Crypto Regulation News: Japan passes stablecoin bill for investor protection, New York State Senate passes bitcoin mining moratorium, US Justice Department urges more coordination to combat crypto crime, Germany issues crypto securities guidance, Bill to ban digital assets as payment introduced in Russian parliament, and more!

Paradigm

Published in

Paradigm

14 min readJun 13, 2022

Vol. 96, 30th May — 13th June

TL;DR

US Justice Department urges more coordination to combat crypto crime: A new report responds to this year’s executive order from President Joe Biden, marking some of the first recommendations produced by the order.
New York’s crypto regulator publishes formal stablecoin guidance. While New York State Senate passes Bitcoin mining moratorium. Bitcoin miners say NY ban will be ineffective and ‘isolate’ the state
The SEC is reportedly suspicious that Binance exchange sold unlicensed securities in its ICO, and the Reuters tallied up some old cases
Key US senators introduce crypto bill outlining sweeping plan for future rules
Grayscale, Bitwise сonfident a spot Bitcoin ETF will be approved soon
CFTC chairman ‘encouraged’ by bill in congress to give the agency more crypto oversight
Lithuania aims to tighten crypto regulation and ban anonymous accounts
Outgoing french lawmaker calls for fossil-based crypto mining ban, DAO legal status
Germany issues crypto securities guidance as deadline looms
Japan passes landmark stablecoin bill for investor protection: The new legal framework will take effect in a year. New Japanese law may allow seizure of stolen crypto
South Korea announced Digital Assets Committee, launched an investigation and met with Asia-Pacific financial authorities. Furthermore, Major South Korean crypto exchanges delist Litecoin
Hong Kong’s Securities and Futures Commission warns of nonfungible token risks
Bermuda’s crypto companies are launching an industry association
CBDCs can “kill” private crypto: India’s RBI deputy governor says to IMF. While Indian exchange CoinSwitch Kuber unveils crypto rupee index
Bill to ban digital assets as payment introduced in Russian parliament
Binance seeks critical licenses in Philippines, CEO says
Kazakhstan’s central bank ‘isn’t going to ignore’ the crypto market
Ukraine to use NFTs to save its cultural ‘DNA’ amid russian invasion
Ugandan central bank U-turns on crypto, welcoming firms to regulatory sandbox
Human rights activists have urged US Congress to learn about bitcoin and its use in nations suffering conflict and hyperinflation
Leaked copy of US draft bill shows DeFi and DAOs under regulatory lens
Consumers lost over 1B to crypto fraud since January 2021, FTC says
The bank founded by Morgan Stanley veteran filed suit against the U.S. central bank for delaying a decision on its application for a master account
BIS economists contend crypto can’t fulfill the role of money: The nature of permissionless blockchains necessarily leads to “fragmentation of the crypto landscape,” according to the group
Coin center sues US treasury over ‘unconstitutional’ tax reporting rule
Circle’s disparte calls CBDCs ‘a preposterous idea’ in digital dollar debate
Computer scientists and academics pursue efforts to stop crypto lobbying in US
And more!

Opinions

BIS Economists Contend Crypto Can’t Fulfill the Role of Money: The use of public blockchains results in fragmentation which means crypto could never be a suitable means of payment, economists from the Bank for International Settlements (BIS) said in a report.

“Fragmentation means that crypto cannot fulfill the social role of money,” the report concluded.

The report contended that as transactions per block get close to their limit, the cost of transactions rises, causing users to seek alternative blockchains. This “fragmentation” means blockchains cannot harness the beneficial network effects associated with traditional money.

Money, the report’s authors wrote, is a coordination device meant to facilitate economic exchange and that can happen only if there are network effects where the money is continually made more attractive as more people use it. Without interoperability between competing blockchains, cryptocurrencies cannot fulfill that role.

Not a fan of Bitcoin or crypto in general, the BIS, which is an organization that represents the world’s major central banks, has been advancing its own research into central bank digital currencies and recently completed project Dunbar in which the central banks of Australia, Malaysia, Singapore and South Africa found that cross-border CBDC efforts were viable.

Self-regulatory orgs for crypto keep ecosystem afloat pending clear regulations: In places where crypto has no solid legal framework, self-regulatory organizations act as a ladder for crypto companies to evolve.

US central bank digital currency commenters divided on benefits, unified in confusion: Like a Rorschach ink blot, the Federal Reserve Board’s CBDC discussion paper provided stakeholders with an opportunity to find what they wanted to see in it.

A life after crime: What happens to crypto seized in criminal investigations? Like with any kind of property, law enforcement has the right to sell your coins and spend the money.

Global Web3 metaverse and tax initiatives continue in the face of a market meltdown: Web3 developers, institutional investors and regulators preparing to tax metaverse profits remain stable despite all the turbulence in the digital assets market.

USA

US Justice Department Urges More Coordination to Combat Crypto Crime: A new report from the Justice Department responds to this year’s executive order from President Joe Biden, marking some of the first recommendations produced by the order.

The U.S. should share more information about crimes tied to cryptocurrency and help build up its overseas partnerships to help combat them, the U.S. Department of Justice said in a report released, one of the first responses to President Joe Biden’s executive order mobilizing the federal government to come up with responsible oversight of digital assets.

“Strong international law enforcement cooperation will be essential to best position the United States and its partners to detect, investigate, prosecute, and otherwise disrupt criminal activity related to digital assets, and to overcome the unique obstacles posed by the features of these technologies,” Attorney General Merrick Garland said in a letter included within the report.
Garland said his agency is pressing for “expanding our operational and capacity building efforts with international partners; increasing information sharing, coordination, and deconfliction; and closing regulatory gaps across jurisdictions.”

In March, Biden signed the order that directed various government agencies to figure out what problems need to be solved in overseeing crypto and to come back with recommendations to fix them. The order gave the attorney general six months to come back with “a report on the role of law enforcement agencies in detecting, investigating, and prosecuting criminal activity related to digital assets.” This response came significantly early.

Building up the resources devoted outside the U.S. “could permit more effective law enforcement information sharing and could ensure the formation of the types of long-term collaborations between law enforcement personnel that can critically advance investigations and prosecutions,” according to the report’s recommendations, which also suggest direct funding support for foreign partners.

The report additionally pushed for encouraging other countries to adopt emerging standards meant to combat money laundering. Poor systems in many nations present “an opportunity for criminal actors to engage in jurisdictional arbitrage, purposely seeking to further their criminal activities in such jurisdictions.”

Grayscale, Bitwise Confident a Spot Bitcoin ETF Will Be Approved Soon: Bitwise’s chief investment officer Matt Hougan pointed to a progression of approval decisions by the SEC that “ends in a spot bitcoin ETF.”

CFTC Chairman ‘Encouraged’ by Bill in Congress to Give the Agency More Crypto Oversight: Rostin Behnam noted the bill would allow the CFTC to assess fees on the industry.

CFTC Chief Heaps Praise on Bill That Boosts Agency’s Crypto Reach: Chairman Rostin Behnam supports the contours of the Lummis-Gillibrand regulatory bill released this week.

As Federal Agencies Organize, US States Continue to Lead in Regulating Digital Assets: The Biden administration’s “whole of government” approach to crypto may not be an improvement to the current patchwork of rules.

New York’s Crypto Regulator Publishes Formal Stablecoin Guidance: NYDFS laid out strict reserve and attestation requirements for stablecoin issuers in an effort to better protect consumers and financial institutions.

Crypto Bank Custodia Sues Federal Reserve: The bank founded by Morgan Stanley veteran Caitlin Long filed suit against the U.S. central bank for delaying a decision on its application for a master account.

Crypto Bill Condemned by Consumer Advocates in Washington: Consumer group gadflies were predictably ready with a damning quote shortly after the bi-partisan legislative proposal was made public.

Crypto Unable to Shake Reputation as Ransomware Tool in Senate Hearing: A Senate Homeland Security hearing painted cryptocurrencies as the favorite payments for hackers.

Bad day for Binance with SEC investigation and Reuters exposé: The SEC is reportedly suspicious that the world’s biggest crypto exchange sold unlicensed securities in its ICO, and the news agency tallied up some old cases.

Human Rights Leaders Urge Congress to Take ‘Open-Minded’ View on Bitcoin: Human rights activists have urged Congress to learn about bitcoin and its use in nations suffering conflict and hyperinflation.

Key US Senators Introduce Crypto Bill Outlining Sweeping Plan for Future Rules: Kirsten Gillibrand and Cynthia Lummis release the long-awaited strategy that favors the CFTC as a watchdog and wipes away tax worries for purchases of less than $200.

US Regulators Investigating Binance’s BNB Token: The SEC is looking into whether the crypto exchange should have registered the initial coin offering of Binance coin as a security, according to Bloomberg.

New York State Senate passes Bitcoin mining moratorium: The bill, once approved by Governor Kathy Hochul, would make New York the first state in the U.S to put a moratorium on crypto mining.

Environmentalists Target Greenidge as They Turn Up Pressure on NY Governor to Sign Mining Moratorium Bill: A moratorium on new PoW mining projects that use behind-the-meter fossil fuel energy is now on the NY governor’s desk.

Bitcoin miners say NY ban will be ineffective and ‘isolate’ the state: Miners feel that the New York legislature’s efforts to get Bitcoin miners out of their state will backfire in the long run as other states invite miners to help improve their energy grid.

Coin Center Sues US Treasury Over ‘Unconstitutional’ Tax Reporting Rule: The rule was included in last year’s infrastructure law that galvanized the industry over a separate broker rule.

Leaked copy of US draft bill shows DeFi and DAOs under regulatory lens: The draft bill proposes to eliminate anonymous crypto projects, with DAOs, DeFi and exchanges required to legally register in the United States.

Consumers Lost Over $1B to Crypto Fraud Since January 2021, FTC Says: Crypto is quickly becoming the “payment of choice for many scammers,” says the agency.

Europe & UK

Lithuania aims to tighten crypto regulation and ban anonymous accounts: The country decided to act in advance of upcoming EU regulations that could effectively ban noncustodial wallets.

In its efforts to fight money laundering risks and the possible schemes of Russian elites circumventing financial sanctions, the 2.8-million nation of Lithuania is planning to tighten its scrutiny over crypto. As the local Ministry of Finance announced, various ministries of the Lithuanian government approved legal amendments to Anti-Money Laundering (AML) and countering the financing of terrorism in the crypto sector. The amendments to the current law — should they later be approved by the Seimas, Lithuania’s legislature — would stiffen the guidelines for user identification and prohibit anonymous accounts.

The new regulations would also tighten up demands for exchange operators — from Jan. 1, 2023, they will be obliged to register as a corporate body with nominal capital amounting to no less than 125,000 euros. The senior management of such companies would have to be permanent residents of Lithuania. The announcement justifies the tightened regulations with the accelerating growth of the crypto industry and specific geopolitical risks:

“More nuanced regulation of the suppliers of crypto-services is also important considering the international regulatory tendencies and the geopolitical situation in the region when many Western countries impose financial and other sanctions on Russian Federation and Belarus.”

In her official commentary, Minister of Finance Gintarė Skaistė explained that the steps on the national level are taken in accordance with the upcoming pan-European regulations. The announcement underscores the swift rise of crypto companies in the country after a regulatory tightening in neighboring Estonia — there were only eight new crypto companies in 2020, while 2021 saw the appearance of 188 new entities.

Estonia announced its update on the AML act in September 2021. The updated law effectively banned noncustodial software wallets and decentralized finance products. In April 2022, the European Parliament approved an AML regulatory package that could place severe disclosure requirements on transactions between noncustodial wallets and crypto exchanges in the European Union.

Antsy Lithuania Latest to Anticipate EU Crypto Law With One of Its Own: Ministers don’t want a crypto disaster to happen while they’re waiting for Brussels lawmakers to dot the i’s on landmark MiCA legislation, but some warn their plans could wreck the sector.

Germany Issues Crypto Securities Guidance as Deadline Looms: Registries must meet money laundering, IT and governance requirements set by BaFin.

Outgoing French Lawmaker Calls for Fossil-Based Crypto Mining Ban, DAO Legal Status: Europe needs to stop dithering and capture the crypto opportunity, Pierre Person says.

DeFi ‘Casino’ May Need New Global Regulator, German Central Banker Says: Joachim Wuermeling called for immediate discussions on how to treat DeFi as the Financial Stability Board prepares a rule book for the crypto sector.

Asia

Japan Passes Landmark Stablecoin Bill for Investor Protection: In a historic move, Japan’s parliament passed a legal framework around stablecoins on Friday, providing a safety net for investors in the wake of last month’s terraUSD collapse that resulted in multibillion-dollar losses, according to a Bloomberg report.

Japan is one of the first major economies to pass a law specific to stablecoins even if the legislation comes into effect in a year, the report added. The bill provides clarity around the definition of stablecoins, which will now be considered as digital money and must be linked to the yen or another legal tender, guaranteeing holders the right to redeem them at face value.

Stablecoins can now only be issued by licensed banks, registered money transfer agents and trust companies. The bill does not address existing asset-backed or algorithmic stablecoins. However, exchanges in Japan do not list stablecoins. Prepared by Japan’s Financial Services Agency (FSA), the bill was planned in late 2021, accepted by the House in mid-March this year and has now been passed by a majority in the House of Councilors plenary session.

In the wake of the terraUSD (UST) collapse, this swift action by Japan could help restore confidence in crypto.A stablecoin is a type of cryptocurrency whose value is tied to an outside asset, such as the U.S. dollar or gold, to stabilize the price.

Legal troubles mount for Terraform Labs as Seoul police investigate: South Korean authorities are currently investigating Terraform Labs and its employees on several charges including tax evasion and market manipulation.

South Korea ramps up crypto investigations and regulations: South Korea announced Digital Assets Committee, launched an investigation and met with Asia-Pacific financial authorities.

Major South Korean crypto exchanges delist Litecoin: Crypto regulations in South Korea require exchanges to enforce strict KYC and AML guidelines and major crypto exchanges have delisted privacy coins in the past as well.

New Japanese law may allow seizure of stolen crypto: Under the current variation of the law, there is no explicit procedure outlined for law enforcement officers to seize illegally obtained crypto from crime organizations.

Hong Kong’s Securities and Futures Commission warns of nonfungible token risks: The regulatory agency’s main concern was the rise of unregulated collective investment schemes in NFTs.

Rest of the World

Bermuda’s Crypto Companies Are Launching an Industry Association: Bermuda’s Premier David Burt announced the creation of the association during a panel at Consensus 2022 in Austin, Texas. Licensed crypto firms in Bermuda have come together to form the jurisdiction’s first digital asset industry association, according to Bermuda’s Premier David Burt.

“The formation of Bermuda’s first trade association for licensed digital asset businesses is a significant milestone in the development of Bermuda’s fintech industry,” Burt said in a statement.
“[Crypto companies] not seeking regulatory changes because we have regulatory clarity. It’s more about how can they support the growth support the development, support educational initiatives” to improve the environment, Burt told.

The British Overseas Territory has sought to establish itself as a digital asset hub. From testing a digital dollar last year, to approving a license for its first digital asset bank, Jewel, on Tuesday, Bermuda is seemingly pressing forward with its plans to build a comprehensive crypto ecosystem. Next is currently made up of 14 digital asset companies that have been licensed by the Bermuda Monetary Authority (BMA), including Apex Group, Bittrex, BlockFi, Circle and the newly licensed Jewel. According to an announcement shared, the mission of the association is to help shape the British Overseas Territory’s digital asset legislation and support initiatives to enhance its digital asset ecosystem.

“Digital asset companies seek Bermuda’s regulatory jurisdiction because of its proven track record where there is a single regulator that does not move the goal post on companies,” said Tim Reed, a member of Next’s co-founder committee.

Next plans to help shape legislation around specific issues, such as taxes or stablecoins, on a case-by-case basis, Reed said. He added that Next has already completed its first session with the BMA and was allowed to provide real-time feedback before a policy on “Operational Cyber Risk Management and Custody Code of Practice” was finalized.

CBDCs can “kill” private crypto: India’s RBI deputy governor to IMF: “One of the reasons it is so successful is because it’s simple,” he added while comparing the Unified Payments Interface’s (UPI) growth with blockchain technology.

Indian Exchange CoinSwitch Kuber Unveils Crypto Rupee Index: The Crypto Rupee Index (CRE8) will track the performance of the eight biggest crypto assets denominated in Indian rupees instead of the U.S. dollar.

Bill to ban digital assets as payment introduced in Russian parliament: The legislation would oblige the DFA managers to withhold any deals, implicating the usage of crypto as a monetary surrogate.

Crypto exchange Binance seeks critical licenses in Philippines, CEO says: The exchange platform is looking to get virtual assets service provider and e-money issuer licenses from the Banko Sentral ng Pilipinas.

Kazakhstan’s central bank ‘isn’t going to ignore’ the crypto market: According to the chairman, the central bank will decide on implementing its digital currency by the end of 2022.

Ukraine to Use NFTs to Save Its Cultural ‘DNA’ Amid Russian Invasion: “Right now, museums and cultural sites are being destroyed by rockets,” said the President of the Blockchain Association of Ukraine.

Ugandan central bank U-turns on crypto, welcoming firms to regulatory sandbox: The bank advised the Blockchain Association of Uganda (BAU) to sharpen up its knowledge of the sandbox regulations, inviting its members along to further technical discussions.

MISC

Circle’s Disparte Calls CBDCs ‘a Preposterous Idea’ in Digital Dollar Debate: The stage at Consensus 2022 erupted with an intense dispute over the future of a Fed-managed digital currency.

Computer scientists and academics pursue efforts to stop crypto lobbying in US: Harvard lecturer Bruce Schneier said in a report that blockchain is not secure and not really decentralized.

BIS Appoints Cecilia Skingsley as Head of Innovation Hub: Skingsley is currently the first deputy governor of Swedish central bank, Sveriges Riksbank.