Review of the Blockchain Week in March 2022 #2

News Desk3
12 Min Read

Weekly Blockchain Focus

  • Zelenskyy Signs Virtual Assets Bill Into Law, Legalizing Crypto in Ukraine
  • Japan Sets Penalties on Crypto Exchanges in Case of Violations of Sanctions on Russia
  • SEC Rejects Spot Bitcoin ETF Proposals From NYDIG, Global X
  • Bipartisan Praise for Biden’s Executive Order on Crypto
  • Crypto Apps break 100M Downloads in Fourth Quarter
  • EU Parliament Committee Votes Against Proof-of-Work Ban and Supports Alternative Amendment on Crypto Assets

Further Reading

  • Andreessen Horowitz Hires Michele Korver, Former FinCEN Chief Currency Advisor
  • CNBC: Senate Banking Committee holds hearing on crypto and illicit finance
  • The Block: ConsenSys raises $450 million Series D at $7 billion valuation
  • The Washington Post: Sarah Bloom Raskin withdraws nomination for Fed vice chair for supervision

Zelenskyy Signs Virtual Assets Bill Into Law, Legalizing Crypto in Ukraine

 On March 16, Ukrainian President Volodymyr Zelenskyy signed the Law on Virtual Assets. According to a statement by the Ministry of Digital Transformation, the law determines the legal status, classification, ownership, and regulators of virtual assets, and sets forth registration requirements for service providers. Ukraine’s National Commission on Securities and the Stock Market is tasked with regulating the market where foreign and Ukrainian crypto exchanges will now be allowed to operate legally and banks permitted to open accounts on their behalf. Zelenskyy had rejected an earlier version of the bill, which was approved in September 2021.

Recently, Ukraine has received at least $100 million in crypto donations from those hoping to support defensive and humanitarian efforts during the country’s war with Russia.

Japan Sets Penalties on Crypto Exchanges in Case of Violations of Sanctions on Russia

Japan’s Financial Services Agency and Ministry of Finance issued a joint statement on March 14, setting forth penalties crypto exchanges may face should they fail to comply with sanctions against Russia, as reported by Reuters. Exchanges making unauthorized payments to sanctioned individuals may be fined up to 1 million yen ($8,500) and executives could face up to three years in prison. Exchanges are now also required to report any suspected instances of such transfers.

To date, exchanges have differed on whether to wholly block Russian addresses from using their services.

President Biden Issues Executive Order Calling for the Examination of Crypto on a Coordinated Basis Across the Federal Government

President Joe Biden unveiled a sweeping directive on March 9—a “first-ever whole-of-government approach” to digital assets which orders portions of the Federal Government to coordinate their efforts in creating guidance for the rapidly-growing industry.

The executive order, which calls for coordinated interagency action and communication to states that the administration places “the highest urgency on research and development efforts into the potential design and deployment of options of a United States CBDC [and further calling for analysis of the potential risks and benefits].” Within 180 days of the order, “the Secretary of the Treasury, in consultation with the Secretary of State, the Attorney General, the Secretary of Commerce, the Secretary of Homeland Security, the Director of the Office of Management and Budget, the Director of National Intelligence, and the heads of other relevant agencies, shall submit to the President a report on the future of money and payment systems, including the conditions that drive broad adoption of digital assets; the extent to which technological innovation may influence these outcomes; and the implications for the United States financial system, the modernization of and changes to payment systems, economic growth, financial inclusion, and national security.” The order calls for additional reports to be produced by various agencies, in coordination with the Secretary of the Treasury, including reports regarding “the implications of developments and adoption of digital assets and changes in financial market and payment system infrastructures for United States consumers, investors, businesses, and for equitable economic growth;” “a technical evaluation of the technological infrastructure, capacity, and expertise that would be necessary at relevant agencies to facilitate and support the introduction of a CBDC system should one be proposed;” “a report on the role of law enforcement agencies in detecting, investigating, and prosecuting criminal activity related to digital assets;” and a report regarding the impacts of distributed ledger technology on short, medium, and long term energy transition. The order also focuses on studying the “risks and regulatory gaps posed by various types of digital assets and providing recommendations to address such risks.” Other reports are due in less than 180 days, such as a report “offering additional views on illicit finance risks posed by digital assets, including cryptocurrencies, stablecoins, CBDCs, and trends in the use of digital assets by illicit actors” which may be kept classified as is due in 90 days.

Senate Banking Committee ranking member, Sen. Pat Toomey (R-Pa.), was “encouraged” by the administration’s acknowledgment of the sector and its growth. Chairman of the Banking Committee, Sen. Sherrod Brown (D-Ohio), expressed similar accolades for the order, stating it is “imperative we strengthen our financial resilience and national security” by preventing the use of cryptocurrency to evade the law.

Chairwoman of the House Financial Services Committee, Rep. Maxine Waters (D-Calif.), called the directive “an important step” in understanding how digital assets may shape American society and the financial system. She stated families across the country looking to rebuild from the COVID-19 pandemic may turn to financial alternatives like cryptocurrency, and it is imperative they are shielded from fraud, manipulation, and abuse.

Ranking member on the House committee, Rep. Patrick McHenry (R-N.C.), called for bipartisan policies on regulating digital assets. He stated, “As Congress contemplates regulatory frameworks for digital assets, we must also fully acknowledge their benefits—like the important role they have played in ushering aid to Ukrainians—and their underlying technologies, which is largely missing in this announcement.”

While McHenry also pushed back against claims cryptocurrency may be used by Russian oligarchs to evade sanctions, Sen. Elizabeth Warren (D-Mass.), member of the Senate Banking Committee, called on the Treasury Department to clarify how crypto will be prevented from use as a tool to get around such sanctions.

Spokespersons and leaders with finance regulators including the Commodity Futures Trading Commission, the Securities and Exchange Commission, the Consumer Financial Protection Bureau, and the Department of Homeland Security echoed the importance of the directive, including supporting “responsible” innovation and ensuring consumer protection, and welcomed the opportunity to collaborate with their colleagues in the sector to accomplish these goals. Additional coverage from Coindesk.

SEC Rejects Spot Bitcoin ETF Proposals from NYDIG, Global X

On March 10, the Securities and Exchange Commission disapproved two spot bitcoin exchange-traded fund proposals submitted by NYDIG and Global X. As with prior proposal rejections (e.g., First Trust and Skybridge, VanEck, and WisdomTree) regulatory filings cited a lack of surveillance-sharing agreements and the perceived inability to curb fraud and manipulative practices in the market. Coverage by The Block.

Crypto Apps Break 100M Downloads in Fourth Quarter

According to a report released on March 17, the last three months of 2021 saw more than 100 million downloads of crypto applications such as Coinbase, Crypto.com, Binance.US, Binance, and Voyager. These apps enable mainstream investors to interact with blockchains and manage their holdings in a less complex way than the “wallet” preferred by savvier users.

In 2021, downloads grew by 400% over the prior year (in contrast to growth of 64% in 2020). Sessions were up 567% over the prior year, topping four billion in the fourth quarter.

According to Sensor Tower, downloads of the top five apps are down in early 2022 versus the prior quarter; however, they are still up 770% over January/February of 2020.

In February, Crypto apps also took three of the top five spots for strongest download growth over the prior week among mobile-first brands advertising during the Super Bowl, per Sensor Tower. Coverage by AXIOS.

EU Parliament Committee Votes Against Proof-of-Work Ban and Supports Alternative Amendment on Crypto Assets

The EU’s Committee on Economic and Military Affairs (ECON) considered the proposed Markets in Crypto Assets (MiCA) framework, which included an amendment prohibiting proof-of-work blockchains such as Bitcoin. According to a series of tweets by Patrick Hansen, head of strategy at Unstoppable Finance, the committee ultimately voted against “the POW ban,” with 23 members in favor, 30 against, and six abstaining. The entire MiCA draft received 31 votes in favor, four against, and 23 abstentions. Results of the votes on the amendments are available here.

Hansen explained that the groups supporting the POW ban have one last option—to “veto a fast-track procedure of MiCA through the trilogues [and] bring the discussion to the plenary of the Parliament” for which they would need, and currently appear to have, 1/10 of the votes of the EP.

Bitcoin advocates voiced concern that such a ban would have deleterious consequences for Bitcoin. Jake Chervinsky, Executive Vice President and Head of Policy at Blockchain Association, opined that the ban resembled “a pretext for a bitcoin ban” and “if they manage to ban POW, they’ll come for POS [proof-of-stake] next, and every other Sybil resistance mechanism after that.”

An alternative amendment from member Stefan Berger, which received support and was accepted by the European Parliament, reads: “By 1 January 2025, the Commission shall present to the European Parliament and to the Council, as appropriate, a legislative proposal to amend Regulation (EU) 2020/852, in accordance with Article 10 of that Regulation, with a view to including in the EU sustainable finance taxonomy any crypto asset mining activities that contribute substantially to climate change mitigation and adaptation.” Coverage by BITCOIN.COM.

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