BitGo: Crypto Water Cooler — June 7
GM. It’s Wednesday, June 7.
Newsmakers
U.S. SEC Ratchets Up Enforcement With Binance, Coinbase Suits
This week, the SEC filed back to back complaints against?Binance ?and?Coinbase ?on Monday and Tuesday respectively. The moves were not unexpected. The SEC has conducted multiple investigations into various aspects of Binance’s business over a period of several years, and the?CTFC filed charges ?against Binance very similar to the SEC’s in March. The?DoJ and the IRS ?have also investigated the firm. Binance is the world’s largest exchange by volume.
With the ink barely dry on the Binance complaint, the SEC unveiled another, similar one against Coinbase, which it had served with a?Wells Notice ?in March. In its?response ?to the notice, Coinbase, the only publicly traded exchange in the U.S., announced its intention to “vigorously defend ourselves,” making a showdown inevitable.
Both complaints allege that the exchanges run unregistered securities operations. Binance faces additional charges of commingling users’ funds and sending them to an entity controlled by its CEO Changpeng Zhao, who was named as a defendant, and of lying to U.S. regulators — charges it denies. Tuesday afternoon, the SEC asked a federal court for a temporary?restraining order ?to freeze Binance’s U.S. assets.
Besides the prominence of the defendants, the suits are notable in that they claim ten more tokens are securities for the first time, bringing that?list ?to 67 tokens representing market value of $100B — just shy of ten percent of the total market. Bitcoin and Ethereum are not on the list.
Spokespeople for both firms decried the agency’s continued “regulation by enforcement,” a reaction that was?widely shared ?across the industry. Other industry leaders expressed concerns about firms leaving the U.S. for jurisdictions with a friendlier approach to regulation.
The U.S. is not alone in its efforts to rein in the industry following the collapse of FTX. As we’ve reported, Hong Kong’s new regulatory regime places digital exchanges squarely in the purview of its Securities and Futures Commission (SFC). In the EU, where regulators are already looking to build on MiCA, the European Parliament has said that digital assets should be classified as securities. The Securities Commission in the Bahamas, where FTX was headquartered, has moved to implement strict new rules on operations and governance and has even moved to extend these rules to NFTs, staking, mining, and more.
The difference is that in those jurisdictions, regulators have taken a consultative approach to crafting new rules. Here, the securities regulator maintains that the rules are already in place, and has moved directly to enforcement. With legislators dithering and both defendants vowing to fight, U.S courts may end up with an outsized role in regulating crypto.
Read more →Wall Street Journal ($)
With MiCA Now Complete, EU Shifts Focus to New Regulations
On May 31, the EU Parliament signed the Markets in Crypto Assets (MiCA) regulations into law — roughly three years after they were first drafted. Ministers also signed a separate anti-money laundering (AML) bill: the Transfer of Funds Regulation. The?regulations ?will apply to more than 10,000 crypto protocols, including wallets and stablecoins, and will go into effect after formal publication in June, but a new round of rulemaking has already begun with a range of EU agencies weighing in on next steps.
Many see a need for?regulations ?for?DeFi and NFTs, staking , and?lending . A European Parliament report published on May 30 suggests digital assets should automatically be?categorized as securities ?and regulated as such unless a national regulator specifically says otherwise and that decentralized autonomous organizations (DAOs) should be legalized. The European System Risk Board would like to see?rules ?for large crypto conglomerates, smart contracts, crypto lending, staking, and high leverage situations. Mandatory code audits are a possibility along with intellectual property regulations and rules covering the transmission of data to automated software. Another gap it wants closed: although MiCA requires conflict of interest management between business lines, it lacks regulations about what could happen, for example, if a company offered both trading and custody services.
For its part, the?European Banking Authority ?(EBA) wants countering the financing of terrorism (CFT) regulations to also?apply to crypto providers . The EBA is also warning against transacting with self-hosted addresses and providers that don’t fall within the purview of MiCA. Other cautions focus on products that exchange crypto for fiat and users who participate in high risk mining jurisdictions or on the darknet. The EBA also requests that European authorities offer more guidance to financial institutions wishing to do business with crypto firms.
Read more →Europarl.Europe.eu
Central Banks Share Insights on CBDCs, the Possible Currency of the Future
While some U.S.?states ?and?members of the House of Representatives ?are moving to preemptively ban central bank digital currencies (CBDCs), the Bank for International Settlements (BIS) last week published a summary report detailing the findings of a three-year?study of retail CBDCs by seven central banks ?around the globe — including the U.S. Federal Reserve. The report emphasizes the need for each issuer to engage with a broad range of stakeholders, including the private sector and legislators, to design, build, and operate a CBDC ecosystem — the same range of players in the current banknote ecosystem.
Other findings: CBDCs should be interoperable with existing money and payment systems, including instant payment systems and point of sale terminals. Both retail and wholesale cross-border payment structures must be carefully architected to interoperate with other central banks. Although blockchain technology may be used, it’s not deemed essential; each system should mesh with the specific country’s policies and business models and market, political, and/or organizational constraints.
The banks have also considered how to promote adoption and mitigate risks during the transition from physical to digital currency over time but conclude that additional analysis is required to see if wholesale CBDCs offer value beyond what’s possible with upgrading the current monetary systems. Other study participants include the Bank of Canada, the European Central Bank, Swiss National Bank, Sveriges Riskbank, the Bank of England, and the Bank of Japan, which is the only one thus far to have a?CBDC pilot ?in the market. Japanese banks this month also got the go ahead to?issue stablecoins .
Read more →BIS.org
News In Brief
Regulation and Security
Business of Crypto
DeFi and Web3
Midweek Market Pulse
*Total Market Cap:?$1,099,141,805,204 –7 day change as of Wednesday 6/7/23 Noon EST: -2.8%
*Updated today
Bitcoin (BTC, -2.1%)?and?Ethereum (ETH, -1.1%)?held up well this week in the wake of the SEC lawsuits against Binance and Coinbase. Prices for each of the top digital assets fell upon the immediate release of the news but began rebounding sharply on Tuesday afternoon.
As one might expect,?BNB (BNB, -15.3%), Binance’s native token and the fourth-largest crypto by market cap, fell considerably more. Data from Nansen shows that Binance saw?$780MM in outflows ?over a 24-hour period following the news.
In these suits, the SEC classified numerous cryptocurrencies as?securities for the first time , including top tokens like?Cardano (ADA, -12.1%),?Solana (SOL, -6.2%),?Polygon (MATIC, -12.8%), and?Cosmos (ATOM, -7.4%), which all traded lower.
Tron (TRX, +2.0%)?was one of the notable outliers. The decentralized blockchain protocol continued its recent momentum, processing a record of nearly 11MM transactions on May 31 on the heels of announcing earlier in the month that it is?now available on the Ethereum network ?through the BitTorrent Bridge.
Lastly, in true crypto form,?SEC-themed meme coins ?are having a moment as people try to capitalize on the news cycle. A token called “Good Gensler” (GENSLR), launched on April 19th, rallied 260% following news of the Coinbase lawsuit. Good Gensler has been joined by another Gensler coin with the ticker FKGARY. An “SEC” coin, bearing a ticker symbol we cannot reprint in this family-friendly publication initially rallied over 15,000% after its June 5th launch but has since crashed 61% from its high.
The Last Word
Retail CBDC
noun
: A universally accessible central bank liability
/ Unlike wholesale CBDCs, which are designed to facilitate large interbank transfers, retail CBDCs are accessible to individuals and businesses.
About BitGo
BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.
Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.
Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.
BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.
Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 1500 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.
For more information, please visit?www.bitgo.com.
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