Category: Regulation

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Bitcoin Crypto News Cryptocurrency Law ETFs Regulation

US Regulator Sued by Grayscale After Latest Bitcoin ETF Rejection

Historically, the Grayscale Bitcoin Trust (GBTC) was the primary vehicle for US institutional exposure to bitcoin. As jurisdictions including Australia and Canada approved spot bitcoin exchange-traded funds (ETFs), the Securities and Exchange Commission (SEC) resisted. Once again, it has rejected appeals to approve a bitcoin ETF, and this time it is getting sued:

Grayscale Committed to a Spot Bitcoin ETF

As news broke that the SEC had rejected its application to convert GBTC into an ETF, Grayscale moved swiftly to file a petition for review with the US Court of Appeals for the District of Columbia Circuit.

Speaking on CNBC’s Squawk Box, chief executive Michael Sonnenshein commented that Grayscale was “of course very disappointed, but as an organisation [we] were ready”. He added that the firm “almost immediately” filed a petition for review as it “vehemently disagreed with the decision”.

When asked for the basis for Grayscale’s legal challenge, Sonnenshein responded:

The SEC is acting arbitrary and capricious by continuing to approve Bitcoin futures based ETFs while continuing to deny spot Bitcoin ETFs.

Michael Sonnensheim, CEO, Grayscale

Nonetheless, Grayscale has said that it remains “committed” to converting the GBTC into an ETF, adding that:

Through the ETF application review process, we believe American investors overwhelmingly voiced a desire to see GBTC convert to a spot Bitcoin ETF, which would unlock billions of dollars of investor capital while bringing the world’s largest Bitcoin fund further into the US regulatory perimeter. We will continue to leverage the full resources of the firm to advocate for our investors and the equitable regulatory treatment of Bitcoin investment vehicles.

Grayscale press release

‘Poked the Wrong Nest’

In a rare display of unity between Bitcoiners and the crypto community, both sides agreed that pushback was needed against the SEC’s decision, with on-chain analyst Will Clemente saying:

Others commented that the SEC’s decision “lacked substance” or “common sense”:

Tellingly, during Grayscale’s 240-day review, a record-breaking 11,400 submissions were received with over 99 percent demonstrating support for the conversion.

Even though a final decision is only likely to be reached within the next 12 months, it appears as if the SEC may well have poked the wrong nest. Bitcoiners, in particular, have a tendency to make their voices heard.

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Bitcoin Crypto News Regulation

Regulation is Good for BTC Price Action, Report

Bitcoin-focused financial services firm New York Digital Investment Group (NYDIG) has released a report in which it found that increased regulatory clarity was beneficial to the price and adoption of Bitcoin.

Regulatory Clarity, Helpful or Hurtful?

The report notes that regulatory clarity is often cited as a significant hurdle for institutional adoption, however NYDIG has maintained the opposite view, believing that adoption would grow once investors “know the rules of the road”.

To test its thesis, the company looked at historical events related to digital asset regulation across a number of international jurisdictions. These events encompass matters including tax, accounting, payment, mining, the legal status of exchanges and other service providers, or even the legality of crypto assets themselves.

It then tracked the subsequent price returns of bitcoin in the following day, week, month, six months and year, with a focus on the longer-term windows. The returns were then evaluated in both absolute and relative (ie, average) terms.

Investors and Price Welcome Regulatory Clarity (Mostly)

The report noted that, other than China, which has implemented countless bans on mining and digital asset ownership, most other jurisdictions were “supportive but with guardrails”.

Aside from China, where regulations had a deleterious impact on price, across all other jurisdictions the study offered clear evidence that on both an absolute basis and relative basis, increased regulatory clarity was favourable for the price of bitcoin. This was particularly the case across six- and 12-month timeframes.

BTC absolute performance after a regulatory event. Source: NYDIG
BTC relative performance after a regulatory event. Source: NYDIG

The implication then is that regulatory clarity, despite its flaws, is appreciated by investors. Noting that retail only accounts for a quarter of volume, it’s little surprise that regulation brings with it positive price action across longer timeframes.

With bitcoin capitulating below its previous cycle’s all-time high, one wonders what the impact will be of the recently released US “crypto bill”, dubbed the Lummis-Gillibrand Responsible Financial Innovation Act, once passed.

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Australia Crypto News Cryptocurrencies Cryptocurrency Law Regulation

Crypto Ads Crackdown Expected Soon to Protect Australian Consumers

Caroline Malcolm, the Australian-born head of international policy at crypto security firm Chainalysis, believes the federal government will soon introduce regulatory reforms to offer everyday Australians a higher level of consumer protection.

Regulations Likely Within Next Year

The former head of the OECD’s global blockchain policy centre told attendees at the Chainalysis LINKS conference in Sydney that she believes regulations will be implemented in the next six to 12 months.

Specifically, the focus is likely to relate to advertising standards and prohibited practices, and bringing those in alignment with traditional investment regulations:

Thinking about some of those traditional concepts around market manipulation, for example, and bringing those into crypto space and starting to have some obligations there in terms of whether it be wash trading, front-running, or insider trading.

Caroline Malcolm, head of international public policy and research, Chainalysis. Source: Australian Financial Review

Malcolm noted that the new regulations would require clarity, particularly in the areas of advertising and promotion:

It’s not about banning advertising or banning the sale of particular assets to particular parts of the community. But [it is] really about making sure that there’s no misleading advertising, that there are disclosures about what you’re actually buying when you’re getting into this sector, and making sure that those risks are as clear to you as the opportunities are.

Caroline Malcolm, head of international public policy and research, Chainalysis. Source: Australian Financial Review

‘Australia Can’t Tackle This Alone’

Malcolm suggested that Australia is likely to take a similar approach to the UK, which has brought crypto assets into a similar regime as for other financial products.

Speaking in relation to Australian regulators and the local industry, she added that both have “misconceptions” about risk levels in crypto, and “both need to work together to understand each other’s obligations”. Malcolm argued further that Australian regulators ought to be working with global counterparts to ensure one country’s approach is as consistent as possible with others’.

Australia can’t tackle these issues by itself. We really need to work together to almost have a sandbox for trialling new approaches which cannot just put us in the same position in terms of policy outcomes, but perhaps even put us in a better position to allow us to be more effective in some of these policy objectives that we have.

Caroline Malcolm, head of international public policy and research, Chainalysis. Source: Innovation Australia

While Australians made US$2.1 billion in crypto gains during 2021, it isn’t clear how they have fared thus far in 2022, particularly after the most recent downturn. Arguably, this may be the appropriate time to introduce sensible consumer regulations in alignment with other financial products.

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Binance BNB Crypto News Cryptocurrency Law Regulation

US Regulator Investigates Whether BNB Token is an ‘Unregistered Security’

US market regulator the Securities and Exchange Commission (SEC) has launched an investigation into whether global crypto exchange Binance violated securities law by selling its BNB in an initial coin offering (ICO) some five years ago.

String of Regulatory Challenges

The SEC’s investigation into BNB, now the fifth-largest cryptocurrency by market capitalisation, relates to its ICO in 2017 where it is alleged it was sold without being registered.

In response to the allegations, a spokesperson from Binance commented:

As the industry has grown at a rapid pace, we have been working very diligently to educate and assist law enforcement and regulators in the US and internationally, while also adhering to new guidelines. We will continue to meet all requirements set by regulators.

Binance statement

At this early stage, information remains somewhat limited with Binance adding that it “would not be appropriate for us to comment on our ongoing conversations with regulators, which include education, assistance, and voluntary responses to information requests”.

Binance’s CEO, Changpeng ‘CZ’ Zhao, was less diplomatic in his assessment:

Aside from the SEC investigating several other high-profile ICOs, Binance is also under the microscope after it was hit with a US$5 million class-action lawsuit in which users claimed the exchange sold them 79 different crypto assets (including Dogecoin, Solana, and Cardano) that should have been properly registered as securities.

Vocal Responses from the Bitcoin Community

Max Keiser, Bitcoin maximalist and co-host of the Orange Pill podcast, did not mince his words in response to the news:

Cory Klippsten, founder of Swan Bitcoin exchange, was somewhat more charitable, while sharing the sentiment held by the majority of Bitcoiners:

Michael Saylor, the inimitable founder and CEO of MicroStrategy, has previously said he is of the view that everything outside of Bitcoin is a security. Given that Saylor has spent the better part of three decades operating in US capital markets, you’d imagine he and his legal team have their finger on the regulatory pulse.

Saylor certainly made the point crystal clear in a recent interview with former hedge fund manager Raoul Pal, in which the two clashed over what Pal considered to be “outdated securities laws”:

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Australia Regulation Scams

Aussie Consumers have Already Lost $200 Million to Investment Scams in 2022

The Australian Competition and Consumer Commission’s Scamwatch site has found that Aussies lost over A$205 million to investment scams between January and May of 2022.

This represents a 314 percent increase compared to the first four months of 2021, with more than A$80 million of this year’s losses (between January 1 and May 1) from crypto scams alone.

https://www.australianmining.com.au/news/accc-tackle-large-companies-pressuring-small-contractors/
The ACCC warns of a significant increase in investment scams.

ACCC On Edge Over Losses

With more than half of the year still ahead, these daunting figures have the ACCC on edge. Its deputy chair, Delia Rickard, has noted that consumers who lack familiarity with crypto and its intricacies are most likely to accidentally engage with scam tactics.

https://itwire.com/it-industry-news/telecoms-and-nbn/accc-has-a-$300,000-court-win-against-superfone.html

We are seeing more money lost to investment scams and so are urging all Australians not to trust investment opportunities that seem too good to be true.

Delia Rickard, deputy chair, ACCC

While the number of investment scams has increased compared to the same period last year, the true amount of funds lost to investment scams could be far higher, the ACCC believes. This is because only about 13 percent of people report their losses. In 2022, the number of reports is down despite losses increasing, suggesting investors are sustaining higher individual losses on average and are reticent to disclose them.

The ACCC also believes that crypto scams are likely to have increased due to a heightened awareness of crypto introducing many naive investors to the game.

Louder Calls for Regulation

In August 2021, the ACCC began issuing warnings regarding scammers swindling Aussies via fake crypto platforms. These “creative” ploys had seen unscrupulous operators impersonating crypto exchanges and targeting victims via chat channels such as Telegram.

The new federal Labor government is being urged by consumer advocates to protect Aussies from these crypto scams. CHOICE, Australia’s largest consumer advocacy group, is calling for increased regulation of the industry – with the addition of a “single definition for crypto assets”.

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Crypto News Japan Regulation Stablecoins

Japan to Regulate Stablecoins to Protect Citizens Following UST Implosion

The Japanese government has agreed to pass a law that will regulate stablecoins, defining them as digital money and protecting Japanese citizens from potential losses on their crypto investments.

This follows last month’s implosion of Terra’s UST and LUNA:

Safety Net for Investors

In 2021, Japan’s Financial Services Agency prepared a bill to clarify the legal status of stablecoins. This week, that bill successfully passed through the upper house of Japan’s parliament and will come into effect in 2023. Under the legislation, stablecoins must be linked to either the yen or another legal tender, with holders guaranteed the right to redeem their stablecoins at face value.

The move will mean a safety net for investors who are currently on edge or recovering from large losses after the TerraUSD (UST) crash that saw LUNA tank. The legislation also means that stablecoins can only be issued by a licensed bank, trust company, or registered money transfer agent:

Currently, Japanese exchanges do not list stablecoins, and it is worth noting that this newly passed law will not address overseas asset-backed stablecoins and their algorithmic equivalents. The law also takes aim at money laundering.

Controversies Surround Stablecoins

Following last month’s fall of Terra, a South Korean LUNA investor attempted to take matters into his own hands after losing US$2.4 million in the collapse. The investor literally knocked on the front door of Do Kwon, founder of Terraform Labs, to speak with him about the loss. While the act was not technically deemed to be trespassing, the investor was arrested and is likely to face a fine.

Last week, the Bank of England (BoE) agreed to “rescue” collapsed stablecoins to protect holders. The announcement came from HM Treasury and suggested that the BoE is eager to amend financial legislation to pull crypto under its jurisdiction.

Closer to home, the Australian and New Zealand Banking Group (ANZ) announced plans to extend the usage of A$DC – its cash-backed stablecoin – to meet demands from institutional customers.

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Australia Banking Blockchain Regulation Stablecoins

ANZ Bank Pushes Forward With Stablecoin A$DC, But Isn’t That Bullish On Crypto Yet

The Australian and New Zealand Banking Group (ANZ) wants to extend the usage of its cash-backed stablecoin, A$DC, amid demand for access to it from its institutional customers. It also seeks to target additional use cases through a pilot program with the federal government and extensive engagement with regulators.

A$DC was launched by ANZ in March and has so far been used primarily to ease crypto trading for one of its major corporate clients, Victor Smorgon Group. It’s a fully collateralised stablecoin, unlike the recently collapsed Terra-based UST which was an algorithmic stablecoin.

Stablecoin to be Extended to More Institutional Customers

Speaking to the Australian Financial Review, ANZ executive Nigel Dobson said the bank was looking to extend the use of A$DC to a wider number of institutional customers, driven largely by customer demand:

Are we going to extend it [the A$DC]? Yes, absolutely we will. And this will be based on our institutional customers’ demand, as they reveal, increasingly, their own tokenisation strategies.

Nigel Dobson, ANZ executive
ANZ executive Nigel Dobson. Source: financeasia.com

Increasingly, real-world assets, such as real estate and art, are being tokenised and traded on blockchains. Dobson believes this trend will continue and will provide several advantages over the way these assets have traditionally been traded:

“We believe that tokenised assets can be inexorably developed to deliver greater efficiency, speed, transparency, and value for customers over time,” Dobson said.

Pilot to Collect Excise Tax, Plans for Carbon Credits

A$DC is also being used in a pilot program, in cooperation with the federal government, designed to ease the collection of excise tax in the distilling industry. The program uses smart contracts to facilitate the collection of excise – according to KPMG, this single-use case could result in the recovery of at least A$45 million per year in lost tax revenue.

Another application on the horizon is the use of stablecoins to increase liquidity in carbon credit markets, an area in which ANZ sees huge potential for growth:

We think that’s going to have exponential growth over the next 10 years, and the elements of tokenisation that can be applied to that marketplace to make it much more efficient, more global and, frankly, more available to a wider range of consumers but certainly to institutional investors.

Nigel Dobson, ANZ Executive

As part of its push for increased usage of its stablecoin, ANZ has been working closely with several regulators, including the Australian Prudential Regulation Authority (APRA), the Securities and Investments Commission (ASIC) and financial intelligence agency AUSTRAC, to develop a framework for the use of stablecoins in the Australian economy. 

Dobson said that so far, the conversations with regulators have been positive, explaining that “it is nice to see APRA, ASIC and AUSTRAC all on the same virtual call together. We’ve got this kind of coalition of the curious going on at the moment, which I think is wonderful, and you know, the integrated interactions have been incredibly constructive.”

ANZ into NFTs, Crypto Not So Much

ANZ seems to be focused more on the potential of tokenised assets and NFTs rather than cryptocurrencies such as bitcoin. The bank sees its role primarily as providing a stablecoin that can streamline transactions and simplify the sale and purchase of assets.

“We believe stablecoins form a very important element of the settlement value and the settlement process,” Dobson said.

Initially A$DC will only be offered to institutional customers, but in the longer term, retail customers may well gain access to the coin to simplify crypto trading and the purchase of both metaverse-based digital assets and tokenised real-world assets:

We think that the growth area is not going to be so much in crypto, but in NFTs. NFTs are already in the market around sports memorabilia and [can extend to] anything digitally created. 

Nigel Dobson, ANZ Executive

ANZ Bank has had an interest in developing stablecoins and CBDCs for some time; last September, the bank was one of 15 finalists in the Monetary Authority of Singapore’s Global CBDC challenge, which attracted more than 300 submissions from 50 countries.

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Crypto News Regulation Stablecoins United Kingdom

Bank of England Agrees to Rescue Collapsed Stablecoins, Protecting Holders

In the wake of the Terra ecosystem collapse, the UK’s financial and economic ministry, HM Treasury, has released a consultation paper on systemic failures within what it terms “digital settlement assets including stablecoins”. Its recommendations have taken some by surprise.

Managing ‘Systemic Failures’

As per the consultation paper, HM Treasury has announced that the Bank of England (BoE) would intervene to direct and oversee collapsing stablecoins if, in its judgement, a stablecoin issuer has “reached a system scale fail”.

The government considers that it is important to ensure existing legal frameworks can be effectively applied to manage the risks posed by the possible failure of systemic DSA [digital settle asset] firms for the purposes of financial stability.

HM Treasury consultation paper

The document prepared was delivered in response to a consultation process in relation to the entire crypto sector which began earlier this year and concluded last month.

Government Offices Great George Street.jpg
HM Treasury offices. Source: Wikipedia

The British government is reportedly keen to amend prevailing financial legislation in order to bring crypto under the jurisdiction of the BoE, including instances where specific stablecoin issuers reach financially precarious positions.

Interestingly, the paper suggests that the revised rules would apply in in the case of stablecoins and “might include – but [are] not limited to – the issuer of a stablecoin, a wallet, or a third-party service provider”.

The government clarified that the central bank would intervene in the event of a “systemic collapse”, defined as “deficiencies in a system’s design or disruption to its operation [that] may threaten the stability of the UK financial system or have significant consequences for businesses or other interests”.

Broad Powers to the BoE May Flow On

At this early stage, the nature and extent of the central bank’s powers are largely unclear. However, on a closer inspection of the language used throughout the consultation paper, it’s evident that HM Treasury is looking to offer the BoE the broadest possible powers given the proliferation of references to “direction” and “oversight”.

While the UK has thus far proved to be crypto-friendly, one of the main concerns flowing from the USDT/LUNA fiasco was fears of increased regulation. It now appears that such fears were warranted given this latest move by the British government. One should probably expect the other G7 nations to imminently follow suit.

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China Crypto News GMT Token Markets Regulation

STEPN’s Move-to-Earn GMT Token Tanks 40% After China Ban

The Solana-based move-to-earn game STEPN saw its governance token GMT plunge almost 40 percent in 24 hours, according to CoinGecko, following news that mainland Chinese users will effectively be barred from using the service from July 15, 2022. 

STEPN was forced to begin blocking mainland Chinese users in order to comply with Chinese crypto regulations, which regard foreign cryptocurrency exchanges that provide services to mainland Chinese citizens as being engaged in illegal financial activities.

Chinese Users Can Move, But Not Earn

STEPN’s decision to act now was likely triggered by the Chinese central bank’s recent warnings about crypto exchanges operating in China, which may lead to legal problems for members of their teams based there. 

During a Twitter Spaces discussion on May 27, a STEPN representative said that its technical team is based in China and that it is “targeted” by the regulations, despite the business itself not operating in China.

While users in mainland China will still technically be able to access STEPN, the GPS functionality will be deactivated, meaning those users will still be able to move, they just won’t be able to earn – essentially rendering the service useless.

In a recent tweet, STEPN affirmed its commitment to adhering to local regulations, saying the company “has always attached great importance to compliance obligations and strictly abides by the relevant requirements of local regulatory agencies”.

Australian-Based Startup Leads Move-To-Earn Boom

STEPN was founded in December 2021 by Jerry Huang and Yawn Rong and is based in Australia. The game allows users to earn crypto by exercising, which can then be traded for other cryptocurrencies or converted to fiat.

STEPN has led the recent move-to-earn craze in crypto, with more than 580,000 registered users, about 39,000 active daily users and enormous growth in the value of its various tokens in the early part of 2022.

As is often the case in crypto, STEPN has increasingly become a target for scams as it has gained popularity – in April, blockchain security watchdog PeckShield warned about the growth in phishing scams targeting STEPN users.

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Bitcoin Crypto News Regulation Stablecoins

Crypto Updates from the World Economic Forum Conference

Despite previous displays of disdain for the sector, cryptocurrencies have featured prominently in this year’s edition of the World Economic Forum’s (WEF) annual meeting in Davos, Switzerland.

Crypto, Blockchain and a Meeting of the Global Elite

It’s that magical time of year when the world’s political and corporate elite congregate at the WEF’s annual meeting to “shape the future”, according its founder, Klaus Schwab.

Since the last conference in 2020 (the 2021 meeting was deferred due to Covid), crypto has gone mainstream and become an institutional asset class. Unlike years gone by, Davos 2022 has been a veritable crypto-fest with advocates making sure their voice is heard.

Five years ago, we were the only crypto company on Promenade; look at it now.

Sandra Ro, CEO, Global Blockchain Business Council

As attendees alighted from their private planes, they could hardly miss the cacophony of crypto messaging:

CoinDesk - Unknown
Polkadot signage featured prominently nearby. Source: Yahoo

Remarkably, even NFTs featured at the conference:

Hot Button Topics

Given the recent LUNA/UST meltdown, several sessions were held in relation to the safety and regulation of stablecoins.

Representatives from both Circle (USDC) and Ripple (XRP) were present at a panel discussing remittances and digital money entitled “Remittance for Recovery: A New Era of Digital Money”.

CoinDesk - Unknown
Sara Pantuliano, Asif Saleh, Ripple CEO Brad Garlinghouse and Circle CEO Jeremy Allaire discuss remittances. Source: Coindesk

According to Circle CEO Jeremy Allaire, the idea of cross-border remittances will in time disappear:

We don’t think about cross-border emails. We don’t think about having a cross-border web browsing session, it’s absurd to think about that. And I believe we’re on the cusp of that with money. And I think when it comes to remittances, I believe the concept of a remittance will also disappear.

Jeremy Allaire, CEO, Circle

On a WEF congress main stage, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), downplayed the idea of cryptocurrencies such as bitcoin as money, adding that “a prerequisite for something that would be money is to be a stable store of value”.

Presumably, Georgieva would view stores of value along a spectrum, given the US dollar’s decline since the establishment of the Federal Reserve:

Visualizing the Purchasing Power of the Dollar Over the Last Century
Devaluation of US dollar since 1913. Source: Howmuch

Call for Consumer Education in the Wake of Terra Meltdown

The international lender also commented on the recent Terra collapse, suggesting that regulators should do more in the way of education to make consumers aware of the risks.

Earlier this year, the IMF recommended a common framework for central bank digital currencies (CBDCs) and crypto. Central bankers in attendance at Davos concurred, saying that good design was “crucial” to the success of retail CBDCs.

Overall, it’s evident that the industry has made dramatic strides in the recent past. Even mainstream finance is coming to the realisation that crypto, in one form or another, is here to stay.