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Former directors of Canaan Inc. are investing in the Shanghai firm and will help launch its new mining subsidiary.

“The burdensome information collection and reporting requirements deprive U.S. companies like Square of the chance to compete on a level playing field,” Dorsey said.

The custody-focused arm of Genesis, a crypto firm offering services to institutional traders, has been added to the UK regulator’s interim register.

Genesis Custody Limited had initially been left off the list of roughly 90 companies, meaning it would have had to cease trading on January 10.

The Financial Conduct Authority unveiled its temporary registration regime on December 16, giving those included an additional six months to continue operating while it decides whether to fully register them.

The original deadline for British firms to get registered was January 10, 2021. The FCA took over as the anti-money laundering and counter terrorist financing financing supervisor for crypto firms on January 10 the previous year.

Genesis, whose suite of services includes OTC trading, institutional lending and prime brokerage, branched out into custody through the acquisition of London-based start-up Vo1t in May 2020. The company then announced the launch of its custody service in September.

When released, the FCA’s interim register was missing several notable names, including the exchanges Coinbase and Binance.

It appears that a handful of companies, in addition to Genesis Custody, have been added to the list in recent days. A person close to the FCA blamed this on a small delay in processing application fees and the fact that certain companies seemed to be non-trading, but were able to provide evidence that they were in fact in business prior to January 10, 2020.

Arianna Pretto-Sakmann, general counsel at Genesis Global Trading, told the Block it was “never in doubt” that Vo1t Ltd, Genesis custody’s predecessor, had met the regulator’s criteria, having been incorporated in 2015 and carried on crypto activities since then.

“Once this was ascertained, the Authorisations Division of the FCA promptly rectified the oversight,” she added.

 

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bitcoin is increasingly competing with gold as an investment asset and has scope for substantial gains over coming years, according to JPMorgan strategists.

The stock price of a Chinese gaming firm listed on NASDAQ soared by 87% on Monday after it announced a pivot to enter cryptocurrency mining.

The9 Ltd, a Shanghai-based gaming firm launched in 2004 that once had exclusive license of War of Warcraft in China, said on Monday local time it has inked a a legally binding investment term sheet with several former board directors of bitcoin miner maker Canaan, including Sun Qifeng, Zhang Li and Kong Jianping, who was also a former co-chairman of Canaan.

The purpose of the term sheet is for The9 to issue Class A ordinary shares and warrants to the former Canaan directors, who will help The9 develop its crypto mining businesses, including sourcing crypto mining equipment.

If all of the warrants are exercised, The9 said it expects to raise $34 million in either U.S dollars or cryptocurrencies and will set up a wholly owned subsidiary, dubbed NBTC Limited, to spearhead the new business. 

“Our goal is to build up cryptocurrencies mining machines for The9 that will contribute 8% to 10% of the global hash rate of bitcoin, 10% of the global hash rate of ethereum and 10% of the global hash rate of Grin,” said The9 chariman and CEO Jun Zhu.

Following the announcement, The9’s stock soared by as much as 87% during the U.S. trading hours on Monday, which pushed up its market capitalization to $58 million. 

The pivot resembles similar moves made by several publicly listed companies in the U.S. to enter cryptocurrency mining amid bitcoin’s price rally in 2017, such as Bioptix, which rebranded into Riot Blockchain.

In fact, The9 received a market capitalization deficiency notice from NASDAQ’s listing qualification division on November 17, which warned the firm of not meeting the listing requirement of maintaining a minimal market capitalization of $35 million. 

“The Company has a compliance period of 180 calendar days, or until May 11, 2021, to regain compliance with Nasdaq’s minimum MVLS requirement. … In the event the Company does not regain compliance with Rule 5550(b)(2) prior to the expiration of the Compliance Period, the Company will receive written notification that its securities are subject to delisting,” according to the notice.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The price of bitcoin and native tokens for other stablecoin-supporting blockchains jumped after the OCC approved banks to use public blockchains.

At 11:59 PM EST on January 4, the clock will run out on the window to submit written comments on a proposed rule that could create significant regulatory hurdles for crypto transacting.

The Financial Crimes Enforcement Network (FinCEN) released a notice of proposed rulemaking on December 18 that seeks to heighten identification requirements for crypto transactions. The proposed “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets,” would subject all wallets, even those that are self-hosted or held at non-U.S. institutions, to know-your-customer (KYC) and reporting requirements for transactions greater than $3,000. It also proposes rules against structuring — a strategy used to get around reporting requirements by breaking larger transactions into smaller ones.

Though lawmakers and industry players alike have petitioned the U.S. Treasury Department to extend the abnormally short comment period, the deadline has yet to be moved as of this press time.

The stakes and the stakeholders

At its core, the rule is an attempt to apply traditional banking standards to the cryptocurrency ecosystem. The issue many critics raise is that crypto is, as a technology, different from the traditional system, and curbing the ability to anonymously transact or transact with decentralized entities could limit innovation.

The rule itself centers on what FinCEN calls “unhosted” or “self-hosted” wallets. The crypto industry tends to interpret this as wallets unaffiliated with a centralized entity like an exchange. That’s also how the Internal Revenue Service breaks down its regulation, between exchange-hosted and non-exchange hosted.

But, as former New York Department of Financial Services enforcer and current Seward & Kissel attorney Andrew Jacobson pointed out, while FinCEN is clear about its expectations for unhosted wallets, it isn’t clear about what actually constitutes an unhosted wallet.

“The notice of proposed rulemaking has pages and pages dedicated to the risk of unhosted wallets but the regulation itself, the exact proposed regulation, doesn’t define what an unhosted wallet is,” he said. “I think that’s very interesting because a lot of people are talking about the decentralized finance space, smart contracts — I think there’s still a lot of ambiguity and regulatory gray area that people are struggling with right now.”

If the rule takes effect in the coming weeks, it’s possible that the decentralized finance (DeFi) ecosystem could suffer in the short term since it remains unclear how KYC measures would work when one is sending money to a protocol rather than a person. As larger exchanges attempt to get up to speed with the new compliant standards — which would require new structures of reporting and identity confirmation — firms may freeze certain activities to such wallets or decentralized entities until a compliant KYC system is in place.

Representative Warren Davidson, a member of Congress’s Blockchain Caucus, said he’s worried the rule could limit potential use cases for distributed ledger technology. Issues of money laundering and illicit finance abound in the traditional world as well, said Davidson, so there’s little point in regulating the new look according to the rules of the old.

“It’s an effort to try to make digital assets conform to a system that frankly doesn’t work that well already,” he told The Block.

A race against time

With the proposal came an unusually contracted timeline of 15 days. So-called “significant” rule changes sport a 60-day public comment period, according to FinCEN’s guidelines — except in case of emergency necessities.

Though the substance of the rule has drawn concern from industry players, with many citing the potential for a proverbial barrier to fall in place between centralized and more decentralized modes of transacting in crypto, the more pressing concern was the lack of time. A 15-day comment period conducted over the course of a holiday season with eight business days was unreasonable, many said.

The Administrative Procedures Act (APA) requires federal agencies to conduct a comment period that’s open to the public before any rule is set in stone. Jake Chervinsky, Decentralized Finance (DeFi) group chair at the Blockchain Association and general counsel to Compound, tweeted that a 15-day comment period could be considered a violation of the APA.

Why? As Coinbase put it in its letter to FinCEN director Kenneth Blanco, “there is no emergency.”

The exchange asked the regulator to “reconsider its haste” in its letter, saying the shortened period did not provide adequate time for stakeholders to meaningfully respond. Similar statements came from Kraken, Coin Center and the Blockchain Association, among others, criticizing the shortened comment period and committing to pushback.

Still, despite the shortened time period, stakeholders have managed to submit more than 5,000 formal responses. The regulations.gov website counts 5,633 comments tracked as submitted as of Jan. 4.

Meanwhile, in Congress

The notice of proposed rulemaking came through at a time when lawmakers were largely focused on political squabbles around the federal budget and coronavirus aid funding. The coronavirus relief bill was top of mind, since many lawmakers were required to read and respond to thousands of pages of proposals in a matter of days. But as the dust settled, Blockchain Caucus members turned their eyes to FinCEN.

Reps. Tom Emmer, David Schweikert, Warren Davidson, Ted Budd, Bill Foster, Darren Soto, Susan DelBene and Tulsi Gabbard penned a letter to Blanco and Treasury Secretary Steve Mnuchin. The group called for an extended comment period and also pushed FinCEN to consider an extended implementation of the proposed rule to give exchanges time to develop technological solutions to the reporting requirements.

Though the letter only critiques the timeline, some lawmakers have already said they’re wary of the proposal. Budd is among those in the opposition, saying it threatens America’s competitive advantage.

“We’re competing with countries around the world and we shouldn’t hurt ourselves by restricting the freedom of individuals to use self-hosted wallets,” he said.

Wyoming Senator-elect Cynthia Lummis tweeted her concerns of the proposed rule before it was public, saying it could threaten the U.S.’s competitiveness if implemented too hastily. In the days since then, she has invited stakeholders to copy her in their comments.

Davidson, who opposes the rule, said it’s indicative of a larger problem. The regulatory narrative on crypto wallets has been murky, coming from a variety of agencies rather than Congressional action.

“I really fear that if Congress doesn’t take action soon to get the actions of the agencies — the SEC, Treasury, the IRS — aligned, we’re going to be stuck with a disparate patchwork of agency policies that’s going to be resolved by another disparate patchwork of court decisions,” he said. “This is a reflection of failure to act by Congress.”

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Banks can act as nodes on a blockchain or conduct payments using stablecoins, the OCC said Monday.

National banks and federal savings associations can use public blockchains and stablecoins for settlement, The Office of the Comptroller of the Currency (OCC) said in an interpretive letter published late Monday.

The letter indicates that banks and savings associations can now run crypto nodes and utilize associated stablecoins for “permissible payment activities.” This means banks can use public blockchains to validate, store, record and settle payment transactions as long as they’re compliant with existing laws.

It also specifically mentions the use of stablecoins for transactions, saying blockchain networks can mitigate costs for cross-border transactions as a “cheaper, faster, and more efficient” means of payment. For that reason, it’s empowering banks to utilize blockchains and their stablecoins for converting to and from fiat during remittances — and even issue stablecoins if they so choose.

The regulator noted:

“Likewise, a bank may use stablecoins to facilitate payment transactions for customers on an independent node verification network, including by issuing a stablecoin, and by exchanging that stablecoin for fiat currency.” 

As the letter notes elsewhere:

“Just as banks may buy and sell ESV as a means of converting the ESV into dollars (and vice versa) to complete customer payment transactions, banks may buy, sell, and issue stablecoin to facilitate payments. For example, one entity (payer) may wish to remit a payment of U.S. dollars to a second entity (payee). Rather than using a centralized payment system, the payer converts the U.S. dollars to stablecoin and transfers the stablecoin to the payee via the INVN. The payee then converts the stablecoin back into U.S. dollars. In one common version of this fact pattern, the payment is a cross-border remittance.”

Acting Comptroller of the Currency and former Coinbase head of legal Brian Brooks said the letter is in response to a recent statement on stablecoins issued by the President’s Working Group on Financial Markets. That report said regulators may consider limitations on “multi-currency stablecoins” and highlighted possible risks of one-to-one tokens. 

“Our letter removes any legal uncertainty about the authority of banks to connect to blockchains as validator nodes and thereby transact stablecoin payments on behalf of customers who are increasingly demanding the speed, efficiency, interoperability, and low cost associated with these products,” said Brooks in a statement.

Last fall, the OCC said that federally chartered banks can hold reserve funds for fiat-backed stablecoin issuers, as previously reported.

Read the full letter below. 

nr-occ-2021-2a by MichaelPatrickMcSweeney on Scribd

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Square is the latest company to go public with its opposition to proposed rulemaking from the U.S. Financial Crimes Enforcement Network (FinCEN).

If enacted, the proposal would require companies to keep records of and report certain cryptocurrency transaction information beyond what is required for cash transactions today. 

Square argues in its letter to FinCEN, published Monday, that the proposal will lead to “unnecessary friction,” incentivizing current crypto customers to move away from regulated crypto transaction services and use non-custodial wallets or services outside the U.S. to carry out transactions. 

“FinCEN will actually have less visibility into the universe of cryptocurrency transactions than it has today,” the firm said.

Per Square’s statement, if the FinCEN proposal is implemented, it will create an “unlevel playing field” that will benefit more traditional financial institutions. Companies like Square will be required to keep more detailed records of transactions over $3000, as well as filing currency transaction reporting (CTR) to FinCEN for transactions above $10,000. According to the statement, this will compromise customer privacy and further inhibit the widespread adoption of cryptocurrencies. 

“To put it plainly — were the Proposal to be implemented as written, Square would be required to collect unreliable data about people who have not opted into our service or signed up as our customers,” the company said.

In addition to this, Square contends that the FinCEN proposal will not help current law enforcement efforts, and could in fact hinder them by driving crypto customers away from regulated transaction services and towards unregulated, opaque channels. 

“This Proposal will inhibit financial inclusion, present practical problems, is arbitrary and unduly burdensome, and will drive innovation and jobs outside of the U.S. and regulated institutions,” the firm wrote in its letter. “We believe the work that industry and law enforcement have done and continue to do together has been effective and should be supported and strengthened.”

The proposal was officially registered on December 23 with a 15-day public comment period. Coinbase, among other parties, has asked FinCEN to extend this period to allow for more public input. Square’s submission comes on the deadline for submissions, January 4. 

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.