CryptoLaw Newsletter #49
Crypto regulation in EU with MEP Berger; US SEC boosts crypto enforcement unit; DAO sued as partnership; China’s crypto ban little effect on BTC trading; Yuga Labs‘ peculiar terms for metaverse NFTs.
Hello everyone,
TLDR:
We spoke to MEP Berger about crypto regulation in the EU.
The US SEC is boosting its crypto enforcement and cyber unit.
A US lawsuit claims a bZX protocol’s DAO is a partnership.
China’s bitcoin trading ban isn’t affecting trading much.
Yuga Labs‘ Otherside NFT sales raise eyebrows with terms & conditions (& more).
Top-5 this week:
We spoke to MEP Stephan Berger, the European Parliament’s rapporteur on the EU’s Market in Crypto Assets Regulation. Key takeaways: (1) What’s the chance that the controversial ‘bitcoin ban’ will resurface in the next stage of the negotiations on the MiCA Regulatoin? Dr. Berger said he has “no concerns”. (2) What about the far-reaching KYC proposals for non-custodial wallets in the Transfer of Funds Regulation? Dr. Berger heard the Council and Commission are “not on the same page” as the European Parliament but said he “does not know where this will end”. Most people using non-custodial wallets are developers and other crypto-active people. He fears “we’re hurting the completely wrong community” with this proposal. He made the analogy with having to show your passport to pay €20 cash in the supermarket. (3) Should MiCA cover DeFi and DAOs? This was „one of the most discussed questions in the first trilogue“ (negotiations between the European Parliament, Commission and Council), Dr. Berger said. Perhaps we need a new regulation, he said, or more experience, but he wants to keep MiCA technology-open. (4) Will the UK’s announcement of its crypto plans affect the EU’s MiCA negotiations? Not much, he thinks, since the EU is trying to do much more than the UK, although it shows it’s good the European Parliament dropped the controversial Proof-of-Work rules in MiCA. (5) Is there anything the crypto community should explain better? We need more awareness from the entire population about the use cases and impact of tokenization, which can change “a lot” and will affect everyone, not just the crypto community. “Tokenization will be as groundbreaking as the introduction of the stock market,” according to Dr. Berger. See the full interview here.
The US SEC will nearly double the size of its crypto enforcement and cyber unit, adding 20 additional positions. There’s some criticism, including from fellow Commissioner Hester Peirce, that the focus is on enforcement rather than guidance fort the industry:
Victims of a DeFi DAO hack are suing the DAO in court. bZx protocol was hacked in November after a developer’s wallet was comprised in a phishing attack. 14 of the affected victims filed a lawsuit in the Souther District of California. The claimants argue that the bZx protocol, which purports to be a DAO, is in fact a general partnership. Therefore, all partners in the DAO are jointly and severally liable to make the victims whole, the lawsuit argues. The plaintiffs are represented by Gerstein Harrow LLP, the law firm that also brought a case against PoolTogether last year.
How effective is China’s crypto trading ban? Not very, according to these researchers: “we provide strong evidence that the crackdown on Bitcoin trading has not been effective as Chinese investors continue to purchase Bitcoin using the stablecoin Tether instead of Chinese yuan.”
Did Yuga Labs blow it? There’s been a lot of buzz around Yuga Labs‘ sale of metaverse land on Otherside. ETH gas prices spiked.
I assume I am an average user. This drop cost me: - 2 eth in gas - 2.5 hours of time I could've spent with family - Immeasurable stress and frustration Coming from a team of Yuga's caliber, this is quite frankly unacceptable. It could have (quite easily) been handled better.Last time, we also mentioned the controversy around the special KYC’d Ethereum accounts sold on Twitter. This wasn’t a random small scale NFT sale or token drop. Yuga Labs, the creators of the Bored Ape Yacht Club NFT collection, are big fish in the pond.
@farokh There's a lot of regulatory scrutiny surrounding NFTs right now & it's mostly focussed on the need to "protect" the consumer. This mint was massive undertaking. These regulators are watching & the Space needs to always remember that as it continues to grow and on-board new peopleNot everyone was a fan of the fact that Hong Kong law applies to the sale of metaverse land.
Or with other terms of the sale…
And also…
“The key drivers of the recent emergence of digital assets are as much social and economic as technological,” according to a SWIFT Institute paper. That’s an important message that often gets lost.
The European Commission drew praise from the crypto community for its willingness to rethink the regulatory framework on DeFi.
The Securities Commission of the Bahamas published a consultation to update its crypto DARE Act and bring it more in line with FATF guidance. The consultation is open to comment until 13 May.
India will give clarity about its crypto tax rules (1% deducted at source) in the next two months. Meanwhile, the IT Ministry wants crypto exchanges to store user data for 5 years.
Banks‘ exposure to the crypto industry isn’t high enough at this point to impose additional safeguards, according to the European Banking Authority. The EBA will start mapping crypto risks in the EU to identify risks.
The ECB’s Fabio Panetta did not pull his punches on crypto: “Crypto-assets are bringing about instability and insecurity – the exact opposite of what they promised. They are creating a new Wild West.” Crypto is showing “striking similarities” with the sub-prime mortgage market, he said.
EU Commissioner McGuinness called for a “global agreement on crypto”.
Binance registered as a Digital Asset Service Provider in France. “In our interactions with them, they are far more advanced in their understanding, and they’re also much more progressive in their attitudes,” CEO CZ commented.
South Korea’s president-elect will impose no crypto gains tax until parliament adopts a consumer protection law.
Georgetown’s Chris Brummer gave his thoughts on the EU Parliament’s proposed AML rules on self-custodied wallets and crypto.
NFT marketplace red flags? The J5 published a list of warning signs, including quick turnover of low-value NFTs: “For example, on Top Shots with the NBA you see a lot of low value (i.e. sub 10K) NFTs being bought in the same day with owners only holding their position for minutes. This could be a way to wash funds – so owning for very short period”.
An English High Court confirmed NFTs are property under the law of England and Wales. Two ‚Boss Beauties‘ NFTs were stolen from a MetaMask wallet and offered on OpenSea, Chris Gupta explains here.
Remember the $1billion stuck with a crypto payment processor that got Bitfinex and Tether in trouble? That payment processor stands accused of working with Colombian cartels. Its founder, Reggie Fowler, was arrested is now cooperating with US federal authorities. A juicy story.
Dubai’s virtual asset regulator plans to open a metaverse office in the Sandbox.
Thanks for reading!