Crypto Regulation News: EU bans providing high-value crypto services to Russia, Crypto trading volumes in India collapse 10 days after new tax, FDIC asks banks to report crypto activities, Chinese banking associations target NFTs, BIS releases new study of CBDCs, and more!

Paradigm

Published in

Paradigm

17 min readApr 18, 2022

Vol. 92, 4th April — 18th April

TL;DR

BIS releases study of CBDCs and their role in financial inclusion of the unbanked
Biden nominates former Ripple adviser Barr as top US Fed regulator. While Ripple claims ‘a very big win’ in SEC case
A spot Bitcoin ETF still seems unlikely. Furthermore, SEC approves Teucrium’s Bitcoin futures ETF. Coin Center takes aim at ‘unconstitutional’ SEC redefinition of an ‘exchange’
FDIC asks all banks to report crypto activities
EU bans providing high-value crypto services to Russia
EU’s crypto activism gets mixed reception at Paris Blockchain Week. Furthermore, ECB executive board member talks about current state of digital euro CBDC research
UK regulator’s temporary crypto registration list drops to 5 firms. FCA to add 80 people in crackdown on ‘problem firms’
Crypto trading volumes in India collapse 10 days after new tax. Multiple Indian Official Twitter Accounts Hacked, NFT Content Posted. Coinbase suspends crypto payment services days after India launch
Sweden casts around for potential e-krona suppliers
Slovenia unveils plan for flat tax on crypto transactions
Portuguese regulator grants first crypto license to a bank
China-based regulatory and trade associations target NFTs in latest risk notice
The Bank of Japan official says digital yen won’t be used to achieve negative interest rate
Russians collectively hold 130B dollar in crypto, Prime Minister says. Russia should use crypto for payments with Africa, commerce exec says
Brazilian central bank president confirms CBDC pilot will launch in 2022
Binance receives in-principle approval to operate in Abu Dhabi
South Africa finishes technical PoC for wholesale CBDC settlement system
Industry associations, regulator give some clarity on Singapore’s crypto ad rules
GOP policy arm releases paper exploring benefits, risks of crypto
New York senate authorizes NYDFS to ‘assess’ crypto companies
Montenegro makes Vitalik a citizen, part of plans to promote it as a blockchain hub
North Korea-obsessed Ethereum dev gets 5 years for breaking sanctions
Tornado cash adds Chainalysis tool for blocking OFAC-sanctioned wallets from dapp
Crypto Twitter reacts as Russian gov’t reviews finalized crypto bill
Crypto wallet firm Ledger integrates tax solution to simplify reporting
Mastercard files 15 metaverse and NFT related trademarks
Shopify Bitcoin payments integration triggers legal questions from the community
Texas regulators order virtual casino to stop selling NFTs
US officials tie North Korea’s ‘Lazarus’ hackers to 625M crypto theft
And more!

Opinions

BIS releases study of CBDCs and their role in financial inclusion of the unbanked: The researchers from BIS and the World Bank identify common factors across nine central banks that face a variety of different challenges.

Will Biden’s Executive Order Smash Barriers to Crypto? The digital assets industry is generally positive about the move, which could lead to a coordinated government approach to regulating crypto.

Banks May Face Competition From CBDCs, Study Suggests: The survey also shows central banks are uncertain whether distributed ledger technology should underpin a government-backed digital currency.

It’s Tax Time Again. Do We Really Know What That Means for Crypto? The IRS has provided little clarity on digital assets, and we shouldn’t expect additional information anytime soon.

Regulations set the table for more talent, capital and building in crypto industry: Regulatory involvement in crypto is an indication of the industry’s maturity and longevity, encouraging bright ideas, minds and money to enter the space.

DAO regulation in Australia: Issues and solutions, Part 2 & Part 3: DAOs appeared as the response to red tape and obsolete approaches in governance. Will regulation in Australia stifle innovations?

Fitting the bill: US Congress eyes e-cash as an alternative to CBDC: From fiat banknotes to fractional reserve banking, the notion of what constitutes money in the U.S. has changed over time. But is the time right for e-cash?

Crypto mixers’ relevance wanes as regulators take aim: Cryptocurrency mixers offer users a higher level of privacy and anonymity for their transactions, but often run into trouble with regulators.

Crypto seen as the ‘future of money’ in inflation-mired countries: Citizens in countries with heavily devalued currencies “need to have crypto.” In the developed world, it’s often just “nice to have.”

USA

Biden Nominates Former Ripple Adviser Barr as Top US Fed Regulator: Obama-era Treasury veteran Michael Barr must still win a difficult Senate confirmation.

President Joe Biden named former crypto industry adviser Michael Barr as his latest pick for a Federal Reserve post that’s arguably the most powerful financial regulator job in the U.S. Michael Barr, who is now the public policy school dean at the University of Michigan Law School, was a senior official in former President Barack Obama’s Treasury and occupied a key role in the government’s rescue of the financial system from the ruins of the 2008 financial crisis. But the most important aspect of his background for the digital-assets industry could potentially be his tenure on the board of advisers at Ripple, giving him an insider’s knowledge of crypto.

The White House announced Barr’s selection as the next nominee for the Fed’s vice chairman for supervision , praising him as a person who “spent his career protecting consumers.” But he’ll face a Senate confirmation minefield that already eliminated Biden’s previous choice, Sarah Bloom Raskin. The official announcement didn’t mention Barr’s background with the financial industry, which also included a stint at financial-technology platform Lending Club. Barr was hired in 2015 on the board of Ripple Labs, when he said that he thought “innovation in payments can help make the financial system safer, reduce cost, and improve access and efficiency for consumers and businesses alike.”

It was that industry experience that previously soured progressive groups on Barr, who had been an early Biden administration favorite to run the Office of the Comptroller of the Currency. That candidacy was derailed by opposition from the left, and the post remains vacant after some Senators vehemently opposed another candidate. In the evenly-divided Senate, Republicans have campaigned vigorously against some of Biden’s regulatory nominations, leaving Barr’s eventual confirmation in some question. Though he’s previously won bipartisan support in that chamber, he could be on a more difficult road this time. If he’s confirmed, he’ll occupy a leadership role in the multi-agency efforts already underway to regulate stablecoins and to consider further guardrails for the rest of the crypto industry.

Barr is generally considered a consumer-friendly advocate for aggressive financial oversight, with deep experience in financial-inclusion efforts. He co-authored the book “Insufficient Funds,” about the finances of poor families in Detroit, and wrote “No Slack: The Financial Lives of Low-Income Americans.” The Treasury veteran also helped craft the same Dodd-Frank Act that established the vice chairman role that Barr is seeking.

In a statement, Senate Banking Committee Sherrod Brown said, “I will support this key nominee, and I strongly urge my Republican colleagues to abandon their old playbook of personal attacks and demagoguery and put Americans and their pocketbooks first.”

A Spot Bitcoin ETF Still Seems Unlikely: ETF proponents hope the approval of a recent bitcoin futures ETF portends the approval of a spot ETF. The SEC still has concerns.

Ripple CEO: SEC case is going ‘much better than I hoped’: Ripple CEO Brad Garlinghouse told attendees of the Paris Blockchain Week that the ongoing case with the SEC is going exceedingly well.

FDIC Asks All Banks to Report Crypto Activities: All FDIC-supervised institutions have been asked to provide the federal banking regulator with information about their “crypto-related activities.”

US Officials Tie North Korea’s ‘Lazarus’ Hackers to $625M Crypto Theft: Axie Infinity’s Ronin blockchain suffered a massive exploit late last month.

FTX Co-CEO Donates $4M to Republican PAC Ahead of US Midterm Elections: Ryan Salame has already donated $1 million to non-partisan crypto PACs in this election cycle.

New York Senate Authorizes NYDFS to ‘Assess’ Crypto Companies: The state regulator oversees the state’s landmark virtual currency license, commonly referred to as the BitLicense.

GOP Policy Arm Releases Paper Exploring Benefits, Risks of Crypto: The paper signals that Senate Republicans are inching toward a more unified approach to crypto regulation.

Top US Bank Watchdog Warns of Stablecoins’ ‘Lack of Interoperability’: The OCC’s acting chief argues the variation across tokens could create walled gardens.

Treasury Secretary Janet Yellen Calls Crypto ‘Transformative’ in Wide-Ranging Speech: The U.S. official addressed CBDCs, stablecoins and regulations.

SEC Approves Teucrium’s Bitcoin Futures ETF: Teucrium’s approval may hint at a future spot bitcoin ETF approval.

Coin Center takes aim at ‘unconstitutional’ SEC redefinition of an ‘exchange’: The DC-based nonprofit believes the SEC is making a gross overreach with its new proposed definition of exchange as it would include the means of communication and not just trade.

Texas regulators order virtual casino to stop selling NFTs: The State Security Board considers the sale of 11,111 NFTs a “high-tech fraudulent securities offering.”

Europe & UK

EU’s Crypto Activism Gets Mixed Reception at Paris Blockchain Week: New EU money laundering rules could be unworkable and destructive to the industry, some think. Others say crypto companies must learn to live with privacy-busting regulation.

The crypto sector is still reeling from a string of votes in the European Parliament that some warned could prove regulatory overkill, attendees at the Paris Blockchain Week Summit discovered. Recent European Union plans to curb the energy footprint of proof-of-work technology — which some feared could amount to a bitcoin (BTC) ban — failed to get through the European Parliament when voted on in March. But a second, also controversial, anti-money laundering measure did pass and could now become law if governments also sign up. Under a planned expansion of existing banking measures known as the travel rule, parties facilitating crypto transactions would have to identify participants. EU lawmakers want that to apply even for the smallest payments or those made to unhosted wallets, where the asset is held by a private individual rather than a regulated exchange.

Proponents, including lead lawmaker Assita Kanko, have argued the travel rule will help cut crime, and have previously told it could be a spur for innovation in a sector that prides itself on creativity.

“If the banking sector, that the crypto people think is actually boring and old, is surviving the travel rule … why would the very chic, cool crypto people not be able to do so?” she told CoinDesk shortly after the measure was voted through her committee on March 31. “They could work it out. … I guess I’m telling them to try.”

But in Paris, some point out that the existing rule, which requires institutions like banks to report any dodgy-looking payments to the authorities, doesn’t work well even in the conventional financial sector — and is even worse suited to blockchain-style tech.

The rules would mean crypto exchange providers must “provide a full report to the authorities … when they see an unhosted wallet is involved, without even considering the threshold,” Hedi Navazan, head of compliance for Crystal Blockchain, told attendees .

That would mean the financial intelligence units that gather suspected laundering cases “will be bombarded” with the data known as suspicious activity reports, she said — even though “they already don’t have the capacity” to process the copious information they now get from banks. That chimes with findings by the U.K.’s Law Commission, which complained in June 2019 that “too many low-quality” money laundering reports were sent to the authorities, “undermining the entire process.” Even the EU’s own regulator, the European Banking Authority, has complained of a “tick-box” approach, where financial institutions merely fulfill procedures rather than identifying risks. The EU’s approach also doesn’t acknowledge that transparent blockchains allow payments to be traced, Navazan said, and could mean exchanges just abandon transactions with unhosted wallets all together. Yet, some have also expressed concerns about much worse effects.

Russians’ EU Crypto Investments Capped at 10K Euros: Measures set out by the EU aim to stop oligarchs circumventing financial sanctions on conventional bank accounts.

EU Bans Providing High-Value Crypto Services to Russia: The move follows warnings that crypto is being used to circumvent sanctions imposed in response to the invasion of Ukraine.

UK Regulator’s Temporary Crypto Registration List Drops to 5 Firms: CEX.I0, Copper Technologies, GlobalBlock, Revolut and Moneybrain remain on the temporary registration list.

FCA to Add 80 People in Crackdown on ‘Problem Firms’: The extra staff will help the U.K. regulator strengthen its efforts to clamp down on companies that fail to meet standards.

France’s Presidential Candidates Ignore Crypto Issues: On Sunday, citizens in one of the world’s top 10 economies go to the polls to choose their leader.

Sweden Casts Around for Potential E-Krona Suppliers: The country’s central bank says it wants to understand the technical options before taking a decision on issuing a CBDC.

Slovenia Unveils Plan for Flat Tax on Crypto Transactions: The rate would be just under 5%, according to the government.

Portuguese regulator grants first crypto license to a bank: Bison Bank will offer its digital asset services to high net worth individuals, becoming the first banking institution in the country authorized to do so.

Montenegro makes Vitalik a citizen, part of plans to promote it as a blockchain hub: The small southeast European nation is beginning to sift through the murky waters of blockchain regulation by granting the Ethereum co-founder citizenship.

ECB executive board member talks about current state of digital euro CBDC research: Fabio Panetta outlined recent findings and remaining challenges while emphasizing the necessity of a well-designed European CBDC.

Asia

China-based regulatory and trade associations target NFTs in latest risk notice: “We solemnly call on consumers to […] be vigilant and stay away from NFT-related illegal financial activities,” said the associations.

The China Banking Association, the China Internet Finance Association and the Securities Association of China issued a joint statement warning the public about the “hidden risks” of investing in nonfungible tokens, or NFTs.

In a Wednesday notice, the three associations launched initiatives aimed at encouraging innovation in the crypto and blockchain space focused on NFTs as well as “resolutely curb[ing] the tendency of NFT financialization and securitization” to reduce the risks around illicit activities. The China Banking Association said member institutions should not consider NFTs assets like securities, precious metals, and other financial products. In addition, cryptocurrencies including Bitcoin (BTC), Ether (ETH) and Tether (USDT) should not be used for the pricing and settlement of NFT transactions, platforms should perform real-name authentication and follow Anti-Money Laundering requirements, and associations and firms in compliance should not invest in NFTs or provide financial support to others for doing so. Other measures in the proposed code of conduct included not providing centralized transactions and not weakening the tokens’ nonfungibility “by dividing ownership or batch creation, and carrying out token issuance financing in disguise.”

“We solemnly call on consumers to establish correct consumption concepts, enhance their awareness of self-protection, consciously resist NFT speculation and speculation, be vigilant and stay away from NFT-related illegal financial activities, and effectively safeguard their own property safety,” said the associations. “If relevant illegal activities are found, they should be reported to the relevant departments in a timely manner.”

China-based regulatory associations have previously issued warnings to the public about investments in cryptocurrencies while also calling on member institutions to abide by existing regulatory provisions regarding digital assets. The country officially banned crypto exchanges from providing services in 2017, but many individuals were able to use local bank accounts for crypto-related transactions before the People’s Bank of China started cracking down on the activity in 2021.

Sanctioned Crypto Wallet Linked to North Korean Hackers Keeps On Laundering: It’s a game of wallet whack-a-mole despite Tornado Cash’s efforts. For now, the hackers appear to be winning.

North Korea-obsessed Ethereum dev gets 5 years for breaking sanctions: Former Ethereum developer Virgil Griffith has been sentenced to 63 months in prison and a $100,000 fine for violating sanctions on North Korea.

BoJ official says digital yen won’t be used to achieve negative interest rate: The Bank of Japan’s executive director announced that the eagerly-awaited digital yen won’t be used to attain negative interest rates.

Industry Associations, Regulator Give Some Clarity on Singapore’s Crypto Ad Rules: Advertising to retail investors will be disallowed, as Singapore limits crypto trading to professional investors.

Rest of the World

Indian crypto exchanges’ volume plunges as 30% tax goes into effect: Payment services providers have also cut ties with major crypto exchanges despite having the same rate for gambling and fantasy sports platforms.

Fresh data on Indian crypto exchanges’ trading volume reveals a significant decline in trading practices among Indians just ten days after the tax rule implementation. India’s new 30% crypto tax rule came into effect on April 1, despite many stakeholders and exchange operators warning against its ill effects. A research data report shared by Indian blockchain analytic firm Crebaco with Cointelegraph shows that trading volume on top Indian crypto exchanges has declined as high as 70% in the past 10 days.

The trading volume on WazirX, the leading crypto exchange in India, declined from $47.8 million on April 1 to $13.2 million on Sunday. CoinDCX’s trading volume dropped from $12.16 million to $5.76 million, followed by Bitbns with an overall decline of 41.29% in the past ten days. Apart from harsh crypto tax laws directly inspired by India’s gambling laws, many payment processing partners that offer Unified Payments Interface (UPI) accessibility have also severed ties with crypto exchanges.

Coinbase recently had to suspend the crypto payment option just a day after inaugurating its crypto trading services for Indians. Meanwhile, payment processors such as MobiKwik had cut ties with the likes of WazirX and other crypto exchanges after a recent warning from the government.

Interestingly enough, even though crypto taxes have been based on the gambling laws, the fantasy sports and gambling applications in the country have full access to all forms of payment integration including UPI. Coinbase disabled UPI service in India few days after NPCI statement.

Crypto Trading Volumes in India Collapse 10 Days After New Tax: The volume on WazirX, the country’s largest exchange, has plunged by 72%.

Multiple Indian Official Twitter Accounts Hacked, NFT Content Posted: Accounts of a high-profile state chief minister, political parties and government institutions were compromised.

Coinbase’s Trading Launch in India Hits Snag With Payments System: The entity that governs UPI, India’s payment system, say it’s “not aware” of any crypto exchange using the system.

Russia should use crypto for payments with Africa, commerce exec says: Russia should deploy cryptocurrencies and CBDCs for settlement and payments with Africa, the president of the Chamber of Commerce and Industry believes.

Russians collectively hold $130B in crypto, Prime Minister says: Russians reportedly hold about $130 billion in cryptocurrency but the government is yet to adopt crypto legislation.

Brazilian Senate announces incoming approval of the ‘Bitcoin law’: The law will allow the president of Brazil to designate or create a regulatory agency to oversee the crypto market.

Brazilian central bank president confirms CBDC pilot will launch in 2022: The sovereign national digital currency will be based on the national fiat and would have a fixed supply quite similar to Bitcoin.

Binance receives in-principle approval to operate in Abu Dhabi: The in-principle approval from the Abu Dhabi Global Market allows Binance to operate as a broker-dealer in digital assets including cryptocurrencies.

South Africa finishes technical PoC for wholesale CBDC settlement system: The South African Reserve Bank stated further work would be undertaken to study the findings from the project and used to inform policy and regulatory responses to DLT and CBDCs.

MISC

Tornado Cash Adds Chainalysis Tool for Blocking OFAC-Sanctioned Wallets From Dapp: The blockade only applies to the Tornado Cash front-end, not the underlying smart contract, one of the protocol’s founders later tweeted.

In a move that raised the eyebrows of crypto privacy wonks, coin mixer Tornado Cash said Friday it is using a tool developed by compliance firm Chainalysis to block crypto wallets sanctioned by the U.S. Office of Foreign Assets Control (OFAC). However, the blockade only applies to the user-facing decentralized application (dapp), not the underlying smart contract, one of the protocol’s founders later tweeted.

The coin mixer, which claims to defend people’s financial privacy, has often been used to obfuscate the trail of crypto obtained through hacks. The protocol’s founder has previously said that it is “technically impossible” to enforce sanctions on decentralized protocols like Tornado Cash. “There’s not much we can do,” he said in a March interview.

The half-measure of restricting front-end access is not new, however. A former DEA agent told that Tornado Cash complies with OFAC’s list of sanctioned crypto wallets. The announcement Friday follows Thursday’s news that North Korean hackers were alleged by U.S. authorities to be behind the $625 million exploit of Axie Infinity’s Ronin blockchain. The Ronin hackers “have so far sent $80.3 million worth of ETH through Tornado Cash,” tracing firm Elliptic wrote Thursday.

“The fact that Tornado Cash doesn’t allow access to its app to comply with regulations doesn’t necessarily mean that the protocol and smart contracts are not available to the sanctioned entities,” Tal Be’ery, the chief technology officer of crypto wallet ZenGo, told CoinDesk in a direct message.

OFAC is a U.S. government body responsible for enforcing economic sanctions to support national security and foreign policy. It maintains a list of crypto wallets tied to sanctioned individuals and entities.

The Chainalysis oracle for sanctions compliance is a free smart contract that scans for crypto wallets that are sanctioned by various governments. The sanctions-screening tool was launched in March against the backdrop of Russia’s invasion of Ukraine.

“Now is the time for the industry to demonstrate that blockchains’ inherent transparency make cryptocurrency a powerful deterrent to sanctions evasion,” Chainalysis CEO Michael Gronager said at the time, adding:
“In anticipation of ongoing sanctions, we’ve prioritized the development of these tools so that all cryptocurrency market participants have what they need to harness this transparency and conduct basic sanctions screening at no cost to them.”

Crypto Twitter reacts as Russian gov’t reviews finalized crypto bill: Russia’s finance ministry shared the amended and finalized crypto bill with the government, which recommends using cryptocurrencies as legal tender.

Binance CEO explains what he’s most excited about in 2022: Zhao said that regulators want to be a part of this industry now, calling this “one of the most fundamental things we’ve shifted.”

Crypto wallet firm Ledger integrates tax solution to simplify reporting: The new tax integration aims to relieve crypto investors from having to manually calculate their tax bills.

Mastercard files 15 metaverse and NFT related trademarks: Mastercard joins Visa and American Express with moves into the Metaverse as it seeks to increase revenue streams and remain competitive in the virtual economy.

Shopify Bitcoin payments integration triggers legal questions from the community: Attorney Kevin Thompson thinks that the event will make regulators frustrated, leading to the creation of reporting requirements for Shopify.