Here’s today’s blockchain tipsheet… prefer it by email? Sign up here.
Cryptocurrency platform Coinbase CEO Brian Armstrong took part in the Dubai Fintech Summit yesterday and provided some back-handed criticism for U.S. regulators on social media tweeting, “The [United Arab Emirates (UAE)] deserves a lot of credit for being forward thinking on crypto. First dedicated crypto regulator in the world, a clear rule book published (!), business friendly plus strong customer protections. Really enjoying my visit so far.” On stage, Armstrong was quoted as saying that his company is considering making Dubai an “international hub.”
Armstrong continues to poke Congress and regulators with the veiled threat that if they don’t do something about crypto regulation in the United States, he will take (most of) Coinbase’s business elsewhere. In an interview with CNBC in Dubai, Armstrong said, “Coinbase is not going to relocate overseas… We’re always going to have a U.S. presence … But the U.S. is a little bit behind right now.” Still, it was just last week that the company announced a new international derivatives exchange in Bermuda.
The UAE trip by Armstrong and the Coinbase executive team was announced in a Coinbase blog post on Sunday that said, “[It] is no secret that Coinbase is also working with Abu Dhabi Global Market (ADGM) regulators to further expand the licensing and availability for Coinbase International Exchange. We have also been engaging with Dubai’s Virtual Assets Regulatory Authority (VARA)…
custody comment – SEC
SEC Chair Gary Gensler alerted his Twitter followers yesterday about the final day for public comment on his agency’s proposed “safeguarding rule for registered investment advisers.” See the video. And, see Rule IA-6240.
Back in February, this rule was proposed during an open SEC hearing and only SEC Commissioner Hester Peirce opposed it saying in part, “By insisting on an asset neutral approach to custody we could leave investors in crypto assets more vulnerable to theft or fraud, not less.” Nevertheless, she stated her hope that changes could be made to win her support. See her February statement.
custody comment – industry
Marisa Tashman Coppel, Policy Counsel for industry organization Blockchain Association (BA), tweeted out yesterday that BA had submitted its comment (see it) and didn’t mince words in a tweet thread: “The proposed rule deviates from the SEC’s obligation under the Advisers Act to take an asset-neutral approach. This deviation is at odds with the limits of the SEC’s statutory authority and their mission to protect investors.”
Linda Jeng, Head of Global Web3 Strategy at the Crypto Council of Innovation, announced the submission of her organization’s comment on the SEC rule. Jeng said on LinkedIn that the “proposal completely failed to consider reasonable alternatives, such as a more robust [self custody] regime. The decentralized, immutable and transparent nature of [blockchain] technologies will allow all investors, including RIAs, to interact with the financial system without intermediaries. The SEC should allow for flexibility in the rule so the rule is future-proof and does not stifle innovation.” See the full comment on LinkedIn.
Given the SEC Commission’s 3-2 Democratic majority, and if past rulings are prologue, this rule will likely be approved “as is.”
hearing – House resolution
Yesterday, a new U.S. House of Representatives resolution was unveiled in preparation for Wednesday’s digital asset market structure hearing also known as, “Joint Financial Services-Agriculture Subcommittee Hearing Entitled: The Future of Digital Assets: Measuring the Regulatory Gaps in the Digital Asset Markets.”
The resolution – which emanates from the House’s Republican majority – is titled, “Expressing support for blockchain technology and digital assets,” and is a call-to-arms for creating substantive rules for digital assets and unlocking the power of blockchain technology: “Congress should enact a functional framework tailored to the specific risks of different digital asset-related activities and unique benefits of distributed ledger technology, distributed networks, and decentralized systems…” See it.
In March, another House resolution urged Congress to support Proof-of-Work mining and was introduced by Rep. Pete Sessions (R, TX).
hearing – the memo
The Committee Memorandum for the hearing was also publicly released yesterday and discusses the krux of why the digital assets subcommittees of House Ag (oversees Commodity Futures Trading Commission (CFTC)) and House Financial Services (oversees Securities and Exchange Commission (SEC)) are coming together on Wednesday: “Generally, the SEC and CFTC have attempted to resolve the legal question of whether a digital asset is a security or a commodity through enforcement actions. However, the agencies have not always agreed on which digital assets are considered securities and which digital assets are considered commodities.” Get the memo.
Also, see the list of the five witnesses participating on Wednesday and their prepared testimony.
FSOC on stablecoins
In a May 2023 Financial Stability Oversight Committee (FSOC) report released yesterday, digital assets make an appearance as the Federal Reserve reviews what it sees as the many causes of recent bank instability. Under the “Funding Risks” section on Page 63, FSOC identified the vulnerability of stablecoins to bank runs and explained:
“The total market capitalization of stablecoins, which are digital assets designed to maintain a stable value relative to a national currency or another reference asset, has fallen 21 percent since the beginning of 2022 to $130 billion. While not widely used as a cash-management vehicle by institutional and retail investors or for transactions for real economic activity, stablecoins are important for digital asset investors and remain structurally vulnerable to runs. On March 10, 2023, amid reports of large outflows of uninsured deposits at SVB, Circle Internet Financial, which operates the $31 billion stablecoin USD Coin (USDC), disclosed that it had $3.3 billion in dollar reserves held at SVB. This disclosure triggered large redemptions of USDC and caused it to drop temporarily below its target $1 value to as low as 87 cents. Following news of the government interventions assuring depositors of the safety of uninsured deposits at SVB and Signature Bank, USDC’s price stabilized near $1.”
New crypto regulations are afoot in the Bahamas in the wake of the FTX implosion, but the rules will not be related to FTX, in particular, according to Securities Commission of The Bahamas Executive Director Christina Rolle. She shares several updates with Axios saying that the Bahamas plans to adopt stablecoin regulations similar to New York State’s and “wants to avoid the situation of entities domiciling there but operating elsewhere, outside of the government’s ability to supervise them.” Finalized crypto rules are inevitable by the end of the year, she said.
On innovations such as DAOs (decentralized autonomous organizations) and smart contracts, Rolle points to the reality of working within the Bahamian financial system -if not the global financial system, “At some point, they are going to have to fit within frameworks that can manage the risks that can pose to consumers and investors… There are some realities around the ethos about how decentralized finance is supposed to work that just cannot happen.” Read more.
bad faith effort
Former Paxos executive Austin Campbell critiqued – on Twitter – the new New York State crypto bill introduced by New York State Attorney General Letitia James last week. Campbell tweeted, “[Nice] alpha test, but this thing needs a lot of work. If you see the legislature moving this bill without major debate or modifications, you know this is a bad faith effort to ban crypto while claiming the reverse (and, weirdly, exempting the banks…?)” Read the entire thread. He also notes curious lack of responsibility delegated in the bill to New York Department of Financial Services (NYDFS) which has been, arguably, the digital assets “subject matter expert” for New York State.
Campbell appeared as a witness at last month‘s stablecoin hearing led by House Financial Services’ Subcommittee on Digital Assets, Financial Technology and Inclusion and its Chair Rep. French Hill (R, AR).
The Wall Street Journal uses animated infographics to show how cryptocurrency tokens have continued to evolve even after being identified as securities and running afoul of the SEC. The graphics are a smidge confusing (simple lists would have sufficed?), but the text tries to pull it together: “Of the 76 coins the SEC considers securities, 16 were still available for trading on one or more major U.S. crypto exchanges, according to a Wall Street Journal review of companies’ websites. Some tokens were delisted from exchanges after SEC enforcement actions.” See for yourself.
still more tips
Canada Becomes Latest Country to Pursue Digital Dollar Conversation – Blockworks
Defending against SEC to cost Ripple $200M, CEO Brad Garlinghouse says – Cointelegraph
Chinese Users of the Binance and FTX Exchanges Show Holes in Beijing’s Crypto Ban – Bloomberg
American Crypto Exchange Bittrex Files for Chapter 11 Bankruptcy – Decrypt
If you would like this delivered as a newsletter, please sign up here.