The European Union and the United States want to put a stop to cryptocurrencies

The European Union and the United States want to put a stop to cryptocurrencies

The time for regulation for cryptocurrencies is approaching. After more than a decade of the industry first soaring and then collapsing into a regulatory vacuum, lawmakers in the United States and Europe are writing new rules for an industry that has grown dangerously both in value. than by extension, reaching $ 29 trillion at its peak in November 2021. The collapse of the cryptocurrency markets has only strengthened the resolve of lawmakers.

Thursday June 30, the institutions of the Union (EU) announced that they have reached an agreement on two important regulations: the Market in Crypto-Asset Act (Mica), which aims to regulate most cryptocurrency service providers, and an anti-money laundering package that establishes controls strict on cryptocurrency transfers. In the United States, too, several proposals have been presented in recent months. One prime example is a broad bipartisan bill, which has been welcomed by the industry and labeled by others as a surrender to the cryptocurrency lobby's demands. The proposal is then joined by a bill promoted by Democratic Senator Elizabeth Warren, a fierce critic of cryptocurrencies, which calls for the introduction of strict controls on cryptocurrency transactions to prevent the avoidance of sanctions against Russia.

Even if none of these proposals materialize in the immediate future, the era of uncontrolled experimentation (and scams) in the sector could still be nearing its end. The proposed EU regulation "scares the cryptocurrency industry - says William O'Rorke, a lawyer specializing in asset compliance in the cryptocurrency sector who works for Orwl Avocats, a Paris law firm -. We have never seen regulation. so fast of a financial sector ".

Anne Termine, partner and head of the cryptocurrency sector at the US law firm Bracewell, predicts that even if none of the bills currently under discussion should be approved," within two years there will be a '[another] bill ", highlighting how in particular the introduction of rules for stablecoins is at the top of the list of lawmakers' priorities, echoing what was declared by US Treasury Secretary Janet Yellen after the collapse of the Earth-Moon stablecoin.

Below, we have listed all the most topical issues that we foresee will be addressed by the legislators, also analyzing how the regulatory proposals could take shape.

The battle over definitions While the first cryptocurrency, bitcoin, was launched in 2009 as a form of digital money, other tokens that arrived later on the market were presented as "shares" that guarantee the right to vote within cryptocurrency startups, or as purely speculative assets. In the United States, this has led to the question of whether the sale of a token to the public is comparable to that of unregistered securities. According to the Securities and Exchange Commission (SEC), cryptocurrencies do not actually need more regulation, since for most of the tokens in circulation it should be enough to stick to existing regulations on cryptocurrencies. Securities.

Usually, the SEC subjects cryptocurrency projects to the so-called Howey test, whereby any asset sold with the prospect of generating profits from someone else's efforts qualifies as a stock. The entity filed legal actions and fined major industry players who sold tokens to the public without complying with securities law. "Securities issuers should file a registration statement with the SEC and communicate to investors a number of risk factors so they can truly understand whether it is a good investment or not," said Todd Phillips, finance expert at the think tank. Center for American Progress - Companies that issue cryptocurrencies are not providing this information, harming investors and speculators. "

WiredLeaks, how to send us an anonymous report SEC President Gary Gensler believes most some of the existing cryptocurrencies, with the exception of bitcoin, are probably stocks. Entrepreneurs in the sector disagree, and argue that some tokens have other functions besides making their owners rich, thus remaining outside the scope of the Sec. There are also those who point out that the SEC's approach does not clearly define which categories of products in the cryptocurrency sector are actually securities.

The bipartisan bill presented in the United States seems to embrace this point of view. to the delight of cryptocurrency advocates. The bill - which was unveiled in early June and will likely not arrive in court before the US mid-term elections - stipulates that most of the assets in the industry should be viewed as a commodity - a commodity - and not as a security, and therefore should be regulated by the Commodities Futures Trading Commission (Cftc). There are exceptions for tokens that are explicitly marketed as shares of a business and for those controlled by a centralized company, so you will need to provide information to the SEC every two years. The reaction in the sector in the face of the possible setting aside of an increasingly hostile SEC has been, as expected, positive: "If we equate many of these assets to commodities, the entities that issue them are not required to provide information - Phillips explains -. This is one of the goals the industry is trying to achieve: not to let a single individual or entity be liable for misstatements in securities documentation or for harm done to consumers and investors. "

What will happen to the stablecoins? Stablecoins are assets whose price is theoretically pegged to the value of national currencies such as the dollar or the euro. The companies that issue them, such as Tether or Circle, ensure this parity by maintaining monetary reserves or equivalent assets - so that each stablecoin is backed by a unit of its currency - and undertake to redeem the tokens in exchange for money. Over the years, several doubts have circulated that Tether's reserves were sufficient and liquid enough to support the company's more than $ 60 billion worth of tokens.

Algorithmic stablecoins, such as the infamous Earth-Moon , on the other hand, they are not backed by real assets. In theory, their value remains stable thanks to a system of incentives and algorithmic changes. Historically, however, this system has never worked.

The US bipartisan proposal - to which another bill is added - would oblige stablecoins to be fully backed by "high quality" assets, to provide periodic information on its reserves and would require that they are always redeemable with legal tender. This means that companies like Tether should provide a more detailed analysis of the assets that make up their reserves and stop the current practice that allows you to redeem tethers with money only for amounts of at least 100 thousand dollars. Arguably, however, algorithmic stablecoins such as Earth-Moon would not be classified as stablecoins, since they are not backed by assets.

EU Mica would require companies issuing stablecoins to maintain a one-to-one ratio one with the assets to which they are connected, and which guarantee sufficient liquidity by avoiding using the assets for risky or illiquid investments. The regulation would also require traditional stablecoins and those it defines as "asset-linked tokens" (i.e. stablecoins backed by a basket of assets and currencies, along the lines of Diem, the deceased Meta token) to have a presence in the EU, where they would be regulated by the European Banking Authority. Stablecoin companies should register as e-money providers or, for asset-linked tokens, seek authorization from a member state's financial authorities. To prevent the popularity of a stablecoin from threatening the monetary stability of the EU, the MICA also stipulates that stablecoins limit their daily transactions to 200 million euros. "It will be something not unlike the GDPR - explains O'Rorke, referring to the influential EU regulation on data protection -. If you want your stablecoin to have access to the European market, you will have to follow the Mica regulation."
In the UK, Europe's largest financial center, the situation is still evolving, but stablecoins appear to be a priority in the country as well. The UK government is keen to position itself as a pro-business player in the post-Brexit world. In a recent speech, Treasury Secretary John Glen announced that the government would bring stablecoins into the UK's payments system, encouraging companies to settle in the country.

Will exchanges be regulated? Cryptocurrency exchanges have become financial giants and represent the foundation of the cryptocurrency industry globally; they are generally the first point of contact for people interested in buying cryptocurrencies. At the same time, some of these companies have come under fire for lack of security, financial opacity and lack of clarity about their business structure. An example above all: the United Kingdom and other countries have banned the operations of the largest exchange in the world, Binance (which, however, recently secured a provider of services related to digital assets in France). The company has also been evading questions about its registered office for years.

See more Sign up for Gadgetland and other Wired newsletters! Arrow In both the US and the EU, lawmakers are preparing plans to introduce rules that would make exchanges more transparent.

The US bipartisan proposal mirrors some of the provisions presented in another bill currently under discussion. the Digital Commodity Exchange Act, which allows cryptocurrency exchanges to register with the Cftc. Exchanges would be required to comply with existing standards regarding consumer protection, prevention of market manipulation, conflicts of interest and information sharing, as well as taking steps to protect client assets in the event of bankruptcy. Registration with the Cftc would be voluntary, but would guarantee exchanges some advantages.

In Europe, Mica would require exchanges wishing to address EU citizens to have a European headquarters and to obtain authorization to operate by member state governments. In case of non-compliance, exchanges will not be able to promote their services throughout the EU. Mica would also introduce stricter standards for customer protection, as well as rules against insider trading and market manipulation, and resource and cyber security obligations.

The position of non-custodial wallets Cryptocurrency exchanges and wallet providers are already bound by anti-money laundering and customer identity verification regulations in the United States and many European countries. The only element in the sector to remain excluded are the so-called non-custodial, or self-hosted wallets, those that are not managed by a centralized company but by the users themselves, whose anonymity is therefore guaranteed.

Last week, non-custodial wallets were the center of attention due to the approval of the new EU anti-money laundering regulation, presented as a complement to the Mica. The regulation is aimed primarily at wallets managed by companies, and requires that cryptocurrency service providers in the EU carry out checks on potential customers for possible warning signs (terrorism, money laundering, crime), and that they record the identity of the people who send and receive cryptocurrencies on their platforms, regardless of volumes. This information must be stored and provided to law enforcement in case of need.

In addition, the regulation prohibits transactions of more than one thousand euros between wallets managed by an organization and non-custodial ones, in case which do not belong to the same user. Obviously, the rule has no way of being applied to transactions between two non-custodial wallets. As long as he remains confined to the world of cryptocurrencies, anonymity will still be allowed.

This article - which Gilad Edelman also contributed - originally appeared on UK.

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