Crypto Regulation Update — November

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

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

Read last month’s update here.

United States

  1. Chris Giancarlo, Chairman of CFTC, continues a “do no harm” approach when regulating cryptocurrencies. As reported in last month’s update, Chris has been on various media outlets as a proponent for cryptocurrency as well as admitting his children use and support the technology. His newest statement was comparing cryptocurrency to the early days of the internet. He said that it flourished in the United States because the government avoided stepping in too heavily and used a “do no harm” approach. He was direct in addressing malicious behavior, however, and made clear that “when it comes to fraud and manipulation, we need to be strong. When it comes to policy making, I think we need to be slow and deliberate and well informed.”
  2. Federal judge ruled that U.S. securities laws may cover an initial coin offering. The case dealt with a man charged with promoting digital currencies backed by investments in real estate and diamonds. According to Bloomberg, “U.S. District Judge Raymond Dearie in Brooklyn, New York, said on Tuesday that the government can proceed with a case alleging that an initial coin offering is a security for purposes of federal criminal law.” Keep in mind that the case deals with tokenizing physical assets rather than a token used for services or “utility.” Earlier this year in June, SEC Director of Corporate Finance William Hinman stated that he did not believe that Ethereum should be treated as a security.
  3. Decentralized exchange, IDEX says that they will block IP addresses in various countries/states and take an approach of “pragmatic decentralization.” Aurora, which handles the IDEX exchange said it will start to block orders from New York IP addresses. It has reportedly already blocked in Cuba, Syria and Washington state. The company also said they will be implementing Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) policies to comply with sanctions and money laundering laws.
  4. Coinsource obtains New York BitLicense. The New York State Department of Financial Services (DFS) issued the latest BitLicense to bitcoin ATM operation Coinsource. Operating under a provisional license since 2015, the company manages roughly 40 bitcoin ATMs. The approval process has been criticized for being too long and time consuming. The expense and invasive nature has caused companies like Kraken and ShapeShift to leave the state. This is the 12th BitLicense to be issued and Coinsource now joins Circle, Coinbase and Genesis Trading as holders.
  5. SEC Launches FinHub for FinTech. Either an easier way to track or engage with business owners in the cryptocurrency space, the US Securities and Exchange Commission (SEC) launched a new “hub” to talk with blockchain and crypto projects. The body is dubbed as “FinHub” and will be lead by Valerie Szczepanik. 
    Szczepanik was appointed senior advisor for digital assets and innovation for division director Bill Hinman. The directive specifies that FinHub will “provide a portal for industry and the public to engage directly with SEC staff on innovative ideas and technological developments.”

SEC Chairman Jay Clayton said:

“The SEC is committed to working with investors and market participants on new approaches to capital formation, market structure, and financial services, with an eye toward enhancing, and in no way reducing, investor protection. The FinHub provides a central point of focus for our efforts to monitor and engage on innovations in the securities markets that hold promise, but which also require a flexible, prompt regulatory response to execute our mission.”

Worldwide

  1. The French are building a legal framework for initial coin offerings (ICOs). After reducing taxes paid on cryptocurrency gains early in 2018, French lawmakers are working on a legal framework for ICOs. The plans are reportedly part of President Emmanuel Macron’s larger efforts to improve business and technology growth within the country. The process is going to most likely include a permit process in order to solicit investment. This could help set a framework for others in the EU to follow for compliant token sales. Chinese Arbitrator Reaffirms That Bitcoin Can Be Held, Privately Transferred as Property

2. Chinese Arbitrator Reaffirms That Bitcoin Can Be Held, Privately Transferred as Property. An arbitration body in China has ruled that cryptocurrencies such as Bitcoin (BTC) are legally protected as property, in a case published Oct. 25 via the arbitrator’s WeChat account.

“There is no law or regulation that explicitly prohibits parties from holding bitcoin or private transactions in bitcoin, [only warnings to] the public about the investment risks. The contract in this case stipulates the obligation to return the bitcoin between two natural persons, and does not belong to the September 2017 ICO ban.”
The arbitrator concluded that “Bitcoin has the nature of a property, which can be owned and controlled by parties, and is able to provide economic values and benefits.”

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