Crypto Regulations: Grand News - May 25

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The European Commission is proposing to make it easier for commercial lenders to hold stablecoins and tokenized assets, in contrast to the European Parliament's tough position on crypto holdings. The commission's leaked document suggests a 250% risk weight for stablecoins tied to nonfiat assets such as gold, while tokenized assets and stablecoins based on fiat currencies like the USD would be treated the same as the underlying instrument. The plan is in line with the forthcoming Markets in Crypto Assets regulation, which will regulate stablecoin issuers and require them to hold appropriate reserves. Supervisors would also need to ensure banks are correctly managing the risks of holding crypto, including cybersecurity, money laundering, and valuation problems. The proposals anticipate detailed crypto standards from the international Basel Committee on Banking Supervision.

Despite initial skepticism from the crypto community, CBDC initiatives are gaining momentum around the world as over 100 countries explore the potential of digital currencies distributed through blockchain technology. CBDCs offer cheaper, faster, and more accessible transactions than traditional banking systems, and have the potential to more effectively combat illegal financial activity such as money laundering. The number of CBDC projects has significantly increased, with 39 countries currently in various stages of development, including pilot and proof-of-concept initiatives. Major economies such as the United Arab Emirates, China, and India have launched successful pilots, while smaller nations are actively pursuing CBDC implementation. Private sector players such as Ripple, R3, IBM, and Bitt Inc. are shaping the CBDC technology landscape, and some countries see CBDCs as a potential instrument for circumventing sanctions.

Despite the recent "cryptowinter" with bankruptcies of major exchanges, regulators and supervisors should view this as a "spring time" to develop initiatives in regulating and supervising the crypto ecosystem. Risks associated with the crypto ecosystem include financial integrity risk and cyber risk, particularly in the case of stablecoins, which require stricter regulation due to their false sense of security and lack of transparency. The European Union leads the way in regulatory work with the adoption of the Markets in CryptoAssets regulation (MiCA) but further requirements are needed to cover crypto conglomerates and the decentralized finance (DeFi) ecosystem. Global regulatory coordination is necessary to avoid regulatory arbitrage and address the challenges of DeFi and worldwide crypto conglomerates.

BitGo CEO, Mike Belshe, has called on US regulators and lawmakers to act quickly in enacting regulations for the digital asset industry. He pointed out that the US is currently lagging behind other countries in implementing comprehensive regulations, which is putting American businesses at a competitive disadvantage. Belshe also highlighted the problems caused by the fragmented regulatory landscape in the US, with different states having different rules for digital assets. He urged regulators to extend basic investor protections to digital assets while crafting new rules that fit the technology, and exempting firms from other rules that do not.

Russia has released a list of American citizens who are banned from traveling to the country in response to US sanctions. The latest list includes several high-profile crypto industry names, including BJ Kang from Binance.US, SEC Enforcement Director Gurbir Grewal, New York Attorney General Letitia James, and Chair of Council of Economic Advisers Jared Bernstein. The reasons for their inclusion on the list are not clear, but Kang was identified as a current FBI agent despite leaving the agency to work for Binance.US. Grewal has been involved in SEC enforcement actions against digital asset initiatives, while James has launched investigations into numerous crypto exchanges. Bernstein has praised blockchain technology but also highlighted the potential risks of cryptocurrencies, and his CEA proposed a Digital Asset Mining Energy tax.

The Bitcoin network experienced a surge in traffic and transaction fees due to the rise of Ordinals and BRC20 token. The network was flooded by nonfungible tokens and marketplaces, causing delays and higher fees. Critics suggested censorship of tokens as spam, but Lyn Alden, Founder of Lyn Alden Investment Strategy, and Jordi Alexander, chief investment officer of Selini Capital, believe that the situation will sort itself out over time. Alden argued that constraints are the source of creativity, and brief periods of higher fee pressure are "catalysts for change."

More Crypto Updates

EU Finance Ministers Approve MiCA Crypto Regulation

FDIC Chair Admits Crypto and Governance Responsible for Signature Bank Collapse

US Democrats Back SEC's Crypto Authority, Crypto Community Responds

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