Category: Regulation

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Australia Crypto Exchange Regulation

Billions of Investor Money at Stake as Australian Crypto Exchanges Worry About Regulation

As the crypto industry continues to boom in Australia, investors and some members of the Senate are pushing for a more regulated environment. With current regulation setting the bar a little low, it could pose possible risks to investors and businesses alike.

On August 6, some of the largest crypto exchanges in Australia including Blockchain Australia, Independent Reserve, Kraken, Swyftx and various asset managers made an appeal to the Committee on Australia as a Technology and Financial Centre. They asked for minimum operating standards to be implemented to protect investors, with the ultimate aim of aligning consumer protection and industry growth.

While Australia is in a good position to participate in the global development of digital assets, a team of legal experts has highlighted current gaps in the framework that leave consumers exposed.

The Need For Regulation

Currently, the only cryptocurrency licence that exists in Australia is administered by AUSTRAC and is focused on identifying tax evaders and money laundering. With a lack of rules and entities to enforce them, individuals and businesses in the crypto space are at risk.

According to Adrian Przelozny, founder of crypto exchange Independent Reserve, there are no rules, external audits or IT security standards for the community to follow. “This is ridiculous and needs to change to protect consumers,” he says. “How can we hold A$1 billion worth of client assets without having to prove to an auditor these assets exist?”

There also are no rules that prescribe how assets should be stored. Consumers are just hoping custodians are following a procedure that keeps their assets from being lost, but there’s no regulator that ensures this actually happens.

Adrian Przelozny, founder, Independent Reserve

The Consequences of Regulatory Uncertainty

The lack of regulation in Australia is leading Aussie investors to engage in international crypto trading, which could be unsafe. Regulators and enforcers ensure that investors are protected by regularly verifying that exchanges comply with all required security protocols.

Crypto businesses are scared to move forward and create new products. In the murky regulatory state crypto is in now, if a business spends time and money creating a new financial product, it may be a futile exercise or one that has consequences for new investors, such as last month’s changes to leverage trading by major crypto exchanges to protect new investors.

Australia needs to follow in the footsteps of Singapore, Hong Kong, Europe and the US, all of which have successfully regulated digital financial products. In recent months, Australian crypto companies have been urging regulators to provide some regulatory clarity.

The Aussie Commitment to Crypto

Generally speaking, Australia is quite progressive in its regulatory approach towards cryptocurrencies compared to other countries.

Australia needs to prepare for the future of finance. We believe prioritising digital financial legislation will have a significant longer-term impact across our entire economy.

Caroline Bowler, chief executive, BTC Markets

For now, the Australian Securities and Investments Commission (ASIC) has released a report detailing the current regulations around crypto trading. The challenge for investors is that the ASX and ASIC have been reluctant to allow exchange-traded funds linked to bitcoin to be listed, which could lead to investors buying BTC and other crypto elsewhere.

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Crypto News Regulation Stablecoins

SEC Chairman Breaks Silence Saying ‘Nakamoto’s Innovation is Real’

Earlier this year, the crypto industry celebrated Gary Gensler’s appointment as US Securities and Exchange Commission (SEC) chairman on the back of his pro-blockchain and bitcoin stance. From a crypto perspective, Gensler has remained largely out of the limelight, until now.


Gary Gensler. Source: MIT

‘Nakamoto is Real‘

After working on Hillary Clinton’s failed 2016 presidential campaign, Gensler soon migrated to MIT to teach fintech, with a special focus on blockchain and money where his lectures have received millions of views.

Crypto advocates could therefore be forgiven for expecting a lot more out of his appointment than has been experienced to date. With over a dozen crypto ETFs awaiting approval, a definitive statement from the chairman has been a long time coming.

In remarks made before the Aspen Security Forum, Gensler spoke of the intersection between crypto and national security by outlining the history of Bitcoin and the problem it sought to rectify.

Nakamoto had solved two riddles that had dogged these cryptographers and other technology experts for a couple of decades: first, how to move something of value on the internet without a central intermediary; and relatedly, how to prevent the “double-spending” of that valuable digital token … Subsequently, his innovation spurred the development of crypto assets and the underlying blockchain technology.

Gary Gensler

After noting his time spent researching, writing and teaching about fintech, he viewed the crypto field as being filled with “a lot of hype masquerading as reality”, however he continued to say that “Nakamoto’s innovation is real”.

Welcome to the Wild West

Speaking of the broader crypto ecosystem, Gensler commented: “Frankly, at this time, it’s more like the Wild West.” Specifically, he noted that, going forward, there would be a focus on tokens that are classified as securities, trading and DeFi platforms, stablecoins, and financial products tied to crypto such as exchange-traded funds.

I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight.

He also homed in on so-called stock tokens, which have drawn the attention of regulators around the world in recent months.

Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime.

Gary Gensler

Speaking of stablecoins, he commented that they “may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like”. He highlighted the impact this could have on national security.

Gensler went on to note that large parts of crypto were presently operating outside of regulatory parameters intended to protect investors and consumers, guard against illicit activity, ensure financial stability, and protect national security.

Regulation Good or Bad?

Much like other regulators, the SEC has demonstrated that it is willing to take action, as it did earlier this year against BitConnect relating to the sale of some US$2 billion in unregistered securities. Since 2013, it has collected US$1.7 billion in penalties against crypto-related entities. This must of course be seen in the bigger context of the traditional financial sector.

While some crypto investors decry any form of regulation as antithetical to the crypto ethos, others are bound to welcome greater regulatory clarity.  From blatant scams and rug-pulls to outright fraud and 125x leverage, it may be argued that these negative aspects of the industry have the effect of undermining any positive gains made by the sector.

Like most things, a delicate balance should be sought – in this case between investor protection and the free market. Naturally, crypto enthusiasts would prefer a lighter regulatory touch.

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Crypto News Regulation

New Crypto Tax Bill Rattles US Crypto Companies

Lawmakers in the US and President Joe Biden have finalised the details for a US$1.2 trillion bipartisan package for infrastructure. Curiously, a number of provisions were included at the last minute, aiming to raise an estimated US$28 billion in tax revenue from crypto companies and digital assets.

US Vice-President Kamala Harris with President Joe Biden at the White House.
Source: Forbes

“Once in a Generation” Investment in US Infrastructure

The bill is ostensibly intended to modernise the nation’s ailing infrastructure – from bridges, roads and shipping ports to high-speed internet and electric vehicles. And up until last week, the bill appeared to be on track to be passed with bipartisan support. That was until new provisions were inserted for crypto trading firms and brokers.

Crypto Regulation Provisions

As regulators around the world, from Australia through to South Korea, grapple with the world of crypto, the US’s position has thus far been largely accommodative, particularly in states such as Wyoming.

This particular federal bill, however, includes measures to increase tax enforcement, such as reporting requirements on exchanges and crypto brokerages. According to the bill, exchanges and crypto brokerages will be required to provide all details about cryptocurrency transactions equal to or more than US$10,000 to the IRS.

Critics Warn of Unintended Consequences

Critics say that the bill is rushed, impractical and bound to have numerous unintended consequences.

In an open letter by the Blockchain Association, the bill was described as “an imminent threat to the budding crypto industry here in America”.

What Congress is considering with this measure is not a new tax on the cryptocurrency industry. Instead, it puts new reporting requirements on individual players in the industry who have no way to comply.

Kristin Smith, executive director, the Blockchain Association

Smith went on to say market participants would be faced with impossible-to-fulfill reporting requirements that could thwart innovation in the sector and push these companies offshore. For that reason, she also expressed doubt that the bill would ultimately achieve its objective of collecting US$28 billion.

Instead of rushing through an untested provision with vast unintended consequences, we encourage Congress to work with our industry to find language that works for all stakeholders, keeping America at the forefront of crypto innovation.

Kristin Smith, the Blockchain Association

Jerry Brito, of Coin Center, said the draft language was “so broad” that it would add new reporting for many organisations that “have no visibility into users’ transactions”:

In a lengthy Twitter thread, Jake Chervinksy of Compound Finance offered a scathing breakdown of the bill and called it misguided. In it, he highlighted the excessively broad definitions, impact on DeFi, offshoring of innovation, the impossibility of compliance on some companies, and the potential impact on civil rights:

Aside from the practical issues highlighted above, venture capitalist Nic Carter took issue with the bill in principle. Commenting on the current administration’s apparent embrace of modern monetary theory (MMT), he said the notion of having to raise taxes to fund infrastructure made no sense:

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Binance Regulation

Binance Halts Derivative Products Across Europe Amid Regulatory Hurdles

Binance has announced it will cease providing futures and derivatives products for users across Europe, starting with Germany, Italy and the Netherlands.

The decision comes after regulatory pressure has increased worldwide, forcing the exchange to limit its product offerings.

Binance Wants to “Harmonise Crypto Regulations”

A month ago, the UK’s Financial Conduct Authority (FCA) ordered Binance to halt its product offering to clients across the country, yet it seems to have been business as usual for the exchange.

However, after meeting with increasing international regulatory pressure, it appears Binance wants to take “proactive steps towards harmonising crypto regulations, which is a positive sign for the industry”, according to a tweet from the exchange.

We understand that many regulators at local levels may have their own positions on crypto, and we welcome the opportunity to engage in a constructive dialogue on local requirements.

Binance, Twitter

Users in the aforementioned countries will have 90 days to close their positions, Binance said. The date is set to be announced later.

Binance Shuts Down Stock Tokens Trading

Binance has been forced to negotiate with international regulatory bodies after they warned the exchange about its lack of authorisation to operate in their respective countries. Regulators in those countries have declined to comment on the decision.

The constant pressure also forced the exchange to shut down stock tokens trading months after the service was launched. The service allowed users to buy digital tokens linked to shares of companies, known as “stock tokens”, which could be bought for shares of publicly traded giants including Apple and Microsoft.

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Australia Crypto News Regulation Trading

New ASIC Chairman Says Crypto Trading is “a Significant Area of Concern”

Joe Longo, the new chairman of the Australian Securities and Investment Commission (ASIC), says that certain “economic threats” like unregulated crypto trading are a concern for the corporate regulator in the wake of Covid-19.

In a July 29 ABC interview, Longo emphasised his particular concern over unregulated crypto trading and the companies that provide them, as crypto scams have been on the rise recently not only in Australia but worldwide.

We are particularly focused on scams and vulnerable consumers who are at risk during the pandemic […] It’s clearly the case that we’re seeing a number of scams emerging online with cryptocurrencies being traded on various platforms.

Joe Longo, ASIC chairman
New ASIC chairman Joe Longo. Source: youngwitness.com.au

Longo warned consumers about trading cryptocurrencies as the practice is not regulated nor covered by the Corporations Act. “I think consumers need to be really careful in trading and crypto and knowing what the risks are,” he said.

ASIC Moves to Boost Consumer Protection in Crypto Trading

While crypto trading isn’t regulated in Australia, ASIC has been taking steps to boost consumer protection around CFD (contracts for difference) crypto trading, following the Financial Conduct Authority’s order for crypto exchanges such as Binance to halt regulated services in the UK.

ASIC recently published a report laying out guidelines about the inclusion of crypto assets in ETPs (exchange traded products). As per page 46 of the report, the institution is seeking feedback from stakeholders and investors on how to make crypto assets available to retail investors through licensed Australian markets, and to protect consumers and promote market integrity.

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China Crypto Exchange Huobi Regulation Trading

Huobi and OKEx Exchanges Dissolve China Entities, Moving Overseas

Amid rising regulatory pressure in China, major cryptocurrency exchanges Huobi and OKEx have decided to discontinue their entities based in the PRC. However, this won’t affect the main crypto trading activities of both exchanges.

Huobi, OKEx Dissolves Local Companies in China

In accordance with publicly available information, the stakeholders of Beijing Huobi Tianxia Network Technology Ltd agreed to dissolve the entity on July 22. Founded in 2013, Beijing Huobi is the company that operates the Huobi exchange in China. It is reportedly 70.52 percent-owned by the CEO of Huobi Group, Li Lin.

Beijing Huobi will be dissolved in about 45 days from the aforementioned date, and all the clearing and liquidation processes will be reportedly handled by Huobi Group’s CEO. 

The reason for dissolving Beijing Huobi is assumed to be the regulatory uncertainty and recent crackdown on crypto mining and trading activities in China. However, Huobi said the entity hasn’t conducted any business operations. 

Because this entity has not had any business operations, it is unnecessary and has applied for cancellation.

Huobi exchange

This comes a month after OKEx exchange also dissolved a Chinese subsidiary. Beijing Lekuda Network Technology Co was founded to operate OKEx services in China. However, a decision was made on June 24 to dissolve the company.

Could We See Exchanges Become Decentralised?

Major crypto exchanges have been making several adjustments to their services of late, which suggests that a whole new wave of regulatory security may be under way. Earlier this week, the largest crypto exchange, Binance, announced the reduction of the maximum leverage for Futures trading to 20x, likewise FTX exchange. 

It is likely some crypto platforms may decentralise operations as the industry becomes immersed in stringent regulatory pressure. This month, non-custodial crypto exchange ShapeShift revealed plans to completely decentralise its operations.

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Binance Crypto Exchange Regulation Trading

Crypto Exchanges Are Reducing Leveraged Trading Amid Regulation Pressure

The CEOs of two major crypto exchanges have announced they will be lowering their maximum leverage limit for futures trades. These moves were made amid an impending regulatory storm.

Both FTX and Binance have lowered their maximum leverage limits for futures trading to 20 times leverage. The announcements follow the duly expected release of a new regulatory framework to be implemented by the US Securities and Exchange Commission (SEC) by July 28.

Binance previously had a maximum leverage and margin on Bitcoin (BTC) against Tether (USDT) contracts to 125 times leverage. At that level, a 100 USDT collateral deposit on Binance Futures will allow users to hold 12,500 USDT in BTC.

Binance’s new rule states that new users with registered futures accounts of less than 30 days will not be allowed to open positions with leverage exceeding 20 times. However, leverage limits for new users will gradually increase after one month from registration.

The harsh reality of leveraged trading is that the majority of people who trade in those markets lose out, especially in volatile markets like cryptocurrencies. So not only do you lose your initial investment, but also any additional collateral you may have posted to keep the position open. For many who are new to the crypto market, leveraged trades could put a big hole in the bank.

Binance also recently stopped support for its stock tokens following a slap on the wrist from the Hong Kong SEC. Exchanges are likely worried about the regulatory screws tightening. Huobi has since also suspended the service to Chinese users.

Is Leverage to Blame for Market Volatility?

A July 23 New York Times article also criticised high-leverage trading in crypto as risky. The article implied impending regulatory moves against high-leverage margin trading, citing Timothy Massad, a former US SEC chairman.

Binance CEO Changpeng Zhao acknowledged that “volatility is amplified by the leverage”, according to the NYT article. But FTX CEO Sam Bankman counters by saying: “Nearly every crypto derivatives exchange allows it, and nearly every one will say the same thing: It’s a tiny fraction of volume and positions […] It’s also not what chiefly contributes to volatility.”

This is business as usual for crypto – a market that is known to be highly volatile and exposed to high levels of product leverage on these exchanges. [It’s] a perfect recipe for liquidations that can cut both ways depending on sharp spot movements to the up or downside.

Ryan Todd, research analyst, The Block

Binance De-Risking Operations Ahead of Regulatory Clampdown?

Binance has implemented various changes and has stayed abreast with regulatory requirements as they come up. With regulation becoming clearer, exchanges are trying to not get caught off guard while providing infrastructure for their clients.

Binance Australia is assisting its customers in one such way by partnering with Australian startup Koinly to assist its Aussie customers with crypto tax reporting.

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Australia Blockchain Crypto News Regulation

Blockchain Australia Wants ‘Safe Harbour’ for Crypto Businesses Amid Regulatory Uncertainty

In yet another petition to bring clarity to the regulatory framework for cryptocurrencies in the country, Blockchain Australia and industry-related partners have issued a set of regulation recommendations to the federal government.

The file of recommendations was submitted to the Senate Select Committee on Australia as a Technology and Financial Centre on July 23, with three primary points in response to the committee’s request for submissions on how to take the country forward as a technology and financial leader.

What Are the Recommendations?

The paper prompts the federal government to implement a “coordinated and graduated approach”, considering:

  • implementing immediate safe harbour provisions for crypto providers
  • greater regulatory guidance and engagement in the short-term
  • a long-term, fit-for-purpose legislative framework

The government and relevant regulators should provide crypto asset providers a safe harbour until such time that they introduce guidance or legislation. Any legislation should contain an appropriate transition period and not apply retrospectively.

Blockchain Australia submission to Senate Select Committee

The organisation emphasised its interest in cooperating with various Australian regulatory bodies, including ASIC, the Reserve Bank of Australia and the Australian Taxation Office.

Improving the Fintech and Blockchain Industry in Australia

Blockchain Australia has been a cheerleader for the blockchain community in the country, calling for support for all crypto users and companies affected by the country’s lack of regulatory clarity.

In February, the organisation, together with RMIT, sought more government support for the blockchain and crypto community, stating that while local authorities have taken great steps to improve the sector in Australia, it was falling short compared to other countries.

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Binance Binance Australia Crypto News Regulation

Binance To Stop Support For Stock Tokens

Various jurisdictions, including Hong Kong and Lithuania, have issued warnings to Binance for trading in stock tokens for which it is not licensed to conduct such “regulated activity”.

On July 16, Binance announced that the exchange has halted selling its digital tokens that were linked to shares of companies, known as “stock tokens” that could be purchased for shares of publicly traded companies including Apple Inc, Microsoft Corp, and Tesla Inc.

Stock tokens are now unavailable for purchase on Binance.com, and they will no longer support any stock tokens after October 14, 2021. Binance users holding stock tokens can hold them over the next 90 days, but will not be able to sell positions after that date.

Today, we are announcing that we will be winding down support for stock tokens on Binance.com to shift our commercial focus to other product offerings.

Binance

UK, Japan, Germany, Hong Kong, Lithuania Issue Warnings

The decision comes against the backdrop of an ongoing regulatory crackdown, with Hong Kong becoming the latest to declare “no entity in the Binance group is licensed or registered to conduct ‘regulated activity’ in Hong Kong”.

The list includes regulatory bodies in Italy, Lithuania, the UK, Japan and Germany issuing warnings that the crypto exchange is not licensed to be offering regulated services in their markets.

Binance has been under the microscope of various regulators, one of the reasons being that it is by far the largest crypto exchange, handling the majority of trade volume. As Binance offers a wide range of services, from cryptocurrency spot and derivatives trading to digital wallets and staking, regulators want to keep an eye out and make sure no laws are broken.

Binance Australia

Some products and services are offered by Binance.com within Australia, but not by Binance Australia (BAU) which is the operating company within Australia. Crypto News Australia contacted Binance.com to comment on the matter:

Just like to first clarify that stock tokens are sold and issued by CM-Equity AG. It was a commercial decision to cease support for stock tokens on Binance.com. As Binance grows as a part of the community, we are continually evaluating our offerings and we believe that shifting our focus to other product offerings will better serve our users, and we are committed to making this transition as straightforward as possible for those affected.

We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion. We don’t comment on specific matters or inquiries.

Binance spokesperson

Crypto Regulation Is a Journey

In a letter by Binance CEO Changpeng “CZ” Zhao, he stated that compliance is a “journey” and that most of the applications of DeFi have not yet been put into law or regulatory frameworks. However, CZ added that Binance is committed to putting more systems in place to protect its users, and to work with law enforcement and regulatory bodies.

More regulations are, in fact, positive signs that an industry is maturing, because this sets the foundation for a broader population to feel safe to participate in crypto […] When the car was first invented, there weren’t any traffic laws, traffic lights or even safety belts. Laws and guidelines were developed along the way as the cars were running on the road.

Changpeng “CZ” Zhao, Binance CEO

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Crypto News Cryptocurrency Law Institutions Regulation

Decentralised Autonomous Organisation (DAO) Framework Officially Approved in the US

Decentralised Autonomous Organisations (DAOs) are now legally recognised as businesses entities in the state of Wyoming, US.

The passing of the bill that took effect on July 1 has been praised by Wyoming’s Secretary of State, Edward Buchanan, as another step for the state to remain on the cutting edge of business technology.

The Merchant Advisory Group (MAG), which represents 165 of the largest merchants in the US, also expressed its support of the DAO filing.

Shortly afterwards, the American CryptoFed DAO was officially the first to be legally recognised as a distinct form of limited liability company (LLC). American CryptoFed is aiming to create “a monetary system with zero inflation, zero deflation, and zero transaction costs”, looking to stabilise currency and be immune to government votes on changing resource values as a separate entity.

Ideally we’ll see more money put into the coffers of local governments in a way that then allows them to hopefully fill more potholes and do more kinds of projects, without having that cut into their profitability of that transaction.

Mark Gordon, Governor of Wyoming

What Is a DAO?

The developers of the DAO believed they could eliminate human error or manipulation of investor funds by placing decision-making power in the hands of an automated system and a crowd-sourced process, which drastically lowers management costs.

By using a open-source blockchain protocol governed by a set of rules, which were created by its elected members, it can automatically execute certain actions with smart contracts without the need for intermediaries checking if requirements have been met.

Participants are not obligated by a legal contract, but rather incentivised by rewards in the form of native asset tokens that help them work towards a unified goal. Decentralised exchange (DEX) platforms such as Compound (COMP), yearn.finance (YFI) and Uniswap (UNI) are dependent on DAOs for governance. 

Wyoming, the Most Crypto-Friendly State in the Union

This move is another demonstration of Wyoming trying to lead the way as the most crypto-friendly state in the US. Its Senate representatives have made it very clear that they are crypto-positive and have already passed 23 laws to clear up regulation around digital assets and related fields, including crypto mining.

Major crypto companies Ripple and Kraken have both set up operations there, along with 50 smaller LLCs with “bitcoin” in their names. 

Wyoming is the leading digital assets jurisdiction in the USA, and now with this DAO law, Wyoming is arguably the top blockchain jurisdiction in the world.

Marian Orr, CEO, American CryptoFed DAO

The state has been busy trying to attract companies that play a role in the crypto or blockchain industry, especially bitcoin miners.