Regulatory Tidbits from Around the Globe – Iran, Japan, Nigeria, Russia, United Kingdom, United States

Digital assets have the potential to upend traditional finance, changing the way we invest and transact on a daily basis.  Whether this be through the use of digital securities or Bitcoin, the potential of blockchain technologies is staggering.  This however has resulted in scores of fraudsters and unreliable companies trying to capitalize on their promise, and shone a light on unscrupulous practices undertaken by central banks to enforce their rules.  The following are a variety of examples from around the globe, which highlight attempts by regulators and central banks alike to reign in companies and citizens alike.

Iran

With the vast majority of developed nations now considering, or actively developing CBDCs, there is a growing fear among many that what privacy they still have in the modern world will soon be decimated.  CBDCs have the potential to provide governments with significantly more power and insights in to the public than ever before.  Financial wellbeing, political leanings, and more can each be derived from through analysing spending habits.  While this may be enough to turn some away from using forthcoming CBDCs, there is another baked in ability that users will need to accept – the power for the government to halt or commandeer control of your finances on a whim.

As it stands, reports coming from government officials in Iran have indicated that in response to recent protests, women who continue to refuse wearing a hijab in public may soon be subjected to a multi-strike program that will result in bank accounts being frozen.

While not the result of a CBDC, this above is an example of the type of power which will be afforded to CBDC users when they inevitably become commonplace.  Whether it be shutting down funding to an active protest in Canada, freezing funds associated with fraud, or putting bank accounts on ice simply because its holder doesn't adhere to societal norms – CBDCs have the potential to usher in a dystopia marred by financial oppression.

Japan

In past bear cycles, Bitcoin has typically seen its market dominance rise as digital asset enthusiasts offload more speculative altcoins for the safety of what continues to be an extremely reliable network.  This past year has been different though, with much of the past activity that would have found its way to the Bitcoin network transitioning in to stablecoins instead.  Naturally, this and the implosion of the Terraform ecosystem earlier in the year have resulted in increased attention being paid towards such assets.

In Japan, the Financial Service Authority (FSA), just released a document proposing a review of past recommendations surrounding stablecoins.  In it, it is proposed that, “global stablecoins must not use algorithms in stabilizing their value”.  Algorithmic-backed stablecoins are a type of stablecoin that has fallen out of favour due to various iterations losing their peg over the past year, making the applied moniker of being a ‘stablecoin' questionable at best.

Nigeria

Nigeria became one of the worlds first nations to actually launch a CBDC with its ‘eNaira'.  Over a year later, and the Central Bank of Nigeria is taking steps to further the adoption of its CBDC by limiting ATM withdrawals in the African nation.

The development was shared in a recent communication by the bank, stating that it was being enacted to further its move towards becoming a cashless society.  The following are a few of the newly imposed restrictions on cash use.

• $45/day and $225/week for individuals
• $225/day and $1,125/week for businesses

Regardless of whether it is an individual or a business, breaching the above limits will result in additional fees ranging from 5-10%.  With such restrictions, it is not surprising that Nigeria is one of the worlds leading countries with regards to Bitcoin adoption.

Russia

Central Banks have their own agenda – and it isn't to help digital assets.  While Bitcoin may be an inevitability, one day becoming a global reserve currency, that day is not today.  For now, various Central Banks from around the world continue attempting to throw a wrench in the unstoppable gears that will make this happen.  Per reports coming out of Russia, its Central Bank provides the latest example of this as it looks to impose restrictions on PoW miners within the country.

It is believed that the Central Bank hopes to introduce new restrictions that would see legal PoW miners situated within Russian borders only allowed to sell mined assets under two scenarios.

• through foreign channels
• through an authorized Russian platform

Essentially, this would mean the end of sales to Russian residents, both directly and through Russian based exchanges.

As it stands, these steps are simply a proposed amendment to a draft bill on the regulation of mining practices that was submitted in November 2022.  While the proposal may underscore a continued harsh approach to digital assets by the Russian Central Bank, it is not law.

United Kingdom

Less than two months after being appointed as Prime Minister of the United Kingdom, it would appear regulations surrounding digital assets are set to tighten under Rishi Sunak.  The FCA has just released a consultation paper titled ‘Introducing a gateway for firms who approve financial promotions', which touches on digital assets.  In the paper, the FCA highlights a need to oversee advertising practices for crypto-assets within the nation, along with certain selling practices.

Bradley Duke, CEO of ETC Group, commented on the paper, stating, “The implementation of comprehensive crypto rules and regulation in the UK is, if anything, long overdue as the country’s fintech investment crown has been slipping for some time due to the arm’s length approach to cryptocurrency of successive governments. What is needed is clear and well thought out regulations that would leave crypto firms in no doubt as to the standards required to operate in the UK. This, in turn, would give investors confidence in the sector, especially given the recent collapse of FTX. We have always focussed on investor protection in our regulated exchange traded products and welcome a regulatory framework that broadens investor protection into the wider crypto world.”

United States

When the Biden administration issued an executive order in March of 2022 on ‘Ensuring Responsible Development of Digital Assets', it appeared as though the time had come for lawmakers and regulators alike to finally crackdown on the bad actors running rampant in the sector.  However, half a year later essentially no progress had been made outside of the SEC making broad, murky statements about which assets are actually securities.  It is only now after the implosion of the FTX empire, and eight months after the issuance of the executive order, that a fire appears to have been lit under the seats of those responsible for overseeing such markets.

In recent days we have not only seen commentary from individuals like Jeffrey Sprecher, CEO of ICE, and Senator Elizabeth Warren, indicating a near future in which most digital assets will be treated as securities, but also a new proposal that would see the ‘State Department Basic Authorities Act of 1956' amended to include crypto rewards/payouts.

While this is nothing concrete at this point, and certainly not a regulatory overhaul, it is widely expected that the coming months will see just that occur.