cryptocurrency

Traditional financial firms building crypto exchange and custody platforms

By the report from the Financial Times, traditional financial firms are building or funding new crypto exchange and custody platforms, hoping to capitalize on their expertise, reputations, and lack of regulatory scrutiny. They believe asset managers prefer dealing with established players over crypto-native exchanges, and are betting that fund managers are still interested in trading crypto.

This is due to the collapse of many cryptocurrency firms, and the disclosures of malpractices last year, which eroded the trust of crypto investors. To this end, firms such as BNY Mellon and Fidelity have already set up separate crypto custody divisions, and the Nasdaq is awaiting regulators to green-light its service. The traditional firms are also aiming to build more transparent platforms for crypto trading.

The new wave of legacy-backed crypto platforms will compete with Coinbase and Binance, which also host institutional clients. Traditional finance firms plans to compete by building more transparent operations, particularly in separating exchanges from asset custody to avoid conflict of interest and reduce risk.

Grayscale Investments received a comment from SEC on Filecoin

The digital assets investment fund Grayscale Investments published an opinion they received from the US Securities and Exchange Commission (SEC) on the Filecoin cryptocurrency which is behind the Grayscale Filecoin Trust. Earlier in April, the Trust applied to the SEC to register shares of the Trust, under the US Securities Exchange Act

The Securities and Exchange Commission reply stated that Filecoin will be considered a security, therefore the Trust can be registered only under the US Investment Company Act, and according to company report: ‘requested that Grayscale seek withdrawal of the registration statement promptly’

The company announced an appeal as they are not agreeing with the SEC definition of the Filecoin cryptocurrency as a security. They also announced that if SEC is persistent in the definition will ask for dissolution of the Trust.

This news comes in the continuation of recent decisions by the US regulators, in efforts to define the legislation scope around digital assets and cryptocurrency.

UK lawmakers considering cryptocurrencies to be regulated under the gambling rules

The UK lawmakers have called for cryptocurrencies to be regulated as gambling, citing concerns about the risks involved and the potential harm to individuals. The Parliament’s Treasury committee on crypto-assets argues that cryptocurrencies share characteristics with gambling due to their speculative nature and the potential for significant financial losses. As a result, they propose a redo of the regulatory framework to safeguard consumers in the evolving digital landscape.

The report emphasizes the need for comprehensive measures to address the risks associated with cryptocurrency investments. One of the key recommendations is to license and regulate cryptocurrency exchanges under the purview of the UK Gambling Commission, much like traditional gambling platforms. By imposing strict regulations on exchanges, lawmakers hope to enhance consumer protection and weed out fraudulent operators.

Additionally, the report suggests tightening advertising standards to curb misleading marketing practices that often target vulnerable individuals. It recommends banning endorsements of cryptocurrencies by celebrities and influencers, as these endorsements can create a false sense of security and credibility. To further safeguard the public, the report suggests launching a widespread awareness campaign to educate individuals about the potential risks involved in crypto investments.

The lawmakers also advocate for an international collaborative approach to regulation, calling on the UK government to work with global partners to develop unified standards. They propose bolstering the powers and resources of the Financial Conduct Authority (FCA) to effectively regulate the crypto market, ensuring a coordinated and robust oversight framework.

By proposing stricter regulations, licensing requirements, and improved consumer awareness, UK lawmakers aim to strike a balance between embracing innovation and protecting individuals from potential financial harm in the fast-paced world of digital assets.

EU agree on new tax transparency rules for cryptocurrency service providers

The EU Finance Ministers have reached an agreement on new tax transparency rules for all cryptocurrency service providers based in the EU. The tax transparency rules for cryptocurrency transactions (DAC8) require cryptocurrency service providers to report transactions of clients residing in the EU, and it is proposed earlier in 2022. The rules are consistent with the Markets in Crypto-assets (MiCA) and transfer in funds Regulation (TFR) and follow the OECD Crypto-Asset Reporting Framework.

DAC8 serves a different purpose than MiCA. MiCA regulates and authorizes cryptocurrency service providers established in the EU. However, some operators are not covered by it, and MiCA does not enable tax authorities to collect and exchange the necessary information for taxing cryptocurrency income. DAC8 applies to all cryptocurrency service providers and operators with users in the EU. It covers businesses that provide services to EU residents, regardless of their location, and requires reporting of information for both regulated and unregulated cryptocurrency service providers and operators. As mentioned in the statement: ‘DAC8 is also consistent with the recently approved OECD Crypto-Asset Reporting Framework (CARF), as well as the amendments to its Common Reporting Standard. These standards have also been endorsed by the G20. This initiative aims at introducing greater tax transparency on crypto-assets’.’

The need for this regulation arises because effective taxation is important for public investment, services and business innovation. However, tax authorities are unable to monitor cryptocurrency profits for taxation purposes, resulting in a loss of revenue.

The Directive aims to improve UE’s ability to detect and counter tax fraud through more reporting obligations and automatic exchange of information on advance cross-border rulings used by individuals. The updated Directive also includes financial institutions’ reporting obligations regarding e-money and the central bank digital currencies (CBDC)

The new reporting rules for cryptocurrencies, e-money, and central bank digital currencies will be enforced from 1 January 2026, after the consultative opinion of the European Parliament.

The US Department of Justice will focus on illicit activities on cryptocurrency exchanges

The US Department of Justice’s director of the National Cryptocurrency Enforcement Team (NCET) Eun Young Choi, has vowed to crackdown on illicit behavior on crypto exchanges. In an interview with the Financial Times, the director stated that they would be focusing on preventing criminal activity such as money laundering and terrorism financing on digital asset trading platforms. The department is particularly concerned about the anonymity offered by cryptocurrencies and how it can be exploited by criminals.

The director also emphasized the importance of collaboration between law enforcement agencies and crypto companies to combat illegal activity in the crypto space. He called for increased transparency and regulation in the industry (and cryptocurrency exchanges) to prevent abuse.

The crackdown on illicit behavior in the crypto industry is part of a broader effort by the US government to regulate the sector. The director’s comments come as the crypto market continues to experience heightened scrutiny from regulators, with concerns about investor protection, financial stability, and national security.

The Financial Times article suggests that the increased focus on regulation and enforcement in the crypto industry may lead to a shift in the perception of digital assets from being a tool for criminal activity to a legitimate asset class. Overall, the crackdown on illicit behavior on cryptocurrency exchanges is seen as a necessary step to ensure the long-term viability and growth of the industry.

Bittrex cryptocurrency exchange files for bankruptcy

Bittrex, one of the largest cryptocurrency exchanges in the United States, has filed for Chapter 11 bankruptcy protection in Delaware. The Securities and Exchange Commission (SEC) has charged Bittrex with running an unregistered exchange, broker, and clearing agency.

Court filings show that Bittrex has more than 100,000 creditors and assets and liabilities estimated to be worth between $500 million and $1 billion.

Bittrex has said it will leave the US, blaming the country’s regulatory environment. However, the company has said that its global operations, Bittrex Global, are unaffected by the filing and will continue to operate normally for its customers outside the US Despite this, Bittrex’s bankruptcy filing serves as a warning for crypto exchanges in the US that they must comply with all regulatory requirements or face serious consequences.

New York Attorney General proposes crypto regulation to eliminate conflict of interest and safeguard investors

New York Attorney General Letitia James has proposed a legislation titled the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act. If passed, the act would establish a comprehensive regulatory framework for the cryptocurrency industry in the state. The bill aims to avoid conflicts of interest, improve transparency, and implement reasonable measures to safeguard investors in compliance with regulations that apply to other financial services. The proposed legislation would also require digital asset brokers, marketplaces, investment advisers, and issuers to obtain a license from the Department of Financial Services and comply with reporting requirements.

The proposed crypto regulation notes that the cryptocurrency industry has conflicts of interest that can harm investors and reduce competition. To eliminate these conflicts, the proposed legislation would ban common ownership of crypto issuers, marketplaces, brokers, and investment advisers. The bill would also prohibit brokers and marketplaces from trading for their accounts and prevent marketplaces and investment advisers from holding customer funds.

Another problematic area highlighted by the bill is non-transparency. Some crypto companies misrepresent their financial condition because they are not required to disclose it publicly. To enhance transparency in the cryptocurrency industry, companies would be required to undergo independent auditing, publish audited financial statements, and provide investors with material information. Listing standards would also be established, and cryptocurrency promoters would be required to register and report their interest in any issuer whose crypto assets they promote.

The challenge of investor protection is also taken into account by the bill. Investors risk losing their investments with no recourse when cryptocurrency companies lack insurance and oversight for customer deposits. To strengthen investor protections, this bill intends to implement “know-your-customer” provisions, disallow the term “stablecoin” unless backed by U.S. currency or high-quality liquid assets, and oblige platforms to compensate customers who suffer from unauthorized asset transfers or fraud.

The bill has received support from various state officials and organizations who believe that the lack of transparency in the crypto regulation causes immense harm to investors, especially low-income New Yorkers and people of colour who carry a disproportionate share of the losses. A study by the JPMorgan Chase Institute confirms that cryptocurrency risks have had a greater impact on lower-income investors and people of colour. The findings show how lower-income households purchased crypto at higher prices before the 2022 collapse, resulting in a higher share of losses when the bubble burst.

The Office of the Attorney General will submit this bill to the State Senate and Assembly for consideration during the 2023 legislative session.

Ukraine to adopt Europe’s MiCA regulation around digital assets and cryptocurrency

Ukraine has announced its intention to adopt the crypto regulations approved by the European Parliament in order to become a regional leader in crypto adoption. The government is already moving in that direction, and the State Tax Service of Ukraine has issued a clarification regarding the taxation of income from cryptocurrency transactions.

Ukraine’s lawmakers first adopted a draft law “On Virtual Assets” in September 2021, which was then revised in accordance with President Volodymyr Zelenskyy’s recommendations and passed again in February 2022, before he signed it into law. The Lviv Office of the State Tax Service of Ukraine has taken the matter of taxation of crypto-related income for private individuals into its own hands, clarifying that income received from the sale of cryptocurrencies is included in the total annual taxable income.
Ukraine should incorporate the EU crypto regulations into its national law, as well as introduce crypto tax rules, in order to become a candidate for EU membership.

The MiCA package was approved by the European Parliament in April 2022 and is the first comprehensive attempt to regulate the crypto space. The package also introduces a licensing regime for crypto service providers and investor protection mechanisms. Ukraine’s national legislation is expected to be in line with the MiCA package by the end of 2022.

Coinbase receives digital asset business license on Bermuda

Coinbase, one of the world’s largest crypto exchanges, has recently received a Digital Asset Business License from the Bermuda Monetary Authority. This move is representative of Coinbase’s strategy to expand internationally, as U.S. regulators have been cracking down on the crypto industry. The US Securities and Exchange Commission (SEC) Chair Gary Gensler recently testified before the House Financial Services Committee and highlighted the tensions between the SEC and congressional Republicans over digital asset regulation.

Coinbase will be opening an offshore derivatives exchange in Bermuda, as reported by Fortune. They have also expanded in Abu Dhabi, Canada, Brazil and Singapore.

Coinbase CEO Brian Armstrong has proposed creating cryptocurrency regulation guidelines in order to address the noncompliance in the crypto market. He has expressed disappointment that the SEC had not provided any feedback during their 30 meetings over the past year. On the other hand, SEC Chair Gary Gensler has argued that crypto investors should receive the same protections as other investors, and that calling oneself a DeFi platform does not excuse noncompliance with securities laws.

Increased pressure from the regulators stat to be mentioned after The US SEC has taken legal action on Coinbase and Tron, and the Binance exchange taking fire from a different US government agency.

EU Vote On MiCA Regulation

The European Parliament is set to vote on a new regulation on markets in crypto-assets (MiCA). This landmark legislation is the most sophisticated set of crypto market rules yet, and comes at a time when the United States has yet to establish a concrete belief with a roadmap on crypto regulation. The MiCA regulation is aimed at placing harmonized rules for crypto assets at the EU level, and is designed to provide legal certainty for crypto assets not covered by existing EU legislation. It also has the added benefit of promoting innovation and use of crypto assets and combatting money laundering.

Parliament voted by 517 in favour and 38 against to approve the world’s first comprehensive set of regulations for issuing and trading cryptoassets such as bitcoin cryptocurrency. EU states have already given the nod to the rules, which will be rolled out from mid 2024, requiring firms that issue and trade cryptoassets to be licensed by a national regulator, giving them a ‘passport’ to serve customers across the 27-member country bloc.

The regulation will oblige crypto-asset providers to hold a license, issued by a competent authority of a member state. The license will be valid in all EU member states. To get licensed, a crypto-asset provider will have to comply with common regulatory and supervisory rules. Major service providers will have to disclose their energy consumption, and the international ‘travel rule’ already used in traditional financial transactions will be applied, meaning information on the source and recipient of the cryotoasset will have to accompany and be stored on both sides of the transfer to help combat money laundering.

Overall, the MiCA regulation is set to provide a safe and secure framework for crypto asset trading within the EU. It will promote innovation and use of crypto assets, whilst also providing legal certainty and combatting money laundering.