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SEC charges Binance
The Securities and Exchange Commission (SEC) charged cryptocurrency platform Binance and its CEO Changpeng “CZ” Zhao with thirteen separate charges related to securities violations yesterday. Director of the SEC’s Division of Enforcement Gurbir Grewal said, “We allege that Zhao and the Binance entities not only knew the rules of the road, but they also consciously chose to evade them and put their customers and investors at risk – all in an effort to maximize their own profits.” Read the release. And, see the 136-page lawsuit (PDF).
In a tweet yesterday afternoon, the SEC (quoting from the press release) quoted a “Binance chief compliance officer 2018” who allegedly said, “We are operating as a fking unlicensed securities exchange in the USA bro.”
The Wall Street Journal notes, “For the SEC, the lawsuit is another significant bet that U.S. courts will agree it has jurisdiction over the crypto industry, which often disputes that digital assets are securities.” Read it.
SEC charges Binance – reaction
Binance rejected the SEC’s suit in a company blog post yesterday and said in part, “Most recently, we have engaged in extensive good-faith discussions to reach a negotiated settlement to resolve their investigations. But despite our efforts, with its complaint today the SEC abandoned that process and instead chose to act unilaterally and litigate. We are disheartened by that choice.” Read the blog. And, read an early “take” on the lawsuit by industry participants on CoinDesk.
Meanwhile, Reuters also reports that from 2019 to 2020, Binance executive Guangying Chen operated five Silvergate Bank accounts belonging to Binance’s “purportedly” independent US affiliate. Read more.
Market Structure – Behnam
Today’s headline event in Congress will be the hearing by the House Agriculture Committee, “The Future of Digital Assets: Providing Clarity for Digital Asset Spot Markets,” beginning at 10:00 a.m. in Longworth House Office Building.
The hearing will discuss the new Market Structure discussion draft (PDF) produced jointly by House Ag and House Financial Services (HFS), led by Chair Glenn “GT” Thomspon (R, PA) and Chair Patrick McHenry (R, NC), respectively.
See also: Market Structure summary (PDF). And, the Section By Section (PDF).
Among the witnesses, Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam, is the sole participant of today’s first panel.
It will be interesting to see if/how Behnam’s testimony will build off the legislation he created last year with Senate Agriculture Chair Senator Debbie Stabenow (D, MI) and Ranking Member Senator John Boozman (R, AR) – the Digital Commodity Consumer Protection Act (DCCPA).
When FTX and its founder, Sam Bankman Fried, imploded last year, so too did the prospects for DCCPA. There has not been a peep from the Senate on the bill since the Senate Ag post-mortem in December as Washington ran for the proverbial hills.
Market Structure – past regulators
The second panel of the day – with exception of Coinbase – includes a variety of former regulators at the CFTC and Securities Exchange Commission (SEC) including:
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- Chris Giancarlo, Former Chairman, CFTC
- Paul Grewal, Coinbase’s Chief Legal Officer
- Dan Gallagher, Chief Legal Compliance and Corporate Affairs Officer, Robinhood Markets, Inc.; Former Commissioner, SEC
- Dan Berkovitz, former Commissioner, CFTC; former General Counsel, SEC
- Walt Lukken, President and CEO, Futures Industry Association; Former Acting Chairman, CFTC
Giancarlo, a Republican, brings a point-of-view unique to his political party: he’s in favor of a “privacy-protecting” CBDC. He’s also on the Digital Dollar Project’s Board of Directors.
Notably absent from the witness list is SEC Chair Gary Gensler. It could be argued the Democrat’s point-of-view is well-known when it comes to crypto: the Howey Test is enough to regulate digital asset markets and everything but Bitcoin is probably a security.
The Binance lawsuit’s timing by the Gensler-led SEC during this week’s digital asset hearings is likely not a coincidence, either.
Energy and Commerce hearing
The House Energy and Commerce’s Innovation, Data, And Commerce Subcommittee Hearing, “Building Blockchains: Exploring Web3 And Other Applications For Distributed Ledger Technologies,” kicks off at 10 a.m. tomorrow in Rayburn. See details.
Subcommittee Chair Rep. Gus Bilirakis (R, FL) will lead the meeting along with Ranking Member Rep. Jan Schakowsky (D, IL).
The Committee Memorandum provides an overview of blockchain and Web3 and previews a witness list of industry and advocacy representatives (Polygon Labs and Electronic Frontier Foundation) and academics. Get the memo (PDF).
The memo also suggests three issues to be covered by the subcommittee and highlights the increasing importance of national security in the digital assets legislative discussion:
“How can small and medium businesses take advantage of blockchain technologies?”
“What will the impact be if the Chinese Communist Party is allowed to lead on the development of blockchain?”
“What are the national and economic security threats of China leading in the deployment of blockchain technologies and web3?”
more tips:
Here’s an article from Decrypt on how Polygon is tokenizing assets courtesy of a Swiss fintech startup.
CBDCs on Wednesday
Tomorrow’s (Wednesday) hearing from HFS’ Subcommittee on National Security, Illicit Finance, and International Financial Institutions titled, “Dollar Dominance: Preserving the U.S. Dollar’s Status as the Global Reserve Currency” has also revealed its agenda which will include discussion of two bills already introduced in the 118th Congress.
The Committee Memorandum explains (PDF):
“H.R. 556, the ‘21st Century Dollar Act‘ – This bill establishes a U.S. policy to facilitate the position of the dollar as the primary global reserve currency and requires an assessment of China’s currency-related policies.” Rep. French Hill (R, AR) is the sponsor along with co-sponsors Rep. Jim Himes (D, CT) and, Rep. Michael Lawler (R, NY).
“H.R. 804, the ‘Chinese CBDC Prohibition Act‘ This bill would prohibit U.S. money service businesses from engaging in transactions involving China’s central bank digital currency.” Rep. Blaine Luetkemeyer (R, MO) is the sponsor along with 3 Republican co-sponsors: Rep. Hill, Rep. Erin Houchin, Erin (IN) and Rep. Debbie Lesko (AZ).
Witness for Wednesday’s will include five members of the academic world. See the list here.
The Central Bank Digital Currency (CBDC) question continues to rage as Republicans, in particular, see the innovation of a central bank-controlled digital currency as an egregious invasion of privacy. For pro-CBDC forces, the opportunity to be able to fine tune the U.S. economy in near real-time makes a CBDC tempting.
digital assets approval
The CFTC announced late yesterday that it had approved a registration for Cboe Clear Digital, LLC (Cboe Clear) “to provide clearing services for digital asset futures on a margined basis for futures commission merchants, in addition to the fully collateralized futures and fully collateralized swaps previously authorized.” Read the release.
In a lengthy supporting statement, CFTC Commissioner Christy Goldsmith Romero explained that “because Cboe wished to expand to physically delivered crypto using an unaffiliated, experienced third-party custody provider, and out of my concern for the high rate of cyber hacks in crypto, Cboe worked with my office to strengthen a key cybersecurity and operational risk protection both for itself and third parties.” Read the statement.
use case – halal
The NextWeb highlights blockchain technology’s usefulness when it comes to traceability and what it could mean for food products such as meats designated “halal.” The NextWeb reports, “In a European first, British startup iov42 is developing a data-sharing platform that provides secure records of compliance with halal standards — which are often breached by fraudulent products.” Read more.
afternoon event
still more tips
JPMorgan to use blockchain to settle US dollar forex trades in India hub – The Economic Times
Comments Submitted to the Financial Accounting Standards Board’s (FASB) Accounting Standards Update Accounting for and Disclosure of Crypto Assets – Chamber of Digital Commerce
Ripple begins work on a cross-border network for digital assets – American Banker
Atomic Wallet hacks lead to over $35 million in crypto stolen – bleeping computer
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