United States acts as top cop — setting the crypto standards for the world

Regulators
around
the
world
from
Europe
to
Asia
ramped
up
efforts
to
bring
about
formal
laws
for
digital
currencies
in
2023
—
but
it
was
the
U.S.
that
took
some
of
the
harshest
legal
actions
against
major
players
in
the
industry.

In
a
year
that
saw
crypto
heavyweight
Binance
ordered
to
pay
more
than
$4
billion
to
U.S.
authorities
and
its
former
CEO’s
guilty
plea,
along
with
high-profile
lawsuits
against
five
crypto
companies
by
the
Securities
and
Exchange
Commission,
regulators
overseas
have
been
equally
busy
both
adopting
new
legislation
—
and
pushing
for
more
—
to
rein
in
the
sector’s
bad
actors.

Here’s
the
state
of
play
globally
for
crypto
regulation
and
enforcement
in
2023
—
and
a
look
at
what
to
expect
in
2024.

The
U.S.
has
proven
to
be
one
of
the
most
active
enforcers
of
penalties
and
legal
action
against
crypto
companies
this
year,
as
authorities
looked
to
counter
bad
practices
in
the
industry
following
the
collapse
of
Sam
Bankman-Fried’s
crypto
empire
—
including
his
FTX
exchange
and
sister
firm
Alameda
Research.

“To
be
clear,
in
some
cases
—
like
FTX
—
enforcement
was
necessary,”
said
Renato
Mariotti,
a
former
prosecutor
in
the
U.S.
Justice
Department’s
Securities
and
Commodities
Fraud
Section.
“But
U.S.
enforcement
actions
against
market
participants
that
are
more
focused
on
compliance
are
questionable
and
the
result
of
the
U.S.
‘regulation
by
enforcement’
approach.”

While
many regions have
passed
laws
with
potentially
tough
penalties,
the
U.S.
is
still
the
only
country
that
has
actively
taken
action
against
large-scale
crypto
companies
and
projects.
Thus
far,
the
U.S.
has
led
that
campaign
against
crypto
firms
by
enforcement and
has,
by
far,
been
the
most
punishing
of
regulators
when
it
comes
to
penalties
and
fines.

“Other
countries
have
a
comprehensive
regulatory
framework
in
place.
We
don’t,”
Mariotti
told
CNBC.
“As
a
result,
issues
that
should
be
determined
by
legislation
or
regulation
are
instead
litigated.”

Indeed,
in
the
absence
of
hard-and-fast
rules
from
Capitol
Hill,
the
SEC,
the
Commodity
Futures
Trading
Commission,
the
Department
of
Justice,
and
Treasury’s
Financial
Crimes
Enforcement
Network
(FinCen),
have
worked
in
parallel
to
police
the
space,
in
a
sort
of
patch-quilt
version
of
regulation-by-enforcement.

Richard
Levin,
a
partner
at
Nelson
Mullins
Riley
&
Scarborough
who
has
represented
clients
before
the
SEC,
CFTC,
and
Congress,
tells
CNBC
that
these
agencies
have
been
some
of
the
most
active
enforcers
around
the
world
concerning
the
regulation
of
digital
assets
and
cryptocurrencies.

“These
agencies
have
provided
guidance
to
the
industry
on
how
digital
assets
and
cryptocurrencies
must
be
offered
and
sold,
traded,
and
held
by
custodians,”
said
Levin,
who
has
been
involved
in
the
fintech
sector
for
30
years.

“However,
much
of
their
work
has
involved
providing
guidance
to
the
industry
through
enforcement
actions,”
continued
Levin.

Since
2019,
Justice’s
Market
Integrity
and
Major
Frauds
Unit
has
charged
cryptocurrency
fraud
cases
involving
over
$2
billion
in
intended
financial
losses
to
investors
worldwide.

In
its
annual
report
summing
up
enforcement
actions,

the
CFTC
noted
that
nearly
half
of
all
cases
in
2023
involved
conduct
related
to
digital
asset
commodities.

Meanwhile,
the
SEC
highlighted
that
2023
was
notable
for
its
enforcement
of
“crypto-related
misconduct,
including
fraud
schemes,
unregistered
crypto
assets
and
platforms,
and
illegal
celebrity
touting.”
Since
2014,
the
SEC
has
brought
more
than
200
actions

related
to
crypto
asset
and
cyber
enforcement.

The
most
stringent
cases
played
out
in
the
first
half
of
the
year
when
the
SEC
accused
Binance
and


Coinbase
of
engaging
in
illegal
securities
dealing
in
a

pair
of
lawsuits.

Most
notably,
the
SEC
alleges
that
at
least
13
crypto
assets
available
to
Coinbase
customers
—
including
Solana’s


sol,
Cardano’s
ada,
and
Protocol
Labs’
filecoin
—
should
be
considered
securities,
meaning
they’d
need
to
be
subject
to
strict
transparency
and
disclosure
requirements.

In
Binance’s
case,
the
SEC
went
a
step
further.
In
addition
to
securities
law
violations,
the
company
and
its
co-founder
and
CEO
Changpeng
Zhao
were
also
accused
of
commingling
customer
assets
with
company
funds.

Concerning
criminal
enforcement,
Damian
Williams,
the
U.S.
attorney
for
the
Southern
District
of
New
York,
has
been
leading
some
of
Justice’s
highest-profile
crypto
prosecutions,
including
the
monthlong
trial
of
Bankman-Fried,
the
disgraced
FTX
founder.

In
November,
a
jury
found
the
former
FTX
chief
executive
guilty of
all
seven
criminal
counts
against
him
following
a
few
hours
of
deliberation. 

But
crypto
companies
have

begun
to
push
back,
with
some
threatening
to
decamp
from
the
U.S.
entirely
should
this
dynamic
of
policing
by
enforcement
continue.

Coinbase
CEO
Brian
Armstrong
condemned
the
SEC’s
actions
against
the
exchange
and
suggested
the
company
may
be
forced
to
move
its
headquarters
overseas.

Armstrong
later
walked
back
the
threat
of
relocating
abroad,
but
Coinbase
and
other
major
crypto
firms
have
still
begun
to
invest
more
heavily
in
their
international
operations.

Crypto
market
participants
nevertheless
hope
that
the
spate
of
legal
challenges
brought
to
crypto
companies
in
2023
will
bring
clarity
in
the
form
of
new
regulations.

“Clearer
regulatory
frameworks
and
stance
from
regulators
globally
have
provided
a
sense
of
legitimacy
and
security,
encouraging
more
widespread
participation
in
the
bitcoin
market,”
Alyse
Killeen,
managing
partner
of
Stillmark
Capital,
told
CNBC.

The
crypto
industry
saw
the
most
legislative
progress
on
crypto
laws
in
the
U.S.
this
year,
with
one
of
the
competing
digital
asset
bills
making
it
past
multiple
House
committees
for
the
first
time.

Even
as
U.S.
lawmakers
take
steps
toward
crypto
legislation,
there
remains
no
law
in
the
U.S.
tailored
specifically
for
the
industry.
Nelson
Mullins
Riley
&
Scarborough’s
Levin
tells
CNBC
it’s
unlikely
that
we’ll
see
much
progress
in
a
presidential
election
year
and
with
a
divided
federal
government.

He
argues
that
even
without
rules
on
crypto
from
lawmakers,
routine
complaints
that
U.S.
regulators
are
not
providing
guidance
to
the
industry
are
without
merit.

According
to
Levin,
“The
SEC,
the
CFTC
and
FinCEN
routinely
provide
informal
guidance
on
the
regulation
of
digital
assets
and
cryptocurrencies.”

“The
SEC
even
went
so
far
as
to
provide
a
framework
for
the
analysis
of
digital
assets
and
cryptocurrencies.
The
SEC
also
created
a
fake
digital
asset
(Hosey
Coin)
that
gave
advice
to
the
FinTech
community
on
how
not
to
launch
a
digital
asset,”
Levin
added.

“Some
members
of
the
industry
forget
the
SEC
is
relying
on
laws
that
were
written
when
American
football
players
wore
leather
helmets,
and
the
SEC
must
apply
those
laws
to
the
FinTech
industry,”
he
said.

Despite
crypto’s
recent
fading
buzz,
Killeen
of
Stillmark
Capital
doesn’t
expect
regulators
to
become
fatigued
by
crypto
in
2024.
In
the
same
time
year
that
two
of
crypto’s
leading
figures
were
sent
to
jail,
shares
of
Coinbase
—
and
prices
of
digital
currencies
like
bitcoin
and
ether
—
have
rallied
sharply.

Since
the
start
of
this
year,
Coinbase’s
stock
price
has
surged
more
than
400%.
Bitcoin
and
ether,
meanwhile,
have
both
roughly
doubled
in
price.
That’s
as
investors
anticipate
that

approval
for
a
bitcoin
exchange-traded
fund
by
the
SEC
may
be
around
the
corner.

The
European
Union
looks
set
to
apply
its
Markets
in
Crypto-Assets
legislation,
which
is
aimed
at
taming
the

“Wild
West”
of
the
crypto
industry,
in
full
force
starting
next
year.

The
law,
initially
proposed
in
2019
as
a
response
to
Meta’s
digital
currency
project
Diem,
formerly
known
as
Libra,
aimed
to
clean
up
fraud,
money
laundering
and
other
illicit
financing
in
the
crypto
space,
and
stamp
out
the
sector’s
bad
actors
more
broadly.

It
also
sought
to
tackle
a
perceived
threat
from
so-called
stablecoins,
or
blockchain-based
tokens
that
serve
as
a
representation
of
government
money
but
are
backed
by
private
companies.
Stablecoins
are
effectively
digital
currencies
that
are
pegged
to
the
value
of
fiat
currencies
like
the
dollar.

While
tether
and
Circle’s
USDC
aren’t
perceived
as
“systemic”
assets
capable
of
disrupting
financial
stability,
a
private
stablecoin
from
a
massive
company
like


Meta,


Visa
or


Mastercard
could
pose
a
bigger
threat
and
potentially
undermine
sovereign
currencies,
in
several
EU
central
bankers’
eyes.

Part
of
the
EU’s
framework
for
crypto
is
aimed
at
tackling
threats
—
particularly
that
of
the
euro
being
undermined
—
by
making
it
impossible
for
issuers
to
mint
stablecoins
backed
by
currencies
other
than
the
euro,
like
the
U.S.
dollar,
once
they
meet
the
threshold
of
more
than
1
million
transactions
per
day.

Meanwhile,
the
European
Union
is
moving
towards
a
unified
regulatory
framework
for
cryptocurrencies
with
its
Markets
in
Crypto-Assets
Regulation
(MiCA).

This
year,
the
three
main
political
institutions
of
the
EU-approved
MiCA,
paving
the
way
for
the
regulation
to
become
law.
MiCA
came
into
force
in
June
2023,
but
it’s
not
expected
to
apply
fully
until
December
2024.

Companies
are
already
getting
ready
to
take
advantage
of
the
new
rules,
with


Coinbase
submitting
an
application
for
a
universal
MiCA
license
in
Ireland.
If
and
when
it
is
approved,
this
would
allow
Coinbase
to
“passport”
its
services
into
other
countries
like
Germany,
France,
Italy,
and
the
Netherlands.

Braden
Perry,
former
federal
enforcement
attorney
and
current
partner
at
law
firm
Kennyhertz
Perry,
said
that
while
the
U.S.
remains
a
top
enforcer
for
the
crypto
industry,
its
perception
as
a
regulator
“may
be
diminishing,”
as
other
jurisdictions
have
stepped
in
with
clearer
rules.

“This
perception
stems
from
the
proactive
measures
taken
by
U.S.
regulatory
bodies
like
the
SEC,
CFTC,
and
IRS,
especially
in
addressing
fraud
and
security
issues
in
the
crypto
market.
High-profile
legal
actions
in
the
U.S.
further
cement
its
image
as
a
strict
enforcer,”
he
said.

“However,
other
regions,
including
Singapore,
Dubai,
Hong
Kong,
and
the
European
Union,
are
also
developing
robust
regulatory
frameworks,”
Perry
added.
“While
these
regions
may
not
be
as
visible
in
international
media
for
enforcement
actions,
they
possess
significant
and
sometimes
stringent
regulatory
mechanisms.”

But
while
the
broader
EU
has
been
racing
to
implement
new
crypto
laws,
individual
European
countries
haven’t
been
resting
on
their
laurels.

France
has
been
tempting
crypto
companies
and
traders
alike
to
its
shores
with
the
promise
of
tax
cuts
on
crypto
profits
and
a
smoother
registration
process
for
digital
asset
firms.

Starting
from
Jan
1,
2024,
France’s
Financial
Markets
Authority,
or
AMF,
is
set
to
amend
its
registration
requirements
for
crypto
firms
to
better
align
with
MiCA,
according
to
an

August
statement
from
the
regulator.

At
the
same
time,
French
authorities
have
kept
a
skeptical
eye
on
fraudulent
activity
among
various
crypto
players.
In
September,
French
regulators
added
22
fraudulent
websites
—
including
some
that
market
trading
in
crypto
and
crypto-linked
derivatives
—
to
a
blacklist
of
unauthorized
foreign
exchange
providers.

In
Germany,
meanwhile,
the
financial
regulator
Bafin
has
said
it
wants
to
accelerate
its
approach
to
licensing
crypto
custody
services,
as
part
of
a
broader
effort
to
instill
trust
and
transparency
in
the
crypto
market.

The
U.K.,
a
non-member
of
the
EU,
passed
a
law
in
June
that
gives
regulators
the
ability
to
oversee
stablecoins.
But
there
are
no
concrete
rules
for
crypto
just
yet.

The
U.K.’s
Treasury
department
released
its
response
to
a
consultation
on
new
crypto
rules
earlier
this
year,
confirming
that
it

plans
to
bring
a
range
of
crypto
activities,
including
crypto
custody
and
lending,
within
existing
laws
governing
financial
services
firms
in
the
country.

Earlier
this
year,
the
Monetary
Authority
of
Singapore,
which
is
recognized
for
clear
fintech
and
crypto
regulations
that
do
not
rely
heavily
on
enforcement
actions,

finalized
rules
for
stablecoins,
making
it
one
of
the
world’s
first
jurisdictions
to
do
so.

Singapore
was
notably
bruised
by
the
collapse
of
TerraUSD,
a
controversial
algorithmic
stablecoin,
in
2022,
as
well
as
the
fall
of
Three
Arrows
Capital,
or
3AC.
Both
Terra
Labs,
the
company
behind
Terra,
and
3AC
were
headquartered
in
Singapore.

Singapore’s
new
framework
requires
stablecoin
issuers
to
back
them
with
low-risk
and
highly-liquid
assets,
which
must
equal
or
exceed
the
value
of
tokens
in
circulation
at
all
times,
return
the
par
value
of
the
digital
currency
to
holders
within
five
business
days
of
a
redemption
request,
and
disclose
audit
results
of
reserves
to
users.

Hong
Kong,
meanwhile,
is

undergoing
a
public
consultation
on
stablecoins
and
seeks
to
introduce
regulation
next
year.

The
region
has
been
increasingly
warming
to
crypto
assets,
despite
a
broader
anti-crypto
push
from
China,
which
banned
bitcoin
trading
and
mining
in
2021.

The
Hong
Kong
Securities
and
Futures
Commission,
or
SFC,
launched
a
registration
regime
for
digital
asset
businesses
earlier
this
year,
with
clear
regulations
for
crypto
exchanges
and
funds.

So
far,
only
two
firms,
OSL
Digital
and
Hash
Blockchain,
have
been
handed
licenses.

The
United
Arab
Emirates
has
emerged
as
a
popular
base
for
the
fintech
sector
more
broadly,
given
its
lack
of
personal
income
tax,
flexible
visa
policies,
and
competitive
incentives
for
international
businesses
and
workers.

In
2022,
in
a
bid
to
lead
the
virtual
assets
sector
in
the
Middle
East
and
Africa,
Dubai
—
the
UAE’s
most
populous
city
—
launched
VARA,
or
the

Virtual
Asset
Regulatory
Authority.

“Dubai
and
the
UAE
have
created
favorable
conditions
for
cryptocurrency
businesses,
offering
specific
zones
and
guidelines
for
crypto
trading,”
said
Perry.

Blockchain
analytics
firm
Chainalysis
notes
that
regulators
in
the
UAE
were
early
to
cryptocurrency,
with
Dubai
leading
the
charge
when
it
launched
a blockchain
strategy in
2016.

“Since
then,
UAE
regulators
have
remained
at
the
forefront
of
the
industry,”
according
to
a
Chainalysis
report.

Two
years
later,
in
2018,
Abu
Dhabi
Global
Market
created
the
world’s
first
regulatory
framework
for
cryptocurrency
to
foster
innovation
while
safeguarding
consumers.

Earlier
this
year,
the
UAE
passed
further
crypto
regulations at
the
federal
level
to
make
it
easier
for
regulators
like
VARA
to
police
the
sector
and
run
economic-free
zones.