Bitcoin Regulations News

LedgerX Claims Ex-CFTC Chairman Stalled Approvals Due to Personal Bias

Cryptocurrency derivatives firm LedgerX alleges that former United States Commodity Futures Trading Commission (CFTC) chairman Christopher Giancarlo obstructed the approval of its amended Derivatives Clearing Organization (DCO) registration because of personal bias against the firm’s CEO Paul Chou.

As Industry news outlet Coindesk reported on Sept. 28, LedgerX made the allegations in two letters obtained via a Freedom of Information Act request. The first letter — dated July 3 — states:

“We have strong reason to believe that this unreasonable delay that is in clear violation of the Commodity Exchange Act is related to the Chairman’s animus towards a blog post written by our CEO.”

Preferential treatment

Per the report, while Giancarlo did not answer the outlet’s request for comment, Chou confirmed that the letters are real, accurate and are only some of the messages sent by the firm to the CFTC. LedgerX claims that in January Giancarlo called one of its board members, explaining:

“[Giancarlo] told him that he was going to make sure our DCO order was revoked within two weeks, due to a blog post written by myself the previous year implying that preferential treatment was being given to larger companies so he could ‘cement his legacy.’ This refers to the ICE / Bakkt approval, which was running into issues that were frustrating the chairman.”

While the topics in the letter are quoted, it is unclear which blog post exactly he refers to.

Auditors “never seen this kind of thing before”

Per the outlet’s report, LedgerX was asked by the CFTC to acquire insurance and conduct a SOC 1 Type 2 audit. Furthermore, the company claims that one of the CFTC staffers tried to interfere with LedgerX’s audit. The company also reportedly notes that some auditors were “saying they had never seen this kind of thing before.” Chou claims that he later received apologies:

“Previous chairman wanted to revoke LX license bc Bakkt efforts not moving along. Having no legitimate reason to revoke our license, staff resorted to contacting our independent auditors to tamper with audit to give commission reason to revoke license. Staff admitted & apologized.”

In the second letter, dated July 11, the firm also notes that its application has been pending for nearly 250 days — now it is over 300. Per the report, the CFTC has now has 180 days to approve or deny an application under federal laws.

Reliance on the direct competitor

The letters also note that the CFTC’s swap data repository requirements force LedgerX to report to the Intercontinental Exchange’s ICE Trade Vault, and the latter company has already launched its own competing service — Bakkt. In the July 3 letter, LedgerX claims to have an audio recording of a call with ICE, adding:

“Later, we have on voice recording, when ICE staffers thought they had muted their side, that they were instructed to delay support for our SDR reporting so that we could not start trading — something we consider incredibly anticompetitive. We filed a formal complaint regarding this anti-competitive aspect which was not answered at all. A division head later admitted, in person, to our COO that I was correct in stating that certain entities were being preferentially treated by the Chariman’s office.”

Lastly, Chou also told the outlet that he has been excluded from the CFTC’s Technology Advisory Committee. He said:

“They didn’t tell me why but I think it’s pretty obvious why they did it. […] One of the issues they were going to talk about… was custody and LedgerX is essentially the only member that does custody right now so we were about to send Juthica.”

As Cointelegraph reported at the end of July, the CFTC has reportedly confirmed that LedgerX’s physically-settled bitcoin futures product has not yet been approved by the Commission.

Source Cointelegraph

How Crypto Gambling Is Regulated Around the World

The Japanese House of Representatives recently passed new crypto asset regulation affecting exchanges and custodians — the Payment Services Act and the Financial Instruments and Exchange Act. However, the country’s crypto gambling industry still endures strict gambling regulations. 

“Japan has very strict rules regarding gambling and the same applies to crypto gambling,” Joseph D. Hugh, CFO of international cryptocurrency betting platform Jukebucks, told Cointelegraph, adding:  

“Although it is very difficult to restrict players who play, the government keeps a close tab on crypto transactions originating from Japan using taxation as an excuse.” 

Yet, Japan passed a federal law in July 2018 that allows physical casinos in the country: “Japan is opening up its offline casino license to major players after next year’s Olympics,” Hugh pointed out, “It is uncertain who will receive licenses for Tokyo, Osaka, Okinawa and Hokkaido. We believe online casinos will follow only after offline casinos start operation.”

Japan’s approval of “integrated resorts” has yet to be felt by the cryptocurrency industry. An integrated resort is a comprehensive entertainment complex with casinos, shopping malls, theaters, hotels and theme parks. While Prime Minister Shinzo Abe has introduced such pro-casino legislation as part of his overall growth strategy, Japan has not been so welcoming of crypto gambling.

Crypto gambling in Japan

Cryptocurrency gambling in Japan isn’t as prevalent as one would think given the country’s track record of implementing cryptocurrency regulations early, which is perhaps due to its experience with the collapse of Mt. Gox, a Japanese-based crypto exchange that went bankrupt in 2014.

Early in 2019, Blockchain network Tron, which claims to be building the infrastructure for a truly decentralized internet, blocked gambling apps on its decentralized app (dapp) store in Japan following pressure from Japanese regulators. 

Tron proactively blocking access to certain dapps led Tron’s Chief Technology Office (CTO) and co-founder Lucien Chen to leave the team. He cited the inconsistency between Tron’s dedication to being decentralized and its actions, which Chen said were more inherent to those of a centralized entity.

How does cryptocurrency gambling work? 

Blockchain-based gambling, for the most part, takes place in two ways: on-chain and off-chain.  

Off-chain cryptocurrency gambling involves physical and online casinos accepting cryptocurrency, mostly Bitcoin (BTC), as a deposit method into an internet casino account.

These establishments will often use a third-party custodian, such as BitPay, to convert Bitcoin or another cryptocurrency to a local fiat currency. There are online casinos that purely operate without fiat denominations, though, and pay out in Bitcoin. 

On-chain gambling occurs on a blockchain via smart contracts that comprise a decentralized application (Dapp), which has a backend code running on a blockchain network instead of traditional centralized servers. 

It is much easier for governments to go after off-chain casinos. Crypto gambling website casinos often ban IP addresses, preventing access from certain countries. When attempting to use on Bitcoin-accepting gaming sites from within the United States, the users will most likely be blocked. 

Message, appearing on

On-chain casinos and other more decentralized or distributed methods of online gambling are not entirely immune to the effects of government regulation either, as we’ve seen with Tron’s refusal to show gambling dapps to Japanese users, as reported by Cointelegraph. Japanese internet users, however, can use a VPN to access Tron’s gambling dapps or blocked dapps from anywhere. Cryptocurrency gambling indeed remains a topic of hot debate in Japan. Nevertheless, no official guidelines have been put into place yet. 

A global snapshot of crypto gambling regulation

While most countries have official regulations in place regarding online gambling, only a handful of nations regulate crypto gambling.They include the United Kingdom, Italy, The Netherlands, Greece, Poland and Belgium. 

In many countries, Bitcoin is not considered a legal payment method under existing guidelines, so therefore shouldn’t be used in gambling. More clarity on that matter is evidently needed in various countries. Japan is perhaps the most notable example, where the gambling industry exceeds that of Nevada by over $4 billion and is estimated to be $15.8 billion.

Top-10 countries by gambling losses

In the U.K., numerous online gambling platforms and service providers accept cryptocurrency. Cryptocurrency-oriented service providers must adhere to the existing gambling laws active in the United Kingdom. There, sports betting is an extremely popular activity, having grown into a 700-million-GBP industry. Several crypto-focused sports betting websites can also be found online. 

While the U.K. Gambling Commission allows Bitcoin gambling, it also issued a warning on its website against untrustworthy service providers. Users are advised to “be cautious when using Bitcoin due to the associated risks.”

Yet, the benefits provided to gamblers by cryptocurrencies cannot be overlooked. Bitcoin provides a degree of privacy, though not anonymity. No personal information is transmitted when conducting a Bitcoin transaction, but a person attempting to convert BTC to fiat must be identified in most countries through know your customer (KYC) and anti-money laundering procedures (AML). 

On the other hand, privacy coins such as Monero (XMR) and Zcash (ZEC) give their users a greater amount of identity protection and, although less widely-accepted than Bitcoin, are known to be an impediment to law enforcement’s investigative abilities. Joseph Hugh believes that tighter crypto regulations will help those using the digital currency for legal purposes: 

“It is the role of all governments to try to regulate any and all financial activities of its citizens and nobody can blame them except for people who are in the grey and fishy businesses. I strongly believe that dapps are here to stay as country boundaries cannot stop people from getting around to them eventually.”

Despite the numerous regulatory and technical challenges faced by successful adoption in casinos, the world’s gambling industry is becoming increasingly friendly to cryptocurrency. Online casinos and even well-known Las Vegas establishments are starting to accept Bitcoin and other cryptocurrencies, which is a trend that we will likely continue seeing in the future.

Source Cointelegraph

Government of Uzbekistan Triples Tax on Electricity for Crypto Miners

The government of the Republic of Uzbekistan has ordered a 300% increase on electricity tariffs for cryptocurrency miners.

According to a Sept. 27 announcement, the Cabinet of Ministers of the Republic of Uzbekistan has decreed that cryptocurrency miners must pay three times more the existing electricity tariffs. 

The provision follows an Aug. 22, 2019 decree from President Shavkat Mirziyoyev entitled “On Accelerated Measures to Improve Energy Efficiency of Economic Sectors and the Social Sphere, Implement Energy Saving Technologies and Develop Renewable Energy Sources” and to further motivate the rational use of electrical energy by consumers.

Uzbekistan’s approach to crypto and blockchain

Last September, Mirziyoyev ordered the establishment of a state blockchain development fund called the “Digital Trust.” The fund’s primary goal is to integrate blockchain into various government projects, including healthcare, education and cultural areas. The organization is set to be responsible for international investment in the Uzbek digital economy.

Earlier the same month, a decree legalizing crypto trading — also making it tax-free — and mining in the country came into force. According to the law, foreign nationals can only trade cryptocurrencies in Uzbekistan by creating a subsidiary in the country.

The law also specifies a minimum capital requirement of roughly $710,000 to establish a crypto exchange. Furthermore, crypto traders will not fall under Uzbek stock market regulations and will be relieved of their obligation to pay taxes on trading revenues.

Mining regulation in other countries

In June, the Iranian government announced that they would cut power to crypto mining operations until new energy prices were approved. Iran’s Ministry of Energy reportedly revealed that the country had seen a 7% spike of electricity consumption over a monthly period ending on June 21, 2020. The Ministry believes that the surge was caused by the growing number of crypto mining activities in the country.

China’s Bitcoin mining scene is a major player in the global hash rate, with China-based mining pools reportedly mining potentially 70% of all the coins created yearly. However, in April, the Chinese government said that it was considering the elimination of crypto mining in the country.

Source Cointelegraph

China’s Fintech Stocks Soar Over 50% in 2019 Amid CBDC Anticipation

China Securities Index Co. (CSI) Fintech Theme Index has risen over 50% in 2019, outperforming the broader market.

Some stocks skyrocketing 200%

According to a Reuters report on Sept. 26, stocks of China’s fintech firms have seen a notable surge this year amid investors’ anticipation of China’s launch of its own digital currency as well as the demand it would generate for security and payment services.

As such, the CSI fintech theme index — which is composed of A-Share stocks relating to fintech, including payment and settlement, capital raising, wealth management and retail banking — has gained more than 50% so far in 2019, the report notes. Another major stock, Beijing Certificate Authority, which is focused on electronic authentication services, seen a record high this month after soaring almost 200% in 2019, according to Reuters.

No CBDC in the near future, PBoC says

Meanwhile, the People’s Bank of China (PBoC) recently denied rumors that it would launch its own digital currency in the near term as the bank reportedly claimed that it has no timetable to launch as of Sept. 24. The plans were first reported in late August 2019, when a local media outlet wrote that the PBoC was almost ready to launch its government-backed digital currency in the wake of Facebook’s introduction of Libra white paper in June.

According to a report from China-based publication the Business Times, some financial analysts were expecting that the country would launch its much-anticipated cryptocurrency on Nov. 11, which coincides with the country’s Single’s Day, one of the busiest electronic shopping events of the year.

Source Cointelegraph

Stablecoins and Crypto Not Suitable Money Substitutes

Mario Draghi, president of the European Central Bank (ECB) shares his views on stablecoins, the future of crypto assets, and possible digital form of the Euro.

Monitoring developments in crypto

On Sept. 27, in a letter addressed to European parliament member Eva Kaili, ECB president Mario Draghi noted that the European System of Central Banks (ESCB) is closely monitoring developments in the cryptocurrency industry. Draghi added:

“The ESCB is analysing crypto-assets and stablecoins with a view to understanding their potential implications for monetary policy, the safety and efficiency of payments and market infrastructures, and the stability of the financial system.”

Despite displaying a positive approach towards new technologies, Draghi apparently thinks that stablecoins and cryptocurrency in general are of little value. He said:

“Thus far, stablecoins and crypto-assets have had limited implications in these areas and are not designed in ways that make them suitable substitutes for money.”

Draghi did add that due to the continuous technological innovation and rapid evolution in the cryptocurrency industry, the ECB’s assessment might be different in the future.

Digital Eurocoin looms?

Draghi also addressed the opportunities and challenges that come with releasing a digital form of the Euro coin. He pointed out that the technological part of a European stablecoin is not the issue, but “rather its utility in terms of costs and benefits to the public.” 

Draghi concluded his letter by pointing to Target Instant Payment Settlement service for the Eurozone, which was launched in November 2018, adding:

“It enables payment service providers to offer fund transfers to their customers in real time and around the clock, every day of the year.”

Cointelegraph reported on Sept. 24 that French Finance Minister Bruno Le Maire suggested that Europe should launch its own digital currency. Le Maire said that he would discuss the feasibility of a European public digital currency with his counterparts.

Source Cointelegraph

Libra Accelerating Central Banks’ Crypto Plans

The chief economist of Dutch multinational banking and financial services giant ING says that Facebook’s plan to launch a digital currency has put pressure on central banks to launch their own.

In an article and video interview published on ING’s THINK portal on Sept. 27, Mark Cliffe said that there was “some urgency in the policy community” sparked by Facebook’s unveiling of the Libra stablecoin, which it plans to launch in 2020, pending regulatory clearance.

Cliffe proposed that central banks could, therefore, move towards launching their own digital currencies within the next two to three years.

Central bank digital currencies pave the way for negative interest rates

One major implication of such a move by central banks, Cliffe argued, would be the prospect of doing away with hard, physical currency such as coins and notes.

This, he claimed, would potentially allow central banks to move even further into negative territory with interest rates, thus opening up a whole range of new policy options.

He conceded that such a development would likely be controversial, considering clients’ anger at the prospect of negative rates and the resulting impact on their savings. 

Even without a potential digital currency, European Central Bank president Mario Draghi had hinted at such a move earlier this year — a suggestion that was hotly challenged by ING CEO Ralph Hamers.

Cliffe, however, appeared sanguine about the potential both for central bank-issued digital currencies and adjustments to monetary policy, arguing that:

“This might open up a range of other options for central banks to help support economic activity in the next downturn.”

Libra and the currency stewards

As reported, the Cabinet of Germany and Germany’s central bank Deutsche Bundesbank are currently working together closely on issues related to central bank digital currencies (CBDCs).

In a major report released ahead of Facebook’s revelations, the Bank of International Settlements indicated this January that 70% of global central banks were engaged in CBDC work, but that only two had concrete plans at the time to proceed to issuance.

The People’s Bank of China may move to release its CBDC ahead of Facebook’s Libra, official sources have indicated, although uncertainty remains as to an eventual launch date. 

Some have claimed that the announcement of Libra has, moreover, sparked debate among Chinese regulators and motivated the project’s designers to involve more non-governmental institutions in the currency’s development and issuance process.

Source Cointelegraph

‘I Think We Need to Be a Little Less Paternalistic’

United States Securities and Exchange Commission (SEC) Commissioner Hester Peirce recently spoke on innovation in cryptocurrencies, calling regulators excessively paternalistic.

DACOM Summit

At the Digital Asset Compliance and Market Integrity (DACOM) Summit in New York today, Sept. 26, Commissioner Peirce led a Q&A session that featured extensive discussion of the future of regulation for crypto assets. 

Hosting the summit were law firm Hogan Lovells and Solidus Labs, a market surveillance tool provider. 

Crypto Mom

Peirce’s benign attitude towards digital assets has earned her the moniker Crypto Mom, towards which she expressed some fondness at the beginning of her appearance at today’s summit: 

“It’s been an honor to be adopted by a group of people who are really thinking in such exciting and interesting ways and trying to think about ways to change the world.” 

Regarding cryptocurrencies, she predicted today that: 

“As technology changes, we’ll see them becoming much more the money of the internet.” 

In other comments, the commissioner expressed some degree of frustration with the pace of the SEC’s regulation, saying “Frankly, sometimes the SEC needs a push from Congress.” She continued: 

“If you want a government that’s more forward-thinking on innovation, that means that if something goes wrong, you can’t go running back to the government and say ‘Hey, you didn’t protect me from myself!’ […]I think we need to be a little less paternalistic.” 

Hearing earlier this week

As Cointelegraph reported at the time, several commissioners from the SEC including Peirce testified before the House Financial Services Committee on Tuesday, Sept. 26. Peirce’s commentary at the time expressed similar suspicion towards regulatory overreach. 

As the commissioner phrased it at the time, she promoted a philosophy of “regulatory humility,” the need to “always be asking if what we’re doing is right.”

Source Cointelegraph

Only Reporting Part of Your Crypto Addresses? The IRS Needs to Know

Just a few months ago in July 2019, the United States Internal Revenue Service (IRS) sent approximately 10,000 letters to cryptocurrency holders regarding their crypto holdings. The letters detailed that recipients may not have reported their transactions properly, or failed to report income and pay taxes on their digital currency transactions. 

The IRS asked the recipients to check their reports and submit delinquent returns or file amended returns according to specific requirements. According to the letters, the reports must be “true, correct and complete” in order to be approved by the IRS. But how can the IRS know the submitted reports meet their criteria?

It is a well-known fact that the IRS used Chainalysis back in 2015 to possibly assist them in their Coinbase case, in which Coinbase was ordered by a United States federal magistrate to report 14,355 users to the IRS.

Related: The IRS Is Blindly Coming After Cryptocurrency Traders — Here’s Why

What many people don’t know, however, is that the IRS continuously contracts Chainalysis to support their intelligence work on cryptocurrency investors. The last contract was signed on July 2019, with a completion date of August 2020.

Additionally, the IRS has enlisted the help of Elliptic, another company involved in blockchain analysis that supports regulatory compliance under several contracts, the last of them signed on September 2018, with a completion date of September 2019.

These contracts are a signal that the IRS has the following abilities:

  1. Connecting one cryptocurrency address to another: The IRS can automatically find connected paths of crypto addresses and trace the flow of funding, source and destination of a specific transaction. This technology enables the IRS to find the link between crypto addresses that have been reported to them with others that may not have been reported.
  2. Identifying exchange activity: While crypto trading on exchanges is off-chain and cannot be found on the blockchain, every trader must use a crypto address on the blockchain in order to deposit or withdraw their cryptocurrencies. The blockchain analysis systems have collected big data of exchanges addresses, which enable the IRS to link reported addresses to exchange activity.
  3. Identifying estimated revenue and cash-outs and monitoring large volumes of activity.
  4. Investigating criminal activity: Blockchain analysis companies provide support to the IRS in criminal and forensic cryptocurrency investigations.

Related: IRS Expands Penalties: Which Tax Mistakes Are Better Not to Commit

Why is it difficult to complete a report as per IRS requirements?

Traders who have a lot of activity or trade on many exchanges and use many wallets sometimes have difficulties tracking all their past addresses.

Furthermore, crypto investors that use crypto as a means of payment make many transactions to third-parties, just like any other payment service. However, unlike credit cards, crypto payments do not specify who is the third-party, and those who did not keep records in real-time will struggle to reconstruct the data. With Bitcoin (BTC), this transaction will also contain a change address that needs to be associated with the payer to get an accurate and complete report. 

What can you do to make sure your report is complete?

  1. Collect all your data before you start your calculation. First of all, you need to understand that although tax filing is something that most people feel like they “just want to get it over and done with,” it is a process that should be done properly, so ensure you take the time to properly collect your data. Collect your addresses from all the wallets, all data from your crypto exchanges, and all of your activities during the required tax period.
  2. Make sure nothing is missing. After you have successfully collected all your data, check for incomplete or incorrect information. There are some crypto tax platforms, such as Bittax or Blox, that track all your crypto addresses and combine them with exchange information. In the event that information is missing, the system will alert the user and will continue to send alerts until the user has completed or corrected all required information in order to provide a complete report.
  3. Disclose your missing information. Over time, it is possible that one of your crypto exchanges shut down, an address was rendered inaccessible due to hacking, or you misplaced your seed password and are unable to restore the information. If you are unable to restore or gather the information required, disclose the reasons to the IRS with supporting documentation if you have any. It is important to consult with a professional before filling with the IRS. Make sure that your CPA or legal advisor understands crypto taxation.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Or Lokay Cohen is the vice president at Bittax, a crypto tax calculation platform. Or has 10 years’ experience with regulation and managing a leading tax consultant firm. She holds an LL.M. law degree, a B.A. in communications and an M.A. in management and public policy. In her work at Bittax, Or promotes the goal of bridging cryptocurrency to the taxation reality to enable tax reporting under a clear regulatory framework and specific identification methods.

Source Cointelegraph

We’ll Fight SEC ‘Until We Don’t Have a Dollar Left’

The CEO and founder of Canadian social media and messaging app Kik has vowed to fight U.S. regulators over the future of the native Kin (KIN) cryptocurrency “no matter how hard it is.”

According to a Sept. 25 report from Global News, Kik CEO Ted Livingston told an audience the Elevate Conference in Toronto on Wednesday:

“We have to keep going. Until that’s it, we don’t have a dollar left, a person left. We will keep going no matter how hard it is.”

Taking on the SEC

As reported, Kik has been mired in a costly legal battle with the United States Securities and Exchange Commission (SEC) over its initial coin offering’s designation, with the regulator suing the company for having conducted an allegedly unregistered $100 million token offering.

Livingston has pledged to fight to win the legal challenge, noting that if the Kin token will be categorized as a security, cumbersome regulations will mean it is no longer workable, imperilling the company’s revenue model. 

“We feel very confident that we are correct. We need to fight,” he said.

Kik hopes to go to trial as soon as May 2020, he revealed. Meanwhile, the SEC’s action has slowed adoption of Kin and restricted trading — even though roughly 60 apps do still use the token, according to Livingston.

The CEO said that he remains committed to Kin because he sees such tokens are the only way to tackle an ever-increasing concentration of wealth as well as the prevalence of monopolies:

“Cryptocurrencies are the only way, the only tool we have now that we can counteract that, where we can build a new economy with a new form of money where we can rewrite the rules for how wealth and value is created in a global society.”

Straitened times

Last week, Kik revealed that insufficient revenue amid these difficulties was forcing it to cut down its workforce from 151 to 19, including staff at its offices in Waterloo, Ontario and Tel Aviv.

The remaining staff will reportedly be focused on encouraging investors to buy the Kin cryptocurrency.

Source Cointelegraph

US House Financial Services Committee and SEC: Whose Move on Crypto?

Yesterday, Sept. 24, Cointelegraph reported from the United States House Financial Services hearing with the chairman and four commissioners of the Securities and Exchange Commission (SEC). The hearing was informational and touched on a number of issues that have been plaguing the conversation in the U.S. about regulating cryptocurrencies — a conversation that the release of Facebook’s white paper for Libra in June amplified significantly.

Congressional attitudes: A study in contrasts

The range of attitudes on display yesterday among members of the Financial Services Committee was broad. Brad Sherman — who coined the term “Zuck Buck” back in July — retained his hawkish stance, saying:

“The U.S. dollar is extremely good currency […] It fails, however, to meet the needs of tax evaders, sanctions evaders, drug dealers and terrorists.”

On the other end of the spectrum, Warren Davidson took his five minutes to question the representatives of the SEC as an opportunity to plug his Token Taxonomy Act and say: “I do hope that blockchain can play a role in the data security concerns that this country has,” to the delight of the crypto community.

Indeed, the only consistent position among House members seemed to be a shared sense that they really should figure this out quickly. Such disparity in vantage points is not the only reason that no clear course of action has emerged over a summer of congressional hearings to determine how to incorporate cryptocurrencies into the U.S. financial system.

Status of crypto: A study in contradictions

The bulk of the Financial Services Committee has no interest in any extreme preventative measures like trying to ban Libra, and certainly would struggle to do so with other cryptocurrencies that are not tied to a company like Facebook that is easy for the U.S. government to reprimand, as the Federal Trade Commission did to the tune of $5 billion for violating consumer privacy. 

In July, Ranking Member Patrick McHenry explained the plight facing regulators, saying: 

“The world that Satoshi Nakamoto, author of the Bitcoin whitepaper envisioned, and others are building, is an unstoppable force.”

Broadly speaking, most members of the House Financial Services Committee and their counterparts in the Senate Banking Committee have seemed guarded but curious about cryptocurrencies — though hostility toward Facebook, particularly, is a common theme.

Digital assets have proven new enough territory for regulators and legislators alike that nobody is eager to make the first move. As Rep. Bill Huizenga put it while speaking to Cointelegraph, he and his colleagues are “trying to figure out regulatorily ‘is it fish or fowl,’ and it turns out it’s kind of a platypus.” When asked whether Libra and cryptocurrencies at large should be interacting with the SEC more closely, Huizenga answered: 

“I would put myself in the same category as where a lot of the other regulators are, which is trying to figure out when and how they interact, because you don’t want to be stifling innovation, you don’t want to be stifling the creativity that is there, and at the same time you’ve got to protect investors.”

This double-bind also plagued the other side of the hearing, with the witnesses from the SEC reluctant to refer to specific cryptocurrencies or make unambiguous statements about what should happen next. When asked whether legislation or regulation was the next step, Commissioner Robert Jackson Jr., who testified before the committee, told Cointelegraph:

“Is this going to be more of a legislative move or an SEC move? […] At the moment I don’t know.”

Perhaps Jay Clayton, Chairman of the SEC, put it best in response to a line of questioning from Rep. Al Green as to how to define a security:

“I think statements like ‘if it doesn’t produce a return, it’s not a security’ — I think that’s a bit of an oversimplification. […] A lot of lawyers will spend a lot of time figuring out just where that line is.” 

The Chairman of the SEC is under obligation to be much more of a subject matter expert when it comes to securities law than can be expected from a given congressperson, yet Clayton deferred to future prosecution rather than legislation or declarations from his office. It is doubtful that this is because he lacks opinions on the matter, but he and his colleagues are playing them close to the chest.

Terra nova for securities law

The reality is that securities law is slow to change. The SEC’s authority still rests on two acts passed during the heady days of the Great Depression: the Securities Act of 1933 and the Securities Exchange Act of 1934. As Rep. Jim Himes pointed out at yesterday’s hearing, the SEC prosecutes even an offense as familiar as insider trading without specific legislation behind it, instead relying on anti-fraud and anti-manipulation authorities.

While the Token Taxonomy Act would indeed be useful in establishing baseline definitions for how legislators treat different cryptocurrencies, the bill — like its predecessor — has seen limited action since introduction in April. 

Legislation will have to come eventually, but it’s unlikely that Congress is going to be the first party to blink. There will be more hearings. Per an Aug. 23 announcement from Chairwoman Maxine Waters, among the Financial Services Committee’s priorities for the fall were: 

“Conducting an ongoing review of Facebook’s proposed cryptocurrency and digital wallet […] exploring data privacy; examining the use of artificial intelligence in financial services; and reviewing the evolution of payments and cash.”

However, hearings have been slow to turn into law, especially when the members of the Financial Services Committee still lack much of the technical knowledge necessary to speak with conviction as to next moves, and especially when later on Sept. 24, Speaker of the House Nancy Pelosi announced that the House would be initiating an impeachment inquiry into President Trump, which is absolutely going to take center stage in the House for the foreseeable future.

What to look for next

Similarly, it’s probably foolish to wait for grand initiatives from the commissioners of the SEC, but the commission is already taking decisive action in the courts and in their approvals — using existing law and limiting grandiose statements.

Blockstack’s $23 million token offering earlier this month was a landmark both thanks to its scale and the fact that the company had received SEC approval in advance — a first. The race to get the SEC stamp for the first Bitcoin (BTC) exchange-traded fund (ETF) will also be one to watch. The same day as the hearing, the commission started publishing that it was looking into Wilshire Phoenix’s request to change a rule to allow NYSE Arca to list their BTC ETF.

On the other hand, the SEC has concluded a huge number of cases against initial coin offerings from 2017 and early 2018 this past summer, many ending in settlements of well over $10 million. Even without a change to formal rules, these cases demonstrate a clear willingness to pursue bad actors and will continue to establish the industry’s guard rails of precedent, which will, for the time being, have to precede new law.

Financial Services Committee Chairwoman Maxine Waters was unavailable for comment, as was the SEC’s Senior Advisor for Digital Assets Valerie Szczepanik.

Source Cointelegraph