Sam Bankman-Fried, CEO of the $20 billion FTX crypto derivatives exchange, told CNBC that he spends five hours a day on regulatory and licensing issues.
According to the CEO of the largest crypto exchange, Binance, Changpeng Zhao, the appearance of a large number of new rules is a good sign of the “maturing” and sets the foundation for the daily use of cryptocurrencies.
He compared the situation in the cryptocurrency market with the development of the automotive industry, in which rules and recommendations were developed as the number of drivers increased.
How correct is this comparison? Considering the fact that the cryptosystem was originally created by anarchists who avoided interaction with large banks and regulators, let's figure it out.
From Crypto Dusk Till Crypto Dawn
The development of the crypto market repeated the main stages of the heyday of the banking sector.
You could have opened an account using only a passport, and the attention of regulators was minimal. Frankly speaking, it was almost not there.
What has changed? Today, the bank's compliance officers can request any statutory documents, acts, statements, transaction justifications, tax returns, family and business ties, slowing down the opening of an account for months and instantly blocking it.
It is no coincidence that Binance plans to double its staff of compliance specialists by the end of 2021.
Indeed, for some time, regulators looked at the development of Bitcoin and its derivatives through their fingers: hundreds of crypto funds and digital asset storage services appeared, billions of dollars were transferred between wallets, and crypto news did not leave the editorials of the world's leading business publications: Bloomberg, Forbes, NYT and The Washington Post.
However, it was the period that became the trigger for the legislative regulation of the crypto market.
The Regulator Strikes Back
First, authorities began to make successful attempts to deanonymize cryptocurrencies: the FBI and Securities and Exchange Commission regularly turn to private companies like Chainalysis and Integra FEC engaged in monitoring transactions of Bitcoin and other cryptocurrencies.
Secondly, regulators initiated efforts to have an active influence on the launch of promising crypto projects: the US Securities and Exchange Commission (SEC) filed a lawsuit in the Manhattan District Court and obtained an injunction against the distribution of Gram tokens from the Telegram messenger.
Regulatory pressure also forced Facebook (NASDAQ:FB) to change the concept of the stablecoin.
Thirdly, the European Union's anti-money laundering directive obliged crypto platforms to register with supervisory authorities, identify their customers and transfer the addresses of users' wallets to the authorities.
The main purpose of this directive is to minimize the confidentiality of digital asset holders. I mean the following conditions:
- Financial supervisory authorities should be able to find out who the owner of the crypto wallet is. Cryptocurrency service providers—exchanges, exchangers, wallet providers and crypto banks—must comply with EU KYC/AML legislation, similar to how banks and other financial institutions do it.
- Crypto platforms must be registered with national financial supervisory authorities, for example, with the Federal Financial Supervisory Authority (BaFin) of Germany or with the Financial Regulation and Supervision Authority (FCA) of the United Kingdom.
- Crypto platforms should monitor their clients' cryptocurrency transactions and report suspicious transactions to the authorities.
On the one hand, many startups and medium-sized businesses did not have the ability to carry out such a huge amount of bureaucratic work. This forced them to shut down.
On the other hand, the largest crypto exchanges began to interact with regulators and hire staff from the state-owned sector. For example, Coinbase hired a former deputy director of the US Securities and Exchange Commission to lead the legal work of the exchange in the capital markets.
Russian financial intelligence (Rosfinmonitoring) has already selected a contractor to create a system for monitoring cryptocurrency transactions.
According to the tender documentation, the new module will take over the functions of tracking the chains of digital financial assets, maintaining a database of cryptocurrency wallets and their identification.
The future starts today
Ten years ago, the concept of Bitcoin and cryptocurrency was marginalized. Now the world's leading banks offer services for storing digital assets.
Regulators and system-forming banks kick off to integrate blockchain technologies and cryptocurrencies into the services offered.
I do believe that the budget deficit and the slowdown in the economic growth of the world's leading economies, the increase in the retirement age and the growth of social obligations have forced the tax authorities to reconsider their approaches to the issue of client identification and anti-money laundering legislation, under the pretext of combating terrorism and crime in the crypto market.
Recently, the European Commission presented a new 45-page proposal that will require crypto asset service providers to collect additional information.
We can highlight the main key points blockchain startups and companies will have to face:
- The crypto-asset service provider must ensure that transfers of crypto-assets are accompanied by the name of the originator, using official personal document number and customer identification number if a transfer or a series of payments exceeds 1,000 euros.
- In cases where it does not appear to be connected, the payment service provider would not need to verify the information unless it has “reasonable grounds” for suspecting money laundering or affects the pay-out of the funds in cash/anonymous electronic money.
According to the calculations of billionaire hedge fund founder Paul Tudor Jones, $3.9 trillion has been printed since February 2020, which is equivalent to 6.6% of global economic production.
What does this mean? The influx of money into digital financial assets is increasing, they are used as insurance against the current policy of central banks printing money to fight the COVID-19 pandemic and accelerating inflation.
As a result, the attention of tax and supervisory authorities to digital assets is increasing. US citizens who have made any transactions with Bitcoin and other cryptocurrencies must now report this after filling in the identification data on the first page of the Tax Service (IRS) declaration on Form 1040.
Of course, the fight against illegal operations in the market is necessary. However, in practice, it often turns into excessive bureaucracy and artificial barriers on the way to something new.
The power is on the State’s side: the law, the rules, the tax service, the courts and the police. It will inevitably lead to the fact that the crypto market will be fully integrated into the financial system and work under its standards.
However, a new wave is arising, dissatisfied with the increased role of the State in our lives.
Sources: CNBC.com, Financial Times, Nytimes.com, RBK, Reuters.com, Bloomberg.com