Crypto Regulation News: IMF intends to ‘ramp up’ digital currency monitoring, White House supports only minor changes to crypto tax proposal, Ukrainian law allows the central bank to issue CBDC, German law allowing institutional funds to hold crypto comes into effect, and more!

Paradigm

Published in

Paradigm

17 min readAug 9, 2021

Vol. 74, 26th July — 9th August

TL;DR

IMF intends to ‘ramp up’ digital currency monitoring
UN chooses NFT marketplace host in efforts to fight climate change
White House supports only minor changes to crypto tax proposal. Furthermore, US considers banking regulator who’s wary of crypto
SEC charges two crypto executives in first-ever DeFi securities case. While, SEC Chair wants robust crypto regulatory regime for the US
German law allowing institutional funds to hold crypto comes into effect
French fund manager launches EU-regulated ETF that tracks Bitcoin price
New Spanish bill aims to enable mortgage payments in crypto
Binance to shut down crypto derivatives trading in Europe. Moreover, HSBC UK cuts credit card payments to Binance
Binance to wind down Hong Kong derivatives trading in switch to ‘proactive’ compliance stance. Additionally, Binance banned in Malaysia, given 14 days notice to shut down operations
South Korean FSC denies plans to shut down 11 crypto exchanges
Singapore grants first regulatory in-principle approval to crypto exchange
Russia grants $200K to build tool for tracing crypto transactions. While, Russian court orders Sber to unblock account used for Bitcoin trading
Uruguayan senator introduces bill to enable use of crypto for payments
Nigerian crypto adoption rises despite government crackdown
Ghana’s vice president declares Africa should embrace digital currencies
Israeli government seeks to track crypto holdings above $61K
Venezuela to launch CBDC in October
Ripple granted access to Binance’s records in SEC securities case
Bitcoin Strategy ProFund aims to tackle regulatory barriers for investors
SEC has no authority over crypto, CFTC commissioner argues
Coinbase CEO says proposed crypto tax rule makes no sense
NFTs are next for enterprise Ethereum, says ConsenSys founder
Buterin’s $1B SHIB donation tricky to cash out, says fund manager
What form of digital assets will be the future of payments?
And more!

Reports

IMF intends to ‘ramp up’ digital currency monitoring: The International Monetary Fund, or IMF, plans to “step up” its monitoring of digital currencies, according to a report by Reuters. This intent, as published in an IMF paper Thursday, details how the fund plans to “manage this far-reaching and complex transition” toward a digitized economy.

“Rapid technological innovation is ushering in a new era of public and private digital money,” the report reads, highlighting the benefits of digital assets. “Payments will become easier, faster, cheaper, and more accessible, and will cross borders swiftly. These improvements could foster efficiency and inclusion, with major benefits for all.”

However, such implementations can only occur if the IMF can “keep pace with policy challenges,” which require a deeper look into digital economies as a prospect. The fund plans to work with institutions “consistent with its mandate,” such as central banks, regulators, and the World Bank while expanding its own digital money research.

As disclosed in an April 2021 paper, the IMF plans to add five sets of experts to properly conduct research. Their skills include lawyers, digital risk experts, financial sector experts, fiscal economists, and data specialists. This set of skills should thoroughly cover research into the digital currency industry, the paper claims.

The fund will target Central Bank Digital Currencies, or CBDCs, stablecoins, cryptoassets, and more. It will examine how these assets represent financial independence, can act as reserve currencies, and how they can replace current payment systems.

Earlier this week, the IMF published a warning regarding El Salvador’s recent Bitcoin law. While it didn’t mention the country directly, the warning noted that “granting cryptoassets legal tender status” could threaten local economies, not to mention the time-consuming process of citizens “choosing which money to hold.” Conversely, the IMF went on record earlier this month claiming that CBDCs could provide the global financial system with a “clean slate.”

UN chooses NFT marketplace host in efforts to fight climate change: The United Nations has selected blockchain platform Unique Network to run a nonfungible token (NFT) initiative in the effort to inspire others to take action against climate change. According to a Tuesday announcement, Unique will be the lead technology partner for a program from the UN’s Human Settlement Programme and International Association for the Advancement of Innovative Approaches to Global Challenges, which will mint young artists’ work as NFTs. The program, called Digital Art for Climate Action Empowerment, or DigitalArt4Climate, encourages creators to showcase artwork inspiring people to work toward finding better solutions for the environment.

“The United Nations has recognized NFT technology as a unique new medium for creative expression that can help amplify messages about climate action,” said the group. “The U.N. wants to bring this innovative art form to the next generation of creators who stand to benefit from a technology that can help them amplify and monetize their work.”

A parachain project in the Kusama and Polkadot ecosystem, Unique will create and host an NFT marketplace for the initiative. According to the UN programs, developers competed in a virtual hackathon last month to create the digital art gallery and marketplace showcasing the DigitalArt4Climate artwork. The project will open for contributions starting on Aug. 12.

Opinions

Decentralized and centralized finance need to collaborate: CeDeFi presents a new financial system and it should be built by using the best of each other, with DeFi leading and CeFi contributing.

The biggest challenge for crypto exchanges is global price fragmentation: For decentralized markets to scale globally, the interoperability between cryptocurrency exchanges must be seamless.

What form of digital assets will be the future of payments? Not all digital assets would be treated as sternly as cryptocurrencies and not all of them will become the future of money.

Crypto Mom: True decentralization is the only thing that will save DeFi projects: SEC Commissioner Peirce believes that DeFi founders’ only hope to bypass financial regulation is to ensure full decentralization from launch.

Fed governor says CBDCs remain ‘a solution in search of a problem’: Chris Waller’s comments come after Jerome Powell said that the Federal Reserve would be issuing a discussion paper on CBDCs.

SEC has no authority over crypto, CFTC commissioner argues: Former CFTC Chair Christopher Giancarlo argued that the CFTC is the only U.S. regulatory agency that has experience regulating markets for Bitcoin and crypto.

‘Nakamoto’s innovation is real,’ says SEC Chair Gary Gensler: Gary Gensler describes Satoshi Nakamoto as an important innovator in cryptography and that their “innovation spurred the development of crypto assets and the underlying blockchain technology.”

Digital currency may be an answer to help the unbanked, Sen. Warren says: Senator Elizabeth Warren appeared to have softened her stance on the crypto industry in recent remarks.

Coinbase CEO Brian Armstrong says proposed crypto tax rule makes no sense: The crypto exchange boss is the latest to decry plans to enact sweeping changes to cryptocurrency tax reporting in the United States.

Regulatory clarity for crypto would take 3 to 5 years, FTX CEO says: FTX CEO Sam Bankman-Fried expects governments to have a clearer stance in the next three to five years and wishes to become a part of the discussions with the regulators “to build out this regime.”

NFTs are next for enterprise Ethereum, says ConsenSys founder Joe Lubin: NFTs are getting enterprises excited about the future of finance, but regulations are still needed to reach mainstream adoption.

A trade war misstep? China is vacating crypto battlefield to US banks: Why is China forsaking cryptocurrencies at the same time that legacy U.S. banks, long wary of crypto, appear to be discovering its virtues?

FinCEN’s new digital currency advisor says crypto’s ‘just another means of payment’: FinCEN digital currency adviser Michele Korver believes cryptocurrency is a natural evolution in financial technology.

Congressman takes aim at peers who think crypto could cause a ‘financial 9/11’: Characterizing his contemporaries as viewing the crypto sector as a “financial 9/11,” Congressman Ted Budd has warned lawmakers against driving blockchain innovation offshore.

USA

White House supports only minor changes to crypto tax proposal: The White House has formally backed the much more limited of two competing amendments to the infrastructure deal in a late Thursday statement. The statement by White House deputy press secretary Andrew Bates says that “the Administration believes this provision will strengthen tax compliance in this emerging area of finance and ensure that high income taxpayers are contributing what they owe under the law.”

He continued: “We are grateful to Chairman Wyden for his leadership in pushing the Senate to address this issue, however we believe that the alternative amendment put forward by Senators Warner, Portman, and Sinema strikes the right balance and makes an important step forward in promoting tax compliance.”

The crypto community is pushing back against amendments to the crypto provisions of the White House’s infrastructure plan — which seeks to raise $28 billion for infrastructure funding through expanded taxation on crypto transactions and impose new reporting requirements for crypto “brokers.”

On Thursday, senators Mark Warner and Rob Portman proposed a “last-minute amendment” to the infrastructure deal to exclude proof-of-mining and sellers of hardware and software wallets from the bill. However, the amendment’s wording suggests crypto developers and proof-of-stake validators would still be subject to expanded reporting and taxation that some have described as “unworkable.”

Hours later, Washington Post economics reporter Jeff Stein tweeted that the White House is formally supporting their amendment.

If accurate, that means the White House isn’t supporting a rival amendment proposed by senators Cynthia Lummis, Pat Toomey and Ron Wyden, who provided a much broader list of exemptions including for any entity “validating distributed ledger transactions,” entities “developing digital assets or their corresponding protocols,” as well as miners.

“By clarifying the definition of broker, our amendment will ensure non-financial intermediaries like miners, network validators and other service providers are not subject to the reporting requirements specified in the bipartisan infrastructure package,” Toomey tweeted.

The minimal amendment has received widespread condemnation from the crypto community, with many onlookers emphasizing that proof-of-stake networks and software developers will be caught by the new legislation.

A petition demanding citizens push back against the amendment has already gone live on FightForTheFuture.org, with the page slamming the law for “dramatically expand[ing] financial surveillance” and harming innovation.

On Monday, the Electronic Frontier Foundation (EFF) published an article criticizing the amendment for including developers who do not control digital assets on behalf of users in its scope. Specifically, the EFF took aim at wording contained in the amendment that defines a cryptocurrency “broker” as any individual “responsible for and regularly providing any service effectuating transfer of digital assets,” asserting that “almost any entity within the cryptocurrency ecosystem [could] be considered a ‘broker’” according to the new definition.

Unchanged crypto tax bill will be put to a vote on Tuesday: Senate talks regarding the controversial crypto provisions to the U.S. infrastructure bill have ended without any amendments, suggesting the original bill will be voted on come Tuesday.

2 Senators propose exemptions to crypto tax reporting required by US infrastructure bill: The amendment is a compromise between two previously proposed amendments.

Crypto space weighs in on proposed amendments to US infrastructure deal: Some are urging U.S.-based crypto users to contact their representatives in support of the amendment from Wyden, Lummis and Toomey.

Treasury Secretary reportedly against amending crypto language in infrastructure bill: Janet Yellen’s position on a “compromise” amendment proposed yesterday is unclear, but she reportedly raised objections to the language on crypto put forth by Senators Wyden, Lummis and Toomey.

Three US Senators propose narrowing crypto tax language in infrastructure bill: While Congress works to better understand and legislate on issues surrounding the development and transaction of cryptocurrencies, it should be wary of imposing burdensome regulations that may stifle innovation,” said Senator Pat Toomey.

Some US lawmakers want Bitcoin miners to be exempted from proposed crypto taxes: Certain members of Congress want assurances that Bitcoin miners and crypto software developers will not be subject to the newly proposed tax rules.

New bill proposes US Treasury to have full authority over fiat stablecoins: The bill also calls for the U.S. Federal Reserve to be vested with the clear authority to issue a digital dollar.

US considers banking regulator who’s wary of crypto: Saule Omarova is a professor of banking law and could be nominated in the next few months, the New York Times said.

SEC Chair wants robust crypto regulatory regime for the US: America’s securities chief has crypto regulatory ambitions beyond ETFs and token offerings, which include markets like lending and DeFi.

SEC charges two crypto executives in first-ever DeFi securities case: The U.S. Securities and Exchange Commission is pressing charges against two crypto executives in its first-ever decentralized finance securities case.

Invesco files with SEC for Bitcoin ETF without direct BTC exposure: The Invesco Bitcoin Strategy ETF may “at times” invest in Bitcoin ETFs listed outside of the United States.

Europe

German law allowing institutional funds to hold crypto comes into effect: Beginning on Aug. 2, 2021, German institutional funds will be able to hold up to 20% of their assets in cryptocurrencies, possibly setting the stage for wider mainstream acceptance of Bitcoin (BTC) and other crypto assets by the nation’s pension funds.

As Bloomberg reported, the new law alters fixed investment rules governing Spezialfonds, also known as special funds, which are only accessible to institutional investors such as pension funds and insurers. Spezialfonds currently manage about $2.1 trillion, or 1.8 trillion euros, worth of assets.

Tim Kreutzmann, who works for German investment fund association BVI, told Bloomberg that most funds will likely stay well below the 20% mark initially, explaining: “On the one hand, institutional investors such as insurers have strict regulatory requirements for their investment strategies. And on the other hand, they must also want to invest in crypto.”

The new rule, which was passed in early July, represents an important evolution in how German lawmakers govern digital assets. Germany’s Federal Financial Supervisory Authority, better known as BaFin, continues to urge caution with respect to digital-asset investing. At the same time, the financial watchdog encourages blockchain innovation in the country.

Germany first embarked on a comprehensive blockchain strategy in 2019, promoting 44 adoption measures that are set to be realized by the end of 2021. The new approach to blockchain and crypto also introduced measures that would make it easier for investors to access digital investments.

French fund manager launches EU-regulated ETF that tracks Bitcoin price: France’s securities regulator approves: The Bitcoin-tracking fund fully complies with the European Union’s UCITS standards.

New Spanish bill aims to enable mortgage payments in crypto: The draft bill intends to allow property owners to pay mortgages with crypto and authorize the real estate sector to use their own crypto for mortgage purchases in Spain.

HSBC UK cuts credit card payments to Binance: “We take our duty as a responsible lender seriously and want to do everything we can to protect you,” HSBC UK reportedly wrote.

Binance to shut down crypto derivatives trading in Europe: Binance moves to suspend derivatives trading in Europe, starting with Germany, Italy and Netherlands.

Okcoin secures regulatory approval in Malta and the Netherlands: CEO Hong Fang said Okcoin was focused on Europe as part of the firm’s global growth plans.

Asia

Binance to wind down Hong Kong derivatives trading in switch to ‘proactive’ compliance stance: Binance, the crypto exchange that has come under scrutiny from regulators globally, said it will take a more proactive stance to compliance and stopped Hong Kong clients from opening new derivates accounts, effective immediately.

Existing Hong Kong account holders have 90 days to close their open positions, the exchange announced Friday.

Regulatory bodies the world over have issued notices or warnings in recent weeks that Binance is not authorized to conduct business in their jurisdictions. These include the U.K., Japan, Thailand and. Also in July, Hong Kong’s Securities and Futures Commission (SFC) said that no entity in the Binance Group is registered to conduct any regulated activity in Hong Kong. The commission expressed particular concern about stock tokens.

Binance banned in Malaysia, given 14 days notice to shut down operations: The crypto exchange has been served with a notice to stop offering its services in the country.

China crypto crime: Still ‘top ranked’ for illicit activity, but crime is falling: Chinese wallets both sent and received more than $2 billion worth of crypto associated with illicit activities between April 2019 and June 2021.

South Korean FSC denies plans to shut down 11 crypto exchanges: “If the 11 exchanges intend to maintain their operations, they are required to open up and use real-name accounts for the purpose of collecting deposits,” the FSC said.

Rest of the World

Ukraine’s President signs law allowing central bank to issue a CBDC: Ukrainian President Volodymyr Zelensky signed into a law a bill called On Payment Services that allows the country’s central bank to issue a central bank digital currency (CBDC), an announcement on the president’s official website said.

The bill regulates how payment services, especially digital ones, can be provided in Ukraine. In particular, the bill says the National Bank of Ukraine, the country’s central bank, can issue its own digital currency and create a testing environment for fintech startups.

The National Bank of Ukraine (NBU) has been looking into potentially launching a CBDC since 2018. It built an early prototype on the Stellar blockchain and published a report on the subject in 2019.

New bill in Ukraine to allow payments in cryptocurrency, says official: The deputy minister of Ukraine’s Ministry of Digital Transformation believes that crypto payments will be allowed in Ukraine similarly to payments deriving from the U.S. dollar.

Singapore grants first regulatory in-principle approval to crypto exchange: Independent Reserve gets the first in-principle approval that gives hope to around 170 crypto exchange applicants waiting to receive an official operating license in Singapore.

Russia grants $200K to build tool for tracing crypto transactions: A Russian company indirectly backed by Russia’s largest bank will build a crypto tracking platform as part of a $200,000 procurement contract.

Russian court orders Sber to unblock account used for Bitcoin trading: According to the court, Sber had no reason to keep the account service blocked after the client provided detailed information about his Bitcoin trades.

Venezuela to launch CBDC in October — And cut six zeros from its currency: The Central Bank of Venezuela is rolling out a CBDC in October and will launch an SMS-based exchange system to facilitate its use.

Uruguayan senator introduces bill to enable use of crypto for payments: A Uruguayan senator has introduced a bill seeking to “establish a legitimate, legal and safe use in businesses related to the production and commercialization of virtual currencies.”

Nigerian crypto adoption rises despite gov’t crackdown: Nigerians are still hungry for crypto despite the central bank’s efforts to quash it.

Ghana’s vice president declares Africa should embrace digital currencies: Digital currencies are primed to reinvent trade between African countries.

Israeli gov’t seeks to track crypto holdings above $61K: Framed as a “war against black capital,” Israel’s Ministry of Finance estimates the new legislation could bring in $9.2 million in additional state revenues through tax.

Blockchain Australia says gov’t still dismissing industry as a ‘wild west’: The industry body has accused the government of leaning into narratives about malicious actors and scams, rather than engaging with the blockchain space to establish fit-for-purpose regulation.

MISC

Bitcoin hash rate rebounds as major miners are coming back online: Restrictions in China have forced homegrown Bitcoin miners to move out to crypto-friendly nations such as Canada, Kazakhstan and the United States.

China’s stringent crypto regulations meant closing shop for many Chinese businesses within the Bitcoin (BTC) mining ecosystem. The sudden disappearance of Bitcoin miners from the grid has resulted in falling hash rates. The hashing performance, the cumulative computing power of the Bitcoin network, dropped from an all-time high of 180 exahashes per second (EH/s) to 84 EH/s in just 21 days.

While the hash rate drop was directly attributable to the drop in the number of Chinese miners, Blockchain.com Explorer data suggests there has been a steady increase in mining difficulty since June 3. Since the drop, the hash rate has increased by 21.38%, owing to the return of the migrating Chinese miners that have started operating in other regions. The resulting adjustment in Bitcoin mining difficulty translates into higher computational costs. As more of the formerly China-based miners come back online, the operational costs for Bitcoin miners worldwide will continue to increase.

Given the initial resistance from the Chinese government, miners have been on the lookout for countries that offers both regulatory clarity and lower electricity costs. Under the pretext of shielding citizens from high-risk investments, Chinese authorities have forced crypto businesses to highly limit their crypto portfolio offerings or move offshore. Wang Juana, a member of China’s OECD Blockchain Expert Policy Advisory Board, stated:

“We are seeing the cryptocurrency market enter a path to ‘de-China-isation’ — first on trading and now on computing power, based on a series of stronger steps taken against cryptocurrencies and Bitcoin mining last week by Beijing.”

At its peak in September 2019, China contributed to 75.53% of the global Bitcoin hash rate and had shown a steady decline way before the mining ban was imposed. While China’s current hash rate contribution stands at 46.04%, the United States has expanded its share to 16.85% globally.

Brad Garlinghouse’s lawyers file request for Binance documents in ‘international’ challenge to SEC lawsuit: “The offers and sales that the SEC challenges did not occur in this country and are not subject to the law that the SEC has invoked in this case,” said the legal team.

Ripple granted access to Binance’s records in SEC securities case: The documents may provide critical evidence that CEO Brad Garlinghouse was acting outside of the SEC’s jurisdiction.

Victory Capital files SEC application for crypto ETF: The firm first announced its intention to launch a private fund for accredited investors tracking the Nasdaq Crypto Index in June.

Mike Novogratz blasts US officials for poor grasp of crypto industry: The billionaire crypto proponent said politicians and regulators have a flawed understanding of crypto and its technological underpinnings.

Monero’s former maintainer arrested in the US for allegations unrelated to cryptocurrency: An arrest warrant for Riccardo Spagni was issued on July 20, 2021, at the request of the South African government. He was apprehended the same day in the United States.

BlockFi faces regulatory heat, a sign of possible crypto lending regulations? The crypto lending giant BlockFi is facing regulatory scrutiny from a handful of states in America ahead of a proposed public listing.

Bitcoin Strategy ProFund aims to tackle regulatory barriers for investors: Mutual funds provider ProFunds aims to enable crypto exposure for investors without actually buying Bitcoin.

DEXs could see demand boost as regulators target centralized exchanges: From indictments against figures behind BitMEX to banks blocking transactions, and then Binance, some CEXs are under pressure. Is this an industry-wide phenomenon?

Buterin’s $1B SHIB donation tricky to cash out, says fund manager: Realizing Vitalik Buterin’s $1-billion donation in Shiba Inu coins to the COVID-Crypto Relief Fund in India has turned out to be a labyrinthine process for the fund’s creator.