fbpx

Cryptocurrencies

The Hold on the Trillion-Dollar Crypto Trade Leaves It Vulnerable

Throughout the cascading cryptocurrency collapses and bankruptcies this summer, one name rose to the top: Sam Bankman-Fried, also known as SBF.

The Bahamas-based American billionaire entrepreneur heads FTX, the world’s second-largest cryptocurrency exchange. This year, he’s become a primary protagonist in the folding of crypto platforms and hedge funds like Celsius Network, Voyager and Three Arrows Capital, deploying a proverbial $1 billion parachute to scoop up failing firms, prop up those facing insolvency and flirt with acquisitions worth hundreds of millions.

He’s also become a primary player in American domestic politics, revealing he’s willing to spend up to $1 billionto fund the Democratic Party’s 2024 efforts. That will prove influential if significant cryptocurrency regulation makes its way through Congress, especially in the context of the 2022 “crypto winter.”

In 2022 alone, his companies acquired two crypto platforms, Canada-based Bitvo and the Japanese platform Liquid, bought a 30 percent stake in Anthony Scaramucci’s SkyBridge Capital, 7.6 percent of the trading platform Robinhood, and lent a whopping $400 million to BlockFi with an option to buy it outright by October 2023.

His relationship with Voyager Digital — an exchange that filed for bankruptcy in July — is a complicated one. His private equity fund, Alameda Research, is a creditor, investor and borrower. Bankruptcy documents show Alameda initially owed Voyager $370 million, but the company lent it more than $500 million in crypto in late June to cover client accounts. Later documents show Alameda likely borrowed up to $1.6 billion from Voyager in the end.

In the same period, Alameda Research also lent $12.8 million to Celsius Network, a crypto lending platform that filed for bankruptcy in July.

Celsius’ single-largest creditor, as revealed in bankruptcy filings, was Pharos USD Fund. This Cayman Islands-based investment firm was owed $81.1 million. That fund is managed and owned by Lantern Ventures, whose CEO, Tara Mac Aulay, is a co-founder of Alameda Research and a close associate and former colleague of Bankman-Fried at the Centre for Effective Altruism.

While a complete forensic account would be impossible to tabulate, we are left with a scenario where one individual — thanks to his controlling shares at multiple companies and connections to investors, debtors and creditors — has a major stake in a significant part of the broader cryptocurrency trading industry.

The various loans, swaps and leveraged trading are typical for financial institutions. Still, they represent an entirely new level of risk in the world of digital money based on open blockchains.

Owing to his newfound relationship with lawmakers and political campaigns — especially as President Biden’s biggest donor— he’ll also have significant weight in shaping the future of Democratic Party politics.

There is no doubt that SBF is one of the most successful investors of our time. But does his significant position constitute a risk for a new innovative sector of our economy?

For those of us with a significant interest in Bitcoin and other cryptocurrencies — protocols designed to be decentralized — to see so much capital and control vested in one person is a warning sign.

With so much crypto value tied up on exchanges and lending platforms rather than people’s private wallets, there are hundreds of billions of dollars at risk for consumers. As we saw with the collapse of TerraUSD, an algorithm stablecoin, it only takes one bankruptcy to send shockwaves. Can a trillion-dollar industry continue to rely on a single investor’s altruism and business acumen?

Politicians in Washington will soon set the rules for how the government classifies cryptocurrencies. They will invoke financial risk, uncertain investments and consumer protection. Bankman-Fried will inevitably have an influence on whatever the outcome will be.

It would benefit us all if future rules help bring regulatory clarity, keep shady actors at bay and provide financial transparency. The whims of a single person, however successful they may be, cannot be the guiding light for the future of decentralized digital money.

Originally published here

Canada’s shaky rules on cryptocurrencies have their root in Ontario

The notoriously volatile cryptocurrency market has seen more downs than ups, lately. But for Canadians curious about Bitcoin and cryptocurrency — which, notwithstanding the crash of earlier this year is now once again a $1 trillion global asset class — buying and selling any of these digital assets will hinge on where you live.

Quebecers or British Columbians will have an easier time, while Ontario residents will find their choices limited. Exchanges like Binance have learned the hard way, publicly battling with the Ontario Securities Commission over whether they can serve Ontario users.

Though Binance is registered through Canada’s FINTRAC as a money service business, it must comply with Ontario’s securities rules before it can legally accept users in Ontario. That has left millions of Ontarians blocked from Binance and other platforms.

Plenty of Canadians complain about Quebec’s unique status on other matters of regulation, but Ontario is the outlier when it comes to securities.

Canada’s decentralized system gives each province autonomy in the regulation of securities and investor protection. The two most important, due to population, are the Ontario Securities Commission and Quebec’s Autorité des marchés financiers. 

However, Quebec has an advantage as a signatory to a 2004 memorandum of understanding between securities regulators that acts as a “passport” to allow licenses to be accepted in other provinces. Every province and territory has accepted this passport system and works to foster more integrated rules across the country. All except Ontario.

Though the Ontario regulator is fairly busy, it has so far avoided joining hands with other provinces.

In 2020, Canadian Securities Administrators, the umbrella organization of other provinces’ securities regulators, chastised Ontario for not including the passport rule in their highly-praised taskforce to modernize capital markets.

These piecemeal licenses and exemptions, as well as the lack of any significant cryptocurrency rules at the federal level, mean Canadians who want to use these services are forced to adopt creative —if not technically illegal — methods of bypassing restrictions.

Using the second-largest global crypto exchange FTX, for example, is out of bounds. But if you fire up a Virtual Private Network (VPN) and set it to a U.S. IP address, you can easily log in, provide some information, and get to trading.

While FTX is registered with the federal government through FINTRAC, it still does not have the license necessary to offer its services to residents in Ontario. Recent acquisitions by FTX and other firms may change that, but only if the OSC accepts the new license. 

Considering dozens of other shady offshore crypto exchanges are all too happy to accept Canadians without following financial regulations or disclosures, this system is obviously broken and full of risk. Without smart rules, entrepreneurs and consumers have no other options, setting them up for a world of pain.

Dozens of liquidations and so-called “rug pulls” are cascading in the current bear market, putting millions of Canadian investments at risk. This includes Quebec’s major pension fund, which participated in a $400 million round in Celsius Network, a crypto lending and staking platform close to bankruptcy and default.

We already know that Canada, while a wealthy and free country, does not have interprovincial free trade, as we’re all too reminded in political campaigns and frequent cases before the Supreme Court. It’s no different with cryptocurrency rules.

While we await the unlocking of provincial trade barriers, there is something we can do to provide better clarity and security for Canadians who want in on the crypto economy.

Considering the billions of dollars from both institutions and Canadian investors at risk in the cryptocurrency space, it is true that there is currently no clear regulatory oversight or remedies apart from those we would traditionally apply to banking institutions. 

The current Capital Adequacy Requirements for banks in Canada can range up to 8 percent depending on the institution and holdings, usually owing to a level of risk exposure. This is a convoluted and complicated formula and keeps the number of banks in Canada quite low when compared to other industrialized and financialized countries.

While it may seem attractive to automatically lump cryptocurrency projects and protocols into Canadian banking rules and requirements, we recognize that virtual currencies are different than traditional investments and thus should also have their own set of rules. 

Disclosures, protections against fraud, and legal certainty, however, are key principles that would prove very beneficial to Canadian crypto consumers, as we have proposed elsewhere. But what can be done today?

First, Ontario should sign the memorandum to adopt the passport rule and other securities rules, like all other Canadian provinces. Second, if Ontario refuses to budge and there’s no appetite for a federal securities regulator, Canada should at least pass a law granting reciprocity of provincial securities licenses. Third, and most importantly, Ottawa should embrace smart cryptocurrency regulations that promote innovation, competition, and legally allow Canadians to buy and trade cryptocurrencies if they choose.

There are many advantages to being Canadian. We have a robust economy with plenty of opportunities that help raise our standard of living to punch above our weight. We must ensure that our rules reflect that, no matter our postal code and provincial flag. It’s time for our political leaders to follow through.

Originally published here

EU’s Bitcoin and Cryptocurrency Surveillance Rules to Harm Consumers

The European Union’s final trialogue between Council, Commission, and Parliament has finished crafting the first part of legislation that makes up the new EU anti-money laundering package aligned with the Markets in Crypto-assets rules (MiCA).

These rules are drafted following recommendations from the so-called Travel Rule of the Financial Action Task Force (FATF), a global treaty organization that combats money laundering. The aim of this rule is to effectively track financial assets, and included crypto assets like Bitcoin and other cryptocurrencies beginning in 2019,

The EU’s proposed rules introduce regulations that are far from technologically neutral, are detrimental to innovation, and will harm consumers who depend on cryptocurrency services.

Crypto asset service providers are obliged to keep records and provide traceability from the first euro compared to traditional finance where that requirement is set for transfers larger than 1000 EUR.

Crypto asset service providers will be required to collect information and apply enhanced due diligence measures with respect to all transfers involving non-custodial wallets. A number of risk-mitigation measures will be in place for cryptocurrency exchanges before establishing a business relationship with exchanges in third countries. 

Putting such stringent regulations on non-custodial wallets, together with introducing strict and complicated measures for cryptocurrency exchanges, will introduce unfavorable conditions for the growing industry and will cause a number of businesses to be forced and move their operations abroad – depriving consumers of their ability to safely and securely enjoy crypto services.

Putting these high regulatory costs in place is already influencing the decision-making of crypto asset service providers, now considering changing jurisdictions and moving to more favorable ones. These ham-handed regulations won’t only affect the industry, but many of the consumers who rely on them, pushing them to use non-EU exchanges. 

We have seen consumers voting with their feet in the past, choosing service providers in different countries to avoid similar measures, and this will be no exception.

With more Orwellian stipulations requiring that a consumer who sends or receives more than 1000 EUR to or from their own non-custodial wallet be verified by the crypto exchange, we will be seeing a number of issues arising both for the industry as well as for the consumers, putting additional costs to all transfers. 

The European Union has been criticized in the past for its overregulation especially when it comes to innovative technologies. Even though the EU has been relatively early in creating a comprehensive legal framework for cryptocurrencies, a number of the regulations agreed on will undoubtedly bring harm to both the industry and the retail consumer.

Surveillance of each consumer coupled with copious regulations aimed at crypto asset service providers will once again leave EU citizens looking for alternatives within jurisdictions more open to innovation, decentralization, and consumer-orientated regulatory frameworks.

The entire point of cryptocurrencies is to provide an alternative to the government-controlled fiat money system. These rules aim to disrupt that aim, principally by forcing industry players to comply with even stricter rules imposed on traditional finance institutions.

There is a better way to do this in order to promote innovation, protect consumers, and create a better ecosystem that will benefit all Europeans.

Our Principles for Smart Cryptocurrency Regulations policy primer is available to all regulators, and offers core principles to uphold in order to create regulatory guidance for the nascent industry without hurting innovation.

PRINCIPLES

  • Prevent Fraud
  • Technological Neutrality
  • Reasonable Taxation
  • Legal Certainty & Transparency

The temptation to regulate cryptocurrencies and the blockchain economy based on financial considerations alone, rather than the innovative potential, is an active threat to entrepreneurs and consumers in the crypto space.

Penalizing first-movers in crypto innovation or subjecting them to outdated laws will only serve to limit the unparalleled economic growth currently provided by the sector, or risk pushing all investment and entrepreneurship to less reliable and lawful jurisdictions.

The policy primer can be read in full here

The CCC represents consumers in over 100 countries across the globe. We closely monitor regulatory trends in Ottawa, Washington, Brussels, Geneva, and other hotspots of regulation and inform and activate consumers to fight for #ConsumerChoice. Learn more at consumerchoicecenter.org.

If you would like to help us defeat harmful Bitcoin and cryptocurrency regulation, also using crypto, consider investing value in the Consumer Choice Center via our Donate page.

Preserve privacy by rejecting a ban on Bitcoin and crypto self-custody in Lithuania

Lithuania’s Finance Ministry has announced plans that would essentially outlaw non-custodial crypto wallets – the practice of self-custodying of Bitcoin and cryptocurrencies on a wallet an individual controls – and impose stricter regulations on crypto exchanges in an attempt to combat money-laundering, terrorist financing, and sanctions evasion. 

The prepared draft law heads to the Seimas and, if passed, would impose stricter regulations on individuals as well as cryptocurrency exchanges in the country.

This bill mirrors a proposed European Commission regulation that has passed various EU Parliament committees but has yet to adopt continent-wide, aiming to restrict cryptocurrency services and institutions.

“Banning non-custodial wallets, together with introducing strict and complicated measures for cryptocurrency exchanges will introduce unfavorable conditions for the growing industry and will cause a number of businesses to be forced and move their operations abroad – not to mention the harm this does to consumers who want to safely and securely enjoy crypto services,” said Aleksandar Kokotovic, crypto fellow at the Consumer Choice Center, a consumer advocacy group. 

“A measure that aims to prevent money laundering will have very little effect in doing so but will definitely hurt the privacy of Lithuanian citizens and force them to use services based outside of the country, leaving them less secure than they are at the moment,” said Kokotovic.

“Non-custodial Bitcoin and cryptocurrency wallets are basically just code, many of which are open source and can be replicated and forked indefinitely. A government trying to ban code is not only ridiculous but will do absolutely nothing to supposedly stop bad actors. All it will do, in the end, is create a precedent for the government to crack down on its own citizens for using cryptocurrencies,” said Yaël Ossowski, deputy director of the Consumer Choice Center.

“Banning software in 2022 is not only a bad idea that will be impossible to enforce, but will have a wide array of possible negative consequences, including the privacy of financial and crypto customers. 

“We have seen consumers voting with their feet in the past and sometimes being forced to choose service providers in different countries to avoid similar measures. We are still hoping that Seimas will understand the worries around approving such legislation and that they will preserve privacy and safeguard innovation rather than create unfavorable conditions for consumers and businesses,” said Yaël Ossowski, deputy director of the Consumer Choice Center.

The Consumer Choice Center strongly urges Seimas members to vote against this legislation and to preserve the privacy of Lithuanian citizens as well as continue creating a prosperous and friendly business environment for consumers and industry alike.

“We offer the following bedrock principles on smart crypto regulation for lawmakers, hoping to promote sound policies that will encourage innovation, increase economic inclusion across all income groups, all the while protecting consumers from harm,” said Ossowski.

PRINCIPLES

  • Prevent Fraud
  • Technological Neutrality
  • Reasonable Taxation
  • Legal Certainty & Transparency

“The temptation to regulate cryptocurrencies and the blockchain economy based on financial considerations alone, rather than the innovative potential, is an active threat for entrepreneurs and consumers in the crypto space,” said Aleksandar Kokotović, CCC’s crypto fellow and co-author of the primer.

“Penalizing first-movers in crypto innovation or subjecting them to outdated laws will only serve to limit the unparalleled economic growth currently provided by the sector, or risk pushing all investment and entrepreneurship to less reliable and lawful jurisdictions,” added Kokotović.

The policy primer can be read in full here

New York lawmakers just killed Bitcoin and crypto mining and consumers will suffer

Albany, NY – Early this morning, the New York State Senate joined with the State Assembly to pass a moratorium on Bitcoin and cryptocurrency mining, issuing yet another reminder that state lawmakers want to deny their residents from interacting with cryptocurrencies.

The law would prevent new permits from being issued to carbon-based fueled proof-of-work mining operations that use behind-the-meter energy, putting millions of dollars worth of investments into jeopardy. This follows the logic of the much-derided BitLicense regulation, which has made it nearly impossible for small and medium-sized firms to offer crypto services to New York residents.

“By passing this bill, New York lawmakers are unequivocally stating they want their residents completely locked out of cryptocurrencies, from generation and mining services to actually being able to easily buy them through an exchange,” said Yaël Ossowski, deputy director of the Consumer Choice Center, a consumer advocacy group.

“If Gov. Hochul signs this bill, it will drive a stake through the Bitcoin mining industry, and states like Florida, Montana, Utah, and Texas will rejoice at the opportunity to invite those entrepreneurs and innovators to establish operations in their states.

“Because Bitcoin, and cryptocurrencies more broadly, will serve a vital role in making finance more inclusive and accessible for sending, receiving, and saving value, we hold it in the interest of consumers that the hashrate (the total computing power of the network) continue to grow, and that better public policy on cryptocurrencies is embraced among states.

“New York, however, has decided to take the NIMBY approach and deny their residents that opportunity,” added Ossowski.

“Cryptocurrency generation and mining firms have an incentive to use the most affordable and renewable energy sources available, and the data backs up this claim. This is a win-win scenario for towns and localities with these facilities, for employees of these firms, residents in these towns that benefit from increased commerce, and energy customers overall,” said Ossowski.

“As cryptocurrency mining proliferated in New York, it opened up new entrepreneurial activities that helped improve the lives of New Yorkers in small communities and large urban centers alike. Passing a ban on these activities, in pursuit of an unclear climate goal, will negate these gains. There is a better path,” added Ossowski.

“The aim of embracing climate goals to ensure 100% renewable energy usage in cryptocurrency generation and mining is well-intended, but a complete ban will have a devastating impact on innovators and entrepreneurs hosting their facilities in the state of New York, and consumers and investors that rely on their services,” said Aleksandar Kokotovic, crypto fellow at the Consumer Choice Center. 

“We understand that the quick rise of cryptocurrency mining raises many questions for residents, particularly when it involves the local economy and environment. However, a more prudent path would be an environmental review conducted by relevant authorities, rather than a wholesale ban and moratorium that would put many projects in legal jeopardy,” added Kokotovic.

***CCC Deputy Director Yaël Ossowski is available to speak on consumer regulations and consumer choice issues. Please send media inquiries to yael@consumerchoicecenter.org.***

The CCC represents consumers in over 100 countries across the globe. We closely monitor regulatory trends in Washington, Ottawa, Brussels, Geneva, and other hotspots of regulation and inform and activate consumers to fight for #ConsumerChoice. Learn more at consumerchoicecenter.org.

NIMBY Bitcoin mining ban threatens to lock New Yorkers out of the crypto revolution

By Yaël Ossowski

In 2015, when New York unveiled the BitLicense, a regulatory framework for Bitcoin and cryptocurrency, there was great fanfare among lawmakers. For innovators and entrepreneurs, however, that began what many labeled the “Great Bitcoin Exodus”.

And though it has been reformed since, much of the cryptocurrency space has walled off the Empire State because of the exhaustive regulations, leaving many customers unable to use a host of exchanges, brokerages, and other services. Residents were even prohibited from buying the much anticipated NYCCoin that launched last year.

Though some exchanges and brokers have applied and received the license — usually those armed with lawyers and staffed by former regulators — New Yorkers are still left out of most of the innovation happening with cryptocurrencies. Miners, however, decided to stay.

Bitcoin mining firms have scooped up abandoned plants in Niagara Falls, Buffalo, and more, using hydropower and natural gas to power the computers needed to “unlock” Bitcoin from the network. Regulators, however, are once again keen to put the screws to crypto. 

A bill awaiting its fate in the Senate would impose a two-year moratorium on crypto mining permits, and launch an expansive environmental review.

As a consumer advocate, I view this bill as a death blow to the Bitcoin and cryptocurrency industry, risking jobs and capital that could otherwise scale up renewable energy, and would deny the benefits of crypto and Bitcoin to consumers.

Embracing climate goals to ensure 100% renewable energy usage in mining is well-intended, but a complete ban would have consequences. It will be yet another signal to entrepreneurs and consumers that Bitcoin and other cryptocurrencies are not welcome in New York, and the regulatory framework is too unfavorable to justify investing here.

For people feeling the impact of inflation, and for those who are locked out of the traditional finance and banking sector, their choices will become even more limited.

I understand the rise of cryptocurrency mining raises questions for residents, particularly when it involves the economy and environment. However, a more prudent path would be an environmental review conducted by relevant authorities, rather than a wholesale ban and moratorium that would put many projects in jeopardy.

When it comes to public policy on Bitcoin and cryptocurrency, I would rather side with financial inclusion and crypto innovation than a “Not In My Backyard” mentality.

New Yorkers deserve better: a choice of whether they want to participate in the crypto revolution, rather than have their lawmakers make that choice for them.

Yaël Ossowski is deputy director of the Consumer Choice Center

New Yorkers need prudence, not bans, on Bitcoin and cryptocurrency mining

On May 24, 2022, the Consumer Choice Center sent a letter to New York state lawmakers, warning of the potential consequences to consumers if bill S6486D was adopted, a moratorium on Bitcoin and cryptocurrency mining.

The full letter is available below, or in PDF version here.

Dear Senators,

We write to you to urge you to vote against S6486D, a companion bill to A7389C, which would order a state-wide moratorium on cryptocurrency generation or mining.

If passed, this bill would be a death blow to the Bitcoin and cryptocurrency industry, resulting in thousands of jobs lost in New York, a loss of capital to scale up renewable energy, and would harm all potential benefits to consumers from cryptocurrency projects and initiatives. 

The aim of embracing climate goals to ensure 100% renewable energy usage in cryptocurrency generation and mining is well-intended, but a complete ban will have a devastating impact on innovators and entrepreneurs hosting their facilities in the state of New York, and consumers and investors that rely on their services.

As a consumer group, it may seem odd for us to weigh in on a topic that affects mostly industry players and firms. However, because we believe that Bitcoin, and cryptocurrencies more broadly, will serve a vital role in making finance and economics more inclusive and accessible for sending, receiving, and saving value, we hold it in the interest of consumers that the hashrate (the total computing power of the network) continue to grow, and that better public policy on cryptocurrencies is embraced among state legislatures.

If the Bitcoin hashrate grows specifically in the United States, then we will have more control in how mining develops and how it can benefit the country, its citizens, and our energy grids.. This last part is vital for climate goals, which cannot be said for China or other nations.

According to the latest figures from the first quarter of 2022 on Bitcoin mining specifically, 58.4% of miners are using renewable energy sources, and that number has only increased in several years. In New York, many firms are retooling abandoned processing and power generation plants to build cryptocurrency data centers, and are providing economic value in return that is putting renewable energy to work.

What’s more, this wide-ranging energy diversification is happening at a pace faster than any other industry, leading to more investment in renewable energy capacities and delivery systems. This increased demand is leading to more environmentally favorable energy delivery for customers of all public electricity utilities, and will also help bring down costs. And this is being carried out due to the incentives of firms and individuals who participate in adding hash rate to mining: they want to lower their costs and find better alternatives. 

Cryptocurrency generation and mining firms have an incentive to use the most affordable and renewable energy sources available, and the data backs up this claim. This is a win-win scenario for towns and localities with these facilities, for employees of these firms, residents in these towns that benefit from increased commerce, and energy customers overall.

As cryptocurrency mining has proliferated in New York, it has opened up new entrepreneurial activities that will help improve the lives of New Yorkers in small communities and large urban centers alike. Entertaining a ban on these activities, in pursuit of an unclear climate goal, will negate these gains. There is a better path.

It should not surprise you to know that New York’s previous policy decisions, including the highly criticized BitLicense, have locked many New Yorkers out of the new cryptocurrency ecosystem due to the high compliance costs. Some New Yorkers have chosen to change residences in order to acquire cryptocurrency or to invest in crypto businesses, which they can do in any other state, but more specifically Texas, Wyoming, and Florida.

If this moratorium on cryptocurrency generation comes to pass, it will be yet another signal to entrepreneurs and consumers that Bitcoin and other cryptocurrencies are not welcomed in New York, and the regulatory framework is too unfavorable to justify investing here.

A number of industry organizations, communities, and unions have already expressed their concerns about the impact this bill would have on their families and livelihoods, fearing potential job loss in case industry gets driven away from the state as a result of this legislation. The loss of future investments and new jobs is another concern expressed by many communities in cities such as Rochester, Albany, and Syracuse.

According to the May 2022 Empire State Manufacturing Survey, the general business conditions index has dropped thirty-six points statewide. The last thing many affected and marginalized communities need is a moratorium that would drive businesses away from the state, and keep millions of New Yorkers from being included in a new system of value.

We understand that the quick rise of cryptocurrency mining raises many questions for residents, particularly when it involves the local economy and environment. However, a more prudent path would be an environmental review conducted by relevant authorities, rather than a wholesale ban and moratorium that would put many projects in legal jeopardy.

As consumer advocates, we are strongly opposed to this bill. We believe that New York residents deserve a chance to take part in the nascent industry that so many other states are hoping to accommodate. Using the force of regulation to drive away investments and jobs, stop economic progress, and shut out millions of New Yorkers from a more inclusive financial system would not only be wrong, but it would also be negligent.

Please vote No on S6486D aiming to place a moratorium on proof-of-work and help New York become a hub of innovation that embraces new technologies. New Yorkers should have the opportunity to participate in one of the biggest innovations of our age. With your vote against this bill and a more prudent direction, we can ensure that will happen.

Sincerely Yours,

Yaël Ossowski

Deputy Director

Aleksandar Kokotovic

Crypto Fellow

EU Risks ‘Forever Stalling’ Digital Innovation With A Bitcoin Ban

The European Parliament’s Committee on Economic and Monetary Affairs will vote today on a comprehensive regulatory proposal called MiCA (Market in Crypto-Assets). This proposal has been in the works for months, however, last-minute several amendments have been added to the proposal, which if accepted could effectively ban Bitcoin and cryptocurrency mining in the European Union, pushing thousands of innovators out of Europe.

“By effectively prohibiting the issuance or offering for exchange of crypto-assets that rely on proof-of-work protocols under environmental, social, and governance guidelines, the European Union would make a disastrous move that would obliterate not just the nascent crypto industry but also hurt consumers and once again cede technological leadership in innovation to the United States,” said Aleksandar Kokotović, crypto fellow at Consumer Choice Center, a global consumer advocacy group.

Read the full article here

Biden’s Digital Assets Executive Order Gets It ‘Mostly Right’ on Protecting Consumers and Innovation in Crypto

Washington, D.C. – Today, President Biden signed an executive order on digital assets, the first major federal executive action relating to cryptocurrencies in the United States.

Yaël Ossowski, deputy director of the consumer advocacy group Consumer Choice Center, praised the order for getting smart cryptocurrency regulation “mostly right”.

“President Biden’s statements demonstrate the federal government’s acknowledgment that Bitcoin and cryptocurrencies will play a positive role in our nation’s future, and offers some key guidance on ensuring the entire crypto economy remains competitive, transparent, and innovative for consumers,” said Ossowski.

“Protecting consumers from scams, giving legal certainty, and allowing for innovation to create new standards for cryptocurrency rules is a responsible and legitimate role for government when it comes to digital assets. We must recognize that the nascent crypto finance space is ever-changing and rapidly evolving and that overzealous regulation could cripple future potential.

“Biden echoed concerns about Bitcoin and cryptocurrency mining, but we believe the environmental benefits from accepting mining will far outweigh any negative repercussions. Crypto mining is an innovative field that strengthens networks and creates incentives for clean energy,” said Ossowski.

“Last year, my colleagues and I at the Consumer Choice Center released our Principles for Smart Crypto Regulation, underscoring the need for preventing fraud, pursuing technological neutrality, reasonably low taxation, and legal certainty and transparency.

“However, considering the toll of inflation on ordinary Americans and the civil liberties concerns related to consumers’ financial privacy, the plans to research a Central Bank Digital Currency are concerning and will need much more scrutiny in the months to come.

“Overall, we praise the administration’s efforts on keeping cryptocurrency legitimate and accessible and hope any legislation to come will follow these bedrock principles. We’re all going to make it,” concluded Ossowski.

The keys to smart crypto regulation

Freedom convoy aside, regulators can’t only view Bitcoin and other cryptocurrencies through a nefarious lens, David Clement and Yaël Ossowski write

Following the federal government’s invoking of the Emergencies Act, Deputy Prime Minister Chrystia Freeland outlined the temporary regulations on financial institutions that would require surveillance of all blockade-related “forms of transactions, including digital assets such as cryptocurrencies.” The focus on cryptocurrencies was likely sparked by the success of the Honkhonk Hodl Bitcoin fundraising campaign for the Freedom Convoy. Whatever you may think of the convoy, this development has proven that Canadians are paying attention to cryptocurrencies. And now, so is Ottawa.

Freedom convoy aside, regulators can’t only view Bitcoin and other cryptocurrencies through a nefarious lens. These events prove why we need smart regulation of cryptocurrencies, so that we can keep this sector competitive, free, and legitimate.

This month Conservative MP Michelle Rempel Garner tabled a bill to open Canada’s institutions to cryptocurrencies. The bill would require the government to co-ordinate with industry experts to write a framework to help grow the sector in Canada. Since the arrival of Bitcoin in 2008, digital assets have been catapulted to a highly dynamic sector worth $2 trillion. Whether it is exchanges, decentralized finance, or lightning payments, there is no doubt that Bitcoin and other cryptocurrencies represent a new paradigm and opportunity.

Legislation like Rempel Garner’s could ensure that the ecosystem for the sector is protected from overzealous regulation, but only if we enact smart, focused and targeted regulations that do not destroy the industry altogether.

Any institution touching digital assets should have clear guardrails that provide legal certainty. That means no additional red tape when it comes to crypto companies opening bank accounts and insurance policies. We also need assurances that federal agencies will not penalize actors or subject them to costly and burdensome enforcement actions just because cryptocurrencies are involved.

Failing to take these steps risks pushing crypto activity to the black market or seedy jurisdictions, where no rules or regulations will be followed. The history of Prohibition or the Global War on Drugs, which have ballooned criminal and black market activity, provides us an example.

Technological neutrality should be a core tenet of any legislation, meaning that governments should not declare winners or losers. Just like the vinyl record was replaced by the CD-ROM and then the MP3, governments should not choose a preferred crypto technology and instead allow innovation, competition, and consumer choice to make that determination. 

Whether it is algorithmic mining (Proof of Work), interest-bearing accounts, or easy payments, users and entrepreneurs are testing and adopting best practices for the crypto future. If the government endorses one method or outlaws another, because of environmental, financial, or legal concerns, it risks backing the wrong horse and stifling innovation.

Another important aspect of future regulation is moderate taxation. In Estonia, for example, cryptocurrencies are considered property assets but are not subject to Value Added Tax (VAT). Capital gains are taxed accordingly but kept low to ensure investment and innovation while ensuring fairness.

Overall, regulators must not pigeonhole cryptocurrencies only as investments fit for taxing. These are technological tools that empower consumers and foster innovation. A unique crypto asset class, separate from traditional securities, could also help users benefit from the decentralization and encryption that these projects offer while ensuring broader financial adoption.

Rempel Garner’s bill is a step in the right direction, but it is important that what comes of this focuses on these core aspects. Failing to do so will leave Canada, Canadian consumers, and domestic entrepreneurs out in the cold.

Originally published here

Scroll to top