Crypto Regulation News: FTX under investigation in the Bahamas for criminal misconduct, MiCA bill rescheduled to Feb 2023, Japan’s Digital Agency launches DAO, India considers taxing crypto income from businesses headquartered elsewhere, JPMorgan executes first DeFi trade on a public blockchain, and more!

Paradigm

Published in

Paradigm

15 min readNov 14, 2022

Vol. 104, 31th October — 14th November

TL;DR

The collapse of FTX has raised alarm bells across Washington, D.C.. While US senators commit to advancing crypto bill despite FTX collapse. Furthermore, White House says ‘prudent regulation of cryptocurrencies‘ is needed, hinting at situation with FTX
US Treasury redesignates Tornado Cash sanctions, citing North Korea nuclear weapons program
US midterm elections to set the tone for bitcoin miners’ future
The Clearing House stands up for bank rights, opposes CBDC in comments for US Treasury
SEC issues subpoena to influencers promoting HEX, Pulsechain and PulseX.
UK lawmakers open inquiry into NFT regulation
IRS prepares for an increase in crypto cases in the upcoming tax season
California regulators to investigate FTX crypto exchange collapse
Proposed UK rules will make advertising crypto a lot harder, industry warns
MiCA bill contains a clear warning for crypto influencers. The bill has been rescheduled from the end of 2022 to Feb 2023. Stefan Berger explains the reason behind the delay in MiCA voting
Germany’s financial regulator orders Coinbase to address ‘business organization’ practices
Queen Máxima of the Netherlands comes out in support of digital euro
Switzerland’s financial regulator extends reporting requirements for crypto transactions
CySEC requested FTX’s European arm suspend operations prior to bankruptcy
Hong Kong to avoid FTX-like scenario through transparency and supervision
Japan’s financial regulator requests FTX Japan halt operations. While Japan’s Digital Agency launches DAO to explore DAOs and Web3
South Korean regulators aim to toughen crypto fraud punishments
FTX under investigation in the Bahamas for criminal misconduct. Bahamas securities regulator freezes FTX assets
OKX expands to the Bahamas with new registration and regional office
Russia’s central bank suggested detailed framework for trading digital assets
Canada to examine crypto, stablecoins and CBDCs in new budget
India considers taxing crypto income from businesses headquartered elsewhere. Furthermore, Indian finance minister says crypto regulation should be an international priority
Middle East, Asia and Africa blockchain association launches in Abu Dhabi
Stablecoin issuers Circle and Paxos gain approvals in Singapore
Binance Proof-of-Reserve pledge gains support following FTX crisis
Tether blacklists 31.4M USDT following FTX’s alleged hack, Musk reacts
JPMorgan executes first DeFi trade on a public blockchain
Huobi and Gate.io under fire for allegedly sharing snapshots using loaned funds
Ethereum inches even closer to total censorship due to OFAC compliance
And more!

Opinions

FTX collapse: The crypto industry’s Lehman Brothers moment: The collapse of FTX came as a surprise to many, but as more information pours in, it seems FTX’s liquidity crisis began sooner than many thought.

Countries ignoring crypto AML rules risk placement on FATF’s ‘grey list:’ Reports suggest the Financial Action Task Force will conduct annual checks to ensure countries are enforcing Anti-Money Laundering rules for crypto providers.

Crypto Regulation Will Be a Priority for G-20 Under India Presidency, Official Says: India is set to take over the presidency of the intergovernmental group for one year starting in December.

UK’s Crypto Future Is Bright No Matter Who’s in Charge, Lawmaker Says: Member of Parliament Lisa Cameron’s cross-party group for digital assets is working to ensure crypto regulations remain apolitical amid all the changes in leadership.

Analyzing What’s Next for Europe’s Markets in Crypto Assets Law: Issuers of stablecoins are just one of the many areas that will be subject to more regulation under the EU’s Markets in Crypto Assets (MiCA).

Post-election roundup: Who were the pro- and anti-crypto winners and losers from the US Midterms? Political newcomer and Bitcoin holder J.D. Vance will take Rob Portman’s U.S. Senate seat in Ohio, but majority control of both chambers of Congress has yet to be decided.

USA

US senators commit to advancing crypto bill despite FTX collapse: The two U.S. Senators said the downfall of FTX clearly exemplified “the need for greater federal oversight of the digital asset industry.”

United States senators Debbie Stabenow and John Boozman have doubled down on their commitment to publishing a final version of the Digital Commodities Consumer Protection Act 2022 (DCCPA) in the wake of FTX’s shocking collapse. For a short time, the cryptocurrency community wasn’t sure how the senators would respond to the FTX crisis — as the DCCPA bill is understood to have been strongly supported by FTX CEO Sam Bankman-Fried. But the members of the U.S. Senate Committee on Agriculture, Nutrition and Forestry confirmed their intentions in a Nov. 10 statement — stating “the events that have transpired this week reinforce the clear need for greater federal oversight of the digital asset industry.”

“Chairwoman Stabenow and I remain committed to advancing a final version of the DCCPA that creates a regulatory framework that allows for international cooperation and gives consumers greater confidence that their investments are safe,” wrote Senator Boozman.

Bankman-Fried is understood to be a strong supporter of the crypto bill. He has attended several Senate Hearings and published a recent post titled “Possible Digital Asset Industry Standards” on Oct. 19. The senators did not disclose additional details as to what stage the DCCPA is at and when the bill will be published for the Senate to review.

The DCCPA bill was officially introduced into the U.S. Congress on Aug. 3. 2022. If the DCCPA passes into law, it would grant the Commodity Futures Trading Commission (CFTC) — one of the two U.S. market regulators — an extension of regulatory powers over the sector. The bill will still need to be passed by both the U.S. Senate and House of Representatives and be signed by President Joe Biden in order to become law.

US Midterm Elections to Set the Tone for Bitcoin Miners’ Future: The midterm elections are key to determining the industry’s future, which is increasingly under attack by environmental advocates.

US lawmaker blames ‘billionaire crypto bros’ for delayed legislation: The collapse of FTX has raised alarm bells across Washington, D.C.

US Treasury redesignates Tornado Cash sanctions, citing North Korea nuclear weapons program: The redesignation of the crypto mixer essentially replaces the U.S. Treasury’s actions from August, establishing sanctions for its role in “enabling malicious cyber activities.”

White House says ‘prudent regulation of cryptocurrencies‘ is needed, hinting at situation with FTX: According to Press Secretary Karine Jean-Pierre, the administration and financial agencies will “closely monitor” developments in the crypto market.

FTX US resigns from the Crypto Council for Innovation: “The news this week has been shocking, but we’ve also seen the community come together,” said CCI CEO Sheila Warren.

Republican lawmaker claims SEC chair was coordinating with FTX ‘to obtain regulatory monopoly’: Minnesota Representative Tom Emmer did not provide any evidence to his claim that Gary Gensler was “helping SBF and FTX work on legal loopholes” but said he was looking into the matter.

The Clearing House stands up for bank rights, opposes CBDC in comments for US Treasury: The payments operator responded to a Treasury inquiry related to the presidential executive order with an appeal to keep bank interests in sight when designing digital assets.

US lawmaker warns of ‘major consequences’ for users of unregulated crypto firms, citing FTX: “FTX’s FTT tokens are now worthless, and even worse, FTX.com customers are completely unable to access their funds,” said Maxine Waters.

US authorities announce conviction connected to Bitcoin stolen from Silk Road: U.S. Attorney Damian Williams cited “state-of-the-art cryptocurrency tracing” and “good old-fashioned police work” in the authorities’ recovery of the stolen Bitcoin.

SEC issues subpoena to influencers promoting HEX, Pulsechain and PulseX: The SEC issued the subpoena as part of the investigation, which demanded the influencers in question produce the required documents by Nov. 15, 2022.

UK lawmakers open inquiry into NFT regulation — ‘There are fears that the bubble may burst’: According to the DCMS committee, NFT regulation in the U.K. is “largely non-existent,” with lawmakers planning to assess the assets ahead of a review by the Treasury.

IRS prepares for an increase in crypto cases in the upcoming tax season: The criminal investigation division of the IRS says it is preparing hundreds of crypto-related cases for the upcoming tax season.

California regulators to investigate FTX crypto exchange collapse: The California DFPI announced it will open up an investigation as to the “apparent failure” of FTX and says it takes this oversight very seriously.

Venture Capital Firm Paradigm to Host Crypto Tech Event for US Policymakers: The Hands On Web3 affair aims to give U.S. policymakers a hands-on demonstration of the crypto technologies they could regulate.

Bankruptcy Judge Denies Celsius’ Motion to Pay Employees $3M in Retention Bonuses — At Least Temporarily: Judge Martin Glenn said he was “shocked” by the bankrupt lender’s plan to issue the bonuses while withholding information from the public, a move he called “completely unacceptable.”

FTX-Binance standoff highlights the need for clear rules — Sen. Lummis: Market manipulation, lending activity and safeguarding of customer funds and assets are some of the many issues Senator Lummis plans to address in the coming days.

Europe & UK

MiCA bill contains a clear warning for crypto influencers: The European Union’s crypto regulation bill, set to be made law following some additional steps, contains a section that could impact many crypto influencers.

The European Union bill aiming to regulate cryptocurrencies could result in crypto influencers being charged with market manipulation if they fail to disclose potential conflicts of interest. The Markets in Crypto Assets (MiCA) bill, which has been approved by the European Parliament Committee on Economic and Monetary Affairs on Oct. 10, is expected to be legislated after a few more hurdles.

Patrick Hansen, stablecoin issuer Circle’s director of EU strategy and policy, has been closely following the passage of the bill and brought attention to a section in a Nov. 1 tweet that referred to public comments made without proper disclosure.

The section Hansen highlighted reads that voicing opinions on crypto-assets after taking out positions on them and not disclosing that conflict of interest effectively could be regarded as market manipulation. The section is part of measures included within the MiCA bill aiming to “prevent insider dealing, unlawful disclosure of inside information and market manipulation related to crypto-assets, in order to ensure the integrity of crypto-asset markets.”

Whilst MiCA is unlikely to be fully applicable until 2024, it seems very likely to pass, with Hansen even referring to it as a “pure formality” following the finalization of the text on Oct. 5.

MiCA proponent cites FTX in advocating for regulation: ‘Crypto assets are not play money’: “With a global MiCA, the FTX crash would not have happened,” said European Parliament economics committee member Stefan Berger.

Stefan Berger explains the reason behind the delay in MiCA voting: One of the reasons behind the delay is “the enormous amount of work for the lawyer linguists, given the length of the legal text.”

Proposed UK Rules Will Make Advertising Crypto a Lot Harder, Industry Warns: Industry members are sounding the alarm on a proposed measure to require crypto service providers to comply with local advertising rules, which could add an additional layer of authorization to an already complex process.

MiCA legislation good news for crypto players — Binance Europe VP: The European Union’s Markets in Crypto-Assets legislation could create an easier environment for exchanges to operate in, according to Binance’s vice president of Europe.

Germany’s financial regulator orders Coinbase to address ‘business organization’ practices: In effect since Oct. 27, BaFin’s order referred to Coinbase’s Germany arm outsourcing some operations “essential for conducting banking business or providing financial services.”

Queen Máxima of the Netherlands comes out in support of digital euro: “Let us envision that better future and build a digital euro that works for all Europeans,” said the queen in virtually addressing members of the European Commission.

Switzerland’s financial regulator extends reporting requirements for crypto transactions: FINMA said it stood by an AML ordinance requiring identity checks for transactions of virtual currencies to cash or “other anonymous means of payment” exceeding 1,000 Swiss francs.

CySEC requested FTX’s European arm suspend operations prior to bankruptcy: FTX Europe is one of roughly 130 companies in FTX Group that will be a part of bankruptcy proceedings in the United States.

Asia

Hong Kong to avoid FTX-like scenario through transparency and supervision: Just days after Binance CEO Changpeng “CZ” Zhao warned about the onset of greater regulatory scrutiny amid the FTX collapse, the Financial Secretary of Hong Kong called for a stronger focus on transparency and proper supervision when dealing with virtual assets.

Financial Secretary Paul Chan highlighted the importance of being “steady and cautious” when promoting the development of the virtual asset industry in Hong Kong. A poster accompanying Chan’s post, roughly translated to:

“While actively embracing innovation, there must be a regulatory package that adapts and keeps pace with the times to properly manage risks, create prerequisites for the orderly and vigorous development of the market.”

In October, the Hong Kong government issued a policy — Policy Declaration on the Development of Virtual Assets in Hong Kong — introducing a regulatory framework and risk-based regulatory direction. In addition, the government proposed several pilot initiatives to test and enhance the technologies powering virtual assets.

According to Chinese reporter Colin Wu, Chan’s post can be seen as a manifesto to welcome cryptocurrency companies around the world. In her words:

“The Financial Secretary of Hong Kong said that because of the bankruptcy of FTX, transparency and proper supervision must be strengthened.”

Chan didn’t take offense at FTX’s collapse. Instead, he highlighted the importance of maintaining safety and properly managing risks, explaining that:

“We must not only make full use of the potential brought by innovative technologies, but also be careful to guard against fluctuations and potential risks that may be caused by them, and avoid these risks and impacts from being transmitted to the real economy.”

In addition, his advice for crypto companies was to maintain separate accounts for keeping client assets. As pointed out by Wu, Chan also recommended crypto businesses set aside actual operating expenses for at least 12 months, among other requirements. On an end note, Chan reiterated that a stable and sustainable crypto industry would become a reality with transparent operations and proper and appropriate supervision.

FTX CEO Sam Bankman-Fried and two of his associates are currently planning to shift bases away from the United States to evade possible prosecution. However, the plan to flee Dubai may not be feasible due to a treaty signed between the two nations. If the FTX members attempt to reach Dubai, the agreement between the two nations will allow authorities to detain the fugitives at the airport and send them back to the United States.

Japan’s financial regulator requests FTX Japan halt operations: Under the orders, FTX Japan will be required to suspend OTC derivatives transactions and related margins as well as new deposits from Nov. 10 to Dec. 9 unless the FSA steps in.

Japan’s Digital Agency launches DAO to explore DAOs and Web3: The group added it would consider the benefits and challenges of granting the DAO legal status in Japan, citing the state of Wyoming approving similar legislation in July 2021.

South Korean regulators aim to toughen crypto fraud punishments: The legislation, separate from the upcoming Digital Asset Basic Act, may came into force already in 2023.

Rest of the World

FTX under investigation in the Bahamas for criminal misconduct: The Bahamas securities regulator and financial investigators are reportedly investigating the collapsed crypto exchange.

An investigation of possible criminal misconduct over the insolvency of cryptocurrency exchange FTX is underway by financial investigators and the Bahamas securities regulators, according to a statement by the Royal Bahamas Police Force sent to Reuters on Nov 13. The Royal Bahamas Police stated:

“In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets Ltd., a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred.”

The investigation comes after the regulator publicly denied FTX allegations over the weekend. On Nov. 11, FTX tweeted that it was instructed by “Bahamian HQ’s regulation and regulators” to facilitate the withdrawal of Bahamian funds. One day later, the securities commission denied instructing or authorizing FTX to prioritize withdrawals for clients in the country.

A report from The Wall Street Journal on Nov. 9 suggested that the United States Department of Justice and the Securities and Exchange Commission are also investigating the collapse of the crypto exchange. Also, the Department of Financial Protection and Innovation (DFPI) in the state of California announced on Nov. 10 opening an investigation regarding the “apparent failure” of the exchange.

Roughly 130 companies in FTX Group — including FTX Trading, FTX US, under West Realm Shires Services, and Alameda Research — had started proceedings to file for bankruptcy in the United States on Nov. 11. Bankman-Fried has also resigned from his position as FTX’S CEO and will be succeeded by John Ray. Zane Tackett, the former head of the institutional arm at FTX, confirmed on Twitter that the exchange currently has liabilities worth $8.8 billion.

Bahamas securities regulator freezes FTX assets: The Securities Commission of The Bahamas said FTX’s assets could not be moved without the approval of a Supreme Court-appointed liquidator.

Regulator denies asking FTX to prioritize withdrawals for Bahamian clients: The statement from the Securities Commission of The Bahamas refutes a claim from FTX that it has been facilitating withdrawals in accordance with Bahamian regulations.

Sam Bankman-Fried is ‘under supervision’ in Bahamas, looking to flee to Dubai: It is understood that Sam Bankman-Fried and two former FTX associates are currently “under supervision” by Bahamian authorities.

Bahamas Securities Regulator Says It Didn’t Order FTX to Reopen Local Withdrawals: Crypto exchange FTX was not required to allow Bahamas-based customers to withdraw their funds, a local financial regulator said Saturday.

OKX Expands to the Bahamas With New Registration and Regional Office: The crypto exchange has officially registered as a Digital Asset Business in the Bahamas under the country’s crypto-friendly DARE Act.

Bank of Russia Suggests NFT, Smart Contract Regulation: Russia’s central bank suggested detailed framework for trading digital assets.

Russia’s central bank report examines crypto’s place in the financial system: Russia’s central bank has released a report on digital assets which looks at how the technology could be integrated into its traditional financial system.

Canada to examine crypto, stablecoins and CBDCs in new budget: Canada’s government stated its concerns about the risks digital assets and the digitalization of money may pose to its financial system as a reason for launching the consultation.

India Considers Taxing Crypto Income From Businesses Headquartered Elsewhere: The government has invited comments on the draft from stakeholders and the general public.

Indian Finance Minister Says Crypto Regulation Should Be an International Priority: The country will host next year’s G-20 summit and thus help shape the agenda.

Middle East, Asia and Africa blockchain association launches in Abu Dhabi: A new blockchain body has been launched with the backing of industry leaders in the Middle East region including figures from Binance, Crypto.com and the largest crypto exchange in the region.

Rivals steadfast even as two Aussie crypto ETF providers bail: The last week has seen two digital asset ETF providers announce their planned exit from the market amid regulator scrutiny and the prolonged crypto winter.

Stablecoin issuers Circle and Paxos gain approvals in Singapore: The approvals came after the Monetary Authority of Singapore issued two consultation papers that proposed to ease regulatory hurdles for digital asset service providers.

MISC

The Downfall of Sam Bankman-Fried’s FTX: The Industry Reacts: Tech, market and regulatory experts weigh in on a possible Binance acquisition of what was once one of crypto’s most influential exchanges.

Binance CEO CZ on FTX crash: ‘We’ve been set back a few years’: With one of the biggest crypto businesses falling overnight after getting caught misappropriating user funds, CZ believed the episode was devastating for the industry, which took away a lot of consumer confidence.

Binance Proof-of-Reserve pledge gains support following FTX crisis: The call for a more detailed disclosure of liquidity through the use of Proof-of-Reserves has been backed by many high-profile industry figures.

Tether blacklists $31.4M USDT following FTX’s alleged hack, Musk reacts: Billionaire entrepreneur Elon Musk, who recently purchased Twitter in hopes of unleashing the platform’s full potential, acknowledged Twitter’s contribution in tracking down the FTX developments in real-time.

Unclear regulations drove 95% of trading activity offshore: Coinbase CEO: The U.S. regulators are currently investigating FTX.US, Coinbase and Binance in the wake of the collapse of the FTX global crypto exchange.

Ethereum inches even closer to total censorship due to OFAC compliance: The minting of OFAC-compliant Ethereum blocks on a daily basis has grown to 73%, adding to the community’s growing censorship concerns.

JPMorgan executes first DeFi trade on a public blockchain: Finance Redefined: MakerDAO co-founder Nikolai Mushegian’s death opened a new Pandora’s box of conspiracy theories, based on some of his recent tweets.

Huobi and Gate.io under fire for allegedly sharing snapshots using loaned funds: A wallet address linked to the Huobi exchange was found transferring 10,000 ETH to Binance and OKX deposit wallets soon after releasing its asset snapshot.

Alameda Research FTT token transfer from September fuels wild speculations: According to on-chain data, FTT token supply increased by 124.3% on Sept. 28 when 173 million FTT tokens were created by a 2019 ICO contract and Alameda was the recipient.