by Iulia Vasile | Mar 10, 2023 | News
Silvergate Capital Corporation has revealed that it will close its operations due to “recent industry and regulatory developments”. The company confirmed that the liquidation of Silvergate Bank would involve the complete repayment of all customer deposits.
This decision follows the withdrawal of support by various crypto companies, including Coinbase, Paxos, Gemini, BitStamp, and Galaxy Digital, following an investigation into Silvergate’s alleged participation in the collapse of FTX. The bank also announced the closure of its exchange network on March 3, stating that the decision was based on risk considerations.
Silvergate had established itself as a significant banking partner for several crypto companies. However, apprehensions about its financial stability arose when it announced a two-week delay in filing its annual 10-K report, which typically offers a summary of the company’s financial position.
The departure of Silvergate has left the potential impact on other crypto companies that have funds held by the bank or have exposure to it uncertain. The bank stated that the transfer volume of customer fiat deposits had decreased by approximately $50 billion in Q3 of 2022 compared to the corresponding period in 2021.
Debate over Silvergate’s downfall and the future of crypto banking
The collapse of Silvergate bank sparked a debate over who was responsible for the chain of events that led to its downfall. After the bank’s voluntary liquidation announcement, numerous reactions from lawmakers, crypto analysts, executives of crypto firms, and commentators appeared on social media.
Some lawmakers in the United States have seized the opportunity to comment on the crypto industry, characterizing it as a “risky, volatile sector” that poses a risk to the broader financial system.
Senator Elizabeth Warren has referred to Silvergate’s collapse as “disappointing but predictable,” urging regulators to take action against the risks associated with crypto.
Senator Sherrod Brown expressed his apprehension about banks that engage with cryptocurrencies. In his opinion, they pose a potential risk to the financial system.
The senator emphasized the need for robust safeguards to protect the financial system from the dangers associated with crypto. The senator’s comments have drawn criticism from some members of the community who argue that the issue was not caused by crypto but instead by fractional-reserve banking. They point out that Silvergate held considerably more in-demand deposits than cash reserves, which they believe was the primary factor behind the bank’s troubles.
Some companies have taken the opportunity to reaffirm their dissociation from the bank. Binance CEO Changpeng Zhao said on Twitter that the crypto exchange does not have any assets stored with Silvergate. Likewise, Coinbase issued a similar statement.
On the other hand, Nic Carter, the co-founder of Castle Island Ventures and Coin Metrics, a crypto intelligence firm, opined that the government was responsible for “accelerating the collapse” of Silvergate. Similarly, Ram Ahluwalia, the CEO of Lumida, a financial services company, shared a similar perspective, asserting that a letter from a senator had eroded public confidence in Silvergate, resulting in a bank run. He argued that the bank was denied due process.
Previously, Carter mentioned the existence of “Operation Choke Point 2.0.” He claimed that the U.S. government is utilizing the banking sector to orchestrate “a sophisticated and extensive crackdown on the crypto industry.”
However, some individuals think that the downfall of Silvergate might not necessarily have an adverse impact on the crypto industry. Instead, they believe that combined with proposed tax law changes, it could intensify the departure of crypto firms from the United States.
In the wake of Silvergate’s liquidation, there has been a growing concern about where crypto firms will turn to for their banking needs.
Coinbase, which previously accepted payments through Silvergate, announced on March 3 that it would be facilitating cash transactions for institutional clients using its other banking partner, Signature Bank.
However, Signature Bank had disclosed in December its intentions to lower its exposure to the crypto sector by decreasing deposits from clients holding digital assets.
In a bid to further diminish its crypto exposure, Signature imposed a minimum transaction limit of $100,000 on transactions processed through the SWIFT payment system on behalf of Binance.
The market is down
Given the liquidation of Silvergate Bank, the cryptocurrency market has experienced a decline. The other factors involved in this downfall include the lawsuit against KuCoin exchange, and comments from the United States Federal Reserve chair Jerome Powell that have worried investors.
Bitcoin is giving signs of a bearish future, and the crypto Twitter community talks of a potential bottom at $12,000. Ether has also experienced a decline.
The expectation of interest rate hikes and a softening economy weighs on risk assets, and Powell’s comments regarding a possible uptick in inflation have added to investor concerns.
The recent enforcement actions against Paxos and Binance and the SEC crackdown on centralized staking have also prevented the development of sustainable bullish momentum across the market.
The uncertainty regarding crypto regulation has led to market volatility, and the liquidation of Silvergate Bank is expected to make regulators keep an even closer eye on the sector.
Banks are already implementing robust anti-money laundering measures in preparation for further crypto regulation. While the crypto market had a strong start to 2023, investors’ appetite for risk is likely to remain muted until there is more transparency regarding the roadmap for crypto industry regulation and signs that U.S. inflation has peaked.
by Iulia Vasile | Feb 28, 2023 | News
Ajay Kumar Choudhary, the executive director of the Reserve Bank of India (RBI), has revealed that the recently launched digital rupee, India’s in-house central bank digital currency (CBDC), is undergoing offline functionality testing.
Apart from evaluating its offline capability, the Reserve Bank of India (RBI) is assessing the potential of CBDCs for cross-border transactions and their integration with legacy systems of other nations.
The wholesale segment pilot was launched by the RBI on November 1, 2022, with 50,000 users and 5,000 merchants onboarded for real-world testing. As of the end of February 2023, around $134 million and 800,000 transactions have been completed via wholesale CBDCs.
In addition to offline functionality, the RBI is also exploring the CBDC’s potential for cross-border transactions and its linkage with the legacy systems of other countries. Choudhary stated that the RBI is eagerly anticipating the participation of private sectors and fintechs in CBDC, especially on offline and cross-border transactions.
Furthermore, the banks’ executive stated that the CBDC would soon become the medium of exchange. That’s why it needs all features of physical currency, including its anonymity.
The launch of CBDC is India’s motivation for improving regional financial inclusion and leading the digital economy. CBDC would also eventually replace cryptocurrencies, as per Choudhary’s statement on behalf of the RBI.
India’s CBDC for remittances
India’s national payment network, the Unified Payments Interface (UPI), has expanded its services to Singapore as of February 21, 2023.
The integration of UPI with PayNow enables citizens of both countries to transfer funds across borders with great speed.
The facility was launched by Shaktikanta Das, Governor of the Reserve Bank of India, and Ravi Menon, Managing Director of the Monetary Authority of Singapore, through token transactions using the UPI-PayNow linkage.
This integration of UPI with PayNow will allow users from India and Singapore to transfer money across borders with great speed. Users can send or receive money from India using only a UPI-id, cellphone number, or virtual payment address for money held in bank accounts or e-wallets. UPI’s instant real-time payment system allows for immediate cash transfer between the two bank accounts via a mobile interface.
Initially, four major Indian banks, namely State Bank of India, Indian Overseas Bank, Indian Bank, and ICICI Bank, will support outgoing remittances. Incoming remittances will be facilitated by Axis Bank and DBS Bank India. Users in the region will have access to the service through Singapore’s DBS Bank and Liquid Group.
ICICI Bank is one of the participants in India’s central bank digital currency (CBDC) program.
According to Sathvik Vishwanath, CEO of Indian crypto exchange Unocoin, this integration of UPI with PayNow is a valuable addition to India’s payment rails. As close to 30% of Singapore’s population consists of expatriates, and they send money to India once a month or quarter, this integration eliminates friction, reducing the processing time and costs.
While India’s digital payment infrastructure has expanded significantly over the last few years due to COVID-19, the government remains skeptical about cryptocurrencies. The government imposed a 30% tax on crypto gains, forcing major players to relocate from the country. However, the government is eager to utilize blockchain technology for its CBDC program and intends to use existing infrastructure to scale the CBDC program.
But India is in no hurry to push out CBDC
Despite joining the CBDC race a few months ago, the Indian government is in no hurry to rush its central bank digital currency (CBDC) pilot. As per a report by The Economic Times on Feb. 8, India’s digital rupee pilot, launched by the Reserve Bank of India (RBI), has attracted 50,000 users and 5,000 merchants.
At a press conference, RBI Deputy Governor Rabi Sankar announced the first public milestones of India’s digital currency and emphasized the government’s plan to proceed with CBDC testing in the smoothest way possible. Sankar stated that the RBI doesn’t want to push CBDC developments without having a full understanding of its potential impact.
Furthermore, Sankar noted that the RBI has set targets in terms of users and merchants and plans to go slowly with the CBDC testing. He stated that they want the process to happen gradually and slowly and that they are in no hurry to make something happen so quickly.
The latest announcement is in line with data from an official digital rupee application, which indicates that the pilot has reached its capacity for users. As per the data from the digital rupee app by the ICICI Bank, India’s CBDC program is full at present, suggesting that more users will be able to join the trial at a later date.
India’s CBDC development came after countries like China aggressively rolled out digital currency in April 2020. However, despite significant efforts to promote the use of CBDCs, some former central bank officials claimed that the digital yuan’s usage has been low.
by Iulia Vasile | Feb 20, 2023 | News
The CEO of Kraken, Jesse Powell, has accused U.S. regulators of enabling “bad actors” in the cryptocurrency industry to grow to an enormous size at the expense of legitimate players.
In a recent tweet, Jesse Powell, present a personal idea about the true intentions of the regulators:
Jesse Powell has claimed that regulators, including the Securities and Exchange Commission (SEC), are allowing crypto companies to operate without enforcement actions as a distraction from their real targets.
Many of the respondents agree and offer personal perspectives on why the regulators are more interested in pursuing their secret politics than in offering a safe investment environment for individuals.
Powell argues that this could lead to the destruction of the industry by allowing bad actors to dominate the market, while legitimate players are forced to compete for dwindling resources. According to Powell, regulators will simply jail violators later after the damage has already been done.
Jesse Powell, the CEO of Kraken, has claimed that U.S. regulators are favoring “bad guys” over “good guys” in the cryptocurrency industry and that the legitimate players are being treated as enemies. Powell warned that if the bad actors are allowed to run unchecked, they could potentially wipe out the legitimate players. Powell made these statements after Kraken settled with the SEC by agreeing to discontinue staking services and pay a $30 million settlement.
Many in the crypto community have criticized the SEC for its “regulation by enforcement” approach, which has also targeted celebrities endorsing tokens on social media.
In September 2022, Powell announced that he would be stepping down as CEO and transitioning to the position of chair of the board, while Kraken’s chief operating officer, Dave Ripley, would take over as CEO.
Meanwhile, Paxos is also reportedly facing SEC enforcement action for alleged violations of investor protection laws related to the Binance BUSD stablecoin.
SEC vs Kraken’s crypto staking option
Following the settlement with Kraken, Gary Gensler, the Chair of the United States Securities and Exchange Commission (SEC), has issued a warning to other cryptocurrency companies to comply with the law.
Gensler emphasized that crypto exchanges must register with the SEC to operate within the regulations of the U.S. He claimed that many companies in the industry are deliberately avoiding registration. Gensler pointed out that the business models of many crypto projects are full of conflicts and urged them to separate bundled products. Gensler stressed the need for time-tested rules and laws to protect investors and prevent companies from misusing their customers’ funds. He warned companies against having their “hand in the customer’s pocket.”
Gensler made this statement in response to the SEC’s settlement with Kraken, where the exchange agreed to cease staking services and programs for its U.S. customers and pay a $30 million settlement.
Kraken announced that it would still offer staking services to non-U.S. users through a subsidiary.
The SEC’s actions have been met with criticism from many in the industry, who argue that firms are being punished for operating in a regulatory environment with unclear guidelines.
SEC Commissioner Hester Peirce has criticized the regulator’s actions, calling them “lazy and paternalistic,” and pointing out that the staking program had been beneficial to its users.
by Iulia Vasile | Feb 13, 2023 | Cryptocurrency, News
The recent SEC lawsuit against Paxos over Binance USD (BUSD) has caused confusion and debate among the cryptocurrency community.
The U.S. Securities and Exchange Commission (SEC) issued a wells notice to Paxos. They claim that BUSD is an unregistered security, which resulted in the New York Department of Financial Services (NYDFS) ordering the halt of BUSD issuance.
This has led to a range of reactions from the crypto community, with some members dismissing it as fear, uncertainty, and doubt (FUD), while others view it as an attack on the Binance exchange.
The community is split on their thoughts about the situation, with some saying that those who bought the stablecoin were not expecting it to increase in value.
The crypto community on Twitter started to talk about this controversy, but they seem to agree that nobody would buy a stablecoin and anticipate a profit. Others expressed confusion about the development, questioning how BUSD can be considered a security and asking their followers if they expected its value to reach $2.
Some even took it more personally, attacking SEC chairperson Gary Gensler, suggesting that he is on an “unhinged, unchecked crusade against crypto.”
However, some dismissed the news as FUD and pointed out that BUSD is fully backed and the halt in issuance by Paxos will not affect existing tokens. They encouraged everyone to stay informed but advised against making emotional decisions. A few voices have also pointed out the urgent need for a stablecoin registry framework.
Bitcoin analyst Tedtalksmacro also expressed similar thoughts, suggesting that BUSD may not meet the criteria of a security. The analyst hinted that the situation might just be a way to target Binance.
It’s important to understand that despite stablecoins being designed to have a fixed value, their holders can still generate profits through methods such as arbitrage, hedging, and staking.
What is BUSD?
BUSD is a stablecoin co-founded by Paxos and Binance. Paxos leverages blockchain technology to provide its Stablecoin as a Service product to other companies.
The company has also previously developed a stablecoin backed by gold, known as PAX Gold (PAXG). Both BUSD and PAXG tokens fall under the jurisdiction of the New York State Department of Financial Services.
BUSD is a fiat-backed stablecoin, pegged to the U.S. dollar. Paxos holds an equivalent amount of U.S. dollars in FDIC-insured banks or backed by U.S. Treasuries, serving as the reserves for the total supply of BUSD.
The price of BUSD adjusts in equal amounts to the changes in the value of the U.S. dollar.
Binance’s CEO still supports BUSD
Binance CEO Changpeng Zhao, also known as “CZ,” announced that the exchange would continue to support Binance USD (BUSD), despite the announcement made by the SEC that argues that BUSD is an unregistered security.
Changpeng Zhao (CZ), CEO of Binance, has reassured users that their funds are secure despite regulatory enforcement.
However, he stressed the fact that Paxos, regulated by NYDFS, fully owns and manages BUSD.
Paxos will continue to manage BUSD, including redemptions, and its reserves have been audited by multiple parties, according to Zhao. He acknowledged that the enforcement action might cause a decrease in BUSD’s market cap over time. But Binance will consider alternative non-USD-based stablecoins.
Despite this, Binance will remain supportive of BUSD on the exchange, though it acknowledges that some users may switch to other stablecoin tokens due to the enforcement.
CZ also explained that Paxos, the issuer of the Binance USD (BUSD) stablecoin, is regulated by the New York State Department of Financial Services. He has made assurances of its reserves, which have been audited by multiple parties.
Zhao also acknowledged that the actions taken by the SEC and NYDFS could have a significant impact on the future development of the cryptocurrency ecosystem. He warned of the potential implications if BUSD is ruled as a security by the courts.
Given the regulatory uncertainty in certain markets, Binance may also review other projects to ensure the safety of its users. This comes after a number of cryptocurrency service providers, and tokens have faced enforcement actions by American regulators, including Ripple’s ongoing legal battle with the SEC over XRP being an unregistered security. Kraken also ceased its staking services to U.S. clients and paid a $30 million settlement to the SEC for failing to register its crypto asset staking program.
by Iulia Vasile | Feb 6, 2023 | News
Binance, the cryptocurrency exchange, has introduced Binance Tax, a tax reporting tool, in preparation for the tax season.
Binance Tax is a tool that helps users access information on their crypto activity to comply with local regulations. It allows users to download a tax summary report that includes details of their gains and losses throughout the year, including spot trades, crypto donations, and fork rewards.
Currently, the Binance Tax tool is only available for Binance platforms, but the company intends to integrate with other platforms in the future.
Taxes in crypto
The launch of Binance Tax follows recent global regulatory crackdowns on the crypto industry, with regulators focusing on investor protection and compliance with local standards. Currently, only Binance users located in Canada and France have access to Binance Tax. Binance mentioned that are actively working to expand support to additional regions and include support for more networks and wallets beyond Binance.
In the US, the Securities and Exchange Commission has called for firms to disclose their exposure to crypto risks. It has reintroduced a bill to allow companies to apply for compliance agreements with federal agencies.
This move by Binance aims to ensure its users are prepared for the upcoming tax season and stay on top of their tax obligations.
One month prior to the launch of Binance Tax, the exchange joined an association to improve compliance with global sanctions.
In the past year, regulatory agencies worldwide have increased their control over the crypto industry, particularly after the FTX crisis. For instance, the Securities and Exchange Commission in Thailand plans to implement stricter rules for the crypto industry with a focus on protecting investors.
Regulators in South Korea, the Netherlands, and the US have been investigating exchanges for non-compliance issues, with some exchanges, such as Kraken, being forced to settle with the US Treasury’s Office of Foreign Assets Control.
In December 2022, the US SEC asked companies to reveal any exposure to crypto bankruptcies and risks. Additionally, a bill was reintroduced by a House committee chair to allow companies to apply for compliance agreements with federal agencies for crypto innovation.
What happened to the crypto regulatory landscape in 2022?
Regulations in the crypto world were once seen as an obstacle to adoption, but they are now seen as a means to gain global mainstream acceptance. In 2022, crypto businesses saw broader acceptance from regulators worldwide, with many being granted operational licenses and access to new markets. However, the collapse of crypto firms like Terraform Labs, FTX, and Celsius had a negative impact on the industry’s reputation with regulators and investors.
North America
In North America, the US became the leader in crypto disruption after China’s ban on crypto mining and trading in 2021. The US is home to the largest crypto ATM network and is the highest contributor to the Bitcoin hash rate. NFTs received significant attention in US politics, with the FEC permitting their use for political campaign fundraising.
Canada banned crypto leverage and margin trading after the FTX collapse, and the US introduced the Crypto-Asset Environmental Transparency Act to report on the energy use and environmental impact of crypto miners.
South America
El Salvador remains the biggest contributor to mainstreaming Bitcoin, with President Nayib Bukele announcing a new BTC investment strategy. Brazil also saw pro-crypto regulation, with a bill signed into law legalizing the use of crypto as a payment method and a Payment Institution License issued to Crypto.com.
Asia
Asia saw numerous regulators soften their anti-crypto stance and allow crypto businesses to operate. China loosened its crypto ban, and the Shanghai High People’s Court recognized Bitcoin as property with the right to compensation in a loan case. India imposed two new crypto tax policies, but during its G20 presidency, it plans to develop standard operating procedures for cryptocurrencies.
Pakistan’s central bank signed new laws to launch a central bank digital currency. South Korea spent much of 2022 tracking down those responsible for investor losses from Terraform Labs, but also saw a reduction in hacking activities after implementing Know Your Customer (KYC) requirements.
Europe
The European Union‘s Committee of Permanent Representatives has approved a framework for regulating cryptocurrencies, known as the Markets in Crypto-Assets framework, to ensure consistent regulation among EU member states. The International Monetary Fund, a UN financial agency, has called for greater regulation of African crypto markets. Meanwhile, the Central African Republic has reportedly passed a bill to legalize the use of cryptocurrencies in finance.
In the United Kingdom, the government is seeking to tighten regulation of the crypto industry. In response to the FTX collapse, the country’s HM Treasury has issued guidelines for the Financial Conduct Authority to monitor crypto companies and their advertising. This has further influenced an upcoming 2023 legislation to restrict foreign crypto services from operating in the UK.
Africa
In South Africa, the Financial Sector Conduct Authority has updated its 2002 Financial Advisory and Financial Intermediary Services Act to declare crypto as a financial product subject to financial services laws. Nigeria has banned ATM cash withdrawals of over $225 (100,000 nairas) per week to promote the use of its CBDC, the eNaira. African crypto exchange Yellow Card has received regulatory approval to expand its services across Africa.
The Dubai Virtual Assets Regulatory Authority issued operational approvals to crypto businesses in 2022, but had to revoke the Minimum Viable Product license from FTX MENA.
Australia has become the fourth largest crypto ATM hub, overtaking El Salvador, following the US, Canada, and Spain. Australian financial regulators continue their efforts from 2022 to create a regulatory framework for stablecoins.
by Iulia Vasile | Jan 29, 2023 | News
The crypto tracking system will keep a record of transaction history, gather information on transactions, and verify the origin of funds both before and after transfers.
The South Korean Ministry of Justice plans to launch a “Virtual Currency Tracking System” to combat money laundering and recover funds tied to criminal activities. This system will monitor transaction history, gather transaction information, and check the origin of funds before and after the remittance.
Regulators in South Korea are also cracking down on the broader crypto industry, recently investigating exchanges for native token listings and excluding global crypto exchanges from plans for third-party digital exchanges in the city of Busan.
The tracking system will be rolled out in H1 2023, and the ministry intends to develop its own tracking and analysis system later in the year. The aim is to improve the forensic infrastructure and conform to international standards in the fight against crime. The South Korean police have previously partnered with five local crypto exchanges to support criminal probes and foster a secure trading environment for crypto investors.
According to the press statement, the system is set to improve the forensic infrastructure and to come into aid in building a criminal justice system at international standards. All of this is needed to combat the level of sophistication that digital crime has reached over recent years, especially in regard to cryptocurrencies.
Police in South Korea has already established an agreement with local crypto exchanges that fight against digital crime and try to create a secure trading environment for crypto investors.
South Korea is harsh on crypto exchanges
The South Korean Supreme Court declared that Bithumb, a crypto exchange, must compensate investors for a 1.5-hour service disruption that happened on Nov. 12, 2017. The final ruling mandates that damages from $6 to $6,400 be paid to 132 affected investors. The total damages to be paid by the exchange rise up to $202,400 (251.4 million won).
The court stated that the operator, not the users who pay commissions, should bear the responsibility and cost of technical failures.
Bithumb is South Korea’s largest exchange and was temporarily impacted by a sudden doubling of average order volume. The exchange is facing ongoing investigations, including a special tax probe and a fraud case against a former chair.
South Korean government reacts to the Terra collapse
South Korean authorities are still investigating and confiscating assets related to the Terra ecosystem over six months after its collapse. In November, 140 billion won ($108 million) was seized from Terra co-founder Shin Hyun-Seong, and now, the Seoul Southern District Court has ordered to freeze of 120 billion won ($92 million) in assets of former and current CEOs of Terraform Labs’ affiliate Kernel Labs. The news was reported on Dec. 20 by The Korea Economic Daily.
Kernel Labs is a blockchain consultancy founded in 2018, specializing in decentralized apps and blockchain payments. It has close ties to Terraform Labs, with its CEO previously serving as VP of Engineering there and some employees having worked at Terraform’s South Korean office. The Seoul Southern District Court has seized 120 billion won ($92 million) in assets from Kernel Labs’ former and current CEOs as part of its ongoing investigation into the collapse of the Terra ecosystem. The court also accepted the prosecution’s request to confiscate assets from 7 individuals involved in profiting from the sale of pre-issued Terra tokens.
The CEO of Kernel Labs, Kim Hyun-Joong, is among those targeted in the Terra case, with prosecutors alleging he made illegal gains of at least $61 million. Another executive of Kernel Labs, a former CEO, is believed to have received $31 million in illegal proceeds. Kim reportedly made several real estate purchases in South Korea in 2021, including a $27 million building in the upscale neighborhood of Gangnam-gu and a $7 million apartment in Seongdong-gu.
The Terra case continues as global authorities search for Terraform Labs’ CEO, Do Kwon, who is believed to have fled to Serbia after leaving Singapore.
The Terra collapse has been one of the biggest impactful events in the crypto market in 2022. Its algorithmic stablecoin, TerraUSD Classic (USTC), was once among the top 10 cryptocurrencies but lost its dollar peg in May. This led to a chain reaction in crypto markets, resulting in major liquidations and instability, hitting hard the crypto lending sector.
