regulation

EU Council approves MiCA text, proposal moves to Parliament for a vote

The Council’s Permanent Representatives Committee chair confirmed that the MiCA framework would go through “should the European Parliament adopt its position at first reading.”

Representatives from a committee with the European Council have moved forward with regulating digital assets in the European Union through the Markets in Crypto-Assets, or MiCA, framework, sending the finalized text to parliament for a vote.

According to an information note on Oct. 5, the European Council’s Permanent Representatives Committee approved the MiCA text and sent it to the chair of the European Parliament Committee on Economic and Monetary Affairs. Edita Hrdá, chair of the Permanent Representatives Committee, confirmed that the crypto framework proposal would be enacted “should the European Parliament adopt its position at first reading” in the same wording.

The MiCA proposal, first introduced to the European Commission in September 2020, aims to create a consistent regulatory framework for cryptocurrencies among European Union member states. Should the parliamentary committee approve the text, the policies could go into effect starting in 2024. The committee’s next meeting is scheduled for Oct. 10.

“It is important to ensure that the [European] Union’s financial services legislation is fit for the digital age, and contributes to a future-ready economy that works for the people, including by enabling the use of innovative technologies,” said the most recent MiCA text. “The lack of an overall Union framework for crypto-assets can lead to a lack of users’ confidence in those assets, which could significantly hinder the development of a market in those assets.”

Update on MiCA: The text was approved today in the Council of the EU and is now public!

Next steps:
-ECON vote in the EP on Oct 10
-lawyer/linguist checks
-plenary vote in the EP
-publication in the official journal of the EU

MiCA text: https://t.co/7Er0dDJwxX

— Patrick Hansen (@paddi_hansen) October 5, 2022

Policymakers within the EU Parliament, Commission and Council have discussed the implications of harmonizing crypto regulations across their 27 member states since the introduction of MiCA, with progress delayed by debates on proof-of-work mining and stablecoins. Binance CEO Changpeng Zhao said at Binance Blockchain Week in September that the regulation “will become a global regulatory standard copied around the world.”

DataVault requests US election agency’s advice to send NFTs as a campaign fundraising incentive

The firm planned to market NFTs “in a manner akin to a campaign hat or souvenirs,” intending to have political committees offer them to high-volume low-dollar donors.

The legal team behind nonfungible token firm DataVault Holdings has requested an advisory opinion from the United States Federal Election Commission on using NFTs for fundraising efforts.

In a Sept. 21 letter to FEC acting general counsel Lisa Stevenson, DataVault’s lawyers proposed sending NFTs as “souvenirs” to individuals who contributed to political committees, as well as giving the token holder the option to use it for promoting a campaign “strictly on a volunteer basis and without any compensation.” The NFT firm requested the FEC provide guidance on how it may operate as a commercial vendor — issuing the tokens to political committee members seemingly without violating federal campaign finance laws.

“DataVault’s activities to political committees will be conducted on a strictly commercial basis and DataVault will not seek to influence, affirmatively or negatively, the nomination or election of any candidate to Federal office,” said DataVault’s counsel Elliot Berke. “DataVault would provide the NFTs to political committees in the same manner and normal course of business as other non-political committee clients.”

According to DataVault’s proposals, the firm planned to market NFTs “in a manner akin to a campaign hat or souvenirs,” intending to have political committees offer them to high-volume low-dollar donors. The tokens could be used for VIP access at different campaign events, or contain artwork or literature related to a candidate’s policies. Any fees from issuing NFTs or transactions would be reported as a “fundraising expenditure,” according to DataVault’s example scenario:

“An NFT is priced at $10.00 and is provided by DataVault to a campaign committee. The NFT is offered by the campaign committee to contributors who make a $10.00 contribution. Once the campaign committee collects a contribution connected with the NFT, it records the $10.00 contribution and pays DataVault a fee of $3.00 as a usual and normal fundraising expenditure.”

DataVault’s legal team requested the FEC provide clarification on whether the firm could “design and market NFTs to political committees” as well as provide the tokens to incentivize contributors. In a 2019 advisory opinion on NFTs, the commission determined tokens were “materially indistinguishable from traditional forms of campaign souvenirs” such as buttons.

“The distribution of valueless blockchain tokens is not a form of compensation for volunteers’ services but rather a novel means for volunteers and supporters to show their support for the campaign,” said the FEC at the time. “The Commission found the valueless tokens to be analogous to more traditional forms of campaign souvenirs, and concluded that nothing in the Act or Commission regulations would limit or prohibit their distribution.”

Political figures outside the FEC’s purview have taken similar initiatives. Prior to South Korea’s presidential election in March, Democratic Party candidate Lee Jae-myung’s campaign said it would issue NFTs showing images of the politician and his campaign pledges to those who donated money, in an effort to appeal to the younger generation. In California, NFTs were at the center of a discussion among members of the state’s Fair Political Practices Commission in March, later leading to the independent body reversing a 2018 ban on crypto donations for candidates for state and local offices.

DataVault requests US election agency’s advice to send NFTs as a campaign fundraising incentive

The firm planned to market NFTs “in a manner akin to a campaign hat or souvenirs,” intending to have political committees offer them to high-volume low-dollar donors.

The legal team behind nonfungible token (NFT) firm DataVault Holdings has requested an advisory opinion from the United States Federal Election Commission on using NFTs for fundraising efforts.

In a Sept. 21 letter to FEC Acting General Counsel Lisa Stevenson, DataVault’s lawyers proposed sending NFTs as “souvenirs” to individuals who contributed to political committees, as well as giving the tokenholder the option to use it for promoting a campaign “strictly on a volunteer basis and without any compensation.” The NFT firm requested the FEC provide guidance on how it may operate as a commercial vendor — issuing the tokens to political committee members seemingly without violating federal campaign finance laws.

“DataVault’s activities to political committees will be conducted on a strictly commercial basis and DataVault will not seek to influence, affirmatively or negatively, the nomination or election of any candidate to Federal office,” said DataVault counsel Elliot Berke. “DataVault would provide the NFTs to political committees in the same manner and normal course of business as other non-political committee clients.”

“An NFT is priced at $10.00 and is provided by DataVault to a campaign committee. The NFT is offered by the campaign committee to contributors who make a $10.00 contribution. Once the campaign committee collects a contribution connected with the NFT, it records the $10.00 contribution and pays DataVault a fee of $3.00 as a usual and normal fundraising expenditure.”

Political figures outside the FEC’s purview have taken similar initiatives. Prior to South Korea’s presidential election in March, Democratic Party candidate Lee Jae-myung’s campaign said it would issue NFTs showing images of the politician and his campaign pledges to those who donated money in an effort to appeal to the younger generation. In California, NFTs were at the center of a discussion among members of the state’s Fair Political Practices Commission in March, later leading to the independent body reversing a 2018 ban on crypto donations for candidates for state and local offices.

CFTC can issue summons through Ooki DAO’s help chat box, says judge

A federal judge said the court’s decision was based on the CFTC effectively serving the Ooki DAO by providing the necessary documents in its Sept. 22 lawsuit.

The United States Commodities Futures Trading Commission can serve members of the Ooki decentralized autonomous organization, or DAO, with summons through online communications, according to a federal judge.

In an Oct. 3 order granting a CFTC motion, U.S. District Judge William Orrick said the commission could provide a copy of its summons and complaint through Ooki DAO’s help chat box as well as a notice on its online forum. The judge said the court’s decision was based on the CFTC effectively serving the Ooki DAO by providing the necessary documents.

The CFTC filed a lawsuit against the Ooki DAO on Sept. 22, alleging the organization offered “illegal, off-exchange digital asset trading,” violated registration guidelines and broke provisions of the Bank Secrecy Act. The legal action came alongside similar charges against bZeroX and its founders, ordered to pay $250,000 as part of a civil monetary penalty.

Ooki DAO members discussed how to respond to the CFTC lawsuit, suggesting it allocate funds from the treasury to hire lawyers for DAO members, attempt to elicit support from the decentralized finance (DeFi) community and raise legal funds by selling nonfungible tokens. Many expect the organization will initiate a governance vote to finalize any decision on dealing with the lawsuit.

Many in the crypto space have criticized the CFTC for pursuing enforcement actions against organizations and companies without clear regulatory guidelines. Jake Chervinsky, head of policy at crypto advocacy group Blockchain Association, said the legal actions against Ooki DAO and bZeroX are “the most egregious example of regulation by enforcement in the history of crypto.”

European Parliament members vote in favor of crypto and blockchain tax policies

The resolution recommended authorities in the parliament’s 27 member states consider a “simplified tax treatment” for crypto users involved in occasional or small transactions.

Members of the Parliament of the European Union voted in favor of a non-binding resolution aimed at using blockchain to fight tax evasion and coordinate tax policy on cryptocurrencies.

In an Oct. 4 notice, the European Parliament said 566 out of 705 members voted in favor of the resolution originally drafted by member Lídia Pereira. According to the legislative body, the resolution recommended authorities in its 27 member states consider a “simplified tax treatment” for crypto users involved in occasional or small transactions and have national tax administrations use blockchain technology “to facilitate efficient tax collection.”

For cryptocurrencies, the resolution called on the European Commission to assess whether converting crypto to fiat would constitute a taxable event, depending on where the transaction occurred, saying it was a “more appropriate choice.” In addition, the policy would request an administrative amendment to better exchange information in regard to taxes on crypto.

The resolution added that the parliament’s member states could integrate blockchain solutions into tax programs:

“Blockchain’s unique features could offer a new way to automate tax collection, limit corruption and better identify ownership of tangible and intangible assets allowing for better taxing mobile taxpayers. […] Work must be undertaken to identify the best practices of using technology to improve the analytical capacity of tax administrations.”

Policymakers in the European Union have moved forward to regulate the crypto market through their Markets in Crypto-Assets framework. The bill, first introduced to the European Commission in 2020 and adopted by the European Council in 2021, aims to create a consistent regulatory framework for cryptocurrencies among EU member states. Many expect the policies to go into effect in 2024.

US Treasury recommends lawmakers decide which regulators will oversee crypto spot market

“The report recommends the passage of legislation in providing a rulemaking authority for federal financial regulators over this market,” said economist Jonathan Rose.

Officials with the United States Financial Stability Oversight Council, or FSOC, have recommended U.S. lawmakers pass legislation to determine which “rulemaking authority” will be responsible for regulating parts of the crypto spot market.

In an Oct. 3 meeting of the FSOC, Jonathan Rose, a senior economist at the Federal Reserve Bank of Chicago, said the FSOC had released a report in accordance with President Joe Biden’s executive order on crypto, detailing potential financial stability risks of digital assets and regulatory gaps. The report identified regulatory gaps, including the spot market for crypto assets that were not securities subject to “limited direct federal regulation” — hinting at lawmakers stepping in to prevent possible market manipulation and conflicts of interest.

“While some firms in the crypto asset ecosystem have attempted to avoid regulation, other firms have engaged with the existing regulatory system by obtaining trust charters or special state-level crypto asset-specific charters or licenses,” said Rose. “The report recommends the passage of legislation in providing a rulemaking authority for federal financial regulators over this [spot] market.”

According to Rose, cryptocurrencies could present financial stability risks to the U.S. economy “under certain conditions” — including growth without corresponding regulatory checks and balances. He also mentioned crypto firms operating through affiliates or subsidiaries, seemingly obfuscating offerings in the eyes of regulators, and whether companies should be allowed to offer services through intermediaries, including “broker dealers and futures commission merchants.”

In a prepared statement for the council meeting, Treasury Secretary Janet Yellen said:

“These reports provide a strong foundation for policymakers as we work to mitigate the risks of digital assets while realizing the potential benefits. They also provide a valuable addition to the public’s understanding of digital assets.”

The council’s recommendations seemed to suggest that the Commodity Futures Trading Commission, or CFTC, could be one of the regulators given authority over the crypto spot market. U.S. lawmakers have already introduced bills aimed at clarifying the roles of the Securities and Exchange Commission and CFTC with regard to crypto. Many in the space have also criticized the two bodies for taking a “regulation by enforcement” approach to digital assets, seemingly in an attempt to gain regulatory control over the market without legislation going through Congress.

On Oct. 3, the SEC announced it had charged celebrity Kim Kardashian $1.26 million for “touting on social media a crypto asset security offered and sold by EthereumMax” without disclosing any payment she had received for the promotion. In May, a federal court ordered the three co-founders of crypto derivatives exchange BitMEX to pay $30 million in civil monetary penalties as part of a CFTC case in which the regulator said the individuals violated aspects of the Commodity Exchange Act.

Japanese prime minister says gov’t investment in digital transformation will include Metaverse, NFTs

According to Fumio Kishida, the government of Japan’s investment in digital transformation included issuing NFTs to local authorities using digital solutions.

Fumio Kishida, the prime minister of Japan since 2021, has said the government will be making efforts to promote Web3 services, including those dealing with nonfungible tokens, or NFTs, and the Metaverse.

In an Oct. 3 speech before Japan’s National Diet, Kishida said the government’s investment in the country’s digital transformation already included issuing NFTs to local authorities using digital technology to solve challenges in their respective jurisdictions. He also hinted at digitizing national identity cards. In addition, the prime minister said the cabinet would “promote efforts to expand the use of Web 3.0 services that utilize the metaverse and NFTs.”

*Prime Minister Fumio Kishida addressing Japan’s National Diet on Oct. 3. Source: 日テレNEWS*

Kishida said Japan’s technological investments would extend to developing and producing semiconductors as part of a joint effort with the United States and work on reform regulations related to the technology sector. The current prime minister, who took office in October 2021, followed former Prime Minister Yoshihide Suga, who suggested he was in favor of taxing Bitcoin (BTC) transactions in Japan.

During Kishida’s time in office, crypto users in Japan have seen a number of developments in the space, from Mt. Gox moving forward on repayment procedures after years of legal delays to the reintroduction of crypto ATMs in the country. In August, two of the country’s crypto advocacy groups, the Japan Crypto-Asset Business Association and the Japan Crypto-Asset Exchange Association, called for a 20% separate tax on crypto earnings for individual investors — many currently face a crypto tax rate of up to 55%.

California fraud cases highlight the need for a regulatory crackdown on crypto

Recent cases involving crypto fraud serve as a timely reminder to do your own due diligence until regulators take more action. If something sounds too good to be true, it probably is.

The California Department of Financial Protection and Innovation (DFPI) announced last month that it had issued desist and refrain orders to 11 entities for violating California securities laws. Some of the highlights included allegations that they offered unqualified securities as well as material misrepresentations and omissions to investors.

These violations should remind us that while crypto is a unique and exciting industry for the public at large, it is still an area that is rife with the potential for bad players and fraud. To date, government crypto regulation has been minimal at best, with a distinct lack of action. Whether you are a full-time professional investor or just a casual fan who wants to be involved, you need to be absolutely sure of what you are getting into before getting involved in any crypto opportunity.

California has toyed with setting up a crypto-specific business registration process for those looking to do business in the state. The proposed framework was vetoed by Governor Gavin Newsom as the resources required to establish and enforce such a framework would be prohibitive for the state. While this type of compliance infrastructure has not been employed yet, it points to concerns that regulatory authorities have related to the crypto industry.

There appears to be a pattern that new industries, especially those that garner as much international attention as crypto, are especially susceptible to fraud. One must go only as far back as cannabis legalization to find the last time California had to deal with fraudulent schemes at this scale.

It appears inevitable that California, known to be a first mover in regulation and compliance, will create some form of crypto-specific compliance infrastructure in the name of consumer protection. If history is any indication, once California releases its framework, other states will follow.

Federal and state representatives have been attempting to draft legislation to establish financial standards for crypto with little luck to date. At the federal level, Senators Cory Booker, John Thune, Debbie Stabenow and John Boozman co-sponsored a bill to empower the Commodities Futures Trading Commission (CFTC) to serve as the regulatory body for crypto, while Senators Kirsten Gillibrand and Cynthia Lummis co-sponsored a bill to establish more clear guidance on digital assets and virtual currencies. Lawmakers have even reached out to tech luminaries such as Mark Zuckerberg to weigh in on crypto fraud.

Cryptocurrencies, California, CFTC, Legislation, Law, Scams, Fraud, Bitcoin Scams — *Cumulative monthly value received by scams by year. Source: Chainalysis*

None of these or other similarly crypto-focused bills are expected to pass in 2022, but this level of bipartisan cooperation has been unprecedented in recent times. The collaboration should reflect just the sheer magnitude of the need for a regulatory framework. Said another way, Democrats and Republicans speaking to one another about anything should stop the presses, but the fact that they are co-sponsoring multiple bills should tell us that there is a monumental requirement for guidance.

How should one approach investing in the crypto space if the government is not going to establish controls for crypto? There are a few general points that one should consider if they are presented with a crypto investment opportunity.

When reviewing any opportunity, do your due diligence! Do not take anyone’s word without some level of substantive support. If crypto is not an area of expertise, reach out to professionals who do have qualified experience. Make sure to utilize crypto monitoring and blockchain analysis tools, if possible, as part of the vetting process.

A common strategy of fraudsters is putting undue pressure or artificial timelines on a potential close. Slow down the process and use any and all time necessary to make an investment decision.

If it sounds too good to be true, it probably is. As overplayed as the cliché may be, it does bring up a valid point. There have been instances of schemes offering to pay initial and ongoing dividends for any new investors that are brought in and for additional dividends to be paid from any investors that those new investors bring in. If this sounds like a pyramid or multilevel marketing scheme, that’s because it is. Terms like “no risk investment” get thrown around as well. Ultimately, if no one knows where the opportunity is coming from, beware.

While crypto can be a fun and electrifying topic with many legitimate opportunities, there are bad players who will take advantage of the lack of government oversight and the excitement of overenthusiastic or undereducated investors.

Zach Gordon is a certified public accountant (CPA) and vice president of crypto accounting for Propeller Industries, serving as fractional chief financial officer and adviser to a portfolio of crypto and Web3 clients. He has been named a Forty Under 40 CPA, sits on the Digital Assets Committee for the NYSSCPA and has been working with crypto clients in a variety of capacities since 2016.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

CFTC takes legal action against Digitex futures exchange and CEO

Many in the space have criticized regulators including the CFTC and SEC for taking a “regulation by enforcement” approach to crypto in the United States.

The United States Commodity Futures Trading Commission, or CFTC, filed a complaint against Digitex LLC and its founder and CEO Adam Todd for failing to register the cryptocurrency futures exchange and manipulating the price of its DGTX token.

According to a Sept. 30 court filing in the Southern District of Florida, Todd allegedly pumped up the price of DGTX tokens in an effort to inflate Digitex’s holdings. The U.S. regulator claimed the Digitex CEO used different corporate entities as part of a scheme to launch and operate an illegal digital asset derivatives trading platform, in violation of the Commodity Exchange Act.

CFTC rules require performing Know Your Customer (KYC) checks and implementing a customer information program. Todd said in 2020 that he planned to remove all KYC procedures from Digitex in an effort to protect user data.

The complaint said the CFTC sought a court order blocking Todd and Digitex from engaging in digital asset transactions considered commodities under the regulator’s purview. In addition, the regulator intended for Digitex to pay civil monetary penalties, disgorgement, and restitution to the affected parties. At the time of publication, both Digitex’s and its futures websites were offline.

Many in the crypto space have criticized regulators including the CFTC and Securities and Exchange Commission, or SEC, for taking a “regulation by enforcement” approach to crypto in the United States. While the SEC is currently engaged in a legal battle against Ripple over whether the firm’s Ripple (XRP) sales violated securities laws, CFTC commissioner Caroline Pham met with Ripple CEO Brad Garlinghouse as part of a “learning tour” on crypto and blockchain in September.

Crypto and decentralization could influence voters in 2022 US midterm elections: Report

“Voters are less likely to support candidates perceived as standing in the way of a decentralized internet,” said Haun Ventures.

A poll of 800 likely midterm voters in four U.S. swing states suggested that the overwhelming majority favored ideas around decentralization, and many were HODLers.

According to a Sept. 29 report from venture capital firm Haun Ventures on a survey conducted by business intelligence company Morning Consult, roughly one in five voters polled in New Hampshire, Nevada, Ohio and Pennsylvania said they owned cryptocurrency or nonfungible tokens. In addition, 91% of respondents supported a “community owned, community governed” internet that “gives people greater control over their information.”

*Poll of 800 swing state voters who own digital assets. Source: Haun Ventures*

“Significantly, and reflective of how the values that voters associate with Web3 will drive electoral behavior, voters are less likely to support candidates perceived as standing in the way of a decentralized internet,” said Haun Ventures. “In other words, as both parties consider how good Web3 policy will translate into good politics, the values of Web3 are what voters want to see elected officials supporting, not standing in the way of.”

Today, we’re sharing a poll commissioned by Haun Ventures and conducted by Morning Consult of likely 2022 midterm voters in four key swing states (OH, PA, NH and NV) that surveyed voters’ views on web3 and how they might impact their vote in November. https://t.co/NhMSviztDJ

— Haun Ventures (@HaunVentures) September 29, 2022

The survey noted that the voters polled leaned slightly Democratic, but promoting a decentralized and democratized internet seemed to be a bipartisan issue, with both sides having “limited faith in the government’s ability” to regulate Web3. Haun Ventures reported that 55% of voters surveyed would be less likely to vote for political candidates who opposed internet decentralization policies, while 72% of HODLers in the poll said they owned digital assets “because they want an economic system that is more democratized, fair, and works for more people.”

“This poll makes it clear that in these swing states, Web3 Voters now represent a significant cohort of the middle class electorate, and are younger and more diverse than the population as a whole.”

The poll targeted people planning to vote in the 2022 midterm elections in the United States, to be held in November with candidates taking office in January. Morning Consult conducted the survey from Sept. 15–20. Katie Haun, a Coinbase board member and former board member for OpenSea, raised $1.5 billion to form Haun Ventures in March for investments in Web3.