Thomas Murray Digital Newsletter

Cryptocurrency Market Crash, and SEC Moves Crypto Assets Under Custody Onto Balance Sheets

The past week saw another crash in the value of cryptocurrencies; bitcoin fell to USD 24,000, its lowest value since December 2020. Although bitcoin’s price has been slowly falling since the end of the last year – reflecting the current macroeconomic climate of increasing inflation and interest rates facilitating a risk-off environment – this latest capitulation was a result of the TerraUSD (UST) stablecoin catastrophically losing parity with its dollar peg and the fallout thereafter. Ben Ashley assesses the root causes of the incident and the impact on cryptocurrencies and stablecoins.

While causing fewer headlines, but perhaps of more significance to would-be digital asset custodians, the SEC has prompted Coinbase to disclose in its latest quarterly financial filing that customers’ assets may potentially form part of any bankruptcy estate, and that the customers may be treated as general unsecured creditors. It remains unclear whether this assessment stems from the way in which Coinbase structures its custody arrangements legally or more broadly reflects legal uncertainty surrounding liability for crypto assets given the lack of a clear legal, regulatory and accounting policy environment. In any case, the SEC appears to expect that customer crypto assets should appear on custodians’ balance sheets. Andrew Wright explores the SEC’s move and the reaction from policymakers to it.

Digital Asset Developments

      

      
The California state governor has signed an executive order for blockchain and Web 3.0 companies. The aim of the order is to integrate federal and state approaches to provide a regulatory environment that is clear, transparent, and easy to navigate. The order has seven key priorities – mainly focused on crypto assets and related technologies – and is designed to stimulate innovation while simultaneously protecting investors. The Governor commented that the state is aiming to get ahead of the curve in order to harness the potential of the technology. Further benefits the order cites are the ability to deploy blockchain technology for state and public institutions, and the construction of research and workforce development pathways.
A New York state assembly committee has advanced a bill blocking any new proof-of-work (PoW) mining facilities that use non-renewable energy. The bill, which would impose a two-year moratorium, will now go to a full vote of the legislative body. Although existing facilities will not be affected, a provision within the bill would ban permit renewals for carbon-based electric generating facilities if the renewal applicant supplies PoW mining facilities and seeks to grow their operation. On top of this, the bill calls for PoW miners to be subject to a full generic environmental impact statement review that evaluates their mining facilities within the state. The move is similar to efforts made by the European Parliament to introduce a provision to the Markets in Crypto Assets (MiCA) Regulation regarding the acceptability of PoW blockchains on environmental grounds. A controversial amendment had been added to the draft bill that would have limited PoW blockchains, but was subsequently removed due to fears that it could be interpreted as a de facto ban on bitcoin.

Following the news that Argentina’s two largest private banks will allow their customers to make crypto purchases, the Central Bank of the Argentine Republic has released a statement discouraging the supply of crypto assets through the financial system. The central bank cited the need to mitigate risks crypto assets pose to users of financial services and the financial system as a whole.

The Australian Securities Exchange (ASX) has confirmed further delays to its new blockchain-based post-trade platform. The project, which has already been delayed twice before, is designed to replace the existing CHESS post-trade settlement system with a new blockchain-based platform. The CHESS system has been running for more than 25 years and the project to replace a core, legacy platform with a new blockchain-based alternative has understandably garnered a lot of attention. Features of the new platform include instant settlement or non-batch bilateral delivery versus payment, as well as the potential for corporate actions such as dividend reinvestment plans and bonus share plans – although this has received some pushback regarding antitrust complaints against ASX. ASX has now confirmed the April 2023 go-live date is no longer achievable, citing application software delays from provider Digital Asset preventing ASX and CHESS users from completing the required testing.

News Links

New York Regulator Tells Crypto Firms to Use Blockchain Analytics (Finextra)
UK Treasury En Route to Legalizing Stablecoins Amid Terra’s UST Crash (Cointelegraph)
UK Court Recognizes NFTs as ‘Private Property’ — What Now? (Cointelegraph)
ECB’s Panetta Calls for Urgent Action to Curb Crypto Wild West (Finextra)
Portugal Considering Capital Gains Tax for Cryptocurrency (The Block)
Nigeria’s SEC Affirms All Digital Assets Are Securities in New Rulebook (CoinDesk)
Leaked Report: South Korea to Establish Crypto Framework by 2024 (Cointelegraph)
SEC Nearly Doubles Size of Enforcement’s Crypto Assets and Cyber Unit (SEC)
U.S. Treasury Issues First-Ever Sanctions on a Virtual Currency Mixer, Targets DPRK Cyber Threats (US Treasury)
Central African Republic Adopts Bitcoin as an Official Currency (Reuters)
Panama’s Legislature Approves Bill Regulating Crypto (Cointelegraph)
Cuban Central Bank Makes It Official: VASP Licensing Coming in May (Cointelegraph)
Uzbekistan President Issues Decree Regulating Cryptocurrencies, Mining and Trading (Bitcoin.com)
AIMA Releases Digital Asset Custody Guide (AIMA)
Latin America’s Largest Digital Bank Will Allocate 1% to BTC, Offer Crypto Investment Services (Cointelegraph)
LGT Bank Selects SEBA Bank to Provide Digital Asset Custody and Brokerage Services (SEBA)
BlackRock Launches Blockchain Industry ETF, Names Crypto as 1 of 3 Big Opportunities (Cointelegraph)
Goldman Offers Its First Bitcoin-Backed Loan in Crypto Push (Bloomberg)
Fidelity to Allow Clients to Invest in Bitcoin Through Their 401(k) Accounts (The Block)
Japan’s Largest Investment Bank Nomura Readies New Crypto Subsidiary (Cointelegraph)
Galaxy Digital Reports $112M Q1 Loss, Citing Crypto Price Volatility (Cointelegraph)
DeFi Investment Bank Ondo Raises $30m (Finextra)
Big Banks Invest in Institutional-Grade Crypto Trading Platform Talos (Finextra)
Barclays and Goldman Sachs Invest in Digital Asset Platform Elwood (Finextra)
Russia’s Central Bank Wants Stock Exchanges to Support Crypto Trading (Cryptopolitan)
Former regulators join $45 million round in crypto risk platform Solidus Labs (Finextra)
Grayscale Set to Roll Out First European ETF (The Block)
First crypto ETFs launch in Australia (Financial Times)
Samsung Asset to List Blockchain ETF on Hong Kong Exchange: Report (The Block)
Investment Management Firm VanEck Launches NFT Collection (The Block)
World’s First Combined Bitcoin, Gold Exchange-Traded Product Listed in Switzerland (CoinDesk)
Key: Regulation             Technology            Ecosystem              Markets 

CBDC Corner

Digital Euro Could Come as Soon As 2026 — ECB Official (Cointelegraph)
eNaira Upgrade: CBN to Include Bills Payment (Vanguard)
JAM-DEX Phased Rollout Underway (Bank of Jamaica)
The Bahamas’ ‘Sand Dollar’ Needs Improved Cybersecurity, IMF Says (CoinDesk)
The Philippines Will Launch Pilot Wholesale Central Bank Digital Currency Project (Cointelegraph)
Argentine Central Bank Explores Central Bank Digital Currency (The Central Bank of the Argentine Republic)
Bank of Israel Still Unsure on Digital Shekel but Garners Public Support (Reuters)
Chilean Digital Peso Would Need to Work Offline, Central Bank Governor Says (CoinDesk)
Wary of Crypto, Tanzania Shifts Closer to Own Digital Currency (Bloomberg)

Thomas Murray Digital

Andrew Wright | Hugo Jack | Ben Ashley

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Email: digital@thomasmurray.com
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