Crypto, Blockchain, DLT

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>>> Yellen urges federal agencies to 'act quickly' on stablecoin regulation


Yahoo Finance

Brian Cheung

July 19, 2021


https://finance.yahoo.com/news/yellen-urges-federal-agencies-to-act-quickly-on-stablecoin-regulation-203653004.html


The top U.S. financial regulators convened on Monday to expand discussions on a regulatory framework for stablecoins, a type of digital currency that bills itself as a less volatile asset class than other cryptocurrencies.

Treasury Secretary Janet Yellen held a meeting with five federal regulatory agencies to discuss the “rapid growth” of stablecoins, according to a Treasury readout of the meeting Monday afternoon.

The nation’s top regulators acknowledged the potential for stablecoins to be a useful means of payment, but advocated for setting up guardrails to protect stablecoin users, the financial system, and national security.

“The Secretary underscored the need to act quickly to ensure there is an appropriate U.S. regulatory framework in place,” the Treasury reported.

The meeting brought together the heads of the Securities and Exchange Commission, Federal Reserve, Commodities Futures Trading Commission, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.

The officials were briefed by Treasury staff on a forthcoming report on stablecoins, which will include recommendations for addressing “any regulatory gaps” in the current regulatory framework.

Risks ahead?

Whereas many cryptocurrencies are not backed by a specific asset, stablecoins tie their values to one or more other assets, such as sovereign currencies. One selling point for stablecoins: facilitating cross-border payments.

Stablecoins have been growing in popularity, taking some steam out of prime money market funds. The concern is that if left unregulated, stablecoins may be riskier than advertised.

A chart from the Boston Fed, using data from Coin Metrics and iMoneyNet, notes that stablecoins have been growing in popularity against prime money market mutual funds. Source: Federal Reserve Bank of Boston

More

In a December 2020 statement, regulators said they wanted to encourage “responsible payments innovation.” But the statement also raised concerns over the possible financial stability risks that could come from “large-scale, potentially disorderly redemptions” on stablecoins.

If stablecoins continue to attract attention away from money market funds, short-term credit markets could be exposed to any stablecoin event.

“I think we have a tradition in this country where [if] the public’s money is held in what is supposed to be a very safe asset, we have a pretty strong regulatory framework,” Fed Chairman Jerome Powell told Congress last week.

The regulators in December proposed reserve requirements to ensure stablecoin liquidity. The regulators also emphasized that stablecoins must comply with all relevant laws concerning anti-money laundering and countering the financing of terrorism measures.

“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” the Treasury noted last week when it publicly announced the Monday meeting.

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>>> Yellen to Convene U.S. Regulators to Discuss Stablecoins


Bloomberg

Joe Light and Jesse Hamilton

July 16, 2021


https://finance.yahoo.com/news/yellen-convene-u-regulators-discuss-160000948.html


(Bloomberg) -- Treasury Secretary Janet Yellen will convene top U.S. financial-market and bank regulators on Monday to discuss rules for so-called stablecoins, a key part of the cryptocurrency market where government officials are increasingly fretting about a lack of oversight.

The meeting of the President’s Working Group on Financial Markets will “discuss interagency work on stablecoins,” the Treasury Department said in a statement Friday. In addition to the Treasury secretary, the working group is comprised of the heads of the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission, and this session will also include two bank regulators: the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Yellen said in the statement. “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.”

The working group “will examine the current regulation of stablecoins, identify risks, and develop recommendations for addressing those risks,” and expects to “issue written recommendations in the coming months,” the Treasury said.

Regulators are increasingly worried about this new kind of cryptocurrency, which has a fixed price and is backed by real-money reserves, because of risks it poses to investors and the financial system broadly. Lawmakers and officials from the Fed and the administration have expressed alarm both in public and private that some consumers won’t actually be protected should one of the firms not have the backing they purport to have.

They also say the growing size of stablecoins has created a situation where huge amounts of U.S. dollar-equivalent coins are being exchanged without touching the U.S. banking system, potentially blinding regulators to illicit finance.

The market value of U.S.-dollar-backed stablecoins has grown rapidly in the past year and surpassed $100 billion in May. The largest, called Tether, has faced scrutiny from regulators for not always having the backing that it has claimed to have.

Powell Warning

The planned meeting follows comments by Fed Chair Jerome Powell this week warning that stablecoins lack needed regulatory oversight.

“They are like money funds, they’re like bank deposits and they’re growing incredibly fast but without appropriate regulation,” Powell said in answering questions before the Senate Banking Committee on Thursday. “And if we’re going to have something that looks just like a money market fund or a bank deposit or a narrow bank and it’s growing really fast, we really ought to have appropriate regulation. And today, we don’t.”

Fed officials including Boston Fed President Eric Rosengren have highlighted potential growing risks from stablecoins including Tether.

In December, the government warned firms behind stablecoins to tighten protections against money laundering. The Treasury and other agencies said at the time they should be used in a way that “effectively manages risk and maintains the stability of the U.S. domestic and international financial and monetary systems.”

There’s also the question of whether Congress should step in and write new laws that would give regulators more authority to regulate cryptocurrencies. One bill introduced in Congress last year would require stablecoin issuers to have a banking charter and get approval from the Fed, among other agencies.

The concept of a stablecoin is closely linked to the difficult decision the Fed faces on whether to someday launch a digital currency. Powell suggested this week that the best-case scenario for a Fed-run digital dollar would involve Congress issuing a legislative directive rather than letting the regulators pick through existing “ambiguous law” to back up any future moves.

The Fed has already been working on a digital-currencies report that Powell said could be released as soon as September. Among other things, that document will include a discussion on the risks and benefits of stablecoins, he said.

In recent years, the OCC has set itself up as the most aggressive banking agency when it comes to prepping the financial system for the influx of cryptocurrencies. The agency’s former acting head Brian Brooks, a Trump administration pick, made a series of rapid moves to accelerate digital currencies in U.S. banking. But Brooks left and took a job running the cryptocurrency exchange Binance.US, and the OCC’s work is expected to slow under Michael Hsu, the agency’s current temporary chief.

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>>> How to Keep Crypto From Crashing the Financial System

What used to be a sideshow is becoming a systemic risk.


Bloomberg

By Editorial Board

July 8, 2021


https://www.bloomberg.com/opinion/articles/2021-07-08/how-to-keep-crypto-from-crashing-the-financial-system?srnd=premium


Once upon a time, the realm of cryptocurrencies was a curious sideshow, a place where criminals did business and enthusiasts dabbled at their own peril. Not anymore. It’s rapidly evolving into a veritable Westworld of finance, where glitchy simulacra of investment funds, banks and derivatives allow visitors to take on immense risks — risks that could ultimately spill over into traditional markets and the broader economy.

Regulators have been struggling to get a grip on all this. It’s increasingly important that they succeed, and soon.

Whether crypto will prove to be, on balance, a good thing is still unclear. As money, it has so far failed: The volatility, transaction costs and carbon footprint of Bitcoin, for example, have made it largely useless for purposes other than speculation and ransomware (and even there it has flaws). That said, the underlying blockchain technology — which allows people anywhere to transact and create indelible records without relying on a trusted intermediary — may yet have uses beyond selling “official” copies of video clips and commemorating the torching of valuable artwork. In due course, it might help sovereign states improve their official currencies.

Lately, though, the denizens of crypto have been replicating the work of traditional financial institutions, without any of the regulatory guardrails designed to keep them in check. Left unattended, this is not likely to end well.

Exhibit 1 is stablecoins, representations of fiat currencies that operate on the blockchain. They mimic bank deposits by purporting to be worth, say, exactly one U.S. dollar per coin. But unlike banks, the organizations that manage them have no deposit insurance, no recourse to emergency loans from the Federal Reserve, and no limits on where to invest the reserves of fiat money that allegedly back them. Tether, the outfit behind one of the most popular stablecoins, has already been caught lending its dollar reserves to its affiliated crypto exchange, and still claims to hold potentially volatile assets such as precious metals and other digital tokens.

History has repeatedly demonstrated how dangerous such a naked combination of deposit-like liabilities and risky investments can be. Even the rumor of losses can trigger a rush to redeem before the money is gone, with systemic consequences. Suppose, for example, stablecoins became large buyers of commercial paper, short-term debt that companies issue for purposes such as buying supplies and paying employees. (Tether says it already holds tens of billions of dollars of such paper.) A sudden wave of redemptions could starve the market of cash, rendering companies unable to make payroll — similar to what happened in 2008, when the bankruptcy of Lehman Brothers triggered a run on money-market funds that devastated the commercial paper market (a vulnerability that itself has yet to be fully addressed).

Exhibit 2 is the burgeoning world of decentralized finance, or DeFi. Working on the Ethereum blockchain, using “smart contracts” capable of automating transactions, often-amorphous teams of developers have set into motion a panoply of applications. These include exchanges, bank-like platforms and derivatives dealers where people can lend, borrow and make highly leveraged bets. Many of the services have decentralized governance systems that leave decision-making to a constantly changing community of users. Scams abound. Hackers frequently find ways to drain funds, as famously happened with the original autonomous blockchain organization, the DAO. Think of it as full-service shadow banking with nobody in charge.

So far, the sums involved are relatively small — the equivalent of tens of billions of dollars, compared with the hundreds of trillions coursing through global capital markets. But this could change quickly, with far-reaching repercussions — particularly given the amount of leverage involved.

Imagine a group of hedge funds making a large bet on cryptocurrency. In DeFi, an algorithm would typically determine how much of their own money, or “margin,” they would have to commit to get a given amount of exposure. This might be 20%, enough to cover a $20 billion loss on a $100 billion investment. In the highly volatile realm of crypto, though, setting margins is a tricky business. An error, a hack or a sharp market move could cause the algorithm to recalculate, suddenly requiring the hedge funds to deliver billions more by selling assets in other markets — precisely the kind of contagion that tends to trigger broader meltdowns. And that’s just one of many possible scenarios.

What’s a regulator to do?

One promising solution for stablecoins: Require them to deposit their reserves only in traditional banks, which would in turn park the cash at the Federal Reserve. This would make them equivalent to federally insured deposits, leaving them to compete on the quality of the payment services they provide, as opposed to profiting from unduly risky investments.

Properly regulated, stablecoins could have beneficial uses, such as making it easier and cheaper for migrant workers to send money to their families back home. The payment “rails” they help develop might even someday serve as infrastructure for digital cash issued directly by sovereign central banks.

DeFi will be more complicated. One challenge will be defining what a platform actually does — is it like a bank, an exchange, a securities dealer, something else? Another will be figuring out whom to hold accountable in a decentralized organization — the developers, the users? Multiple agencies will have to cooperate, and new legislation will probably be needed to give them the necessary powers.

The overarching goal should be to ensure similar services are competing on the merits, rather than on the degree of regulation they face or their tolerance for crime. In cases where that’s not possible, some may have to be outlawed.

To their credit, global regulators are aware of the issues and are starting to engage. They’ve thought deeply about the options for addressing stablecoins. They’ve met with DeFi participants to better understand the risks. They’ve set forth concrete proposals to keep traditional banks safe. But they need to act quickly. This could get very big, and very dangerous, very fast.

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>>> Sotheby’s will accept bitcoin or ether for $15 million diamond sale


MarketWatch

July 7, 2021

By Bérengère Sim


https://www.marketwatch.com/story/sothebys-will-accept-bitcoin-or-ether-for-15-million-diamond-sale-11625649263?mod=article_inline


Recently minted cryptocurrency millionaires, unsure of what to do with their newfound wealth, can now bid for a $15 million 100-carat diamond at Sotheby’s auction — a first for a gem that valuable.

Sotheby’s 9 July auction comes as the art world and cryptocurrencies become more interlinked, with non-fungible tokens, which are smart contracts built on blockchain networks, selling for millions.

Those interested in buying the pear-shaped diamond can pay with either ether ETHUSD, +2.29% or bitcoin BTCUSD, 1.96%, and cryptocurrency exchange Coinbase Commerce will facilitate the payment.

“The most ancient and emblematic denominator of value can now, for the first time, be purchased using humanity’s newest universal currency,” said Wenhao Yu, deputy chair of Sotheby’s jewelery in Asia, in a statement.

“Never was there a better moment to bring a world-class diamond such as this to the market.”

The diamond, which is being auctioned as part of Sotheby’s “luxury edit” sale series in Asia, is on display at its Hong Kong gallery from 3 to 8 July. It is the second-largest pear-shaped diamond ever to appear on the public market, the auction house said. Bidding online started on 25 June.

“The fact that cryptocurrency is to be accepted as payment also marks a significant moment in the evolution of the market: no other physical object with an estimate even approaching the US$10-15m (HK$78-118 million) estimate this diamond carries, has ever been publicly offered for purchase with cryptocurrency,” the auction house’s statement said.

Digital high-net-worth individuals have diversified their investments during the pandemic, with many buying rare editions of trainers, vintage sports cards and jewelery.

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>>> EU countries approve landmark climate change law


Reuters

6-28-21

By Kate Abnett


https://www.msn.com/en-us/money/markets/eu-countries-approve-landmark-climate-change-law/ar-AALwJlP?ocid=uxbndlbing


BRUSSELS (Reuters) - European Union countries on Monday gave the final seal of approval to a law to make the bloc's greenhouse gas emissions targets legally binding, as EU policymakers prepare a huge new package of policies to fight climate change.

Negotiators from Parliament and EU member states reached a deal in April on the climate law, which sets targets to reduce net EU emissions by 55% by 2030, from 1990 levels, and eliminate them by 2050.

Ministers from the 27 EU countries formally approved the deal on Monday, except for Bulgaria, which abstained.

"The final compromise does not reflect our national position sufficiently," a Bulgarian government spokesman said, without specifying further.

Leaders from all EU countries signed up to the 2030 emissions-cutting target in December, which aim to put the bloc on a pathway that, if followed globally, would avoid the worst impacts of climate change. The targets apply to overall EU emissions, rather than a binding requirement for each country.

The law aims to put climate at the heart of all EU policymaking, ensuring that future regulations support the emissions-cutting aims.

Doing that will require a huge policy overhaul. Most EU laws are designed to meet a previous target to cut emissions by 40% by 2030.

The European Commission will begin that upgrade on July 14, when it proposes a dozen policies to reshape industry, energy, transport and housing to emit less CO2. The proposals will include EU carbon market reforms, tougher CO2 standards for new cars, and more ambitious renewable energy targets.

The climate law also requires Brussels to launch an independent expert body to advise on climate policies, and a budget-like mechanism to calculate the total emissions the EU can produce from 2030-2050, under its climate targets.

The European Parliament approved the law last week. Parliament and member states will sign the text, a formal step, this week before it becomes law.

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>>> Cathie Wood’s ARK Invest is readying the first bitcoin ETF with 21Shares


MarketWatch

June 28, 2021

By Mark DeCambre


https://www.marketwatch.com/story/cathie-woods-ark-invest-just-applied-to-offer-the-first-bitcoin-etf-11624915045?siteid=yhoof2


ARK Invest is teaming up with 21Shares AG’s U.S. affiliate, which serves as the filer and issuer of the ARK 21Shares Bitcoin ETF.

You can throw Cathie Wood’s ARK Invest in the ring of companies hoping to eventually offer a bitcoin-backed exchange-traded fund.

According to a regulatory filing on Monday, Wood has teamed up with 21Shares to offer the ARK 21Shares Bitcoin ETF, which would trade under the ticker symbol “ARKB,” if approved. The bitcoin BTCUSD, 0.42% ETF would list on the Cboe Global Markets CBOE, -0.50% and would use the S&P Bitcoin Index as its benchmark.

Wood’s prospectus is a part of a growing list of ETF providers and fund managers who are seeking to offer crypto in an ETF wrapper to the masses. Coinbase Global’s COIN, 0.47% custodial unit will serve as custodian of the ETFs holdings, according to the filing.

A spokeswoman for ARK Invest said that the company couldn’t comment on its plans. In the effort, ARK joins with a U.S. affiliate of 21Shares AG, a Switzerland-based provider, which has been behind a number of exchange-traded products.

Wood, the ARK Investment Management CEO and prominent promoter of technologies that she perceives as disruptive, has estimated that bitcoin’s price, currently at around $34,000, down about 50% from its mid-April peak, could hit as high as $500,000 if all institutions were to assign a mid-single-digit allocation to the virtual asset, putting it on their balance sheets.

ARK Invest’s actively managed ETFs have been on the recovery after swooning in the spring, amid a rotation out of large-cap tech names. Barron’s reported that her fund has gained an average of 22% since May 13, with the flagship ARK Innovation ARKK, -0.46% leading the chart, up over 30%.

A bitcoin ETF has been the holy grail of the crypto industry, but one that looks increasingly unlikely to be achieved this year under Gary Gensler, the new commissioner of the Securities and Exchange Commission.

A bitcoin ETF is seen as offering wider accessibility to average investors seeking direct crypto exposures.

Wood’s ambitions to list a bitcoin ETF may pit her against Grayscale Bitcoin Trust GBTC, 1.69%, a closed-end fund holding bitcoin, which is considered one of the biggest crypto funds. There also have been plans afoot for Grayscale trust to eventually convert to an ETF from its current structure. However, it hasn’t yet applied to do so.

ARK Invest has been a big investor in GBTC.

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>>> Why the Fed is getting worried about the most boring thing in crypto


Yahoo Finance

Zack Guzman

July 1, 2021


https://finance.yahoo.com/news/why-the-fed-is-getting-worried-about-the-most-boring-thing-in-crypto-105555730.html


Unlike crypto critics who attack bitcoin and other cryptocurrencies for being too volatile, the Federal Reserve is increasingly sounding the alarm over investigating the coins that set out to be far more boring: stablecoins.

As their name suggests, stablecoins are cryptocurrencies that set out to remain stable over their lifetimes and try to maintain a value as close to $1 (or other base currencies) as possible.

Tether, the largest stablecoin in the world with a market cap of more than $60 billion, originally purported to be backed 1-for-1 by cash holdings. Earlier this year, after a settlement with the New York Attorney General's office, it was revealed to only have about 5% of its collateral in cash. Most of its portfolio is actually invested in commercial paper, or short-term corporate debt, making Tether similar to a prime money market fund in the eyes of some Fed officials.

As Boston Fed President Eric Rosengren explained in a recent interview on Yahoo Finance, prime money market funds have gotten into trouble during the last two major recessions, requiring the Fed to intervene both times. But recently, more money has been flowing exponentially into stablecoins, like Tether, relative to prime funds, which have seen a drop in popularity since the financial crisis.

"I do worry that the stablecoin market that is currently pretty much unregulated, as it grows and becomes a more important sector of our economy, that we need to take seriously what happens if people run from these type of instruments very quickly," he said. "Just like the money market funds caused a bad disruption in credit markets, I think a future financial stability problem could be occurring if we don’t start thinking carefully about what happens to things like stablecoins next time we have a market difficulty."

In a recent presentation, Boston Fed President Eric Rosengren pointed out that stablecoins have seen a parabolic rise in assets under management relative to prime money market funds, which have dwindled since the 2008 financial crisis.

Of course, it didn't take much to spark panic among investors to begin a rush to withdraw their funds from one of the largest money market funds back in 2008. Despite the fact that the Reserve Primary Fund, which was roughly the same size as Tether today, held only 1.5% of its assets in Lehman Brother's commercial paper, the fear of Lehman going bust caused customers to withdraw nearly two-thirds of the fund in just 24 hours. When the value of the fund's shares "broke the buck" to trade at just 97 cents, the Fed stepped in to save the day. Confidence was restored and businesses could once again access short-term liquidity through commercial paper that helps fund daily liquidity and payroll needs.

After settling with the New York Attorney General's office, Tether agreed to disclose the holdings backing its stablecoins. In total, its nearly 76% cash and cash equivalents are mostly comprised of commercial paper.

After settling with the New York Attorney General's office, Tether agreed to disclose the holdings backing its stablecoins. In total, its nearly 76% cash and cash equivalents are mostly comprised of commercial paper.

According to Rosengren, Tether in a way is just a riskier example of a money market fund. It even holds assets like longer term corporate debt and precious metals, which a normal, regulated fund would not. But as Tether has swelled in size, it has also now presented a new risk to the financial system as it's become one of the largest single holders of commercial paper. As a recent JPMorgan note pointed out, its holdings firmly place it in the top 10, even close to Vanguard.

But for Fed watchers like Avanti Bank founder Caitlin Long, who spent 22 years on Wall Street before crossing over into the world of crypto to win one of the first crypto banking charters, the new warning around stablecoins like Tether is a ramping up of a call to regulate them. As she told Yahoo Finance Wednesday, it's the first time she's seen a Fed speaker mention one of the stablecoins by name.

"I can't think of another example when the Federal Reserve mentioned a company as a potential systemic risk before there was actually any risk that actually happened," she said.

To be fair, Tether wasn't the only stablecoin Rosengren alluded to. He also made a nod to the riskier, crypto-collateralized stablecoin project, Iron Finance, that collapsed earlier this month and even ensnared an investment from Shark Tank's Mark Cuban. But the broader takeaway from Rosengren and others at the Fed seems to be an admission that stablecoins are growing so quickly that it's too big of a potential disruptor to continue ignoring. At the onset of the pandemic last year, the Fed once again had to jump in to backstop the commercial paper market. Stablecoins playing a larger role there raises new wrinkles if issues should arise again.

Tether for its part has only disclosed that the majority of the commercial paper it holds is from A-2 rated issuers (the second-highest credit tier) and above, and insists its portfolio is diversified. But that uncertainty, coupled with some questions around how much leverage is being used by the likes of unregulated crypto lending platforms (which have also swelled in size) pose some of the same risks that echo the 2008 crisis, Long says.

"When financial institutions go down, whether it's in crypto or whether it's in the mainstream world, what we've seen is that there's —behind the scenes — a lot more leverage than anyone thought there was," she said. "It always happens that way."

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>>> Binance, the world's largest cryptocurrency exchange, gets banned by UK regulator


CNBC

by Ryan Browne


https://www.msn.com/en-us/news/other/binance-the-worlds-largest-cryptocurrency-exchange-gets-banned-by-uk-regulator/ar-AALwM8y?ocid=uxbndlbing


Britain's Financial Conduct Authority said that Binance Markets Limited "is not permitted to undertake any regulated activity in the U.K."
From June 30, Binance must notify U.K. users of the FCA's restrictions in a prominent place on its website and apps.

It's the latest sign of a growing crackdown on the cryptocurrency market from regulators around the world.


LONDON – Cryptocurrency exchange Binance has been banned from operating in the U.K. by the country's markets regulator, in the latest sign of a growing crackdown on the crypto market around the world.

Britain's Financial Conduct Authority said Saturday that Binance Markets Limited, the U.K. division of Binance, "is not permitted to undertake any regulated activity in the U.K."

From June 30, the company — which already offers Brits crypto trading through its website — must add a notice in a prominent place in its website and apps showing U.K. users the following text:

BINANCE MARKETS LIMITED IS NOT PERMITTED TO UNDERTAKE ANY REGULATED ACTIVITY IN THE U.K. Due to the imposition of requirements by the FCA, Binance Markets Limited is not currently permitted to undertake any regulated activities without the prior written consent of the FCA. (No other entity in the Binance Group holds any form of U.K. authorisation, registration or license to conduct regulated activity in the U.K.).

Binance, the world's largest crypto exchange by trading volumes, was set to launch its own digital asset marketplace in Britain. However, it was one of several crypto firms that withdrew applications to register with the FCA due to not meeting anti-money laundering requirements.

"Binance Markets Limited withdrew their 5MLD application on 17 May 2021 following intensive engagement from the FCA," a spokesperson for the FCA told CNBC. "The action taken today on Binance Markets Limited has been in train for some time."

The FCA spokesperson clarified that the scope of the ban was limited. Though Binance Markets Limited is banned from offering regulated services in Britain, non-registered firms can still interact with U.K. consumers. That means Binance could still offer Brits crypto trading through its website.

A Binance spokesperson told CNBC: "The FCA U.K. notice has no direct impact on the services provided on Binance.com ... Our relationship with our users has not changed."

"We take a collaborative approach in working with regulators and we take our compliance obligations very seriously," the spokesperson added. "We are actively keeping abreast of changing policies, rules and laws in this new space."

"The FCA has stated that Binance is not permitted to conduct regulated activities in the U.K.," Laith Khalaf, financial analyst at AJ Bell, said via email. "Providing access to cryptocurrencies itself is not a regulated activity, but offering derivatives is, which is presumably the activity the FCA is clamping down on."

The FCA isn't the only regulator clamping down on the crypto industry.

Japan's Financial Services Agency warned last week that Binance was operating in the country without its permission.

Meanwhile, China has stepped up efforts to stamp out crypto speculation, ordering digital currency miners to cease operations in a number of regions and urging banks and payment firms not to offer crypto-related services.

Increased regulatory scrutiny has weighed on the nascent crypto market. Bitcoin had a solid start to the year, rallying to an all-time high of almost $65,000 in April. But it's since almost halved in value, trading at $34,783 as of Monday morning.

"This isn't a step change in regulation which is going to knock the crypto craze on the head, but it is part of a growing trend of regulatory intervention in crypto markets," Khalaf said, referring to the FCA's restrictions on Binance.

"The idea that policy makers are simply going to allow a decentralised shadow payments system to emerge without any regulatory oversight is fantastical, and if the use of cryptoassets becomes more widespread, we can expect beefed-up regulation to follow suit."

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>>> Bitcoin’s Volatility Spawns New Crypto Balance Sheet Alternative


Bloomberg

By Olga Kharif

May 29, 2021


https://www.bloomberg.com/news/articles/2021-05-29/bitcoin-s-volatility-spawns-new-crypto-balance-sheet-alternative


Circle to offer USDC stablecoin accounts paying interest

Firm is betting treasurers will next look at stablecoins


Corporate treasurers fed up with rock-bottom returns on their cash are about to get another pitch from the world of crypto.

Circle Internet Financial Ltd., one of the digital-asset firms behind the so-called stablecoin dubbed USDC that is pegged 1-to-1 to the dollar, has cooked up an alternative for the legions too conservative to follow the likes of Elon Musk and Jack Dorsey into Bitcoin. Park your extra cash in USDC and earn as much as 7% annually through high-yield accounts, the marketing says -- more than 10 times the return on an ultra-safe 1-year Treasury bill.

The idea may be appealing to some treasurers who were initially seduced by the big gains in crypto, especially following Bitcoin’s roughly 40% decline since mid-April. Stablecoins such as USDC are gaining increased attention because of their ability to maintain their pegs during the wild crypto price swings, suggesting they could actually serve as a store of value. Even so, not all long-term digital market observers are convinced.

“If companies wish to put their corporate reserves into a stablecoin and that is fully audited, it is like putting their money in a bank account which is what they normally do,” John Griffin, professor of finance at the University of Texas at Austin, said in an email. “However, if the account is paying out a higher yield than bank account yields, then it is not merely invested in some risk-free asset.”

Here’s how Circle’s program will work: Treasurers would open a “digital-dollar account” where the company’s fiat money is converted into USDC and interest is paid out in USDC. The yield is generated by Circle lending the digital dollars to a network of institutional investors that are willing to pay an interest rate for access to additional capital.

The companies would lock in their return when the account is opened, similar to a bank certificate of deposit. Circle plans to offer accounts with maturities ranging from one month to a year, with no early withdrawals allowed. Rates available will be updated on a weekly basis, depending on demand for USDC loans.

That’s a bit tamer than the strategy first highlighted last year by MicroStrategy Inc. Chief Executive Officer Michael Saylor, who advocated pouring company reserves into Bitcoin because he said the dollar is being debased by surging inflation. Musk’s February announcement that Tesla Inc. had added Bitcoin to its balance sheet helped fuel the rally that took the largest cryptocurrency to a record in April before it lost more than one-third of its value.

“Corporate reserves are not for investing in stocks, going to Vegas, or something more volatile and more rigged against you like Bitcoin,” Griffin said.

With few companies outside the crypto realm following MicroStrategy, Tesla and Dorsey’s Square Inc. into Bitcoin, Circle hopes that stablecoins may be the next logical step. The company is working with Genesis Global Capital, one of the largest crypto lenders.

The service will be first made available in the U.S. and Switzerland, and will launch “imminently,” Jeremy Allaire, Circle’s CEO, said in an interview. Thousands of businesses are already on the waiting list, according to Circle.

“We are seeing the opportunity for the treasury use-case grow a lot,” Allaire said.

Other providers of stablecoins are rolling out similar offerings. On May 26, Gemini exchange -- the brainchild of the Winklevoss brothers -- said investors can earn up to 7.4% annually on Gemini dollars through a program called Gemini Earn. The Gemini token is also pegged to the dollar and its reserves are held with State Street Bank and Trust, the largest financial custodian in the world. Each month, the dollar deposit balance is examined by BPM LLP, an independent registered public accounting firm.

USDC reserves are attested to monthly by accounting firm Grant Thornton LLP and published online.

Various small crypto lenders already offer yield accounts for different coins, including less regulated stablecoins like Tether.

For these products, “appropriate users would be people who invest in junk bonds or similar risky lending,” said Aaron Brown, a crypto investor and writer for Bloomberg Opinion. “It might offer a better risk-adjusted return than alternatives. . . or not. But whatever it is, it’s not a savings account in the way most people understand that term.”

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