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 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 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, 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.
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.
The UK examines the potential full stack of crypto regulations within the next 12 months. The UK government is aiming to gain the status of the world’s crypto asset hub and has taken a different approach to crypto regulation compared to other countries. Primarily, the UK seeks to establish itself as a destination for crypto innovation and attract companies running businesses in the cryptocurrency sphere.
The UK is moving fast in order to create a clear regulatory framework for crypto activity. Several countries are competing to establish themselves as crypto-friendly destinations, while the United States has taken a stricter stance on cryptocurrencies. The UK now has the ability to control its own legislation and make important decisions on crypto regulation. The UK should move ‘in an agile and proportionate way’ about this, and the proposed new law will focus on key areas such as exchange, custody, and lending activities.
The period for government consultation on the regulations will conclude on April 30. Former UK finance minister and now Prime Minister, Rishi Sunak, expressed his desire last year to position Britain as a leading destination for crypto asset technology. The US SEC and CFTC have been pressing charges against US crypto companies and crypto exchanges.
Private US company Chainalysis is a leading company in collecting and analyzing data used on cryptocurrency blockchains. In its annual report on cryptocurrency-related crime, they point out that illicit cryptocurrency volumes reach all-time highs amid a surge in sanctions and hacking.
‘Overall, the share of all cryptocurrency activity associated with illicit activity has risen for the first time since 2019, from 0.12% in 2021 to 0.24% in 2022.’ The company assesses that an equivalent of $20.6B is used for illicit activities.
A big part of that sum comes from the offenses related to the economic sanctions on Russia. This shows that a strict regime of sanctions is efficiently imposed on cryptocurrency exchanges, by the US department of the treasury, and international financial institutions. The report describes methods that are used for money laundering and fund transfers. As a key takeaway, Chainalisys points out that the impact of crypto sanctions depends on the jurisdiction and technical constraints.
Ransomware crypto payments
The report shows a decline in ransomware from 2021. Chainalisys claims that ransomware victims increasingly refuse to pay the ransom money hence pushing the criminals out of this scheme. The report is stating that “meaningful disruptions against ransomware actor groups are driving lower than expected successful extortion attempts” In 2021, the US Office of Foreign Assets Control (OFAC) issued an advisory document about the risk of ‘sanction crimes’ that can rise from ransomware payments. OFAC advises all US companies to report ransomware to the FBI prior to any action. This is also considered to be one of the factors for the drop in ransomware payments. In addition, ransomware lifespan is significantly shorter. From 470 days in 2019, it is down to 70 days in 2022.
Money laundering
The report is stating a rise in money laundering activities from $14.2B in 2021 to $23.8B in 2022. The report is stating ‘underground money laundering services’ are a growing concern. Such groups use private channels on messaging apps to set and organise private transactions that are hard to track.
Cryptocurrency scams
Cryptocurrency scams and the use of cryptocurrency on darknet markets are on the decline compared to previous years.
