Crypto news & regulatory update: February 28, 2023 – March 17, 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.
🌽 Commodity Futures Trading Commission
- Chair Rostin Behnam told the Senate Agriculture Committee that the CFTC’s limited enforcement power is “no substitute for comprehensive regulation” in which market infrastructure participants “must register and submit to direct oversight by a regulator.” He also said that the CFTC has a “direct jurisdictional hook” over the ETH spot market, and that he believes stablecoins are commodities.
- Chair Rostin Behnam said that he would continue to engage and provide “technical assistance” to Congress in developing crypto-related legislation.
- Senator Edward Markey (D-Mass.) and House Representative Jared Huffman (D-Calif.) reintroduced the Crypto-Asset Environmental Transparency Act of 2023, which would require (1) crypto mining companies to disclose emissions for operations that consume more than five megawatts of power, and (2) the EPA to conduct a comprehensive investigation into the impacts of U.S. crypto mining. The Senate Committee on Environment and Public Works held a meeting to discuss the bill.
- Senator Cynthia Lummis (R-Wyo.) and House Representative Patrick McHenry (R-N.C.) wrote to the banking regulators asking them how their agencies would deal with an SEC accounting bulletin that advises financial institutions to maintain their customers’ crypto holdings on their own balance sheets.
- House Representative French Hill (R-Ark.) said that he would work with the House Agriculture Committee to develop crypto-related legislation.
- Senators Elizabeth Warren (D-Mass.), Chris Van Hollen (D-Md.), and Roger Marshall (R-Kans.) wrote to Changpeng Zhao, accusing Binance of being a “hotbed of illegal financial activity” and facilitating more than $10 million in payments to criminals and sanctions evaders. The letter also requests documents relating to Binance’s anti-money laundering controls and practices.
- House Representatives Patrick McHenry (R-N.C.) and Ritchie Torres (D-N.Y.) reintroduced bipartisan legislation to fix the digital asset tax reporting requirements set forth in the Infrastructure Investment and Jobs Act.
- Senators Bill Hagerty (R-Tenn.), Mike Crapo (R-Idaho), Thom Tillis (R-N.C.), and Steve Daines (R-Mont.) described the banking regulators’ actions toward crypto as “coordinated behavior” and “overreaching” in a letter to the agencies’ heads, particularly expressing concern that the regulators’ behavior would “bleed into other legal industries.”
- Senator Thom Tillis (R-N.C.) said that the cryptocurrency brand “took a real hit” following the FTX collapse, and that there is no alternative to a bipartisan approach for crypto legislation.
- House Representative Tom Emmer (R-Minn.) wrote to FDIC Chairman Martin Gruenberg expressing his concern that financial regulators have “weaponized their authorities…to purge digital asset entities and opportunities from the United States.” He also requested information regarding whether the FDIC instructed its banks not to provide crypto firms with banking services, among other things.
⚖️ Department of Justice
- Six co-defendants pleaded guilty to fraud and money laundering charges in connection with the AirbitClub Ponzi scheme that raised approximately $100 million from investors.
- The DOJ announced a coordinated international takedown of Chipmixer, a darknet crypto mixer, that allegedly enabled the laundering of more than $3 billion worth of cryptocurrencies.
💸 Department of the Treasury
- Nellie Liang, Treasury’s Undersecretary for Domestic Finance, described the main U.S. policy considerations with respect to central bank digital currencies (CBDCs), including (1) whether a CBDC would bolster U.S. dollar hegemony, (2) whether the U.S. needs a CBDC for national security reasons, and (3) the privacy and illicit finance implications of CBDCs.
🔐 Federal Deposit Insurance Corporation
- The FDIC denied allegations that it would require any potential purchaser of Signature Bank to divest its crypto activities.
🏦 Federal Reserve
- Chair Jerome Powell told the Senate Banking Committee that the banking regulators do not want to “stifle innovation” but that recent turmoil in the crypto industry suggests that regulated financial institutions should be “careful” when engaging in the space.
- Vice Chair Michael S. Barr lauded the “potential transformative effect” of crypto on the financial system, while also noting that recent incidents of market volatility, illicit finance, and other kinds of behavior have harmed investors. He also said that the Federal Reserve would form a “specialized team of experts” to help supervise the crypto industry.
- Governor Michelle W. Bowman said that crypto assets “remain an important focus” for banking regulators, and that uncertainties about how the banking system can engage with crypto will remain unsettled until there are clear statutory and regulatory parameters that govern the assets and the exchanges on which they are traded.
🗽 New York
- The New York Attorney General’s Office (NYAG) filed a lawsuit against KuCoin for allegedly failing to register as a securities and commodities broker-dealer and for falsely representing itself as an exchange. NYAG alleged that Ether is both a security and a commodity.
- A spokesperson from the New York Department of Financial Services told Fortune that the agency’s decision to close Signature Bank was based on the bank’s ability “to do business in a safe and sound manner” and “had nothing to do with crypto.” New York officials also said that they had lost faith in the management of Signature Bank.
💵 Office of the Comptroller of the Currency
- Acting Comptroller of the Currency Michael J. Hsu said that crypto companies need a “credible third party, like a consolidated home country supervisor” that can meaningfully oversee them and help market participants determine which crypto companies are trustworthy.
🇵🇷 Puerto Rico
- Puerto Rico published guidance that digital assets based on blockchain technologies and validation are eligible for 4% favorable tax treatment.
📈 Securities and Exchange Commission
- The SEC charged Green United, its founder, and one of its promoters with allegedly defrauding investors in connection with an unregistered offering of crypto investments, known as “Green Boxes” or “Green Nodes,” that raised approximately $18 million.
- The SEC filed an emergency action against BKCoin Management and one of its principals in connection with a crypto-asset fraud scheme, in which BKCoin raised approximately $100 million from at least 55 investors to invest in crypto assets, but instead used some of the money to make Ponzi-like payments and for personal use.
- The judge in the Voyager bankruptcy proceeding denied the SEC’s objection to Binance.US’s bid to acquire Voyager.
- The SEC rejected a third proposed attempt to list and trade shares of the VanEck Bitcoin Trust, a spot bitcoin ETF. Commissioners Hester M. Pierce and Mark T. Uyeda filed a dissenting opinion.
- Chair Gary Gensler published an article in the Hill reiterating his belief that the majority of crypto intermediaries should register with the SEC, and that the SEC has provided guidance regarding how to do so.
- The SEC charged an exiled Chinese businessman and his financial advisor with an $850 million fraud that involved, in part, the offering of an alleged crypto-asset security referred to as “H-Coin,” “Himalaya Coin,” or “HCN” and a related purported stablecoin for hundreds of millions of dollars.
- Chair Gary Gensler reiterated his opinion that proof-of-stake tokens could meet the definition of securities under the Howey test, and so-called “operators” of such tokens would have to register as intermediaries.
- Australia’s Central Bank announced that it is collaborating with certain industry participants, including Mastercard, in a limited-scale pilot project to demonstrate potential use cases for a CBDC.
💵 Bank for International Settlements
- The BIS published a report on the potential benefits to both banks and retail customers of using retail CBDC in cross-border payments, based on a project that it had conducted with the central banks of Israel, Norway, and Sweden.
- A report from the BIS’s Basel Committee on Banking Supervision showed that banks had lowered their total exposure to cryptocurrencies (as well as crypto derivatives) by approximately 43% over the past year.
- Egyptian authorities arrested 29 people in connection with a cryptocurrency platform known as “HoggPool” that defrauded thousands of investors of approximately $620,000.
🇪🇺 European Union
- E.U. antitrust chief Margrethe Vestager called for individuals to start asking “what healthy competition should look like in the Metaverse.”
- The French National Assembly passed new registration requirements for crypto firms, which include additional requirements for internal controls, cybersecurity, and conflicts of interest.
- The Autorité des Marchés Financiers registered AXA Investment Managers as a crypto services provider.
- Crypto custodian Finoa received three license approvals from the Federal Financial Supervisory Authority for crypto custody, crypto brokerage, and proprietary trading.
- Federal Financial Supervisory Authority officials suggested that regulators should classify NFTs on a case-by-case basis, drawing a distinction between digital works of art and fractionalized NFTs, as one example.
- India’s Ministry of Finance announced that it has added crypto to its anti-money laundering rules, which means that crypto exchanges, marketplaces, and custody service wallet providers must now monitor suspicious financial activities.
- The Reserve Bank of India and the Central Bank of the United Arab Emirates announced that they will conduct a joint CBDC pilot program.
💸 International Monetary Fund
- The IMF published a report on the “Macrofinancial Implications of Crypto Assets,” which warns that the proliferation of crypto assets “comes with substantial risks to the effectiveness of monetary policy, exchange rate management, and capital flow management measures, as well as to fiscal sustainability.”
- The Head of the Dutch Authority for Financial Markets Laura van Geest described crypto as “not good news,” and she said that regulators in the Netherlands see “no reason for leniency in enforcement.”
- Thailand’s cabinet agreed to waive corporate income tax and value-added tax for companies that issue digital tokens for investment.
- Commissioner Yurii Boiko of the National Commission on Securities and Stock Market said that the Russian invasion has not changed Ukraine’s approach to the regulation of the virtual asset market, and that it would continue working on crypto legislation.
🇬🇧 United Kingdom
- Bank of England Deputy Governor General Jon Cunliffe said that the BoE is waiting to see how trends in the economy and technology play out before deciding whether to issue a CBDC.
- The Financial Conduct Authority expanded its enforcement action against crypto ATMs to East London. There are no crypto ATMs registered with the Financial Conduct Authority, so existing crypto ATMs are not operating legally in the U.K.
- The Chancellor of the Exchequer announced that it will require taxpayers to separately identify crypto on their tax forms starting with the tax year ending in April 2025.
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