Crypto Regulation News: SEC will not approve leveraged bitcoin ETF, ASIC issues criteria for crypto ETPs, Bank of Spain issues guidelines for crypto services, NFT ‘self-regulation’ convention signed, and more!

Paradigm

Published in

Paradigm

17 min readNov 1, 2021

Vol. 80, 18th October — 1st November

TL;DR

New BIS report questions whether CBDCs can create risks in developing countries
FATF includes DeFi in guidance for crypto service providers
US Treasury says it must ‘modernize and adapt’ to digital currencies
SEC will not approve leveraged Bitcoin ETF. The Commission knocked back Valkyrie’s leveraged Bitcoin ETF
Bank of Spain issues registration guidelines for crypto services
Slovenian finance ministry seeks public opinion on crypto tax laws
UK FCA grants registration to crypto startup Crypterium
Major Chinese tech giants Ant Group, Tencent, JD.com sign NFT ‘self-regulation’ convention
China to release national blockchain standard next year. While Huobi closes crypto derivatives as part of wind-down for Chinese traders
Australia’s securities regulator issues criteria for crypto-asset ETPs. Furthermore, Australian Senators pushing for country to become the next crypto hub
Swedish financial watchdog investigating two local crypto exchanges
Russia aims to replace US dollar reserves with digital assets in long term. Moreover, Russian officials consider proposal to mine Bitcoin with associated gas
South African pension funds to be banned from crypto investment, draft rules indicate
Nigerian president to unveil eNaira central bank digital currency
Indian government is reportedly considering regulating crypto as a commodity
Dubai finance watchdog approves listing of Bitcoin fund
Kazakhstan to limit power for crypto mining to 100 MW nationwide
Ghana to explore offline transactions for upcoming CBDC
El Salvador removes BTC price feed from Chivo app to crack down on arbitrage scalpers
Purpose investments files to list 3 more crypto ETFs in Canada
Volt Equity’s ‘Bitcoin revolution’ ETF goes live on NYSE
Texas Ethics Commission seeks pro-crypto rule for political contributions. While Florida’s county ‘study feasibility’ of paying taxes with crypto
Crypto exchange Liquid attains Japanese derivatives license
Major Indonesian Islamic organization declares crypto ‘haram’ — Or forbidden
Mastercard is preparing its infrastructure for the deployment of CBDCs
Polkadot-based DAO aims make decentralized governance more accessible
Latinx communities continue to rise above Bitcoin adoption obstacles
Squid Game token crashes; developers say they’ve left the project
And more!

Reports

BIS Report Questions Whether Stablecoins, CBDCs Can Create Risks in Developing Countries: A number of emerging markets and developing economies (EMDE) have been looking at stablecoins and central bank digital currencies (CBDC) to address weaknesses in their financial systems. But according to a paper released Friday by the Bank for International Settlements (BIS), these digital currencies may create daunting issues in these markets and not address problems that other fintech innovations are tackling.

“Stablecoin arrangements aspire to improve financial inclusion and cross-border remittances — but they are neither necessary nor sufficient to meet these policy goals,” the authors of the report, entitled “What Does Digital Money Mean for Emerging Market and Developing Countries,” write.

EMDEs in Latin America and other regions have turned increasingly to stablecoins as a store of value. Stablecoins have appeal in countries where the local currencies tend to be less stable and possibly subject to capital controls because of inflation.

The report’s authors question whether stablecoins could “offer lasting competitive advantages over rapidly developing, evolving digital payment services,” including digital ID, e-money and mobile banking. They add that stablecoins could generate new risks related to such issues as governance, efficiency in payment processes, consumer protection and data privacy.

The authors raise concerns about CBDCs, writing that “there is a risk that in periods of systematic stress, (that) households and other agents may shift from bank deposits or other instruments into the CBDC, spurring a ‘digital run’ of unprecedented speed and scale,” and questioning “whether they are necessary or desirable for all jurisdictions.” But the authors also write that stablecoins in particular have “drawn great — and much needed — attention to the challenges of financial inclusion and cross-border payments and remittances.” This development has underscored efforts to foster a less restrictive regulatory environment, improve “monetary and financial stability frameworks and payment infrastructures, particularly across borders.”

FATF includes DeFi in guidance for crypto service providers: Despite DeFi apps not being VASPs under the FATF standards, the authority still wants them regulated like VASPs.

US Regulators Weigh Avenues for Banks to Hold Crypto: Comments from a top U.S. regulator demonstrate crypto’s prominent rise this year and a rush to contain particular aspects of the industry.

Opinions

The United States will become the global crypto and blockchain leader: The United States is rapidly embracing decentralized finance, the cryptocurrency sector and the innovative industry of blockchain technology.

Crypto in the crosshairs: US regulators eye the cryptocurrency sector: U.S. regulators are looking at crypto-related areas, touching on financial regulation, economic innovation and national security.

Why now? SEC took eight years to authorize a Bitcoin ETF in the US: The SEC has been holding steady for years, but the real-world dynamics of crypto adoption and maturation rendered an ETF approval all but inevitable.

Fear of the unknown: A tale of the SEC’s crusade against synthetics: DeFi built on blockchain and legacy financial systems is on the verge of clashing in one of the most tumultuous battles in economic history.

The major tax myths about cryptocurrency debunked: More crypto tax enforcement is coming, and many taxpayers are complying going forward, and amending prior returns if they have something to clean up.

Crypto lending firms on the hot seat: New regulations are coming? The sheer amount of money invested in the crypto space is causing regulatory dialog to occur at a frenetic pace as regulators struggle to keep pace.

Privacy or policy? Why Facebook’s crypto wallet, Novi, is facing resistance: Facebook’s Novi wallet lets users send and receive a dollar-pegged stablecoin, but not hold it.

Putting a cap on decentralization: How regulation impacts DeFi adoption: As legislation threatens to allow centralization to creep into the DeFi space, regulation could have complex effects on the adoption.

OTC crypto shops flood Hong Kong, but regulations may impact their presence: Brick and mortar crypto exchanges are common in Hong Kong, but concerns remain around uncertain regulations that could demolish these shops entirely.

Bitcoin futures ETFs: Good, but not quite there: With a Bitcoin futures exchange-traded fund, getting exposure to the world’s largest cryptocurrency will be easier than ever.

CFTC Should Be Crypto’s ‘Primary Cop,’ Acting Chairman Says: Rostin Behnam points to enforcement actions the agency has already taken.

Treasury official acknowledges most crypto transactions are ‘legitimate’ but still anticipates additional sanctions: “The vast majority of digital assets are being used for legitimate purposes, but for those that are primarily in the business of furthering criminal enterprises, we plan to use our tools to go after them,” said Wally Adeyemo.

Russian crypto market worth $500B despite bad regulation, says exec: Many crypto exchanges with Russian roots have fled the country or operate illegally, Blockchain Life’s founder said.

Russia does ‘absolutely nothing’ to regulate crypto, RACIB head says: The recent law “On Digital Financial Assets” has not gone far enough in the eyes of Russian crypto industry advocates.

USA

SEC Will Not Approve Leveraged Bitcoin ETF: Report: The report comes two days after Valkyrie Investments filed to offer 1.25x leveraged bitcoin futures ETF.

The U.S. Securities and Exchange Commission (SEC) will not approve the listing of leveraged bitcoin exchange-traded funds (ETF). The SEC instructed at least one prospective ETF provider not to proceed with its plans for a leveraged funds, the Wall Street Journal reported on Thursday, citing a person familiar with the matter. The U.S. markets regulator wishes to limit bitcoin-related investment vehicles to those that provide un-leveraged exposure — in others words not comprised of borrowed funds.

After dozens of applications from different providers, the SEC finally approved the listing of a bitcoin futures ETF earlier this month. ProShares’ fund started trading under the ticker symbol BITO on the New York Stock Exchange on Oct. 19. It has contributed to bitcoin’s price surge, leading to the cryptocurrency reaching a new all-time high of over $66,000.

SEC reportedly knocks back Valkyrie’s leveraged Bitcoin ETF: The SEC does not appear to have the appetite for more exotic Bitcoin futures products.

SEC expected to head US stablecoin regulation and enforcement: The report is also expected to clarify the regulatory jurisdiction of the Treasury Department and CFTC with regards to stable tokens.

US Senator Hagerty to CFPB Director: Don’t stifle crypto innovation: The conversation occurred at a banking committee meeting with Consumer Protections director Rohit Chopra.

US gov attorneys to target individuals and gatekeepers for crypto prosecutions: Major regulatory agencies plan to work harder to prosecute individuals and companies that have had dodgy dealings with digital assets.

Senators pressure Facebook to ‘immediately discontinue’ Novi wallet pilot: Facebook’s crypto wallet has been shot down by banking committee senators just hours after it launched a pilot.

Biden’s pick for CFTC chair wants the agency to be a ’beat cop’ with the authority to oversee 60% of digital asset market: Rostin Behnam said it was “critically important to have a primary cop on on the beat” of an emerging market that included cryptocurrencies and stablecoins.

Biden’s ‘Build Back Better’ Act Would Close Crypto Tax Loophole: The provision adds cryptocurrency transactions to constructive sale rules under the tax code.

US regulators are exploring policy for banks to handle crypto, says FDIC chair: “Establishing clear regulatory expectations will be paramount to give this market an opportunity to grow and mature in a responsible manner,” said Jelena McWilliams.

US Treasury says it must ‘modernize and adapt’ to digital currencies: “Digital assets and payments systems could harm the efficacy of our sanctions” if left unchecked, the Treasury said.

CFTC reportedly investigating decentralized prediction platform Polymarket: Polymarket is believed to have hired former CTFC enforcement head James McDonald to handle the probe.

Powerful blockchain lobby group urges Washington not to overregulate stablecoins: The stablecoin market is valued at over $130 billion and growing rapidly, putting federal regulators on high alert over systemic risk.

Trump Banking Regulator Determined Banks Should Be Allowed to Trade Crypto: Report: But the OCC staff’s ruling was never made public.

Volt Equity’s ‘Bitcoin revolution’ ETF goes live on NYSE: Volt Equity’s ETF consults with PlanB’s Bitcoin stock-to-flow model to adjust exposure.

Texas Ethics Commission seeks pro-crypto rule for political contributions: If approved, cryptocurrency donations and contributions will need to be reported as in-kind contributions or as investments, not currency.

Florida’s Miami-Dade County to ‘Study Feasibility’ of Paying Taxes With Crypto: The county’s Cryptocurrency Task Force will also offer recommendations around other potential policies related to crypto that could prove advantageous.

Europe & UK

Bank of Spain issues registration guidelines for crypto services:The central bank of Spain is introducing new registration guidelines for local virtual currency service providers, or VASPs, including banking institutions.

The Bank of Spain has issued instructions on VASP registration for Anti-Money Laundering, or AML, purposes, requiring institutions to submit their registration requests through an electronic registry. Issuing the guidelines on Oct. 19, the Spanish central bank noted that the obligation to sign up in the registry applies to “all individuals and institutions providing virtual currency exchange services” like cryptocurrency trading and custody services.

The regulator stressed that VASPs will have to register “regardless of whether they are also registered in other administrative records in the Bank of Spain or other related authorities.” According to the official statement, institutions are required to proceed with the registration even if their end customers are not located in Spain. Individuals are also recommended to use the electronic registry form but may also proceed via other channels like mail, the central bank said.

The instructions specifically require both legal entities and individuals to issue reports on their measures to prevent illicit activities like money laundering and terrorism financing and include certain information about their clients. According to the statement, the Bank of Spain will analyze data and evaluate potential risks while taking into account VASPs’ types of clients, the countries in which they operate, products, business relationship purposes, operated volumes and other factors.

Slovenian finance ministry seeks public opinion on crypto tax laws: Slovenia’s crypto tax bill proposes a 10% tax on fiat-crypto conversions and payments made with cryptocurrencies.

UK FCA grants registration to crypto startup Crypterium: Crypterium’s cryptocurrency wallet application is available in more than 170 countries, the company says.

Competition drives young traders’ crypto investments, says UK watchdog: Young investors assume the crypto market is regulated, new research by the Financial Conduct Authority reveals.

The UK’s Tax Collector Is Sending Crypto Investors ‘Nudge’ Letters:The letters are meant to be “educational” and do not necessarily mean a recipient is at fault.

Regulated French investment firm offers interest-focused crypto bundles: Arranged by risk tolerance, a new crypto investing firm seeks to make it easy to invest in diversified, sustainable staking, mining and running masternodes.

Swedish Financial Watchdog Investigating Two Local Crypto Exchanges: The authority is examining how Safello and Goobit are implementing anti-money laundering rules.

The View From Brussels: How the EU Plans to Regulate Crypto: European Parliament member Eva Kaili says Facebook’s libra announcement in 2019 catalyzed lawmakers into action on digital assets.

Asia

Ant Group, Tencent, JD.com Sign NFT ‘Self-Regulation’ Convention: Major Chinese tech giants Ant Group, Tencent and JD.com signed a “self-regulation” convention on non-fungible tokens (NFTs) with state organizations on Sunday, according to an Ant Group WeChat post and Chinese media.

China’s Big Tech appears to be facing increasing pressure over the companies’ involvement with NFTs. The market hype around the unique digital assets appears to have made regulators worried that NFTs are edging too close to crypto trading, which has been practically banished from China in large part for creating too much market speculation.

The “Digital Culture and Creative Industries Self-Regulation Convention” is made up of 11 tenets that align with central government aims including “enabling the real economy; promoting national culture; supporting the development of the industry; adhering to the original letter of the law; ensuring value support; protecting consumer rights; working with controllable consortium chains; maintaining cybersecurity; ending virtual currencies; preventing speculation and financial risks; and preventing money laundering.”

The National Copyright Trading Center Alliance, the China Academy of Fine Arts, state broadcaster CCTV’s Animation Studio and Hunan Museum also signed the convention along with Tencent’s cloud division and JD.com’s technology subsidiary. Ant Group and Tencent recently changed references on their websites and platforms from NFTs to “digital collectibles,” likely to put more distance between their products and crypto markets.

Red Date CEO Yifan He confirmed during a Friday conference the companies were trying to distance their “digital collectibles” from crypto. Red Date is building the Blockchain Services Network, a government-backed internet of blockchains. The Beijing company launched its own NFT infrastructure at the conference. In its statement on the name change, AntChain, Ant Group’s blockchain arm, all but said that it wanted to appease regulators who think the name “NFTs” causes too much speculation. The company conducts its digital collectibles business in compliance with regulations and opposes market speculation, AntChain said.

China to Release National Blockchain Standard Next Year, Says Officialt: While cracking down on on the cryptocurrency industry, Beijing is pouring resources into blockchain for governmental and enterprise use.

China’s state planning agency calls for public opinion on Bitcoin mining ban: The move could signal plans by Chinese authorities to amend its previous negative stance on Bitcoin and cryptocurrency mining activities.

Huobi closes crypto derivatives as part of wind-down for Chinese traders: By shutting down derivatives trading on Huobi, the company takes one more step toward closing its operations in China.

Crypto exchange Liquid attains Japanese derivatives license: The exchange filed the application to Japan’s financial regulatory body in Q2 of 2020.

Rest of the World

South African Pension Funds to Be Banned From Crypto Investment, Draft Rules Indicate: “A fund may not invest in crypto-assets directly or indirectly,” the proposed rule change states in the Government Gazette published Friday. This would replace existing legislation that allowed portfolio managers to invest as much as 2.5% of funds in crypto as part of an umbrella “other assets” category.

The South African government defines a crypto asset as any digital representation of value “not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility; applies cryptographic techniques and uses distributed ledger technology.” Such a broad definition points toward the ban extending to non-fungible tokens (NFTs) and similar tradeable digital assets.

Financial regulators in South Africa have in recent months indicated there would an acceleration in crypto regulation in response to retail investors being scammed by fraudulent investment firms.

Major Indonesian Islamic organization declares crypto ‘haram’ — Or forbidden: The Indonesian Islamic group NU says crypto is too volatile to be legal under Islamic law.

Indian government is reportedly considering regulating crypto as a commodity: Officials from India’s Finance Ministry said any potential law on cryptocurrencies would likely come around the time the government submits the Union Budget of India in February.

India Likely to Regulate Crypto, Not Ban It, in Upcoming Budget: The government is likely to opt for regulating cryptocurrencies as an asset class, similar to commodities, with appropriate taxation of transactions and gains.

Pakistani high court orders government to regulate crypto in three months: The SHC also asked for a report on deliberations surrounding crypto regulations within the same time period.

Dubai finance watchdog approves listing of Bitcoin fund: The DFSA is establishing itself as an innovative regulator for the region by focusing on fintech and innovative technology.

Dubai regulator announces new regulations for investment tokens: The UAE continues to be one of the friendliest jurisdictions worldwide for the digital asset industry.

Australia’s Securities Regulator Issues Criteria for Crypto-Asset ETPs: A cryptocurrency must meet five criteria to be a permissible asset to back an exchange-traded product or other structured product, the regulator said.

Australian Senators pushing for country to become the next crypto hub: The Australian Senate Committee delivered a report calling for a complete overhaul of crypto legislation and licensing in the country.

Aussie Senate committee proposes overhaul of crypto taxes, DAOs and exchange licenses: The committee recommended more clarity for DAOs, new capital gains tax provisions and tax breaks for green miners.

Aussie cyber spies to control critical infrastructure during ransomware attacks: The new bill, if passed, will allow cyberwarfare operatives to take over control of critical infrastructure under attack.

Puerto Rico sees resurgence of interest among crypto rich: Crypto capital is moving to Puerto Rico as tax regulations are much more favorable than in the United States.

Nigerian president to unveil eNaira central bank digital currency: The Nigerian central bank digital currency was originally slated for launch earlier this month, but it has been delayed.

Kazakhstan expects at least $1.5B in economic activity from crypto mining within 5 years: Kazakhstan currently ranks №2 in the world in terms of Bitcoin mining hash rate.

Kazakhstan to Limit Power for Crypto Mining to 100 MW Nationwide: New mines will have to consume less than 1 MW over two years in what has become the world’s second-largest bitcoin mining country.

Russia aims to replace US dollar reserves with digital assets in long term: Last week, the Russian president said it was “a bit early” to use cryptocurrencies to settle oil trades.

Major Russian bank explores crypto investment amid strong demand: One way or another, Russians get exposure to crypto even if they go abroad, Tinkoff Investments’ head said.

Russian officials consider proposal to mine Bitcoin with associated gas: Russian authorities continue to show increasing interest in cryptocurrencies as Bitcoin nears a new all-time high.

Putin’s internet ombudsman pessimistic about crypto regulation: “No one is looking to allow Russian people to earn money with crypto operations,” the official claimed.

Sanctioned Russian oligarch urges central bank to embrace Bitcoin: The U.S. Treasury asked cryptocurrency companies to ensure compliance with sanctions last week.

El Salvador removes BTC price feed from Chivo app to crack down on arbitrage scalpers: Users of the Salvadoran government’s Chivo wallet will not be able to see frozen price quotes until the feature has been removed to deter arbitrage scalpers.

Ghana to explore offline transactions for upcoming CBDC: Offline CBDC functionality will help bring financial services to Ghanaians who lack access to bank accounts or an internet connection.

Purpose Investments Files to List 3 More Crypto ETFs in Canada: The Canada-based asset manager also plans to launch a privately offered fund providing exposure to decentralized finance (DeFi).

MISC

Mastercard is preparing its infrastructure for the deployment of CBDCs: The world’s third-largest consumer payment processor remains bullish on the adoption of CBDCs.

During an earnings call with investors and stakeholders, Michael Miebach, CEO of Mastercard, discussed his positive outlook on the cryptocurrency industry. The company has not only seen sizable volume growth in consumers using their Mastercards to purchase crypto but has also secured several partnerships with cryptocurrency firms. But Miebach’s most ambitious viewpoint emerged during a discussion regarding central bank digital currencies, or CBDCs, saying:

“We are saying at this point in time, the most likely chance for this kind of technology to work for payments is if it’s issued through a government in the form of a CBDC. We said that on a couple of calls before, and we said that we will make our network ready to do that as and when a government is ready to put out a CBDC that will exist alongside the dollar or the euro as a settlement currency in our network.”

Miebach remained confident on Mastercard’s role in the matter, stating “We can provide a safe space for government and private sector banks to figure out how that will actually work.”

Talk of CBDCs has continued to rapidly gain traction over the past year. On Oct.21, the Bahamas became the first country in the world to issue a CBDC — known as the “Sand Dollar”. Just a few days later, Nigerian President Muhammadu Buhari announced plans to unveil its own eNaira CBDC in the country. According to Statistica, Mastercard processed 113 billion transactions across the globe last year — just behind Visa’s 188 billion and Union Pay’s 151 billion.

Do Cryptocurrencies Have a Dirty Little ESG Secret?: There’s a common argument that bitcoin and other cryptocurrencies are environmentally dirty — but that’s not necessarily true. Advisors need to be aware that the worlds of ESG and crypto are continuing to intersect in new ways.

Polkadot-based DAO aims make decentralized governance more accessible: A decentralized autonomous organization is developing tools to make DAO-building more accessible as it dreams of a decentralized society.

What has been standing in the way of a pure-Bitcoin ETF? With regulators slowly starting to come to terms with Bitcoin as an asset, how could this affect the present and future views of BTC ETFs?

A Need for More Regulatory Clarity: Legislators must decide whether crypto is a security, utility, commodity, currency or the latest tulip mania.

The CFTC vs. the Truth: If Polymarket can crowdsource a more accurate rendering of reality, then shouldn’t the greatest number of people be able to access it?

Everyone Wants Crypto Regulations — On Their Terms: The industry is speaking, but lawmakers may not be listening.

What CBDCs Mean for the Future of DeFi and Stablecoins: Central bank-issued digital currencies are an existential threat to permissionless stablecoins and finance.

Crypto breaks Wall Street’s ETF barrier: A watershed moment or stopgap? With the Bitcoin ETFs, investors won’t have to deal with hot/cold storage decisions, crypto exchanges, fraud, etc. “Convenience does the magic here.”

Ripple CEO says the SEC helped Ethereum to overtake XRP as №2 crypto: The Ripple boss claims his company has been unfairly treated, thereby giving Ethereum the edge.

Crypto exchange Bitfinex testing new AML compliance tool: Launched in production in 2020, Notabene’s Travel Rule solution now processes transactions among 50 crypto exchanges.

Tether trials Notabene’s new travel rule technology to combat financial crimes: The “Travel Rule” aims to bring reporting standards for virtual asset service providers in line with other traditional financial institutions.

Latinx communities continue to rise above Bitcoin adoption obstacles: Latinx communities are driving forward adoption, as crypto is proven to meet their diverse needs in a way that traditional finance cannot.

DeFi on the Ballot: Yearn Developer Matt West Is Running for Congress: The Oregon resident will be running on a pro-crypto platform as a Democrat.

Squid Game Token Crashes; Developers Say They’ve Left the Project: The play-to-earn token inspired by the hit Netflix show has plunged to nearly zero after a dizzying rise.