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Crypto Exchange Plans Scrapped: Russian Lawmakers Shift Focus to Regulation

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In a surprising turn of events, Russian lawmakers have scrapped their plans to establish a state-owned cryptocurrency exchange. Instead, they have decided to concentrate on creating a regulatory framework for existing crypto enterprises, according to a report by a Russian news outlet. Wu Blockchain on Twitter revealed that private companies could build and operate crypto exchanges.

Ivan Chebeskov, the Director of the Financial Policy Department of the Russian Federation’s Ministry of Finance, stated, “The Ministry did not support the establishment of one national crypto-exchange.” The new approach aims to regulate private business exchange platform establishment legally. Anatoly Aksakov, the head of the Russian lower house committee on financial markets, explained that the plan is to establish rules for operating these infrastructures instead of creating a single national exchange.

While details about the specific exchanges that will be allowed to facilitate cross-border payments remain undisclosed, Aksakov acknowledged that these platforms are likely to face new restrictions.

Izvestia, the Russian news outlet that published the story, reported that the Central Bank would likely assume the responsibility of regulating these platforms and overseeing international settlements within the country’s regulatory framework.

Crypto Operators In Russia Applaud Regulatory Focus

Several private crypto operators in Russia have been enthusiastic about the news. Oleg Ogienko, representing BitRiver, a cryptocurrency mining operation in the country, expressed his support, stating, “This will help minimize the risks of sanctions and cyber attacks on infrastructure and eliminate possible market monopolies.” Ivan Gostev, the commercial director for GIS Mining, echoed this sentiment, emphasizing that the new approach will foster the development of more competitive and innovative companies.

The positive reaction from the private sector is not unexpected, given Russia’s ranking of #137 out of 180 countries on the 2022 Global Corruption Index. This ranking indicates the need for caution when embarking on state-led initiatives. Russian authorities have been hesitating on their stance toward digital assets for years. Last year, the Bank of Russia proposed a complete ban on crypto payments, while the Ministry of Finance submitted a Bitcoin regulatory proposal a month later. Subsequently, Vladimir Putin signed a law banning payments in digital assets, only to later explore stablecoins to circumvent sanctions.

Today’s announcement comes when Russia faces ongoing financial sanctions imposed by Western nations following its invasion of Ukraine. Despite the history of mixed signals, this development potentially signifies a new chapter in the Russian government’s approach to cryptocurrencies.

The decision to shift from a state-owned exchange to regulate existing crypto enterprises marks a significant change in the Russian government’s strategy. Russia aims to balance innovation and oversight by allowing private companies to operate exchanges. The Central Bank is likely to assume regulatory responsibilities. This approach could provide greater stability and promote competition in the crypto sector.

Related Reading: | Bitcoin Core 25.0 Release: Enhanced Transaction Support & Improved Performance

Crypto Defendants Dispute SEC’s Power in $18M Fraud Lawsuit

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Two individuals accused by the SEC of operating a fraudulent cryptocurrency mining scheme are requesting the dismissal of the lawsuit, contending that the regulatory agency lacks jurisdiction over cryptocurrencies.

Two individuals facing accusations from the United States securities regulator for orchestrating an $18 million fraudulent cryptocurrency mining scheme are requesting the dismissal of the lawsuit, contending in court that the agency lacks jurisdiction over cryptocurrencies.

Wright Thurston and Kristoffer Krohn have individually filed motions to dismiss a lawsuit brought against them by the Securities and Exchange Commission (SEC) on May 19.

The SEC had filed the lawsuit in March against the two individuals and Green United LLC, an alleged crypto mining and development firm. The defendants were accused of engaging in fraudulent activities by offering securities through the sale of “Green Boxes” and “Green nodes,” which were marketed as miners for the GREEN token on the “Green Blockchain.”

Green United LLC was established by Thurston, and Krohn was contractually involved in promoting the company.

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Crypto Defendants Dispute SEC's Power in $18M Fraud Lawsuit 2

In their arguments seeking the dismissal of the lawsuit, Thurston and Krohn asserted that the SEC lacks authority over the digital asset ecosystem. They further claimed that Congress had deliberated on the issue and rejected the SEC’s authority over cryptocurrencies.

Thurston and Krohn also criticized the SEC for being “vague and inconsistent” in its definition of cryptocurrencies. They echoed recent concerns that the regulator was engaging in a practice known as “regulation by enforcement,” suggesting that the SEC was using enforcement actions as a means of establishing regulatory guidelines rather than providing clear and transparent rules beforehand.

As part of their efforts to have the case dismissed, Thurston and Krohn put forth additional arguments asserting that the SEC has failed to prove that the Green Boxes constituted securities offerings or “investment contracts,” contrary to the regulator’s allegations stated in its complaint filed in March.

According to the SEC’s lawsuit filed in March, the regulatory agency alleged that the hardware sold by Green United, which was marketed as mining rigs for the GREEN token, were actually Bitcoin (BTC) mining rigs. However, these rigs did not function as advertised, and the purported blockchain associated with the scheme was non-existent.

Crypto Assets and SEC Claims

The SEC claimed that this alleged fraudulent scheme managed to raise approximately $18 million. Furthermore, the regulator stated that investors did not receive any of the Bitcoin (BTC) that was supposed to be mined by Green United as promised.

SEC Chair Gary Gensler has consistently maintained the Commission’s jurisdiction over cryptocurrencies, emphasizing that, in his view, the majority of crypto assets, excluding Bitcoin, qualify as securities based on the Howey test.

On Thin Ice: US’s Crypto Dominance Challenged by UAE, Korea, Australia, and Switzerland

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Cryptocurrency in US
On Thin Ice: US's Crypto Dominance Challenged by UAE, Korea, Australia, and Switzerland 5

Yassine Elmandjra, an analyst at ARK Invest, cautions that the United States faces the potential of relinquishing its prominent role in the cryptocurrency competition to nations such as the United Arab Emirates, Korea, Australia, and Switzerland.

In a communication to ARK Invest clients on May 22, Elmandjra pointed to the recent decline in trading activities by firms like Jane Street and Jump Trading as indications of a larger response to uncertain regulations within the United States.

The digital asset ecosystem in the United States, which was once dominated by reputable and trustworthy institutions, is now experiencing a noticeable absence that is likely to dampen interest from other institutional investors. Elmandjra suggests that regulatory ambiguity in the United States is discouraging both existing companies and potential newcomers from participating in the crypto industry.

Regulatory Uncertainty Around Crypto Puts Innovation In The United States At Risk

Headed by CEO Cathie Wood, ARK Invest is a worldwide asset management firm that currently manages a portfolio with assets exceeding $14 billion.

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On Thin Ice: US's Crypto Dominance Challenged by UAE, Korea, Australia, and Switzerland 6

Furthermore, Elmandjra recognized the significant decrease in cryptocurrency liquidity within the United States, highlighting that Bitcoin trading volume in the country had declined by 75% over the past two months. Referring to data from Coin Metrics, he mentioned that the daily trading volume had dropped from $20 billion in March to a mere $4 billion in the most recent week.

In the midst of a growing antagonistic stance from the United States towards digital assets and related companies, certain crypto firms based in the U.S. are starting to explore alternative options.

One such example is Coinbase, which has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) due to the regulatory ambiguity surrounding cryptocurrencies. Coinbase has expressed its contemplation of the United Arab Emirates (UAE) as a potential “strategic hub” for its operations.

Coinbase is not the sole prominent company considering the UAE as a prospective base. According to Cointelegraph, Saqr Ereiqat, co-founder of Crypto Oasis, a venture-building firm, highlighted the UAE’s favorable regulatory approach towards digital assets, deeming it an “ideal” destination for both established and emerging crypto enterprises.

Regulatory heat prompts Binance’s US unit to reduce founder CZ’s controlling stake

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The executives at Binance.US are concerned that the lawsuit filed by US regulators against Zhao Changpeng may hinder the company’s ability to obtain certain licenses.

In March, the CEO of Binance, Zhao Changpeng, and the company were sued by the US Commodity Futures Trading Commission for supposedly running an “illegal” exchange and a compliance program that was deemed to be fake.

According to two sources familiar with the matter, both the US regulators and Zhao Changpeng, the founder and majority owner of the company, have been exploring options to decrease his stake in the company.

Since last summer, Zhao, who also serves as the company’s CEO, has been attempting to sell some of his shares. In March, the US Commodity Futures Trading Commission (CFTC) filed a lawsuit against the company and Zhao, claiming that the exchange was operating illegally and that its compliance program was a fake.

The US Commodity Futures Trading Commission (CFTC) accused Binance, its former top compliance executive, and Zhao Changpeng of deliberately evading US law and employing a calculated strategy of regulatory arbitrage to benefit the company commercially.

Following the lawsuit, leaders at Binance.US have been discussing the possibility of reducing Zhao’s stake in the company in order to improve its relationship with US regulators, as stated by The Information.

Binance.US executives are worried that having Zhao as the majority owner may prevent the company from obtaining certain regulatory licenses in the US. At the time of writing, Binance.US has not responded to Reuters’ request for comment.

CFTC Charges Binance and Its Founder

On March 27, 2023, the Commodity Futures Trading Commission made an announcement that it had taken legal action against Changpeng Zhao and three entities that run the company, filing a civil enforcement action in the US District Court for the Northern District of Illinois.

The charges were for multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations. The lawsuit also accused Samuel Lim, the company’s former chief compliance officer, of aiding and abetting the company’s violations.

According to the complaint, the company’s Holdings Limited, Holdings (IE) Limited, and Binance (Services) Holdings Limited (collectively referred to as “Binance”) operate the company’s centralized digital asset trading platform through a deliberately opaque common enterprise. Zhao serves as Binance’s owner and CEO.

The defendants are accused of intentionally disregarding the provisions of the CEA while pursuing a regulatory arbitrage strategy for their commercial benefit. The CFTC is seeking disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against any further violations of the CEA and CFTC regulations in its ongoing legal action against the defendants.

India Regulates Crypto Transactions Under PMLA To Promote Accountability & Transparency

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On March 7th, the Ministry of Finance published a notification in The Gazette of India stating that several crypto transactions would be subjected to the Prevention of Money-Laundering Act (PMLA) 2002.

The move aims to regulate the crypto industry in India and requires all crypto businesses to perform necessary KYC (know your customer) and transaction monitoring as part of their process.

According to the notification, the Prevention of Money Laundering Act (PMLA) applies to financial services related to the sale and issuance of virtual assets.

These services encompass exchanging virtual digital assets for fiat currencies, transferring virtual digital assets, and managing or safeguarding virtual digital assets. Moreover, participating in and offering financial services related to the sale and issuance of virtual digital assets are also covered.

Under the PMLA, financial institutions must maintain records of all transactions for the past ten years, provide these records to officials upon request, and verify the identity of all clients. This development is being commended as a move towards promoting greater accountability and transparency in the cryptocurrency industry in India.

Founder of WazirX India, Nischal, tweeted in support of the move, stating that it was good progress towards regulating the crypto industry in India. With the notification in place, all crypto businesses in the country will come under the ambit of the PMLA.

While the notification doesn’t provide many details, it is a positive step towards ensuring that the crypto industry in India operates within a framework of regulations and guidelines.

As the industry continues to evolve and expand, it is crucial to establish clear guidelines that can protect investors and consumers alike. This move by the Ministry of Finance is a step in the right direction toward achieving that goal.

Indian Crypto Exchange Celebrates Birthday 

Meanwhile, Indian crypto exchange WazirX is celebrating its birthday and is inviting its followers to join in by submitting unique and creative birthday wishes. They have announced a giveaway of ₹55,555 worth of $WRX to 25 people who come up with the most original wishes. 

According to the tweet, to participate, users must like the tweet and quote it with their own special birthday message using the hashtag WazirXTurns5. The exchange has encouraged participants to be creative and think outside the box, allowing for anything from images to videos as long as it’s authentic and heartfelt.

Related Reading | Here’s Why Coinbase Received 40K BTC From US Government 

Academic paper calls Stablecoins are Wildcats; argues the need for regulation

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Stablecoins have been the talk of the town. Lawmakers around the world have held their reservations about this cohort of digital assets citing its use in cross-border transactions as a threat to the use of state-issued currencies. More recently, two prominent financial experts have now weighed in a paper whose title read, “Taming Wildcat Stablecoins.” Interestingly, these digital tokens are inherently stable that helps investors in times of wild volatility in assets such as Bitcoin, Ethereum, etc.

However, it is not this characteristic that the Yale economist Gary Gorton and the United States Federal Reserve attorney Jeffery Zhang are worried about. A major aspect that stood out on the 49-page document, was the comparison drawn between stablecoin and the Free Banking Era – a world of wildcat banking back in the 19th century if the former is remains unregulated.

“Stablecoin prices are independent of geography but not independent of the perceived risk of their backing assets. If they succeed in differentiating themselves from fiat cryptocurrencies and become used as money, then they will likely trade at time-varying”

The writer also added that protecting the monetary sovereignty of the state is crucial for building monetary policy and stated that the policymakers should learn from history and repeat the same mistakes again. According to the paper, regulating stablecoin issuers as banks and issuing a central bank digital currency [CBDC] is the only way to combat risks associated with these digital tokens.

Community Reactions to Gorton-Zhang’s stablecoin paper

Nobel laureate and member of the American Philosophical Society, Paul Krugman lauded the duo’s academic paper and asserted that they are just a modern version of free banking, wherein the “private banks issued their own notes supposedly backed by specie.” He also went on to call the existing system “crisis-ridden.” Krugman is one of the many digital asset skeptics. Hence, his latest comment has faced some criticism.

The joint scientific effort for the paper did not see a very good response from the cryptocurrency community either. Arturo Portilla, a popular XRP proponent and a fintech lawyer tweeted,

“LOL. Option a): Require stablecoin issuers to become banks. Option b): Require stablecoin issuers to become unprofitable businesses. Option c): Introduce CBDCs and tax stablecoins to death. I’m guessing Jeremy Allaire isn’t having a good time right now.”

China Refocuses its Fintech Directives as Government Looks to Launch Regulations for Lending Companies

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Over the last few years, the world of fintech has changed, with many traditional institutions taking a keen interest in the industry. As the blockchain sector shed more light on the usability of integrating technology with finance, even state governments stood up to take note of what was happening.

China has been heavily involved in the fintech space for some time now and its premier has made it clear that it aims to move forward all guns blazing. The same Chinese government recently played a role in halting Ant Group’s $38 billion IPO at the last minute as questions arose about the country’s growing lending problem.

Financial lending in China has grown multifold in the past few years with an increasing number of youngsters joining the roster. Young people under the age of 25 start borrowing early in their lives, causing them to fall into the loop of paying interest for the rest of their lives. This sort of unregulated lending and borrowing seems to be the issue that the Chinese government wants to tackle first.

Reports have shown that people in China borrow from a variety of fintech companies, some of which may be shady and reclusive. One 24-year Chinese student spoke about the qualms of borrowing in small sums by pointing out that:

“Now it’s like I’m in a whirlpool. I can only pay it back slowly, one small sum at a time, and after that, I will have no savings. So, the whirlpool makes me keep borrowing more and more.”

Officials within the fintech industry believe that there are two sides to the leading story: it can democratize financial products but at the same time be a risky venture depending on the lender. Ant Group was one of the major companies that grew during the lending boom with that part of the business growing by almost 60 percent in the first six months of this year. Ant’s lending arm also contributes 40 percent to the total revenue of the company.

The only way the industry can grow under the watchful eyes of the Chinese government is to comply with the incoming regulations. Popular economists also claimed that microlending platforms need to be regulated as “they have evolved more like a Ponzi scheme”. Only time will tell what type of lending companies will the government let off scot-free.