A16Z Crypto Regulation Report Tracking, Overview of Major Crypto Regulation Events

Industry-leading organization A16Z continuously tracks policy and regulatory events related to blockchain. These summaries are based on the latest news, updates, new guidelines, ongoing legislation, and frameworks released by regulatory agencies/entities, industry alliances and professional associations, banks, governments, and other entities as they impact the global crypto industry. A16Z compiles these relevant events into ongoing reports.

A16Z compiles these relevant events as follows:

Commodity Futures Trading Commission of the United States (CFTC)

• The U.S. Commodity Futures Trading Commission (CFTC) has accused the digital asset platform Debiex of using the popular romance scam strategy to fraudulently misappropriate $2.3 million of customer funds for digital asset commodity trading.

• The Office of Customer Education and Outreach of the U.S. Commodity Futures Trading Commission (CFTC) has issued a customer advisory report, warning the public about artificial intelligence scams, some of which are related to

  cryptocurrency

  arbitrage algorithms.

• The Office of Customer Education and Outreach of the U.S. Commodity Futures Trading Commission (CFTC) has issued a customer advisory report, reminding users of dating apps, messaging services, and social media to beware of scams requesting financial support or offering investment advice, sometimes related to cryptocurrency investments.

• CFTC Chairman Rostin Behnam stated that “the lack of legislation has not dampened enthusiasm for digital assets” and emphasized the importance of federal legislation for digital assets in the cash market “more than ever before.”

United States Congress

• Republican Senator Bill Haggerty from Tennessee and Republican Senator Cynthia Lummis from Wyoming introduced the 2024 Partnership to Prevent Illicit Finance Act, which proposes a plan for certain government agencies and designated private sector entities to share information regarding potential illicit financial misconduct and threats, as well as related emerging risks.

• Senator Cynthia Lummis from Wyoming, Democratic Representative Wiley Nickel from North Carolina, and Republican Representative Mike Flood from Nebraska introduced a Congressional Review Act resolution to overturn the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin (SAB) 121, which requires companies providing cryptocurrency asset custody for consumers to include custodied assets on the company's balance sheet.

• Chairman of the North Carolina House Financial Services Committee, Republican Patrick McHenry, among others, wrote to the Director of the Consumer Financial Protection Bureau (CFPB), Rohit Chopra, urging him to reopen and extend the public comment period recently initiated by the CFPB regarding a proposed rule defining large participants in the general-purpose digital consumer payments application market.

• Chairman of the North Carolina House Financial Services Committee, Republican Patrick McHenry, among others, wrote to Treasury Secretary Janet Yellen, requesting clarification in her capacity as chair of the Financial Stability Oversight Council (FSOC) regarding the FSOC's call to address existing regulatory gaps in the non-security digital asset spot market.

• Republican Senator JD Vance from Ohio, Republican Senator Thom Tillis from North Carolina, Republican Senator Bill Haggerty from Tennessee, Republican Senator Cynthia Lummis from Wyoming, and Republican Senator Katie Boyd Britt from Alabama wrote to Securities and Exchange Commission (SEC) Chairman Gary Gensler expressing concerns over the SEC's enforcement proceedings against Digital Licensing Inc. (also known as “DEBT Box”).

• Senator Cynthia Lummis from Wyoming told CoinDesk TV that she is optimistic about stablecoin legislation “this year, or even possibly in the first half of the year.”

United States Department of Justice

• The Department of Justice (DOJ) has unveiled an indictment accusing a Belarusian and Cypriot national of involvement with the now-defunct

  cryptocurrency exchange

  BTC-e, which allegedly facilitated transactions for global cybercriminals.

• The DOJ has charged three individuals in connection with a SIM-swapping scam totaling over $400 million. Reports suggest that FTX may have fallen victim to the attack shortly after announcing bankruptcy.

• The DOJ recently indicted two suspects in cryptocurrency scams and obtained a guilty plea from another individual in relation to a global cryptocurrency Ponzi scheme called HyperFund, involving $1.89 billion. The Securities and Exchange Commission (SEC) has charged two of them in a related civil lawsuit.

• A federal jury found a former financial engineering executive of Hydrogen Technology guilty of securities manipulation and orchestrating deception of investors during the purchase of the cryptocurrency HYDRO.

• A commodity trading advisor has been sentenced to two years in prison and home confinement after admitting to cherry-picking profits from a pair of commodity pools he established for trading cryptocurrency and forex futures.

• An Indian national admitted to selling controlled substances on the dark web market and agreed to forfeit $150 million worth of cryptocurrency.

• A Texas man has been indicted by a federal grand jury for submitting false tax returns that underreported or failed to report the sale of $4 million worth of bitcoins, from which he made substantial profits.

United States Department of the Treasury

• The U.S. Department of the Treasury and the Internal Revenue Service (IRS) announced that businesses are not required to report digital asset income like they would report cash income until relevant regulations from the Treasury and the IRS are issued and become effective.

• The U.S. Department of the Treasury released the “2024 National Money Laundering, Terrorist Financing, and Weapons Proliferation Risk Assessment,” highlighting risks associated with illicit fundraising and virtual assets.

• Since launching terror attacks against Israel on October 7th, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) has imposed the fifth round of sanctions on Hamas. The sanctions target

  financial exchange

  networks associated with Gaza and Hamas, which play critical roles in fund transfers, including cryptocurrency transfers.

• U.S. Treasury Secretary Janet Yellen testified to Congress, stating that digital assets, cryptocurrency platforms, and the risks of stablecoin runs are among the five focus areas of the Financial Stability Oversight Council (FSOC). She also encouraged Congress to legislate to regulate stablecoins and non-securities cryptocurrency spot markets.

• Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury, Graham Steele, urged policymakers to “adopt higher standards” to support “responsible innovation” in cryptocurrencies.

• The IRS reminded taxpayers that they must answer questions about digital assets and report all income related to digital assets when filing their 2023 federal income tax returns, just as they did on their 2022 federal tax returns.

United States Energy Information Administration

• As mentioned in the quick preview, the EIA has obtained emergency authorization to conduct temporary surveys on the electricity consumption of operating cryptocurrency mining companies identified in the United States. The EIA plans to collect data monthly from February to July 2024.

Federal Deposit Insurance Corporation (FDIC)

• As mentioned in the quick preview, the EIA has obtained emergency authorization to conduct temporary surveys on the electricity consumption of operating cryptocurrency mining companies identified in the United States. The EIA plans to collect data monthly from February to July 2024.

U.S. Securities and Exchange Commission (SEC)

• As previously outlined in the quick overview, the Securities and Exchange Commission (SEC) has broadened the definition of “broker” to include market participants who frequently provide significant liquidity in trading and market activities, including those involved with digital asset securities. The new definition may encompass certain crypto firms, requiring them to register with the SEC, become members of self-regulatory organizations, and comply with federal securities laws.

• The Securities and Exchange Commission has extended the deadline for a decision on Ethereum ETF proposals jointly filed by Fidelity, BlackRock, Grayscale, as well as Invesco and Galaxy Digital.

• TradeStation Crypto

  , Inc. has agreed to pay a $1.5 million fine to the Securities and Exchange Commission to settle charges of offering and selling unregistered crypto lending products, which allowed U.S. investors to deposit or purchase crypto assets in TradeStation accounts in exchange for the company's promise to pay interest.

• The founder of the American Bitcoin Academy has reached a settlement with the Securities and Exchange Commission (SEC) over allegations that he deceived students into purchasing online crypto trading courses through a series of lies about purported investment opportunities in his crypto hedge fund, profiting over a million dollars.

• The Securities and Exchange Commission has requested a federal court to dismiss its lawsuit against the crypto project Digital Licensing Inc. (also known as “DEBT Box”), stating that its officials “have taken and are taking broader corrective measures,” including allegations of false statements made to the court.

• Genesis Global Capital has agreed to pay a $21 million fine to the SEC (involving its defunct Gemini Earn Lending program) to settle if it can fully repay customers in bankruptcy. However, the settlement agreement is subject to approval by the bankruptcy court.

• The Financial Industry Regulatory Authority (FINRA) has released updates to its targeted examination launched in November 2022 to review member firms' practices regarding communication with retail customers about crypto assets. FINRA identified potential substantive violations in approximately 70% of the communications.

International

European Union

• The European Council and Parliament have reached a provisional agreement on a new anti-money laundering proposal, under which crypto asset service providers must conduct customer due diligence measures for transactions of €1000 or more and implement measures to mitigate risks associated with transactions from self-hosted wallets.

• The European Banking Authority has expanded its guidelines on anti-money laundering and counter-terrorism financing risk factors to include crypto asset service providers.

Germany

• German authorities announced a seizure of 50,000 bitcoins, valued at $2.17 billion, in what they described as the “largest-ever” cryptocurrency confiscation operation.

Luxembourg

Cryptocurrency liquidity provider B2C2 announced that it has obtained regulatory approval to operate in Luxembourg.

South Korea

• South Korean authorities have arrested three executives of the cryptocurrency yield platform Haru Invest on suspicion of embezzling approximately $828 million worth of cryptocurrencies.

Thailand

• The Securities and Exchange Commission (SEC) of Thailand has ordered the cryptocurrency exchange Zipmex to suspend its digital asset trading and brokerage services for 15 days, during which it has the opportunity to “rectify its financial condition and operational deficiencies.” The commission has also brought charges against the former CEO of Zipmex Thailand.

United Arab Emirates

• OKX's subsidiary based in Dubai has announced that it has obtained a Virtual Asset Service Provider (VASP) license from the Dubai Virtual Asset Regulatory Authority.

United Kingdom

• The Bank of England and HM Treasury have issued responses to the consultation document on the digital pound. While they haven't made a decision on issuing the digital pound, they are committed to ongoing research and design work, ensuring privacy as a “core design feature.”

United Nations

• A United Nations report discusses the use of cryptocurrencies in gambling, money laundering, underground banking, and transnational organized crime in East Asia and Southeast Asia.