Crypto Regulation News: Infrastructure bill passes US Senate without clarification on crypto, Draft El Salvador bitcoin banking regulations released, China’s tech crackdown extends far beyond crypto, Binance immediate KYC verification, and more!

Paradigm

Published in

Paradigm

19 min readAug 23, 2021

Vol. 75, 9th August — 23d August

TL;DR

Infrastructure bill passes US Senate without clarification on crypto. The fight for lawmakers to clear up the language used to define brokers in the crypto space goes to the House of Representatives which cuts its August recess short and returns on August 23 to consider the legislation. The crypto provision in the Infrastructure bill now depends on non-crypto issues, experts say. Besides, to win in Washington, crypto needs a campaign strategy
All Binance users are now subject to immediate KYC verification
Draft El Salvador Bitcoin banking regulations released
Inching closer to global agreement on taxing the sustainable digital economy: the G20, OECD and other international agencies are set to implement a multilateral approach to tax policy to achieve sustainability goals, expert says
Binance ordered by London High Court to trace $2.6M hackers
Netherlands’ central bank issues Binance warning
Spanish officials issue warning on Huobi and Bybit crypto exchanges
President of Argentina open to Bitcoin and a CBDC, but central bank says no
Brazil’s central bank president endorses crypto regulation. While Binance suspends futures in Brazil citing regulatory requirements
People’s Bank of China in Shenzhen ‘cleans up’ illegal crypto firms
Beijing signals yearslong tech crackdown as investors reevaluate China bets
South Korea’s crypto regulation is now expanding to foreign businesses. Moreover, Binance halts KRW pairs amid tightening crypto exchange regulations in Korea
Canadian regulator alleges OKEx operator violated securities law
Australian regulator issues warning about unlicensed crypto businesses. While Binance extends restrictions on derivatives offering in Australia
Ukraine’s state security shuts down illegal crypto exchanges
Buying Bitcoin is like entering a minefield, Bank of Russia exec says
Iran’s tax authority wants to legalize crypto exchanges
Jamaica’s central bank says it would need court order to track CBDC transactions
Ghana’s digital cedi must emulate cryptocurrencies, Afroblocks states
Thailand’s central bank outlines safeguards for a future retail CBDC
Galaxy Digital files for US Bitcoin futures ETF. Likewise, investment firm Kryptoin files for Ether ETF
US lawmakers urge CFTC and SEC to form joint working group on digital assets
VanEck and ProShares apply to withdraw Ethereum ETF filings from SEC
Bitcoin mixing CEO Harmon pleads guilty to US money-laundering charge
Operating a crypto exchange in Japan is ‘rather tough,’ FSA chief admits
Facebook’s David Marcus calls for ‘fair shot’ at crypto payments
Samsung plans to test mobile phone functionality with South Korea’s CBDC pilot
Women from small cities contribute to 65% of crypto sign ups in India
BitMEX will pay $100M in penalties to FinCEN, CFTC
Liquid exchange hacked to the tune of $80 million
Stablecoin adoption and the future of financial inclusion
What the SEC can learn from the German regulator
Missouri mayor suggests giving residents up to $1K in Bitcoin
And more!

Reports

Inching closer to global agreement on taxing the sustainable digital economy: The G20, OECD and other international agencies are set to implement a multilateral approach to tax policy to achieve sustainability goals.

Since 2013, the Organization for Economic Cooperation and Development, or OECD, has been discussing the base erosion and profit shifting (BEPS) risks of large multinational enterprises (MNEs) — risks arising from the digitalization of the global economy. BEPS 2.0 reports came out in 2018 and 2019, aiming to ensure a fairer distribution of the rights to tax the profits of large MNEs, set at a global minimum tax rate, in order to build consensus and prevent the proliferation of unilateral measures such as digital service taxes that could escalate to trade wars. Around 40 countries — including G20 countries like France, India, Italy, Turkey and the United Kingdom — have introduced or announced some unilateral measures to undermine tax certainty, hinder investment and drive up compliance and administration costs.

In a June meeting, the G7 countries agreed to the OECD BEPS 2.0 framework, mandating that MNEs pay their fair share of tax in the countries in which they operate, at a global minimum rate of at least 15%. They also agreed to follow the U.K.’s lead to make climate reporting mandatory to ensure markets play their part in the transition to net zero. On July 1, ahead of the G20 High Level Tax Symposium on Tax Policy and Climate Change held last month, the OECD issued a statement that it was seeking to finalize the technical details of the BEPS 2.0 report by October, with the aim of implementing them by 2023.

As of August, 133 member jurisdictions out of 139 have agreed to the OECD’s statement, the Statement on a Two–Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy. Furthermore, finance ministers of G20 countries also reaffirmed that a multilateral approach to tax policy in order to reach the common goal of net-zero emissions by mid-century is key to successfully tackling climate change.

The BEPS 2.0 framework represents the most substantial renovation of the international tax rules in almost a century and consists of two parts/pillars.

Pillar One is focused on MNEs’ profit allocation and nexus. MNE groups with global turnover above 20 billion euros ($23.5 billion) and profitability above 10% (profit before tax) will pay taxes in the countries where they have users and customers, even if they have no commercial/physical presence.
Pillar Two is focused on setting a global minimum tax rate that is at least 15% and targets large MNE groups with global turnover above 750 million euros ($883 million).

U.S. digital tax and regulatory developments: To aid the BEPS 2.0 negotiations, the Office of the U.S. Trade Representative launched “Section 301” investigations against Austria, India, Italy, Spain, Turkey and the United Kingdom for their digital service taxes in the same fashion it did for France’s DST in January. It found the measures inconsistent with prevailing international tax and trade principles, leading the U.S. to immediately suspend billions of dollars in retaliatory tariffs in June.

Gary Gensler, chairman of the U.S. Securities and Exchange Commission, said he believes the agency needs more authority from Congress — and more funding — to regulate the cryptocurrency market and provide protection for investors, with a “robust” regulatory framework for cryptocurrencies in the U.S., especially in emerging decentralized finance (DeFi) markets such as lending. This funding can come from the infrastructure bill, which was approved by the U.S. Senate, as it imposes tax-reporting requirements for cryptocurrency brokers that are similar to the way stockbrokers report their customers’ securities sales to the Internal Revenue Service.

Treasury to the rescue? Officials to clarify crypto tax reporting rules in infrastructure bill: Speaking on condition of anonymity, an official has reportedly told Bloomberg that the Treasury Department is planning to clarify the definition of “broker” in the recently passed infrastructure bill.

Biden’s infrastructure bill doesn’t undermine crypto’s bridge to the future: Some saw beneficial effects from the week’s legislative face-off. Still, “crypto and blockchain technology is at a significant moment.”

The perfect storm: DeFi hacks will advance the crypto sector moving forward: There is a silver lining from the DeFi hacks as new tech develops to protect the sector: “DeFi will be much safer in 12 months from now.”

South Korea’s crypto regulation is now expanding to foreign businesses: Any overseas activity outside Korea that has domestic effects or consequences shall be subject to the amended crypto regulation.

Opinions

By Taxing Crypto, the US Government Has Accepted It’s Here to Stay: There’s a silver lining in Congress’ efforts to impose a tax on crypto transactions: The U.S. finally accepts crypto is part of the economy.

To Win in Washington, Crypto Needs a Campaign Strategy: The infrastructure bill shows it is time for serious crypto activism. That means mapping out campaigns, says a professional campaigner.

Money Reimagined: A Turning Point for Crypto: Even as crypto lost a battle over taxes in Congress these weeks, it felt like a victory, says CoinDesk’s chief content officer.

Outwitting crypto criminals: Why exchanges have to go the extra mile: The decentralized industry has to spend additional resources to raise its standards and implement cybersecurity best practices.

Senate infrastructure bill isn’t perfect, but could the intention be right? The provisions of the U.S. infrastructure bill stirred up a heated debate, but many of the fears voiced by its critics are misguided.

DeFi regulation must not kill the values behind decentralization: The rise of DeFi improves financial inclusion and should be allowed to flourish in a regulated, and thus protected, environment.

DeFi needs more tangible assets on-chain to see a successful future: DeFi already offers innovative financial products, but what’s needed for it to go mainstream is to bring more real-world assets on-chain.

Digital intelligence must overcome challenges to solving crypto crimes: Changing an intelligence agency’s perspective on crypto crime is the next step toward a successful crypto investigation.

Stablecoin adoption and the future of financial inclusion: With the proper regulation, stablecoins could potentially fulfill their promise and enable more funds to reach those in greatest need.

Concerns around data privacy are rising, and blockchain is the solution: A decentralized future, with Web 3.0 and blockchain at its core, will provide the best practices in users’ privacy and data protection.

Wyoming’s crypto-friendly bill could be a sandbox in action, Sen. Lummis says: The new bill would allow crypto banks to get faster approvals for conducting business in Wyoming.

Facebook’s David Marcus calls for ‘fair shot’ at crypto payments: Marcus shares his honest thoughts on the crypto market, as well as declaring that Novi is ready to launch.

Stronger crypto regulations in US won’t necessarily help prevent fraud, says Okcoin CCO: Megan Monroe said an “incubator” approach might be one possible solution to the current “patchwork of financial regulations” in the United States.

Treasury Dept. wants to ‘capture DeFi’ with infrastructure bill: Jake Chervinsky: General counsel to Compound Labs, Jake Chervinsky has warned that the Treasury Department wants to “capture” the DeFi sector through the crypto provisions added to the infrastructure bill.

Operating a crypto exchange in Japan is ‘rather tough,’ FSA chief admits: Japan’s newly appointed Financial Services Agency Commissioner, Junichi Nakajima, believes Bitcoin is a quick way to transfer cash, but people use BTC for speculation and investment.

Risky Business? Here Are the Remaining Threats to Bitcoin, According to Crypto Analyst Scott Melker: Top crypto analyst, trader and host of The Wolf Of All Streets podcast Scott Melker is naming a threat that he believes looms large over Bitcoin’s future.

Former SEC Director William Hinman Says He Told Ripple To Stop Selling XRP as an Unregistered Security: William Hinman affirms that he warned Ripple about XRP.

Are NFTs being used for money laundering? Yes, they are, claims Mr. Whale: NFTs could be a vehicle to legitimize ill-gotten gains for the crypto elite.

USA

Infrastructure bill passes US Senate — without clarification on crypto: The fight for lawmakers to clear up the language used to define brokers in the crypto space is moving to the United States House of Representatives.

“This legislation imposes a badly flawed, and in some cases unworkable, cryptocurrency tax reporting mandate that threatens future technological innovation,” said Senator Toomey.

In a 69–30 vote, the Senate passed HR 3684, a bipartisan bill that proposes roughly $1 trillion in funding for roads, bridges and major infrastructure projects. However, the bill also suggests implementing tighter rules on businesses handling cryptocurrencies and expanding reporting requirements for brokers, mandating that digital asset transactions worth more than $10,000 are reported to the IRS.

Though initially split on the best course of action to amend the language in the bill, a group of six senators — Pat Toomey, Cynthia Lummis, Rob Portman, Mark Warner, Kyrsten Sinema and Ron Wyden — proposed a compromise amendment. The amendment would have exempted software developers, transaction validators and node operators as brokers, while suggesting that tax reporting requirements “only apply to the intermediaries.”

Despite the lack of an amendment clarifying the crypto language in the bill, Portman, Warner, Sinema and Wyden all voted in favor of the infrastructure deal, with only Lummis and Toomey voting nay. The Pennsylvania senator, Pat Toomey, said the legislation was “too expensive, too expansive, too unpaid for and too threatening to the innovative cryptocurrency economy” in his reasons for not voting in favor of the bill.

After a single senator, Richard Shelby of Alabama, objected to the introduction of the compromise amendment to the infrastructure bill, it failed to be added to the legislation prior to a final vote. However, lawmakers in the House still have the opportunity to amend the language on crypto before a full vote in the chamber and the bill being signed into law by President Joe Biden.

State of Crypto: The Crypto Provision in the Infrastructure Bill Now Depends on Non-Crypto Issues: The crypto industry wants to change a tax provision when the House takes up the Senate’s infrastructure bill, but other issues may take precedence.

The U.S. House of Representatives will start debating a bipartisan infrastructure, but Democrats are threatening to withhold their support for it for various reasons. This means the fate of a crypto tax provision might depend on whether another bill makes its way out of the Senate.

Despite an intense, week-long effort to change a questionable crypto tax provision in the Senate’s $1 trillion infrastructure bill (of which ~$550 billion is new spending), the Senate passed the original version of the language, which seeks to raise $28 billion over 10 years. The House of Representatives will cut its August recess short and return on Aug. 23 to consider the legislation.

The House of Representatives is currently controlled by the Democratic Party, with a very slim majority (220–212). That means if any Democrats vote against the bill or choose not to vote, the gap would have to be made up through votes from the Republican side, but who even knows how many Republicans might vote for the bill.

Gary Gensler Isn’t Buying Your Decentralization Theater: The SEC chief has a point: DeFi is often not as decentralized as its proponents like to claim.

DeFi Not Immune to SEC Oversight, Gensler Says: DeFi projects that reward participants with incentives or digital tokens could be subject to SEC regulation, the SEC chairman said.

US lawmakers urge CFTC and SEC to form joint working group on digital assets: The letter seems to be applying political pressure for the two government agencies to act on their own, rather than waiting for a bill requiring the creation of such a group to become law.

SEC Secures Judgments Against 3 in Bitconnect Scam: One individual must pay more than $3 million and hand over a wallet containing 190 bitcoins.

Crypto Made the Agenda at Last Month’s Fed Meeting: This appears to be the first time the topic has come up in the seminal monthly FOMC meeting.

Bitcoin Mixing CEO Harmon Pleads Guilty to US Money-Laundering Charge: The case may set a precedent for bitcoin mixing services.

Galaxy Digital Files for US Bitcoin Futures ETF: The SEC has yet to approve a crypto-based exchange-traded fund.

Congressmen McHenry, Thompson Call SEC Chair Gensler’s Remarks on Crypto ‘Concerning’: The two congressmen wrote that rather than potentially regulating innovation and job creation out of the U.S., lawmakers and regulators should “promote an active dialogue between regulators and market participants.”

Biden Administration to Pick Acting Chairman Rostin Behnam to Head CFTC: The regulator is charged with overseeing derivatives market activity, including cryptocurrency derivatives.

SEC wants ‘terabytes’ of Slack communications from Ripple: The SEC said that the previous production of Slack messages from Ripple was incomplete, and a massive quantity of data has not been collected.

Investment Firm Kryptoin Files for Ether ETF: As the SEC weighs approving its first bitcoin ETF, Kryptoin and others are getting in line for an ETH ETF.

Missouri mayor suggests giving residents up to $1K in Bitcoin: Jayson Stewart hinted Cool Valley residents could be required to HODL the funds for five years.

VanEck and ProShares apply to withdraw Ethereum ETF filings from SEC: It’s unclear why both asset managers chose to apply for and withdraw seemingly similar applications for Ether ETFs on the same days.

Former US Treasury official joins Binance to lead AML efforts: Former IRS supervisor Greg Monahan replaces Karen Leong as the global money laundering reporting officer of Binance.

Europe

Netherlands’ Central Bank Issues Binance Warning: The Dutch central bank joined the ranks of regulators issuing warnings about the crypto exchange’s activities.

Binance Ordered by London High Court to Trace $2.6M Hackers: Fetch.ai alleges hackers stole assets from its Binance account before selling them at a fraction of their value.

Spanish officials issue warning on Huobi and Bybit crypto exchanges: The National Securities Market Commission in Spain has issued warnings on 12 entities for not being registered for investment services.The watchdog isn’t banning the exchanges.

Asia

Beijing Signals Yearslong Tech Crackdown as Investors Reevaluate China Bets: China’s tech crackdown extends far beyond crypto.

China’s central government issued a five-year plan Wednesday that calls for tougher regulation across industries, signaling that the last few months’ crackdown on tech industries that has shaken investors’ confidence in the market will not abate any time soon.

Key to the crypto industry, the plan calls for more legislation on tech industries and the environment, intensifying law enforcement in finance and ecological management, as well as the “healthy development” of new business models in digital industries.

China, once the world’s largest bitcoin (BTC, +2.24%) mining hub, has been cracking down on crypto mining because of environmental and financial concerns. Miners are moving their operations overseas, primarily to central Asia. But Beijing’s push to rein in tech industries goes far beyond crypto, and has led global investors to reconsider their exposure to China.

Share prices for Chinese tech giants like Tencent and Alibaba have been tumbling, and SoftBank is holding back on investing in the country.

The plan also calls for a nationwide unified law enforcement system using internet and big data: Chinese local authorities have been experimenting with the use of consortium blockchains to integrate government data, including in the field of law enforcement.

People’s Bank of China in Shenzhen ‘cleans up’ illegal crypto firms: The Shenzhen branch of the People’s Bank of China has launched a special “rectification” program against illegal crypto-related activities, beginning with a crackdown on 11 emerging companies.

‘Block Kong’: Dim Sum in a Crypto Hub: A global center for finance, Hong Kong is an often overlooked hub for the blockchain industry, as documented in “Block Kong.”

Binance halts KRW pairs amid tightening crypto exchange regulations in Korea: The crypto exchange giant said the decision was part of efforts aimed at proactive compliance with regulatory demands.

LINE’s Crypto Exchange to Cease Activity in South Korea Ahead of Regulatory Deadline: The development shows potential for many foreign exchanges to pull or limit services within the country ahead of tougher regulations.

Samsung Plans to Test Mobile Phone Functionality With South Korea’s CBDC Pilot: The electronics giants will look at whether transactions can be completed without internet availability.

Thailand’s central bank outlines safeguards for a future retail CBDC: The results of a new study from the Bank of Thailand point to three key considerations for making sure a retail central bank digital currency doesn’t adversely impact financial stability.

Rest of the World

Draft El Salvador Bitcoin banking regulations released: The central bank of El Salvador, Banco Central de Reserva (BCR), has published draft regulations on how banks should handle Bitcoin.

Two documents were released for consultation on Aug. 17 instructing banks and financial institutions how to offer Bitcoin-related services to their customers.

The first, titled “Guidelines for the Authorization of Operation of the Digital Wallet Platform for Bitcoin and Dollars” (in Spanish), defines BTC as legal tender according to the recently drafted Bitcoin Law which was passed by El Salvador’s legislature on June 9 and will see the country formally adopt the digital asset on September 7.
The second document titled “Technical Standards to Facilitate the Application of the Bitcoin Law” is a longer and more detailed version of the first document.

Financial entities must apply to the central bank to offer digital wallets, the guidelines stated. Applications must detail the type of product being offered, and include target market details, risk assessments, charges to customers, education provisions for customers, and complaint procedures.

Know-your-customer (KYC) verification will be required for all customers though it was unclear whether the national ID card, which is used for basic bank accounts, would suffice for a crypto wallet. Full anti-money laundering (AML) procedures such as transaction monitoring and analysis would also be applied.

Two-way Bitcoin-to-dollar convertibility must be provided and the bank is allowed to charge a fee. According to a translation hosted by Attack of the 50 Foot Blockchain author David Gerard:

“The electronic platform used by the digital wallet administrators must allow the Central Bank access in real time to all information related to the operations carried out, as well as information requested by clients.”

All Bitcoin held by banks and companies must be fully backed as opposed to a fractional reserve. Dollars will be held at the central bank while BTC is held with a custodian, services for which can be contracted out.

Article 29 of the second document requires the bank or financial institution to warn customers that Bitcoin is volatile, transactions cannot be reversed, and that if they lose their private keys, then they lose the BTC.

There were no provisions for accounting standards or standard government exchange rates for converting Bitcoin into fiat and vice versa.

Canadian regulator alleges OKEx operator violated securities law: The commission has made similar allegations against Bybit, crypto exchange KuCoin and Polo Digital Assets.

Australian regulator issues warning about unlicensed crypto businesses: Based on reports from Australian investors, the ASIC said that citizens have suffered significant losses due to “excessive leverage, platform outages, or unfair liquidations.”

Binance Extends Restrictions on Derivatives Offering in Australia: The move is the latest by Binance to address regulatory and compliance concerns proactively in response to intense regulatory scrutiny.

Iran’s tax authority wants to legalize crypto exchanges: The Iranian tax agency has called for establishing a legal framework for crypto trading platforms so they can be taxed properly.

Women from small cities contribute to 65% of crypto sign ups in India: Mumbai-based WazirX crypto exchange’s latest data shows a 2,648% growth to date in user signups from smaller cities across India.

President of Argentina open to Bitcoin and a CBDC, but central bank says no: Argentina’s president is open to the idea of central bank digital currency, but the country’s central bank head has rejected the idea.

Brazil’s central bank president endorses crypto regulation: Central bank head Roberto Campos Neto recognizes the demand for greater crypto regulation as the country evolves in the market.

Binance Suspends Futures in Brazil Citing Regulatory Requirements: The product was removed in response to an order from the Brazilian Securities Commission.

DBS wins regulatory approval in Singapore for crypto payment services: Starting next Monday, DBS Bank’s crypto exchange will start operating, allowing institutional investors to trade Bitcoin.

Jamaica’s Central Bank Says It Would Need Court Order to Track CBDC Transactions: The bank said it would only capture general transaction data for its economic analysis and assessments.

Ghana’s digital cedi must emulate cryptocurrencies, Afroblocks states: Afroblocks’ co-founder urges Ghana’s central bank to involve the in-house crypto experience and expertise to help the e-cedi succeed.

Ukraine’s state security shuts down illegal crypto exchanges: Ukrainian authorities say the crypto exchanges were involved in money laundering and other illicit financial activities.

Buying Bitcoin is like entering a minefield, Bank of Russia exec says: The Bank of Russia has expressed concerns over the increasing number of local investors pouring their money into Bitcoin.

MISC

All Binance users are now subject to immediate KYC verification: The crypto exchange will limit services for existing users unless they adhere to the new KYC and AML requirements.

Binance has been in the regulatory cross-hairs of jurisdictions across the globe amid claims of it operating unlicensed businesses. As remediation of the ongoing scrutiny, the crypto exchange has publicly announced new Know Your Customer (KYC) requirements for all users on the platform.

“Effective immediately, all new users are required to complete Intermediate Verification to access Binance products and service offerings, including cryptocurrency deposits, trades and withdrawals,” a statement said.

Moreover, existing users who were previously allowed to trade cryptocurrency without verification will be allowed to only process “withdrawals, order cancellation, position close, and redemption.”

According to Binance, the change in policy for existing users will be rolled out in phases to ensure minimal disruptions in user experience. However, immediate KYC verifications will allow the users to have complete access to Binance products and services. The company said:

“Binance strongly advises users to complete their Intermediate Verification promptly to avoid delays in the verification process and restrictions on their access.”

The crypto exchange claims to implement KYC and Anti-Money Laundering measures as a way to enhance investor protection against financial crimes.

Currently, the basic verification on the Binance portal is estimated to get processed in one day. However, verifying all documents, including government ID, facial verification and proof of residential address will require a total of 20 days to review.

Binance has amped up efforts to counter the criticism its business operations currently face, mainly from regulators around the world. On July 28, the crypto exchange limited the withdrawal amounts for users who did not complete full KYC verification.

As a result of this announcement made by CEO Changpeng Zhao, the daily withdrawal limit for unverified Binance users dropped to 0.06 Bitcoin (BTC) from the previous limit of 2 BTC. Zhao has also shared his intentions to work with regulators as the exchange has been recently warned for operating unlicensed in several countries.

What the SEC can learn from the German regulator: While people are waiting with bated breath on how the SEC will regulate the DeFi industry, Germany’s BaFin has already found a way.

Binance crypto exchange outage sparks outrage as traders lose millions: Binance’s policy allows investors to get compensation on trading losses due to system or internal issues but does not cover the “what could have been” situations.

Broker licensing for US blockchain developers threatens jobs and diversity: Lower socio-economic groups will be excluded from the blockchain industry if United States lawmakers approve the infrastructure bill.

Liquid exchange hacked to the tune of $80 million: Over $80 million worth of digital assets has been removed from Liquid Global exchange. KuCoin has responded by blacklisting the addresses that received stolen funds.

BitMEX will pay $100M in penalties to FinCEN, CFTC: Former CEO Arthur Hayes and other executives at the firm are still likely to face charges on alleged violations of the Bank Secrecy Act.

Darknet crypto mixer operator pleads guilty to laundering $300M in BTC: The operator of the darknet-based Bitcoin mixing service Helix has pleaded guilty to laundering more than $300,000 million worth of BTC from 2014 to 2017.

Circle wants to become a bank so it relies less on third party partners: Circle, the firm behind the USDC stablecoin, wants to become a bank in a bid to rely less on third-party payment service providers.