Hello CryptoLawyers,
What a turbulent week it was in crypto. Cut out the noise with our summary of law-related developments:
Digital assets
US: Bloomberg reported that Binance, the largest crypto exchange by volume, faced a probe by the US DoJ and IRS. It added that Binance was not accused of wrongdoing itself, which suggests the US authorities may merely be going after unlawful behaviour by Binance users, rather than unlawful behaviour by the exchange. The news came after German financial regulator BaFin warned Binance that its offer of share tokens may violate EU prospectus rules. The UK FCA is also having a closer look at Binance’s stock tokens.
Forbes on why tokenized stocks are a big deal… outside of the US, ft. Sam Bankman-Fried.
US: IRS is coming for crypto tax-dodgers (WSJ). US federal judges approved IRS summons to both Circle and crypto-exchange Kraken.
US: SEC warns of risks in BTC futures and CFTCs’ Dawn Stump adds that ‘Bitcoin futures must be traded on regulated exchanges & per CFTC regs can’t be listed if readily susceptible to manipulation’.
Did someone have inside information on Elon Musk tweet that sent bitcoin markets nosediving? Will Clemente, in The Pomp, on the ‘Elon dump’: ‘Firstly, there were 19,259 BTC moved onto exchanges before Elon’s tweet and ensuing price dump. I do not think this is coincidence and was likely someone with insider information.’ BTC may not be a security, but still interesting to think about this.
Iran: miners using household energy face fines (Cointelegraph)
Blockchain analytics firm Elliptic says it identified the Bitcoin wallet used by the DarkSide ransomware group to receive ransom payments, including the 75 BTC payment made by Colonial Pipeline after DarkSide launched a cyberattack against the US company that disrupted fuel supplies in the US.
US: Coinbase CEO Armstrong goes to Washington and echoes SEC Commissioner Pierce’s call for crypto safe harbor (Decrypt)
DeFi
DeFi beyond the hype: produced by Wharton and the Digital Asset Project, together with the World Economic Forum, this report explains ‘the basic attributes of DeFi services, the structure of the DeFi ecosystem, and emerging developments’ of the $80 billion market. A DeFi policy-maker Toolkit will follow next month.
FATF on DeFi: a brief recap of FATF’s proposed changes on Virtual Asset Service Providers and what it means for DeFi (Cointelegraph)
Stablecoins
US: Tether released its long-awaited breakdown of its reserves, as required by a settlement with the New York Attorney General. Over 75% of its reserves are in cash or cash equivalents, 49% of its reserves consist of commercial paper (Coindesk). This breakdown did not instil confidence amongst all about the credit risk of this stablecoin with a $58 trillion market cap.
US/Switzerland - Libra/Diem: The Diem association abandons its application for a Swiss FINMA payment license and moves its activities to the US (CNBC). The Diem coin will be issued by Silvergate (TheStreet).
CDBC
UK: Bank of England’s Jon Cunliffe suggests UK CDBC is ‘probable’ (‘… it looks probable in the UK that ifwe want to retain public money capable of general use and available to citizens, the state will need to issue public digital money that can meet the needs of modern day life.’ BoE will publish another discussion paper on CDBC ‘shortly’.
Norway: Norway’s Central Bank Deputy Governor said that, ‘[i]f money such as Bitcoin or Diem become dominant in Norway, we will move closer to a new financial system.’ She added: ‘A basic premise of our work is that a CBDC must not significantly weaken other operators' possibility to provide credit. The purpose must be payment, not store of value. This would limit the amount of a CBDC needed.’
DLT
The DLT Sandbox under the EU Pilot Regulation: This academic article takes a detailed look at the proposed EU sandbox to use DLT for trading, clearing and settlement of shares and bonds. Authors Dirk Zetsche and Jannik Woxholth see some shortcomings to the current Pilot Regulation. For example, ‘the pilot regime is available to authorized entitites only (i.e., incumbent firms), thereby deviating from most regulatory sandboxes worldwide which tend to allow (or even prefer) non-authorized entities’, ‘despite PilotR’s expressed objective to benefit innovative start-ups.’ In addition, PilotR operates with longer timelines than most Sandboxes (exemptions are valid for up to 6 years, compared to the typical 6-24 months). ‘However, this long duration comes at the price of a relatively narrow set of exemptions under the weight of heavy regulatory requirements.’ The article looks, among other things, at settlement finality, the appropriateness of designating a single operator in a decentralized DLT network and the link between custody and (legal) ownership.
Opinion
‘… this patchwork [of crypto rules] isn’t enough to give mainstream investors confidence in the market, as some of the most basic principles about cryptocurrency governance are still up for debate. For example, are cryptocurrencies considered assets or securities?’, asks Camilla Churcher (Cointelegraph)