Bitcoin network concept on digital Screen
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Crypto was supposed to transcend borders. Try telling regulators that.

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Friday: the globally chaotic state of crypto regulation, the great roller derby NFT squabble, and arrests in the year’s biggest rug pull.

Off the chain

Could a sanctioned Russia get paid in bitcoin for its oil and gas? A Russian parliamentarian, Pavel Zavalny, proposed that Thursday. It seems theoretically possible, when you consider that the bitcoin network processed $3 trillion in transactions last year, according to NYDIG. Russia’s central bank reported the country had around $240 billion in oil exports in 2021, so it wouldn’t necessarily swamp bitcoin capacity. The main hitch: Customers for Russian energy have contracts that spell out payment in dollars or euros, and insisting on different forms of payment would breach those. Once again, crypto turns out not to be a magic wand you can wave over thorny financial problems.

— Owen Thomas (email | twitter)

There are no rules about crypto rules

As the EU debates a key bill and Washington figures out how to implement Biden’s executive order on digital assets, crypto regulation seems to be playing a larger role in the policy agenda every day. And Russia’s invasion of Ukraine has made a number of previously abstract concerns about crypto suddenly concrete. It’s not just the big Western economies that are struggling with figuring out crypto regulation, though: Crypto rules are getting thrashed out in capitals globally, which (spoiler alert!) could cause big problems for crypto companies operating internationally.

The U.S., U.K. and EU are all making moves. Their approaches are different, and if their rules end up diverging substantially, that could cause a serious splintering of crypto.

  • While Biden’s executive order was regarded as something of a relief for the crypto industry, Fed chair Jerome Powell said on Wednesday that he thinks it’s likely that the U.S. will need to implement changes in existing laws to include crypto, or even develop a whole new regulatory framework.
  • The U.K left crypto companies like Revolut and Copper in a mad scramble after its Financial Conduct Authority set a deadline of March 31 for crypto companies to get on its permanent register, or face a shutdown.
  • The move ties in with the U.K.’s general crackdown on the industry. The FCA revealed it has 50 active investigations into crypto firms and a separate agency issued over 50 warnings to companies about their crypto ads. (A shorthand of the ad rules: No mo’ FOMO.)
  • The EU is expected to finalize its Markets in Crypto Assets bill soon, which could lead to a single license for crypto companies to operate across its 27 member states. Charles Delingpole, founder and CEO of ComplyAdvantage, said the EU bill could be a “foundation” for other countries to study.

And some countries might need a hand, because many are struggling with how to grapple with crypto. You thought the SEC-CFTC standoff in the U.S. was bad? Agencies around the world are bickering.

  • Malaysia’s communications and finance ministries are clashing over whether bitcoin should be legal tender. While the communications ministry is all for it, the finance ministry says it’s not going to happen.
  • El Salvador’s grand bitcoin experiment continues to be rocky. Bitcoin’s price fluctuations are playing havoc with its planned bitcoin bonds.
  • Nine countries, most notably China, have explicitly banned cryptocurrencies, and more than 40 have implicit bans, according to a recent Library of Congress report.

Singapore may be a better model. The city-state’s financial hub has experienced regulators. The secret to their success in reining in crypto? You’re not going to get a “maybe.”

  • After recognizing crypto as a potential growth sector, the Monetary Authority of Singapore set strict, clear guidelines with its 2019 Payments Services Act.
  • As of January, about 180 companies had applied for a crypto license, but only five had obtained in-principle approvals, the MAS told Nikkei Asia. Another 60 withdrew their applications, and three were rejected. Some companies were allowed to operate temporarily without a license.
  • Alma Angotti, a partner at consulting firm Guidehouse and former SEC official, told Protocol that regulators in Singapore — as elsewhere — could be worried that “investors may not fully understand the risks and rewards of crypto.”
  • Accordingly, Singapore stopped allowing firms to advertise crypto in January. moved its headquarters from Hong Kong to Singapore last year, but you won’t be seeing a Matt Damon ad on its home turf anytime soon.
  • Speaking of Hong Kong: In a bid to compete with Singapore, it’s aiming to have a regulatory framework by July, in what its regulators call a “same risk, same regulation” approach.

Singapore’s clarity and the EU’s common-market consistency are good for crypto regulation. But unless the industry gets serious about demanding more convergence for digital asset rules, the world looks to be headed for a global policy patchwork. That’s good news for lawyers and lobbyists, at least.

— Lindsey Choo (email | twitter)


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On the money

The roller derby community isn’t buying the NFT hype. After three top derby athletes announced an NFT project called ‘Bout Time NFTTT, they were met with so much backlash they ended pulling it. Which is too bad, because as one person discussing the matter on Facebook pointed out, “‘Blockchain’ would make a good derby name.”

ExxonMobil wants to use waste gas for bitcoin mining. The oil giant says it’s running a pilot program where excess natural gas that would otherwise be burned off oil wells is used to power crypto-mining operations.

A former accountant pleaded guilty in the BitClub Ponzi scheme. Gordon Brad Beckstead admitted to helping three BitClub leaders defraud investors of about $722 million.

A New York state bill might ban bitcoin mining. The state assembly passed a bill that would ban electric-generating facilities from mining cryptocurrencies for two years.

The city of Austin is getting bitcoin-friendlier. Austin city counselors approved a plan to study whether bitcoin or other cryptocurrencies would be feasible for paying taxes in the future. It’s in line with the state of Texas’ moves to become more crypto-friendly.

Lifting up the rug

Protocol reported in depth on the Frosties rug pull in January, the biggest scam to hit the NFT world this year. Now two alleged masterminds of the Frosties NFT scam have been arrested, the Justice Department announced yesterday.

Ethan Nguyen, who officials say used several handles including “Frostie,” and Andre Llacuna, identified in the charges as “heyandre,” face wire fraud and money-laundering conspiracy charges for defrauding thousands who bought the Frostie NFTs in what became this year’s first major “rug pull.”

Nguyen and Llacuna, who were arrested in Los Angeles, allegedly launched the digital collection of colorful ice-cream-scoop characters, promising buyers a host of money-making features such as staking and breeding. But the NFT project abruptly shut down hours after the Frosties sold out in January. The accused rug-pullers then transferred $1.1 million in crypto proceeds out of the Frosties wallet, the DOJ said.

Read more on the Frosties rug pull arrests.

— Benjamin Pimentel (email | twitter)

The chart

It hasn’t been a good year for tech stocks, but Robinhood has underperformed the Nasdaq Composite. The launch of a new spending-account product, the Robinhood Cash Card, promised to diversify its revenue away from trading and crypto, but that didn’t impress shareholders: Shares fell Wednesday and Thursday after its unveiling.


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Thanks for reading — see you Monday!

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