The Federal Reserve has imposed strict oversight and compliance measures on Customers Bancorp, Inc., and its subsidiary, Customers Bank.
The action follows a recent examination by the Federal Reserve Bank of Philadelphia, which uncovered significant deficiencies in the bank’s risk management and compliance practices, particularly in relation to anti-money laundering laws and the Bank Secrecy Act.
“Customers was one of the biggest pro crypto banks out there. Fed and FDIC are systematically dismantling all crypto-friendly banks one after the next,” posted author Nic Carter on X, expressing concern over the news.
The Federal Reserve believes that the bank’s board of directors should enhance their oversight and resources to manage these high-risk activities. A key focus of the scrutiny is on the bank’s digital asset strategy and instant payments platform.
As I noted before, U.S. banks are quietly de-platforming businesses that have anything to do with crypto. Operation chokepoint 2.0. is back. Bank regulators are quietly threatening bank CEOs and CCOs to shut down crypto companies and activities. https://t.co/ykFWHLNQAt
This announcement has sparked outrage in the crypto community, with accusations against the Federal Reserve and FDIC for gradually suffocating crypto businesses.
Agreement between the Fed and Customers Bancorp
Per the written agreement, Customers Bancorp and Customers Bank are to submit detailed plans within 60 days to address these deficiencies.
These plans must outline steps to strengthen board oversight, improve risk management, and enhance compliance with requirements and the Office of Foreign Assets Control regulations.
Additionally, the bank must revise its customer due diligence and suspicious activity monitoring programs. The agreement also stipulates regular progress reports to ensure adherence to the new compliance measures.
Customers Bancorp and Customers Bank both agreed to these terms as part of their commitment to improving their compliance posture and regulatory confidence.
California-based digital asset trust and security company BitGo has received a Major Payment Institution license from the Monetary Authority of Singapore.
The company made the announcement on Aug. 8, stating that the MPI license allows it to offer regulated crypto payment services in Singapore, including custody and trading.
BitGo is pleased to announce that we have obtained the Major Payment Institution Licence from the Monetary Authority of Singapore.
We are committed to meeting the rising demands of client needs in Asia through regulated digital payment token services. This includes our… pic.twitter.com/4DAgKvLVVD
Following the approval, BitGo’s Singapore clients will be able to buy and sell crypto from the company’s cold storage custody solutions. Additionally, according to BitGo, the services will include access to its liquidity as well as insured cold storage custody solutions.
BitGo’s acquisition of the MPI license comes only days after HashKey Group’s over-the-counter trading subsidiary received similar approval from the Singapore regulator. It also comes about six months after BitGo obtained an initial in-principle approval as an MPI.
The crypto custodian now joins 27 other digital asset companies, including Coinbase and Ripple (XRP), which have already secured full MPI licenses to offer crypto services in the city state.
Singapore has tried to build a strong regulatory framework for crypto, primarily overseen by MAS. They include the enactment of the Payment Services Act in 2019, as well as rules restricting digital payment providers from promoting their services to the general public.
Crypto ownership in the tiny Asian country is one of the highest in the world. According to a recent report from global crypto payments provider Triple-A, more than 24% of Singaporeans owned some form of crypto. It puts the country only second to the United Arab Emirates in terms of crypto ownership, with 25.3% of the Middle-Eastern country’s citizenry holding crypto.
Per the report, the United States is much further behind, with only 15.5% of its population holding digital assets. However, unlike Singapore, crypto regulation in the U.S. is still not as clear cut, with the country’s regulator, the U.S. Securities and Exchange Commission accused of hampering the growth of the industry through its hard stance on crypto.
As custodial services adapt to new regulatory frameworks and technological advancements, the role of custodians becomes increasingly important. Not only in meeting stringent regulatory standards, but safeguarding investor assets both now and in the future.
Custody solutions can be broadly classified into two main categories. First, there are self-hosted products, where technology service providers offer custody as a service, often leveraging cutting-edge technology to manage and secure assets. Second, there are hosted products, which involve qualified custodians regulated under global frameworks, who adhere to set standards and provide an added layer of security through rigorous regulatory oversight—often, the preferred choice by institutions and their investors.
But nothing worthwhile is without its challenges. As custodial solutions continue to evolve and digital assets gain more traction among institutional investors, several key considerations have surfaced for those looking to enter the space—and stay in it.
Bankruptcy remoteness
The first sign of increased interest from institutions emerged when organizations started focusing on how custodians handle bankruptcy remoteness. This process involves legal and operational measures that shield client assets from the custodian’s creditors, safeguarding them should the custodian ever become insolvent.
In the absence of legislative clarification and updates to national insolvency legislation, many firms are proactively addressing these concerns by implementing internal controls, ensuring transparency, and segregating client assets from their own funds. Generally speaking, regulatory bodies in various regions are moving towards mandatory segregation of client assets from custodians’ funds, reducing the risk of possible entanglement in the custodian’s financial troubles.
For those familiar with common law, contracting under English law offers a robust safeguard. This legal framework allows assets to be held in a trust structure, ensuring they are not part of the custodian’s insolvency estate. The trust structure legally separates client assets from those of the custodian, providing a distinct trust estate inaccessible to the custodian’s creditors. This protection ensures that client assets can be promptly returned even if the custodian becomes insolvent.
Regulatory intervention will likely standardize asset segregation practices, but the road is long. Until then, the level of satisfactory segregation depends on institutional clients’ needs and custodians’ implementation capabilities. Complete segregation offers robust protection, but practical considerations and technological advancements like on-chain solutions are also important.
Liability provisions and insurance
Historically, custodians operated with liability provisions that were not widely disclosed, a norm that has changed with the rise of exchange-traded funds (ETFs) and similar investment vehicles. The need for greater transparency has been driven by these new financial products, which require the disclosure of material terms, including those related to custodial liability.
In traditional finance, obtaining insurance to cover potential liabilities is relatively straightforward, thanks to well-established relationships between financial institutions and insurers. However, the digital asset space presents unique challenges. From a variety, availability, and cost perspective, insurers struggle to assess the associated risks and, therefore, struggle to provide adequate cover.
As regulatory interest in the liability provisions of custodians has increased, there has been a push for mandatory contractual terms that extend beyond existing regulations. This means custodians might need to include more comprehensive provisions to address potential liabilities and enhance investor protection. Examples might include rigorous business continuity plans, disaster recovery procedures, and strict segregation of personnel and duties, as well as geographical distribution of key materials. However, imposing excessively strict (and often costly) requirements could result in unintended consequences. The balance between commercially viable business models and adequate protections is one that should not be destabilised by disproportionate regulatory requirements.
While balancing transparency, regulatory compliance, and practical operations remains a challenge, regulators should work closely with custodians, financial institutions, and industry experts to craft regulations that are comprehensive, practical, and do not stifle innovation.
Operational due diligence audits versus regulatory oversight
Outsourcing operational due diligence on counterparties has become increasingly common, with many firms now specializing in these assessments and reports at varying costs and quality. While transparency and effective procedural implementation are essential for the industry, an emerging issue is the over-reliance on these reports by industry stakeholders. This can hinder interactions with digital asset businesses and possibly create a false sense of security, noting that these data gatherings are voluntary and not subject to any standards.
Rebuilding trust is crucial in this scenario, but relying solely on third-party providers for evaluations may not provide the complete picture. These firms, however, bridge a gap since major audit firms still often refrain from engaging with digital asset firms due to their unfamiliarity with these new businesses.
To address these challenges, greater regulatory alignment and harmonisation are needed. The starting point being the introduction of comprehensive licensing and supervisory oversight regulatory regimes. Going one step further, ideally, regulators would adopt a recognition model like those used in other regulatory domains, ensuring that consistent standards are applied across different jurisdictions. This approach would help clients and stakeholders feel more confident, promoting uniformity in regulatory practices and enhancing overall trust in the digital asset ecosystem.
Building a resilient road ahead
The future of custodial services lies in balancing innovation with rigorous investor protection. By adhering to stringent regulatory standards and leveraging advanced technological solutions, custodians will continue to play a vital role in ensuring the integrity and safety of assets within the digital economy. While challenges remain, ongoing collaboration between regulators, custodians, and industry experts will be essential for further innovation. By fostering a regulatory environment that supports innovation while safeguarding investor interests, the digital asset space can achieve greater stability, trust, and growth, paving the way for a more secure and resilient financial future.
“Party Like It’s 1999,” sang Prince Rogers Nelson, because on June 1, 1999, a new computer software service would forever change how music was distributed, consumed, and even written. Napster was a peer-to-peer file-sharing service that quickly gained popularity among music fans—since its launch in May 1999, it had gathered over 20 million users by March 2000—looking for a way to share and download music online for free. The cataloging software, created by Shawn Fanning and Sean Parker, searched your computer’s hard drive, listed all the MP3 music files contained in it, and allowed anyone else using the service to share and play those files.
Napster’s popularity was short-lived as its ultimate demise resulted from its legal troubles stemming from cybercrime: file sharing and piracy. According to the Recording Industry Association of America (RIAA), the company’s computer software facilitated copyright infringement and filed a lawsuit against Napster. Napster was ultimately shut down in 2001. Nevertheless, Napster’s technology had a profound impact on the music industry by paving the way for other P2P file-sharing services, which helped to popularize the idea of downloading music online, which gave rise to the concept of the first virtual currency for peer-to-peer systems: Karma. Karma was introduced in 2003 as a way to pay for P2P file-sharing services.
Magic internet money—Karma
The co-founder of the first internet money—way ahead of Bitcoin (BTC)—was a virtual currency called Karma, designed by Dr. Emin Gun Sirer, who is also the founder and CEO of Ava Labs. Dr. Sirer explained that the emergence of the internet and, subsequently, the World Wide Web marked a pivotal shift from isolated, local computing to global-scale computing:
“Architecturally, we transitioned from standalone computers to a ‘client-server architecture,’ which enabled us to connect to remote services operated by others to leverage their programs and capabilities. This new paradigm gave rise to digital services that catered to the entire world, created millions of jobs, and solidified the U.S.’s position as a global economic leader.”
Dr. Sirer added, “I built a system called Karma for ensuring that people who participate in peer-to-peer file sharing networks don’t just leech. They don’t just take resources from the network, but they also donate resources. So everybody was downloading files, nobody was putting up files for upload. And so my solution to this was, what if there was some magic Internet money that nobody controlled that you needed to use to download files? And if you ran out of it, then that would put an end to your leeching ways and you would now put up some files to get your Karma back.”
Ava Labs is a software company founded in 2018 that is headquartered in Brooklyn, New York, whose mission is to tokenize the world’s assets on the Avalanche public blockchain and other blockchain ecosystems. This includes tokenizing the music industry with music NFTs.
Music NFTs
Dr. Sirer explains that blockchains represent the next phase in the evolution of networked computer systems by facilitating many-to-many communication over a shared ledger. This allows multiple computers to collaborate, achieve consensus, act in unison, and build shared services in the network. In turn, this enables the development of unique, secure tokenized assets, such as music NFTs, among many other innovative applications.
By harnessing the power of blockchain technology, which records the copyrights to ownership of the music that cannot be changed, the Avaissance program music NFTs give musicians a new universe of creative and financial options. They expand the range of music they can make by allowing them to sell music NFTs directly to fans via an NFT marketplace. Dr. Sirer points out that there are different types of tokens.
A real-world asset
A token can be the direct or indirect representation of a traditional asset. For example, numerous musicians are currently publishing complete songs and albums as music NFTs or selling their fans NFT concert tickets. While music NFTs offer exciting opportunities for artists, they raise copyright and intellectual property concerns. When artists tokenize their music, they must ensure they have the right to do so. Smart contracts, a key component of music NFTs, automate the payment of royalties to creators each time their tokenized music is resold. This feature is a game-changer in an industry where musicians often lose out on resale profits. Smart contracts simplify the process of compensating musicians, but it also raises questions about how different types of music royalties should be calculated and distributed fairly.
A virtual item
A token can represent a piece of digital art, including a musician’s album cover, poster, and show photographs; a collectible in the form of a musician’s autograph; a gaming skin; videos of virtual concerts or tracks; virtual artist meet and greet experiences; and more. These digital assets can be tokenized into music NFTs to be traded for a profit. These can be varied in function and form as well. They can range from simple non-programmable pictures of the musician, a common use of NFTs, to complex assets, some used in virtual concerts, that can encode all sorts of functions and features of the asset directly inside the asset itself.
Pay-for-use
Public blockchains constitute shared computing resources that must be allocated efficiently. A token is the perfect mechanism to meter resource consumption and prioritize important activities. Such tokens are sometimes known as “gas tokens.” For example, BTC is the gas token of the Bitcoin blockchain, ETH for Ethereum, AVAX for Avalanche, and so on. Without gas or transaction costs, a single user or small group of users could potentially overwhelm the blockchain, similar to a denial of service attack, making the blockchain unusable.
Musical entertainment in the metaverse
Sebastien Borget, COO and co-founder of The Sandbox, a culture and entertainment platform based on the Ethereum network, explained that he established a new web3 arena for musical entertainment in the metaverse called ShowCity that is home to The Voice and other TV shows. ShowCity is also home to music industry heavyweights such as Snoop Dog, Steve Aoki, Chainsmokers, and Warner Music Group—the first major music firm to enter into the metaverse with its top recording artists like Bruno Mars, Twenty-One Pilots, Ed Sheeran, Madonna, Metallica to hold virtual concerts and other musical experiences.
ShowCity offers musicians exclusive digital and physical perks—such as tickets to live tapings of The Voice—if they purchase a LAND in ShowCity in exchange for The Sandbox (SAND), which was deemed a security by the US Securities and Exchange Commission last year.
Snoop Dogg, tweeting about Sandbox Land Sale Prices: “That’s a bargain.”
Musicians create avatars, digital versions of themselves, to hold virtual concerts, selling millions of dollars in tickets and NFT merchandise. All items acquired in The Sandbox are 100% owned by the musicians themselves, creating revenue opportunities.
Sebastien Borget indicated that ShowCity brings the open metaverse one step forward in the direction of sustainable fan-owned and community-driven musical entertainment initiatives with its partnerships with non-profit foundations supporting social, environmental, and climate causes.
Potential legal challenges to the tokenization of music
As musicians are turning to tokenization of their music, holding metaverse concerts, issuing collectible NFTs, and collectors are investing in music NFTs, they should bear in mind that the tokenization of the music industry comes with potential legal challenges and financial quagmires. These include issues concerning copyright, taxation, security classification of gas tokens, AML concerns for metaverse land sales, sanctions compliance, artist royalty, environmental footprint challenges to music NFT and metaverse platforms, and other matters that could complicate the music NFT landscape.
Jonathan Cutler, senior manager at Washington National Tax, Deloitte Tax LLP, said that,
“The final digital asset reporting regulations, published at the end of June, keep NFTs in scope for Form 1099-DA reporting. The rules include a reporting threshold of $600 for sales of ‘specified’ NFTs—NFTs that are indivisible, unique, and do not reference certain excluded property. Where sales exceed $600, a digital asset broker may report the NFT sales on a single Form 1099-DA for the year rather than separate forms for each sale. These regulations make no comment on treatment of certain NFTs as collectibles for tax purposes. The April draft Form 1099-DA, which is pending redraft for the final rules, also included no reference to collectibles.”
Cryptocurrencies have seen an exponential rise in adoption over recent years. In late 2023, the number of global cryptocurrency owners reached approximately 580 million — a 34% increase from 432 million at the beginning of the year.
As more individuals and institutions adopt cryptocurrencies, the ecosystem has inevitably attracted a mix of genuine participants and fraudsters. Recent statistics reveal growing concerns regarding cryptocurrency fraud.
According to the Better Business Bureau (BBB), cryptocurrency fraud is now considered the riskiest type of scam in the US, with about 80% of Americans targeted in crypto scams losing money. The median loss reported was $3,800, although many victims lost substantially more.
The surge in crypto-related fraud has, therefore, prompted regulators worldwide to tighten their grip on the industry. For example, in 2023, the European Union adopted the Markets in Crypto-Assets Regulation (MiCA) regulation, a comprehensive framework designed to regulate the issuance and provision of services related to crypto assets.
The government in Thailand is taking steps to block access to unauthorized crypto platforms to combat fraud and enhance consumer protection. Similarly, the United States has seen increased scrutiny from agencies like the Securities and Exchange Commission, which has been actively investigating and prosecuting crypto fraud cases.
Introducing the Travel Rule
To address the risks associated with the anonymity and pseudo-anonymity of cryptocurrency transactions, the Financial Action Task Force (FATF) introduced the Travel Rule. Although the Travel Rule is controversial, as not all players know how to comply with it smoothly, it helps the market become more transparent and reduces fraud and money laundering. Businesses just need to choose the right way to deal with their challenges successfully.
There is an option to handle Travel Rule compliance in-house, but it is technologically complex and expensive, typically affordable only for large crypto exchanges. Another option is to outsource it to external compliance providers. Let’s dive into the Travel Rule challenges and discuss whether a compliance provider is a good solution.
Transparency and compliance challenges
The FAFT Travel Rule mandates that virtual asset service providers (VASPs), or crypto asset service providers (CASPs), such as exchanges and custodians, share specific information about the sender and recipient in cryptocurrency transactions exceeding a certain threshold. The counterparties need to share and prove this information before the transaction hits the blockchain. The threshold is usually 1,000 US dollars or euros, but it may differ depending on the jurisdiction. For example, in Lithuania, the regulation does not specify the threshold; therefore, it can be assumed that the rule is applied to all transactions regardless of the amount. In Mauritius, there’s no de minimis threshold.
While the Travel Rule aims to enhance transparency and deter illicit activities, its implementation has presented several challenges for industry players.
Sunrise issue: Different jurisdictions adopt the Travel Rule at different times, creating inconsistencies in compliance requirements across borders.
Data privacy concerns: Sharing detailed transaction information raises concerns about user privacy and data protection.
Technological hurdles: Various countries are encountering difficulties related to technology requirements and regulatory harmonization. As the FATF states in their 2023 report, “for many jurisdictions, the source of the challenges is <…>, a lack of resources, technical expertise and capacity, as well as potentially a lack of recognition of urgency.”
Interoperability: Ensuring that different VASPs’ systems can communicate effectively to share the required information is a significant technical challenge.
Healthier industry
Despite these challenges, the Travel Rule is not an adversarial measure. Instead, it represents a necessary step towards creating a more secure and transparent cryptocurrency ecosystem. By compelling VASPs to share critical transaction information, regulators can more effectively monitor and prevent money laundering, terrorist financing, and other illicit activities.
Moreover, compliance with the Travel Rule can enhance the credibility of the cryptocurrency industry. By adhering to regulatory standards, VASPs can build trust with users, investors, and regulatory bodies, fostering a more stable and legitimate market environment.
What’s new in the world of crypto regulations?
The European Union’s MiCA regulation exemplifies the move towards comprehensive regulatory frameworks for cryptocurrencies. MiCA aims to provide legal certainty for crypto assets that are not covered by existing financial services legislation, establish uniform rules for crypto-asset service providers and issuers at the EU level, and ensure high standards of consumer protection and market integrity.
MiCA addresses several key areas, including the issuance of stablecoins, the regulation of crypto-asset service providers, and the prevention of market abuse. By providing a clear regulatory structure, MiCA aims to mitigate the risks associated with cryptocurrencies while fostering innovation and ensuring that Europe remains an attractive destination for crypto businesses.
In South Africa, the Financial Intelligence Centre recently issued a draft directive requiring accountable institutions that provide crypto asset services to adhere to and implement the Financial Action Task Force’s recommendations. In Singapore, the Monetary Authority of Singapore last year announced a series of measures aimed at regulating digital payment token (DPT) service providers more stringently. In Thailand, regulators, inspired by the examples of India and the Philippines, are blocking unlicensed crypto exchanges “to solve online crimes.”
Moreover, according to the FATF’s April 2024 assessment, 65 of 94 jurisdictions have passed legislation implementing the Travel Rule, while 15 reported that they are in the process, which shows improvement since 2023. Although the number of jurisdictions that have implemented the rule is not yet impressive, we see a stable trend indicating that more countries will adopt it in the near future.
Assisting in Travel Rule compliance
For crypto-asset service providers, navigating the complex landscape of regulations like the Travel Rule and MiCA necessitates the selection of robust compliance solutions. Partnering with a provider that supports a broad network of VASPs is crucial for seamless compliance. Companies like Sumsub, which has over 1,700 VASPs in the ecosystem and 10,000 supported assets, offer comprehensive compliance solutions that can help service providers meet regulatory requirements efficiently.
Moreover, a reliable provider should offer tools for identity verification, transaction monitoring, and regulatory reporting, ensuring that VASPs can comply with the Travel Rule and other regulatory mandates without compromising on user experience or operational efficiency. A reliable anti-fraud and Travel Rule solution should also handle the “sunrise” and other issues related to the Travel Rule implementation in different jurisdictions.
The rapid growth of the cryptocurrency industry has brought with it increased scrutiny from regulators seeking to protect users and prevent financial crimes. The Travel Rule, while challenging to implement, is a crucial step towards greater transparency and security in the crypto space. Regulations like MiCA further exemplify the global trend towards comprehensive crypto regulation. For VASPs, leveraging the right compliance partners is essential to navigate this evolving landscape successfully and contribute to a healthier, more transparent cryptocurrency ecosystem.
Following pro-crypto Senator Cynthia Lummis’ plea to enact a Bitcoin Strategic Reserve bill at the end of July, U.S. Senators have now received over 2,200 letters urging them to support the proposal.
The bill aims to create a “decentralized network of secure Bitcoin (BTC) vaults” managed by the U.S. Treasury, mandating lawmakers and government officials to implement stringent cybersecurity protocols and physical security measures to safeguard Bitcoin assets from theft.
BIG BREAKING: In just 48 hours over 2,200 letters have been sent to U.S. Senators requesting them to co-sponsor and support the ‘Strategic Bitcoin Reserve’ bill.
🔵Democrats received – 1,333 letters 🔴Republicans received – 850 letters ⚪️Independents received – 41 letters pic.twitter.com/JUHP6mC0bV
According to Satoshi Action Fund CEO Dennis Porter, Democratic senators received more than 1,300 letters, while Republicans received 850. Independent Party senators received 41.
Senator Lummis quoted Porter’s post, giving thanks to those who sent the letters.
Lummis, a Republican representing Wyoming, officially introduced the Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act to the U.S. Senate on July 31.
The BITCOIN Act sets a rather ambitious target for the US Treasury to acquire 1 million Bitcoin — approximately 5% of the cryptocurrency’s total supply.
To achieve this, Lummis proposes using existing U.S. Treasury funds to purchase Bitcoin in quantities that align with the Treasury’s current gold holdings.
In July, during the introduction of the proposal, Senator Lummis’ camp released a statement on why the bill could become a necessity, saying that creating a strategic Bitcoin reserve would help future generations deal with the growing-rates of inflation.
Bitcoin is transforming not only our country but the world and becoming the first developed nation to use Bitcoin as a savings technology secures our position as a global leader in financial innovation. This is our Louisiana Purchase moment that will help us reach the next financial frontier
Wyoming Senator Cynthia Lummis
During the first quarter of the financial year 2024, as reported by the Financial Times, US inflation rates rose by more than 3%.
Since then, U.S. inflation has dropped and sparked discussions about potential interest rate cuts by theU.S. Federal Reserve.
As inflation cools, investors are reconsidering their portfolios, with cryptocurrency emerging as a key talking point ahead of the 2024 presidential election.
Presidential candidates from both the Republican and Independent parties, Donald Trump and Robert F. Kennedy Jr, seem to support the introduction of a Bitcoin reserve.
Vice President Kamala Harris, the presumptive Democratic nominee, has also garnered support from leaders in the cryptocurrency sector, a demographic President Joe Biden struggled with.
.@KamalaHarris is capable and has a great team. I like where we’re going and look forward to seeing her policies on crypto. https://t.co/b2GSsvK9Pc
As Senator Lummis pushes for Bitcoin to stabilize the U.S. dollar, Moe Vela warns of the risks. Read on.
During the Bitcoin 2024 conference in Nashville on July 27, US Senator Cynthia Lummis proposed that the U.S. government consider Bitcoin (BTC) as a strategic reserve asset to stabilize the dollar’s value and counter inflation.
In a follow-up to her initial announcement, on July 31, Senator Lummis officially introduced the Bitcoin Strategic Reserve bill. This legislation aims to direct the U.S. government to establish a reserve fund specifically for Bitcoin, ensuring it is held securely across various geographic locations.
The plan includes the government purchasing Bitcoin over five years and holding these assets for at least 20 years with the sole purpose of reducing the national debt, which has surpassed $35 trillion as of August 1. Lummis suggests that this reserve can help cut the U.S. national debt by half by 2045.
At the same conference, Donald Trump and independent presidential candidate Robert F. Kennedy Jr. also supported the idea of a U.S. Bitcoin reserve.
Trump pledged not to sell the government’s Bitcoin holdings, while Kennedy advocated for a more aggressive approach, suggesting the purchase of 500 bitcoins daily until a reserve of 4 million bitcoins is accumulated.
Despite the political backing, Lummis acknowledges that her legislation is unlikely to pass before the 2024 elections. However, the rising political interest in Bitcoin signifies a shift from the previous stance of the government.
Let’s delve deeper into this bill, its potential implications, and the broader context of Bitcoin’s role in the US economy.
Decoding the bill
The “Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide Act of 2024,” also known as the “BITCOIN Act of 2024,” outlines a detailed plan to integrate Bitcoin into the U.S. financial system.
A key component of the bill is the Bitcoin Purchase Program, which mandates the annual purchase of up to 200,000 Bitcoins over five years, totaling 1,000,000 Bitcoins.
Once acquired, these Bitcoins will be held in the Strategic Bitcoin Reserve for at least 20 years to ensure stability and security amid market volatility. During this period, the Bitcoins will be used exclusively for retiring federal debt instruments.
The bill claims that the Secretary of the Treasury, in consultation with the Secretaries of Defense and Homeland Security, will implement advanced physical and digital security measures to protect the reserve.
To maintain accountability, the“BITCOIN Act of 2024” requires regular monitoring and auditing, along with a quarterly Proof of Reserve system. This system will involve public cryptographic attestations and independent third-party audits to verify the holdings.
The bill also addresses the management of digital assets from Bitcoin forks and airdrops, stipulating that any new assets acquired through these mechanisms be retained in the Strategic Bitcoin Reserve for at least five years to ensure proper accounting and storage.
Additionally, it allows for voluntary state participation. States can choose to store their Bitcoin holdings in segregated accounts within the Strategic Bitcoin Reserve, benefiting from federal security and management protocols while retaining full control and legal title over their assets.
To manage the costs of setting up and maintaining the Strategic Bitcoin Reserve, the bill suggests using funds available within the Federal Reserve System.
We will convert excess reserves at our 12 Federal Reserve banks into #bitcoin over five years. We have the money now! pic.twitter.com/fGtYQ15jQJ
These funds also include surplus earnings that are usually given to the Treasury. It also considers reevaluating the value of gold certificates held by the Federal Reserve to help fund the reserve.
What do experts think?
To gain a deeper understanding of the potential impact of Senator Lummis’s Bitcoin Strategic Reserve bill, crypto.news spoke exclusively with Moe Vela, an American attorney and political advisor.
Vela is the first Hispanic to serve in two senior executive roles in the White House, first during the Clinton administration as Chief Financial Officer and Senior Advisor for Latino Affairs in the Office of Vice President Al Gore, and later during the Obama administration as Director of Administration for Vice President Joe Biden.
Vela is unequivocally critical of Lummis’s proposal, describing it as “a disaster in the making.” He argues that investing taxpayer money in Bitcoin, a cryptocurrency he views as “backed by literally air and whimsy,” would be one of the most irresponsible governmental actions he has encountered in his public service career. Vela points out:
It demonstrates that the Senator and other bitcoin enthusiasts do not fully understand that Bitcoin is too risky, declining in market share, has no organizational infrastructure, and its anonymity literally means she is suggesting our nation co-invest with the possibilities of Kim Jong Un, Vladimir Putin, or other nefarious characters or organizations.
When asked whether the Republican agenda supporting cryptocurrency is a legitimate stance or a move to destabilize Democrats, Vela is skeptical. He suggests that the GOP’s advocacy for crypto appears insincere and more like political pandering:
The GOP stance on crypto would be viewed as more sincere and genuine if it wasn’t so blatantly pandering to a vital pool of voters. When you are recommending investing taxpayer money in an assetless crypto and calling for little to no regulation after all the crypto folks who are in prison, it’s hard to take them seriously and easy to see it for what it really is—political bluster.
Vela’s skepticism extends to the potential economic impacts of adding Bitcoin as a reserve asset. He argues that the cons far outweigh any possible pros, stating bluntly:
Frankly, I can’t think of a pro to adding BTC as a reserve asset. It would be irresponsible and idiotic to do so.
Instead, Vela advocates for focusing on cryptocurrencies backed by tangible assets and regulated by bodies like the SEC:
We in the crypto community should be encouraging our government to focus on cryptocurrencies that are backed by tangible assets, report to the SEC, and strive every day to be compliant with the few parameters and policies that exist thus far.
The road ahead
The U.S. national debt is indeed spiraling out of control. If left unchecked, it could lead to severe economic consequences such as higher interest rates, reduced public investment, and a potential loss of investor confidence.
The Congressional Budget Office projects that without key policy changes, the debt could reach 166% of GDP by 2054, further exacerbating the U.S. economic troubles.
Bitcoin, with its impressive compound annual growth rate (CAGR) of 42.3% over the last five years, presents a unique opportunity to mitigate the rising debt. However, it is not without its risks. Bitcoin’s volatility and the nascent stage of its market infrastructure are crucial factors to consider.
Despite criticism from figures like Moe Vela, not everyone shares his view. Sam Lyman, Director of Public Policy at Riot Platforms, views Lummis’s efforts as essential for the Bitcoin community and believes her proposal could pave the way for innovative financial strategies.
Sen. Lummis is orange pilling Congress one member at a time.
And she was absolutely critical in helping President Trump see the merits of a Bitcoin strategic stockpile.
The Senate’s “Crypto Queen” is doing yeoman’s works on behalf of the Bitcoin community. https://t.co/d8NgtIw4jV
However, the success of such a proposal depends on various factors, including the implementation of strong security measures, regulatory clarity, and the ability to manage the inherent volatility of Bitcoin.
As the debate continues, it is clear that Senator Lummis’s proposal has sparked a discussion about the future of digital assets in national finance. Whether this innovative approach will prove to be a solution to the national debt crisis or a risky gamble remains to be seen.
The Bybit crypto exchange is shutting down its services for users in France, citing regulatory developments as the reason behind the move.
Bybit, one of the world’s largest cryptocurrency exchanges by trading volume, has announced it will cease its services for users in France, citing regulatory developments as the reason behind the decision.
In an Aug. 2 press release, the crypto exchange said it will restrict accounts for French customers to a “Close-Only” mode, prohibiting them from “opening or adding of any new positions nor the purchasing of any type of products.” Until Aug. 13, 08:00 UTC, users can close their open positions across all of the exchange’s products. After the deadline, they will only be able to withdraw assets and funds from their accounts, the press release reads.
“We look forward to serving you again in the near future once the appropriate licenses allowing us to do so have been secured.”
Bybit
The exchange clarified that the restrictions apply to all its offerings, including the peer-to-peer market and its crypto debit card services.
Bybit leaves France amid AML concerns
Bybit did not explain the reason behind the move, but noted that the update comes in response to “recent regulatory developments from the French regulator.”
The move comes as the European Union’s crypto legislation called the Markets in Crypto-Assets — also known as MiCA — is set to take effect on Dec. 30, replacing individual crypto regulations within EU member states. While other crypto firms such as Coinbase, Circle, and Gemini have secured approvals from French regulators ahead of MiCA, Bybit has seemingly faced challenges due to its AML policies amid its rapid market expansion.
In mid-May, the French Financial Market Authority blocked access to Bybit, citing unauthorized operations in the country. According to the AMF, Bybit was not authorized to provide services in the region, requiring it to register before working in the country. A few weeks later, Citadel-backed brokerage firm Hidden Roads stopped offering its clients access to Bybit due to a disagreement over the exchange’s AML procedures.
Concerns over token dilution because of its vast supply — and claims of market manipulation — are overshadowing Worldcoin as it tries to scan the irises of billions of people.
The controversial cryptocurrency project Worldcoin is coming under fresh fire amid allegations of insider trading and market manipulation — with one on-chain sleuth describing it as “the biggest scam token of the bull run.”
According to DeFi Squared, just 2.7% of WLD tokens are currently in circulation. And while it’s the 103rd-biggest cryptocurrency with a valuation of $648 million, its fully diluted market cap stands at a whopping $22.4 billion.
This reflects the fact that — out of a total supply of 10 billion WLD — just 288.9 million are in the marketplace right now. And as Into The Block pointed out earlier this month, that’s exceedingly bad news for current investors:
If Token A is priced at $1 but only 10% of its total supply is circulating, the market capitalization is based solely on that circulating supply. If the remaining 90% of the tokens are introduced into circulation, the overall value must increase significantly to maintain the $1 price per token. In essence, as more tokens enter circulation, the value of each token can get diluted.
In some ways, the concept underpinning Worldcoin’s tokenomics is understandable — if not a little bit creepy. Anyone around the world can register to have their irises scanned. In return, they get a digital identity as well as some free WLD.
The latest estimates from Worldcoin suggest that more than six million humans worldwide have signed up — against a global population of 8.1 billion — and that helps explain why so much crypto has gone unclaimed so far.
But DeFi Squared’s concerns relate to insider unlocks, amid allegations that the Worldcoin team is “controlling the price to still carry a $30 billion fully diluted valuation” as they begin. It’s claimed that 100 million tokens were allocated to market makers, with their post adding:
Allocating supply to market makers to create favorable price conditions is not uncommon in the industry.
The analyst went on to claim that “the majority of the ecosystem purely exists for VCs to dump” — and the timing of good news stories coincided with unlocks taking place, with the project “intentionally propping up a token price that should be lower.”
One such piece of good news related to Worldcoin developer Tools for Humanity said that 80% of the tokens held by its team members and investors will unlock over a longer timeframe — effectively tackling the issue of dilution we were talking about earlier.
DeFi Squared concluded by saying they intend to be “short WLD over the months following the start of unlocks.”
For its part, a spokesperson for the project strenuously denied the allegations leveled in this post — and said:
The Worldcoin Foundation and contributor Tools for Humanity take any allegation of insider trading, even if unfounded and unsubstantiated, seriously and would have zero tolerance for such activity if it were to occur.
Unease for regulators
A slew of countries around the world have permanently or temporarily banned Worldcoin, primarily because of data protection concerns. Regulators have claimed would-be users haven’t been given detailed information about how their biometric information would be processed, there’s no mechanism to revoke consent, and this technology could ultimately harm children. As Portugal’s Data Protection Authority said:
Minors are particularly vulnerable and are subject to special protection by the European and national legislation, because they may be less aware of the risks, consequences and guarantees of the processing of their personal data and their rights.
Spearheaded by Sam Altman, who also founded OpenAI, Worldcoin has repeatedly missed targets when it comes to user acquisition — especially considering it once had the goal of registering one billion people by 2023. It doesn’t help that consumers in major economies — China, India, and the U.S. — are forbidden from accessing orbs and, in some cases, even owning WLD tokens.
It’s difficult to know at this stage whether these setbacks for Worldcoin will be temporary, and whether the technology will end up prevailing as the need for digital identities becomes clearer.
But in the meantime, regulators are slamming the brakes hard because they’re concerned about what the future could look like.
