Crypto news and regulatory update: April 28, 2023 – May 16, 2023

Editor’s note: The a16z crypto Regulatory Update is a series that highlights the latest regulatory and policy happenings relevant to builders in web3 and crypto, as tracked and curated by the a16z crypto regulatory team. The roundups are based on recent news, the latest updates, new guidance, ongoing legislation, and frameworks released by regulatory agencies/bodies, industry consortia and professional associations, banks, governments, and other entities as they impact the crypto industry (or applications) around the world. We also occasionally include select other resources such as talks, posts, or other commentary – from us or from others – with the updates.

🧠 tl;dr

1. A former head of product at Coinbase was sentenced to two years in prison in the government’s first cryptocurrency insider trading case.
2. A former head of product at OpenSea was convicted of money laundering and wire fraud in the government’s first insider trading case relating to NFTs.
3. New York Attorney General Letitia James announced draft crypto regulation for New York state that would strengthen the attorney general’s enforcement authority over digital assets and institute reserve requirements for stablecoin issuers, among many other things.

a16z crypto also filed an amicus brief in one of two pending Tornado Cash lawsuits. The government’s brief is available here.

🌽 Commodity Futures Trading Commission

• A federal court entered an order of default judgment against a South African executive who the CFTC charged in connection with a fraudulent scheme involving bitcoin. The judge ordered the defendant to pay more than $3.4 billion in restitution and fines — the highest-ever civil monetary penalty in a CFTC case.

🦅 Congress

• House Representative and Chairman of the House Financial Services Committee (HFSC) Patrick McHenry (R-N.C.) said that the HFSC and House Agriculture Committee would put together legislation in the “next two months” to oversee the crypto sector.
• House Representatives Warren Davidson (R-Ohio) and Mike Flood (R-Neb.) wrote to the White House’s Council of Economic Advisers expressing concern over the digital asset section in the recent Economic Report of the President.
• The House of Representatives Financial Services Committee and House Agriculture Committee held a joint meeting to discuss a legislative approach to digital assets.
• Senators Jim Risch (R-Idaho) and Bob Menendez (D-N.J.) reintroduced the Accountability for Cryptocurrency in El Salvador (ACES) Act, which would require a State Department report on El Salvador’s adoption of bitcoin and its potential impacts on bilateral economic relations and law enforcement cooperation.

⚖️ Department of Justice

• A former head of product at Coinbase was sentenced to two years in prison in the government’s first cryptocurrency insider trading case.
• A former head of product at OpenSea was convicted of money laundering and wire fraud in the government’s first insider trading case relating to non-fungible tokens (NFTs).
• Eun Young Choi, the director of the Department of Justice’s (DOJ) National Cryptocurrency Enforcement Team (NCET), said that the DOJ is targeting crypto exchanges, as well as “mixers and tumblers” that allow “criminal actors to easily profit from their crimes and cash out.”
• An Ohio resident was sentenced to four years and three months in prison for stealing 712 bitcoins that belonged to his brother.

💵 Department of the Treasury

• Poloniex LLC, a crypto exchange, agreed to pay $7.59 million to settle sanctions violations allegations with the Office of Foreign Assets Control.
• The Internal Revenue Service filed claims worth nearly $44 billion against the estate of bankrupt crypto exchange FTX and its affiliated entities.
• The Internal Revenue Service’s criminal-investigation division said that it would provide advanced, in-person training to Ukrainian investigators relating to cryptocurrency investigations.

🏦 Federal Deposit Insurance Corporation

• The FDIC issued a report on its supervision of Signature Bank, which in part discusses Signature Bank’s digital asset strategy and suggests that the bank’s exposure to crypto led to “greater susceptibility to liquidity, reputation, and regulatory risk.”

💰 Federal Reserve

• The Federal Reserve published its Financial Stability Report, which briefly discusses stablecoins and suggests that stablecoins are still vulnerable to runs following the collapse of Silicon Valley Bank.

🌴 Florida

• Governor Ron DeSantis signed a bill banning the use of a “centralized digital dollar” in the state.

⛰️ Montana

• The governor of Montana signed into law a bill that will largely prevent local governments in the state from passing laws prohibiting cryptocurrency mining.

🗽 New York

• New York Attorney General Letitia James announced draft crypto regulation for New York state that would strengthen the attorney general’s enforcement authority over digital assets and institute reserve requirements for stablecoin issuers, among many other things.
• The New York State Department of Financial Services fined crypto exchange bitFlyer USA $1.2 million for failing to meet the state’s cybersecurity requirements.

🐏 North Carolina

• North Carolina’s House of Representatives passed a bill that will prohibit the state’s agencies and institutions from accepting payments in central bank digital currencies (CBDCs) issued by the U.S. Federal Reserve System or a federal agency.

📈 Securities and Exchange Commission

• The SEC announced a settlement with Coinme, a Bitcoin kiosk company, for nearly $4 million relating to allegations that Coinme allegedly conducted unregistered offers and sales of securities.
• The SEC charged unknown owners and operators of dozens of allegedly fraudulent websites in connection with a scheme to falsely impersonate legitimate companies and falsely promise exorbitant returns.
• Commissioner Hester Peirce said that the recently passed European Markets in Crypto Assets (MiCA) regulation could “serve as a model” for the U.S., and that the U.S. is “shooting [itself] in the foot by not having a good regulatory regime.”

👢 Texas

• The Texas State Securities Board and other state securities regulators entered an emergency cease and desist order to stop an alleged investment scheme relating to the fraudulent promotion of a cryptocurrency known as “TruthGPT Coin.”

🏦 White House

• The White House’s Council of Economic Advisers issued a proposal for taxing crypto miners equal to 30% of the cost of electricity used in mining operations.

🌎 International

🇦🇷 Argentina

• The Central Bank of the Argentine Republic banned payment service providers that offer payment accounts from carrying out or facilitating operations with digital assets.

🇧🇪 Belgium

• Belgium’s Financial Services and Markets Authority announced that Bit4You, the oldest crypto exchange in Belgium, had been facing the loss of its registration or prosecution before it announced it was suspending activities this past April.

🇧🇹 Bhutan

• Bitcoin mining company Bitdeer announced a partnership with the government of Bhutan to develop environmentally sustainable, carbon-free digital asset mining operations in the country.

🇪🇪 Estonia

• Estonia’s Financial Intelligence Unit announced that the number of registered crypto firms in the country had declined by about 80% following the strengthened requirements of its Money Laundering and Terrorist Financing Prevention Act that passed in March 2022.

🇪🇺 European Union

• A Europol operation resulted in the shutdown of illegal dark web marketplace “Monopoly Market,” the arrest of 288 suspects involved in buying or selling drugs on the dark web, and a seizure of more than $53.4 million in cash and virtual currencies, 850 kg of drugs, and 117 firearms.
• The European Central Bank issued a statement asking central banks that use the euro to “look into how wholesale financial transactions recorded on [distributed ledger technology] platforms could be settled in central bank money.”

🇭🇰 Hong Kong

• The Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA) reminded banks that there “is no legal and regulatory requirement” that prohibits banks in Hong Kong from providing banking services to crypto entities. The HKMA also released a parallel circular to clarify best practices for offering banking services.

🇭🇺 Hungary

• The Chief Digital Officer of the Hungarian Central Bank said that she does not “see any imminent need for large scale retail CBDC to be introduced” but that the central bank is still exploring CBDCs through pilot projects.

🇱🇮 Liechtenstein

• Prime Minister Daniel Risch told German newspaper Handelsblatt that Liechtenstein’s government is planning to accept bitcoin as payment for state services.

🇳🇬 Nigeria

• Nigeria’s Federal Executive Council approved a national blockchain policy to help integrate blockchains in the country’s broader economy.

🇦🇪 United Arab Emirates

• Dubai’s Virtual Assets Regulatory Authority reprimanded OPNX, a bankruptcy claims exchange set up by the founders of collapsed hedge fund Three Arrows Capital (3AC), for continuing to operate in an unregulated manner.

🇬🇧 United Kingdom

• The U.K. announced that it would ban cold calls to sell financial products, including crypto.

🇿🇼 Zimbabwe

• The Reserve Bank of Zimbabwe invited individuals, financial institutions, corporations, and other entities in the country to subscribe to its upcoming gold-backed digital token.

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