Crypto Regulation Update — March

This update is brought to you by Bridge Protocol (TOLL) as part of a series on cryptocurrency regulations.

Bridge is a RegTech company specializing in identity services and compliance for Know-Your-Customer (KYC), Anti-Money-Laundering (AML) and more on the blockchain.

Read last month’s update here

United States

  1. Securities and Exchange Commission (SEC) charges Initial Coin Offering (ICO) with Selling Unregistered Securities After Startup Self-Reports. The United States Securities and Exchange Commission has charged crypto firm Gladius Network with selling unregistered securities after the company self-reported to the commission, an SEC press release reveals on Feb. 20. The company is now going to be offering refunds for proven ICO participants and more details are to come.
“The SEC did not impose a penalty because the company self-reported the conduct, agreed to compensate investors, and will register the tokens as a class of securities.”

Many critics to the order say there was many flaws in their offering that triggered the refund like “staking” capabilities of tokens, giving them more “security” like characteristics.

2. United States SEC Highlights Dedicated ICO Guide Amid Dissent Internal and External of the Commission. The SEC has updated a five section webpage that they summarize as essential when looking at ICO investments. There is also a separate section for investors and market professionals.

The five descriptive aspects listed appear to summarize the organization’s current perspective. These include confirmation a token issued in an ICO can be a security in need of registration with the SEC, regardless of how its issuer refers to it.

An SEC commissioner; Hester Peirce, dubbed as “Crypto Mom,” said Friday, Feb. 8, that the delay in establishing crypto regulation may allow more freedom for the industry to move on its own.

3. SEC Commissioner Hester Pierce Shows Dissent internally at the Commission. At a recent speech on the state of regulation at the University of Missouri School of Law, Pierce delivered some updates on the thinking behind closed doors. Reiterating that ambiguity is not bad:

“We might be able to draw clearer lines once we see more blockchain projects mature. Delay in drawing clear lines may actually allow more freedom for the technology to come into its own.”

She went to mention that over-regulation can sometimes take place. Enforcement actions are not her preferred method for setting expectations for crypto investors.

“We rightfully fault investors for jumping blindly at anything labeled crypto, but at times we seem to be equally impulsive in running away from anything labeled crypto. We owe it to investors to be careful, but we also owe it to them not to define their investment universe with our preferences.”

4. Soon-to-be reintroduced Token Taxonomy Act can simply treat crypto as a separate asset class.

The “Token Taxonomy Act” ; a bill was introduced by Representative Warren Davidson and Darren Soto, a Republican and Democrat. Initially introduced in the latter moments of 2018 to a “Lame Duck Congress,” the bill is now to be introduced again “soon.”

Read more about it here.

5. The SEC just fought back in the Blockvest case and won big time. Blockvest’ Lawyers literally quit during the motion.

With a very rare turn of events, a federal judge overturns his own order granting an injunction to the SEC v. Blockvest.

The SEC made an alternative argument that there was separately a security, but the court overlooked it. Actually there *was* an offer of an investment of money: Blockvest’s website had a big “BUY NOW” button on it!

Marco Santori, the father of the Simple Agreement for Future Tokens (SAFT), weighed in on some of the Howey test prongs and brazen claims that Blockvest made:

Twitter: @msantoriESQ

6. FBI seeks out potential BitConnect victims. Asks for help with a questionnaire.

The Federal Bureau of Investigation’s Cleveland Division has sent a request seeking “potential victims who invested in the cryptocurrency BitConnect coin.” According to the FBI, the entire BitConnect market “crashed in late January 2018, after two U.S. state-level securities regulators issued public letters warning investors of the Ponzi-type nature” of the project. These warnings resulted in BitConnect shutting down its platform, leaving investors with “near-worthless cryptocurrency.”

7. ErisX responds to the CFTC’s request for information on Ethereum.

ErisX, a Chicago-based cryptocurrency exchange, has filed a Comment Letter to the CFTC regarding the Ethereum network. Last December, the CFTC sent out a request for information seeking public feedback on the seeking information on ether and the Ethereum network. Specifically, the CFTC wanted to understand the “similarities and distinctions between certain virtual currencies…as well as Ether-specific opportunities, challenges, and risks.”

8. Crypto-based funds crawl family offices with the hope of “ordinary trading” eligibility soon.

Commissioner, Robert J. Jackson Jr. expects some applicant to meet the minimum requirements for a cryptocurrency-based fund that could be traded by ordinary investors. A number of cryptocurrency-based applications await the agency’s decision, he said in an interview, though he wouldn’t speculate on whether one of those will get approval, or when.

Among the more prominent SEC actions on such funds was a 3–1 vote in July to reject a proposal by Bats BZX Exchange Inc. to list and trade shares of the Winklevoss Bitcoin Trust. The agency deemed the fund inconsistent with Securities Exchange Act requirements to prevent fraudulent and manipulative acts.

Republican Hester Peirce was the only commissioner to vote in favor of the fund. The SEC was acting like an overprotective “helicopter parent” in denying approval, Peirce said in a speech in September, arguing that it’s not the agency’s job to determine whether bitcoin will ultimately succeed or fail.


1. Thai SEC Bans Three Cryptocurrencies from ICO Investment and “Approves” a few others.

Thailand put out rules in July 2018 on which cryptocurrencies are compliant for use as an investment vehicle in an ICO. The list of approved tokens includes: Bitcoin (BTC), Bitcoin Cash (BCH), Ether (ETH), Ether Classic (ETC), Litecoin (LTC), Ripple (XRP) and Stellar (XLM).

In an announcement Thursday, the SEC said it has now removed Bitcoin Cash (BCH), Ether Classic (ETC) and Litecoin (LTC) from the list of eligible cryptocurrencies. As a result, only the remaining four cryptocurrencies are permitted it said, with a reminder that the list is “not a certification of their legal tender status.”

The regulator added that it provides the list of eligible cryptocurrencies in compliance with the Emergency Decree on Digital Asset Businesses B.E. 2561 (2018).

2. LocalBitcoins will comply with the EU’s new anti-money laundering laws.

LocalBitcoins, the peer-to-peer over-the-counter bitcoin marketplace, announced in a blog post that it would comply with the new anti-money laundering directive enacted by the European Union. The directive, also known as 5AMLD, establishes a central public database of companies and their owners. 5AMLD also brings virtual cryptocurrencies under the microscope of the EU’s anti-money laundering regulations.

3. Bitcoin Billionaire of China, Zhao Dong Believes Crypto will see a resurgence in 2020.

Alleged Bitcoin (BTC) billionaire Zhao Dong believes that the crypto spring will only come in 2020. His opinion, shared in a public chat in local messenger WeChat, was cited by Chinese crypto outlet 8BTC on Tuesday, Feb. 12. To note, he owns a substantial stake in Hong-Kong based crypto exchange Bitfinex.

Zhao Dong, Source: Twitter (@zhaodong1982)
Dong believes that nobody cares about BTC today and only when it hits “many tens of thousands of dollars,” will people care again.

4. India’s Supreme Court gives the government four-weeks to come up with crypto policy.

Reserve Bank of India’s circular, which banned all local banks and regulated entities from engaging with any cryptocurrency entities, could soon run its course, INC24 reports. The country’s Supreme Court has given the Union of India four weeks to bring in a new cryptocurrency policy proposal. The Indian government stance has been long debated and a Supreme Court ruling is a welcomed decision by the enthusiasts.

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