Crypto Regulation News Weekly Digest: CZ’s Guilty Plea and Grayscale’s Bitcoin ETF Prospectus

Last updated: November 29, 2023 00:40 EST
. 6 min read

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Last week brought several major developments on the crypto regulation front. Binance founder Changpeng Zhao pleaded guilty to criminal charges in the U.S. and now faces up to 10 years in prison. Meanwhile, Grayscale submitted an updated prospectus for converting its Bitcoin Trust into a spot ETF, fueling hopes that approval may be close. Overseas, Singapore announced tighter regulations to protect crypto consumers, including banning crypto ads and incentives. Finally, ECB President Christine Lagarde revealed her son lost most of his crypto investments, reinforcing her skeptical stance.

In this column, we will analyze these key events from the past week and what they mean for the future of crypto oversight worldwide. The plea deal, persistent ETF application, bans on retail marketing, and high-profile crypto losses all signal intensifying global regulation. But many questions are present on how far restrictions will reach and what lies ahead for crypto businesses and investors.

CZ Pleads Guilty, Faces Up to 10 Years in Prison

Changpeng Zhao, the billionaire founder of Binance, rocked the crypto world last week when he pled guilty to criminal charges related to money laundering and sanctions violations. The plea deal requires Binance to cease operations in the U.S., while Zhao himself may face up to a decade behind bars.

Zhao admitted that Binance failed to maintain proper anti-money laundering safeguards. This enabled illicit funds to flow undetected across the platform.

Prosecutors highlighted how Binance marketed heavily to U.S. customers despite concealing its corporate structure and lacking proper state licenses. The exchange also facilitated “billions of dollars” of crypto transactions for its US customers, without implementing so-called “know your customer” checks. For these transgressions, Zhao could serve up to 10 years in prison when sentenced in February 2024.

U.S. Attorney General Merrick Garland asserted that “using new technology to break the law does not make you a disrupter, it makes you a criminal.”

Meanwhile, Coinbase CEO Brian Armstrong drew contrasts between Binance’s lawlessness and his exchange’s embrace of regulation from day one.

Armstrong posted on X that the Binance ruling “reinforces that doing it the hard way was the right decision,” suggesting properly licensed exchanges may gain market share. With its plea deal, Binance has vowed to revamp its compliance program. But the damage to its reputation may linger, especially if its founder receives substantial prison time next month.

Since the founding of Coinbase back in 2012 we have taken a long-term view. I knew we needed to embrace compliance to become a generational company that stood the test of time. We got the licenses, hired the compliance and legal teams, and made it clear our brand was about trust…

— Brian Armstrong 🛡️ (@brian_armstrong) November 21, 2023

On the other hand, House Majority Whip Rep. Tom Emmer touted CZ’s punishment as evidence that new crypto laws are not needed, taking an opposite stance to lawmakers and advocates who believe new crypto rules are still required.

Emmer said existing laws can successfully prosecute bad actors like CZ. He believes Congress should focus on attracting crypto businesses rather than passing new legislation.

Emmer stated congressional resources should be spent bringing crypto activity onshore to aid national security.

Grayscale Persists with Bitcoin ETF Prospectus

While crypto companies grapple with increasing oversight, investor demand for SEC-approved investment products continues unabated. Last week, Grayscale submitted an updated prospectus for converting its Grayscale Bitcoin Trust into a spot Bitcoin ETF.

Grayscale has been pursuing approval since 2021, facing repeated rejections from the SEC. But the asset manager seems undeterred, encouraged by growing public and political support for a Bitcoin ETF.

After suing the SEC in June 2022, Grayscale secured a court order requiring the agency to review its application last month. The revised filing specifically addresses SEC feedback.

Among the changes are a proposed ticker switch to BTC and shortened sections on cash creation policies. But no major revisions mean Grayscale believes it already meets regulatory standards.

If approved, analysts predict Grayscale could instantly become the largest bitcoin ETF, commanding $50 billion in assets. Its conversion could finally open the gates for other issuers like Fidelity and BlackRock waiting in the wings.

Of course, the SEC could simply delay its decision further. Continued engagement with Grayscale suggests a change in posture, however. With Bitcoin firmly entrenched in finance, regulators appear to be running out of reasons to deny investors ETF access.

By persisting through years of rejection, Grayscale seeks to become the first issuer to break through the ETF barrier. Its conversion would spur the next evolution in regulated crypto investing.

Singapore Announces Stricter Crypto Regulations

Singapore is the latest nation to tighten its regulatory grip on the crypto sector. The Monetary Authority of Singapore (MAS) unveiled new measures last week to protect retail consumers from crypto risks.

While Singapore nurtures crypto innovation, its regulations have always focused on safeguarding individuals. In 2022 MAS barred firms from marketing to the public or offering improper incentives. Last week’s expansion prohibits additional practices including:

Accepting credit card payments for crypto purchases
Providing crypto borrowing or lending services
Margin/leverage-based crypto trading

MAS today published business conduct and consumer access measures for Digital Payment Token services in Singapore to limit potential consumer harm. They will be implemented through regulations and guidelines, which will take effect in phases from mid-2024. https://t.co/laevvAlW0a pic.twitter.com/kxBLRQG0az

— MAS (@MAS_sg) November 23, 2023

These bans on crypto financing options directly address core consumer risks like excess leverage and spiraling debt. MAS also mandated more transparent listing criteria and complaint procedures.

The regulator continues warning that crypto is highly speculative despite added rules, however.

“DPT service providers have the obligation to safeguard the interests of consumers who interact with their platforms and use their services,” MAS managing director Ho Hern Shin stressed.

Singapore’s approach shows that even crypto-friendly jurisdictions realize the sector’s volatility necessitates some paternalistic interventions.

With comprehensive restrictions now in place, Singapore may inspire other Asian regulators concerned about unchecked crypto trading.

ECB’s Lagarde Reveals Son’s Crypto Losses, Calls for Heightened Crypto Regulation

The crypto skepticism displayed by global financial leaders often stems from first-hand experience. Last week, European Central Bank (ECB) President Christine Lagarde revealed her son suffered major losses from his own crypto investments.

Lagarde has frequently warned about the volatility and risk posed by cryptocurrencies. Speaking at a student event in Frankfurt, she disclosed that one of her sons invested in crypto against her advice and ended up losing 60% of his money when prices declined.

This personal episode only seems to reinforce Lagarde’s highly critical view of the crypto marketplace.

Christine Lagarde’s son looses money in crypto. This is one of the reasons why Lagarde is against crypto currency.

Dear Christine Lagarde’s son, for the future of crypto currency in Europe, please stop loosing money! #CryptoNews #Lagarde #Europe #CryptoCommunity

— AG Crypto House🏠 (@AGCryptoHouse) November 27, 2023

“I have, as you can tell, a very low opinion of cryptos,” Lagarde said. “People are free to invest their money where they want, people are free to speculate as much as they want, [but] people should not be free to participate in criminally sanctioned trade and businesses.”

Under Lagarde’s leadership, the ECB has been a vocal advocate for establishing comprehensive global regulations on crypto assets. The bank is concerned about crypto’s potential to enable criminal activities and displace government-backed currencies.

The ECB is also piloting the development of a digital euro, hoping to provide a centralized digital payment alternative to decentralized cryptos. Lagarde said in September that a digital euro pilot will take at least two more years before any potential rollout.

Lagarde’s personal story shows how first-hand experiences can shape policymakers’ perspectives, even at the highest levels. As more officials or their families get burned by crypto market swings, calls for greater oversight may amplify across global finance.

Balancing Crypto’s Potential and Perils

Last week brought several telling examples of the rapid maturation underway in crypto regulation worldwide. From criminal charges to protective bans to personal warnings, regulators demonstrated their resolve to mitigate perceived risks. The ultimate goal should be measured oversight that steers crypto’s evolution without stifling it, however.

Reasonable rules that check excesses and prevent fraud are key for the crypto regulation ecosystem to keep pace with technological change. A balanced approach recognizes cryptos’ potential alongside their perils.

With so many diverse interests at stake, disputes over regulation will persist. Still, recent events reaffirm that oversight is an imperative, not an option. Collaboration between lawmakers and crypto firms will shape the optimal path forward.

Last week offered milestones, but not an endpoint. The future of crypto regulation promises continued progress through principled trial and error.