Good morning, and welcome to Protocol Fintech. This Monday: crypto’s fog of war, Yuga Labs’ CryptoPunks takeover, and the latest in SEC v. Ripple.
Off the chain
I’ve been thinking about how a lot of companies you don’t think of as financial in nature really are fintech. Airbnb, for example: Sure, it’s a lodging marketplace, but its business is really about moving money from guest to host, often across borders. I noticed that Airbnb’s payments business paid a $91,172.29 fine to OFAC in January for violating sanctions against Cuba. That’s why the notion of using fake Airbnb stays as a way to raise funds for Ukraine relief, while well-meaning, is kind of alarming. People booking stays in apartments that don’t exist for trips they don’t plan to take is not the kind of thing regulators love.
— Owen Thomas (email | twitter)
Crypto wrestles with the fog of war
Crypto was ready to battle it out over regulations this year. But the industry has been forced to draw up new plans as it wrestles with the fog of the Ukraine war.
The Russian invasion sparked worries about how crypto could be used by authoritarian leaders to thwart U.S. foreign policy. Those fears have eased a bit in the past week, as experts in industry and government pointed out that the blockchain is a terrible place to try to hide money.
But the crypto industry is bracing for the unexpected — and keeping a keen eye on sudden moves in the Capitol — as geopolitical conflict raises the stakes.
Can crypto help Putin and his friends evade sanctions? Next to impossible and certainly impractical, the industry was quick to assert as the war got underway earlier this month.
- “Russia can't and won't use crypto to evade sanctions,” Jake Chervinsky, the Blockchain Association’s head of Policy, stressed just days after the invasion. “Concerns about crypto's use for sanctions evasion are totally unfounded.”
- Senate Democrats led by Elizabeth Warren apparently weren’t convinced, expressing fears in a letter to the Treasury Department that crypto had been used to “hide cross-border transactions for nefarious purposes” and that Vladimir Putin and his allies could use it to evade sanctions.
- In a Thursday Senate hearing, FBI Director Christopher Wray expressed doubts that Russia could do that, noting that his agency had “built up significant expertise” in tracking and seizing ill-gotten digital assets.
- Still, crypto is near the center stage of a raging international conflict and the industry has to tread carefully as it finds its way. “We haven't, as an association, done much around sanctions policy,” Kristin Smith, executive director of the Blockchain Association, told Protocol. “We were just mindful to not get out ahead of our skis.”
The war will reshape the crypto conversation. The fast-growing, controversial industry has skirmished with regulators over whether crypto offers enough protections against bad actors.
- Smith said one concern was that “there's a small number of senators that are posing questions around this … and trying to use this example to bring more regulation to this space.”
- The war also highlighted a positive side of crypto. “Ukraine has been able to fundraise [with] crypto even though there's a foreign adversary trying to shut down their financial system,” Diogo Mónica, co-founder and president of Anchorage Digital, told Protocol. The relief effort is a “recognition that crypto is a force for good.”
- Fears of a coming government clampdown on crypto eased last week with President Joe Biden’s executive order affirming the need to make sure protections are in place while endorsing the importance of the technology and the industry.
The crypto regulatory front still looks hazy. The Biden order didn’t settle all the key issues, and has been criticized for being vague on how federal regulators should approach the industry.
- In a curious twist, the title of the order posted on the White House website was revised, replacing the word “innovation” with “development,” a last-minute change that some thought suggested a more cautious attitude toward crypto.
- Smith said a big worry is that an idea or proposal “will get momentum and get jammed through or attached to some must-pass bill, or something like that” without vetting it with the Treasury Department or the industry.
- That’s what happened last year in the battle over the infrastructure bill, which ended up including tax-reporting requirements for crypto industry brokers that critics say are too broad and would cover miners, node operators and software developers who maintain the blockchain networks.
Crypto is bracing for new curveballs. Smith maintains that the crypto industry “has a good story to tell.” But the war has created more uncertainty. “We're trying to make sure that there aren't any quick moves.” she said.
— Benjamin Pimentel (email | twitter)
A version of this story first appeared on Protocol.com. Read it here.
A MESSAGE FROM FIREBLOCKS
As one of the top super apps in the world, Revolut is always looking to launch new products and improve their existing offerings. Revolut used Fireblocks to handle the heavy lifting on the tech side so they could focus on shipping new products for their 15.5 million users.
On the money
On Protocol: The U.K.’s Financial Conduct Authority said none of the crypto ATMs operating in the country were legal. While it didn’t ban the ATMs categorically, it said none of the companies offering them were approved to do so.
The Bank of Israel published draft guidelines for crypto deposits. Banking corporations will be required to conduct a risk assessment, set out policies and clarify the source of money used for transactions related to digital currencies.
Also on Protocol: DiDi wants to pull out of the U.S. stock market, but it can’t list on the Hong Kong Stock Exchange just yet. Chinese regulators said the firm did not meet their security requirements.
The Reserve Bank of India barred Paytm from accepting new customers. The regulator said that the decision came after material supervisory concerns were observed in the bank.
The U.S. Justice Department will investigate financial institutions, including crypto exchanges, that aid in evading Russian sanctions. A new task force was created to pursue investigations relating to institutions helping Russians hide their assets from sanctions.
Bored Ape Yacht Club owners bought CryptoPunks, and it’s all about IP rights. While CryptoPunk owners have been upset about the way Larva Labs has handled IP rights, the acquisition will give “full commercial rights to the NFT holders.”
PayNearMe added Walgreens to its retail cash network. The partnership enables PayNearMe clients’ customers to facilitate cash payments at nearly 9,000 Walgreens stores across the country, putting the network at over 40,000 retail locations nationwide.
Overheard
The U.S.Department of Labor wants you to think before adding a crypto option to the investment menu of a 401(k) plan. “These investments present significant risks and challenges to participants' retirement accounts, including significant risks of fraud, theft, and loss,” the department said in a statement.
European Central Bank President Christine Lagarde wants to speed up plans for a digital euro, and is confident it’s going to happen. “I think we have to be a little bit ahead of the curve if we can on that front. So I hope we can accelerate the work. I will certainly support that,” she said during an ECB press conference.
The SEC v. Ripple case is making headlines again after a New York district judge denied a motion to strike Ripple’s fair-notice defense. “Today’s order makes it clear there’s a serious question whether the SEC ever provided Ripple with fair notice that its distributions of XRP — since 2013 — would ever be prohibited under the securities law,” Ripple general counsel Stuart Alderotytweeted.
Coming up
We’re expanding our coverage this week with the launch of Protocol Climate. Protocol Climate will explore how new technologies are being used to tackle climate change, and how the tech industry is reckoning with its own impact on the planet. Click here to sign up for our biweekly newsletter and all of our Protocol Climate updates.
Expensify’s earnings call is set for Thursday. EXFY’s average estimated EPS is at $0.08, down 86% from last quarter.
GameStop’s earnings are also coming out Thursday. GME’s average estimated EPS is at $0.76, up 155% from last quarter. Investors will likely be keen to hear about the gaming retail company’s progress with its newly launched NFT marketplace.
The Blockchain Africa Conference will start on Thursday. The two-day event will feature blockchain industry speakers from Cardano, Blockchain.com and Binance Africa, among others.
A MESSAGE FROM FIREBLOCKS
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Thanks for reading — see you tomorrow!