a16z: The Latest Global Crypto Regulatory Developments

Author: a16z crypto Regulatory Team

Editor’s Note: The a16z crypto regulatory update is a series of reports highlighting the latest crypto regulatory and policy events related to web3 and crypto builders, tracked and curated by the a16z crypto regulatory team. These overviews are based on the latest news, updates, new guidelines, and ongoing legislation and frameworks released by regulators/entities, industry alliances and professional associations, banks, governments, and other entities as they impact the crypto industry (or applications) around the world. We also occasionally include selected additional resources in the updates, such as talks, posts, or other commentary from us or others.

Quick Preview

• The U.S. Department of the Treasury and the IRS announced that businesses do not need to report digital asset income like cash income until relevant regulations are issued and effective.
• The U.S. Securities and Exchange Commission (SEC) expanded the definition of "dealer" to include market participants that regularly provide substantial liquidity in trading and market activities, including digital asset securities. The new definition may cover certain crypto firms that will need to register with the SEC, become members of a self-regulatory organization, and comply with federal securities laws.
• The U.S. Energy Information Administration (EIA) has obtained emergency permission to conduct a temporary survey on the electricity consumption of certain crypto mining companies operating in the U.S. The EIA plans to start collecting data monthly from February to July 2024.

U.S. Commodity Futures Trading Commission (CFTC)

• The CFTC charged the digital asset platform Debiex with fraudulently misappropriating $2.3 million of customer funds for digital asset commodity trading using a popular romance scam strategy.
• The CFTC's Office of Customer Education and Outreach released a customer advisory report warning the public about AI scams, some of which are related to crypto asset arbitrage algorithms.
• The CFTC's Office of Customer Education and Outreach issued a customer advisory report reminding users of dating apps, messaging services, and social media to be cautious of scams asking for financial support or offering investment advice, sometimes related to crypto investments.
• CFTC Chairman Rostin Behnam stated, "The lack of legislation has not dampened enthusiasm for digital assets," while emphasizing that the need for federal legislation on cash market digital assets "has never been more important."

U.S. Congress

• Tennessee Republican Senator Bill Haggerty and Wyoming Republican Senator Cynthia Lummis introduced the 2024 Bill to Prevent Illegal Financial Activity Through Partnerships, which will establish a program for certain government agencies and designated private entities to share information about potential illegal financial violations and threats, as well as new risks associated with them.
• Wyoming Republican Senator Cynthia Lummis, North Carolina Democratic Representative Wiley Nickel, and Nebraska Republican Representative Mike Flood introduced a Congressional Review Act resolution to overturn the SEC staff accounting bulletin (SAB) 121, which requires companies providing crypto asset custody for consumers to account for the custodial assets on their balance sheets.
• North Carolina House Financial Services Committee Chairman Patrick McHenry and others wrote to Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra urging him to reopen and extend the public comment period on the CFPB's recent proposal to "define large participants in the general-purpose digital consumer payment application market."
• North Carolina House Financial Services Committee Chairman Patrick McHenry and others wrote to Treasury Secretary Janet Yellen requesting clarification on FSOC's call to fill existing regulatory gaps in the non-securities digital asset spot market in her capacity as FSOC chair.
• Ohio Republican Senator JD Vance, North Carolina Republican Senator Thom Tillis, Tennessee Republican Senator Bill Hagerty, Wyoming Republican Senator Cynthia Lummis, and Alabama Republican Senator Katie Boyd Britt wrote to SEC Chairman Gary Gensler expressing concern over the SEC's enforcement actions against Digital Licensing Inc. (also known as "DEBT Box").
• Wyoming Republican Senator Cynthia Lummis told CoinDesk TV that she is optimistic about stablecoin legislation "this year, possibly even in the first half."

U.S. Department of Justice

• The U.S. Department of Justice (DOJ) announced an indictment against a Belarusian and Cypriot national related to the now-defunct cryptocurrency exchange BTC-e, which facilitated transactions for global cybercriminals.
• The DOJ charged three individuals in connection with a SIM card swapping scam that exceeded $400 million. Reports indicate that FTX may have been a victim of this attack just hours after announcing bankruptcy.
• The DOJ recently charged two suspects in a crypto scam and secured a guilty plea from another suspect related to a global crypto Ponzi scheme called HyperFund, involving up to $1.89 billion. The SEC has charged two of them in a related civil lawsuit.
• A federal jury found that the former head of financial engineering at Hydrogen Technology manipulated securities prices and conspired to defraud investors when purchasing Hydrogen Technology's cryptocurrency HYDRO.
• A commodity trading advisor was sentenced to two years in prison and home confinement after admitting to using cherry-picking tactics to steal client profits from a pair of commodity pools he set up for trading cryptocurrencies and forex futures.
• An Indian national pleaded guilty to selling controlled substances on the dark web and agreed to forfeit $150 million in cryptocurrency.
• A federal grand jury indicted a Texas man who underreported or failed to report $4 million in Bitcoin sales in his false tax returns, from which he gained substantial profits.

U.S. Department of the Treasury

• The U.S. Department of the Treasury and the IRS announced that businesses do not need to report digital asset income like cash income until relevant regulations are issued and effective.
• The U.S. Treasury released the 2024 National Risk Assessment on Money Laundering, Terrorist Financing, and Proliferation Financing, highlighting risks related to illegal fundraising and virtual assets.
• Since the October 7 attacks on Israel, the Treasury's Office of Foreign Assets Control (OFAC) has implemented a fifth round of sanctions against Hamas. The sanctions target a network of financial exchanges linked to Hamas in Gaza, which play a key role in fund transfers (including cryptocurrency transfers).
• Treasury Secretary Janet Yellen testified before Congress that the risks associated with digital assets and the potential for runs on crypto asset platforms and stablecoins are among the five key areas of focus for FSOC. She also encouraged Congress to pass legislation to regulate stablecoins and the non-securities digital asset spot market.
• Assistant Secretary for Financial Institutions Graham Steele called on policymakers to "adopt higher standards" to support "reliable innovation" in crypto assets.
• The IRS reminded taxpayers that they must answer digital asset questions and report all income related to digital assets when filing their 2023 federal income tax returns, just as they did in their 2022 federal tax returns.

U.S. Energy Information Administration

• As mentioned in the quick preview, the EIA has obtained emergency permission to conduct a temporary survey on the electricity consumption of certain identified crypto mining companies operating in the U.S. The EIA plans to start collecting data monthly from February to July 2024.

U.S. Federal Deposit Insurance Corporation (FDIC)

• The FDIC sent letters to five entities (including at least one so-called cryptocurrency exchange) demanding that they cease and desist from making false and misleading statements regarding FDIC deposit insurance.

U.S. Securities and Exchange Commission (SEC)

• As noted in the quick preview, the SEC expanded the definition of "dealer" to include market participants that regularly provide substantial liquidity in trading and market activities, including those related to digital asset securities. The new definition may cover certain crypto firms that will need to register with the SEC, become members of a self-regulatory organization, and comply with federal securities laws.
• The SEC postponed the deadline for making a decision on the Ethereum ETF proposals submitted by Fidelity, BlackRock, Grayscale, and the joint proposal from Invesco and Galaxy Digital.
• TradeStation Crypto, Inc. agreed to pay a $1.5 million fine to the SEC to settle charges of failing to register its crypto lending product, which allowed U.S. investors to deposit or purchase crypto assets in TradeStation accounts in exchange for the company's promise to pay interest.
• The founder of the American Bitcoin Academy reached a settlement with the SEC, which had accused him of defrauding students into purchasing online crypto trading courses through a series of lies about his so-called crypto hedge fund investment opportunities, profiting over a million dollars from it.
• The SEC requested a federal court to dismiss its lawsuit against the crypto project Digital Licensing Inc. (also known as "DEBT Box"), stating that its officials "have taken and are taking broader corrective measures," including their alleged false statements to the court.
• If Genesis Global Capital can fully repay customers in bankruptcy, Genesis Global Capital agreed to pay a $21 million fine to the SEC (related to its now-defunct Gemini Earn Lending program) to settle. However, the settlement agreement is subject to bankruptcy court approval.
• The Financial Industry Regulatory Authority released an update on its targeted exam initiated in November 2022 to review member firms' communications with retail customers regarding crypto assets. FINRA found potential substantive violations in approximately 70% of the communications.

International

🇪🇺 European Union

• The European Council and Parliament reached a provisional agreement on a new anti-money laundering scheme, which requires crypto asset service providers to conduct customer due diligence measures for transactions of €1,000 or more and increases measures to mitigate risks associated with self-custody wallet transactions.
• The European Banking Authority expanded its guidelines on money laundering and terrorist financing risk factors to include crypto asset service providers.

🇩🇪 Germany

• German police announced the seizure of 50,000 Bitcoins, valued at $2.17 billion, in the "largest ever" cryptocurrency seizure operation.

🇱🇺 Luxembourg

• Crypto liquidity provider B2C2 announced it has received regulatory approval to operate in Luxembourg.

🇰🇷 South Korea

• South Korean authorities arrested three executives of the crypto yield platform Haru Invest, who are suspected of stealing approximately $828 million in cryptocurrency.

🇹🇭 Thailand

• The Thai Securities and Exchange Commission ordered the crypto exchange Zipmex to suspend its digital asset trading and brokerage services for 15 days, during which it has the opportunity to "correct its financial situation and operational deficiencies." The commission also filed charges against the former CEO of Zipmex Thailand.

🇦🇪 United Arab Emirates

• OKX's subsidiary in Dubai announced that it has obtained a virtual asset service provider (VASP) license issued by the Dubai Virtual Assets Regulatory Authority.

🇬🇧 United Kingdom

• The Bank of England and HM Treasury published their response to the consultation document on the digital pound. The Bank of England and HM Treasury have not yet decided to issue a digital pound, but they are committed to ongoing research and design work, ensuring privacy as a "core design feature."

🇺🇳 United Nations

• A report from the United Nations discusses the use of cryptocurrency in casinos, money laundering, underground banking, and transnational organized crime in East and Southeast Asia.