Crypto Regulation News: G7 calls to accelerate global crypto regulations following UST collapse, ECB warns that crypto risks could spill over into wider economy, US Fed Vice Chair says digital dollar would take 5 years to launch, India to roll out CBDC using a graded approach, Portuguese congress rejects two bills seeking to tax crypto, and more!

Paradigm

Published in

Paradigm

15 min readMay 30, 2022

Vol. 95, 16th May — 30th May

TL;DR

Crypto should meet same norms as regular finance, G7 says. G7 finance ministers call to accelerate global crypto regulations following UST collapse
US Fed Vice Chair says digital dollar would take 5 years to launch, and that CBDC could coexist with stablecoins. While Circle asks US Fed not to step on its toes by launching a digital dollar
One River’s spot Bitcoin ETF application rejected by SEC. Furthermore, SEC can’t confirm if video of Bill Hinman is actually Bill Hinman in Ripple case
FTX’s Bankman-Fried pitches CFTC on directly clearing customers’ crypto swaps
US Senators Lummis and Gillibrand set to propose crypto oversight bill next month. Three Republican senators introduced a bill to protect Americans from the “Authoritarian Digital Currencies Act”
Commerce Dept. asks for public comments on framework for US crypto competitiveness: The request is in response to President Biden’s executive order
US Treasury official warns crypto industry to proactively sanction ‘problematic’ wallets
ECB warns that crypto risks could spill over into wider economy. While ECB president’s anti-crypto comments trigger community responses.
UK FCA’s first CryptoSprint was focused on digital asset information disclosure, custody and other regulatory obligations. UK regulator to consider Terra Coins’ collapse in new crypto rules
Portuguese congress rejects two bills seeking to tax crypto
Swiss think tank urges greater global cooperation on crypto regulation
South Korean authorities look to more closely scrutinize exchanges following Terra meltdown. Korean police request exchanges freeze LFG related funds
India to roll out CBDC using a graded approach. Furthermore, after Armstrong tweet, India’s crypto policy body says no contempt of court challenge vs. RBI
Paraguayan bill regulating crypto mining and trading moves closer to law
Russia’s updated crypto mining bill cuts tax amnesty for Bitcoin miners
Binance to advise on crypto strategy as Kazakhstan looks to boost industry
Panama President may veto crypto regulation legislation
Brazil’s Federal Revenue now requires citizens to pay taxes on like-kind crypto trades
Central African Republic to launch official crypto hub ‘Sango’
Stepn to block mainland China users to comply with regulatory policies
Former BitMEX CEO Arthur Hayes sentenced to 2 years probation
Defining cryptocurrency regulation important for the industry to grow, Morgan Stanley said
WEF 2022: Trust and clarity are missing in discussions of carbon emissions and crypto
ECB survey: One in ten households in eurozone population centers now own cryptocurrency
To make cross-border payments easier, you need to change your whole way of thinking, the authors of the BIS study found
Fed Survey: 12% of US adults held crypto in 2021
Lockheed Martin, Filecoin Foundation to explore hosting blockchain nodes in space
And more!

Reports

Defining Cryptocurrency Regulation Important for the Industry to Grow: Morgan Stanley: Disagreement on new legislation would be negative and lead to an extended period of uncertainty, the bank said.

G-7 Finance Ministers Call to Accelerate Global Crypto Regulations Following UST Collapse: G-7 officials meeting in Germany want the Financial Stability Board to act more quickly, says a Reuters report.

Regulate Ledgers and Not Individual Crypto Providers, BIS Study Says: To make cross-border payments easier, you need to change your whole way of thinking, the authors of the BIS study found.

WEF 2022: Trust and clarity are missing in discussions of carbon emissions and crypto: Panelists at the World Economic Forum session on crypto’s carbon footprint seem to be seeing FUD galore surrounding the environmental consequences of crypto mining.

Fed Survey: 12% of US Adults Held Crypto in 2021: It marks crypto’s first appearance in the central bank’s “Economic Well-Being of U.S. Households” survey.

Opinions

Crypto Should Meet Same Norms as Regular Finance, G7 Says: Crypto assets should be held to the same standards as the rest of the financial system, the grouping of finance ministers from the world’s seven largest developed economies said. A statement released by the G7 called for tougher rules to counter money laundering and disclose reserves, after the collapse of stablecoin terraUSD (UST) last week.

“The G7 remains committed to high regulatory standards for global stablecoins, following the principle of same activity, same risk, same regulation,” it said. The statement confirmed reports that the Financial Stability Board (FSB) has been asked to speed up work in the wake of the market shock.

The missive also called for implementation of the Financial Action Task Force (FATF) travel rule, a controversial anti-money laundering provision that jurisdictions, such as the European Union, are currently legislating for, and for “stronger disclosure and regulatory reporting, for instance, as regards reserve assets backing stablecoins.”

How Terra’s collapse will impact future stablecoin regulations: The collapse of algorithmic stablecoin UST created a ripple effect not just in the crypto market but among world regulators as well.

Ideas vs. practice: How are regulators working together on crypto? While the calls for globally coordinated regulation for cryptocurrencies is a noble effort, the practicality of the situation is far from ideal.

Thoughts From Davos: The crypto industry showed up in force at the World Economic Forum’s annual meeting.

At Davos, Crypto Is No Longer on the Outside: Cryptocurrencies have taken a prominent role at the World Economic Forum’s annual meeting in Davos, despite the mainstream finance world’s apparent contempt for the sector.

Enforcement and adoption: What do UK’s recent regulatory aims for crypto mean? British regulators intend to amplify the enforcement of crypto and make stablecoins a payment method.

Terra’s meltdown highlights benefits of CEX risk-management systems: The Terra collapse demonstrates why crypto exchanges need advanced risk management systems — especially when providing access to DeFi protocols offering favorable yields.

Bitcoin stands apart from other crypto, and what that means for US public policy: Not all cryptocurrencies are equal, and Bitcoin’s prior claim among decentralized digital assets makes it special.

Identity is the antidote for DEXs’ regulation problem: Regulations are coming, and DEXs need to step it up to survive, requiring KYC to weather the upcoming regulatory storm.

Identity and the Metaverse: Decentralized control: What will our identity look like in the Metaverse? A decentralized Web3 suggests it’ll be completely in our control, but growing amounts of information stored online suggest otherwise.

El Salvador’s Bitcoin play: What does the current slump mean for adoption? Despite all of the existing volatility, El Salvador’s move to legalize BTC has helped pave the way for a digital future helmed by crypto assets.

OCC Chief Hsu: Crypto Industry Has Unhealthy ‘Dependency on Hype’: The acting head of the U.S. Office of the Comptroller of the Currency has worked to limit banks’ involvement in cryptocurrencies.

USA

US Fed Vice Chair Says Digital Dollar Would Take 5 Years to Launch: Federal Reserve Vice Chair Lael Brainard issued a reality check on those awaiting a digital dollar, saying that creating a central bank digital currency (CBDC) in the U.S. would likely take as long as five years.

In Brainard’s first testimony after her recent swearing-in ceremony to take over the Fed board’s vice chair role, she told the House Financial Services Committee that the Fed is still studying the question and wouldn’t move before approval from the White House and Congress — which in itself could add a considerable period of debate before an authorizing law can be passed.

“It takes a long time,” Brainard said in a Thursday hearing, comparing such a project with the Fed’s still incomplete real-time payments system that has taken years to build. “It could take five years to put in place the requisite security features, the design features.”

As to those design features, Brainard said it’s “probably preferable not to have an interest-bearing digital currency,” answering some bankers’ concerns that a digital dollar could take a massive and potentially fatal bite out of their deposit business. She also mentioned the Fed is considering caps on digital dollar holdings to encourage customers to use them only for payments and not as a safe asset for people or businesses to pile their money into.

If the Fed does launch a digital dollar, Brainard said the asset could coexist with stablecoins and the existing financial system. “I really see the potential for a digital dollar as being complementary to a more stable, efficient system that would include stablecoins and commercial bank money, so I really see them potentially enabling private sector innovation,” she said. CBDC holdings and transactions would still be managed through private sector accounts, Brainard confirmed, and not at direct customer accounts at the Fed. Brainard said letting other central banks issue digital analogues to cash — such as in Europe — could eventually degrade the U.S. dollar as the global reserve currency, leaving “potential risks to not having a CBDC” in the U.S.

Fed Vice Chair Lael Brainard Says CBDC Could Coexist With Stablecoins: A well-designed central bank digital currency could complement stablecoins and cash, Brainard will say in front of the House Committee on Financial Services on Thursday.

One River’s spot Bitcoin ETF application rejected by SEC: The proposed environmentally conscious spot ETF was found to be insufficiently protected against fraud and manipulation, like many ETF proposals before it.

Circle Asks US Fed Not to Step on Its Toes by Launching a Digital Dollar: The public is already served well by private-sector tokens, the USDC stablecoin issuer said in a comment letter to the central bank.

US Senators Lummis and Gillibrand Set to Propose Crypto Oversight Bill Next Month: The bipartisan duo hope their bill to establish guardrails around the digital assets industry could get votes as soon as next year.

Florida Rep. Donalds introduces Financial Freedom Act companion bill in the House: The Republican congressman is supporting Sen. Tommy Tuberville’s Senate bill and financial services companies that want to include crypto in their 401(k) product offerings.

Draft bill to ban China’s digital yuan from US app stores: Three Republican senators introduced a bill to protect Americans from the “Authoritarian Digital Currencies Act.”

FTX’s Bankman-Fried Pitches CFTC on Directly Clearing Customers’ Crypto Swaps: The crypto exchange’s founder and CEO made his case at a Washington, D.C., roundtable, while mainstream derivatives firms painted his ideas as dangerous.

FTX’s Bankman-Fried Is Already a Political Mega-Donor. He’s Doubling Down: The effective altruist has given tens of millions of dollars to candidates. He’s planning to contribute hundreds of millions of dollars more.

SEC can’t confirm if video of Bill Hinman is actually Bill Hinman in Ripple case: “After reasonable inquiry, the information known and currently available is not sufficient to enable the Commission to admit or deny this request,” the SEC stated in court documents.

Madison Cawthorn Hit With US House Ethics Investigation Over Crypto Promotion: The probe, announced Monday, appears to be related to the “Let’s Go Brandon” meme coin.

Brainard tells House committee about potential role of CBDC, future of stablecoins: The Fed vice chair told the House Financial Services Committee that a CBDC offers stability, interoperability in increasingly complex economic system.

Former BitMEX CEO Arthur Hayes Sentenced to 2 Years Probation: Hayes pleaded guilty to one count of violating the Bank Secrecy Act (BSA) in February, and faced a sentence of up to 12 months in prison.

Commerce Dept. Asks for Public Comments on Framework for US Crypto Competitiveness: The request is in response to President Biden’s executive order in March asking for agencies to coordinate their approach to digital assets.

US Treasury Official Warns Crypto Industry to Proactively Sanction ‘Problematic’ Wallets: FinCEN Associate Director Alessio Evangelista said crypto service providers shouldn’t wait for the government to designate a wallet if it’s being used for illicit activity.

CFTC Charges 2 Men With Running a $44M Crypto Ponzi Scheme: Sam Ikkurty and Ravishankar Avadhanam are accused of using YouTube videos to dupe would-be clients into investing in various crypto funds.

Europe & UK

ECB Warns That Crypto Risks Could Spill Over Into Wider Economy: More financial institutions engaging with crypto or digital assets being used as a form of payment could increase “spillover to the wider economy” the European Central Bank wrote in a report.

Regulators have been turning their heads toward the devastating collapse of the Terra blockchain coins, which put into question the stability of algorithmic stablecoins like UST, which are not backed by a fiat currency.

“Given the speed of crypto developments and the increasing risks, it is important to bring crypto-assets into the regulatory perimeter and under supervision as a matter of urgency,” the ECB said.

The European Union is currently putting together legislation to regulate cryptocurrencies called the Markets in Crypto Assets package. European Central Bank officials have highlighted the risks of crypto before. The bank’s President Christine Lagarde said recently that crypto had been a threat in the past and still is.

ECB: One in ten households in eurozone population centers now own cryptocurrency: The survey took place in the E.U’s major economic areas such as France, Germany, Italy, Spain, Belgium and the Netherlands.

ECB president’s anti-crypto comments trigger community responses: On a Dutch talk show, Christine Lagarde said that crypto is “worth nothing,” as there’s no underlying asset that backs the currencies.

The Crypto Community Says the UK’s FCA Is Finally Starting to Listen: The British regulatory agency’s first CryptoSprint was focused on digital asset information disclosure, custody and other regulatory obligations.

UK Regulator to Consider Terra Coins’ Collapse in New Crypto Rules: Market instability in stablecoins will need to be taken into account, the FCA’s executive director for markets said.

Portuguese Congress Rejects Two Bills Seeking to Tax Crypto: The proposals were submitted by two leftist parties. The government, which also seeks to apply taxes, hasn’t submitted a proposal so far.

Swiss think tank urges greater global cooperation on crypto regulation: The paper highlights investigators who work with crypto should invest in learning methods and technologies that are current with evolving criminal organization strategies.

Asia

South Korean Authorities Look to More Closely Scrutinize Exchanges Following Terra Meltdown: South Korea’s financial authorities are looking to introduce measures to hold crypto exchanges to greater scrutiny in the wake of Terra’s collapse, according to a report by The Korea Times. Crypto was on the agenda at a National Assembly emergency seminar this week. A two-day-long meeting was designed to discuss the disaster involving the Terra stablecoin UST and its sister token LUNA, which both collapsed to near zero earlier this month.

“We need to make exchanges play their proper role, and toward that end it is crucial for watchdogs to supervise them thoroughly,” Rep. Sung Il-jong of the ruling People Power Party said. “When exchanges violate rules, they should be held legally responsible to ensure that the market functions well without any troubles.”

Around 280,000 South Koreans are believed to have been victims of the abrupt plunge in UST and LUNA’s values, according to the Korea Times. The country’s Financial Services Commission plans to build close ties with law enforcers “to monitor any illegal acts in the industry and protect investors’ rights,” said its vice chair, Kim So-young.

Authorities are also looking into whether Do Kwon, the CEO of Terra creator Terraform Labs and a citizen of South Korea, has perpetrated fraud in targeting investors with his crypto project.

Cryptocurrency has been prominent in political discussion in South Korea in recent months, with both candidates in March’s presidential election taking crypto-friendly stances in order to appeal to younger voters. Winning candidate Yoon Suk-Yeol pledged to deregulate the industry in order to “realize the unlimited potential of the virtual asset market.”

Korean Police Move to Freeze Luna Foundation Guard Assets: Seoul police are seeking to ban the entity from withdrawing suspected embezzled funds.

Korean watchdog begins risk assessment of crypto as Terra 2.0 passes vote: While the FSS’ standardization effort is still in its early stages, it is expected that once a legal framework for virtual assets has been established, a uniform evaluation system will be put in place.

Stepn to block mainland China users to comply with regulatory policies: In a move to comply with Chinese regulatory policies, Stepn will be blocking users based in mainland China from its mobile app.

Rest of the World

India to roll out CBDC using a graded approach: RBI Annual Report: Further cementing India’s decision to introduce an in-house central bank digital currency (CBDC) in 2022–23, the Reserve Bank of India (RBI) proposed a three-step graded approach for rolling out CBDC “with little or no disruption” to the traditional financial system.

In February, while discussing the budget for 2022, Indian finance minister Nirmala Sitharaman spoke about the launch of a digital rupee to provide a “big boost” to the digital economy. In the annual report released on Friday by India’s central bank, RBI revealed exploring the pros and cons of introducing a CBDC.

In the report, RBI stressed the need for India’s CBDC to conform to India’s objectives related to “monetary policy, financial stability and efficient operations of currency and payment systems.”Based on this need, RBI is currently examining the various design elements of a CBDC that can co-exist within the existing fiat system without causing disruptions. The Indian Finance Bill 2022, which enforced the introduction of a 30% crypto tax on unrealized gains, also provides a legal framework for the launch of a digital rupee:

“The Reserve Bank proposes to adopt a graded approach to introduction of CBDC, going step by step through stages of Proof of Concept, pilots and the launch.”

Halfway through 2022, at the proof-of-concept stage, RBI is in the process of verifying the feasibility and functionality of launching a CBDC.

The Curious Case of Coinbase’s India Communications Strategy: Reverberations remain from the company’s ill-fated Indian launch.

After Armstrong Tweet, India’s Crypto Policy Body Says No Contempt of Court Challenge vs. RBI: The Coinbase CEO last month suggested the RBI’s “shadow ban” of crypto exchanges violated a Supreme Court ruling.

Paraguayan Bill Regulating Crypto Mining and Trading Moves Closer to Law: The legislation was approved with modifications in the country’s Chamber of Deputies and will now return to the Senate, which had passed it in December.

Russia’s updated crypto mining bill cuts tax amnesty for Bitcoin miners: Legislators in the lower house of Russia’s parliament also dropped the notion of a special register for mining operators.

Russia will inevitably legalize crypto payments, says trade minister: “The question is when this will happen, how it will happen and how it will be regulated. Now both the Central Bank and the government are actively engaged in this,” said trade minister Denis Manturov.

Central bankers bellow Bitcoin on El Salvador’s Bitcoin Beach: On day three of El Salvador’s financial inclusion and funding for SMEs conference, Bitcoin has stolen the show.

Binance to Advise on Crypto Strategy as Kazakhstan Looks to Boost Industry: The country known as a bitcoin mining hub is trying to attract more crypto firms and broaden the industry.

Panama President May Veto Crypto Regulation Legislation: The bill was approved by the country’s legislature in April.

Brazil’s Federal Revenue now requires citizens to pay taxes on like-kind crypto trades: The Federal Revenue of Brazil wants investors to pay taxes on cryptocurrency trading profits, even if there is no exchange for Brazil’s national currency.

Central African Republic to launch official crypto hub ‘Sango’: The Central African Republic prepares to launch its first major crypto hub shortly after the National Assembly adopted Bitcoin as legal tender.

MISC

Regulators Are Paying Attention to UST: The collapse of terraUSD (UST) is algorithmic stablecoins’ Libra moment.

Crypto Industry Battles to Exempt NFTs, DeFi From Tax Reporting Rules: The OECD is trying to introduce new rules to stop crypto from being used to stash assets out of sight of the taxman.

Wall Street Says a Fed Digital Dollar Spells Destruction for Banks: The U.S. Federal Reserve is considering whether to launch a CBDC like other nations, and bankers argue that’s a dangerous idea.

Lockheed Martin, Filecoin Foundation to Explore Hosting Blockchain Nodes in Space: The two plan to identify a test mission by August 2022.