Jul 13, 2020

14 min read

Crypto Regulation News: US CFTC promises ‘holistic framework’ for digital assets by 2024, The IRS is collecting information for a crypto investigation pilot program, South Korea considers blockchain-run free trade zone, Bank of Japan will begin experimenting with a digital yen

Vol. 47, 29th June — 13th July

TL;DR

G20 officials announced on July 11 that they would begin laying the regulatory groundwork for the group to accept digital payments.
The US Securities and Exchange Commission voted on amendments to rules governing the processing time for companies applying for listings.
The U.S. Internal Revenue Service (IRS) is seeking to hire an analyst who would play a role in shaping the tax authority’s long-term crypto vision and strategy.
The U.S. Commodity Futures Trading Commission (CFTC), the country’s derivatives regulator, is set to develop comprehensive regulations for cryptocurrencies.
The US Secret Service issued a security alert about ransomware attacks.
Gemini looks at regulation as a good thing, with the recently suggested conditional BitLicense as a move in the right direction.
After two years of work, investment firm Arca has registered the Arca U.S. Treasury Fund with the Securities and Exchange Commission.
The COMP token distribution raised some questions on a potential reprisal against DeFi from the SEC, given certain similarities with traditional stocks.
The United Kingdom’s Financial Conduct Authority estimates that roughly 2.6 million U.K. consumers have bought cryptocurrency “at some point.”
Switzerland does not need to amend its current tax legislation to cover blockchain-based arrangements, the Federal Council believes.
The Bank of Japan announced last Thursday that it would experiment with a CBDC to check its feasibility from a technical perspective.
Tosei real estate and Tokyo Financial Holdings issued an asset-backed digital financial product, Coinage registered with Japanese authorities as an exchange and more headlined news from Japan this past week.
The South Korean government considers a free trade zone for industrial hemp run on a blockchain-based platform.
Chinese courts are implementing blockchain storage technology to record court hearings.
A Singapore man was fined $72,000 for operating a multi-level marketing scheme linked to the Ponzi scheme OneCoin.
The Malaysian authority that oversees compliance with Islamic law in finance has permitted digital asset trading.
Philippine SEC warns against investment schemes including one based on the Ethereum blockchain it says is a Ponzi scheme.
Sri Lanka’s central bank has selected a shortlist of three firms to develop a proof-of-concept for a shared Know Your Customer facility using blockchain.
The Australian Government has reached out to the blockchain community to help identify opportunities for blockchain adoption in the supply chain and credentialing sectors.
Brazil’s Securities and Exchange Commission (CVM) has ordered Binance to stop offering its derivatives products in the country.
And more!

Reports

G20 Lays Regulatory Groundwork for Accepting Digital Payments: G20 officials announced on July 11 that they would begin laying the regulatory groundwork for the group to accept digital payments.

How the US and Europe Are Regulating Crypto in 2020: Crypto regulation in 2020: The U.S. tightens regulation of crypto, while India has finally allowed banks to get involved with firms.

CBDCs and COVID-19 Top Agenda in First Two Days of Unitize Conference: An overview of the first two days of the Unitize virtual blockchain conference where top crypto and blockchain experts offered their views on topical issues in the industry.

Opinions

CFTC Is Waiting on SEC to Allow Futures Trading of More Digital Assets, Says CFTC Chairman: Chairman Tarbert of the CFTC wants to see more clarity on which tokens are securities within the U.S. as well as broader international cooperation on regulation.

SEC’s Cryptomom Peirce Believes US Capital Markets Can ‘Transform People’s Lives’: SEC Commissioner Hester Peirce wants to see new crypto projects get a fair shake at U.S. capital markets.

Coinbase CEO Defends Licensing of Analytics Platform to Gov’t Agencies: Coinbase CEO says analytics platform is important to comply with AML rules and that only privacy coins can offer true privacy.

Coinbase Exec Says Capital Will Flee US Due to Crypto Tax Laws: Coinbase’s chief tax officer Lawrence Zlatkin says global customers are the future as non-U.S. jurisdictions are more open-minded.

Visa Head of Crypto Says Central Bank Digital Currencies Could Boost Bitcoin — Here’s How: Cuy Sheffield, Visa’s head of crypto, says the emergence of central bank digital currencies (CBDCs) will become a dominant trend in the future.

In a series of tweets posted on Saturday, the Visa executive emphasizes that interest in CBDCs is just getting started.

“I’d argue that central bank digital currency (CBDC) is one of the most important trends for the future of money and payments over the next decade. Regardless of anyone’s personal views of whether it’s good or bad, the reality is that global interest in it is not going away.”

Sheffield says CBDCs will likely trigger new crypto-related regulations that could have a major impact on Bitcoin (BTC) and the crypto markets as a whole.

“As governments evaluate CBDC, the path that they decide to take will have major implications for privacy, monetary sovereignty, geopolitics, and financial inclusion, as well as global adoption of crypto dollars and Bitcoin.
Therefore, if you are interested in any of the above, it’s worth closely following the active debate around if CBDCs should be created and how specifically they should be designed and implemented.”

Given the potential impacts of state-backed digital currencies, Sheffield urges the public to stay up-to-date on the subject. But he says a crush of interest in the industry is making it tough to keep up with new developments in the CBDC space.

Future Bleak for Private Stablecoins, SFB Economist Says: SFB Technologies’ chief economist sees a future for central bank digital currencies, or CBDCs, but not for privately issued stablecoins.

Global Compatibility Is A Key Factor In The CBDC Race, Says Expert: CBDCs will have to be internationally interoperable to become globally adopted, says a Hong Kong University expert.

Ripple Likely Sold XRP in an Unregistered Securities Offering: The former CFTC chair’s analysis stating that Ripple’s XRP is not a security might be wrong.

Why Banks Keep Blocking Cryptocurrency-Related Transactions: The close interaction between traditional finance and regulators is the key element in the development of the cryptocurrency industry.

Digital Assets Deliberations: The Role of ISINs in Relation to Digital Assets: A closer look at the role that International Securities Identification Numbers may take in the harmonization of standards for identifying digital assets.

USA

SEC Votes on Expedited Review Process — Shorter Wait Times for ETFs? The US Securities and Exchange Commission voted on amendments to rules governing the processing time for companies applying for listings.

CFTC to develop ‘holistic framework’ for crypto assets by 2024: The U.S. Commodity Futures Trading Commission (CFTC), the country’s derivatives regulator, is set to develop comprehensive regulations for cryptocurrencies.

In its finalized strategic plan for 2020–2024, published last Wednesday, the CFTC said: “We will develop a holistic framework to promote responsible innovation in digital assets.”

The regulator said it had granted designated contract market (DCM) licenses for exchanges “specializing in futures relating to digital assets,” referring to the likes of ErisX and Bitnomial (both the exchanges are cleared by the CFTC to offer bitcoin futures).

The CFTC further acknowledged that market regulation needs to keep pace and even lead to encourage responsible innovation. “The CFTC must promote responsible innovation, avoiding rules and approaches reflective of business practices long gone,” it said.

The regulator currently classifies bitcoin (BTC) and ether (ETH) as commodities, and hence there are futures contracts legally available for both (for now, only ErisX offers ether futures).

XRP’s status as a security or commodity is not yet clear. Earlier this year, CFTC chairman Heath Tarbert said that the regulator is closely working with the Securities and Exchange Commission (SEC) since over the last year “to really think about which falls in what box.”

If an asset is a commodity, it falls under the jurisdiction of the CFTC, and it’s a security that falls under the SEC’s jurisdiction.

“Once you start seeing more clarity on whether something is or is not a security, you will start seeing more futures listed on digital assets,” Tarbert said.

U.S. senators explore what a digital dollar would look like in practice: U.S. senators posed questions to a panel of witnesses on the topics of stablecoins and a digitized dollar during a virtual hearing last Tuesday.

IRS seeks info on tracing privacy coins, Lightning network transactions for pilot program: The U.S. Internal Revenue Service (IRS) has put out a call for information about potential tools it can use to track different types of cryptocurrency transactions as part of an investigative pilot program.

Information about the pilot is contained in a newly-published request for information made public by the agency on June 30. As described, the pilot features several areas of focus, including privacy coins and layer-2 transaction protocols like the Lightning network. Prospective bidders have until July 14 to submit their responses.

As the IRS explains:

“This RFI is associated with a pilot IRS Criminal Investigation Division (CI) program. CI Cyber Crimes is requesting information about systems that will allow developers and testers to conduct investigative research of distributed ledger transactions involving privacy cryptocurrency coins (e.g., Monero (XMR), Zcash (ZEC), Dash (DASH), Grin (GRIN), Komodo (KMD), Verge (XVG), and Horizon (ZEN)); Layer 2 off-chain protocol networks (e.g., Lightning Network (LN), Raiden Network, Celer Network); Side-chains (e.g., Plasma and OmiseGo); and tracing challenges following the integration of the Schnorr Signature algorithm.”

The IRS needs a crypto ‘subject matter expert’ to help beef up its crypto investigation efforts:

The U.S. Internal Revenue Service (IRS) is seeking to hire an analyst who would play a role in shaping the tax authority’s long-term crypto vision and strategy
According to a new job posting, a prospective candidate will “make recommendations that significantly influence the development or modification of nationwide Cyber Crimes policies and programs dealing with Virtual/Cryptocurrency”

The US Secret Service Issues Ransomware Warning: The US Secret Service issued a security alert about ransomware attacks.

Coinbase Awarded Contract to Provide Crypto Analytics Software to US Secret Service: Coinbase has received a multi-year contract to provide its blockchain analytics software to the U.S. Secret Service.

According to public records, Coinbase is licensing its blockchain analytics software, Coinbase Analytics, to the law enforcement agency in a four-year contract worth up to $183,750. The contract is set to expire on May 9, 2024.

Jonah Force Hill, a U.S. cyber policy advisor for the Secret Service is sharing how criminals are exploiting the Covid-19 pandemic for financial gain. In a recent Forbes interview, Hill also offers fresh insight into the Secret Service’s stance on cryptocurrencies and the criminals’ use of digital assets during the pandemic.

“The Secret Service investigates crimes with a cryptocurrency nexus when they 1) undermine the integrity of financial and payment systems, 2) are used in cases of fraud, and 3) are used as a means of money laundering.”

When asked about a recent report that said only 1.1% of cryptocurrency transactions are used for criminal purposes, Hill said it’s a tough number to confirm.

“As we discussed [previously], this is a challenging question and a difficult statistic to quantify. This is because crypto-related crime’ isn’t really a category of crime. Rather, crypto is an element of crime. It [can] be used as a criminal tool (e.g., for money laundering) or can itself be a target for crime (e.g., for theft).”

Gemini Chose to Wade Regulation In New York, Weighs in on Conditional BitLicense: Gemini looks at regulation as a good thing, with the recently suggested conditional BitLicense as a move in the right direction.

Investment firm nabs SEC registration for U.S. Treasury fund built on Ethereum: After two years of work, investment firm Arca has registered the Arca U.S. Treasury Fund with the Securities and Exchange Commission.

New York Court Rejects Bitfinex Appeal Over $850M in Lost Funds: New York’s Supreme Court has rejected Bitfinex and Tether’s appeal in the ongoing dispute between the firms and the NY Attorney General over $850 million in lost funds.

Anonymous Crypto Hacker’s Identity Revealed by US Authorities: The U.S. Department of Justice unveiled the identity of the hacker behind the pseudonym “fxmsp” after charging him with federal crimes.

DeFi Governance Tokens Tread Carefully as the SEC’s Invisible Hand Looms: The COMP token distribution raised some questions on a potential reprisal against DeFi from the SEC, given certain similarities with traditional stocks.

Texas Regulators Take Aim at South African Cryptocurrency MLM Scheme: The Texas State Securities Board has successfully shut down the operations of an illegal cryptocurrency investment scheme.

Europe

FCA Research Says 2.6 Million UK Residents Have Bought Crypto: The United Kingdom’s Financial Conduct Authority estimates that roughly 2.6 million U.K. consumers have bought cryptocurrency “at some point.”

European Crypto Cards Reactivate as FCA Allows Wirecard to Resume Operation: Crypto.com and TenX’s crypto debit cards are usable again as U.K. regulators allow Wirecard to resume “regulated activity.”

Switzerland Won’t Amend Tax Law in Regard to Blockchain in Near Future: Switzerland does not need to amend its current tax legislation to cover blockchain-based arrangements, the Federal Council believes.

Former Swiss President Sees the Country Leading in DLT and Technology of the Future: Former Swiss President and new board member of CV VC talks the unique attitudes towards law that make Switzerland a hub for crypto.

Monaco Passes New Security Token Laws, but Acting on Them Is Not Easy: The government of Monaco has passed a new bill introducing the establishment of a security token framework.

Institutional Market Sentiment Data Is Now Available to Anyone: An Estonian exchange makes institutional grade sentiment data available to regular traders for the first time.

Asia

South Korea Considers Blockchain-Run Free Trade Zone: The South Korean government considers a free trade zone for industrial hemp run on a blockchain-based platform.

OneCoin Marketing Scam Operator Fined $72,000 in Singapore: A Singapore man was fined $72,000 for operating a multi-level marketing scheme linked to the Ponzi scheme OneCoin.

Cryptocurrency News From Japan: Tosei real estate and Tokyo Financial Holdings issued an asset-backed digital financial product, Coinage registered with Japanese authorities as an exchange and more headlined news from Japan this past week.

Bank of Japan Will Begin Experimenting With a Digital Yen

The Bank of Japan announced last Thursday that it would experiment with a CBDC to check its feasibility from a technical perspective.

Tosei and Tokyo Financial Holdings launch a digital securities product

Real estate outfit Tosei and Tokai Tokyo Financial Holdings, hold plans for a digital securities product. The pair “will list digital securities backed by the rental income of domestic office buildings on the Singapore exchange in August,” said a July 8 report from Japanese news outlet Nikkei.

The financial product is the first of its kind holding domestic goods backing, the article added.

Cointelegraph interviews digital currency study group executive

The chairman of a digital asset research entity formed by DeCurret in June 2020, Hiromi Yamaoka, recently detailed a number of topics in an interview with Cointelegraph Japan.

Holding vast previous experience working for Japan’s central bank, the study group executive detailed a number of topics. He noted fees associated with paper currency payments, a lack of data surrounding cash payments, and other points, including positing a move toward payment modernization. He also spoke positively of blockchain and distributed ledger technology.

Coinage achieves Japanese FSA registration

Coinage received certification as a crypto exchange from the Japanese Financial Services Agency, or FSA. Offering just Bitcoin at present, the exchange now holds a first-class membership with the Japan Cryptocurrency Trading Association, or JVCEA, a step up from its previous second-class status.

Daido Life Insurance teams up with DeCurret for crypto payments

Life insurance company Daido plans to test crypto payments for premiums, working with digital asset trading platform DeCurret in the process. DeCurret received private round funding from Daido last year, according to a July 2019 statement.

Although Daido does not expect real-world application of the model until 2023, the current test involves 100 participants and looks to improve on payment ease and efficiency.

New Head of Japan’s Financial Services Agency Is Crypto-Friendly

The Japanese government will appoint Ryozo Himino as the next commissioner of Japan’s Financial Services Agency.

Court in China Implementing Blockchain for Court Reform: Chinese courts are implementing blockchain storage technology to record court hearings.

China’s CBDC Project to Collaborate With More Domestic Enterprises: A major Chinese e-commerce platform and a video sharing site have reportedly joined China’s CBDC project.

Former Official Says China Needs to Reform Crypto Laws: A Chinese official indicated that crypto will inevitably be part of the digital capital market.

Chinese Police Dismantle $14M Crypto Scam: The Chinese police busted a massive crypto scam in Wenzhou that managed to amass over $14.31 million.

Expert: China’s Digital Yuan Will Target the Dollar, Not Bitcoin: With its forthcoming digital yuan, China will aim to rival the U.S. dollar, not Bitcoin, say experts.

Philippine SEC Warns Against Crypto Schemes: Philippine SEC warns against investment schemes including one based on the Ethreum blockchain it says is a Ponzi scheme.

Malaysian Regulator’s Shariah Advisory Council Allows Digital Asset Trading: The Malaysian authority that oversees compliance with Islamic law in finance has permitted digital asset trading.

Sri Lanka Central Bank Selects Shortlist for Blockchain Proof-of-Concept: Sri Lanka’s central bank has selected a shortlist of three firms to develop a proof-of-concept for a shared Know Your Customer facility using blockchain.

Rest of the World

Community Asked for Input to Guide Australia’s Blockchain Roadmap: The Australian Government has reached out to the blockchain community to help identify opportunities for blockchain adoption in the supply chain and credentialing sectors.

Russia to Reportedly Investigate an Allegedly Fraudulent TON Offering in UK: Russian prosecutors are reportedly investigating a British firm that allegedly sold fraudulent Gram tokens.

Russian Court: Theft Of 100 BTC Isn’t A Crime Because Bitcoin Isn’t Property: A Russian court turned down a request from a victim of a 100 Bitcoin theft seeking restitution, with the court arguing that cryptocurrencies have no legal status.

Gibraltar Watchdog Grants License to Belarusian Crypto Platform: Currency.com obtained a distributed ledger technology license from the Gibraltar Financial Services Commission.

Afghan Government to Use Blockchain to Combat Counterfeit Drugs: Afghanistan’s healthcare ministry and several local pharmaceutical companies will use Fantom’s blockchain to combat counterfeit drugs.

Venezuela’s Maduro Denied Access to Gold Storage as Self-Sovereign BTC Shines: Venezuela’s Maduro just lost a ruling regarding his supposed gold ownership.

Brazil Eases WhatsApp Ban — But It’s Still Suspended: Despite Brazilian regulators lifting a suspension on WhatsApp’s payments, the country’s central bank is still blocking the launch.

Brazil Orders Crypto Exchange Binance to Halt Derivatives Trading: Brazil’s Securities and Exchange Commission (CVM) has ordered Binance to stop offering its derivatives products in the country.

In a Declaratory Act, Brazil’s superintendent of relations with markets and intermediaries says Binance’s derivative offerings are prohibited within the country. In Brazil, derivative contracts are classified as securities even if the underlying assets are cryptocurrencies.

“The offering to the public residing in Brazil of securities intermediation services is private to institutions that are part of the securities distribution system provided for in art. 15 of Law 6,385, of December 7, 1976.”

According to the act, the exchange does not have the necessary authorization to offer securities in Brazil. Binance must halt its derivative offerings in the country or face a fine of 1,000 Brazilian reals — approximately $186 US dollars — per day. Binance must also stop advertising its derivatives products in the country.