NEW YORK/WASHINGTON, Jan 18 (Reuters) – A prime official with the U.S. Commodity Futures Buying and selling Fee (CFTC) on Wednesday plans to warn lawmakers in opposition to permitting cryptocurrency exchanges to self-certify with the company to checklist merchandise for buying and selling.
The CFTC already permits self-certification for exchanges to checklist contracts for different merchandise, equivalent to commodities. Lawmakers had been contemplating an identical course of as a part of proposed crypto laws being hammered out final 12 months.
However CFTC Commissioner Christy Goldsmith Romero stated the method would open the door to “regulatory arbitrage” as some crypto belongings are probably securities that have to be overseen by a unique company, the Securities and Alternate Fee (SEC).
“Oversight is important to forestall abuse” of the method, she stated, in line with remarks ready for an occasion on the College of Pennsylvania.
Her warnings come as lawmakers regroup to draft laws to higher oversee the troubled crypto trade, which had a wave of bankruptcies final 12 months and continues to reel from FTX’s sudden collapse and alleged fraud.
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Romero additionally raised questions in regards to the stage of due diligence corporations carried out earlier than investing in FTX, suggesting there may very well be incentives “to show a blind eye” to pink flags in a aggressive market.
Federal prosecutors have introduced prices in opposition to three of FTX’s former prime executives, accusing them defrauding buyers and misappropriating buyer funds.
The SEC can also be probing FTX buyers’ due diligence, in line with two sources conversant in the inquiry.
With a purpose to regain the general public’s belief following the FTX meltdown, the crypto trade ought to enshrine sturdy company governance and improve the roles that gatekeepers like attorneys and compliance professionals play at corporations, Goldsmith Romero stated.
“Gatekeepers ought to have critically questioned the operational atmosphere at FTX within the lead-up to its meltdown,” she stated.
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Reporting by Chris Prentice; Enhancing by Josie Kao
Our Requirements: The Thomson Reuters Belief Ideas.
This month marks a potential turning point for the cryptocurrency industry as the House of Representatives gears up to vote on the Financial Innovation and Technology for the 21st Century Act (FIT21).
The FIT21 bill, formally designated as HR 4763, seeks to streamline cryptocurrency regulation across the United States. It aims to establish a clear regulatory framework for digital assets, addressing their unique characteristics and ensuring consumer protections.
Regulatory Roles and Classifications
A primary objective of the bill is to delineate the regulatory roles of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). This distinction is critical because it determines whether digital assets are classified as securities or commodities, thereby affecting their regulation.
Under the proposed legislation, the CFTC would regulate digital assets if the associated blockchain or digital ledger is both functional and decentralized. Conversely, the SEC would oversee assets as securities if the blockchain is functional but not decentralized. Decentralization, as defined by the bill, means that no single entity controls more than 20% of the digital asset or its voting power.
Support and Criticism Over The FIT21
The bill has garnered bipartisan support but also faced criticism, particularly from the crypto community. Some stakeholders are concerned about the bill’s strict decentralization requirements, fearing it grants the SEC excessive power to withdraw support from tokens or projects that shift towards centralization. Additionally, there are worries that the bill does not clearly delineate the boundaries between the SEC and the CFTC’s authorities, potentially leading to regulatory confusion.
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Despite these concerns, proponents of FIT21 argue that the bill will provide the regulatory clarity the crypto industry needs to thrive in the U.S. They believe that clear rules will help crypto businesses gain public trust, innovate with confidence, and ensure accountability for bad actors. As the House of Representatives prepares to vote, the entire crypto industry is watching closely, hopeful that FIT21 will usher in a new era of clear and effective regulation.
Comparison with the EU’s Approach
This development is particularly significant considering that the European Union (EU) has made substantial strides in creating a comprehensive regulatory framework for cryptocurrencies, leaving the United States trailing with a fragmented and uncertain regulatory landscape.
The EU has taken a proactive approach to cryptocurrency regulation with the introduction of the Markets in Crypto-Assets (MiCA) framework. MiCA aims to establish a clear and harmonized set of rules across all EU member states, providing legal certainty for both cryptocurrency businesses and investors.
This regulation covers a wide range of crypto assets, including utility tokens, stablecoins, and other digital assets, ensuring they are subject to robust consumer protection, transparency, and anti-money laundering (AML) requirements. MiCA’s comprehensive nature and its focus on consumer protection and market integrity make it a pioneering piece of legislation in the crypto space.
In contrast, the regulatory approach in the United States has been piecemeal and inconsistent. Multiple regulatory bodies, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN), have jurisdiction over different aspects of the cryptocurrency market.
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This fragmented regulatory environment has created uncertainty for crypto businesses and investors, as they must navigate a complex web of regulations that can vary significantly from one state to another. Additionally, the lack of clear guidance on the classification of certain crypto assets has led to legal disputes and enforcement actions that further complicate the regulatory landscape.
The U.S. Regulatory Landscape
One of the key areas where the EU has outpaced the U.S. is in the regulation of stablecoins. MiCA includes specific provisions for stablecoins, recognizing their potential to facilitate payments and enhance financial inclusion while also addressing the risks they pose to financial stability and monetary policy. In the U.S., however, stablecoin regulation remains largely undeveloped, with various proposals and reports yet to culminate in a cohesive regulatory framework.
Moreover, the EU’s regulatory approach reflects a more collaborative and forward-looking stance. European regulators have engaged with industry stakeholders to develop regulations that foster innovation while ensuring robust oversight. This approach contrasts with the U.S., where regulatory actions have often been reactive and enforcement-focused, potentially stifling innovation and driving crypto businesses to more favorable jurisdictions.
As the House of Representatives prepares to vote on FIT21, the outcome could significantly influence the future trajectory of the cryptocurrency industry in the United States, potentially aligning it more closely with the comprehensive and proactive regulatory framework established by the EU.
FM Sitharaman highlighted the ongoing discussions within the finance ministry and among various regulators since 2020 Image: Hardik Chhabra/ The India Today Group via Getty Images
In a recent interview with businessline, India’s Finance Minister Nirmala Sitharaman shared her perspectives on the future of cryptocurrency regulation in India. She emphasised the need for a global consensus and collaboration to manage this borderless technology effectively.
Recognising the growing importance of crypto assets, the Finance Act 2022 introduced tax regulations for these assets in India. Under the Income Tax Act of 1961, they are classified as “virtual digital assets” (VDAs). According to Section 115BBH, income from the transfer of VDAs is taxed at a flat rate of 30 percent. Taxable events include converting digital assets to fiat currency, trading between different types of VDAs, and using them to purchase goods and services.
Starting July 1, 2022, a 1 percent Tax Deducted at Source (TDS) is also applied to Virtual Digital Assets (VDAs) transfers. This TDS applies to transactions exceeding Rs10,000 and Rs50,000 for specified persons.
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Crypto exchanges handle TDS deductions on sell transactions, while buyers are responsible for peer-to-peer deals. Adhering to TDS obligations ensures compliance and avoids potential financial or legal issues.
FM Sitharaman highlighted the ongoing discussions within the finance ministry and among various regulators since 2020, even before India assumed the G20 Presidency. The Reserve Bank of India (RBI) has consistently expressed concerns over the stability of cryptocurrencies, aligning with the government’s cautious stance. The Securities and Exchange Board of India (SEBI) has also contributed to the discourse, suggesting that multiple regulators should oversee the sector.
During India’s G20 Presidency, significant efforts were made to foster a global understanding of cryptocurrency regulation. The International Monetary Fund (IMF) and the Financial Stability Board (FSB) were brought into the conversation, and well-researched papers supported extensive discussions.
Sitharaman reiterated that a regulation confined to a single country would be insufficient for a technology that inherently transcends borders. She firmly believes effective regulation can only be achieved through a globally coordinated effort.
Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash
Memecoins took center stage on one of the best days for the cryptocurrency market, with the likes of Pepe PEPE/USD and Bonk BONK/USD turning out to be the highest gainers.
What Happened: The market rallied on higher expectations of an Ethereum ETH/USD spot ETF approval by the SEC, resulting in the highest market cap growth in three months, according to Santiment.
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Price Action: While the rally was spurred by developments around Ether, memecoins stole the highlight yet again, as popular coins like PEPE and BONK grew by 27% and 23% respectively, according to data from Benzinga Pro.
Ethereum ETH/USD-based PEPE rose to an all-time high of $0.000011, while the SolanaSOL/USD-based meme coin BONK bumped to a two-month high of $0.000031. The rest of the meme coin market also reported significant gains.
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Cryptocurrency
Gains +/-
Price (Recorded at 10 p.m. EST)
BonkBONK/USD
+27%
$0.000031
PepePEPE/USD
+23%
$0.000011
FlokiFLOKI/USD
+10.48%
$0.000211
Pepe’s trading volume surged to $2.16 billion in the last 24 hours, exceeding bigger coins with larger market caps like Dogecoin DOGE/USD and XRP XRP/USD, Bonk clocked a volume of $850 million, trumping Shiba InuSHIB/USD
Why It Matters: The latest rally reflected a strong appetite for meme coins, the class of cryptocurrencies that has witnessed significant gains in the year.
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Social analytics platform LunarCrush highlighted bullish social media discourse around the two coins, with 82% of all BONK posts, and 80% of PEPE posts being positively weighted.
Such degrees of optimism could potentially help sustain the rally for the two meme coins.
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Image via Shutterstock
Read Next: Bitcoin, Ethereum, Dogecoin Shoot Up On One Of The Best Days For Crypto In 2024 Amid Ether ETF Approval Buzz: Analyst Flags ‘Robust’ US Investor Demand for King Crypto
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