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SRO for digital assets
Does the digital assets industry need a self-regulatory organization (SRO) to ignite its future amid aggressive enforcement and legislative inaction in the United States?
The National Futures Association (NFA) appears to be doing its part with new rules on digital assets for its derivative industry members. In a press release, NFA announces that it “recently adopted NFA Compliance Rule 2-51, which imposes anti-fraud, just and equitable principles of trade, and supervision requirements on NFA Members and Associates that engage in digital asset commodity activities. The Rule’s scope is currently limited to Bitcoin and Ether.” Read the release.
Commodity Futures Trading Commission (CFTC) Commissioner Caroline Pham applauded NFA’s initiative. “It’s critical to have an effective SRO like the NFA as a partner in the CFTC’s mission. I commend NFA for taking action now on spot digital asset commodity markets, including Bitcoin & Ether, to protect retail with this anti-fraud, conduct, disclosure & supervision rule,” tweeted Commissioner Pham on Friday afternoon.
Rule 2-51. Requirements for Members and Associates Engaged in Activities Involving Digital Asset Commodities – National Futures Association
Statement of Commissioner Caroline D. Pham Regarding NFA Rule on Spot Digital Asset Commodity Activities – CFTC.gov
Self-Regulatory Organization (SRO): Definition and Examples – Investopedia
Choke Point, the white paper
The Choke Point 2.0 theory on the de-banking of crypto firms, which has gained steam since early February, gets the white paper treatment from law firm Cooper & Kirk. “A law firm that likes to take on controversial fights has made the case that anti-crypto sentiment is real and that it’s hurting businesses in the U.S,” writes Axios.
Cooper & Kirk’s press release announcing the 35-page paper reads, “Businesses in the cryptocurrency industry are suddenly finding themselves debanked, and stripped of access to the ACH network, without explanation.” Need representation?
Operation Choke Point 2.0: The Federal Bank Regulators Come For Crypto (PDF) – Cooper & Kirk
banking crypto, crypto banking
Amidst the bank crisis, crypto firms who previously used Silvergate Bank, Signature Bank or even Silicon Valley Bank are struggling to find new homes within the traditional finance system according to Bloomberg: “Cross River Bank, for example, received requests from more than 100 new clients – not all of whom were crypto companies. (…) The closely-held company turned down almost all those requests.” Bloomberg reports that Cross River is only considering expansion of existing relationships with the bank such as USDC issuer, Circle. Meanwhile, JP Morgan Chase and BNY Mellon are “selectively” willing to do business with crypto firms but onboarding takes six months. Read more (subscription).
There appears to be two different – but related – banking needs for crypto firms:
Need #1 – A regulated, TradFi bank for a crypto firm to park their cash to do business (payroll, expenses, etc.).
Need #2 – A regulated, TradFi bank for facilitating crypto/fiat on- and off-ramps for crypto firm clients.
Cap Hill Crypto reports that last Wednesday, the Improving Digital Identity Act of 2023, sponsored by Senator Kyrsten Sinema (I, AZ) and co-sponsored by Senator Cynthia Lummis (R, WY), made it through the Senate Committee on Homeland Security and Governmental Affairs in an 11-1 vote -and “The bill will now move to the Senate floor, where its prospects for passing are uncertain.” Among several components of the legislation, Cap Hill Crypto explains that a task force “would study ways to promote the development of digital versions of existing physical IDs, such as driver’s licenses and birth certificates.” Enter distributed ledger technology and blockchains.
Regarding the need for the legislation, SC Media reports that in “its current state, there’s no easy, affordable method for entities and government agencies to verify whether an individual is who they purport to be online, which has created a vast attack vector widely exploited by threat actors ‘and precludes many high-value transactions from being available online.'” Read that one.
S.884 – Improving Digital Identity Act of 2023 – Congress.gov
is regulation by enforcement legal
Geogetown Law’s Chris Brummer announced on Twitter over the weekend the publication of a new paper on whether regulation by enforcement is legal. Co-authors include University of Pennsylvania’s David Zaring and Vanderbilt Law’s Yesha Yadav (Yadav appeared at a February Senate Banking hearing on crypto).
Brummer tweeted in a thread: “So is it legal? The simple answer is yes! In 1947, the Supreme Court found that agencies can’t predict everything when making rules. So RBE (regulation by enforcement) can help agencies calibrate their rules and save them from having to be too prescriptive and erroneous in their rulemaking. (…) But here’s the catch: The Supreme Court blessed RBE with the assumption that it would be used to only fill gaps in existing and coherent frameworks…”
Regulation by Enforcement (PDF) – Brummer, Yadav and Zaring on SSRN
use case: certified environmental tokens
CETs or certified environmental tokens are discussed in an article showing how natural gas producer PureWest is keeping track of emissions credits and reducing the environmental impact of its customers. Blockworks explains, “Using blockchain eliminates concerns about double selling and proves that each MMBtu of gas was produced with the Project Canary-verified attributes. PureWest describes CETs as ‘purchasable credits stored on the blockchain for third-party users to achieve their emission reduction goals.'” Read more.
custody is king
Remember Bakkt? The “digital assets management platform” company was founded by New York Stock Exchange owner Intercontinental Exchange (ICE) during the last crypto winter in 2018.
Today, during the current crypto winter (or is it the beginning of the new bull market?), custody may be the company’s salvation. Bakkt Chief Sales and Marketing Officer Mark Elliot tells The Information that the SEC’s proposed rule change regarding custody could be a good thing for the company. “Bakkt is ‘really well positioned’ to benefit from the custody rule changes. ‘We actually frankly are pleased to see the regulators stepping in and stepping up their focus on [custody], especially given some of the sort of challenges we’ve seen in the crypto marketplace in the last several months,” says Elliot. Read more (subscription).
Money, Tokens, and Games: Blockchain’s Next Billion Users and Trillions in Value (PDF) – Citi
Hong Kong’s Crypto Ambitions Get a Boost From U.S. Crackdown (subscription) – The Wall Street Journal
Franklin Templeton Sees Web3 Driving Next Wave of Tech Innovations – CoinDesk
Crypto evangelists enter the Bukele government: The dark business of bitcoin in El Salvador – EL PAÍS
EU AML Legislation Draft Limits Self-Hosted Crypto Payments in DeFi – DeFi Education Fund
Binance, crypto influencers hit with $1 billion suit for promoting unregistered securities – Fortune
Bittrex is beginning the process of winding down its U.S. operations – Bittrex
Talking Crypto and Elections with Anthony Scaramucci – Capitol Account
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