself, but Beijing officials have frequently engaged in friendly encounters at meetings in Hong Kong reflecting subtle support of its ambitions to become a digital asset hub.
Taiwan Public Servants May Soon Need to Declare Crypto Holdings
Taiwan is slowly pushing forward with crypto regulation, with portfolio disclosures of government officials potentially on the table.
Korea’s Second-largest City Pushes for Crypto Hub
Busan plans to create a publicly-run crypto exchange as a means of rejuvenating its aging population and attracting foreign investment.
Australia Releases Token Mapping Consultation Paper, Plans to Reveal Crypto Rule Framework in 2023
The Australian government released a token mapping consultation paper and has sought responses from stakeholders on it by March 3. "Token mapping is the process of identifying the key activities and functions of products in the crypto ecosystem and mapping them against existing regulatory frameworks," the paper said.
Australia To Tackle Crypto Regulation in Three Stages
In Australia, crypto startups are preparing for the government’s multi-stage approach to regulating crypto, pitched to protect consumers from what it considers unsustainable business models.
Australian Crypto Exchange Digital Surge Set to Come Back Online After Stakeholders Sign Recovery Plan
The stakeholders signed the recovery plan a day before the exchange was set to go into liquidation, according to documents submitted to Australian Securities and Investments Commission (ASIC).