Legislation

New Jersey bill would make crypto sold to institutional investors a security

The bill complements one already on the governor’s desk that regulates digital assets owned by individuals.

The New Jersey General Assembly may consider a bill that would decide when a digital asset or “virtual currency’ is a security under state law. 

All virtual currencies issued and sold to institutional investors would be considered securities in the U.S. state of New Jersey under the bill introduced by Democratic Assemblymember Herb Conaway, Jr. on Nov. 29. According to the short text of the bill, the legislation would supplement the New Jersey Uniform Securities Law, which currently makes no mention of virtual or digital currency or cryptocurrency.

The bill pertains only to institutional investors, which are defined as “a company or organization that invests money on behalf of other people.” It also specifies that stablecoins could be determined to be virtual currencies by the state’s Bureau of Securities.

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Circle exec to join US Congressional committee hearing on stablecoin payments, legislation

The Financial Services Committee issued a memorandum to announce an upcoming hearing titled “Understanding Stablecoins’ Role in Payments and the Need for Legislation.”

The United States House Committee on Financial Services will hold a hearing on April 19 to discuss stablecoins’ position as a means of payment and whether the ecosystem needs supporting legislation.

The committee issued a memorandum to announce an upcoming hearing titled: “Understanding Stablecoins’ Role in Payments and the Need for Legislation.” The hearing will include information collected by various federal government agencies over the last year.

List of individuals testifying at the upcoming House Financial Services Committee hearing. Source: house.gov

Participants testifying at the hearing include Circle’s chief strategy officer and head of global policy, Dante Disparte. Last month, on March 11, Circle’s in-house stablecoin offering, USD Coin (USDC), depegged from the U.S. dollar after it revealed it had $3.3 billion of funds stuck at the collapsed Silicon Valley Bank (SVB).

However, following a bailout of SVB depositors by the U.S. government, USDC repegged its value to the U.S. dollar. During this timeline, hackers managed to gain access to Disparte’s Twitter account and started promoting fake loyalty rewards to long-time users of USDC.

The upcoming committee hearing will focus on various stablecoins and their use in the payments landscape. Moreover, the committee will explore the need for stablecoin legislation depending on their underlying collateral structures.

Related: Circle and BlockFi questioned on banking with SVB by Warren and AOC

Just days before the upcoming hearing, a draft bill providing a framework for stablecoins in the United States was published in the House of Representatives document repository.

Draft of the bill, including stablecoin regulations. Source: docs.house.gov

Speaking about the draft bill, Circle’s CEO Jeremy Allaire said, “There is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed and operated.“

As Cointelegraph reported, the draft further allows the U.S. government to establish standards for interoperability between stablecoins.

Magazine: Bitcoin in Senegal: Why is this African country using BTC?

FCA officials tell UK parliamentary committee crypto regulation is unavoidable

The CEO and chairman of the United Kingdom’s financial regulator took a grim tone as they discussed crypto regulation but conceded that they’re the ones who have to do it.

Officials of the United Kingdom’s Financial Conduct Authority (FCA) appeared before the House of Commons’ Treasury Committee on March 8 to discuss the agency’s work. Among the issues raised was cryptocurrency regulation, which the officials approached with a clear lack of enthusiasm.

FCA chair Ashley Alder, who took that position in February after serving as CEO of Hong Kong’s Securities and Futures Commission, told the committee that the FCA is “midway through a quite ambitious reset” as the Financial Services and Markets bill makes its way through the Parliament. He and CEO Nikhil Rathi answered questions on predatory lending, mortgage rates and a number of other topics before addressing crypto in the final minutes of the hearing.

Former FCA chair Charles Randell sent a letter to the committee saying “speculative crypto is gambling pure and simple and it should be regulated and taxed as such.” Alder responded that globally “this is not going to be looked at from a regulatory perspective other than by financial regulators.” Financial regulation “needs to be appropriately tough,” Alder added.

If the principle of “same risk, same regulation” were applied to crypto businesses, Alder said:

“The interesting aspect to this is the degree to which crypto would need to adapt and effectively detoxify in order to fit within that regime.”

When asked if regulation “undeservedly legitimizes” crypto, Alder responded, “I agree,” but said public policy issues such as money laundering cannot be tackled without regulation.

Related: UK’s FCA hints at why it’s only given 15% of crypto firms the regulatory nod

The Financial Services and Markets Act, when passed, would give the FCA new regulatory powers over the crypto currency industry, but not eliminate the risks posed by cryptocurrency. Rathi said, “We are not going to be able to put in place a framework that protects consumers from losses.”

Most British crypto holders own no more than “several hundred pounds’” worth of cryptocurrency, he added.

The Financial Services and Markets Act was introduced into Parliament in July and amended in October to expand crypto regulatory provisions.

Consumer Federation of California reattempts to regulate crypto companies

Assemblymember Timothy Grayson introduced the Digital Financial Assets Law to protect Californians from financial hardship and foster responsible innovation.

The Consumer Federation of California (CFC), a nonprofit advocacy organization working for consumer rights, sponsored a bill that seeks to license and regulate the activities of cryptocurrency exchanges.

The legislation demanding regulatory oversight of crypto businesses — the Digital Financial Assets Law — was introduced by Assemblymember Timothy Grayson with the aim of protecting Californians from financial hardship and fostering responsible innovation. Grayson believes that licensure is the next natural step for the crypto industry, adding:

“And it is equally clear that until we take that step, Californians will continue to be vulnerable to prevalent and preventable financial scams.”

This marks the CFC’s second attempt to license and regulate digital assets and cryptocurrency companies. The bill (AB 39) was first introduced in 2022, but California Governor Gavin Newsom vetoed it.

If passed, the bill will become law on Jan. 1, 2025, prohibiting citizens from engaging with crypto businesses until “certain criteria are met.” AB 39 will license crypto companies under the California Department of Financial Protection and Innovation, ensuring regulatory clarity and investor protection.

“The bankruptcies and scams of the past year only bolster our collective interest in ensuring basic and foundational consumer protections in this marketplace, which has up to now looked like the Wild West in terms of ‘anything goes’ behavior by key players in the cryptocurrency industry,” added Robert Herrell, executive director of the CFC, while revealing the intent behind the move.

The CFC believes the first hearing of this bill in the Assembly will be taken up in April.

Related: California cannabis producer adopts blockchain to track its weed

While Californian politicians try to introduce crypto regulations, the California Department of Motor Vehicles (DMV) tests the digitization of car titles and title transfers via a private Tezos blockchain.

As Cointelegraph reported, the agency wants to have the shadow ledger ironed out within the next three months, according to the California DMV’s chief digital officer Ajay Gupta.

Sri Lanka against Bitcoin adoption, rejects Draper’s anti-corruption pitch

Central bank Governor Nandalal Weerasinghe believes that adopting decentralized cryptocurrencies would worsen the country’s economic situation.

On a recent visit to Sri Lanka, American billionaire Tim Draper pitched the idea of adopting Bitcoin (BTC) as a legal tender to fight against the corruption that contributed to hyperinflation in the island country. However, a key Sri Lankan authority — central bank Governor Nandalal Weerasinghe — believed doing so would worsen the country’s economic situation.

Taking time from a TV shoot in Sri Lanka, Draper met President Ranil Wickremesinghe and Weerasinghe to recommend Bitcoin as a viable option for getting out of financial problems.

Tim Draper in Sri Lanka speaking about economic development. Source: YouTube

During the meeting, Draper pointed out a key concern staring right at Sri Lanka:

“Have you seen Sri Lanka in the news? It’s known as the corruption capital. A country known for corruption will be able to keep perfect records with the adoption of Bitcoin.”

As he recommended using “decentralized currency” to the head of Sri Lanka’s central bank, he received a short “we don’t accept” reply. Weerasinghe further stated:

“Adoption of 100% Bitcoin won’t be a Sri Lanka reality ever.”

Instead, Weerasinghe believed that having Sri Lanka’s own fiat currency was critical for monetary-policy independence and would ensure efficient inclusion and disburse electronic welfare payments.

“We don’t want to make the crisis worse by introducing Bitcoin,” Weerasinghe concluded.

Related: Australia introduces classification for crypto assets

MicroStrategy, a software analytics company co-founded by Michael Saylor, shared plans to continue offering BTC trading services despite incurring an unrealized loss of $1.3 billion in 2022.

During a Feb. 2 earnings call, MicroStrategy’s chief financial officer, Andrew Kang, said:

“We may consider pursuing additional transactions that may take advantage of the volatility in Bitcoin prices, or other market dislocations that are consistent with our long-term Bitcoin strategy.”

According to Kang, MicroStrategy held 132,500 BTC (worth $1.84 billion) as of Dec. 31, 2022. Of the lot, 14,890 BTC were held directly by the business and the rest by its subsidiary MacroStrategy.

Panama’s Supreme Court to rule on cryptocurrency legislation

The high court will now decide whether to declare the “crypto bill” unenforceable or to approve it with modifications.

Panama’s crypto bill saga has reached a new chapter, with the country’s Supreme Court set to decide the future of the local crypto industry.

Panamanian President Laurentino Cortizo on Jan. 26 sent the crypto legislation passed last year to the high court for review, claiming the so-called “crypto bill” violates the constitution’s core principles and is unenforceable.

The Supreme Court must now decide whether to declare Bill No. 697 unenforceable or to approve it with modifications.

According to an official statement, the president’s office considers articles 34 and 36 of the bill unenforceable because they violate the state’s separation of powers and establish administrative structures within the government.

President Cortizo also argued that the bill had been approved through an inadequate procedure following his partial veto of the legislation in June. At the time, the president argued that the bill needed more work to comply with new regulations recommended by the Financial Action Task Force aimed at improving fiscal transparency and preventing money laundering.

Related: The 5 most important regulatory developments for crypto in 2022

A dispute between Panama’s National Assembly and the government has centered on this bill. In April, Panama lawmakers passed a legislative proposal aiming to regulate cryptocurrencies in the country, including Bitcoin. President Cortizo, however, warned a few weeks later that he wouldn’t sign it unless it included additional Anti-Money Laundering (AML) rules.

The bill was introduced in September 2021, aiming to make the country “compatible with the digital economy, blockchain, crypto assets and the internet.” It was moved out of the Economic Affairs Committee on April 21 and approved a few days later.

Based on the legislation, Panamanians “may freely agree on the use of crypto assets, including without limitation Bitcoin and Ethereum” as an alternative payment for “any civil or commercial operation.”

Furthermore, the bill would regulate the tokenization of precious metals and the issuance of digital value. Digitization of identity using blockchain or distributed ledger technology would also be explored by the government’s innovation authority.

New York Assembly introduces crypto payments bill for fines, taxes

The bill clarifies that state agencies can legally agree to accept cryptocurrency payments and that these agreements should be enforced by the courts.

A bill introduced to the New York State Assembly on Jan. 26 would allow state agencies to accept cryptocurrency as a form of payment for fines, civil penalties, taxes, fees and other payments charged by the state.

New York State Assembly Bill A523 was introduced by Democratic Assembly Member Clyde Vanel, who is often seen as a crypto-friendly politician. It allows state agencies to enter into “agreements with persons to provide the acceptance, by offices of the state, of cryptocurrency as a means of payment” for various types of fees, including “fines, civil penalties, rent, rates, taxes, fees, charges, revenue, financial obligations or other amounts, including penalties, special assessments and interest, owed to state agencies.” 

The bill does not obligate state agencies to accept crypto as payment, but it does clarify that state agencies can legally agree to accept such payments and that these agreements should be enforced by the courts.

The bill defines “cryptocurrency” as “any form of digital currency in which encryption techniques are used to regulate the generation of units of currency […] including but not limited to, bitcoin, ethereum, litecoin and bitcoin cash.”

Depending on how this definition is interpreted, it may or may not include stablecoins like USD Coin (USDC) and Tether (USDT). On the one hand, the supply of stablecoins is usually regulated by the issuer instead of by cryptography. On the other hand, the bill does recognize that some cryptocurrencies have an “issuer,” and it provides that agencies can charge the payor an extra fee if such a fee is charged by the cryptocurrency’s issuer.

Related: Arizona state senator pushes to make Bitcoin legal tender

To become law, the bill will need to be passed by the New York Assembly and Senate, as well as signed into law by the state’s Governor, Kathy Hochul.

The New York state government is often seen as hostile to cryptocurrency. In November 2022, New York became the first state to pass a bill that banned nearly all cryptocurrency mining. It also has been criticized for the restrictive “BitLicense” it requires all crypto exchanges to acquire. In April 2022, the mayor of New York argued that the BitLicense law should be repealed.

UK MP says stablecoin is a gateway to CBDC, only crypto can ‘disrupt’ settlements

MP Andrew Griffith and colleagues spoke before a hearing of the U.K. parliamentary Treasury Committee about payments technology and CBDC.

The United Kingdom remains committed to becoming a world crypto industry hub in spite of the recent negative events that have occurred on the market. It is “the sector I have dedicated the most time to,” Member of Parliament and HM Treasury Economic Secretary Andrew Griffith told a meeting of the UK Parliament Treasury Committee on Jan. 10, underscoring that commitment.

The introduction of a wholesale stablecoin and the Financial Markets Infrastructure (FMI) sandbox will be next steps in the process. Those elements are included in the Financial Services and Markets (FSM) bill, which will have its second reading in the House of Lords also on Jan. 10.

A stablecoin will likely serve as a “first use case of what is likely to be a wholesale settlement coin” in the “long runtime” leading up to the potential introduction of a central bank digital currency (CBDC), Griffith said.

Griffith defended the work being done on the wholesale stablecoin, saying stablecoins are “here now” and therefore in need of immediate attention. He noted that it is unclear whether a CBDC would displace private stablecoins on the market if a CBDC were introduced.

A retail British CBDC, if one were to be introduced, would be an anonymized and intermediated platform by design, Griffith said.

Related: UK pushes crypto efforts forward through financial services reforms

A consultative paper on CBDC will appear “in weeks, not months,” to be followed by a another on crypto regulation more broadly. The government will also hold at least six roundtables with the crypto sector this year.

It is “not the government’s position that this [crypto-based technology] is an inevitability,” Griffith said, but he added that current technology cannot solve issues in the financial sector such as settlement time “in a disruptive way,” as blockchain technology can.

For retail users, Griffith drew a clear line between crypto as an investment and as a means of payment. Unbacked cryptocurrency may “find a role or not in the market,” Griffith held.

Crypto-based payment methods are an issue for digital and financial inclusion, but “there is a very strong commitment to the continued use of and access to cash,” in which banks continue to have a place. Griffith said:

“Removing that intermediary, certainly at the current evolution of the market, feels very premature.”

The FSM bill, which may “be done by Easter,” will also enable the licensing of some new payment apps in the FMI sandbox and their introduction onto the market. The use cases for crypto-based wholesale fintech may be in ledgers and registers “in the middle office” for now, Griffith said.

Full regulation of crypto asset markets will not be achieved in 2023, Griffith assured a committee member. Legislation will adhere to the principle of “same asset, same regulation.”

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In the interim, oversight of crypto promotions is playing an important role in consumer protection. Consumers can look for the Financial Conduct Authority (FCA) logo on promotions to know they are dealing with a regulated organization. Treasury deputy director of payments and fintech Laura Mountford told the committee.

Be that as it may, only about 40% of consumers “understand or consider that they are buying crypto assets as a gamble,” Mountford said, citing FCA monitoring.

Ethereum bounces above $1.2K, but derivatives metrics show traders fear a collapse

Demand for leverage buying remains absent in ETH despite the recent bounce to $1,200 as the U.S. Federal Reserve continues to hike interest rates.

Ether (ETH) gained 5.6% on Dec. 20 after testing the $1,150 support the previous day. Still, a bearish trend prevails, forming a three-week-long descending channel, a price action attributed to expectations of further U.S. Federal Reserve interest rate hikes.

Ether/USD price index, 12-hour. Source: TradingView

Jim Bianco, head of institutional research firm Bianco Research, said on Dec. 20 that the Fed will keep the economy tightening in 2023. Later that day, Japan’s central bank effectively raised interest rates, far later than its global counterparts. The unexpected move made analysts more bearish toward risk assets, including cryptocurrencies.

Ethereum might have caught some tailwind after the global payment processor Visa proposed a solution to allow automatic funding from Ethereum wallets. Auto-payments for recurring bills aren’t possible for self-custodial wallets, so Visa proposed relying on smart contracts, known as “account abstraction.” Curiously, the concept emerged in 2015 with Vitalik Buterin.

The most pressing issue, however, is regulation. On Dec. 19, the U.S. House Financial Services Committee reintroduced legislation aimed at creating innovation offices within government agencies dealing with financial services. According to North Carolina Representative Patrick McHenry, companies could apply for an “enforceable compliance agreement,” with offices located in agencies like the Securities and Exchange Commission and Commodity Futures Trading Commission.

Consequently, investors believe Ether could revisit sub-$1,000 prices as the DXY dollar index loses strength while the 10-year U.S. reasury yields show higher demand for protection. Trader CryptoCondom expects the next couple of months to be extremely bearish for crypto markets.

Let’s look at Ether derivatives data to understand if the bearish macroeconomic movement has negatively impacted investors’ sentiment.

The recent bounce above $1,200 did not instill bullishness

Retail traders usually avoid quarterly futures due to their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.

The two-month futures annualized premium should trade between +4% to +8% in healthy markets to cover costs and associated risks. When the futures trade at a discount versus regular spot markets, it shows a lack of confidence from leverage buyers, which is a bearish indicator.

Ether 2-month futures annualized premium. Source: Laevitas.ch

The chart above shows that derivatives traders continue to use more leverage for short (bear) positions as the Ether futures premium remains negative. Still, the absence of leverage buyers’ demand does not mean traders expect further adverse price action.

For this reason, traders should analyze Ether’s options markets to understand whether investors are pricing higher odds of surprise adverse price movements.

Options traders not keen on offering downside protection

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew indicator below -10%, meaning the bearish put options are discounted.

Ether 60-day options 25% delta skew: Source: Laevitas.ch

The delta skew increased after Dec. 15 from a fearful 14% against the protective put options to the current 20%. The movement signaled that options traders became even less comfortable with downside risks.

The 60-day delta skew signals whales and market makers are reluctant to offer downside protection, which seems natural considering the three-week-long descending channel.

In a nutshell, both options and futures markets point to pro traders not trusting the recent bounce above $1,200. The present trend favors Ether bears because the odds of the Fed maintaining its balance sheet reduction program seem high, which is destructive for risk markets.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Ether bounces above $1.2K, but derivatives metrics show traders fear a collapse

Demand for leverage buying remains absent in ETH despite the recent bounce to $1,200 as the U.S. Federal Reserve continues to hike interest rates.

Ether (ETH) gained 5.6% on Dec. 20 after testing the $1,150 support the previous day. Still, a bearish trend prevails, forming a three-week-long descending channel, a price action attributed to expectations of further U.S. Federal Reserve interest rate hikes.

Ether/USD price index, 12-hour. Source: TradingView

Jim Bianco, head of institutional research firm Bianco Research, said on Dec. 20 that the Fed will keep the economy tightening in 2023. Later that day, Japan’s central bank effectively raised interest rates far later than its global counterparts. The unexpected move made analysts more bearish toward risk assets, including cryptocurrencies.

Ethereum might have caught some tailwind after the global payment processor Visa proposed a solution to allow automatic funding from Ethereum wallets. Auto-payments for recurring bills aren’t possible for self-custodial wallets, so Visa proposed relying on smart contracts, known as “account abstraction.” Curiously, the concept emerged in 2015 with Vitalik Buterin.

The most pressing issue, however, is regulation. On Dec. 19, the U.S. House Financial Services Committee reintroduced legislation aimed at creating innovation offices within government agencies dealing with financial services. According to North Carolina Representative Patrick McHenry, companies could apply for an “enforceable compliance agreement” with offices located in agencies like the Securities and Exchange Commission and Commodity Futures Trading Commission.

Consequently, investors believe Ether could revisit sub-$1,000 prices, as the U.S. Dollar Index (DXY)  loses strength while the 10-year U.S. treasury yields show higher demand for protection. Trader CryptoCondom expects the next couple of months to be extremely bearish for crypto markets.

Let’s look at Ether derivatives data to understand if the bearish macroeconomic movement has negatively impacted investors’ sentiment.

The recent bounce above $1,200 did not instill bullishness

Retail traders usually avoid quarterly futures due to their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.

The two-month futures annualized premium should trade between +4% to +8% in healthy markets to cover costs and associated risks. When the futures trade at a discount versus regular spot markets, it shows a lack of confidence from leverage buyers, which is a bearish indicator.

Ether 2-month futures annualized premium. Source: Laevitas.ch

The chart above shows that derivatives traders continue to use more leverage for short (bear) positions as the Ether futures premium remains negative. Still, the absence of leverage buyers’ demand does not mean traders expect further adverse price action.

For this reason, traders should analyze Ether’s options markets to understand whether investors are pricing higher odds of surprise adverse price movements.

Options traders not keen on offering downside protection

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew indicator below -10%, meaning the bearish put options are discounted.

Ether 60-day options 25% delta skew: Source: Laevitas.ch

The delta skew increased after Dec. 15 from a fearful 14% against the protective put options to the current 20%. The movement signaled that options traders became even less comfortable with downside risks.

The 60-day delta skew signals whales and market makers are reluctant to offer downside protection, which seems natural considering the three-week-long descending channel.

In a nutshell, both options and futures markets point to pro traders not trusting the recent bounce above $1,200. The present trend favors Ether bears because the odds of the Fed maintaining its balance sheet reduction program seem high, which is destructive for risk markets.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.