Update: June 6th - 19th, 2022
Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) released their long-awaited comprehensive crypto bill...
Guess who’s back?
As promised, I figured out a posting schedule that allows me to fit Crypto Monkey Blog into my daily schedule and routine. I will now send out this newsletter every other week on Monday mornings at 7am ET. They will recap the regulatory (and sometimes legal) news of the past two weeks, focusing mainly on the developments in the US with some insight into the global perspective.
I hope you enjoy and see you soon.
-Katja
June 6th - 19th, 2022
Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) released their long-awaited comprehensive crypto bill.
This 69-page proposal covers a range of topics from providing definitions to assigning regulatory authority to creating requirements for stablecoins. [If you’re interested, see this summary for a detailed overview of the bill.]
Although many in the industry have waited months for this release, some consider it to be more of a “media event” rather than a serious step in creating a crypto regulatory framework. The Block noted several key issues that will face this bill in becoming law any time soon:
Because of the breadth of this bill, no single party approves of the entire proposal.
Such expansive and issue-specific bills would only pass into law in response to a major event or if small sections of the bill are placed into other, larger pieces of legislation.
Congressional midterm elections are coming up, meaning lawmakers are pivoting away from law-making and to campaigning.
The US Department of Justice (DOJ) issued a report calling for more international cooperation and coordination on crypto law enforcement.
The DOJ produced this report in response to President Biden’s executive order earlier this year. As Attorney General Merrick Garland wrote in the introduction,
“Strong international law enforcement cooperation will be essential to best position the United States and its partners to detect, investigate, prosecute, and otherwise disrupt criminal activity related to digital assets, and to overcome the unique obstacles posed by the features of these technologies to law enforcement efforts to combat their misuse.”
The report concludes with three recommendations for increasing international cooperation and enforcement efforts:
Building the capacity for international partners to conduct highly specialized investigations
Sharing information early across various domestic and international agencies
Implementing more uniform digital asset regulation across jurisdictions
The New York Department of Financial Services (DFS) became the first financial regulator in the US to issue guidance outlining compliance requirements for issuers of dollar-backed stablecoins.
This guidance builds on the (informal) requirements, standards, and controls of 2018, when the DFS approved the first issuance of stablecoins by its regulated virtual currency companies.
Primarily, the guidance concerns three areas surrounding stablecoins:
Backing and redeemability - The issuer must fully back the stablecoins and allow holders to redeem their stablecoins at any point, receiving their funds within two days of placing a redemption order.
Reserve - The issuer must only hold reserves of specific assets (like Treasury bills and government money market funds) and separate them from its proprietary assets.
Attestation - The issuer must be audited by an independent CPA, attesting to management’s assertions on a monthly and yearly basis.
The guidance also notes that these are not the only requirements DFS places and will consider a range of risks and other factors before approving the issuance of a stablecoin.
Custodia, a digital asset bank, is suing the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City over a delay in its application for a central bank master account.
Such an account gives an institution the most direct access to the money supply, so it would allow Custodia to reduce its costs and provide a bridge between digital assets and the traditional financial system.
The Fed has an obligation to act within a year of receiving such applications, which ordinarily only take five to seven days to process. Custodia filed over a year and a half ago, and now seeks legal action to push their approval. As Forbes reports,
“Should Custodia win its suit or otherwise be granted a master account, it would be the first bitcoin bank to gain one. As Central Banks around the world seek to merge the best innovation that bitcoin and other blockchain-powered currencies offer, with the best of central management, the lawsuit–and the Fed’s reaction to it–could help define the very future of banking.”
Terraform Labs, issuer of the failed stablecoin TerraUSD, has lost its appeal with the SEC.
The SEC cited that the court had found that Terraform's base in South Korea does not insulate the firm from US accountability, especially because of its “’purposeful and extensive U.S. contacts' such as promoting to US investors, employing US-based personnel, and contracting with US-based entities.” [Terraform Labs also faces legal trouble from South Korean authorities for tax evasion, market manipulation, among other issues.]
This decision established the jurisdiction of US regulators over the firm, opening up the door for future legal action from both legal authorities and private citizens against this company and others involved with Terraform’s activities. Already, Binance.US and Coinbase face class-action lawsuits for promoting TerraUSD and selling unregistered securities to investors. The suit against Binance.US marks the first, major, US-based court filing related to the Terra-LUNA crash in May.
More news …
The EU is coming close on a crypto regulation agreement concerning the Markets in Crypto-Assets (MiCA) package.
Although Russia has been considering institutionalizing crypto by using it as a tool for foreign trade, it still looks to ban crypto as a payment method.
The Lithuanian government approved legal amendments that would require stricter guidelines for user identification and prohibit anonymous accounts in the crypto sector.
The central bank of Uganda has pivoted in its view of crypto and now invites members of the Blockchain Association of Uganda (BAU) to participate in discussions around its crypto regulatory sandbox.
Panama’s President Laurentino Cortizo has partially vetoed the latest crypto bill, emphasizing the need for “fiscal transparency and prevention of money laundering.”