Crypto Regulation News: EU regulator calls for public input on DLT, US Congress to examine the environmental impact of crypto mining, Iran bans crypto mining until March, Kazakhstan government resigns, causing Bitcoin network hash rate to tumble, PayPal to explore the launch of stablecoin, and more!

Paradigm

Published in

Paradigm

16 min readJan 10, 2022

Vol. 85, 27th December — 10th January

TL;DR

The number of countries banning crypto has doubled in three years
US Congress to hold an oversight hearing on crypto mining
President Biden sends CFTC nominations to Senate. While CFTC fines crypto betting service Polymarket 1.4M for unregistered swaps
SEC delays decision on NYDIG’s spot Bitcoin ETF proposal. SEC chair has a new senior adviser for crypto
EU regulator calls for public input on DLT for trading and settlement: ESMA published a “call for evidence” to invite stakeholders to share their feedback
UK lawmakers form crypto advocacy group for parliament. Furthermore, UK’s advertising regulator bans 2 crypto.com ads
Estonia regulator says no plans to ban crypto. Estonia’s new AML laws set to clamp down on crypto industry
PayPal reportedly confirms plans to explore the launch of a stablecoin
A16z publishes web 3 policy proposal for world leaders
Swiss central bank ready to run with wCBDC in January
Hong Kong-based Coinsuper allegedly blocks customers’ withdrawals
Thailand’s crypto traders to be subject to 15% capital gains tax. While Crypto mining reportedly rises in Thailand due to Chinese crypto ban
Kazakh government resigns, shuts down internet amid protests, causing Bitcoin network hash rate to tumble 13.4%
Mexico confirms plans to roll out CBDCs in 2024
India’s central bank recommends basic version of CBDC. While SEBI chief warns Indian mutual funds on investing in cryptocurrency offerings
Iran banning crypto mining until March 6 to save power
Pakistan to investigate Binance for multi-million dollar crypto scam
Bank of Jamaica completes first CBDC pilot
Kosovo moves to ban crypto mining in face of energy crisis
ASIC reveals how it infiltrated crypto ‘pump and dump’ Telegram groups
South Korea to tax inherited, gifted crypto starting in 2022. Crypto exchanges to follow Coinone in verifying private wallets. While the government tells Apple and Google stores to take down P2E games
BIS names CBDC expert as head of Euro region innovation center
Binance still not authorized to operate in Ontario
New ProShares Metaverse ETF to track Apple, Meta, Nvidia
Boston Fed is hiring a new director for CBDC project
NYC mayor getting paid in Bitcoin suggests buying the dip
Dapper Labs becomes the first NFT company to register to lobby with the US government
How crypto’s regulatory scene might evolve in 2022
And more!

Reports

The number of countries banning crypto has doubled in three years: The total number of jurisdictions with an absolute ban or severe restrictions on crypto has more than doubled over the past three years, and there are few signs that this trend is slowing down.

Although 2021 was a good year for the cryptocurrency industry in terms of market performance, the number of jurisdictions banning crypto has more than doubled since 2018. A report by the Library of Congress (LOC) details the nine jurisdictions that have now applied an absolute ban on crypto and 42 with an implicit ban. This is up from eight and 15, respectively, in 2018 when the report was first published.

In the context of the LOC report, an absolute ban means any “transactions with or holding cryptocurrency is a criminal act,” whereas an implicit ban prohibits cryptocurrency exchanges, banks and other financial institutions from “dealing in cryptocurrencies or offering services to individuals/businesses dealing in cryptocurrencies.”

The nine new jurisdictions with an absolute ban are Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh and China. China’s crypto ban received the most attention in 2021.

The dramatic increase in jurisdictions banning or regulating cryptocurrency over the past three years is not showing signs of slowing as several governments are currently reviewing their options. Aside from the 51 jurisdictions with a crypto ban, 103 have applied Anti-Money Laundering and combatting the funding of terrorism (AML/CFT) laws, a three-fold increase from the 33 jurisdictions with such laws in place in 2018.

A Swedish financial watchdog and the Swedish Environmental Protection Agency called for a ban on proof-of-work (PoW) mining in November due to the power demands and environmental costs of keeping networks running. This was met with harsh criticism from Paris-based Melanion Capital, which called the claims against mining “completely misinformed.”

Sweden’s European Union neighbor across the Baltic Sea Estonia is set on implementing AML/CFT rules in February. These new rules are expected to change the definition of what a virtual asset service provider is and apply an implicit ban on decentralized finance and Bitcoin (BTC).

India’s government created a scare when lawmakers there considered a crypto ban last year. The outcome was not an outright ban but a push to regulate cryptocurrencies as crypto assets from the Securities and Exchange Board of India, which oversees the regulation of local crypto exchanges. An outright ban, however, is not out of the question.

Crypto makes history in 2021: Five instances of governments embracing digital assets: While 2021 surely saw a few regulatory setbacks, some governments delivered masterclasses in forward-looking crypto regulation.

Opinions

What should the crypto industry expect from regulators in 2022? Experts answer Part 1 & Part 2:: Blockchain industry insiders answer: What were the main crypto regulatory milestones in 2021, and what should be expected in 2022?

How the Democratic Party didn’t stop worrying and fearing crypto in 2021: In 2021, mainstream U.S. Democrats’ stance on crypto has tipped towards skepticism and preference for tighter regulation.

Will US regulators shake stablecoins into high-tech banks? U.S. stablecoin issuers might soon face liquidity, customer protection and asset reserve rules — and maybe even a deposit-insurance mandate like banks.

How Crypto’s Regulatory Scene Might Evolve in 2022: Looks ahead to next year’s big stories.

One Big Regulatory Question Holds Advisors Back From Crypto: Are cryptocurrencies securities?

Crypto Needs Centralized Systems to Integrate With Traditional Finance, Binance CEO Says: Centralized systems are required to bring money into crypto from mainstream finance and to provide an exit route.

SEC Commissioner Hester Peirce Says Washington Doesn’t Need a New Crypto Regulator: Known affectionately as “Crypto Mom” for her support of the industry, Peirce also warned on CoinDesk TV that the SEC might soon turn its eye towards NFTs.

SBF ‘optimistic’ about institutional crypto adoption in 2022: The founder of FTX exchange thinks the crypto industry will enjoy an increased rate of institutional adoption as regulatory clarity improves around the world.

$2.5T crypto market will not wait for nations to onboard: WazirX CEO: “The question for every nation is, do they want to participate and get a share of this pie,” says WazirX CEO Nischal Shetty.

USA

US Congress to Hold Oversight Hearing on Crypto Mining: The U.S. Congress is preparing a hearing to examine the environmental impact of crypto mining, especially on the Bitcoin network, according to a report from The Block. The date and witness list for the hearing are still undetermined, but it could take place as early as the end of January, The Block reported on Wednesday.

The Oversight and Investigations subcommittee of the House Energy and Commerce Committee is drawing up a list of witnesses. They will be questioned about the energy use of proof-of-work mining, the type of mining used for bitcoin, according to the report.

In 2021, as bitcoin’s carbon footprint was taking up headlines, U.S. companies continued to pour millions of dollars into bitcoin mining infrastructure. Chinese miners fleeing a regulatory crackdown also made investments in the U.S., which is now the world’s largest bitcoin miner. Mining firms plan to continue expanding their capacity over the next year.

In December, Sen. Elizabeth Warren (D-Mass.) sent a letter to New York-based miner Greenidge’s CEO, expressing concerns about the firm’s environmental impact. That was followed by a New York Times article that relayed concerns surrounding the increased mining in the state. These “recent events in New York state” have raised the alarm over crypto mining with the House Energy and Commerce Committee.

President Biden sends CFTC nominations to Senate: With the addition of Caroline Pham’s and Summer Mersinger’s names sent to the Senate for confirmation, the U.S. president has the opportunity to completely reshape the CFTC leadership.

SEC Delays Decision on NYDIG’s Spot Bitcoin ETF Proposal: The commission now has until March 16 to approve or disapprove NYDIG’s proposal.

Bitcoin ETF decision delayed, SEC commissioner wonders why: In a blow for bruised Bitcoin bulls, the long-awaited NYDIG Bitcoin ETF has suffered another setback.

SEC files complaint against operator of ‘unregistered’ $33M Crowd Machine ICO: ICO tokens from Crowd Computer were sold to Americans as “investment contracts,” according to the SEC’s complaint, which classifies them as securities.

NYDFS Hires New Deputy Superintendent of Virtual Currency: Peter Marton will join the regulator’s research and innovation group, with a special focus on digital currencies and blockchain.

CoinDesk Joins Court Case Seeking Access to NYAG Tether Documents: Tether wants the state Supreme Court to stop the attorney general’s office from sharing documents requested by CoinDesk.

CFTC Fines Crypto Betting Service Polymarket $1.4M for Unregistered Swaps: Polymarket’s betting pools constituted binary options, according to the CFTC.

Polymarket’s CFTC Fine Hints at DeFi Regulation Roadmap: Polymarket saw the first enforcement action of 2022, and this might be a clear roadmap for other DeFi projects.

SEC Chairman Gary Gensler Hires Senate Banking Aide to Advise on Crypto Policy: Corey Frayer spent a decade working as an adviser to members of Congress before serving as a senior staffer on the Senate Banking Committee for Sen. Sherrod Brown (D-Ohio).

Boston Fed Is Hiring New Director for CBDC Project: The organization is looking for a new head of product management for its central bank digital currency pilot program.

NYC mayor getting paid in Bitcoin suggests buying the dip: Should Eric Adams accept his first three paychecks in Bitcoin, he would likely acquire more than 1 BTC following the price drop to $42,948.

Dapper Labs becomes the first NFT company to register to lobby with the US government: New implications for the future crypto policies arise as Dapper labs brings NFTs to the conversation.

Europe & UK

EU regulator calls for public input on DLT for trading and settlement: Distributed ledger technology is increasingly gaining attention in Europe for its applications in securities trading and settlement.

The European Securities and Markets Authority (ESMA) is seeking stakeholder input on the use of distributed ledger technology for securities trading and settlements. ESMA recently published a “call for evidence” to invite stakeholders to share their feedback on the regulations for regulatory technical standards (RTS) on reporting and transparency on the DLT pilot expected to be implemented next year.

Some of the main functions of ESMA are strengthening the protection for EU investors, enhancing financial markets and fostering cooperation between members. With the call for evidence, the EU regulator’s objective is to see whether regulatory standards concerning trade transparency and data reporting need to be revised to apply to tokenized securities running on DLT.

According to ESMA’s official website, the aim is to “ensure more efficient, secure and cost-effective management of the data stored on DLTs while preserving its quality, usability and comparability.” Stakeholders are called to share their views on ways to provide regulators with information pertaining to “transactions, financial instruments data and transparency data.”

After sending in the feedback, the EU regulator will determine whether amendments to the RTS are required. If so, the ESMA will once again consult before submitting a final draft to the European Commission for implementation.

In July 2021, the French government called on the ESMA to regulate activities and create uniform regulations related to digital assets within the European Union. The Autorité des marchés financiers noted that the establishment of regulations is a “prerequisite to a strong and autonomous European Union capable of competing at the global level.”

Back in September 2021, the ESMA also published a report that cited increased risk-taking behavior and possible market exuberance as reasons for the volatility of crypto assets in the first half of 2021, raising concerns about investor protection.

UK lawmakers form crypto advocacy group for parliament: “We are at a crucial time for the sector as global policymakers are also now reviewing their approach to crypto and how it should be regulated,” said the group’s chairperson and MP Lisa Cameron.

UK’s Advertising Regulator Bans 2 Crypto.com Ads: The ads were deemed to be “misleading” and “irresponsible.”

Estonia Regulator Says No Plans to Ban Crypto: The country’s Ministry of Finance shut down claims that owning and trading cryptocurrency would be banned under the proposed anti-money laundering legislation.

Estonia’s new AML laws set to clamp down on crypto industry: The new guidelines reportedly expand the definition of Virtual Asset Service Providers to include DApps, ICOs and related services.

Swiss Central Bank Ready to Run With wCBDC in January: ‘Just Takes a Policy Decision’: SNB has completed testing of a wholesale CBDC with Swiss exchange SDX, and is technically ready to go live, according to governing board member Thomas Moser.

Asia

Users of Hong Kong Crypto Exchange Coinsuper Say They Cannot Withdraw Funds: Multiple users of Hong Kong-based exchange Coinsuper have been unable to withdraw funds from the platform since late November, according to messages on Coinsuper’s official Telegram channel. The fiasco sheds a negative light on crypto exchanges, which are at the center of Hong Kong’s evolving crypto regulation. The government plans to propose a bill that will make licensing for exchanges mandatory in the 2021–2022 legislative session.

Bloomberg first reported the news. According to the article, at least seven people have filed police reports, and the Hong Kong police is investigating the case of a person who bought crypto “via an investment company” and has been unable to withdraw money since December.

On the Telegram channel, the administrator has stopped replying to messages. One trader who has been using Coinsuper since 2018 told CoinDesk that they had lost access to $20,000 in deposits, haven’t heard from the administrator since Dec. 1 and so have notified the police.

Coinsuper had $14 million in trading volume in the past 24 hours, a tiny fraction of Binance’s $22 billion 24-hour volume, data from CoinMarketCap shows. At its peak in late 2019, Coinsuper handled $1.3 billion in daily volume, Bloomberg wrote.

One of the venture capitalists that had backed Coinsuper told Bloomberg that they had completely written off their $1 million investment in the exchange. Six to eight months ago, the VC lost contact with the exchange’s management team, while Chairman and CEO Karen Chen stopped responding on WeChat, Bloomberg said. Chen is the former president of UBS China. Between July and December, several employees also left the company, according to the report.

The exchange, founded in 2017, is backed by Pantera Capital, which still lists Coinsuper as a portfolio company on its website.

Crypto mining reportedly rises in Thailand due to Chinese crypto ban: Thailand is among the countries capitalizing on China’s crypto crackdown, with retail investors increasingly mining crypto.

Thailand’s Crypto Traders to Be Subject to 15% Capital Gains Tax: The report quotes a person in the Finance Ministry who also said cryptocurrency traders should prepare for increased surveillance.

South Korea to Tax Inherited, Gifted Crypto Starting Next Year: The country has postponed a general income tax on virtual assets until 2023.

South Korean crypto exchanges to follow Coinone in verifying private wallets: South Korean exchanges will require users to verify their third-party wallet addresses to help the country comply with FATF travel rule guidelines.

Korean government tells Apple and Google stores to take down P2E games: The Games Committee has strengthened its stance against P2E games by saying they should not receive an age rating needed to get listed on app marketplaces.

Rest of the World

Kazakh government resigns, shuts down internet amid protests, causing Bitcoin network hash rate to tumble 13.4%: No timeline exists as to when the internet will switch back on in the second-biggest Bitcoin mining country in the world.

Kazakhstan, the second-largest country in the world when it comes to Bitcoin (BTC) mining hash rate, experienced unprecedented political unrest due to a sharp rise in fuel prices. As a result, the country’s presiding cabinet resigned, but not before the state-owned Kazakhtelecom shut down the nation’s internet, causing network activity to plunge to 2% of daily heights.

The move dealt a severe blow to Bitcoin mining activity in the country. As per data compiled by YCharts.com, the Bitcoin network’s overall hash rate declined 13.4% in the hours after the shutdown from about 205,000 petahash per second (PH/s) to 177,330 PH/s. The country accounts for 18% of the Bitcoin network’s hash activity.

Just days prior, the Kazakh government removed price caps on liquefied petroleum gas used for car fuel to align with market conditions, which doubled its price overnight, sparking violent protests. At the time of publication, the internet remains inaccessible in Kazakhstan. If extended, the consequences could be severe as internet services aside, the Data Center Industry & Blockchain Association of Kazakhstan expects the country to generate $1.5 billion from legal cryptocurrency mining (and another $1.5 billion in illicit) activities over the next five years.

The country’s low energy prices have attracted both domestic and foreign entities to set up shop for Bitcoin mining. According to Global Petrol Prices, electricity in Kazakhstan costs on average just $0.055 per kWh for businesses, a fraction of the $0.12 per kWh paid by U.S. businesses.

Mexico Plans to Issue a CBDC by 2024, Government Confirms: The Mexican government tweeted that it considers these new technologies and payment infrastructure of “utmost importance” to advance financial inclusion.

India’s Central Bank Recommends Basic Version of CBDC: The bank calls the currency a “convenient alternative” to cash.

SEBI chief warns Indian mutual funds on investing in cryptocurrency offerings: While the regulatory environment for cryptocurrencies in India is currently murky, the country has already witnessed an exponential rise in crypto popularity.

Indian taxman recovers $6.62M from WazirX for evading tax on commission: Government officials from CGST Mumbai Zone recovered the funds from crypto exchange WazirX after detecting a GST evasion of $5.43 million on trade commissions.

Iran Banning Crypto Mining Until March 6 to Save Power: It’s the second time this year Iran has taken such measures to reduce the strain on the country’s power grid.

Pakistan to investigate Binance for multi-million dollar crypto scam: The federal agency of Pakistan started a criminal investigation after receiving numerous complaints against an ongoing scam that involved misleading investors into sending funds from Binance wallets to unknown third-party wallets.

Kosovo Moves to Ban Crypto Mining in Face of Energy Crisis: The government had declared a 60-day state of emergency, allowing it to allocate more money for energy imports and introduce power cuts.

Jamaica Completes CBDC Pilot, Expects Rollout Later This Year: The Bank of Jamaica completed the eight-month pilot on Dec. 31, 2021.

President Bukele predicts Bitcoin rally to $100K, further legal adoption and more: Bukele also envisions oncoming explosive growth for El Salvador’s two in-house BTC-based initiatives — Bitcoin City and volcano bonds.

ASIC reveals how it infiltrated crypto ‘pump and dump’ Telegram groups: The Australian financial watchdog has revealed the details of how it took down ASX traders suspected of taking part in a coordinated Telegram pump-and-dump scheme.

Binance Still Not Authorized to Operate in Ontario, Securities Commission Says: The regulator’s statement on Thursday comes after Binance said on Wednesday it had worked with regulators to ensure continued operations.

MISC

PayPal reportedly confirms plans to explore the launch of a stablecoin: American fintech giant PayPal Holdings has reportedly confirmed its intent to launch its own stablecoin named PayPal Coin. The development of an in-house stablecoin was first discovered in the source code of Paypal’s iPhone app by developer Steve Moser.

Confirming the evidence found on the PayPal app, Jose Fernandez da Ponte, PayPal’s SVP of crypto and digital currencies, told Bloomberg News:

“We are exploring a stablecoin; if and when we seek to move forward, we will of course, work closely with relevant regulators.”

Moser’s finding uncovered that PayPal is in the works of building PayPal Coin, which will be backed by the United States dollar. However, a PayPal spokesperson clarified that the source codes of the iPhone application were developed in a recent hackathon.

While PayPal’s digital asset is in the making, the name, logo and features of the in-house token are subject to change prior to launch. Supporting the ongoing development, PayPal has previously launched new features that allow users to buy, hold and pay with digital coins.

da Ponte had also pointed out in an interview from November 2021 that PayPal has “not yet seen a stablecoin out there that is purpose-built for payments.” According to him, a stablecoin should support payments at scale while ensuring the security of the network, adding:

“There would have to be clarity on the regulation, the regulatory frameworks, and the type of licenses that are needed in this space.”

In addition to launching its own stablecoin, PayPal has also taken proactive measures to spread crypto-related services in jurisdictions out of the U.S.

In September 2021, the company announced a rollout of new Bitcoin trading services for the UK market. As Cointelegraph reported, customers can trade major cryptocurrencies including Bitcoin (BTC), Ether (ETH), Litecoin (LTC) and Bitcoin Cash (BCH).

A16z Publishes Web 3 Policy Proposal for World Leaders: The venture capital firm has already spoken with “key leaders on every populated continent,” according to a16z’s Global Head of Policy Tomicah Tillemann.

BIS Names CBDC Expert as Head of Euro Region Innovation Center: Raphael Auer is now an economist in the organization’s innovation and digital economy unit.

Binance gets the green light from Canada and Bahrain: If the Bahrain application is approved, it will be Binance’s first regulatory approval in the Middle East and North Africa region.

New ProShares Metaverse ETF to track Apple, Meta, Nvidia: In late November, two Canadian metaverse ETFs started trading on the Toronto Stock Exchange on the same day.