Regulation was the name of the game in cryptocurrencies this week, as two world powers took steps to lay down the law for digital assets.
China strengthened its position on making cryptocurrencies illegal in the country, as the central bank issued a notice laying out a series of new rules across various parts of internet, financial and planning laws. The crackdown led to cryptoasset prices tumbling on 24 September.
Further to the west, the US also advanced towards enshrining a crypto provision into law, and banks hit back at proposals that would see them forced to hold high capital levels in order to manage bitcoin and other cryptocurrencies.
In case you missed it, here are five things that happened in crypto this week that you should know about.
China cracks down on crypto
The People’s Bank of China is to impose harsh penalties on cryptocurrency funding activities in the country, ruling that all cryptocurrency-related transactions are illegal.
Activities punishable as criminal offences include bans on exchanging cryptocurrencies with legal tender and exchanging between virtual currencies, token issuance, derivatives, and providing information on cryptocurrencies to others, it said on 24 September.
However, the bank stopped short of making cryptocurrency possession a criminal offence.
Overseas crypto exchanges are not permitted to supply digital asset transactions to mainland Chinese investors, it added. Chinese people working at such outlets will be held responsible.
The announcement sent cryptocurrency prices sliding, with bitcoin tumbling 4.8% to around $42,700 and ether 8.5% to $2,886 as of 10:50am BST.
The Chinese central bank said it wants to stop early “trading hype” around cryptocurrencies from development, ordering local governments to assist in the crackdown. It had already banned banks and financial institutions from participating in crypto or dealing with crypto-related clients in May.
READ Here’s why China wants to go further in its crackdown on crypto
“Recently, virtual currency trading hype activities have risen, disrupting economic and financial order, breeding illegal and criminal activities such as gambling, illegal fundraising, fraud, pyramid schemes and money laundering, seriously endangering the safety of people’s property,” the PBOC said in a translated notice on its website.
The central bank said it will expand its oversight of the internet, a regulation known elsewhere as the Great Chinese Firewall which prevents access to popular Western sites such as Google and Twitter, to include cryptocurrency-related content in the coming days.
China’s economic planning agency also said the country will not allow cryptocurrency mining projects to participate in electricity markets, with plans to tighten regulation on energy use in order to meet its carbon reduction goals.
Get paid for using Twitter… in bitcoin
Twitter is rolling out the ability for users to tip popular creators with bitcoin on its platform, after a successful testing period in May.
Tips, the tool which will facilitate those that create tweets that resonate with Twitter’s audience, has been around for a while with traditional currencies, using digital payment services such as Square’s Cash App (also founded by Twitter boss Jack Dorsey), Patreon and PayPal’s Venmo.
Bitcoin tips will be available for creators to receive using the Strike bitcoin wallet in El Salvador or the US, or by adding their own crypto wallet address to the site.
The social media platform said in a blog post on 23 September that all users of its iOS app globally will be able to use the feature, with plans to expand it to Android users in the coming weeks.
“We want everyone on Twitter to have access to pathways to get paid. Digital currencies that encourage more people to participate in the economy and help people send each other money across borders and with as little friction as possible – help us get there,” said Esther Crawford, a product manager at Twitter.
Twitter added that it is also experimenting with a feature that would allow users to show off their collection of digital collectibles, known as non-fungible tokens or NFTs, on the platform.
US lawmakers move to regulate crypto
The US House of Representatives has passed its annual national defence budget bill — but with a crypto twist for 2021.
The National Defence Authorisation Act this year contains a crypto provision, which if passed in the Senate, will require the top two US markets watchdogs to clearly outline which body is responsible for regulating cryptocurrencies across various jurisdictions.
The provision is designed to bolster US competitiveness on financial inclusion. If enacted, Congress would create a working group of Securities and Exchange Commission and Commodities Futures Trading Commission representatives, as well as external representatives from fintech firms and other businesses. The group would have a year to analyse how the market currently operates, how it impacts US competitiveness and produce a report of recommendations.
The National Defence Authorisation Act is viewed as a “must-pass bill”, according to CoinDesk, with wide bi-partisan support. Once the Senate passes its version of the bill, Congress will come together to vote on the final bill.
It comes as crypto exchange Coinbase plans to submit its own recommendations for digital asset regulation to the SEC, after the two became embroiled in a dispute over Coinbase’s proposed lending product.
READ Coinbase to suggest crypto rules framework to US regulators
Coinbase, which has since decided to scrap the Lend product until further notice, will put forward a pitch about the definition of what is considered a security within the US. Its chief executive Brian Armstrong said the proposed regulatory framework could arrive as soon as the end of this month.
Armstrong said that when he goes to DC, government officials ask about whether the firm has a proposal or draft that they “could try to shop around about how this could be regulated federally”.
“But this is going to require input from a lot of people, and that willingness [on the part of lawmakers] to kind of engage with private industry and learn about what the opportunity is here,” he told TechCrunch in a 21 September interview.
Invesco piles into bitcoin
Invesco, one of the biggest operators of exchange-traded funds in the US, is making plans to roll out several funds backed by bitcoin and other cryptocurrencies for its clients.
The US asset manager said on 22 September that it is joining with digital assets provider Galaxy Digital to develop US-listed ETFs that hold and track the performance of bitcoin and other cryptocurrencies.
The US Securities and Exchange Commission has yet to approve the trading of such products. However, Invesco plans to be at the front of the line when it does.
READ Invesco ties up with Galaxy Digital for crypto ETF
Among the first funds planned under the partnership is a bitcoin-holding ETF that was originally proposed by Galaxy last spring. The ETF’s filing with the SEC was revised to make Invesco the fund’s sponsor on 21 September.
“It’s not just about getting the first bitcoin ETF to the market,” said John Hoffman, head of Americas, ETFs and indexed strategies at Invesco, in an interview with the Wall Street Journal. “This is about expanding the horizon. We ultimately think we can define this new market.”
Banks reject tough crypto proposals
The biggest US and European banks have pledged to oppose strict new rules that could require them to set aside a dollar in capital for every dollar of bitcoin they own.
The Global Financial Markets Association, a forum for banks including JPMorgan Chase and Deutsche Bank, and five other industry associations pushed against the proposals made by the Basel Committee for Banking Supervision in June.
In a letter published on 21 September, the groups argued that the most traded cryptocurrencies, including bitcoin, shouldn’t face such strict capital requirements.
READ Banks object to harsh Basel rules governing cryptocurrencies
While regulators have said they are concerned about consumer protection, money laundering and terrorist financing threats from the use of cryptocurrencies, the trade associations said that the proposed new rules are counterproductive because they would prevent banks from holding cryptocurrencies, which would be forced into unregulated corners of the financial system.
“We find the proposals in the consultation to be so overly conservative and simplistic that they, in effect, would preclude bank involvement in crypto asset markets,” the associations wrote in the letter to the Basel Committee.
The Basel Committee said in June that banks should apply a 1,250% risk weight to bitcoin, which it said is “similar in effect to the deduction of the asset from capital.”
This would mean that if a bank holds $100 of bitcoin exposure, it would give rise to risk-weighted assets of $1,250, which when multiplied by the minimum capital requirement of 8% results in setting aside at least $100, the committee said.
To contact the author of this story with feedback or news, email Emily Nicolle