BitOoda Regulatory Analysis, 10/12/20: Regulators continue to bolster clarity around digital asset rules

As BTC prices jumped upward this week (more to come on that tomorrow in BitOoda’s weekly volatility report), we also witnessed a mix of bullish and bearish developments on the regulatory front.

The U.K.’s Financial Conduct Authority (FCA) announced a ban on crypto derivatives for retail customers, the FATF issued guidance on red flags for virtual asset service providers, and the U.S. Department of Justice published a framework on crypto crime enforcement, while seven of the world’s biggest central banks (including the Federal Reserve) along with the Bank of International Settlements (BIS) offered a design blueprint for CBDCs, and two U.S. financial leaders — CFTC Chair Tarbert and Senate Banking Committee member Toomey — touted the need to support U.S. digital asset market innovation.

Putting aside the FCA domestic ban on crypto derivatives, we see these actions as continued indications that regulators are moving further toward the legitimization of the digital asset space and the consolidation of regulatory efforts in a more unified direction.

· Coming after a number of recent enforcement actions — highlighted by the charges against BitMEX — the DOJ report provided a whole-of-government picture of U.S. regulatory authorities and jurisdictions. The report also attempted to draw some clear lines for market participants, including those “operating unlicensed, unregistered, or non-compliant exchanges.” (Side note: the report’s thesis on DeFi — that “decentralized platforms, peer-to- peer exchangers, and anonymity-enhanced cryptocurrencies that use non-public or private blockchains all can further obscure financial transactions from legitimate scrutiny“ — solidified the view we offered last week that regulators may enhance their scrutiny of DeFi platforms.)

· The FATF issuance signals a narrowing of tolerance for unregistered VASPs (especially exchanges) that establish their operations in jurisdictions with lax AML/KYC requirements.

· The Fed seems to have pivoted quickly to a proactively engaged posture on the global CBDC discussion, with its participation in the BIS report on how central banks can design a national digital currency to support — rather than compete with — their policy objectives.

· Lastly, we are gratified to see U.S. economic leaders such as Tarbert and Toomey continuing to integrate digital assets into mainstream discussions on U.S. economic policy.

As far as the implications of these developments for BitOoda’s clients and institutional participants looking to grow their engagement in the space, what we see happening is the clearer definition of regulatory jurisdictional boundaries and enforcement priorities for market activity. The DOJ and FATF reports directly call out unregistered exchanges and others who attempt to skirt regulatory oversight, and Tarbert and Toomey are foretelling a push for further use of legislative and regulatory efforts to clarify critical questions such as token classification, the gaps between federal and state rules, and AML standards.

Through our robust regulatory posture, BItOoda is setting the standard for compliant market operations, and we are able to offer an innovative suite of products that cut across asset classes and regulatory jurisdictions to help clients develop effective strategies and solutions to optimize their positions.

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