Coincover’s regulatory roundup - March 23

March was a month that will go down in history with numerous US moves against crypto, a banking crisis (including the notable news of Silvergate, Signature Bank, and SVB collapsing) shaking the market– March quickly became the most significant month to date.

The first quarter of 2023 is now at an end, and there is no sign of slowing in the crypto regulation space as we prepare for another hectic month full of developments (and some misses).

Regulatory update

France 

1^st March: the French Senate passed a bill introducing new registration rules, designed to align existing crypto registration schemes with incoming MiCA regulations. From July 2023 companies offering Crypto services will need to register with Autoritédes marchés financiers (AMF), those already registered for AML purposes will have a transition period to 2026.

India

7^th March: It was published in the Gazette that crypto transactions will be subject to the Prevent of Money-Laundering ACT 2002. AML will be applicable to crypto globally. It is a necessary step for India to have any hope of catching up with key crypto jurisdictions.

Hong Kong

16^th March: Hong Kong issued its first approval-in-principle under its newly proposed crypto framework. Signum Digital, a joint venture between Coinstreet and Somerley Capital, was approved under the incoming regime. While the new regime will only apply to trading platform operators, it is looking likely that the rules will be opened to retail investors. This will be another conduit for Asian investment into the sector. 

Europe

Press release dated March 28: it was announced that MEPs have finalised a new AML/CFT legislative package to be negotiated and approved by the European Parliament. The package includes stricter rules on anonymous payments. 

“MEPs want to cap payments that can be accepted by persons providing goods or services. They set limits up to €7000 for cash payments and €1000 for crypto-asset transfers, where the customer cannot be identified.” This would put the recipient in breach of law where they have not conduct appropriate checks on transactions above those thresholds, thus reducing off ramps for illicit funds.

Crypto Debanking

Potentially the biggest story of March and will remain top of the broadsheets for some time, but what exactly happened?

Timeline summary

8^th March: Silvergate Bank's announcement of its voluntary liquidation kicked off a full banking crisis. 

9^th March: SVB, an integral bank for the wider tech industry, announced that it had to sell $21b of its securities at a loss of$1.8b. They planned to raise $2bn+ through equity, but this failed as news of the loss crushed the stock price by 60%. Fear that the bank could not support the withdrawals of its clients, caused a run on the bank. According to theCalifornian Regulator, clients attempted to withdraw $42b (25%of deposits). Unfortunately, the liquidity was not there.

10^th March: SVB went into receivership.

12^th March: Signature Bank NY was put into receivership by the New York regulator. Signature is an outlier, they posted a record net income of $1.34 billion for 2022 including a relatively minor loss of $900K on the sale of securities and they had acknowledged the risks facing them due to increased interest rates. However, they do share a similar client profile with Silvergate and SVB.

13^th March: SVB UK purchased for £1by HSBC.

15^th March: Credit Suisse’s share price suffered after the main shareholder refuse to commit further to the bank. Losses amounted to around $8b for 2022 and deposit outflows of $120b. 

16^th March: It was rumoured that any purchase of Signature Bank would be conditioned on the purchaser closing the crypto side of the business, the FDIC denied this.

19^th March: UBS has agreed to acquire Credit Suisse for more than $2b.

During the crisis, Circle, the company behind USDC, the second largest stablecoin, announced that it had $3b of its $40b reserves in SVB. Fear that USDC had lost 8% of its reserve caused the stablecoin to lose its $1 peg and drop to 89 cents. It recovered within days.

What now?

The FDIC has since managed to organise a sale of SVB to First Citizens, and hugely important for the crypto industry, Signature was sold to Flagstar Bank LESS Crypto (who will receive a cheque for their deposits), which has given commentators strong evidence for Choke Point 2.0. I.e. systematic Debanking of Crypto in the US.

In further blows, hopeful new market entrants have received setbacks. Protego’s (17.03) conditional national trust banking charter expired without approval, and Custodia Bank’s (24/03) Fed membership was denied forties to the crypto market. As a result, it seems unlikely that the gap left by the departure of Silvergate and Signature will be filled anytime soon.

In the news

Voyager Bankruptcy

28^th February: A court filing revealed that 97% of Voyager customers approved a deal from BinSiance. This deal would see customers receive up to 51% of their funds.

2^nd March: However, the SEC opposed the sale, citing the infringement of securities law relating to the sale of unregistered securities. 

7^th March: Despite this, a US judge approved the sale, stating: ‘I cannot put the entire case into an indeterminate deep freeze while regulators figure out whether they believe there are problems with the transaction and plan’. 

14^th March: US officials challenged the pardon granted for the sale of Voyager assets, but the court denied their request the following day. 

27^th March: Judge Rearden granted an emergency motion for a stay, pending an appeal of the court's confirmation order (putting the sale on hold). It would appear that the SEC really did not want Binance.US connecting with these customers, this may have been based on information coming from the CFTC (see below). 

Coinbase sued in Sim-swapping scam

6^th March: A Coinbase customer filed a claim against Coinbase for $96,000 after his 2FA was compromised due to the hacker obtaining control of his number, and so being able to complete 2FA and withdraw from the victim’s Coinbase account. 

The SEC

The SEC has been very active, in addition to where else they feature in this update.

6^th March: Emergency action brought against BKCoin and Kevin Kang for making Ponzi-like payments and personal use of investors’ funds.

21^st March: Sushi Swap subpoenaed. It has not been made clear if this was to the Sushi head Chef, the DAO contributors, or the DAO itself. Potentially, this could be the precursor to enforcement action, bringing DeFi into the US war on crypto. 

22^nd March: Coinbase received a Wells Notice, foreshadowing enforcement action, which Coinbase plans to fight. On the same day, the SEC announced they were charging Justin Sun of Tron and multiple celebrities with fraud.

29^th March: SEC shuttered Crypto trading platform, Beaxy, for operating as an unregistered exchange. 

One to watch: Gary Gensler is supporting Biden’s request for an increased budget of $2.4b ($200m increase) to continue regulatory clampdown on Crypto, seeking to add an additional head count of 170.

BTC ETF Case

7^th March: US Judges questioned the SEC’s logic around not approving Grayscale’s Bitcoin Exchange Traded Fund (ETF) while approving a BTC futures ETF. It seems judges were sympathetic to Grayscale’s arguments, which is positive for the case and may force the SEC to reconsider either the BTC ETF or revoke the BTC futures ETF. 

A BTC ETF would allow access to Bitcoin through traditional financial rails, potentially increasing the price of BTC by allowing cautious investors to gain exposure within their traditional risk acceptance frameworks. Have a listen here.    

ETH is a NY Security

9^th March: New York Attorney General sued KuCoin for failing to register as a securities and commodities broker-dealer. In an official statement, the AG stated“This action is one of the first times a regulator is claiming in court thatETH […] is a security.” The statement boldly groups ETH with failed tokens such as TerraUSD and Luna. 

The State is also going after the platform’s staking and lending offering KuCoin Earn, where we have seen action from the SEC last month in the case of Kraken.
 

CFTC Sues Binance and CZ

27^th March: the CFTC made one of the most forceful moves yet, suing Binance and CZ for widespread breach of derivatives rules. 

The CFTC does not tend to bring spurious action, which is very apparent from the 74 page complaint in which they designate BTC, ETH, LTC, USDT, BUSD as commodities, claiming jurisdiction over the crypto industry. Great podcast by Unchained here.