Crypto news & regulatory update: March 17, 2023 – April 7, 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. The CFTC charged Binance, its cofounder and CEO Changpeng Zhao (“CZ”), and others with operating an illegal digital assets exchange, failing to require that its customers provide identity-verifying information before trading on the platform, and other violations.
2. The DOJ charged Kwon Do-Hyung (“Do Kwon”) with various fraud charges and other violations in connection with his involvement in Terraform Labs and the TerraUSD and Luna currencies.
3. The DOJ added a new charge against Sam Bankman-Fried (“SBF”) under the Foreign Corrupt Practices Act, alleging that he paid Chinese government officials $40 million in bribes to unfreeze accounts for Alameda, a trading firm he founded.

🌽 Commodity Futures Trading Commission

• As mentioned above, the CFTC charged CZ, Binance, and others with operating an illegal digital assets exchange, failing to require that its customers provide identity-verifying information before trading on the platform, and other violations. The CFTC accused Binance of instructing its customers on the best methods for evading Binance’s compliance controls and wilfully evading the requirements of U.S. law by structuring entities and transactions internationally.
• Chair Rostin Behnam called Binance’s actions a “clear evasion” of law, and Commissioner Kristin N. Johnson issued a statement in support of the complaint.

• Commissioner Summer K. Mersinger said that the SEC and the CFTC would not develop a regulatory framework for digital assets without a “legislative mandate” that would force them to “sit down” and work together. She also called regulation by enforcement “fundamentally unfair” and cautioned against regulations that are “protectionist and cause market fragmentation.”

• Chair Rostin Behnam testified in the House of Representatives that the CFTC had “risen to the challenges” of the digital asset market, and despite legal limitations on the CFTC’s jurisdiction, the agency had brought 70 enforcement actions involving digital asset commodities.

• Commissioner Caroline D. Pham published a statement in support of the National Futures Association (NFA) – a self-regulatory organization for the U.S. futures and derivatives markets – for issuing a compliance rule that sets forth requirements for members and associates engaged in activities involving digital asset commodities. She noted that the new compliance rule defines “digital asset commodities” as bitcoin and ether, but that the NFA could modify the rule in the future to include other assets.

🦅 Congress

• Senators Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.) wrote to the Public Company Accounting Oversight Board (PCAOB) for the second time, reiterating that PCAOB has not done enough to address the risks of “shady” crypto audits and calling on them to take action to maintain confidence in PCAOB-registered audit firms.

• Senator Ted Cruz (R-Texas) introduced a bill that would prohibit the Federal Reserve from developing a direct-to-consumer central bank digital currency (CBDC).

• House Representative French Hill (R-Ark.) called on Congress to get its “act together” on digital assets before businesses leave the U.S. He said that the first step is to pass stablecoin legislation, and he called on the Treasury and the Federal Reserve to be “constructive partners” in regard to work on stablecoins.

• House Representative Tom Emmer (R-Minn.) introduced legislation to affirm that blockchain developers and service providers that do not custody consumer funds are not money transmitters. He also appeared on Bankless to discuss Operation Choke Point 2.0, the role of crypto in U.S. politics, and other subjects, and he appeared on Unchained.

• House Representative Patrick McHenry (R-N.C.) said that he wants to advance crypto bills relating to market structure and stablecoins before the summer. McHenry also said that he had been working with the House Agriculture Committee Chair Glenn Thompson (R-Pa.) to agree on terms for how to approach digital assets.

⚖️ Department of Justice

• As covered up top, the DOJ charged Do Kwon with conspiracy to defraud, market manipulation, commodities fraud, securities fraud, and wire fraud in connection with his involvement in Terraform Labs and the TerraUSD and Luna currencies.

• As also addressed up top, the DOJ added a new charge against SBF under the Foreign Corrupt Practices Act, alleging that he paid Chinese government officials $40 million in bribes to unfreeze trading accounts for Alameda. SBF pleaded not guilty to the new charge.

• The CEO of Titanium Blockchain Infrastructure Services Inc. (TBIS) was sentenced to more than four years in prison for his role in a crypto fraud scheme that involved TBIS’s ICO that raised approximately $21 million.

• The DOJ charged Irina Dilkinska, the alleged Head of Legal and Compliance for the OneCoin cryptocurrency pyramid scheme, with conspiracy to commit wire fraud and conspiracy to commit money laundering. She was extradited from Bulgaria.

• The DOJ announced that it had seized approximately $112 million of virtual currency linked to cryptocurrency investment scams.

💵 Department of the Treasury

• The Department of the Treasury and the Internal Revenue Service announced that they are soliciting feedback on guidance regarding the tax treatment of NFTs as collectibles.

• Treasury Department Undersecretary for Domestic Finance Nellie Liang told the House Financial Services Committee that she does not believe crypto “played a direct role” in either the Silicon Valley Bank (SVB) or Signature Bank failures.

• The Department of the Treasury published its first illicit finance risk assessment report focused specifically on decentralized finance (“DeFi”).

🏦 Federal Reserve

• The Federal Reserve published its order denying Custodia Bank membership to the Federal Reserve System. The order states that the Federal Reserve had “fundamental concerns” about Custodia Bank’s application, including its “novel and unprecedented features,” like its concentration on narrow banking and its provision of services to crypto entities.

☀️ Florida

• Florida Governor Ron DeSantis introduced a legislative proposal that would prohibit the use of a CBDC in Florida.

🗽 New York

• New York Department of Financial Services Superintendent Adrienne Harris said that the office’s decision to take over Signature Bank had nothing to do with crypto and that claims otherwise are “ludicrous.”

🔬 Office of Science and Technology Policy

• The Office of Science and Technology Policy published national objectives for digital assets research and development, which include (1) fundamental techniques and technologies for digital assets (e.g., digital ledger technology [DLT], identity, cryptographic primitives), (2) security, privacy, and resilience of digital assets, (3) CBDCs, and (4) equity and fairness in the development and use of digital assets.

📈 Securities and Exchange Commission

• The SEC charged Justin Sun and three of his wholly-owned companies for the alleged offer and sale of unregistered Tronix (TRX) and BitTorrent (BTT) tokens, and for fraudulently manipulating the market for TRX through wash trading. The SEC simultaneously charged Lindsay Lohan, Jake Paul, DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo), and Aliaune Thiam (Akon) with illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation.

• The SEC sent Coinbase a “Wells notice” regarding an unidentified portion of the digital assets that Coinbase lists, the Coinbase Earn staking service, Coinbase Prime, and Coinbase Wallet.

• The SEC’s Office of Investor Education and Advocacy issued an Investor Alert warning investors to be cautious when considering investments involving crypto asset securities. The Alert warns investors that crypto asset securities may be “exceptionally volatile and speculative” and that digital asset platforms may “lack important protections for investors.”

• The SEC charged the Beaxy platform and its executives for allegedly failing to register as a national securities exchange, broker, and clearing agency. The SEC also charged the Beaxy platform’s founder and a company he controlled with raising $8 million in an unregistered offering of the Beaxy token.

• A federal court entered a final judgment against siblings who raised tens of millions of dollars through two unregistered fraudulent offerings of securities involving a crypto asset called “Ormeus Coin.” 

• Commissioner Hester Peirce said that she had “grave concerns” about the number of things that the SEC is trying to do at the same time. She also appeared on Bankless to discuss the relationship between the SEC and the crypto industry.

• Chair Gary Gensler asked Congress for $200 million in additional funding for the upcoming fiscal year, saying that the SEC has been “stretched thin” going after bad actors in the cryptocurrency industry. He also told reporters that existing securities laws “cover most of the activity that’s happening in the crypto markets.”

🌄 South Dakota

• South Dakota’s House of Representatives failed to override Governor Kristi Noem’s recent veto of a bill that would have created regulations for crypto use in the state.

👢 Texas

• Texas House Representative Cody Harris introduced a bill that encourages Texas lawmakers to “express support for protecting individuals who code or develop on the Bitcoin network” and affirms that “no citizen of Texas shall ever be deprived of their right to own Bitcoin,” among other things.

🏛️ Council of Economic Advisers

• The Council of Economic Advisers – an Executive Office agency that is charged with providing the President with economic advice on domestic and international economic policy – described digital assets, in its annual economic report, as mostly speculative investment vehicles, potentially harmful, a risk to financial markets and investors, and having little economic benefit.

🌍 International

🇦🇺 Australia

• Australia’s Prudential Regulation Authority (APRA) has reportedly asked banks to report their exposure to startups and crypto-related business.

🏦 Basel Committee on Banking Supervision

• Pablo Hernández de Cos, the Chair of the Basel Committee on Banking Supervision, said that international standards intended to limit banks’ crypto holdings could be revised depending on the market’s reaction to the rules.

🇧🇪 Belgium

• Belgium’s Financial Services and Markets Authority (FSMA) announced that crypto entities must submit any mass-media campaigns to promote cryptocurrencies to FSMA at least 10 days in advance to give the regulator time to intervene, as needed, before the campaign begins.

🇨🇦 Canada

• The Canadian government announced that federally regulated pension funds in the country will need to disclose their crypto asset exposure to the Office of the Superintendent of Financial Institutions.

🇨🇳 China

• Xuan Changneng, a Deputy Governor of the People’s Bank of China, said that recent U.S. bank failures showed the need for increased regulation of the crypto markets.

🇩🇰 Denmark

• Denmark’s Supreme Court ruled that profits made from the sale of Bitcoin are taxable.

🇪🇺 European Union

• European Central Bank President Christine Lagarde said collecting and monetizing consumer data is “not in the interest and business of a central bank,” and that big tech companies that offer stablecoins should be considered a bigger privacy risk than central banks.

• The European Central Bank noted in its annual report that it is taking steps to harmonize the assessment of licensing requests involving crypto, among other crypto-related things.

• Members of European Parliament committees voted in favor of anti-money laundering regulation that could have significant implications for the crypto markets, such as transaction size limits for self-hosted wallets. The regulation will now move forward in the European Parliament, European Council, and European Commission.

• Elizabeth McCaul, a member of the Supervisory Board of the European Central Bank, called MiCA and the new Basel standards “important milestones,” but said that closing regulatory gaps will require further review.

🇫🇷 France

• France’s National Assembly’s Economics Committee voted in favor of a law that would stop well-known personalities from promoting unsafe products or scams, including those relating to crypto, from being promoted on the Internet. The Assembly and Senate will vote on the measure before it goes into effect.

🇩🇪 Germany

• Blocknox, a part of Boerse Stuttgart’s digital unit, received a license to act as a crypto custodian from Germany’s Federal Financial Supervisory Authority.

🇮🇳 India

• The Reserve Bank of India is advocating for legislation that will allow users of a potential Indian CBDC to delete transactions from the network’s ledger to maintain anonymity.

🇯🇵 Japan

• Japan’s Financial Services Agency issued a letter, warning that four foreign crypto exchanges (Bybit, BitForex, MEXC Global, and Bitget) are operating in the country without proper registration.

🇲🇪 Montenegro

• The Interior Minister of Montenegro announced the arrest of Do Kwon.

🇳🇱 Netherlands

• The Dutch Central Bank Executive Director of Supervision Steven Maijoor called a potential collapse of the crypto industry an “attractive option,” but also noted that crypto is here to stay and that regulators need to “set a path for supervising the sector.”

🇦🇪 United Arab Emirates

• The UAE’s Central Bank announced that it expects to complete the first phase of its CBDC strategy in the next 12 to 15 months.

🇬🇧 United Kingdom

• The UK Royal Mint is not proceeding with the launch of an NFT at this time but will keep this proposal under review.

• The Bank of England’s CBDC lead said that CBDCs could be a “bridging asset” between different forms of money.

• The UK Treasury and Home Office said that it planned to “robustly” regulate crypto to fight illicit use of digital assets, as part of the government’s ambition to make the UK an “attractive destination for cryptoassets and cryptoasset innovation in the world.”

🇺🇳 United Nations

• The United Nations Children’s Fund said that it is running a DAO prototype pilot.

🇻🇪 Venezuela

• Venezuelan President Nicolás Maduro announced the reorganization of the country’s National Superintendency of Crypto Assets. The Maduro administration claims that the move is intended to protect Venezuelan citizens from the negative effects of economic sanctions, among other reasons.

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