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US President Joe Biden urges tech firms to address risks of AI

President Biden urges technology companies to prioritize secure AI products before public release, stressing the need to address potential risks to society, national security and the economy.

United States President Joe Biden stated on Tuesday that the safety of artificial intelligence (AI) is still uncertain, and emphasized that technology firms should ensure their products are secure before releasing them to the public.

During a meeting with science and technology advisers, Biden acknowledged that AI could be beneficial in tackling issues such as disease and climate change. However, he stressed the significance of addressing possible risks to society, national security and the economy.

At the beginning of a meeting with the President’s Council of Advisors on Science and Technology, he stated that technology companies must ensure their products are secure before releasing them to the public. When questioned about the potential hazards of AI, he replied, “It is yet to be determined. There is a possibility.“

According to the president, social media has already demonstrated the negative impact that powerful technologies can have in the absence of appropriate measures to protect against them. “Absent safeguards, we see the impact on the mental health and self-images and feelings and hopelessness, especially among young people,” Biden said.

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He repeated his call for the U.S. Congress to approve non-partisan privacy laws that limit the personal data gathered by technology firms, prohibit child-targeted advertising, and gives priority to health and safety in product development.

The Center for Artificial Intelligence and Digital Policy, a technology ethics organization, recently urged the U.S. Federal Trade Commission to prevent OpenAI from releasing new commercial versions of GPT-4, a language model that has both impressed and alarmed users due to its human-like capacity to create written responses to prompts.

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Unwinding the hyperbole: Are US-based crypto firms really being ‘choked’?

Are U.S. agencies conspiring to “un-bank” crypto and put Binance out of business?

An extended market price drawdown (crypto winter) throughout 2022 has tested the crypto industry’s mettle, and more recently, a crackdown by United States regulators on some prominent entities like Coinbase, Binance and Kraken has further shaken the sector.

So maybe it’s only natural for the industry to employ colorful, vivid language to describe what’s been happening. There’s a notion making the rounds that the U.S. government is out to “un-bank” or “de-platform” the crypto sector. This process even has a name: “Operation Choke Point 2.0.”

U.S. President Joe Biden’s administration is using the financial rails “as an extra-judicial political cudgel” to crack down on the crypto industry, wrote Castle Island Ventures’ Nic Carter, who described it as a coordinated, multi-agency effort to discourage banks from dealing with crypto firms.

According to Carter, this alleged strategy follows a template used earlier by the Obama and Trump administrations. In 2018, under federal pressure, “Bank of America and Citigroup de-platformed firearms companies, and BoA began to report client firearm purchases to the federal government,” he wrote.

In late March, Quantum Economics’ Mati Greenspan told Cointelegraph that this so-called un-banking could “already be underway,” particularly in light of the recent collapses of crypto-friendly banks like Silvergate, Silicon Valley Bank and Signature Bank. In Greenspan’s view:

“Crypto is seen as a ‘threat’ to the U.S. dollar’s dominance in global trade — a significant and long-standing benefit to the U.S.”

In that same article, attorney Michael Bacina warned that the “regulation by enforcement model” being practiced in the U.S. would simply “drive crypto-asset innovation offshore,” and on April 1, the CEO of a French digital assets data provider told The Wall Street Journal that U.S. agency actions could “shift the center of gravity of crypto assets trading and investments” toward Hong Kong.

A coordinated effort by regulators?

It’s time to step back and ask: Are these fears justified? It is sometimes difficult to separate the truth from the tight knot of hyperbole in the crypto space, but are U.S. regulators really seeking to “de-platform” crypto?

“I don’t think there’s necessarily a concerted or intentional effort by regulators to ‘de-platform’ crypto,” David Shargel, a partner at the Bracewell law firm, told Cointelegraph. “But, the crypto ecosystem has moved from a niche product to the mainstream, and regulators are playing catchup.” Regulators also recognize that crypto isn’t going anywhere, he added.

Does the suggestion that cryptocurrencies represent a threat to the U.S. dollar’s dominance in global trade provide a further incentive to ban them?

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Crypto may indeed have the potential to disrupt global trade flows — at least to some minor degree — but the dollar is more threatened by other geopolitical factors “such as the U.S.’ own waning influence on the global stage, the rise of China, and Western sanctions on Russia,” Zhong Yang Chan, head of research at CoinGecko, told Cointelegraph.

Recently, International Monetary Fund experts said, “Crypto assets, including stablecoins, are not yet risks to the global financial system.”

“The general consensus seems to be that the dollar remains well entrenched as the world’s dominant currency, and that the use of cryptocurrency, standing alone, won’t change that — barring some other major political or economic shift,” Bracewell’s Shargel added.

“A perfect storm brewing”

Still, the administration in Washington may be getting nervous about the U.S. dollar, said John Deaton, a managing partner at Deaton Law Firm, who also runs the CryptoLaw website, and has supported Ripple in its litigation with the U.S. Securities and Exchange Commission (SEC). Speaking to Cointelegraph, he said there is a convergence of issues at play here:

“China and Russia have agreed to trade oil and gas in the Chinese yuan, not U.S. dollars. Kenya’s president has told his people to dump their USD. Saudi Arabia may agree to trade oil in non-USD denominations.”

At the same time, the U.S. government needs to print more money, adding to an already high inflationary environment, leading people to look at gold, silver and Bitcoin (BTC) as alternatives. “The fear isn’t just about crypto — it’s that a perfect storm is brewing against the U.S. dollar,” Deaton said.

Deaton deems the Operation Chokepoint 2.0 scenario plausible, but he also has a nuanced view of crypto regulation and U.S. regulators. “If we are being honest, the crypto industry has caused itself quite a few self-inflicted wounds, and the industry is to blame for giving itself a black eye when it comes to public perception.” Many in the crypto industry, like himself, “don’t oppose regulation; we seek it,” he said, adding:

“We just want smart, tailored legislation that protects investors from fraud but provides entrepreneurs with clear rules and guidance, and fosters innovation.”

Dealing Binance a ‘fatal blow’?

Deaton was asked about another suggestion heard last week that the U.S. Commodity Futures Trading Commission (CFTC) is “attempting to strike a fatal blow to Binance” with its recently announced lawsuit against the world’s largest cryptocurrency exchange. Is that really the commission’s end game?

“If you look at the CFTC’s case against Binance in a vacuum, I would agree that it is hyperbole to suggest that it is a regulatory attempt to cause a death blow to Binance,” said Deaton. “Binance, like many other entities that grew very fast and very quickly, may have cut corners. If so, they will pay a big fine and move on.”

The problem is that the Binance suit comes after Coinbase received a Wells notice from the SEC, and the government’s seizure of Signature Bank, with reports that the Federal Deposit Insurance Corporation wanted all crypto depositors out before it would allow a sale of that bank. “When you add those things together, it appears like coordination, not coincidence,” Deaton told Cointelegraph.

“Hyperbole seems to drive the crypto news cycle,” commented Bracewell’s Shargel when asked about the industry’s response to the recent CFTC action against Binance. “The CFTC’s lawsuit is certainly serious, but it’s probably too soon to call it a fatal blow.”

In its complaint, the CFTC asked the court to impose several penalties, including a permanent bar on Binance and its CEO, Changpeng Zhao, from the commodities markets. “But, for now, the complaint is just a complaint, and the outcome of the case — whether through settlement or otherwise — remains to be seen,” said Shargel.

The view from abroad

Viewed from overseas, recent U.S. regulatory actions are sometimes difficult to fathom. Syren Johnstone, executive director of the compliance and regulation program at the University of Hong Kong — and author of the book Rethinking the Regulation of Cryptoassets — has been disappointed with the U.S. SEC’s seeming attempt to label everything a security.

“None of the regulatory approaches I’m seeing globally truly promote innovation,” Johnstone told Cointelegraph. “Dumping everything crypto into a financial markets context is straight-jacketing the greater potential for the technology.”

Other countries are closely following recent U.S. regulatory actions, though not necessarily approvingly. “Overseas regulators are looking at the U.S. approach to crypto assets as a situation they want to avoid,” Johnstone noted.

“Globally, there are concerted efforts to bring greater regulatory oversight to crypto,” added CoinGecko’s Chan. “However, each country has its own legal system, and different countries may take different paths toward regulating crypto activities. This may include placing crypto under the ambit of securities, but there may also be other possible paths such as classifying crypto as payments instruments, or commodities.”

Time to cool down the hype?

If the industry continues to use the language of persecution, could it potentially hurt — rather than support — crypto adoption? Shargel commented:

“I’m not sure if hyperbole serves the wider cause of crypto or blockchain adoption, but it might help to coalesce the crypto community, especially as regulators seem to be expanding their enforcement dragnet.”

“I do not believe it is hyperbole to say the U.S. government has initiated a war or campaign against crypto,” opined Deaton. “Operation Chokepoint 2.0, which Nic Carter warned people about, has been proven accurate. Some said he was a conspiracy theorist or engaging in hyperbole. He wasn’t either. The regulators protect the status quo, which means they protect the incumbents in power from the disrupters who are gaining traction or market share. That’s what we are witnessing.”

A downbeat President’s report

Elsewhere, many in the crypto community were disappointed by the Biden administration’s recent economic report, which devoted 35 of its 507 pages to digital assets. Dan Reecer, chief growth officer at decentralized finance platform Acala Network, called it “an attack on crypto,” adding that it was released “just days after Operation Chokepoint 2.0 was executed on crypto-friendly banks.”

Admittedly, the report wasn’t exactly a ringing endorsement of cryptocurrencies. “Crypto assets currently do not offer widespread economic benefits. They are largely speculative investment vehicles and are not an effective alternative to fiat currency,” it declared.

However, there is nothing in the report that describes crypto as threatening U.S. dollar dominance in global trade or about a pressing need to “de-platform” crypto entities.

On the contrary, the report acknowledged that cryptocurrencies “underlying technology may still find productive uses in the future as companies and governments continue to experiment with DLT [distributed ledger technology].” It conceded that “some crypto assets appear to be here to stay.”

The eighth chapter of the report, which focuses on digital assets, is primarily a rehash of things that people working in the field have known for years — how Bitcoin is mined, the risks of algorithmic stablecoins, the crypto sector’s role in ransomware, its volatility and its unsuitability as a medium of exchange, etc. But one major shortcoming is that it fails to recognize the technology’s future possibilities.

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All in all, U.S. regulators face a balancing act. The government has every right to crack down on bad actors, but it shouldn’t kill innovation in the process. The SEC can’t expect to regulate everything in the crypto space — not everything is a financial security.

For instance, if the agency declared Ether (ETH) a security — because the Ethereum network uses ETH in its staking consensus mechanism — then that would rightly be considered regulatory overreach.

“In the aftermath of FTX, it’s no surprise that regulators are inclined to act,” Chris Perkins, president of crypto venture firm CoinFund, and a member of the CFTC’s Global Market’s Advisory Committee, told Cointelegraph. “And, they should be empowered to pursue enforcement actions to prevent other ‘FTXs.’ But, it’s important that we don’t throw the baby out with the bathwater.”

Stress test? What Biden’s bank bailout means for stablecoins

A major stablecoin depegging event raised concerns about the stability of these assets amid a U.S. banking crisis. The result may have been an improvement in their position in traditional finance.

The collapse of Silicon Valley Bank (SVB), which suffered a bank run after revealing a hole in its finances over the sale of part of its inflation-hit bond portfolio, led to a depegging event for major stablecoins in the crypto sector, leaving many to wonder whether it was a simple stress test or a sign of weakness in the system.

The second-largest stablecoin by market capitalization, the Centre Consortium’s USD Coin (USDC), saw its value plunge to $0.87 after it was revealed that $3.3 billion of its over $40 billion in reserves was held at SVB and was, as a result, possibly lost. Coinbase seemingly exacerbated the crisis when it, a member of the Consortium, announced it was halting USDC-to-dollar conversions over the weekend.

As USDC lost its peg, so did decentralized stablecoins using it as a reserve asset. The most notable of which is MakerDAO’s Dai (DAI), a cryptocurrency-backed stablecoin that has well over half of its reserves in USDC.

Stablecoins restored their peg after the United States government stepped in and ensured depositors at SVB and Signature Bank would be made whole, in a move meant to stop other entities from suffering irreparable damage. According to United States President Joe Biden, taxpayers did not feel the burn of the bailout, and the traditional finance system was safe after the intervention.

The crisis, however, did not end there. While the U.S. government stepping in helped stablecoins recover their peg, many quickly pointed out that taxpayers would ultimately suffer the depositors’ bailout.

The banking crisis’ effects on digital assets

Financial institutions have since banded together to protect other banks, with investors and depositors raising questions about the stability of a number of other institutions, including Deutsche Bank.

Credit Suisse collapsed after investments in different funds went south and an unsubstantiated rumor on its impending failure saw customers pull out over 110 billion Swiss francs of funds in a quarter from it, while it suffered a loss of over 7 billion CHF.

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The collapse saw the Swiss government broker an “emergency rescue” deal where Credit Suisse was acquired by rival UBS at a steep discount. Speaking to Cointelegraph, Jason Allegrante, chief legal and compliance officer at blockchain infrastructure company Fireblocks, said that the banking crisis was partly caused by rising interest rates exposing banks with large portfolios of low-interest-rate bonds to risk.

Per Allegrante, the role of the liquidity coverage ratio, a regulatory requirement forcing banks to hold a certain amount of “high-quality liquid assets” to prevent these liquidity crunches, is not being openly discussed.

He said it’s “entirely possible we are in the early stages of a nationwide run on regional banks.” If this happens, he said, there will not only be widespread regional bank failure but there will “likely be further consolidation and concentration of deposits in a handful of large, systematically important banks.”

He added that such a crisis would put pressure on regional banks to sell assets to meet liquidity needs and could ultimately lead to more bank failures. Allegrante added that this would have “far-reaching consequences for the digital asset industry in the United States and abroad.”

Becky Sarwate, spokesperson and head of communications at cryptocurrency exchange CEX.io, told Cointelegraph that the crisis could be a boon for digital assets, saying:

“One thing is clear: Similar to how Bitcoin blossomed from the wreckage of the 2008 financial crisis, the failure of institutions like SVB and Signature Bank is compelling evidence for diversification across multiple investment verticals.”

Sarwate added that when “traditional pathways prove equally volatile from the perspective of a crypto curious participant, it throws the inherent risk of any market participation into relief.” She added that while digital assets lack some of the protections seen in traditional finance, they “offer an alternative set of benefits that, in our current climate, could be appealing to nervous investors.”

Investors holding onto stablecoins and earning yield through them, however, may have believed they were already diversifying and sidestepping the market rout that was occurring. Circle, the issuer of USDC, suggested the depeg event was a “stress test” that the system weathered.

Mitigating risk for stablecoins

If the Federal Deposit and Insurance Corporation (FDIC) were to extend insurance to crypto-related institutions, it could alleviate concerns about the security of digital assets under their custody. That same insurance helped USDC and other stablecoins recover their peg after the collapse of SVB, making a strong case for FDIC insurance to boost crypto adoption.

While that insurance typically only goes up to $250,000, the FDIC opted to make every depositor whole, essentially protecting Circle’s $3.3 billion in reserves held at the bank. Speaking to Cointelegraph, a spokesperson for the stablecoin issuer said that the events highlighted “how there’s a co-dependency — not a conflict — in banking and digital finance.”

The spokesperson added that just as the 2008 global financial crisis led to comprehensive banking reforms, it may be “well past time that the U.S. acts on federal payment stablecoin legislation and federal oversight of these innovations.” The spokesperson added:

“The emphasis here is the importance of shoring up markets and confidence, protecting consumers and ensuring that outcomes, in the long run, prove that the stress test could have been weathered by traditional financial firms and Circle.”

To Circle, a stable U.S. banking system that ensures deposits are safe and accessible is essential to the financial system, and the U.S. government’s actions to make depositors whole demonstrated their “recognition of this fact.” The safety and soundness of the banking system are critical to dollar-backed stablecoins, the firm added.

Circle has revealed that it has since moved the cash portion of USDC’s reserve to Bank of New York Mellon, the world’s largest custodian bank with over $44 trillion in assets under custody, with the exception of “limited funds held at transaction banking partners in support of USDC minting and redemption.”

The firm added it has “long advocated for regulation such that we can become a full reserve, federally supervised institution.” Such a move would insulate its “base layer of internet money and payment systems from fractional reserve banking risk,” the spokesperson said, adding:

“A federal pathway for legislation and regulatory oversight allows for the U.S. to be represented and have a seat at the table as the future of money is being discussed around the world. The time to act is now.”

Commenting on the depeg, Lucas Kiely, chief investment officer of Yield App, noted that what happened can be “largely attributed to fears around liquidity,” as most stablecoins are “essentially an IOU note backed by securities that holders don’t have a lien on.”

Per Kiely, stablecoins have “been sold as asset-backed instruments, which like any other asset carry investment risk.” Danny Talwar, head of tax at crypto tax calculator Koinly, said that USDC and Dai may “temporarily suffer from a lack of confidence over the short to medium term following the mini-bank run.”

CEX.io’s Sarwate, however, said the confidence in these stablecoins “has gone unchanged,” as both Dai and USDC “retreated back to their reflections of the U.S. dollar and resumed all prior uses they enjoyed before the depegging event.”

To members of the decentralized autonomous organization (DAO) that governs Dai, MakerDAO, confidence was seemingly unaffected. A recent vote has seen members of the DAO opt to keep USDC as the primary collateral for the stablecoin over diversifying with Gemini Dollar (GUSD) and Paxos Dollar (USDP) exposure.

Given USDC’s move of the cash portion of its reserves to a stronger custodian, the depegging event may have simply strengthened both stablecoins after a short period of panic.

Leveling the playing field

That strengthened position, according to Koinly’s Talwar, could also come as cryptocurrency startups and exchanges search for alternative banking providers, although the “de-banking of crypto businesses could seriously harm the sector and innovation in blockchain-based technologies” if they fail to find alternatives.

In the medium term, Talwar said, the collapse of cryptocurrency-friendly banks “will compound with the more crypto-native collapses from the past year, resulting in a challenging environment for blockchain innovation to thrive within the United States.”

Yield app’s Kiely said that the U.S. government’s recent bailout was different from the one seen in the global financial crisis, although it raises “questions over whether there needs to be an adjustment in the supervisory guidelines to address interest rate risk.”

The Fed’s bailout, he said, could be removing incentives for banks to manage business risks and send a message they can “lean on the government’s support if customer funds are mismanaged, all with no alleged cost to the taxpayer.”

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As for stablecoins, Talwar said he sees a need for more stablecoin options, even though the launch of euro-backed stablecoins helped in this regard. CEX.io’s Sarwate noted that the U.S. banking and stablecoin crisis helped “level the playing field between traditional finance and crypto.”

While crypto is still a nascent industry, she said, there’s “potential within the space for visionaries to lead by example and carve out an alternative to speculative investing. In the long term, this could help yield a more balanced system.”

In the typical crypto ethos, players in the space are already finding ways to mitigate risks associated with the traditional financial system. While U.S. regulators warn against crypto, the sector moves to strengthen its position in the financial world.

Binance vs. CFTC: Latest court battle could alter crypto landscape in US

The CFTC lawsuit against Binance could prove to be the beginning of the end for the crypto exchange in the United States, according to many market pundits.

Regulatory trouble is nothing new for Binance, and on many occasions, in the past, it has managed to overcome or bypass such roadblocks and eventually work with regulators. 

However, when it comes to the United States, the exchange has found itself in the cross-hairs of multiple agencies.

A number of United States financial regulators have ongoing investigations against the crypto exchange. Some of these investigations date back to 2018, and now, one of the primary derivatives market regulators in the U.S. has filed a lawsuit in conjunction with its investigation that started in early 2021.

The U.S. Commodities Futures Trading Commission filed a lawsuit against Binance along with its CEO, Changpeng Zhao, and former chief compliance officer Samuel Lim on March 28.

The lawsuit alleges that Binance violated U.S. derivatives laws by offering its derivative trading services to U.S. customers without registering with appropriate market regulators. The CFTC accused Binance of prioritizing commercial success over regulatory compliance.

The lawsuit also made headlines because the CFTC has not only levied charges against the exchange but also against Zhao and Lim. The U.S. regulator has also accused Binance and its CEO of seven violations of the Commodities Exchange Act and controlled foreign company rules.

David Waugh, managing editor of the Daily Economy at the American Institute for Economic Research, told Cointelegraph that the CFTC lawsuit isn’t surprising considering the U.S. government’s overarching approach toward cryptocurrency enterprises — regulators seem to be employing every conceivable measure to curb the industry’s expansion.

“Significant regulatory action could prompt Binance to increasingly shift its business operations beyond the United States. Moreover, considering Binance.US’s sizable share of U.S. Bitcoin trading volume, the potential closure of the exchange’s American operations could lead to a decline in domestic trading volume unless traders transition to alternative platforms.”

The CFTC has actively gone after large companies, having previously opened regulatory enforcement actions against Tether and Bitfinex, which resulted in major shifts in the crypto landscape. The lawsuit against Binance looks to be no different.

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The CFTC has demanded a ban on Binance, Zhao, Lim and all affiliates from trading on registered entities, holding any commodity interest, registering or exempting with CFTC or acting as a principal, officer or employee of a registered entity. It has also demanded that Binance pay back the trading profits, revenues, commissions and fees derived from U.S. customers, as well as pay civil penalties assessed by the court and stand a jury trial on this matter.

Binance’s fate in the U.S. looks uncertain at present

The CFTC lawsuit has amassed evidence, including internal chat records of Zhao with Binance’s executives. Some market pundits believe it could very well seal the fate of the global crypto exchange in the United States.

Mark Fidelman, the founder of SmartBlocks, told Cointelegraph that the lawsuit has the potential to undo years of progress made by Binance’s sister firm in the U.S., Binance.US, which the global exchange has claimed functions as an independent entity. Fidelman said, “Charges against Binance are stiff, and the penalties could be business-ending.”

In addition to the regulatory infractions, the lawsuit specifically mentions Binance.US trading subsidiaries Merit Peak as well. The CFTC alleged that Zhao directly controls Binance and all of its connected companies.

An excerpt from the CFTC lawsuit. Source: CFTC

The lawsuit also specifically ties in Trust Wallet, Binance Labs (due to U.S. exposure) and many Binance employees with U.S. exposure, including exchange-employed community builders called “Binance Angels” as grounds for a U.S. filing.

The most daunting accusation could be that Binance had nearly 300 accounts directly or indirectly linked to Zhao that traded against customers.

An excerpt from the CFTC lawsuit. Source: CFTC

CFTC’s lawsuits against crypto companies have been settled with hefty fines and orders to cease operations in the past. Terrence Yang, a Harvard Law JD and the managing director of Bitcoin-focused firm Swan Bitcoin, told Cointelegraph that it seems unlikely that Binance.US will continue to operate much longer, depending on what the CFTC proves in court. 

“On the one hand, Binance.US offered fewer products than Binance and has customers who identify as U.S. and Binance.US recognizes as U.S. customers. On the other hand, if the CFTC can prove to a judge that Binance.US helped Binance siphon U.S. customers who wanted to do more exotic products and use VPNs to hide their U.S. identity, then Binance.US may not be viable going forward.”

Binance did not directly respond to Cointelegraph’s request for comment.

The firm did release a public response to the lawsuit, in which Zhao said that the complaint appears to contain an incomplete recitation of the facts, and they “do not agree with the characterization of many of the issues alleged in the complaint.”

Many see the lawsuit as critical for Binance’s future in the U.S., with some further classifying it as a political move among regulators.

Adam Cochran, a decentralized finance developer and angel investor, in a Twitter thread explained the end scenario of the lawsuit. He said that if Binance and other mentioned executives fail to engage with U.S. courts or don’t appear to defend themselves in a trial, then the CFTC would win. However, if they engage, “then the discovery process will be opening all their books internationally to U.S. regulators from all entities including those personally owned by Zhao to churn up other issues.”

Possible effects on the crypto market

The CFTC’s accusations against Binance are serious, and the crypto exchange has more to worry about than just the CFTC. The exchange is also currently under investigation by the SEC, Department of Justice and Internal Revenue Service.

At the end of 2022, Binance had a 92% market share of the total volume of Bitcoin (BTC) transactions. The exchange’s market share was a mere 45% at the beginning of the last year, but the removal of trading fees in June and the downfall of rival exchange FTX in November helped it attract consumers.

Binance is a significant market liquidity source. Key market makers use Binance to execute trades and obtain liquidity. The market’s capacity to find prices and sources of liquidity will be impacted by any disruption to Binance’s operations. Retail customers and institutional traders would ultimately suffer as a result of this.

While the majority of these ongoing investigations and CFTC allegations are mere accusations at this point and haven’t been proven in court, Jason Allegrante, chief legal and compliance officer at digital asset bank FireBlocks, told Cointelegraph that the outcome of the CFTC lawsuit could accelerate the trend of businesses exiting the U.S. market.

“Depending on how Binance is ultimately impacted, this may send shockwaves through global digital asset markets. For better or worse, Binance is now akin to a critical financial market infrastructure given the volume of global trades that pass through it. An interruption of service at Binance will result in a serious impairment of liquidity sourcing in the marketplace,” he explained.

He added that, in the long run, alternative sources of liquidity will emerge in the form of new entrants, including traditional financial market participants, such as Nasdaq, which just announced plans to enter digital asset markets.

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Allegrante said that U.S. regulators are working to “push out crypto by creating legal adversity and also legal uncertainty.” He cited the example of Coinbase, a U.S.-regulated public crypto exchange that recently received a Wells notice from the SEC.

He stated, “Now, you have a different exchange that’s received an enforcement complaint from the commodities regulator for basically being in the same business. For crypto, this is the worst of both worlds — one company having an SEC allegation, Coinbase, and one having a CFTC allegation, Binance.”

Binance has been walking on a regulatory tightrope around the globe, and over the years, it has received numerous compliance complaints from countries, such as the United Kingdom, Japan, Germany, Australia and many more. However, the CFTC lawsuit, according to many experts, could become an albatross around the exchange’s neck.

The aftermath of LBRY: Consequences of crypto’s ongoing regulatory process

What could the case of LBRY mean for future token projects in the United States?

The case of LBRY highlights a wave of renewed regulatory pressure that could affect both blockchain token-issuing companies and their investors.

In November, an over year-long court battle between the United States Securities and Exchange Commission (SEC) and blockchain development company LBRY and its LBRY Credits (LBC) token culminated in the ruling of the token as an unregistered security, despite the company’s argument of its use as a commodity within the platform.

The court’s decision in this case sets a precedent that could influence not only the regulatory perception of blockchain-based platforms, but cryptocurrencies as well.

The old Howey

Old standards don’t always apply when it comes to the regulation of new technologies.

The LBRY case was mostly centered on the basis of the Howey Test, a framework that came as the result of a U.S. Supreme Court case in 1946, which determines whether a transaction qualifies as a security. While assets like Bitcoin (BTC) and most stablecoins aren’t considered securities under this test, the ruling varies depending on the characteristics of a token, which are subject to change.

The SEC claimed that LBRY was aware of the “possible use” of LBRY Credits as an investment, which was fully embraced by the court in its assessment.

The ruling made by New Hampshire District Court Judge Paul Barbadoro determined that LBRY openly presumed the increase in value of its tokens, leading it to set an expectation for the tokens to act as a “possible investment.”

According to Barbadoro, the fact that LBRY kept tokens for itself and also gave them as “compensation incentives” to its workers meant that there was an intention to show investors that the company intended to increase the value of their blockchain. In other words, the conclusion was that LBRY would count on token holders to understand the company’s staking as a form of value increase of the LBRY Credits.

According to comments made to Bloomberg Law by Patrick Daugherty, head of digital assets at Foley & Lardner LLP, the judge’s ruling lands in uncharted legal territory, as it was based on the presumption of stakeholders seeing staking as a form of value increase — or promise of such — with regard to the tokens issued by the company.

“The court did not cite any legal precedents for this opinion, perhaps because there are none,” Daugherty said.

In the same article, James Gatto, who leads the blockchain and fintech team at Sheppard Mullin Richter & Hampton LLP, said that many of the legal issues found in the LBRY case could be replicated in other projects as well, and recommended crypto companies “adopt a different approach” to avoid copying general legal methods used by token projects. “So many people don’t do it, they just follow what everyone has done,” he said.

Regulatory consequences

Speaking to Cointelegraph, Jeremy Kauffman, founder and CEO of LBRY, described the consequences of the court’s ruling on the case.

The trial’s result had an important financial impact for the company, which has already been declared “almost certainly dead” by its CEO.

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To start, Kauffman highlighted the incredibly high expenses of the trial, pointing out that the company has had to pay millions in legal fees and “has lost tens of millions of dollars in investment money.”

Beyond the financial cost of the trial, the biggest consequence of the ruling is the slowed adoption of LBC tokens, Kauffman says.

Kauffman at an interview with Reuters. Source: Reuters/Brian Snyder

“Perhaps worse of all, [we’ve] faced substantial difficulty in adoption from third-party parties like exchanges that are terrified of the SEC,” he stated.

However, despite the immediate impact on LBRY, Inc. as a company, the platform’s blockchain protocol will survive this encounter with the SEC.

“LBRY is a decentralized protocol used by tens of millions of people to share content without any disruptions despite the legal challenges,” Kauffman said. “LBRY as a company is almost certainly dead. But Odysee, the most popular way to use LBRY, and the protocol itself, have a bright future,” he added.

Kauffman didn’t hide his frustration with the result of the SEC complaint, blaming the company’s ultimate fate on the government’s lack of transparency.

“One thing I’ve definitely learned is to not trust the government and to not be transparent. We would have been in a lot better shape if we had acted more secretly and less honestly,” he said.

With uneven and uncertain enforcement regarding digital assets, the goal for blockchain services now is to anticipate any possible scenarios that could be seen as an illicit move — learning as they go — and dealing with potential problems before they escalate. 

What’s next?

The court’s ruling regarding LBRY could also affect a current developing case. The SEC’s two-year-old lawsuit against Ripple Labs has similar elements, as the company’s arguments relate to the one’s used by Kauffman’s team — like not receiving fair notice of their token being subjected to securities laws.

Daugherty told Cointelegraph that it’s important to take this argument in the proper context, as the LBRY case was active since 2016.

“Six years ago, the relevant time frame, very little was known about what was legal or not. You would have to judge it based on what they knew at the time, not by the time the court ruled against them,” he said.

The ruling on Ripple’s case will most likely be decided by March 2023.

A U.S. Treasury official who spoke to Cointelegraph on the condition of anonymity said that regulators are currently in the very early stages of understanding cryptocurrencies, with a major focus on user protection.

“Right now the focus is on reducing scams and consumer protection. But, other than that, I can say we’re in the very early stages of understanding and defining the industry,” they said.

Daugherty said that his advice for companies and projects in the blockchain industry is to hold LBRY as an example for their legal strategy.

“The teams that are preparing protocols and tokens projects need to take into account the LBRY ruling and to work with lawyers that understand the ruling and what it didn’t rule,” he said.

Recent: Congress may be ‘ungovernable,’ but US could see crypto legislation in 2023

Daugherty also recommended that token-issuing projects should take two main preventive actions to avoid LBRY’s mistakes:

“One way is to decentralize the token before it’s sold in the United States and another way is to avoid promoting the secondary market for the token. That might not be enough in itself, but expert lawyers can complete the picture.”

When asked for his views on what regulators should focus on in order to understand blockchain and cryptocurrencies, Kauffman said that they need to “get out of the way.”

“Regulators need to focus on stopping fraud and criminal activity only. Blockchain could be a huge part of America’s future, if they got out of the way and let the entrepreneurs build,” he said.

Congress may be ‘ungovernable,’ but US could see crypto legislation in 2023

Bipartisan support for cryptocurrencies exists on both sides of the aisle and in both chambers, but extreme elements could still thwart legislation.

The United States House of Representatives finally elected a speaker last week, concluding a four-day, 15-ballot ordeal that left many wondering if political gridlock was now the new normal in the U.S., and if so, what the consequences would be. 

For example, were the concessions made by Republican Kevin McCarthy to secure his election as speaker ultimately going to make it difficult to achieve any sort of legislative consensus, making it impossible for the U.S. to raise its debt ceiling and fund the government later this year? Not all were optimistic.

The House of Representatives will be largely “ungovernable” in 2023, Representative Ritchie Torres, a Democrat from New York, told Cointelegraph on Jan. 6, shortly before joining colleagues for that day’s series of ballots — which finally ended after midnight with resolution. “The 117th Congress was one of the most productive legislative sessions ever,” Torres noted, “but the 118th will be one of the least productive.”

It’s worth asking amid this latest brouhaha in the world’s largest economy what it all means for digital assets and blockchain technology. Does it suggest that one shouldn’t expect any meaningful crypto legislation from Congress in 2023?

A bipartisan coalition exists 

Not necessarily. “On the surface, at least,” a bipartisan coalition exists in the House to pass crypto legislation, said Torres, who sits on the House Committee for Financial Services and who himself introduced crypto legislation in December in response to the FTX collapse.

Representative Torres outside his office before the formal swearing-in ceremony on Jan. 3. Source: Twitter

Crypto reform has been urged on and off by both Democrats and Republicans in the House and Senate recently, after all. Indeed, analytics firm Chainalysis recently highlighted some 20 bills before Congress that could affect cryptocurrencies and stablecoins. The House Committee on Financial Services alone has a pro-crypto incoming chairman, Republican Patrick McHenry, along with crypto-friendly Democrats like Torres and Maxine Waters.

But “deeper down,” Torres sees cross-currents that could disrupt legislation: The political far right could thwart any crypto initiatives as a matter of principle — they oppose all regulation — while the far left may also want to keep digital assets unregulated in order to delegitimize and ultimately kill them. Crypto legislation, in the eyes of this group, would be equivalent to acceptance of the emerging industry.

Recent: Remote work could redefine the global workforce for good

Torres, for his part, believes that legislative action is critical. “Congress has an obligation to intervene,” he told Cointelegraph, as digital assets are too volatile to remain unregulated. SEC Chair Gary Gensler’s two-year efforts to bring cryptocurrencies and stablecoins under federal oversight through regulatory action alone haven’t succeeded, he said. It’s become clear, especially in light of the FTX fiasco, that more durable legislative solutions are required.

Nor does Torres believe that recent events will delay or sink the House’s scheduled FTX-related fraud hearings. For one thing, it’s just easier to hold hearings than it is to pass legislation, he noted.

“We are optimistic”

To the larger legislative question, though, maybe Torres is too pessimistic. The Crypto Council for Innovation, which advocates for a federal regulatory framework to provide clarity for all market participants, remains hopeful. “We are optimistic that given broad bipartisan support by lawmakers, a comprehensive bill could make it to the president’s desk this Congress,” Brett Quick, the council’s head of government affairs, told Cointelegraph.

There will be challenges, of course. The “razor-thin” nature of the Republican majority and the continued demands of the House Freedom Caucus members, who held up the speaker election process for a week, won’t make things easy. But “crypto may be one of the few areas where there is enough broad bipartisan support from all points on the political spectrum that moving legislation this Congress is a reasonable expectation,” added Quick.

Clark Flynt-Barr, senior policy adviser at Chainalysis, like Torres and Quick, applauds the bipartisan collaboration that has emerged around crypto in the past year. She cited the House’s Waters-McHenry stablecoin bill alongside the U.S. Senate’s bipartisan Lummis-Gillibrand Responsible Financial Innovation Act. Flynt-Barr expects this sort of cooperation to increase, especially in light of recent industry events like the FTX collapse, telling Cointelegraph:

“Crises and scandals — and now fraud — often give more momentum to reforms and regulations that might not otherwise be the top priority.”

Care must be taken, though. Not any sort of lawmaking will do. It’s important that Congress takes the time to really learn about cryptocurrencies and blockchain technology. Otherwise, “reactive policies that do not take into consideration the unique aspects of the industry could have disastrous impacts and push this innovation abroad,” Flynt-Barr warned. 

Is the best action no action?

Along these lines, would a moratorium on crypto or stablecoin legislation in the United States in 2023 really be so bad? Sometimes the status quo is better than precipitous action, no? 

“The U.S. crypto industry is stuck in limbo without regulatory clarity,” warned Susan Friedman, head of policy at Ripple. “This current regulatory limbo is pushing consumers to offshore platforms that operate with no U.S. oversight.” The U.S. could lose its competitive position in crypto innovation and development if it does nothing, she told Cointelegraph.

“Continued inaction is simply not an option,” Abegail Cave, press secretary for U.S. Senator Cynthia Lummis — co-sponsor of the Responsible Financial Innovation Act — told Cointelegraph. Asked about the recent House impasse, she added:

“Senator Lummis does not believe this will impact the outlook for digital asset legislation in the 118th Congress. Over the last year, a strong appetite for digital asset regulation has developed from members of Congress on both sides of the aisle.”

New laws will be needed both to protect consumers and to allow the crypto industry to continue to innovate, in the view of the senator, whose proposed legislation aims “to bring digital assets within the regulatory perimeter.”

But others say that regulation by non-legislative means can also work. “The administration can use its rulemaking authorities to issue new rules, and agencies can issue new guidance in the absence of legislation,” Flynt-Barr told Cointelegraph. Indeed, the Biden administration’s recent Unified Regulatory Agenda and Regulatory Plan, which reports on the actions administrative agencies plan to issue in the near and long term, contains several rules “that may impact crypto,” she noted.

What’s the best Congress can do this year?

What would be a satisfactory outcome with regard to crypto in the 118th Congress under current circumstances?

Torres insists on safeguards to ensure that consumer funds deposited in cryptocurrency exchanges are genuinely secure. One of his bills, for instance, forbids brokerages to lend, leverage or commingle funds without a customer’s permission. A second requires cryptocurrency exchanges to regularly report their reserves to the SEC — not just assets but liabilities also. FTX reported assets of $900 million shortly before it collapsed, but it also reportedly held $9 billion in liabilities — surely a red flag had it been known. The FTX fiasco was preventable, in Torres’ view, and laws are needed to ensure that it doesn’t happen again.

Former FTX Sam Bankman-Fried after his arrest in the Bahamas. Source: Reuters

For Flynt-Barr, a positive outcome would be the “development of legislative policies that are founded in ground truths, are data-driven rather than reactionary, and reflect the unique aspects of the industry and do not impose unworkable requirements on it.”

Recent: Crypto layoffs mount as exchanges continue to be ravaged by the prevailing bear market

The U.S. has been a leader in financial regulation for decades, she continued. The Financial Crimes Enforcement Network, a bureau within the Treasury Department, was one of the world’s first agencies to provide guidance on crypto-related Anti-Money Laundering laws back in 2013 “when Bitcoin was worth something like $130 and Ethereum hadn’t even been created,” Flynt-Barr noted. “I hope that the U.S. continues to lead in crypto regulation and that we do so in a way that encourages the industry to grow responsibly here in the U.S., which will be crucial to our economy and our national security.”

Ripple’s Friedman, too, remained hopeful that 2023 “is the year common sense crypto policy breaks through,” adding:

“We now have leaders on both sides of the aisle in both parts of Congress championing legislative solutions, and the dialogue around crypto is much more sophisticated than it was two years ago.”

First US state to ban nearly all crypto mining: Law Decoded, Nov. 21-28

New York Governor Kathy Hochul signed the moratorium, prohibiting any new mining operations that aren’t based on 100% renewable energy.

The state of New York became the first in the United States to impose a moratorium on proof-of-work (PoW) mining, albeit only for two years and limited in nature. Last week, New York Governor Kathy Hochul signed the moratorium into law, prohibiting any new mining operations that aren’t based on 100% renewable energy. The renewal of licenses will also be frozen. In eight months, the anti-mining bill made its way from the State Assembly to the governor’s pen. 

The statewide development seems unlucky for New York City Mayor Eric Adams, who is focused on making the city a crypto hub. Commenting on the moratorium’s signing into law, Adams sounded more peaceful than he was in June when he promised to ask the governor of the state to veto the document. This time, Adams pledged to work with the legislators “who are in support and those who have concerns” and come “to a great meeting place.”

At the end of the day, the state of New York remains perhaps the least welcoming place for crypto due to its regulatory regime: Not only do miners have to get a fully renewable power source now, but trading platforms have struggled since the hard-to-get BitLicense introduction in 2015. However, some officials believe the national crypto laws should look more like New York’s.

U.S. senators urge Fidelity to reconsider its Bitcoin offerings

United States Senators Elizabeth Warren, Tina Smith and Richard Durbin have renewed their calls for Fidelity Investments to reconsider offering a Bitcoin (BTC)-linked 401(k) retirement product. In a letter addressed to Fidelity Investments CEO Abigail Johnson, the three senators said the recent fall of FTX is more reason than any for the $4.5 trillion asset management firm to reconsider its Bitcoin offering to retirement savers. 

The senators also added that “charismatic wunderkinds, opportunistic fraudsters, and self-proclaimed investment advisors” have played a huge role in manipulating the price of Bitcoin, which in turn has impacted 401(k) retirement savings holders who have invested in Fidelity’s Bitcoin product.

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The Reserve Bank of India to launch a retail CBDC pilot in December

The Reserve Bank of India (RBI) is in the final stage of preparing the rollout of the retail digital rupee pilot. Each bank participating in the trial will test the central bank digital currency (CBDC) among 10,000 to 50,000 users. To integrate the new payment option, the banks will collaborate with PayNearby and Bankit platforms. 

The CBDC infrastructure will be held by the National Payments Corporation of India (NPCI). Reportedly, at some point, the pilot is going to include all the commercial banks in the country. Earlier the RBI launched the wholesale segment pilot for the digital rupee, with the main use case being the settlement of secondary market transactions in government securities.

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Tornado Cash developer to stay detained until next year’s hearing

A Dutch court hearing ruled that Tornado Cash developer Alexey Pertsev would be held for another three months as the investigation continues. The prosecution outlined a broad overview of its investigation, painting Pertsev as a central figure in Tornado Cash’s operation before Advocate WK Cheng delivered his first defensive argument. The advocate confirmed that the first session has been postponed to Feb. 20, 2023, and reiterated his belief that the state had presented a one-sided interpretation of Pertsev’s involvement with Tornado Cash. 

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Turkey seizes FTX assets amid the ongoing investigation

Turkey’s Financial Crimes Investigation Board (MASAK) has seized assets belonging to Sam Bankman-Fried after launching an investigation into FTX’s affairs in the country. The Turkish investigatory body found that FTX TR failed to safely store user funds, embezzled customer funds through shady transactions, and manipulated supply and demand in the market by having customers buy and sell listed cryptocurrencies that were not backed by actual cryptocurrency holdings.

As a result of these findings, MASAK seized Bankman-Fried’s and affiliates’ assets after finding strong “criminal suspicion” on the above-mentioned points. A LinkedIn post from FTX TR noted that the exchange had over 110,000 users and processed an average monthly transaction volume of $500 million–$600 million since the launch of its mobile application earlier in 2022.

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Law Decoded, Nov. 7–14: How regulators reacted to the FTX crash

While some lawmakers expressed their eagerness to quick up the regulatory progress, others blamed the SEC in FTX’s monopoly.

Last week was tough — the alarming series of crypto meltdowns continued with the failure of FTX, one of the biggest exchanges on the market. The crypto industry’s very own “Lehman Brothers moment” pushed regulators to react. United States Senator Cynthia Lummis, famous for her openly pro-crypto position, promised deliberate with her colleagues on whether there was market manipulation, while Maxine Waters, chair of the United States House of Representatives Financial Services Committee, pushed for additional federal oversight of crypto trading platforms and consumer protection. 

European Parliament economics committee member Stefan Berger has compared the current situation with FTX to the 2008 financial crisis and said that the Market in Crypto Assets (MiCA) framework should prevent such crises in Europe. United States senators Debbie Stabenow and John Boozman have doubled down on their commitment to publishing a final version of the Digital Commodities Consumer Protection Act 2022.

Tom Emmer, the recently reelected Republican representative representing Minnesota’s 6th district in the United States House of Representatives, shocked the public with allegations that the Securities Exchange Commission (SEC) helped the FTX to obtain a “monopoly” in the U.S. Specifically, Emmer believes the SEC Chair Gary Gensler to be the one who was helping Sam Bankman-Fried and FTX “work on legal loopholes.” However, the lawmaker did not provide any evidence, claiming that his office is working on it.

The pro- and anti-crypto winners and losers from the U.S. midterms

Results from many election races for seats in the United States Senate and House of Representatives are still coming in, but a number of candidates who have expressed staunch views on digital asset regulation won on Nov. 8. Pro-crypto House incumbents including Minnesota Representative Tom Emmer and North Carolina Representative Patrick McHenry won re-election, as did crypto skeptic Brad Sherman in California. Democrat Tim Ryan lost on Nov. 8 to Republican J.D. Vance, who got more than 53% of the vote. Vance previously disclosed he held up to $250,000 in Bitcoin, while Ryan supported legislation aimed at simplifying digital asset tax reporting requirements.

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Middle East, Asia and Africa blockchain association launches in Abu Dhabi

A new blockchain and cryptocurrency-focused association has been launched within Abu Dhabi’s free economic zone to further the development of blockchain and crypto ecosystems across the Middle Eastern, North Africa and Asia regions. The Middle East, Africa & Asia Crypto & Blockchain Association will aim to facilitate regulatory solutions, create commercial opportunities and invest in education to support industry growth. The association will be spearheaded by board chairman Jehanzeb Awan, founder of an international risk and compliance consulting firm headquartered in Dubai.

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The Clearing House opposes CBDC in comments for U.S. Treasury

The Clearing House claims a central bank digital currency (CBDC) is “not in the national interest” of the U.S because the risks of the possible issuance outweigh the benefits. As the company, owned by 23 banks and payment companies, has written in its letter to a Treasury Department, “the foundational requirements in place to prevent criminal and illicit use of commercial bank money must be applied to a U.S. CBDC” should it become a reality. The Clearing House also called for a federal prudential framework with standards for digital assets service providers that are equivalent to those for depository financial institutions engaged in functionally similar activities.

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Here’s what you should know about the upcoming US midterms: Law Decoded, Oct. 31–Nov. 7

Despite a common mantra about the nonpartisan nature of crypto, there are certain correlations evident ahead of the United States elections.

The United States will go to the voting booths on Nov. 8 to decide the fate of all 435 members of the House of Representatives and 34 out of the 100 Senate seats. The outcome will decide the prevailing power balance in Washington and has the potential to affect the crypto industry. Perhaps that’s why 38% of eligible voters will consider candidates’ positions on crypto, according to a recent survey. Another survey suggests that crypto regulation is a bipartisan issue, with 87% of Democratic and 76% of Republican respondents saying they want clarity from the U.S. government on digital assets.

Fundraising is a normal part of the American political system, but the numbers associated with crypto may have raised some eyebrows. Sam Bankman-Fried called $1 billion his “soft ceiling” for 2022 election contributions, for example. Even though he backpedaled on some of his intentions, he remains the sixth-largest donor in this election cycle. There are numerous crypto-related political action committees as well. According to some reports, crypto-affiliated donors have spent more than major mainstream lobbies like defense and Big Pharma.

With the nonpartisan nature of crypto being somewhat of a cliche, there are clear signs of political divisions. First, crypto tends to skew to the Right. An analysis of legislators’ agendas shows that Republicans are generally way more friendly to digital assets. Why? Read Cointelegraph’s full review of the upcoming midterm elections and their relation to crypto.

Digital yuan will offer “controllable anonymity”

Chinese central bank governor Yi Gang claimed that while the country moves forward with adopting its central bank digital currency (CBDC) — the digital yuan — privacy protection remains “on the top of the issue.” He went on to describe the two-layer payment system that will offer controllable anonymity to users. At tier one, the central bank supplies digital yuan to the authorized operators and processes interinstitutional transaction information only. At tier two, the authorized operators only collect the personal information necessary for their exchange and circulation services to the public.

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South Korean prosecutors accuse Do Kwon of manipulating LUNA’s price

Another week, another update on Terra’s founder and his adventures. This time, South Korean prosecutors have obtained evidence to suggest that Do Kwon once ordered an employee to manipulate the price of LUNA, since rebranded Luna Classic (LUNC). The reported evidence came in the form of a “messenger” conversation between Kwon and the former Terraform Labs employee. Meanwhile, Kwon continues to deny all allegations and move across the globe. Previous reports have suggested that he first moved from South Korea to Singapore before transitioning to Dubai. It’s now believed he might be residing somewhere in Europe without a valid passport. 

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12 independent entities pledge legal support for Ripple

Ripple is garnering more support from the crypto and finance industry in its ongoing battle with the United States Securities and Exchange Commission. The number of companies, developers, exchanges, associations and investors filing amicus briefs for the firm has reached 12. Among them, you can find such industry heavyweights as Coinbase, the Chamber of Digital Commerce, the Crypto Council for Innovation, the Blockchain Association, Valhil Capital, I-Remit, Spend The Bits, Tapjets, the Investor Choice Advocates Network and John Deaton.

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IRS prepares for an increase in crypto cases in the upcoming tax season

The United States Internal Revenue Service’s criminal investigation division is ramping up for tax season, with its sights set on the crypto community. Division Chief Jim Lee said it is preparing “hundreds” of crypto-involved cases, many of which will soon be available to the public. Lee said that in the last three years, there has been a major shift in digital asset investigations conducted by the IRS. Previously, these investigations were mostly money laundering-related; whereas now, tax-related cases make up nearly half. This includes what is often called “off-ramping” transactions where digital assets are exchanged for a fiat currency, along with not reporting crypto payments.

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Crypto owners banned from working on US Government crypto policies

A new legal advisory notice from the US Office of Government Ethics prohibits any employee who owns cryptocurrency from working on Federal crypto regulation.

US government officials who privately own cryptocurrencies are now banned from working on regulations and policies that could affect the value of digital assets.

A new advisory notice released by the US Office of Government Ethics (OGE) on Tuesday stated that the de minimis exemption — which allows for the owners of securities who hold an amount below a certain threshold to work on policy related to that security — is universally inapplicable when it comes to cryptocurrencies and stablecoins.

“As a result, an employee who holds any amount of a cryptocurrency or stablecoin may not participate in a particular matter if the employee knows that particular matter could have a direct and predictable effect on the value of their cryptocurrency or stablecoins.”

The notice provided an example scenario whereby an employee who owns a mere $100 of a certain stablecoin, is asked to work on stablecoin regulation — the employee in question cannot participate in work concerning regulation “until and unless they divest their interests in [that] stablecoin.”

The notice specified that this ruling still applies even if the cryptocurrency or stablecoin in question were to ever “constitute [a security] for purposes of the federal or state securities laws.”

The new ruling applies universally to all federal government employees including The White House, The Federal Reserve and The Department of the Treasury.

The term “de minimis” comes from a longer Latin phrase, meaning: “the law does not concern itself with trifles.”

Related: Self-regulatory organizations growing alongside new US crypto regulation

The only exemption from the OGE’s crackdown on crypto ownership is that policy makers are allowed to hold up to $50,000 in mutual funds that invest broadly in companies that would benefit from crypto and blockchain technology. The reasoning for this exemption is because they “are considered diversified funds.”

Despite the seemingly harsh rules concerning employee investment in the crypto sector, the United States continues to move forward in integrating the cryptocurrency industry, with the US president Joe Biden announcing a “whole-of-government” approach to regulation concerning the digital asset sector.

According to Raymond Shu, the co-founder and CEO of Cabital, recent legislative proposals could make the U.S. one the only Western countries to fully regulate and accept stablecoins and other digital assets as official parts of the financial system.