Digital asset regulatory clarity is increasing, much to Binance’s dismay

A new report claims the pace of digital asset regulation is increasing, even as some operators continue to seek ways to evade oversight.

Blockchain analytics firm TRM Labs released a new report on Monday outlining the ‘regulatory clarity’ that many blockchain-based operators claim made significant progress last year and are poised for even greater progress in 2024. The report strikes a hopeful note. demonstrate how clear standards will reduce the rampant illicit activity that has prevented the digital asset sector from moving beyond financial borders.

The report begins with 2022’s chaotic close following the bankruptcy of Sam Bankman-Fried’s FTX exchange and the resulting plunge in the fiat value of most digital assets. At the time, FTX was just the latest in a series of dramatic collapses of ‘crypto’ firms, and it wouldn’t be the last.

The carnage was serious enough to convince some regulators to (finally) come off the sidelines and enforce the existing financial regulations that so many blockchain firms flouted. Politicians have felt a similar sense of urgency in advancing tailored legislation — some pros, some cons — covering digital assets.

The report reviews policy developments made in 21 jurisdictions last year, and some of these jurisdictions have made more progress than others. For example, while the European Union approved the Market Regulation in Crypto Assets (MiCA), the United States was limited to advancing digital asset bills out of committee without any real sense of urgency to present them for floor votes .

This year has been described as the biggest election year in history, based on the unprecedented number of countries – including seven of the world’s 10 most populous nations – set to go to the polls. While most of these nations have issues that dwarf anything blockchain can produce, many elections are now decided by minuscule margins, meaning single-issue voters can have a real impact.

Politico on Monday described Donald Trump as “crypto’s unexpected savior” in the US, despite Trump being all over the map on his blockchain views. Trump once said Bitcoin “just looks like a scam,” but later issued several rounds of self-aggrandizing NFTs after realizing he could also “con” people for fun and profit.

Trump’s “savior” label is based largely on the view that his laissez-faire capitalist instincts can tame the regulators who currently make life difficult for legislative operators. A second Trump term would lead to sweeping changes at regulatory agencies, including the Securities and Exchange Commission (SEC), which, under Chairman Gary Gensler, led the charge to rein in ‘crypto’ excess.

Among the likely candidates to replace/take on Gensler are current SEC Commissioner Hester ‘Crypto Mom’ Peirce, former SEC Division of Investment Management Director Dalia Blass, and Trump’s former Comptroller of the Currency (and former CEO of Binance.US) Brian Brooks. While Brooks declined to comment on his potential SEC nominee, he told Politico that any Trump appointees are “much more likely to be at least crypto-open, if not overtly crypto-friendly” than the current crop.

Trump’s ouster of Gensler may take some of the heat off crypto firms that choose to color outside the regulatory lines, but it won’t necessarily translate into legislative progress. Congress remains incapable of bipartisan consensus on, well, anything. Additionally, a number of key lawmakers—including Rep. Patrick McHenry (R-NC) and Rep. Blaine Luetkemeyer (R-MO)—announced they will not run for re-election in November.

Digital asset lobbyists are already pushing Rep. French Hill (R-AR) to accept McHenry’s seat as chairman of the House Financial Services Committee. Hill has an ‘A’ rating (for ‘strongly supportive’) with the Stand With Crypto ‘advocacy’ group run by the Coinbase (NASDAQ: COIN ) exchange.

For the record, Trump has a ‘C’ rating, not much better than Joe Biden’s ‘D’, but Rep. Tom Emmer (R-MN) told Politico that a second Trump administration would be “much friendlier to the crypto industry.” You mean, like ‘publicly violates SBF’ kind? And ‘try to stop the SEC from investigating FTX’ kind? Oh, good…

You rule, Binance!

Of the jurisdictions that did undertake a regulatory process in 2023, TRM says 80% chose to “tighten crypto regulation,” while nearly half chose a focus on consumer protection measures. There appear to be tangible benefits to tightening oversight of ‘crypto’ operators, as TRM found that jurisdictions that have imposed full licensing and oversight systems on virtual asset service providers (VASPs) experience ‘lower rates of illegal activity’ than VASPs in jurisdictions with weaker rules.

TRM singles out Australia, Singapore, South Korea and Hong Kong for making significant strides in bringing digital assets in from the cold. Speaking of Hong Kong, June 1st will mark the end of the ‘grace period’ for exchanges that have not yet obtained a local virtual asset trading platform (VATP) license.

To date, only two exchanges have received a Hong Kong VAT license. One of these, HashKey, informed users in December that it would begin implementing the Financial Action Task Force’s travel rule starting January 1. HashKey emphasized that the changes do not affect transfers to/from digital wallet addresses, only transfers involving third parties. exchanges.

The travel rule aims to combat money laundering and terrorist financing by forcing exchanges to implement strict requirements for certain activities. For example, exchanges are required to collect and disclose precise details regarding the parties involved in any token transfers, particularly those involving other ‘obligated entities’.

Oddly enough, HashKey’s announcement stated that only third-party deposits and withdrawals from Binance Global will be supported at this time. HashKey previously announced a ‘whitelist’ of 24 exchanges for which transfers would be supported, but this list has been narrowed down to just Binance. HashKey said it will gradually expand the list of supported exchanges, but did not provide any details on the timing of this expansion.

Can you see the difference?

Notably, Binance has yet to apply for a HK VATP license, but it has reportedly established a subsidiary exchange called HKVAEX, which launched services in December 2022 under the name BX Services Ltd. HKVAEX made its debut on the VATP applicant list on 4 January.

HKVAEX should not be confused with Hong Kong VAEX Ltd, another company that submitted its own Hong Kong license application in November. HKVAEX is also distinct from HKVAX, another company currently operating under the grace period that has yet to apply for a license. (Still confused?)

In line with Binance’s past antics in other markets, both Binance and HKVAEX have publicly denied any connection to each other. That said, the strongest non-denial a Binance spokesperson could seem to manage was to say that HKVAEX “is not in the Binance Group of companies.” It’s a linguistic limbo only marginally better than founder Changpeng ‘CZ’ Zhao tweeting ‘4’ about inconvenient truths that crop up from time to time.

And yet the HKVAEX and Binance platforms feature what the South China Morning Post called “strong similarities,” including shared code, while HKVAEX also uses a Binance content delivery domain. Executives from HKVAEX and Binance have appeared jointly at Hong Kong events, and HKVAEX promotional presentations from last April described Binance as a ‘partner’. No, nothing to see here, folks.

It is unclear how Binance’s recent record $4.3 billion legal settlement with US authorities might affect a Hong Kong license application by a company that is so clearly ‘not in the Binance Group of companies.’ What is clear is that while Hong Kong and other jurisdictions have done their part to bring ‘regulatory clarity’ to the digital assets sector, some operators will continue to flout any rules put in place.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups – from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether – that have co-opted the digital asset revolution and industry into a minefield for naive (and even experienced) players in the market.

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