regulation

EU officials reach agreement on AML authority for supervising crypto firms

“We are putting an end to the wild west of unregulated crypto, closing major loopholes in the European anti-money laundering rules,” said European Parliament member Ernest Urtasun.

The European Council has reached an agreement to form an Anti-Money Laundering (AML) body that will have the authority to supervise certain crypto asset service providers, or CASPs.

In a Wednesday announcement, the council said it had agreed on a partial position of a proposal to launch a dedicated Anti-Money Laundering Authority, or AMLA. According to the regulatory body, the AML body will have the authority to supervise “high-risk and cross-border financial entities” including crypto firms — “if they are considered risky.”

European Parliament member Ondřej Kovařík said European Union officials had also reached a “provisional political agreement” on the government body’s Transfer of Funds Regulation. Not all the details of the revision are clear at the time of publication, but Cointelegraph reported that a March draft of the regulation could require crypto service providers to collect personal data related to transfers of any size made to and from unhosted wallets, as well as potentially verify their accuracy.

“We are putting an end to the wild west of unregulated crypto, closing major loopholes in the European anti-money laundering rules,” said European Parliament member Ernest Urtasun. “The rules won’t apply to P2P transfers where there is no obliged entity involved […] CASPs will be required to collect information and apply enhanced due diligence measures with respect to all transfers involving unhosted wallets, on a risk basis.”

Related: European crypto regulatory framework goes to three-way consideration without PoW ban

First proposed in July 2021, the AMLA should be operational in 2024 and “start the work of direct supervision slightly later,” according to the European Commission. The financial watchdog will be one of the first regulatory institutions with the authority to oversee money laundering across large regions of Europe, coordinating with respective countries’ financial intelligence units and working with local regulators.

US govt delays enforcement of crypto broker reporting requirements: Report

The reporting requirements, aimed at reducing the size of the tax gap, were scheduled to take effect in January 2023, with crypto firms sending reports to the IRS starting in 2024.

The provision in the U.S. infrastructure bill signed into law in November, which will require financial institutions and crypto brokers to report additional information, could reportedly be delayed.

According to a Wednesday report from Bloomberg, the United States Department of the Treasury and Internal Revenue Service may not be willing to enforce crypto brokers collecting information on certain transactions starting in January 2023, citing people familiar with the matter. The potential delay could reportedly affect billions of dollars related to capital gains taxes — the Biden administration’s budget for the government for the 2023 fiscal year previously estimated modifying the crypto tax rules could reduce the deficit by roughly $11 billion.

Under the current infrastructure bill, Section 6050I mandates that crypto brokers handling digital asset transactions worth more than $10,000 report them to the Internal Revenue Service with personal information likely including the sender’s name, date of birth and social security number. The requirements, aimed at reducing the size of the tax gap, were scheduled to take effect in January 2023, with companies sending reports to the IRS starting in 2024.

“Delaying is smart,” said Jake Chervinsky, head of policy at the Blockchain Association, in response to the news. “We’re getting closer & closer to the effective date of the infrastructure bill’s tax provisions & we’re still waiting for guidance or rulemaking on implementation.”

Related: Crypto miners exempt from IRS reporting rules, US Treasury affirms

Since the passage of the $1 trillion infrastructure bill, many industry experts and lawmakers have suggested the crypto broker reporting requirements are overly broad, placing an undue burden on individuals who may not have the necessary information on transactions. In June, crypto and blockchain advocacy group Coin Center filed a lawsuit against the Treasury Department, alleging the tax reporting requirement could “impose a mass surveillance regime on ordinary Americans.”

That’s ‘Sir’ Crypto Dad: French order knights former CFTC chair Chris Giancarlo

The first of his name, king of the punks and the first regulators, protector of the seven tokens, the keeper of the great CBDC, the breaker of blockchains and father of crypto.

The French government has given former United States Commodity Futures Trading Commission chair Chris Giancarlo, also known as “Crypto Dad,” the equivalent of a knighthood.

In a Tuesday tweet from Giancarlo, the former CFTC head said France’s National Order of Merit awarded him a Chevalier — the equivalent of a knighthood — in a ceremony at the French ambassador’s residence in Washington D.C. Those attending included current and former CFTC commissioners Rostin Behnam, Brian Quintenz, Christy Goldsmith Romero, Kristin Johnson, Caroline Pham, as well as Hester Peirce of the Securities and Exchange Commission.

The order announced Giancarlo’s appointment in May. Phillippe Etienne, France’s ambassador to the United States, said the award was due, in part, to the former CFTC chair’s “understanding of financial markets and the potentials of crypto finance.”

“[This award] recognizes the creation of well-regulated crypto trading markets and strengthening of overseas regulatory ties with the help of many fine public servants during my time of government service,” said Giancarlo at the time.

Giancarlo worked as the chair of the CFTC for five years before leaving in April 2019. During his time with the government agency, he oversaw the launch of regulated Bitcoin (BTC) futures and was alleged to have had a “do no harm” approach to blockchain regulation, earning him the nickname Crypto Dad.

Since leaving the CFTC, Giancarlo has gone on to join blockchain investment firm CoinFund as a strategic adviser, the board of directors for blockchain startup Digital Asset, and briefly, the board of crypto lending firm BlockFi. He currently works as a senior counsel at the law firm Willkie Farr & Gallagher.

Related: Emmanuel Macron on crypto: ‘I don’t believe in a self-regulated financial sector’

Other individuals who have previously been knighted by their respective governments have joined the crypto space in various ways. Sir Richard Starkey, also known as Beatles member Ringo Starr, launched his own line of nonfungible tokens on June 13. Star Trek star William Shatner, who tokenized a series of trading cards in 2020, was inducted into the Order of Canada in 2019 — though many have said the honor is not equivalent to a knighthood.

Are custodied crypto funds at risk? Industry veterans explain

Investments under custody are usually very safe, until the accountability of the custodian is called into question.

With rumors of insolvency flying high among crypto firms such as Celsius and Three Arrows Capital, investors couldn’t help but ask a simple question: What happened to all the funds that were supposedly under “safe custody?” As it turns out, a small fraction of crypto firms began leveraged trading with customers’ deposits to deliver promised high APY returns on supposedly fixed-income instruments. Things worked out well when the market was thought to have endless potential.

However, as token prices plunged, such firms simultaneously suffered heavy losses on their positions and an increase in withdrawal requests as investors rushed to protect their capital. The combination of selling pressures led to lower coin prices and the likely obliteration of investors’ initial principal as firms allegedly became insolvent.

Not all asset custodians took enormous risks with clients’ deposits during the bull market in an attempt to attract more capital. At the European Blockchain Convention in Barcelona, Cointelegraph news editor Aaron Wood spoke to Bit.com’s business development lead, Leslie Hsu. Bit.com is a centralized crypto exchange launched in March 2020 in Seychelles. Here’s what Hsu had to say:

“So at Bit.com, we actually use a third-party custody service. Once all assets are in custody, the exchange won’t use your money or clients’ assets for tasks like margin trading.”

However, Hsu explained that due to a concept known as regulatory arbitrage, it would be difficult for administrative bodies to crack down on supposed bad actor custodians that take unreasonable risks with clients’ capital. “Different countries all have different regulations. For example, like in the U.S., they only allow U.S. domiciled entities to trade over there. Right now, there’s no single piece of international legislation covering all potential crypto-related issues.” In some jurisdictions, gambling laws even take precedence over administrative rules when it comes to regulating digital assets.

At another panel, Cointelegraph’s managing editor Alex Cohen spoke to Michael Lau, global head of sales at regulated crypto exchange Bullish. For Lau, the issue of trust not only comes in the ability to create services but also in how one executes them, explaining:

“From our perspective, we decided we would be regulated one day. So then there’s an element of accountability, right? Someone is actually auditing our inner workings and making sure that we can actually fulfill the promises we are making.”

Lau shared that when he first joined the industry in February 2020 after a career in traditional finance, he was surprised at the high level of retail involvement for digital assets. “I remember the New York Stock Exchange is only about 20% retail, and the Chinese Stock Exchanges were around 40% retail, but I really looked at crypto, and it was all retail with very few institutions in it.”

But Lau said that he is rather satisfied with the continued demand for regulation in the industry. “There’s a certain level of professionalism and accountability demanded of fund managers. As an investor, I want to know that I’m going to be protected. I want to know that the fund manager follows the rules. I want to make sure that there’s proper segregation of assets. So we’ve noticed a lot more demand for regulation as of late.”

State securities regulators investigate Celsius over withdrawal suspension: Report

Reports from different media outlets in the last week also suggested the Celsius Network has lost major backers and onboarded new attorneys amid a volatile crypto market.

Securities regulators from five U.S. states have reportedly opened an investigation into crypto lending platform Celsius Network over its decision to suspend user withdrawals.

According to a Thursday report from Reuters, Texas State Securities Board director of enforcement division Joseph Rotunda said regulators in Alabama, Kentucky, New Jersey, Texas and Washington began investigating Celsius after the platform announced it would be “pausing all withdrawals, swaps and transfers between accounts.” Rotunda reportedly called the investigation a “priority” for the Texas regulator and confirmed to Cointelegraph the enforcement division was “looking at the issue involving the frozen accounts.”

“I am very concerned that clients — including many retail investors — may need to immediately access their assets yet are unable to withdraw from their accounts,” the enforcement director reportedly said. “The inability to access their investment may result in significant financial consequences.”

The report on a possible investigation into Celsius followed a Wall Street Journal report from Thursday that two firms that habacked the crypto lending platform during a November 2021 funding round did not plan to provide additional funds due to the potential risks, citing people with knowledge of the situation. WestCap Group and Canadian pension fund Caisse de dépôt et placement du Québec led a $750 million Series B funding round for Celsius, which helped the platform reach a $3.5 billion valuation.

With the crypto market experiencing significant volatility in June, Celsius has reportedly onboarded attorneys to find different solutions to the current financial challenges faced by the company. CEO Alex Mashinsky took to Twitter on Wednesday — breaking a three-day social media silence — to say that the Celsius team was working “non-stop” to address user concerns.

The Texas State Securities Board also took action against Celsius in September 2021, initially scheduling a hearing related to allegations that the network had offered and sold securities in the state that were not registered or permitted, in addition to the platform not registering as a dealer under Texas’ Securities Act. The New Jersey Bureau of Securities issued a cease and desist order against Celsius for similar alleged violations of the state’s securities laws.

Related: SEC chair warns about ‘too good to be true’ returns amid market downturn

Major cryptocurrencies including Bitcoin (BTC) and Ether (ETH) have dipped close to $20,000 and $1,000, respectively, in the last seven days amid extreme market volatility. Possibly in response to these losses, many crypto exchanges have announced staff cuts between 5%–20%, including Coinbase, Gemini and Crypto.com.

Cointelegraph reached out to Celsius Network, but did not receive a response at the time of publication.

ECB may cap digital euro at 1.5T tokens — Executive board member

“Keeping total digital euro holdings between one trillion and one and a half trillion euro would avoid negative effects for the financial system,” said Fabio Panetta.

Fabio Panetta, an executive board member of the European Central Bank, or ECB, proposed the central bank limit the total holdings of a digital euro in an effort to prevent the digital currency from being used as a form of investment.

In a Wednesday speech for the Committee on Economic and Monetary Affairs of the European Parliament, Panetta hinted the ECB could cap the number of digital euros between 1 and 1.5 trillion tokens. The proposed limit would be part of an effort aiming to disincentivize residents from HODLing tokens as an investment like crypto assets, with “with larger holdings subject to less attractive rates.”

“Our preliminary analyses indicate that keeping total digital euro holdings between one trillion and one and a half trillion euro would avoid negative effects for the financial system and monetary policy,” said Panetta. “This amount would be comparable with the current holdings of banknotes in circulation. As the population of the euro area is currently around 340 million, this would allow for holdings of around 3,000 to 4,000 digital euro per capita.”

Panetta also reiterated that companies in the private sector would likely need to coordinate with public officials for an effective rollout of a digital euro. He has previously suggested the importance of the CBDC being accepted in both physical and online stores and allowing easy person-to-person payments.

Related: ECB, Eurosystem begins experimental prototyping of digital euro customer interface

The ECB announced in July 2021 that it had launched a two-year investigation phase for the CBDC, with a possible release in 2026. In May, the central bank released a working paper suggesting that a “CBDC with anonymity” may be a preferable option when compared with traditional digital payments, but many in the EU are still opposed to a digital euro.

Iowa regulator orders BlockFi to pay $943K over alleged unregistered securities offering

The IID ordered BlockFi to pay an administrative fine as well as cease and desist “from making any untrue statement of material facts regarding securities.”

The Iowa Insurance Division, or IID, a regulator responsible for many securities sales in the state, has fined crypto lending firm BlockFi more than $943,000 after it allegedly offered and sold unregistered securities.

In a Tuesday announcement, the state regulator said BlockFi had “offered and sold securities in Iowa that were not registered or permitted for sale in Iowa” in addition to not being registered as a broker-dealer or agent, in violation of the state’s Securities Act. The IID ordered BlockFi to pay $943,396.22 as an administrative fine as well as to cease and desist “from making any untrue statement of material facts regarding securities.”

“While innovations, like cryptocurrencies, may provide for growth and evolution in the financial system, it is important that regulators ensure this occurs within an appropriate framework that protects investors while still facilitating responsible capital formation,” said Iowa nsurance commissioner Doug Ommen.

The order behind the financial penalty was part of an investigation by the United States Securities and Exchange Commission, or SEC, in which BlockFi was ordered in February to pay $50 million in settlement to the federal agency as well as $50 million to 32 state-level regulators. According to the IID, BlockFi allegedly made “misrepresentations and omissions about the level of risk in its loan portfolio” and claimed its institutional loans were “typically” over-collateralized when the statement was only true for 17% of loans made by the platform in the first half of 2021.

“BlockFi’s statements that their loans were “typically” over-collateralized suggested to investors that they had secured more protection from default than BlockFi had actually secured,” said the IID.

Federal and state regulators seemed to target many crypto lending platforms in 2021, with the New York Attorney General’s office ordering two firms to “cease any and all such activity” while potentially investigating three others. Financial regulators from a number of U.S. states, including Texas, New Jersey, Alabama, Kentucky and Vermont, claimed in 2021 that BlockFi had offered securities unlicensed at the state or federal level.

Related: Happy to be regulated? Fallout from BlockFi settlement is a matter of speculation

BlockFi CEO Zac Prince announced on Monday that the firm would be laying off 20% of its staff — reducing the number of employees to just over 600 — citing the need to achieve profitability goals. It’s unclear whether the financial penalties from state regulators played a role in BlockFi’s decision, but the news came amid the crypto market experiencing extreme volatility, with the price of Bitcoin (BTC), Ether (ETH) and many others dropping between 25–40% in the last seven days.

EU commissioner reiterates need for ‘regulating all crypto-assets’

Mairead McGuinness said that she planned to discuss a compromise through the MiCA proposal currently under review in the EU.

Mairead McGuinness, the Commissioner for Financial Services, Financial Stability and Capital Markets Union at the European Commission, is moving forward with a discussion on regulating cryptocurrencies amid three major events in the space.

In written remarks for a speech in Brussels on Tuesday, McGuinness said the Celsius Network’s recent suspension of withdrawals, as well as the crash of Terra (originally LUNA, now LUNA Classic, or LUNC), show the need for crypto-asset regulation in the European Union. She added that ongoing concerns about crypto potentially being used to circumvent sanctions on Russia were also a factor.

“Regulating all crypto-assets — whether they’re unbacked crypto-assets or so-called “stablecoins — and crypto-asset service providers is necessary,” said McGuinness. “Sanctions implementation could be facilitated if our framework on crypto was in place, and if all crypto-asset service providers were regulated entities and subject to effective supervision in the European Union.”

The EU commissioner added that she planned to discuss a “political compromise” under the French government through the Markets in Crypto Assets, or MiCA, proposal currently being reviewed by the European Parliament, the European Commission and the European Council:

“MiCA rules will be the right tool to address the concerns on consumer protection, market integrity and financial stability. This is something that is so urgent given recent developments.”

Under the MiCA draft proposal, all crypto firms providing services within the European Union would likely be subject to the same rules. Initially, the measure was idelayed due to concerns about a potential ban on proof-of-work cryptocurrencies but went out of committee in March.

Related: EU commissioner calls for global coordination on crypto regulation

In addition to its work on regulating digital assets within the EU, the commission will on Thursday close a consultation launched in April for financial services specialists to weigh in on the potential rollout of a central bank digital currency. McGuinness said in May the EU commission would “stand ready” to introduce legislation behind a digital euro.

SEC chair warns about ‘too good to be true’ returns amid market downturn

Gary Gensler added that he continued to be “intrigued with the technology,” but did not directly address if the SEC would approve a Bitcoin exchange-traded fund.

Gary Gensler, chair of the United States Securities and Exchange Commission, or SEC, reiterated his call for investor protection in securities offered by crypto firms.

Speaking virtually at the Robert F. Kennedy Human Rights Compass Investor Conference on Tuesday, Gensler said the SEC would use its existing authority to focus on cryptocurrency projects and exchanges, warning people of potentially “too good to be true” returns on investments. According to Gensler, the bulk of the tokens currently in the crypto market fall under the regulatory purview of the SEC, subject to the same disclosure requirements as securities.

“We’ve seen again that lending platforms — they’re operating a little like banks,” said Gensler. “They’re saying: “Give us your crypto. We’ll give you a big return” [….] How does somebody offer 4.75% in the market today and not give a lot of disclosure?”

The SEC chair added:

“If it seems too good to be true, it just may well be too good to be true.”

SEC chair Gary Gensler speaking at the Compass Investor Conference on Tuesday

In response to a question on the recent volatility in the crypto market, Gensler said that he continued to be “intrigued with the technology,” but did not directly address if the SEC would approve a Bitcoin (BTC) exchange-traded fund in the near future. He added that most projects in the crypto space were “likely to fail,” reiterating his warning of high returns without appropriate disclosures to the public. 

Related: SEC chair: Retail crypto investors should be protected

The SEC chair’s remarks came after Senators Cynthia Lummis and Kirsten Gillibrand proposed a bill that, if passed, would give the Commodity Futures Trading Commission “clear authority over applicable digital asset spot markets” as opposed to the SEC. Both U.S. lawmakers met with Gensler in June to discuss finding the best balance of regulatory authority between the CFTC and SEC on cryptocurrencies.

Many in the crypto space have criticized the lack of regulatory clarity in the United States, which can be subject to interpretation from multiple government agencies. Gensler has repeatedly called on crypto projects to register with the SEC in an effort to provide investor protection.

This key Ethereum price metric shows ETH traders aren’t as bearish as they appear

Traders keep saying ETH price will collapse below $1,600 soon, but a key trading metric shows most are unwilling to place bearish bets below $1,900.

Ether (ETH) is down 25% in just a month and even the recent upgrade to a proof-of-stake (PoS) consensus on the Ropsten testnet failed to move the altcoin’s price. 

The merge is meant to address energy-use issues and open a path for higher transaction output, but the actual full transition for the Ethereum network is not expected until later in the year. Ethereum developer Parithosh Jayanthi also noted that some bugs on the PoS implementation emerged, but those should be fixed over the coming weeks.

Luckily for Ethereum, two of its top competitors recently faced challenges of their own. The Solana (SOL) network faced the fifth outage in 2022 after no new blocks were produced for four hours on June 1. Every decentralized application was halted until the validators were able to address the problem and re-sync the network.

More recently, Binance’s native BNB token dropped 7% on June 7 after news that the United States Securities and Exchange Commission announced that it had opened an investigation into the initial coin offer (ICO) from 2017. According to Bloomberg, at least one U.S. resident claimed to have taken part in the ICO, which could be crucial for an SEC case.

Regulatory uncertainty could be partially responsible for Ether’s sharp correction. On June 6, Hong Kong’s Securities and Futures Commission (SFC) released a note warning about the investment risks of nonfungible tokens. The regulatory agency highlighted the sectors’ opaque pricing, illiquid markets and frauds.

Options traders are still extremely risk-averse

Traders should look at Ether’s derivatives markets data to understand how larger-sized traders are positioned. The 25% delta skew is a telling sign whenever whales and arbitrage desks overcharge for upside or downside protection.

If those traders fear an Ether price crash, the skew indicator will move above 10%. On the other hand, generalized excitement reflects a negative 10% skew. That is precisely why the metric is known as the pro traders’ fear and greed metric.

Ether 30-day options 25% delta skew: Source: Laevitas.ch

The skew indicator has been above 10% since May 22, and it recently peaked at 20% on June 3. Those levels signal extreme fear from options traders, and despite the modest improvement, the current 17% delta skew shows whales and arbitrage desks unwilling to take downside risk.

Long-to-short data is showing a few positives

The top traders’ long-to-short net ratio excludes externalities that might have solely impacted the options markets. By analyzing these top clients’ positions on the spot, perpetual and quarterly futures contracts, one can better understand whether professional traders are leaning bullish or bearish.

There are occasional methodological discrepancies between different exchanges, so viewers should monitor changes instead of absolute figures.

Exchanges’ top traders Ether long-to-short ratio. Source: Coinglass

Even though Ether has struggled to sustain $1,800 as a support, professional traders did not change their positions between June 5 and 9, according to the long-to-short indicator.

Binance displayed a modest decrease in its long-to-short ratio, as the indicator moved from 0.99 to the current 0.96 in four days. Thus, those traders slightly net increased their bearish bets.

Huobi data shows a similar pattern and the indicator moved from 1.02 to 0.98 on June 9, which was a small change favoring shorts. At OKX exchange, the metric oscillated drastically within the period but finished nearly unchanged at 1.35.

Related: DeFi contagion? Analysts warn of ‘Staked Ether’ de-pegging from Ethereum by 50%

Mixed derivatives data provides hope for bulls

Overall, there hasn’t been a significant change in whales and market makers’ leverage positions despite Ether’s failure to break the $1,900 resistance on June 6.

From one side, options traders fear that a deeper Ether price correction is likely in the making, but at the same time, futures market players have no conviction to increase bearish bets.

This reading is likely a “glass half full” scenario as the top traders’ unwillingness to short below $1,900 can potentially create a support level.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.