Weekly Blockchain Focus
- Securities and Exchange Commission announces judgments entered against BitConnect’s lead national promoter
- Commissioner Stump calls for clarity before bringing any more enforcement actions
- Cryptocurrency CEOs speak to the House Committee on Financial Services
- Gibraltar to use blockchain for digital identification
- India to ban cryptocurrencies as a form of payment
- Bank for International Settlements discusses decentralized finance in its quarterly report
Securities and Exchange Commission announces judgments entered against BitConnect’s lead national promoter
On December 9, 2021, the Securities and Exchange Commission announced that the United States District Court for the Southern District of New York had entered judgments against Glenn Arcaro and his company for promoting BitConnect’s lending program. Mr. Arcaro served as BitConnect’s lead U.S. national promoter and was responsible for promoting BitConnect’s digital asset scheme to retail investors. He was charged with violating the registration and antifraud provisions of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 15(a) and Section 10(b) of the Securities Exchange Act of 1934.
Commissioner Stump calls for clarity before bringing any more enforcement actions
In an interview with the Financial Times, Commodity Futures Trading Commission (CFTC) Commissioner Dawn Stump reiterated her stance that rulemaking for the cryptocurrency industry should be more clear before bringing enforcement actions against industry participants. Commissioner Stump also expressed that she does not believe that digital commodity products automatically fall under CFTC jurisdiction. She emphasized that the responsibility of the CFTC is to regulate derivatives on commodities—not the underlying commodities.
Commissioner Stump has been a vocal advocate for regulatory clarity for the cryptocurrency industry. On December 9, 2021, Commissioner Stump announced that she will not seek another appointment at the end of her current term as CFTC Commissioner. The White House has not announced its nomination to fulfill this seat and is currently waiting for the confirmation of three other CFTC nominees.
Cryptocurrency CEOs speak to the House Committee on Financial Services
On December 8, 2021, the U.S. House Financial Services Committee heard from the CEOs of Circle, FTX, Bitfury Group, Paxos Trust Company, Stellar Development Foundation, and Coinbase Inc. The cryptocurrency executives used their time on Capitol Hill to lay out their suggestions for regulatory schemes, including advocating for regulation by a single regulator, recognition that digital assets are different from securities, and government support to create a more secure market for cryptocurrency investors.
Gibraltar to use blockchain for digital identification
The government of Gibraltar announced that it is rolling out a pilot project that will allow users to store government-issued and certified digital credentials, such as driving licenses, ID cards, and vehicle ownership registration, on a decentralized ledger. The government has partnered with Bitso, a Gibraltar licensed crypto currency platform, and IOVlabs, a smart contract platform, to help build out this project.
This announcement falls in line with Gibraltar’s reputation as a friendly jurisdiction for blockchain companies. In 2018, Gibraltar became the first jurisdiction globally to introduce legislation around distributed ledger technology, and since then, the government has licensed 15 blockchain firms to operate in the country.
India to ban cryptocurrencies as a form of payment
Earlier this week, a source provided Reuters with a summary of a proposed bill that will be introduced in the ongoing Indian parliamentary session. The summary describes the bill as including a “general prohibition on all activities by any individual on mining, generating, holding, selling, (or) dealing” in digital currencies as a “medium of exchange, store of value and a unit of account.” The summary also identifies the Securities and Exchange Board of India as the designated regulator for cryptocurrencies.
Bank for International Settlements discusses decentralized finance in its quarterly report
On December 6, 2021, the Bank for International Settlements (BIS) released its quarterly review. BIS focused this issue on decentralized finance and the flaws that may prohibit it from being adopted as a form of financial intermediation. Specifically, BIS notes the high leverage allowed on decentralized finance exchanges, the liquidity mismatch and inherent fragility in stablecoins, and potential spillovers from increased linkages with the traditional financial system.
In addition to decentralized finance’s structural flaws, BIS also discusses the “decentralization illusion” within decentralized finance. BIS argues that some form of centralization is required for all decentralized finance.