Crypto Regulation News: Ukraine joins the European Blockchain Partnership, US Fed evaluating SEC’s position on digital assets custody, India clarifies rules for controversial tax provision, FBI says LinkedIn is being used for crypto scams, 90% of central banks are researching the utility of CBDCs, BIS says, and more!

Paradigm

Published in

Paradigm

18 min readJun 27, 2022

Vol. 97, 13th June — 27th June

TL;DR

BIS: 90% of central banks are researching the utility of CBDCs. CBDCs, not crypto, will be cornerstone of future monetary system, BIS says
US Fed evaluating SEC’s position on digital assets custody, Powell says. SEC launches inquiry into insider trading at crypto exchanges.
US Federal Reserve Board: Recent market turmoil shows ‘structural fragilities’ of crypto
State securities regulators investigate Celsius over withdrawal suspension. Former SEC lawyer sees more crypto regulations after Celsius Network’s debacle
US banking watchdog says crypto turmoil reinforces cautious approach. US Treasury Secretary talks crypto with bank chiefs
Gensler appeals for ‘one rule book’ in negotiations with CFTC over crypto regulation
Hoskinson pitches software-enabled crypto self-regulation to Congress
USDC issuer Circle to introduce euro-backed stablecoin in US
Third non-EU country, Ukraine, joins the European Blockchain Partnership
Major banks urge caution with European Union’s CBDC plans. EU finance commissioner calls for speedy passage of crypto law
ECB head calls for separate framework to regulate crypto lending. ECB would limit digital euro to maximum 1.5t, says Fabio Panetta
European crypto unicorn Bitpanda is now regulated in Spain
UK government backtracks on unhosted wallet data collection proposal. Bank of England’s Cunliffe cautions against 2008 repeat with FTX’s derivatives rule change proposal
Tether to launch GBPT stablecoin pegged to British pound sterling
Coinbase is facing class-action suits over unstable stablecoins GYEN, USTC. While Coinbase to track off-exchange transactions from Dutch customers
NFT platforms in China grow 5X in four months despite government warnings. Furthermore, China’s WeChat bans crypto and NFT-related accounts
Chinese court invalidates 2019 car sale made using now worthless crypto token
South Korean prosecutors ban Terraform Labs employees from exiting the country
India clarifies rules for controversial tax provision ahead of start date
Singapore grants in-principle licenses to Crypto.com, two others
Qatar Central Bank in ‘foundation stage‘ of launching digital currency
President of Panama shoots down crypto bill citing FATF guidelines
Huobi expands exchange operations to New Zealand
Bybit enters into settlement agreement with Ontario Securities Commission
Colombia’s new president seems to be a fan of Bitcoin
Bank of Israel experiments with central bank digital currency smart contracts and privacy
El Salvador president addresses bear market concerns with Bitcoin hopium
Bank of Russia backs cross-border crypto payments vs. domestic trade
Kazakhstan to let crypto exchanges open bank accounts
CAR president urges citizens to understand Bitcoin to bring long-term prosperity
FBI says LinkedIn is being used for crypto scams
Elon Musk gets hit with ‘ridiculous’ 258B Dogecoin lawsuit
Chainalysis launches 24/7 hotline for crypto crime victims
Crypto industry is still ‘embryonic,’ WEF finance lead says
Stablecoins could still dominate post-Terra, S&P says
Ripple CEO criticizes SEC for ‘contradictions’ on crypto regulations
GitHub users respond to Gillibrand-Lummis bill with ‘Bitcoin bill’ idea
And more!

Reports

BIS: 90% of Central Banks are researching the utility of CBDCs: The institution’s future monetary vision includes exploring innovations grounded in trust in central banks’ stable sovereign currencies and safe payment systems.

In a new annual economic report published by the Bank of International Settlements (BIS), the financial institution revealed that approximately 90% of central banks worldwide are investigating the feasibility of adopting central bank digital currencies, or CBDCs.

The BIS report highlighted the ability of current sovereign fiat money to provide (relative) price stability and public oversight while criticizing crypto’s inability to perform “basic fundamental functions of money” and their opacity with regards to accountability to the general public. However, the report did highlight crypto’s programmable nature as well as the borderless elements of decentralized finance (DeFi) as potential benefits that would make a case for integration into CBDCs. There are currently three live retail CBDCs with 28 pilots. The digital yuan issued by the People’s Bank of China currently holds the dominant position with 261 million users. In addition, over 60 jurisdictions have fast retail payment systems.

In making a case for the use of centralized digital assets, BIS cited recent adverse developments in the DeFi sector. One such example in the report is the implosion of Terra (LUNA) — now renamed Terra Classic (LUNC) — and Terra USD algorithmic stablecoin. Next, BIS went on to highlight the limited scalability of certain blockchains, such as Ethereum (ETH), causing network congestion and thereby sharp increases in transaction fees.

It also raised the question of the feasibility of layer-1 solutions due to the significant fragmentation of such blockchains to address such drawbacks. Finally, the report pointed to a record amount of cryptocurrency hacks in the past year as part of digital assets’ inherent safety risks.

BIS compares projects to transfer central bank digital currencies across borders: The international bank found high technical feasibility among the projects, but significant work on legal and governance frameworks still remains to be done.

Federal Reserve Board: Recent Market Turmoil Shows ‘Structural Fragilities’ of Crypto: The report is a preview of Fed Chair Jerome Powell’s testimony in Congress.

SEC Launches Inquiry Into Insider Trading at Crypto Exchanges: The agency has sent a letter to at least one major crypto exchange asking about its safeguards, according to Fox Business.

FBI Says LinkedIn Is Being Used for Crypto Scams: Most of the scammers have been traced to Southeast Asia. One group of victims said they lost hundreds of thousands of dollars each.

State securities regulators investigate Celsius over withdrawal suspension: Reports from different media outlets in the last week also suggested the Celsius Network has lost major backers and onboarded new attorneys amid a volatile crypto market.

Opinions

Stablecoins Could Still Dominate Post-Terra, S&P Says: Not all stablecoins are alike, analysts note, but regulations may be needed to precipitate audits and investor fairness.

Crypto Industry Is Still ‘Embryonic,’ WEF Finance Lead Says: Matthew Blake looks at the future of finance (among other things) at the World Economic Forum, on the industry’s prominence during this year’s meeting.

Gold-Backed Stablecoin Can Help Russia Circumvent Sanctions, Government-Owned Bank Suggests: The U.S. wouldn’t be able to touch a “crypto-golden” ruble, VEB bank researchers say.

CBDC may threaten stablecoins, not Bitcoin: ARK36 exec: A state-backed digital currency like the U.S. dollar doesn’t necessarily have to be a competitor to a decentralized cryptocurrency, one industry exec believes.

Lummis-Gillibrand crypto bill comprehensive but still creates division: The senators introduced new approaches to familiar questions concerning digital assets and decide how to divide regulatory responsibilities.

Is there a way for the crypto sector to avoid Bitcoin’s halving-related bear markets? BTC’s high volatility and halving-related bear markets tend to drag down investment and interest in the entire crypto market. Can this be avoided?

Crypto lending can still survive bear market, analyst says: Bear markets are much more brutal for crypto lenders than cryptocurrency firms that don’t leverage users’ deposits, according to one Bitcoin analyst.

Crypto’s uses and misuses: Binance–Reuters quarrel raises questions: Does the struggle between Binance and Reuters, both heavyweights in their respective industries, have broader implications for the crypto sector?

Elusive Bitcoin ETF: Hester Peirce criticizes lack of legal clarity for crypto: SEC Commissioner and “Crypto Mom” Hester Peirce criticized the SEC on its regulatory guidance, but noted that change is possible if investors and regulators work together.

Resistance is futile! 3 reasons why Bitcoin mining will never go away: Numerous governments have tried to ban Bitcoin mining, but data and insights from those in the mining industry suggest that this is easier said than done.

Regulations and exchange delistings put future of private cryptocurrencies in doubt: At a time when privacy tools and coins have become the primary target of regulators around the world, the future of privacy-focused coins looks obsolete.

USA

US Fed Evaluating SEC’s Position on Digital Assets Custody, Powell Says: The SEC’s directive that customers’ digital assets may need to be treated as belonging to an exchange’s balance sheet has banking regulators scratching their heads about how it’ll work.

U.S. Federal Reserve Chairman Jerome Powell said that a recent, much-debated move by the Securities and Exchange Commission (SEC) has thrown a potential wrench into common practice for how the U.S. central bank and banking regulators view digital assets held by lenders. Powell’s remarks came in testimony on monetary policy before the Senate Banking Committee.

In an accounting directive — the innocuous-sounding Staff Accounting Bulletin №121 — to public companies, the SEC had advised firms holding customers’ digital assets that they’d need to consider those assets as belonging to the companies’ own balance sheets. This move spurred Coinbase (COIN) to declare in a public filing that customers’ assets may be caught up with the company’s in a hypothetical bankruptcy. That admission caused some fear among customers, though the company argued it wasn’t a signal about the company’s health.

“Custody assets are off balance sheet, have always been,” Powell told the Senate Banking Committee. “The SEC made a different decision as it relates to digital assets for reasons it explained, and now we have to consider those.”

As it relates to the banks the Fed oversees in the U.S., Powell said the SEC’s interpretation is “certainly something we’re focusing on very closely right now,” adding that his agency is working with other banking regulators to figure out how it might change the way they assess lenders that keep cryptocurrencies.

After the filing from Coinbase, the Biden administration began pushing behind the scenes to insist that future legislation require legal walls to protect customers’ digital assets. And another incident — the drama at Celsius Network, the crypto lending platform that halted customer withdrawals last week — threw a spotlight on the problem of shielding customers’ money. Republican lawmakers in the U.S. have argued that the securities regulator overstepped with its staff bulletin, which they say amounts to new, back-door regulation.

US Banking Watchdog Says Crypto Turmoil Reinforces Cautious Approach: Acting Comptroller of the Currency Michael Hsu says the industry’s recent drama makes his agency more confident about limiting banks’ exposure to crypto.

Gensler appeals for ‘one rule book’ in negotiations with CFTC over crypto regulation: In an interview with The Financial Times, SEC chair Gary Gensler said he is working on a memorandum of understanding with the agency’s digital asset market co-regulator.

US Congressional hearing on digital asset regulation focuses on disclosure: An agriculture subcommittee heard a CFTC official, a law professor, a Chainalysis cofounder and Charles Hoskinson air their views on regulation and adjacent topics.

Digital Dollar Would Secure Greenback as Global Reserve Currency, Lawmaker Argues: Rep. Jim Himes published a 15-page white paper arguing in favor of a digital dollar.

Hoskinson pitches software-enabled crypto self-regulation to Congress: Hoskinson feels regulations for the crypto industry should be defined better, but that compliance should come from the industry itself, not from regulatory authorities.

Republicans Seek to Counter Effort to Curtail Crypto Mining: The word of caution comes after Democrats warned a top environmental official in April about harms of digital assets mining.

Former SEC Lawyer Sees More Crypto Regulations After Celsius Network’s Debacle: The crypto lender froze withdrawals, and several states are investigating.

US Treasury Secretary Talks Crypto With Bank Chiefs: While Secretary Janet Yellen prepared to meet with Wall Street banking CEOs, an official from the Treasury Department said the crypto market turmoil shows a need for regulations.

CFTC Commissioner: I Like Being an Underdog Versus the SEC: Kristin Johnson also suggested her agency might be able to be more responsive than the SEC because it’s smaller.

USDC Issuer Circle to Introduce Euro-Backed Stablecoin in US: The Euro Coin will be backed by euro-denominated reserves held by U.S. regulated financial institutions.

Europe & UK

Third non-EU country, Ukraine, joins the European Blockchain Partnership: With the ultimate goal of integrating its digital economic space with the EU, Ukraine plans to expand its interstate blockchain network partnership with other countries.

After Norway and Liechtenstein, Ukraine became the third country outside the European Union to join the European Blockchain Partnership (EBP), an initiative derived by 27 member states to deliver cross-border public services. The Ministry of Digital Transformation of Ukraine announced the country’s move to join the EBP as an observer on Friday. With the ultimate goal of integrating its digital economic space with the EU, Ukraine plans to expand its interstate blockchain network partnership with other countries.

Ukraine’s intent to join the EBP dates back to July 2021, when Oleksii Zhmerenetskyi, head of parliamentary group Blockchain4Ukraine, and Konstantin Yarmolenko, founder and CEO of Virtual Assets of Ukraine, wrote a letter to Ursula von der Leyen, the president of the European Commission. The letter declared Ukraine’s interest in joining the EBP and the European Blockchain Services Infrastructure (EBSI). Von der Leyen later confirmed the prospect of Ukraine’s accession to the EBP as an observer.

Yarmolenko stated Ukraine’s interest in running test-node of the EBSI and pilot use cases of the cross-border public services based on the blockchain technology. He highlighted that the cryptocurrency donations during the Russia-Ukraine war “proved as important support,” stating:

“Next step is full blockchain integration of Ukraine and EU based on EBP/EBSI initiatives.”

After working with the EBP on blockchain pilot use cases as an observer, Ukraine aims to gain full membership. Yarmolenko further revealed that Ukraine is targeting additional blockchain partnerships to provide the citizens of Ukraine with cross-border public services including verification of educational credentials/diplomas and identity credentials and refugee/asylum registration and support. While sharing details about the partnership, Yarmolenko stated that the move to join the EBP is a way to strengthen ties with the EU, adding that “I’d even call it blockchain integration with EU.” Additionally, pointing out one of the advantages of the EU-wide blockchain partnership, Zhmerenetskyi stressed that Ukraine’s accession to the EBP would reduce the recognition of Ukrainian documents for higher education and driver’s licenses for Ukrainian refugees in Europe.

Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union of the European Commission, recently highlighted the need for “Regulating all crypto-assets — whether they’re unbacked crypto-assets or so-called stablecoins.” The EU commissioner also disclosed plans to discuss a proposal with the French government via Markets in Crypto Assets (MiCA):

“MiCA rules will be the right tool to address the concerns on consumer protection, market integrity and financial stability. This is something that is so urgent given recent developments.”

Brussels’ Fledgling Crypto Industry Flexes Its Muscles: The city that hosts the EU also wants to influence it, with key decisions upcoming on the regulation of NFTs and DeFi.

Major Banks Urge Caution With European Union’s CBDC Plans: The European Commission should evaluate the impact of issuing a digital euro, the Institute of International Finance said.

ECB Would Limit Digital Euro to Maximum 1.5T, Says Fabio Panetta: The central bank’s executive board member believes few people understand what a digital euro is because “it’s complicated.”

ECB head calls for separate framework to regulate crypto lending: Christine Lagarde introduced a “MiCA II” idea to cover the issues yet untouched by European regulators.

EU Finance Commissioner Calls for Speedy Passage of Crypto Law: Mairead McGuinness also said if it were in place, the MiCA framework could also facilitate sanctions implementation.

European Crypto Unicorn Bitpanda Is Now Regulated in Spain: The cryptocurrency exchange is also registered with regulators in Austria, France, Italy and Sweden.

UK Government Backtracks on Unhosted Wallet Data Collection Proposal: The government said it didn’t make sense to require all senders of funds to private crypto wallets to collect recipients’ identification details.

BoE’s Cunliffe Cautions Against 2008 Repeat With FTX’s Derivatives Rule Change Proposal: The Bank of England official is skeptical whether decentralized finance will ever be a thing.

Tether to launch GBPT stablecoin pegged to British pound sterling: Tether expects to be part of industry innovation in the United Kingdom as the country is planning to adopt stablecoins as a means of payment.

Coinbase to track off-exchange transactions from Dutch customers: Dutch users need to provide the recipient’s full name, the purpose of transfer and full residential address to move digital assets off the platform.

Luna Only Makes Bermuda Love Stablecoins More: Digital assets are the future, Bermuda Premier David Burt said during the Consensus 2022 conference. He’s not worried about his country being shut out by jurisdictions like the EU.

Former Chancellor says UK is falling behind on crypto opportunity: The former chancellor said there was a particular lack of regulatory structure in regards to digital asset trading.

Asia

China’s WeChat bans crypto and NFT-related accounts: The policy also covers secondary NFT trading as the firm notes that “accounts that provide services or content related to the secondary transaction of digital collections shall also be dealt with.”

The top social media platform in China, WeChat, has updated its policies to ban accounts that provide access to crypto or nonfungible token- (NFT)-related services. Under the new guidelines, accounts involved with the issuance, trading, and financing of crypto and NFTs will be either restricted or banned and will fall under the “illegal business” category. The policy also covers secondary NFT trading, with the firm noting that “accounts that provide services or content related to the secondary transaction of digital collections shall also be dealt with in accordance with this article.”

The move was highlighted by Hong Kong-based crypto news reporter Wu Blockchain (Colin Wu) on Monday, as he pointed out the significance of the action given that WeChat has more than 1.1 billion daily users in China.

In terms of punishments, the new policy states that “once such violations are discovered, the WeChat public platform will, according to the severity of the violations, order the violating official accounts to rectify within a time limit and restrict some functions of the account until the permanent account is banned.”

The Chinese government rolled out a phased ban on the local crypto sector between May and September last year. However, given the timing of the latest policy update on WeChat, it could suggest the platform has been letting some crypto activity go unnoticed since then. Furthermore, there is still a regulatory gray area in the country concerning NFTs as the assets can be purchased in fiat. Still, companies and platforms generally bar secondary trading to avoid potential compliance issues over the financialization of the tech.

In general, officials have frowned upon NFTs, with the China Banking Association, the China Internet Finance Association and the Securities Association of China issuing a joint statement in April warning the public about the “hidden risks” of investing in the assets. Popular platforms such as WeChat and Ant group-owned WhaleTalk have been distancing themselves from the tech since March after they both reportedly began removing or restricting NFT platforms from their networks over a lack of regulatory clarity and fear of a crackdown from Beijing. Despite this, a local media report from Thursday highlighted data showing the number of digital collectible platforms in China has grown to over 500, a five-time increase since February 2022.

Chinese court invalidates 2019 car sale made using now worthless crypto token: It appears that not only was the sales contract invalidated, but the buyer paid for the car with a questionable digital token in the first place.

South Korean prosecutors ban Terraform Labs employees from exiting the country: Terraform Labs employees have reportedly been prohibited from exiting South Korea as investigations by prosecutors continue.

Korean exchanges agree on emergency system in case of Terra-style collapse: Korean exchanges will soon be required to list tokens based on the same guidelines to ensure compliance with local regulations, and make emergency decisions together to prevent another Terra fiasco.

NFT platforms in China grow 5X in four months despite government warnings: NFTs are still a gray area in China where, unlike cryptocurrencies, there’s no official ban on their use but the authorities have warned investors against the risks from time to time.

Rest of the World

India Clarifies Rules for Controversial Tax Provision Ahead of Start Date: India’s Finance Ministry has issued guidelines to clarify the reporting mechanism for the contentious and soon-to-be-implemented 1% tax deducted at source (TDS) provision.

The 1% TDS liability — which will take effect on July 1 — is the most controversial provision of India’s recently introduced crypto tax law, with the industry even exploring a legal challenge. Another provision, which enforces a 30% capital gains tax on all crypto transactions, took effect on April 1. TDS is a liability imposed on the exchanges that deposit taxes on behalf of sellers on their platform. It will be calculated at 1% of a transaction’s value. The seller would be able to offset the 1% TDS from his or her total tax liability of 30%.

The government notification also clarified the timeline that parties have to report a virtual digital asset transaction. The government said it must be notified of a transaction within 30 days from the end of the month in which the transaction is made and any sum deducted must be paid to the government within the same time frame. The format to report the transaction was also specified by the government. A new form will be introduced entitled 26QE, which will play the dual role of a statement and a receipt.

The new rules also say that the person responsible for paying the tax deduction should give a TDS certificate to the payee within 15 days from the due date for reporting it to the government. The tax would have to be paid beforehand in cases where the payment for the transfer of a digital asset is in kind. The parties will also have to maintain details like date of transfer of virtual digital assets, value of consideration and mode of consideration.

The latest clarification is said to be a precursor to the Indian Finance Ministry issuing an FAQ on taxation of cryptocurrency in order to provide more clarity. The government has exempted transactions of up to Rs 50,000 ($640) in a year from the rule of 1% TDS for certain categories of taxpayers.

Singapore Grants In-Principle Licenses to Crypto.com, Two Others: The firms will be able to offer services to Singapore-based customers if granted full licenses.

‘Brutal and unrelentingly hard:’ Singapore regulator’s clampdown on crypto: The remarks from the regulator’s chief fintech officer could see the city-state lose its perception as one of the most crypto-friendly countries in the world.

Qatar at ‘Foundation Stage’ of CBDC Exploration, Central Bank Governor Says: The Gulf state central banker praised the “innovation” of crypto assets.

Panamanian President Partially Vetoes Crypto Regulation Legislation: Laurentino Cortizo argued it’s necessary for the bill to comply with the recommendations of the Financial Action Task Force.

Huobi Expands Exchange Operations to New Zealand: The move into New Zealand marks the latest step in the exchange’s growth efforts.

Chainalysis tips Australia will crack down on misleading crypto ads: Chainalysis head of international policy Caroline Malcolm explained this means bringing crypto-assets into a similar regulatory regime to financial products as occurred in the United Kingdom.

Bybit enters into settlement agreement with Ontario Securities Commission: Bybit is currently holding listing discussions with the provincial regulator, and if the process fails, the firm will cease operations in Ontario.

Canadian regulator takes enforcement actions against Bybit and KuCoin: “Bybit responded to the OSC’s enforcement action, maintained an open dialogue, provided requested information, and committed to engaging in registration discussions,” said the OSC.

Colombia’s new president seems to be a fan of Bitcoin: “Virtual currency is pure information and therefore energy,” said Gustavo Petro in 2021, in regard to mining crypto in Colombia.

Bank of Israel experiments with central bank digital currency smart contracts and privacy: The Israeli central bank looked at trust issues and policy decisions implied in a potential digital shekel, as well as some of the technical aspects of digital currency.

El Salvador president addresses bear market concerns with Bitcoin hopium: As tensions rise amid falling BTC prices, President Nayib Bukele decided to share advice for fellow Bitcoin investors that may be concerned about the prolonged bear market.

Russia seems to be preparing to mine Bitcoin with flare gas: One of the world’s largest producers of carbon emissions, the Russian gas giant Gazprom aims to reduce its carbon footprint by providing its flare gas for Bitcoin mining.

Bank of Russia backs cross-border crypto payments vs. domestic trade: Cryptocurrencies can be used in cross-border or international payments only if they don’t get into Russia’s domestic financial system, the Bank of Russia governor said.

Kazakhstan to let crypto exchanges open bank accounts: Exchange platforms will get an opportunity to operate legally in the Astana International Finance Center in 2022.

CAR president urges citizens to understand Bitcoin to bring long-term prosperity: For the past few weeks, the crypto market has been in a tailspin. While other investors may have given up on BTC, its ardent supporters continue to extol its virtues.

MISC

Elon Musk gets hit with ‘ridiculous’ $258B Dogecoin lawsuit: The class-action lawsuit has raised many eyebrows in the crypto community, with many confident the suit will not be successful.

Coinbase is facing class-action suits over unstable stablecoins GYEN, USTC: The cryptocurrency exchange is accused of failing to do due diligence, among other things, after users lost large sums as a result of the depegging of stablecoins.

Chainalysis Launches 24/7 Hotline for Crypto Crime Victims: Ransomware actors raked in all-time high of $731 million in crypto payments in 2021, and 2022 is on track to be another record year for crypto-enabled cyber crime.

This Is the Time for Lawsuits: The market is turning down, but the number of legal filings certainly isn’t.

Ripple CEO criticizes SEC for ‘contradictions’ on crypto regulations: “The SEC [decided] to do regulation through enforcement, which is not efficient and really I think has stifled innovation in the United States,” said Brad Garlinghouse.

GitHub users respond to Gillibrand-Lummis bill with ‘Bitcoin bill’ idea: The senators seek comments from industry stakeholders, consumers and interested parties.