U.S. Congressman Introduces Ample Draft Framework for Cryptocurrency Regulation

At the end of 2019, a U.S. lawmaker has decided to introduce a draft bill that would provide a regulatory framework for digital assets including cryptocurrencies.

U.S. Republican Congressman Paul Gosar has submitted a draft bill to the Houses of Representatives – called the ‘Crypto-Currency Act of 2020’ –  intended to clarify which federal agencies should regulate digital assets. In addition to that, the draft bill seeks to request those agencies to inform the public of any federal licenses, certifications, or registrations required to create or trade in such assets, and for other purposes.

A review of the draft bill breaks it down into several parts. Firstly, the bill assigns a definition of ‘Federal Digital Asset Regulator’ or ‘Federal Crypto Regulator’ to three agencies, which are the Commodity Futures Trading Commission (CTFC), the Securities and Exchange Commission (SEC), and the Financial Crimes Enforcement Network (FinCEN).

Secondly, it divides digital assets into three categories, which are as following: crypto-commodities, crypto-currencies and crypto-securities. According to the bill, crypto-commodities are defined as economic goods or services that are fungible and accessible, and rest on a decentralized cryptographic ledger.

Crypto-currencies are defined as representations of United States currency or synthetic derivatives resting on a blockchain or decentralized cryptographic ledger, whilst crypto securities mean all debt, equity, and derivative instruments that rest on a blockchain or decentralized cryptographic ledger.

Furthermore, the federal crypto regulator is assigned one of the categories and serves as the sole Government agency with the authority to regulate. Respectively, the CTFC will be in charge of crypto-commodities, the SEC will regulate crypto-securities and, last but not least, the FinCEN will regulate cryptocurrencies.

In addition to that, each of the federal crypto regulator is required to notify the public of any current federal licenses, certifications, or registrations required to create or trade in digital assets.

The bill also requires the Secretary of the Treasury, through FinCEN, to issue rules similar to financial institutions on the ability to trace cryptocurrency transactions.

Certainly, it is not the first time for lawmakers and market participants to seek regulatory clarity in regards to the digital assets sector. Earlier this year, U.S. lawmaker Warren Davidson reintroduced the Token Taxonomy Act, seeking to give cryptocurrencies a clearer legal standing in the U.S.

In October, the CFTC, FinCEN, and SEC worked together to issue a joint statement on activities involving digital assets, stating that the crypto industry must comply with various banking and financial services laws in the U.S.

In the meantime, if this bill were to be pass, it would further reinforce the way these agencies would co-exist as the three ‘Federal Crypto Regulators’ responsible for regulating digital assets.

The SEC Wants to Expand the Definition of the Accredited Investor

The United States Securities Exchange Commission (SEC) has submitted a proposal regarding its definition of „accredited investor“ as well as „qualified institutional buyer“ that would expand the list of people and institutions currently allowed to invest. This could potentially benefit companies that are hesitant to meet full public reporting requirements.

The news was made public on the SEC’s website, where it is stated that the financial regulator was currently looking for commentary from the public on its proposed amendments regarding the above mentioned categories.

The submitted proposal would expand the number of people allowed to invest in private securities, offerings, hedge funds as well as privet-equity funds. At the moment, the regulator defines an accredited investor as an individual with a net worth of over $1 million or earning more than §200,000 in annual income. In addition to that, other means of classifying include being an executive at the company making the offering.

“Our current definition includes investors that spend their days cruising around in a Ferrari that Daddy paid for,” SEC Commissioner Hester Peirce said. “Yet it excludes investors who spend their days earning money and their weekends and nights figuring out how to invest it.”

According to SEC, many people who don’t meet the financial qualifications for accredited investor status are nevertheless knowledgeable enough to participate in private markets; as such the regulator suggested the commission broaden the definition to include a test of an investor’s sophistication levels based on professional knowledge, experience or certifications.

Specifically, the new proposal would include individuals with entry-level stockbroker’s license or other credentials issued by an accredited institution, knowledgeable employees knowledgeable employees might be allowed the same access to their firms’ offerings as executives currently have, family offices with at least $5 million in assets under management as well as spousal equivalents who could merge their assets for the purpose of qualifying as accredited investors.

The proposal is open to commentary and the public can submit comments up to 60 days following the announcement. The agency is also looking for commentary on whether the financial thresholds should be lowered in areas where income levels may be lower and whether investors advised by professional brokers should also be considered accredited.

“Today’s proposals are an important step in our ongoing efforts to assess the private offering framework as a whole, including ways to increase opportunity for more of our Main Street investors to participate in the private capital markets,” said SEC Chairman Jay Clayton.

Thailand Financial Authority Plans to Reform Cryptocurrency Regulation

Thailand’s financial regulator – the Securities and Exchange Commission – has announced their intent to reform the royal decree on digital asset business starting from next year, aiming to facilitate the growth of digital assets whilst protecting investors from unnecessary risks.

According to a local English-language news outlet Bangkok Post reported on November 25th, Thailand is planning to make several significant changes in its existing cryptocurrency policy, in an effort to keep up with the rapid growth of the industry. The SEC will be revising whether the existing royal decree leaves investors vulnerable to risks or hinders the development of digital asset businesses.

In addition to that, the financial regulator will also be revising its poor uptake of its certification and licensing scheme by cryptocurrency businesses.

Ruenvadee Suwanmongkol, the secretary general of the SEC, confirmed the news, stating:

“The regulator must be flexible to apply the rules and regulations in line with the market environment,[…] For example, laws should not be outdated and should serve market needs, especially for new digital asset products, and be competitive with the global market. We need to explore any possible obstacles.”

The royal decree came into effect in May last year and classifies the digital asset businesses into four types of secondary business intermediaries, which are digital exchanges, brokerage companies, dealers and token portal service providers – or commonly known as initial coin offering (ICO) portals.

The existing regulatory framework covers digital tokens, digital currencies as well as any other electronic data, as indicated by the SEC. In order to be able to operate on the market, exchanges, brokers and dealers are required to apply for licenses from the Finance Ministry, whilst ICO portals are to be approved by the SEC.

“The legislation also aims to protect investors from risk of fraud and deception by dishonest persons, money laundering and exploitation of digital assets to facilitate illegal financial transactions, while ensuring regulatory clarity to facilitate legitimate uses of digital assets,” said former SEC secretary general Rapee Sucharitakul last year.

The royal decree has stringent penalties regarding unapproved digital token issuers and solicitors of illegitimate crypto investments, which includes possible fines up to 500,000 baht ($16,540), two times the value of the digital transaction or a two-year jail sentence.

Since last year, only five companies have been granted a license for digital asset exchange, and of those, just two have launched – Bitkub Online Co Ltd and Satang Pro Corporation.

Meanwhile, the country’s ICO portal SE Digital is poised to make a debut with the first investment token in the country with a target transaction size of THB 2 billion and THB 3 billion ($65.8 million and $98.7 million respectively).

SE Digital is amongst the only three ICO portal companies to have been approved by the SEC, the other two being Longroot Thailand Co Ltd. and T-BOX Thailand Co.

Although, the SEC has yet to announce further details about the imminent amendments to the royal decree, it is clear that the financial regulator is putting in effort to identify potential loopholes in the existing framework and subsequently eliminating them in order to facilitate legitimate development of the digital asset businesses.

SEC to Review Rejected ETF Proposal from Bitwise

The United States Securities and Exchange Commission (SEC) is reviewing its decision on the Bitcoin (BTC) exchange-traded fund (ETF) proposal submitted last month by Bitwise Asset Management and NYSE Arca. At that time, the financial regulator cited fear of market manipulation and fraudulent activities as the reason for rejecting the ETF.

According to an official announcement on November 18th, the SEC has made a decision to revisit is ruling on the ETF proposal filed by the Bitwise Asset Management and NYSE Arca. Previously, the commission had rejected the ETF on the grounds that it did not meet the necessary requirements, highlighting the risks that the ETF poses for the market as well as for investors.

At that time, SEC explained:

“The Commission is disapproving this proposed rule change because, as discussed below, NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section6(b)(5), and, in particular, the requirement that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices.”

At the time that Bitwise’ ETF was rejected, Bitwise tweeted that “though ‘disapprove’ doesn’t seem positive, this is a productive step in the journey toward a regulated crypto ETP.”

However, it remains unclear as to why the commission has decided to review its decision. Nevertheless, SEC commissioners have the possibility to review decisions following the filing of a petition, or at their own discretion.

Bitwise’s head of research, Matt Hougan, has denied that the company submitted a request for a review, explaining that it was not seeking to overturn the commission’s decision, however the company remains open to dialogue and welcomes the opportunity to submit comments.

Following this, any party or person may file a statement in support of, or in opposition to, the action made pursuant to delegated authority, no later than December 18th, 2019.

Until then, the order to reject the proposed listing of the ETF filing from Bitwise Asset Management and NYSE Arca will remain in effect pending the Commission’s review.

Previously, the SEC reviewed the rejection of the Bitcoin ETF application submitted by Cameron and Tyler Winklevoss, founders of the Gemini exchange; after more than a year passed the rejection was ultimately upheld.

The review of the Bitwise application could result in a similar outcome. Indeed, a number of experts have speculated that years may pass before the SEC would consider approving an ETF application.

Meanwhile, the SEC has yet to approve an ETF proposal. Currently, ETF veteran Kason Toussaint and Kryptoin Investment Advisors are waiting for SEC’s decision on their own proposal, which was submitted a couple of months ago. Accordingly, the ruling is set to be made next month.

Telegram Delays Token Sale as the SEC Files for Injunction

Telegram is ready to push back their token sale following an injunction initiated by the US Securities and Exchange Commission over the sale of its Gram tokens.

The SEC ordered Telegram to stop the token sale with an emergency restraining order against Telegram Group, Inc., and TON Issuer, the two issuers of Telegram’s tokens listed in the Regulation D filing with the SEC in February and March 2018.

Telegram is ready to follow the SEC’s order for now and delay the token sale.

“Telegram has agreed to stipulate that it will not make any offers, sales, or deliveries of its expected cryptocurrency, called “Grams,” in order to maintain the status quo until this Court can resolve the legal issues at the heart of the matter,” the document reads.

Last Friday, the SEC filed the emergency action against Telegram to prevent it from distributing its Gram tokens, which the agency deems as unregistered securities. The regulator said Telegram failed to register a securities issuance and “committed to flood the U.S. capital markets with billions of Grams by October 31, 2019” — the deadline for TON’s launch.

In a letter to investors following the SEC filed order Telegram said that it has been working with the SEC over the past 18 months and has been surprised to see the lawsuit initiated by the agency. The company also accused the SEC of failing to advise Telegram on its blockchain project and token sale.

By voluntarily stopping the sale and distribution of Gram tokens, Telegram states that the injunction is no longer required, asking the court to deny the SEC‘s motion.

With all the issues around the token sale, it looks like Telegram‘s token launch definitely won’t stick to the schedule.

Following Telegram’s response on October 16, where the company argued that its native crypto is not a security and the preliminary injunction should be denied, the SEC has responded with a new filing in the U.S. District Court on October 17.

In the document, the agency insists that Telegram has actually violated the U.S. securities laws and that a preliminary injunction should be granted to prevent Telegram from further violation, mentioning that the company is likely to violate the law again.

Should the motion pass, this would be a massive blow to Telegram’s efforts who already raised over $1.7 billion in two pre-sale rounds, with major venture funds, including Lightspeed Ventures, Sequoia Capital and Benchmark as investors.