Crypto Regulation News: Bank of Japan to run CBDC experiments with country’s megabanks, IMF calls for tighter crypto regulation in Africa, FTX stake in US bank raises concerns about banking loopholes, UK lawmakers support easy seizure of crypto linked to terrorist activity, Russia intends to launch a national crypto exchange, and more!

Paradigm

Published in

Paradigm

15 min readNov 28, 2022

Vol. 105, 14th November — 28th November

TL;DR

US lawyers detail the ‘abrupt and difficult’ collapse of FTX in first bankruptcy hearing. FTX stake in US bank raises concerns about banking loopholes. FTX bankruptcy judge says creditor information can be redacted
SEC chair’s crypto oversight strategy in question as ecosystems collapse
CFTC bypassed legal requirement in trying to serve Ooki DAO, crypto supporters claim
US senators ask Fidelity to reconsider Bitcoin 401(k) offerings following FTX collapse. US senators ask bank regulators to ‘review’ SoFi’s crypto listings
US state regulators investigating crypto trading firm Genesis Global Capital
California finance regulator moves to suspend crypto lender Salt’s license
New York imposes 2-year moratorium on on air permits for fossil fuel power plants used for energy-intensive PoW cryptocurrency mining
NY Fed launches 12-week CBDC pilot program with major banks
Binance US steps into national politics with new campaign PAC
US court approves deadline for Celsius customers to file proofs of claim
UK crypto fraud climbs by a third to over $270M. UK lawmakers support easy seizure of crypto linked to terrorist activity
Belgium says BTC, ETH and other decentralized coins are not securities
Turkish authorities order seizure of ‘suspicious’ FTX assets
EU-based crypto exchange Bitpanda secures crypto license in Germany
Two estonian citizens charged with running a series of crypto scams totaling $575M
Bank of Japan to run CBDC experiments with country’s megabanks
Hong Kong believes stablecoin volatility can spillover to traditional finance
South Korea investigates crypto exchanges for listing native tokens. South Korea seizes $104M from Terra co-founder suspecting unfair profits
Bahamas securities regulator blasts ‘inaccurate’ accusations made by FTX
Russia intends to launch a ‘national crypto exchange’. Furthermore, Russian bill would legalize crypto mining, sales under ‘experimental legal regime’
Australia’s markets watchdog sues fintech company Block Earner
El Salvador proposes digital securities bill, paves way for bitcoin bonds
Kenya proposes bill to tax crypto
FTX collapse put the Singapore government in a parliamentary hot seat. Crypto lender Hodlnaut reportedly faces police investigation in Singapore
Uzbekistan issues first crypto licenses to two local ‘crypto stores’
UAE regulator revokes FTX license amid the exchange’s collapse
Reserve Bank of India to launch a retail CBDC pilot in December
IMF calls for tighter crypto regulation in Africa as the industry unfolds
Shiba Inu developer says WEF wants to work with project to ‘help shape’ metaverse global policy
First official DAO in the US to fight SEC without attorneys
Uniswap’s new privacy policy sees backlash from decentralization buffs
And more!

Opinions

Central banks can use Bitcoin to fight off sanctions: Harvard research: Matthew Ferranti, a Ph.D. candidate at Harvard, pointed out that Bitcoin is an optimal alternative hedging asset for central banks.

Post-FTX Meltdown, Regulation-Abiding Companies Can Restore Trust: Adhering to stringent guidelines is less flashy, but will ensure safety and reduce risk.

FTX’s collapse could change crypto industry governance standards for good: Following FTX’s downfall, experts believe that centralized exchanges will be faced with increased regulatory scrutiny, potentially eliminating a lot of players from the fray.

Crypto’s Future Will Be Based on Self-Custody and Regulation: Kraken’s Dave Ripley: The incoming CEO discusses why the future of crypto will be based on proof of reserves and thoughtful regulation.

Let’s Stop Regulating Crypto Exchanges Like Western Union: It’s time for U.S. crypto exchanges to face the same rules as non-crypto marketplaces and brokers, says our columnist.

If You Lost Money on FTX, You May See Some Tax Relief: Tax expert Victoria J. Haneman compares Sam Bankman-Fried’s crypto trading empire to Bernie Madoff’s Ponzi scheme to glean what the FTX fallout could mean for tax filers.

The End of the ‘Centralization Era’ in Crypto: Drawing a straight line from Mt. Gox to Voyager Digital, Celsius Network and now FTX shows how crypto’s largest problems are often corporate failures.

USA

FTX stake in US bank raises concerns about banking loopholes: The chairman of the rural bank, Jean Chalopin, also happens to be the chairman of Deltec Bank, which has Tether and Alameda both on its client list.

The bankruptcy proceedings of cryptocurrency exchange FTX have revealed many new aspects of its unethical practices. The latest revelation around its stake in one of the smallest United States banks from rural Washington has raised fresh concerns about its operations and alleged misuse of banking loopholes. Farmington State Bank in the state of Washington, now renamed Moonstone, is the 26th smallest bank in the U.S. — with a single branch and three employees. FTX invested in the rural bank through its now-bankrupt sister company, Alameda, with an investment of $11.5 million in its parent company FBH in March 2022. The Alameda investment was more than double the bank’s value of $5.7 million, reported The New York Times.

FTX’s ownership in Moonstone is seen as a move to bypass the requirements of owning a banking license in the U.S., which, according to many, is quite a complex task.

A Tether representative spoke against The New York Times for “uninformed journalism” and making sweeping accusations, stating that “This is what led them to miss the actual bad actors in the crypto industry.” While confirming receiving investment requests from numerous crypto projects, Tether spokesperson said:

“Tether has a strict approach when it comes to investing its own equity. Tether decided to not invest in this particular venture, since it doesn’t want to have equity in US-based banks. Tether also does not have equity stake in Deltec.”

Apart from FTX’s stake in a U.S. bank, what drew more attention from the crypto community is the connection between the rural bank’s parent company, FBH, and another crypto entity, Tether, the largest issuer of a stablecoin in the crypto market currently.

The chairman of FBH is Jean Chalopin, who also happens to be the chairman of Deltec Bank, which has Tether and Alameda both on its client list. After buying the bank in 2020, FBH applied for Federal Reserve approval nearly 100 years after the bank was founded to facilitate cryptocurrency-related transactions. The bank got federal approval in June 2021, and nine months later, FTX invested in the rural bank, now equipped with Federal Reserve approval.

US State Regulators Investigating Crypto Trading Firm Genesis Global Capital: Barron’s: Several regulators, including the Alabama Securities Commission, are looking into whether Genesis may have violated securities laws, according to Barron’s.

US Senators Demand Sam Bankman-Fried, FTX Execs Be Held Accountable to ‘Fullest Extent of the Law’: Elizabeth Warren (D-Mass.) and Sheldon Whitehouse (D-R.I.) said in a Wednesday letter to Attorney General Merrick Garland they want Sam Bankman-Fried and others investigated.

US Senators Warren, Durbin Probe FTX Collapse: The Democratic senators sent letters to both FTX’s current and former CEO demanding answers about what went wrong at the bankrupt exchange — which they say “appears to be an appalling case of greed and deception.”

SEC chair’s crypto oversight strategy in question as ecosystems collapse: Congressman Tom Emmer showed concerns about the oversight strategy implemented by Gary Gensler, the chair of the U.S. Securities and Exchange Commission for the crypto ecosystem.

FTX Bankruptcy Judge Says Creditor Information Can Be Redacted — at Least for Now: John Dorsey said Tuesday that he wants to ensure FTX’s individual creditors are protected from cyber threats.

US Senators Ask Fidelity to Reconsider Bitcoin 401(k) Offerings Following FTX Collapse: Fidelity now allows companies to offer its digital assets account as part of their 401(k) line up.

Lawyers Detail the ‘Abrupt and Difficult’ Collapse of FTX in First Bankruptcy Hearing: FTX’s lawyers say former CEO Sam Bankman-Fried ran the exchange like his own “personal fiefdom,” allowing executives to use customer funds to purchase luxury real estate.

CFTC Bypassed Legal Requirement in Trying to Serve Ooki DAO, Crypto Supporters Claim”: Andreessen Horowitz, LexPunK and the DeFi Education Fund filed their responses to the CFTC.

US Senators Ask Bank Regulators to ‘Review’ SoFi’s Crypto Listings: “SoFi’s digital asset activities pose significant risks to both individual investors and safety and soundness,” the lawmakers said.

California Finance Regulator Moves to Suspend Crypto Lender Salt’s License: Salt announced on Tuesday it was pausing customer withdrawals due to the impact of FTX’s collapse.

New York Imposes 2-Year Moratorium on New Proof-of-Work Mining After Gov. Hochul Signs Bill: The new law sets a two-year moratorium on new and renewed air permits for fossil fuel power plants used for energy-intensive proof-of-work (PoW) cryptocurrency mining.

NY Fed launches 12-week CBDC pilot program with major banks: Banking giants including BNY Mellon, Citi, U.S. Bank and Wells Fargo will be issuing tokens and settling transactions through simulated central bank reserves as part of the pilot.

Binance US Steps Into National Politics With New Campaign PAC: As FTX and its political-minded executives fall from their brief heights as campaign-finance giants, rival Binance has decided now is the time to enter the vacuum.

Bankman-Fried Praises Regulators Hours After Saying ‘F*** Regulators’: Icarus keeps live-tweeting his fall from the Firmament.

The ‘SBF Bill’: What’s in the Crypto Legislation Backed by FTX’s Founder: The specter of the now-disgraced Sam Bankman-Fried looms large over the bill, but Sens. Debbie Stabenow and John Boozman plan to push ahead anyway.

US Court Approves Deadline for Celsius Customers to File Proofs of Claim: Customers of the bankrupt crypto lender have until Jan. 3, 2023, to file proofs of claim, if Celsius’ scheduling of their claims as filed are incorrect.

Europe & UK

UK Lawmakers Support Easy Seizure of Crypto Linked to Terrorist Activity: The lower chamber of the U.K.’ Parliament had already voted in favor of proposed rules to make it easier for law enforcement to target crypto linked to crime.

Lawmakers in the U.K. voted in favor of new rules that could make it easier for law enforcement agencies to seize crypto linked to terrorist activity. The rules were proposed as amendments to the Economic Crime and Corporate Transparency bill, which includes reforms that can help authorities combat local crime.

The same lawmakers in the House of Commons, the parliament’s lower house, had already voted in favor of amendments that would give powers to local enforcement to seize, freeze and recover crypto tied to crime. At the second reading of the bill on Oct. 13, they called to mirror these measures in the country’s existing counter-terrorism legislation as well.

“This addresses a gap in current counterterrorism legislation,” Tom Tugendhat, the minister of state responsible for crime and terrorism regulation, said during Tuesday’s line-by-line reading of the bill. Existing counter-terrorism legislation only covers forfeiture of cash, assets and money in bank accounts, a government factsheet said. Tugendhat added that the counterterrorism legislation will “importantly mitigate the risk posed by those that cannot be prosecuted under the criminal system, but use their proceeds stored as crypto assets to perpetrate further criminality.”

Some other proposed amendments that could have required the country’s Financial Conduct Authority (FCA) as well as British overseas territories to publish reports on their capacity to regulate crypto were withdrawn from consideration during Thursday’s reading of the bill. The crime bill will continue to be scrutinized in Parliament before it is passed into law.

UK Lawmakers Vote to Widen Authorities’ Powers in Seizing Crypto-Related Property: The amendment builds upon a bill in Parliament that allows the government to seize cryptocurrencies tied to crime.

UK Crypto Fraud Climbs by a Third to Over $270M: The U.K. is currently in a recession and the cost of living has increased, making some people vulnerable to fraudsters.

UK May Need Digital Pound, Bank of England’s Jon Cunliffe Says: The deputy governor said FTX’s collapse highlights the need for more oversight of digital assets.

Bitcoin.org’s ‘Cøbra’ Must Unmask to Challenge Craig Wright’s Legal Costs, UK Court Rules: Wright, the self-proclaimed inventor of Bitcoin, was granted permission to serve papers on Cobra as he sought a declaration of his ownership of the copyright to the Bitcoin white paper.

Belgium says BTC, ETH and other decentralized coins are not securities: Belgium’s take on what conditions must be met in order for a crypto asset to be classed as a security are in contrast to the views of U.S. Securities Exchange Commission Chairman Gary Gensler.

Turkish Authorities Order Seizure of ‘Suspicious’ FTX Assets: The country’s Financial Crimes Investigation Board MASAK says the founder of the collapsed crypto exchange Sam Bankman-Fried is also under investigation.

EU-based crypto exchange Bitpanda secures crypto license in Germany: The other licensees included three European institutional investment platforms and one U.S.-based retail platform.

Two Estonian Citizens Charged With Running a Series of Crypto Scams Totaling $575M: According to the Department of Justice, the two men used shell companies to launder the proceeds of their fraudulent schemes and buy luxury cars and real estate in Estonia.

Asia

Bank of Japan to Run CBDC Experiments With Country’s Megabanks: The central bank will decide on issuing a digital yen in 2026.

The Bank of Japan (BoJ) has planned experiments on a digital yen with three megabanks and regional banks in the country, Nikkei reported on Wednesday. Starting in the spring of 2023, the BoJ will work with private banks and other organizations to identify any problems with deposits and withdrawals, and check that a central bank digital currency (CBDC) can operate during natural disasters and in areas without internet access, according to the report.

Although the report did not name the banks, Japan’s “three megabanks” typically refer to Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc.

The BoJ joined a growing list of central banks worldwide exploring CBDCs last year, by developing a test environment for a digital yen and exploring basic functions like issuance, distribution and redemption. Last year, a BoJ official said that it is the central bank’s priority to ensure a CBDC enables competition between private payment providers and be universally accessible by the public. The experiment will last two years and the central bank will decide on issuing a CBDC in 2026, the report said.

Hong Kong believes stablecoin volatility can spillover to traditional finance: According to Hong Kong’s central bank, the interconnection of crypto assets has made the crypto ecosystem more vulnerable to systematic shocks.

South Korea investigates crypto exchanges for listing native tokens: Initial investigations revealed that all crypto exchanges performed lawful operations across South Korea. However, Flata Exchange is suspected of listing its in-house token, FLAT, in January 2020.

South Korea seizes $104M from Terra co-founder suspecting unfair profits: The decision to freeze Shin’s asset worth over $104 million was approved by the Seoul Southern District Court, which was based on a request from the prosecutors.

Rest of the World

Bahamas Securities Regulator Blasts ‘Inaccurate’ Accusations Made by FTX: The Securities Commission of The Bahamas said FTX misrepresented the regulator’s move to secure the embattled exchange’s assets against hacks in bankruptcy court filings in the U.S.

The Securities Commission of The Bahamas is firing back at collapsed crypto exchange FTX’s accusations that the country had directed unauthorized access to transfer assets off the platform after FTX filed for bankruptcy protection in the U.S. In a Wednesday notice, the regulator called the allegations “intemperate and inaccurate,” and said it had sought the order from the country’s Supreme Court to protect the embattled exchange’s digital assets against “the risks associated with hacking and compromise.”

Sam Bankman-Fried’s collapsed crypto enterprise, under new leadership, has kicked off insolvency proceedings in the U.S. Bankruptcy Court for the District of Delaware. Shortly after the company filed for chapter 11 bankruptcy on Nov. 11, court-appointed liquidators in the Bahamas filed another chapter 15 suit for cross-border insolvency proceedings in a New York Court. FTX, in a consequent court filing, asked the court to allow the chapter 15 filing to be transferred to Delaware so that all proceedings could take place in one venue. In the same filing, FTX accused the Bahamian government of directing unauthorized access to FTX’s systems in order to withdraw assets after the firm had filed for bankruptcy.

The Securities Commission announced afterwards that it had ordered the contents of FTX’s crypto wallets to be transferred to government-controlled wallets for safekeeping. On Tuesday, during the first court hearing for the chapter 11 proceedings, FTX’s lawyers said they had reached an agreement with the Bahamian liquidators to transfer their New York case to Delaware. While announcing the agreement, James Bromley, a partner in Sullivan & Cromwell’s Finance and Restructuring Group, said FTX had evidence showing that “there have been movement of assets out of the debtors’ estates to the Bahamas.”

The Commission’s statement comes after the hearing, and said it was “concerning” that FTX “chose to rely on the statements of individuals they have (in other filings) characterized as unreliable sources of information and potentially ‘seriously compromised.’” Statements made by other FTX officials about the exchange suffering “significant thefts” and reports that their systems were compromised “reinforces the wisdom of the Commission’s prompt action to secure these digital assets.”

The Bahamas’ Attorney General Defends Country’s Regulatory Regime Amid FTX ‘Debacle’: Ryan Pinder, the Attorney General of The Bahamas, defended his country’s actions through the collapse of crypto exchange FTX, but did not provide much new information about the local regulator’s efforts to investigate the company.

Russia intends to launch a ‘national crypto exchange’: Local lawmakers are working on amendments to the existing legislation “On digital financial assets” in consultation with market stakeholders.

Russian bill would legalize crypto mining, sales under ‘experimental legal regime’: The bill provides a legal definition of mining and mining pools and would create a domestic cryptocurrency market in Russia’s latest step to integrate digital assets into its economy.

Australia’s Markets Watchdog Sues Fintech Company Block Earner: The Australian Securities and Investments Commission said the company offered fixed-yield earning products that should be licensed, leaving consumers without important protections.

El Salvador Proposes Digital Securities Bill, Paves Way for Bitcoin Bonds: El Salvador’s bitcoin-backed “volcano bonds” are expected to raise $1 billion for the government.

Kenya Proposes Bill to Tax Crypto: Roughly 8.5% of the African country’s population owns cryptocurrencies, according to a United Nations report.

FTX collapse put the Singapore government in a parliamentary hot seat: The opposition party MPs has questioned the credibility over its failure to protect retail investors from FTX collapse and had demanded data on the extent of losses incurred by the investors.

Crypto lender Hodlnaut reportedly faces police investigation in Singapore: Hodlnaut reportedly lied about its exposure to the now-defunct Terra algorithmic stablecoin and lost nearly $190 million.

Uzbekistan issues first crypto licenses to two local ‘crypto stores’: Starting from January 2023, only licensed cryptocurrency firms will be allowed to provide cryptocurrency trading services to Uzbek citizens.

UAE regulator revokes FTX license amid the exchange’s collapse: Dubai regulators noted that no clients were exposed, as FTX MENA was still in the preparation phase before getting fully approved to operate.

The Reserve Bank of India to launch a retail CBDC pilot in December: The digital rupee is intended as a supplement to the current payment system and not its replacement.

MISC

IMF calls for tighter crypto regulation in Africa as the industry unfolds: FTX’s collapse is one of the reasons why countries in the region should adopt regulation, noted the monetary fund.

Tornado Cash Developer Alexey Pertsev to Remain in Jail Until at Least Late Februrary: Pertsev, a Russian national living in the Netherlands, has been accused of facilitating money laundering by developing the now sanctioned app

Shiba Inu developer says WEF wants to work with project to ‘help shape’ metaverse global policy: Shytoshi Kusama reported Shiba Inu could work alongside Facebook and Decentraland by working on metaverse global policy at the World Economic Forum.

First official DAO in the US to fight SEC without attorneys: American CryptoFed DAO begins a litigation battle with the SEC over 2021 token registrations and opts not to have attorneys in its fight for registration.

Uniswap’s new privacy policy sees backlash from decentralization buffs: Uniswap newly released privacy policy comes in light of the FTX crisis, an event that has shined a spotlight on the need for transparency.