Canada crypto regulation: Bitcoin ETFs, strict licensing and a digital dollar

November 26, 2022 Coin Telegraph

The first and the last major attempt to encourage a comprehensive crypto framework was buried in the House of Commons on Nov. 23.

In October, Toronto-based Coinsquare became the first crypto trading business to get dealer registration from the Investment Industry Regulatory Organization of Canada (IIROC). That means a lot as now Coinsquare investors’ funds enjoy the security of the Canadian Investment Protection Fund in the event of insolvency, while the exchange is required to report its financial standing regularly.

This news reminds us about the peculiarities of Canadian regulation of crypto. While the country still holds a rather tight process of licensing the virtual asset providers, it outpaces the neighboring United States in its experiments with crypto exchange-traded funds (ETFs), pension funds’ investments and central bank digital currency (CBDC) efforts.

An era of restricted dealers

Coinsquare, which happens to be Canada’s longest-operating crypto asset trading platform, benefits from its new legal status as none of its competitors can currently boast the same legal footing. By publishing time, all other local players must have the status of a “restricted dealer,” signaling that they’ve made their registration bid and now await IIROC’s decision.

The Guidance for Crypto-Asset Trading Platforms was introduced by IIROC and the Canadian Securities Administrators (CSA) in 2021. It requires crypto businesses dealing with security tokens or crypto contracts to register as “investment dealers” or “regulated marketplaces.”

All local companies have been given a two-year transitory period, during which they should start the registration process and, in some cases, obtain the “restricted dealer” temporary registration.

The list of “restricted dealers” that have been granted a two-year relief period to operate amid the ongoing registration process is rather short and includes mainly local companies, such as Coinberry, BitBuy, Netcoins, Virgo CX and others. These companies still enjoy a right to facilitate buying, selling and holding of crypto assets, but what lies ahead of them is the stringent compliance procedure necessary to continue their operations after 2023. For example, Coinsquare had to obtain an insurance policy that includes an endorsement of losses of crypto assets and fund a trust account maintained at a Canadian bank.

The prosecutors have been watching closely for any non-compliance. In June 2022, the Ontario Securities Commission (OSC) issued financial penalties against Bybit and KuCoin, claiming violation of securities laws and operating unregistered crypto asset trading platforms. It obtained orders banning KuCoin from participating in the province’s capital markets and fining the exchange for more than $1.6 million.

The land of experiments

At the same time, there are adoption cases in Canada that sound radical to the United States. For example, there are dozens of crypto ETFs to invest in the country, while Grayscale still has to lead the court battle with the U.S. Securities and Exchange Commission (SEC) for a right to launch its first ETF.

The world’s first Bitcoin (BTC) ETF for individual investors was approved by the OSC for Purpose Investments back in 2021. Purpose Bitcoin ETF accumulates around 23,434 BTC, which is actually a prominent symptom of the bear market. In May 2022, it held around 41,620 BTC. The major outflow from the Purpose Bitcoin ETF occurred in June, when about 24,510 BTC, or around 51% of its asset under management, were withdrawn by investors in a single week.

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Another breakthrough in Canadian crypto adoption erupted when the country’s largest pension funds started to invest in digital assets. In 2021, the Caisse de Depot et Placement du Québec — one of the largest pension funds in the French-speaking province of Quebec — invested $150 million into Celsius Network.

The same month, the Ontario Teachers’ Pension Plan announced its $95-million investment in FTX. Unfortunately, this news didn’t age well as both companies have since collapsed and both pension funds had to write off their investments. Perhaps, in that light, the U.S. Department of Labor’s warning to employers against using pension funds that include Bitcoin or other cryptocurrencies now seems like a prudent precaution.

Due to its cold climate, cheap electric supply and light regulation, Canada is among the world’s leading destinations for crypto mining. In May 2022, it accounted for 6.5% of the global BTC hash rate. However, this fall, the firm managing electricity across the Canadian province of Quebec, Hydro-Québec, requested the government to release the company from its obligation to power crypto miners in the province. As the reasoning goes, electricity demand in Québec is expected to grow to the point that powering crypto will put pressure on the energy supplier.

The development of the CBDC is another direction where Canada has been moving faster than its neighbor to the south. In March 2022, the Bank of Canada launched a 12-month research project focused on the design of the Canadian digital dollar in collaboration with the Massachusetts Institute of Technology.

In October, the Bank of Canada published a research report and proposed several particular archetypes of CBDC as useful for organizing “the possible CBDC designs.” While back in March, there was “no decision made on whether to introduce a CBDC in Canada,” the country’s recent budget amendment contains a small section on “Addressing the Digitalization of Money.” In the statement, the government said consultations with stakeholders on digital currencies, stablecoins and CBDCs are being launched on Nov. 3, although exactly which stakeholders will be engaged remains unclear.

The partisan divide

The discussion of what could have become Canada’s formal legal framework for crypto — bill C-249 — showed a sharp partisan divide around the topic. A bill for the “encouragement of the growth of the cryptoasset sector” was introduced to the House of Commons in February 2022 by a member of the Conservative party and ex-Minister Michelle Garner. The lawmaker proposed having Canada’s Minister of Finance consult with industry experts to develop a regulatory framework aimed at boosting innovation around crypto three years after the bill’s passage.

Despite the voiced support from the local crypto community, the bill didn’t meet much approval among fellow lawmakers. During the second reading on Nov. 21–23, members of other political parties, including the ruling Liberal party, blasted both the proposition and the Conservative party with accusations of promoting the “dark money system,” and Ponzi scheme and bankrupting retirees and as a result, C-249 is now officially buried.

While Michelle Garner introduced the bill, Conservative party leader Pierre Poilievre took most of the heat. A former Minister of Employment and Social Development, Poilievre has been advocating for more financial freedom through tokens, smart contracts and decentralized finance. Earlier this year, he urged the Canadian public to vote for him as their leader to “make Canada the blockchain capital of the world.”

The next general elections in Canada are scheduled for 2025, and given C-249’s failure and the general condition of the market, it’s not likely that Poilievre and the Conservatives will get broad support in the Parliament for their pro-crypto efforts until that time. Currently, the Conservative party holds only 16 out of 105 seats in the Senate and 119 out of 338 in the House of Commons.

What’s next

From a trading platform perspective, there are specific challenges that the industry strives to address, Julia Baranovskaya, chief compliance officer and co-founding team member at Calgary-based NDAX, told Cointelegraph.

The majority of industry stakeholders would like to see “clear guidelines and a risk-based approach.” Currently, a majority of regulatory authorities in Canada have chosen to apply existing financial industry rules and regulations designed and implemented for the traditional financial industry.

However, Baranovskaya highlighted that in recent years, regulators have been engaging in a closer dialogue with the crypto industry. The Securities Commission has created a sandbox and encouraged crypto asset trading platforms and innovative types of businesses offering alternative financial instruments to join. The IIROC has also been leading a dialogue with the industry participants to understand business models better and identify how the current framework can be applied to them.

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But, the challenges of the fragmented regulatory framework and the lack of crypto asset-specific regulations are still here. Most of the existing regulations are based on the product, but with the constantly evolving crypto space, the product-based approach “would always stay a few steps behind.” In Baranovskaya’s words:

“Understanding the underlying technology behind crypto assets and De-Fi products that work out a flexible but robust regulatory regime that can adjust to the ever-changing crypto asset space is essential.”

US Election update: Where do the pro-crypto candidates stand ahead of the election?

November 4, 2022 Coin Telegraph

Coin Telegraph

Crypto has been highly visible in this election cycle thanks to polls and political action committees. This is a new and unaccustomed role for it with unknown results.

The 2022 midterm elections will be held in the United States on Nov. 8. Thirty-four senators and all 435 members of the House of Representatives will be running. According to media reports, cryptocurrency lobbyists and political action committees have poured millions of dollars into select campaigns, and extensive polling has shown crypto to be on voters’ minds.

Fundraising and polling are normal parts of the American political system, but the numbers associated with crypto may have raised some eyebrows. Sam Bankman-Fried called $1 billion his “soft ceiling” for 2022 election contributions, for example. Even though he backpedaled on some of his intentions, he remains the sixth-largest donor in this election cycle. There are numerous crypto-related political action committees as well. According to Bloomberg, as of Oct. 19, crypto-affiliated donors had spent more than donors to such traditional recipients as defense and big pharma.

A poll commissioned by Grayscale between Oct. 6 and Oct. 11 shows that 38% of voters surveyed will be “considering crypto policy positions.” A poll commissioned by the Crypto Council for Innovation at roughly the same time showed that 45% of voters “want legislators to treat crypto as a serious and valid part of the economy.”

Why all the excitement?

Crypto is making continual inroads into daily life, even in the current unfavorable market conditions. Nonetheless, someone with some distance from the industry may be surprised to hear that 45% of potential American voters have any opinion about crypto at all.

But, 40 million Americans own crypto, and they take it personally, Cornell Law School faculty member and Foley & Lardner partner Patrick Daugherty told Cointelegraph:

“Does ‘crypto policy’ resonate with voters as much as inflation and other headline news? Probably not, but then again many voters are buying crypto as a hedge against inflation.”

Furthermore, “Crypto is the future of money, which is important to every American,” Daugherty said.

Martin Dobelle, one of the three co-founders of political software company Engage, agreed. “The average person cares more about this issue than you might expect,” he said. Dobelle attributed voter interest in crypto to a generally positive attitude toward technology, especially among the young. He told Cointelegraph:

“Voters are very pro-technology, pro-innovation and they […] might not know the specifics of crypto legislation or tech legislation writ large, but they do have kind of an intuitive sense of […] what policy thinking that moves in the direction of embracing technology and innovation would look like.”

Engage is a public benefit corporation with a mission to increase public participation in the political process. Among its activities, Engage raises funds in cryptocurrency for 16 pro-crypto candidates.

What are we doing here?

The next logical question is what crypto voters will accomplish. Pro-crypto House members like Minnesota Republican Tom Emmer and Oregon Democrat Ron Wyden expect to win their races easily, while Ohio Democrat Tim Ryan is facing off against equally pro-crypto Republican JD Vance. Not only that, the crypto regulation situation is relatively under control, with bills already in the House and Senate.

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Hogan Lovells partner Aaron Cutler saw a limited connection between the election and upcoming crypto regulation. “I don’t think it’s a question of political support, but more a question of policy priorities,” he said, adding:

“This is one of the reasons we saw certain legislation introduced this Congress — not because it was going to be passed and enacted into law, but because Members want to show leadership and stake out a bit of legislative turf.”

On the other hand, seeing that existing bills come up for voting faster is probably one of the effects greater political support would have.

The other effect of voting is keeping some candidates out of office. Attacks against crypto are perceived by many American voters “as threats to economic security and personal liberty,” Daugherty said.

1/ Starting today, Coinbase will begin integrating our crypto policy efforts right into our app. These will help our 103M verified users get educated on the crypto positions held by political leaders where they live. pic.twitter.com/3GqWZIioZQ
— Brian Armstrong (@brian_armstrong) September 14, 2022

Willamette University law professor Rohan Grey was having none of the single-issue votings. Pollsters “aren’t saying that they [pro-crypto candidates] are good people,” he said. Grey saw voting as important as an action. “Give the impression of people coming to your cool party,” he said.

To Dobelle, the increase in political activity surrounding crypto was significant as a sign that crypto is moving into the middle of the political spectrum, which he said is “past due.”

Whose party is it?

The bipartisan/nonpartisan nature of crypto is often commented on, but there are clear divisions in the crypto world. First, crypto skews right. This can be seen, among other places, in the Crypto Action Network politicians’ scorecards. That organization has graded 144 U.S. legislators on their crypto support. (The remaining nearly 400 lawmakers presumably have no record of crypto.) The scorecards gave Republicans an average grade of 3.4 out of 4, converted from A-F marks, while Democrats received an average of 2.1.

Bipartisanship legislation is full of “sensible compromises,” according to Daugherty, and has a better chance of passing in the current polarized environment. Cutler concurred, although he added that his firm foresees “Republican-led committee oversight and investigations of agencies with jurisdiction over digital assets and cryptocurrency.”

Grey, an adherent of Modern Monetary Policy, had a simple explanation for crypto’s right leanings based on its origins in libertarian economics and the Cypherpunks:

“The problem being solved by crypto is an inherently right-wing one.”

Grey saw one only result from any foreseeable election outcome: Crypto’s “handover to big business.”

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Whether those claims are accepted or not, they point to an old, basic dichotomy: Crypto as the Wild West — alternative and unregulated money — and crypto regulated and integrated into the economic mainstream. In this light, the 2022 midterm elections are a rehash of a familiar trope and some slight movement toward its resolution.

Digital Chamber of Commerce vice president of policy Cody Carbone wrote in one of his many tweets, “Crypto has not yet become a mainstream part of candidate platforms. Given user adoption trends, that WILL change for the 2024 election. It’s up to voters and industry, to make sure our voices are heard.”

Low hash price, soaring energy costs spell tough Q3 for Bitcoin miners

October 21, 2022 Coin Telegraph

Bitcoin

The third quarter of 2022 has not been any kinder to Bitcoin mining operators in North America and Europe.

Energy problems in North America and Europe and prevailing market conditions have spelled another bleak quarter for Bitcoin (BTC) mining operators on both continents.

The latest Q3 mining report from Hashrate Index has highlighted several factors that have led to a significantly lower hash price and higher cost to produce 1 BTC.

Hash price is the measurement used by the industry to determine the market value per unit of hashing power. This is measured by dividing the dollar per terahash per second per day and is influenced by changes in mining difficulty and the price of BTC.

As Hashrate Index reports, Bitcoin’s hash price was afforded some reprieve in the middle of Q3 as heat waves during the American summer led to a drop in hashrate, which corresponded with a slight BTC price recovery.

However the price of Bitcoin dropped below $20,000 once again and hashrates climbed to new all time highs in September, leading to the hash price slipping closer to all-time lows.

Miner profit margins were further threatened by rising energy costs in North America and Europe. The latter has been particularly hard hit by a ‘combination of mis-managed renewable energy policies, under investment in oil and gas, nuclear plant decomissionings, and Russia’s war with Ukraine' which have sent energy prices sky-high.

American miners have had to contend with the average cost of industrial electricity increasing 25% from $75.20 a megawatt hour to $94.30 per megawatt hour from July 2021 to July 2022. This has also had an effect on hosting service providers that are increasing their power prices in hosting contracts.

As hash price has dropped, some mining operators with mid-range equipment are facing down reaching breakeven costs margins. In the past, retail miners have either abandoned or sold rigs that are no longer profitable to mine.

Liquidating these assets is also becoming more difficult as Bitcoin mining values have been in decline throughout 2022. Rig prices dropped significantly in May and June but ‘flattened’ in August and September according to the report, while the picture is still bleak:

“Old-gen machines like the S9 experienced a precipitous drawdown at the end of June amid Bitcoin’s freefall to $17.5k. With mining economics in the dumpster, the S9 and similar rigs have become unviable except in the cheapest energy markets.”

Publicly-traded mining firms have also faced increasing pressure with increasing interest rates and greater difficulty acquiring lines of credit. This has led to some firms turning to equity fundraising, which has the downside of diluting shareholders at lower stock prices.

However these at-the-market offerings allow for quick capital raises which can help fund continued expansion and operating costs through the ongoing bear market.

Miners have also had to sell BTC holdings in order to keep production going in 2022. However this rate has ‘slowed progressively’ through the third quarter and public miners have sold fewer BTC than their monthly production in August and September for the first time since May.

Hashrate Index also cautioned that Q3 could be a precursor for more tough times for the mining industry with the potential for further distressed asset sales, bankruptcies and miner capitulation as the year comes to a close.

The Caribbean is pioneering CBDCs with mixed results amid banking difficulties

September 29, 2022 Coin Telegraph

CBDC

Emtech’s Cadet talks about CBDCs in emerging markets as the U.S. Congress and United Nations hear about the traditional banking crises.

The Caribbean region is in a tough situation for banking. The 35 nations comprising the region face challenges common to many tiny economies, such as dollarization and dependence on foreign trade and remittances. In addition, the increasingly common banking practice called de-risking is taking a heavy toll. So, it is probably no coincidence that the region is also at the forefront of digital currency adoption.

Carmelle Cadet, the founder and CEO of banking solutions company Emtech, is a native of Haiti who has experience working with central banks in Haiti and Ghana. Her company is also a member of the new Digital Dollar Project Technical Sandbox Program that is exploring aspects of a United States central bank digital currency (CBDC). Cadet spoke to Cointelegraph about her experiences in the Caribbean and the United States. She said rolling out functioning CBDCs in the region is “a long game.” It is easy to see why.

The risks of banking in the Caribbean

The Financial Action Task Force (FATF) lists countries that are under special monitoring for money laundering or other illegal activities. Although only four countries in the region were on the so-called gray list as of June, the list seems to cast a pall over the region as a whole. Because of it, extra due diligence efforts are required when large international banks provide services such as settlement to smaller local banks in those countries in a process called correspondent relationships.

Additional due diligence drives up international banks’ costs of doing business. Banks often choose to sever ties with banks in gray-listed countries rather than pay the increased costs. That decision is referred to as de-risking. Some Caribbean countries have lost 50% of their correspondent relationships, with severe consequences for their economies and societies.

The United States House of Representatives Financial Services Committee held hearings titled “When Banks Leave: The Impacts of De-Risking on the Caribbean and Strategies for Ensuring Financial Access” on Sept. 14. Prime Minister of Barbados Mia Amor Mottley and Prime Minister of Trinidad and Tobago Keith Rowley attended the hearings.

#financialinclusion is possible: Modern #Regulatory Frameworks + Modern #Technology. Banks have moved away from the Caribbean and cost of payments is not going down. It feels like punishment indeed. Thank you for testifying in front of Congress on this topic! #bardados https://t.co/SjLpSw1aT8
— Carmelle Cadet (@CarmelleCadet) September 14, 2022

Mottley described what banking services are like in the region:

“When we were growing up, opening a bank account was part of our rites of passage in becoming an adult. Today […] we spend weeks, and businesses that come into our region spend weeks and months, just to open a bank account.”

Ten days after the Congressional hearings, on Sept. 24, Bahamian Prime Minister Philip Davis brought the issue of de-risking before the United Nations General Assembly. “Why are all the countries being targeted small and vulnerable and former colonies of European states?” he asked. The Bahamas is not currently on the gray list.

CBDCs to the rescue?

According to the Atlantic Council CBDC tracker, three CBDCs have been launched in the Caribbean region: the Bahamas’ Sand Dollar, Jamaica’s Jam-Dex and the Eastern Caribbean Central Bank DCash in seven of its eight member states.

The council lists Haiti’s Digital Gourde as under development. Cadet said Emtech and its Haitian partner HaitiPay presented a proof-of-concept for a CBDC at the Haitian Embassy in Washington on May 5.

Cadet, who immigrated to the U.S. in her youth, was an executive in the IBM blockchain division when the Bahamas made its request for proposals for the Sand Dollar. She was “by luck a little bit in the front seat.” In 2019, when Haiti was “making the rounds with a roadshow” to develop its CBDC, “I thought ‘if the Bahamas can do it, why not Haiti?’” Cadet said. She added, “Kudos to the central bank governor for seeing the possibilities.” She left IBM and founded Emtech.

The first financial technology companies appeared in Haiti in 2010, after the earthquake that ravaged the country, and technologies relying on mobile wallets took the lead, Haitian Central Bank Governor Jean Baden Dubois said in 2021. Dubois said mobile telephone penetration was about 60% in 2008 and “likely higher in 2021.”

Emtech’s proposed CBDC design functioned online and through mobile telephone unstructured supplementary service data. The rollout of a Haitian CBDC would include device distribution through a partnership with a charity, Cadet said. The use of telecommunications rather than data networks to support CBDC functions is a hallmark of emerging economies, she added.

Dubois said the Haitian Central Bank saw a CBDC as a means to achieve greater policy efficiency and increased transparency, which would help the FATF gray-listed country meet Anti-Money Laundering/Combating the Financing of Terrorism standards.

“Dollarization undermines the central bank and its mission of stability,” Cadet said. “Using CBDCs for cross border payments would provide better liquidity and visibility on reserves.”

The peculiarities of emerging markets

Cadet said there are a number of ways in which a CBDC design for an emerging market will differ from one intended for a developed market. Developed markets can “afford to go slower,” she said, as they work toward a real-time settlement, while in emerging markets, CBDCs have a more pressing mission of inclusion.

Emerging markets have “less baggage,” she continued, so fintechs can thrive. In developed markets, commercial banking can make adoption easier, but the CBDC has more legacy systems to integrate with.

Be that as it may, it is not clear how much success CBDCs are enjoying in the Caribbean. The Sand Dollar, commonly considered the first CBDC when it launched in 2020, had only about $300,000 worth of electronic currency in circulation and 30,000 digital wallets in July 2022, with about 845 merchants accepting it. The Bahamian government makes regular efforts to promote it.

DCash, introduced in April 2021, crashed in January and was down for almost two months. A spokesperson for Grenada-based conglomerate Geo. F. Huggins & Co., the first company to accept a DCash payment, said during the outage that the CBDC represented a “minimal” portion of its sales.

Cadet said her company had been in talks with the Haitian Central Bank “to understand licensing and risk” for about a year before its proof-of-concept presentation and has been in touch with the bank since then. She said the company is now waiting for the central bank to issue a request for proposals for vendors.

El Salvador’s Bitcoin decision: Tracking adoption a year later

September 23, 2022 Coin Telegraph

Bitcoin Price

El Salvador made history last year in September by making BTC a legal tender. One year later, the falling BTC prices and delayed Volcanic bonds have fueled skepticism.

El Salvador, the small Central American nation that made history just over a year ago when it made Bitcoin (BTC), recently marked its first year of BTC adoption.

The Salvadoran government touted BTC as a tool to attract foreign investment, create new jobs and cut reliance on the United States dollar in the country’s economy at the time of adoption. Many BTC proponents and the libertarian community rallied behind the small nation despite mounting pressure from global organizations such as the World Bank and International Monetary Fund (IMF) to remove BTC as a legal tender.

A lot has changed over the past year since El Salvador became the first “Bitcoin nation.” Enthusiasm and public interest rose immediately after the recognition of BTC, with the price surging to new highs.

Salvadoran President Nayib Bukele joined the growing league of Bitcoin proponents to buy several market dips and even reaped the benefits of their BTC purchase in the early days as the country built schools and hospitals with its profits.

As market conditions turned bearish, however, the frequency of BTC purchases slowed down, and the president, who was often seen interacting with the crypto community on Twitter and sharing future Bitcoin endeavors, cut back his social media interactions significantly.

El Salvador has purchased 2,301 BTC since last September for about $103.9 million. That Bitcoin is presently worth roughly $45 million. The most recent purchase was made in mid-2022 when the nation bought 80 BTC at $19,000 a piece.

As the price of BTC tanked, critics who have long been raising concerns about a crypto bubble felt validated, with several comments along the lines of “I told you so.” However, market experts believe El Salvador’s BTC experiment is far from a failure.

El Salvador’s Bitcoin Volcanic bond, a project meant to raise $1 billion from investors to build a Bitcoin city, has already been delayed on numerous occasions now and skepticism is growing not just around the project but on the overall BTC adoption itself.

Samson Mow, a Bitcoin entrepreneur who played a key role in designing the Bitcoin Volcanic bond — also called the Volcanic token — told Cointelegraph that contrary to common outside perceptions, El Salvador is building through the bear market. He noted that the Volcanic bond was delayed due to several reasons and is currently awaiting the passage of a digital securities law. He explained:

“We’re still waiting on the new digital securities laws to go to congress, and once passed, El Salvador can start the capital raise for the Bitcoin Bonds. I’m hopeful that it happens before the end of this year. Much like Bitcoin companies, El Salvador is focused on building through the bear market. I can’t see President Bukele not stacking more at these prices.”

The BTC price recorded a new all-time-high of $68,789 just a month after El Salvador’s adoption on Nov. 10. Since then, however, the price has tanked by over 70% and currently trading at around $19,000. Many critics believe that the future of the Volcanic bond and its native token is highly dependent on the crypto market and thus it could only gain traction during bull markets.

Paolo Ardoino, chief technical officer at Bitfinex, told Cointelegraph that the Volcanic tokens would generate interest from investors irrespective of the market conditions, he explained:

“The Volcanic token will be the first of its kind. While investor appetite for new offerings is typically greater during a bull market, we are confident that the unique proposition that this token represents will garner significant interest regardless of market conditions. The Volcanic token has widespread support in the Bitcoin community and there is manifestly a great appetite for the offering regardless of if we are in a bear or bull market.”

Bitfinex is the key infrastructure partner of the El Salvador government responsible for processing transactions from the sale of Volcanic tokens.

Bitcoin adoption boosted remittance and tourism

While critics have called El Salvador’s Bitcoin experiment a failure since the start, proponents see it as a revolution of sorts and believe El Salvador’s adoption could create a domino effect for other nations with similar financial challenges such as a high number of unbanked citizens and significant remittance volumes.

Bukele has previously mentioned that the primary focus of recognizing BTC was to offer banking services to more than 80% of unbanked Salvodrans. Within six months of the law passing, the country’s national Bitcoin wallet managed to onboard four million users, ensuring that 70% of the unbanked population got access to payment and remittance services without having to go to a bank.

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Aarti Dhapte, a senior research analyst at Market Research Future, told Cointelegraph that El Salvador’s BTC adoption has proven a success on several fronts, be it banking the unbanked or boosting tourism:

“We should accept that the digital currency has helped the Central American nation of El Salvador rebuild its tourism industry, despite the country still having difficulty enduring the long crypto winter. According to information from the Ministry of Tourism, El Salvador’s spending on travel has increased by 81% in the post-pandemic period. In 2021 the nation welcomed 1.2 million visitors and 1.1 million during the first half of 2022.”

Statista data shows that more than 9% of El Salvador’s GDP is made up of the tourism industry, so a near doubling of tourism is a significant boon for the country.

Share of tourism in El Salvador’s GDP. Source: Statista

Apart from tourism and offering financial services to the unbanked, BTC adoption has also proven beneficial in terms of cross-border remittances, cutting transaction costs significantly.

The El Salvador Central Reserve Bank estimates that from January to May 2022, remittances from citizens residing abroad totaled more than $50 million. The adoption of Bitcoin and the Chivo wallet, an initiative supported by the government of El Salvador, helped boost Lightning Network transactions by 400% in 2022.

The downsides of Bitcoin adoption

The biggest downside of El Salvador’s Bitcoin adoption has been macroeconomic factors that have led to a decline in BTC price along with the amount of pushback it has gotten from around the world. The pushback wouldn’t matter in a bull market, but being a small nation-state with financial challenges, the country cannot afford to be on bad terms with international monetary organizations.

Right now, the vast majority of El Salvador’s Bitcoin was purchased at a higher value than it currently enjoys. Bitcoin has been tracking closely with traditional assets, like the stock market — particularly tech stocks. They, too, have taken a beating this year as the world tries to cope with the aftermath of pandemic-related government handouts.

Beyond the price of Bitcoin, the bigger problem for El Salvador is how the international financial world views the move.

The country’s move toward Bitcoin has limited the country’s access to traditional financial markets, causing Bukele some real problems in financing the repayment of its bond obligations. Moody’s, earlier this year, credited disagreements about Bitcoin as a reason El Salvador was having difficulty coming to terms with the IMF.

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Richard Gardner, CEO at institutional infrastructure service provider Modulus, told Cointelegraph that maybe in five years, Bukele’s decision won’t look that bad, but currently, it’s controversial:

“Bukele’s move to Bitcoin doesn’t look wise. Even with high inflation for the USD, Bitcoin has ultimately failed as an inflation hedge, given its dip. However, we’re looking at a one-year snapshot during a recession. For a country like El Salvador, access to funding through organizations like the IMF is vital. That makes Bukele’s Bitcoin gambit difficult to defend.”

El Salvador’s future depends a lot on the success of the delayed Volcanic bonds, which could bring billions in revenue and set a precedent for others to follow. Until the launch of the bond, the outside world will continue to measure its success based on its BTC purchases.

Global Trust in Crypto Remains Unshakable Despite Latest Market Downturn, According to New Survey

September 3, 2022 The Daily Hodl

Crypto licensing roundup: Learn about the most recent approvals in the industry

August 24, 2022 Coin Telegraph

Asia

Here's where cryptocurrency firms have received the most regulatory approvals and licenses over the past few weeks.

Cryptocurrency companies have been moving to improve compliance worldwide amid the bear market of 2022, with many platforms increasingly securing licenses and approvals.

As one may find it difficult to track all global regulatory milestones in crypto, Cointelegraph has picked up some of the latest compliance developments over the past couple of weeks.

Global crypto firms have recently been active in growing presence and compliance in North America, with exchanges like China-founded Huobi Tech entering Canada.

Huobi Technology Holdings announced on Tuesday that its subsidiary Hbit Technologies has successfully obtained a Money Services Business (MSB) license from the Financial Transactions and Reports Analysis Centre of Canada.

cuWith the new license, Huobi Tech is officially authorized to engage in regulated activities for foreign exchange, money transferring and virtual currencies dealing in Canada. The new compliance milestone came shortly after Hbit received the MSB license in the United States in July.

Binance.US, the American partner of Binance, another crypto exchange founded in China, has also been actively improving regulatory efforts in North America recently. On Thursday, the exchange received a Money Transmitter License from the Nevada Department of Business and Industry, Financial Institutions Division.

Nevada became the seventh jurisdiction where Binance.US secured the license in 2022, following West Virginia, Connecticut, Wyoming, Rhode Island, Idaho and Puerto Rico. Binance.US said it operates in 46 states and Puerto Rico, offering investment and trading for more than 120 cryptocurrencies.

Clear Markets, a crypto derivatives platform tied to the Japanese financial giant SBI, has secured major approval in the United State as well. Backed by SBI, Clear Markets received approval from the Commodity Futures Trading Commission in mid-August for over-the-counter crypto derivatives trading for its U.S. subsidiary Clear Markets North America.

Among other compliance developments in North America, major crypto exchange Crypto.com completed the Service Organization Control (SOC) 2 Type II Compliance audit on Tuesday. Developed by the American Institute of CPAs, the SOC 2 is an auditing procedure aiming to ensure the secure management of data and confidentiality. Previously, Crypto.com became one of 37 crypto exchanges to register with the United Kingdom's Financial Conduct Authority.

Elsewhere in the world, Singapore-based crypto exchange Bhex.sg received the Standard Payment Institution license from the Monetary Authority of Singapore (MAS) on Friday. The MAS approval requires licensees to meet a high standard of compliance to protect consumers, enabling the exchange to offer digital payment token services in Singapore.

Other recent compliance developments also include Socios, a major fan token platform working in conjunction with the fan token cryptocurrency Chiliz. On Thursda, Socios secured regulatory approval as a service provider of virtual currencies and digital wallets for its fan engagement and rewards platform in Italy.

The recent compliance developments in the crypto industry mark yet another milestone in the global crypto regulatory landscape but international regulators are yet to come up with clear rules for crypto companies. Earlier this week, economists from the International Monetary Fund highlighted the need to establish clear guidelines on regulated financial institutions in Asia. Some experts believe that certain regulatory clarity could be detrimental to crypto though.

US ethics advisory on federal employee’s crypto has basis in legislation

August 8, 2022 Coin Telegraph

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The Office of Government Ethics reminded federal agency ethics officers of current law and extended its interpretation of the law to mutual funds.

When the United States Office of Government Ethics (OGE) released its Legal Advisory 22-04 on July 5, most attention was given to its conclusion that federal employees who own any amount of cryptocurrency or stablecoins whatsoever may not participate in regulation and policymaking that concerns crypto. The legal advisory (LA) raised some eyebrows, as de minimis exemptions, threshold amounts below which assets holdings are permissible, are common in the government. The LA is more comprehensible when seen in a larger context.

What they were thinking

The OGE does not grant interviews, so it was fortunate that a video of OGE Senior Associate Counsel Christopher Swartz discussing the LA appeared on the office’s YouTube channel the day after Cointelegraph made an inquiry. Swartz discussed several points in detail, emphasized that the LA is an interpretation of current law to aid in its application to federal employees and “understand the law as it exists.” The OGE has no position on digital assets in general.

The OGE issued an advisory in 2018 on federal employees’ disclosure of crypto assets. In light of the growing adoption of cryptocurrency by the public and federal employees, Swartz explained:

“We realized it was now ripe for us to revisit this area, make sure we have established ground rules particularly as it relates to the conflicts of interest law, which is a criminal law.”

The law Swartz was referring to dates to 1962 and “prevents federal employees from participating in any particular matter in which they have a financial interest,” according to Swartz. It is intentionally broad and “agnostic” in regard to the details. There is no substantiality element in the law, that is, a de minimis exemption, to allow federal employees to hold small amounts of anything.

Under the law, the OGE has the authority to waive the conflict of interest laws for all employees or classes of employees when the financial interest is too remote to affect the expected services of the employees. Agencies can provide exemptions on a case-by-case basis in consultation with the OGE.

The OGE created some exemptions in 1996. Publicly traded equity in a company that engages in crypto services is already covered by an exemption, for example. The LA specifies that a registered mutual fund with exposure to crypto derivatives, such as futures, might have one of two exemptions: a per se exemption for diversified mutual funds or a de minimis exemption of $50,000 for sectoral funds.

No OGE exemption covers crypto, the LA states, because crypto does not qualify as a publicly traded security. “This is true even if individual cryptocurrencies or stablecoins constitute securities for purposes of the Federal or state securities laws,” the LA states.

Cryptocurrency is not a publicly traded security

The definition of “publicly traded security” is narrower than that of “security,” the LA notes. The LA does not relate to the larger question of which cryptocurrencies or stablecoins are securities, nor does it address reasons for the lack of an exemption.

Nonetheless, Aitan Goelman, partner at Zuckerman Spaeder and former director of the Commodity Futures Trading Commission (CFTC) enforcement division, told Cointelegraph:

“If I were a lawyer representing Ripple, I think I would bring the OGE’s opinion up, even though the OGE take pains to distinguish its definition of publicly traded securities from the definition of securities under [the] Howey [test].”

“The OGE’s opinions are very influential at the agencies,” Goelman continued.

All the experts consulted by Cointelegraph agreed on the agency’s high moral authority and absence of political agenda.

Philip Moustakis, counsel in the Seward & Kissel blockchain and cryptocurrency practice groups and a former member of the SEC asset management unit, told Cointelegraph in an email, “I don’t think there is any subtext to be read at all.”

The experts also agreed that the LA would be observed throughout the government, even though the OGE has no enforcement powers to go with its regulatory authority. As a matter of fact, it seems that ethical standards are already widely observed. The LA’s interpretation and detailed commentary on how disclosure requirements apply to mutual funds may be new, but ethics requirements are not.

“Employees of the Securities and Exchange Commission are already required to report their securities holdings,” Moustakis said.

Elizabeth Boison, partner at Hogan Lovells and former Department of Justice (DOJ) prosecutor and member of the department’s National Cryptocurrency Enforcement Team, told Cointelegraph:

“Before the regulators provided clarity on this rules, this is what the regulators were doing any way. […] Even absent guidance, we would talk about this issue [at the DOJ] and we were generally not holding it.”

Goelman observed that the perception of corruption has been a political issue recently, and the LA contributes to a reduction in the perception of financial impropriety in government.

The downside of the OGE LA

When asked what it would take for the OGE to publish a regulation to create an exemption to allow de minimis cryptocurrency holding, Goelman replied simply “motivation.” Swartz dismissed the argument that the prohibition on owning crypto would discourage people from pursuing government careers, saying the OGE had developed ways to help “remove the financial entanglement” of new federal employees. Nonetheless, there are arguments in favor of policymakers holding crypto.

“One of the things a regulator has to understand is how these things work,” Boison said. She named Know Your Customer procedures and setting up wallets as examples of activities where real-life experience is valuable to regulators. She suggested the creation of a “sterile, sanitized lab” setting where regulators could go through the motions of the procedures.

LA 22-04 was followed 10 days later by another crypto-related advisory, this time on disclosure of nonfungible token (NFT) holdings. Fractionalized and collectible NFTs worth $1,000 or more must be reported if “held for investment or production of income,” as well as NFT investments that produce over $200 in profits during a reporting period.

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