March 26th, 2023

IMF Wants “Control” Over Crypto Than Banning It Outright

As of March 2023, there have been discussions on the stance of the International Monetary Fund (IMF) towards cryptocurrencies. While some believe that banning cryptocurrencies should be an option, the IMF chief has stated that there are disagreements over restructuring debt for distressed economies. The IMF’s position on cryptocurrencies seems to be geared towards exerting control rather than an outright ban.

One article from Bloomberg suggests that the IMF is committed to presenting a foundation for the regulation of private cryptocurrencies. The report suggests that the Financial Stability Board and the Bank for International Settlements are also involved in this effort. However, it is not clear from this report whether the IMF prefers regulation to an outright ban.

Another report from Yahoo Finance suggests that the IMF is concerned about cryptocurrencies being used to evade capital controls imposed by governments. The report also suggests that the IMF is discouraging countries from making Bitcoin the legal currency of their countries. However, the report does not explicitly state whether the IMF prefers regulation to an outright ban.

Reports from other sources suggest that the IMF is more interested in regulating cryptocurrencies than banning them outright. For example, an article from the South China Morning Post suggests that India has asked the IMF and the Financial Stability Board to prepare a technical paper on crypto assets that could be used to formulate a coordinated and comprehensive policy to regulate cryptocurrencies. The article notes that while some countries may consider banning cryptocurrencies outright, this approach may not be the most effective way to manage the risks associated with these assets.

However, despite these concerns, the IMF’s recent actions and statements suggest that the organization does not necessarily favor an outright ban on cryptocurrencies. Instead, the IMF appears to be focused on developing effective policies and regulations for crypto assets. For example, in February 2023, the IMF’s Executive Board discussed a board paper on “Elements of Effective Policies for Crypto Assets” that provided guidance to IMF member countries on key elements of an appropriate policy response to crypto assets. The paper defined and classified crypto assets based on their underlying features, described their purported benefits and potential risks, and presented a policy framework for crypto assets that aimed to achieve key policy objectives such as consumer and investor protection, financial stability, and anti-money laundering and combating the financing of terrorism (AML/CFT).

In addition, the IMF’s recent actions suggest that the organization is open to working with countries to develop coordinated and comprehensive policies to regulate crypto assets. For example, India, which currently holds the G20 Presidency, has asked the IMF and the Financial Stability Board (FSB) to jointly prepare a technical paper on crypto assets that could be used to formulate such policies.

“Developing effective policies and regulations for crypto assets” seems to be the underlying agenda. There are various reasons for the IMF’s stance on cryptocurrencies. One of the reasons is that the IMF seeks to protect the stability of the global financial system. The use of cryptocurrencies has the potential to disrupt traditional financial systems and destabilize the global economy. By exerting control over cryptocurrencies, the IMF hopes to minimize the risks associated with this disruptive technology.

IMF’s stance on cryptocurrencies is that it believes in the potential benefits of the underlying blockchain technology. Blockchain can potentially increase transparency and accountability in financial transactions, which could help reduce corruption and fraud. By exerting control over cryptocurrencies, the IMF hopes to encourage the development of blockchain technology while minimizing the risks associated with cryptocurrencies.

Some argue that the decentralized nature of cryptocurrencies is one of their greatest strengths and that too much control could undermine this feature. My concern is that the IMF’s desire for control over cryptocurrencies could lead to overly restrictive regulations that restrict innovation and growth in the industry. Apart from losing out on innovation, I would like to point out a few other pointers that I picked up while reading related news articles.

The use of the term “digital money”. Speaking on the sidelines of the G20 finance ministers meetings in Bengaluru, India, IMF Managing Director Kristalina Georgieva explained, “We are very much in favour of regulating the world of digital money”. In my humble opinion, crypto is not digital money. I would consider crypto as crypto assets, not money. If she considers crypto as digital money, USD is also digital money; it will confuse normal people. It also can be misinterpreted that IMF is considering crypto as a legal tender.
CBDC is not cryptocurrency. According to an interview with Bloomberg published on February 27, she responded to a question on her recent comments about a potential complete ban on cryptocurrencies. “Our first objective is to differentiate between central bank digital currencies that are backed by the state and publically issued crypto assets and stablecoins.” Again, this statement makes things more confusing. Central bank digital currencies, CBDCs, are a new form of a digital currency issued and regulated by central banks. It has nothing to do with cryptocurrencies.
Fully backed by? In the same interview, she also said that fully-backed stablecoins create a “reasonably good space for the economy,” but non-backed crypto assets are speculative, high risk, and not money. The term “fully backed” should be appropriately defined, fully backed with high-quality and liquid assets or 1:1 fiat currency or another altcoin. Some stablecoins, such as Tether, are backed by a mixture of cash and other assets but are not transparent about the types of assets doing the backing. In fact, Canadian regulators have classified fiat-backed stablecoins as securities, indicating that stablecoins may be subject to securities legislation. It is important to carefully evaluate the backing of stablecoins before considering them as a stable investment option.
CBDC is 100% not stablecoin. CBDC refers to a digital form of a country’s currency that is issued and backed by a central bank. On the other hand, stablecoins are cryptocurrencies that are designed to maintain a stable value relative to a certain asset, such as the US dollar or gold. For instance, the UK is exploring the development of a CBDC, known as the Digital Pound, which would take at least five years to develop, according to the deputy governor of the Bank of England. The Bank of England is exploring both wholesale and retail CBDC. Still, they see limitations, and the design and structure of the digital pound could vary greatly depending on its intended use.

IMF may be clear on all these terms, but I would like to highlight that the interchange and usage of words in interviews must be consistent to avoid misunderstanding.

Coming back to the core topic, the IMF’s stance on cryptocurrencies is geared towards exerting control rather than an outright ban. The organization believes that cryptocurrencies have the potential to disrupt traditional financial systems and destabilize the global economy, but it also recognizes the potential benefits of blockchain technology.

Who will have the ultimate control?

The debate over the role of cryptocurrencies in the global financial system is likely to continue for some time to come.

Source: https://www.securities.io/imf-wants-control-over-crypto-than-banning-it-outright/

Anndy Lian

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com

j j j

March 22nd, 2023

Hong Kong introduces regulatory measures for crypto trading platforms to enhance security

As the global crypto industry continues to grapple with increasing regulatory scrutiny and clampdowns, new hubs for the virtual asset industry are emerging. One such emerging hub is Hong Kong, which recently proposed rules allowing retail investors to trade certain “large-cap tokens” on licensed exchanges, contrasting mainland China’s outright ban on crypto-related transactions.

Based on what I know, The Securities and Futures Commission of Hong Kong has not yet specified which large tokens would be allowed. Still, industry insiders speculate it would likely be Bitcoin and Ether, two of the biggest digital assets by market value.

While China’s clampdown on crypto trading was intended to protect individual investors from speculative activity, the increasing number of bankruptcies and layoffs in the global crypto industry may have justified their actions.

Nevertheless, the crypto industry continues to attract talent and investment, making it hard to imagine Beijing sitting idly while the rest of the world develops new building blocks that could potentially spark a new wave of innovation as big as the current internet itself.

China’s crackdown on crypto trading has led many of its web3 startups to look abroad, with many of them setting up new bases in more crypto-friendly locations like Singapore and Dubai. However, with Hong Kong’s introduction of a more relaxed regulatory environment for cryptocurrencies, some Chinese-founded web3 companies in exile may consider returning home to Hong Kong.

Hong Kong has a long history as a financial hub and can potentially be a laboratory for China’s policymakers to test out blockchain’s potential with some buffer for the nation’s one billion netizens. The city’s proposal stipulates that all centralised virtual currency exchanges operating in the city or marketing services to the territory’s investors must obtain licenses from the securities and futures authority.

The proposed requirements cover key areas such as safe custody of assets, know-your-client, conflicts of interest, cybersecurity, accounting and auditing, risk management, anti-money laundering/counter-financing of terrorism, and prevention of market misconduct.

In addition to ensuring suitability in onboarding clients and token admission, the other key proposals relate to token due diligence, governance, and disclosures.

In other words, centralised crypto exchanges must ban Hong Kong IP addresses until they obtain the relevant permits to operate in the city. The regulatory requirements are currently open for consultation until March 31, and the new licensing regime will take effect on June 1.

This move by Hong Kong is strategic, and it can attract crypto companies and investments to the city. Implementing clear regulatory frameworks would help the industry gain mainstream adoption and bring in more institutional investors.

The crypto industry has come a long way since the inception of Bitcoin over a decade ago. With the emergence of DeFi (Decentralised Finance) and NFTs (Non-Fungible Tokens), the industry has grown significantly, and this growth is expected to continue. However, to achieve its full potential, it needs to address its regulatory concerns.

The introduction of clear regulatory frameworks can help crypto companies gain mainstream acceptance, bring in more institutional investors, and pave the way for new and innovative use cases for blockchain technology. Hong Kong’s move towards a more relaxed regulatory environment for cryptocurrencies is a significant step in the right direction, and I hope that other countries will follow suit.

AML crypto regulations in Hong Kong

The Legislative Council passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (AML/CTF Amendment Bill 2022) on December 7, 2022. This bill introduced a licensing regime for virtual asset service providers (VASPs) and imposed anti-money laundering (AML), counter-terrorism financing (CTF), and investor protection obligations upon these actors.

VASPs that are licensed in Hong Kong are subject to a number of AML, CTF, and investor protection obligations. These include:

Customer Due Diligence (CDD): VASPs must conduct CDD on their customers, which includes identifying and verifying the identity of the customer, the beneficial owner, and any other person who exercises control over the customer. VASPs must also assess and understand the nature and purpose of the business relationship with the customer.
Ongoing monitoring: VASPs must monitor their customers’ transactions on an ongoing basis to ensure that they are consistent with their knowledge of the customer, the customer’s business, and the risks associated with the customer.
Record-keeping: VASPs must maintain adequate records of their customers, their transactions, and their risk assessments. These records must be kept for a period of at least five years.
Reporting: VASPs are required to report suspicious transactions to the Joint Financial Intelligence Unit (JFIU) of Hong Kong. Suspicious transactions include those that are inconsistent with the customer’s profile, those that have no apparent economic or lawful purpose, or those that involve the proceeds of crime.
Investor protection: VASPs must also put in place measures to protect their customers’ assets. This includes measures such as segregation of customer assets from the VASP’s own assets and insurance against losses.
Penalties for non-compliance: VASPs that fail to comply with the new regulations are subject to a range of penalties, including fines, suspension or revocation of their license, and criminal liability. Individuals who are found guilty of money laundering or terrorist financing may face imprisonment of up to 14 years and fines of up to HK$5 million.

The new regulations also provide for the imposition of sanctions by the United Nations Security Council or by Hong Kong in respect of breaches of international sanctions.

Licensing and registration requirements for VASPs in Hong Kong

Anyone who engages in a virtual asset exchange business in Hong Kong must apply for a license with the SFC. The AML/CTF Amendment Bill 2022 also introduced regulations for VASPs to comply with the Crypto travel rule.

The HKMA will only grant licenses to VASPs that meet certain criteria, including:

The company must be incorporated in Hong Kong.
The company must have a permanent place of business in Hong Kong.
The company must have adequate financial resources.
The company must have appropriate AML/CTF systems and controls in place.
The company must have a compliance officer responsible for ensuring the company’s compliance with the new regulations.

VASPs that fail to obtain a license will be prohibited from providing virtual asset services in Hong Kong.

Complying with the crypto travel rule in Hong Kong

The crypto travel rule will be effective in Hong Kong as of June 1, 2023. The new regulatory regime will provide industries with a grace period to prepare for compliance until that date. In Hong Kong, Travel Rule requirements apply regardless of the transaction amount.

The scope of data to be exchanged varies depending on the threshold of the transaction. For virtual assets that amount to HK$8,000 or more, the following information needs to be shared: name, account number, and address of the originator, as well as the beneficiary’s name and account number. For virtual assets that amount to less than HK$8,000, only the name and account number of the originator and beneficiary are required.

There are no differences in customer personally identifiable information (PII) requirements for cross-border transfers and transfers within Hong Kong. However, for wire transfers, the information recorded must include the number of the originator’s account or a unique reference number assigned to the wire transfer by the financial institution.

Non-custodial or self-hosted wallet transactions do not have any specific requirements in Hong Kong. The AML/CTF Amendment Bill 2022 defines virtual asset transfers subject to Crypto Travel Rule requirements as transactions for transferring virtual assets carried out by an institution on behalf of an originator, with a view to making the virtual assets available to the originator or another person at an institution, which may be the ordering institution or another institution.

In conclusion, Hong Kong’s proposal to allow retail investors to trade large-cap tokens on licensed exchanges is a significant development for the global crypto industry.

While China’s crackdown on crypto trading was aimed at protecting individual investors from speculative activity, the regulatory framework proposed by Hong Kong is more relaxed and can potentially attract more crypto companies and investments to the city. The implementation of clear regulatory frameworks would help the industry gain mainstream adoption and bring in more institutional investors.

I am looking forward to seeing a striking balance between the both.

Source: https://e27.co/hong-kong-introduces-regulatory-measures-for-crypto-trading-platforms-to-enhance-security-20230320/

Anndy Lian

www.anndy.com

j j j

March 22nd, 2023

Crypto Faces Critical Moment as Regulatory Walls Rise

I have warned investors that a significant decline in the crypto market could occur if Bitcoin’s value falls below $24,000, amidst a bullish trend since mid-December. This prediction has come true as Bitcoin’s price has dropped by 10% from its February peak, with the possibility of further drops to $20,000. Crypto’s growth in 2022 was driven primarily by monetary policy, but regulations may become a decisive factor this year in determining which companies will succeed and which will fail.

This situation is due to several factors, including the sustained tightening of liquidity and the suspension of bank transfers, notably by Binance in early February. The closure of Silvergate’s exchange network in early March has exacerbated the existing predicament. Furthermore, Signature Bank has recently informed its crypto exchange clients that SWIFT payment transfers of less than $100,000 will no longer be supported, which is related to Coinbase suspending trading of Binance USD. This is a pressing concern that must be considered.

A growing effort is underway to reconsider the relationship between traditional banking systems and the rapidly evolving crypto economy. The fundamental principle of Bitcoin was to create a financial system that operates independently of banks, and some experts are advocating for a completely “bankless” crypto ecosystem. However, the regulatory crackdown this year has given rise to offshore stablecoins such as Tether’s, which continue to gain traction despite a decline in trading volumes.

The lack of a mechanism for transferring traditional currency into the crypto space appears to be causing stagnation, depriving it of the innovation typically associated with a burgeoning industry. This is where Silvergate has emerged as a critical link between investors, hedge funders, and venture capitalists. In addition to facilitating these essential connections, Silvergate allows its clients to settle their balances at any time of day, including weekends and holidays. This 24-hour settlement feature is paramount in the crypto market, allowing investors to capitalize on arbitrage opportunities and ensuring the seamless exchange of collateral, which is managed through smart contracts.

As regulatory hurdles continue to crop up around crypto, the potential consequences of these barriers cannot be ignored. A recent report from Coindesk reveals that close to 200 members of Congress accepted campaign donations from FTX executives. This raises concerns that those who have received these donations may be less inclined to support further regulations, fearing a negative association with an exchange that has previously misused user funds.

Adding to mounting concerns, on January 3, the U.S. Federal Reserve, the FDIC, and the Treasury Department’s Office of the Comptroller of the Currency issued a joint statement warning about the risks that crypto-assets pose to the banking sector. While regulators have previously cautioned against the instability of cryptocurrencies, this latest alert highlights the impact that the crypto ecosystem could have on the financial resilience of traditional banks. This shift in warning, reportedly initiated by the Biden administration, has had a significant impact, causing a chain reaction.

On January 13, the Securities and Exchange Commission (SEC) leveled accusations against the Gemini crypto exchange and Genesis Trading, asserting that the two firms failed to register a crypto lending scheme as a securities offering. The SEC’s stance is that the lending scheme offered by the two firms necessitated registration with the SEC and compliance with relevant securities laws and regulations. The failure to meet these requirements, according to the SEC, put investors at risk and could have violated securities laws.

Custodia Bank, which was founded three years ago to serve as an intermediary between digital assets and the U.S. dollar payment system, suffered a significant setback in late January. The bank was denied membership to the Federal Reserve System and was also refused a master account. One of the primary advantages of being part of the Federal Reserve System is access to a master account, which allows banks to settle transactions with other banks and financial institutions. Custodia Bank’s lack of a master account means that it will have to rely on other banks to handle its transactions, resulting in higher fees and slower processing times. This puts the bank at a significant disadvantage compared to other banks in the digital asset space that have successfully obtained membership in the Federal Reserve System.

Signature Bank has taken a bold move in the face of the crypto industry’s growing regulatory challenges. In early February, the bank announced its decision to suspend SWIFT transfers of crypto-related firms of less than $100,000. The move is a clear indication of the financial institution’s cautious approach to cryptocurrencies, which have been plagued by regulatory ambiguity and concerns over financial crimes. The decision is expected to impact many smaller crypto firms that rely on such transfers, as they may now have to seek alternative methods to move funds. However, some experts argue that the bank’s move is a necessary step to mitigate risks and safeguard the banking sector from potential threats posed by the crypto industry.

In early February, Kraken, a popular crypto exchange, agreed to pay $30 million to settle charges filed by the SEC that it provided unregistered securities through its staking program. The program offered a fixed rate of return to users, regardless of the actual performance of the staked assets, which the SEC determined to be a violation of securities laws. Kraken’s failure to properly register with the SEC put investors at risk and created an unfair advantage for the platform. The settlement serves as a reminder that the cryptocurrency industry is subject to the same rules and regulations as traditional financial markets.

On February 13, Paxos was ordered to halt production of the Binance-branded BUSD stablecoin over concerns that Paxos may have been negligent in monitoring the application of the stablecoin. As a result, the market capitalization of BUSD plunged from $16 billion to its current value of $8 billion. The decision by the New York Department of Financial Services (NYDFS) to halt the production of BUSD caught many in the industry off guard. Paxos had been considered one of the most reliable stablecoin issuers in the market, having received regulatory approval from the NYDFS to operate as a trust company. However, the NYDFS’s move underscores that even well-established firms are subject to regulatory scrutiny.

On March 4, Silvergate Bank made the unexpected move of suspending its exchange network which resulted in the termination of the bank’s relationships with Circle, Crypto.com, and Coinbase. The closure of the exchange network also had potential implications for Bybit, as the exchange had to stop dollar transfers. Silvergate Bank’s decision comes amid mounting scrutiny due to its links with FTX.

On March 8, four days later, Silvergate Bank announced that it was shutting down and liquidating its operations, citing the majority of its deposits leaving its balance sheet, which has impaired its financial stability ratios. The closure of Silvergate Bank highlights the potential fragility of financial institutions in the crypto space and the impact of regulatory changes on their operations.

In a major development for the crypto industry, on March 10, the New York Attorney General’s office filed a lawsuit against KuCoin for alleged violations of securities and commodities laws. The lawsuit accuses KuCoin of misrepresenting itself as an exchange while functioning as a securities and commodities broker-dealer and seeks to block the exchange’s access in New York. However, what is particularly noteworthy about the complaint is the assertion that Ethereum, the second-largest cryptocurrency by market capitalization, is also a security. The lawsuit argues that ETH, along with other cryptocurrencies such as LUNA and UST, is a speculative asset that relies on third-party developers to provide profit to holders of the cryptocurrency. This lawsuit could have significant implications for the entire industry, as it could open the door to increased regulatory scrutiny and potentially even more legal challenges in the future.

I am very sure that crypto investors are not giving up without a fight. Although Kraken faced a staking defeat, Coinbase CEO Brian Armstrong has defended the firm’s staking service and is willing to defend its product in court if necessary. Well-funded firms such as Coinbase and Ripple may have the financial means to take on the SEC. Ripple’s CEO Brad Garlinghouse has warned that SEC regulations could make the U.S. a less attractive location for crypto firms.

Although the SEC had initially opposed Binance’s acquisition of Voyager Digital which filed for bankruptcy after Three Arrows Capital defaulted on a $670 million loan provided by the broker, a bankruptcy judge has approved the deal. While there are still regulatory obstacles to overcome, the judge appears to be leaning toward approval. Following the announcement, the Voyager VGX tokens saw an increase of 16% in 24 hours, potentially resulting in Voyager creditors receiving 73% of their funds back.

In a separate case, judges are questioning why Bitcoin spot markets can be manipulated while Bitcoin futures markets, which are approved for trading on U.S. soil and through ETFs, cannot. The SEC has claimed that a 99% correlation does not equate to causation, citing the fragmentation of Bitcoin spot markets compared to the centralized trading of Bitcoin futures on the CME in Chicago. As a result, the discount on the Grayscale GBTC has decreased from an all-time low of -48% to -36%, as speculation about the possibility of converting the trust into an ETF has increased. The spread has likely reached a floor with a potential downside of -10% and an upside of +33%, which I predicted in our 2023 outlook report published in December 2022. Although a Bitcoin ETF would have been significant two years ago, many interested investors have since set up alternative accounts to buy Bitcoin.

However, all hope is not lost, and these developments indicate potential opportunities in the cryptocurrency market for investors.

Source: https://intpolicydigest.org/crypto-faces-critical-moment-as-regulatory-walls-rise/