Launchy Regulatory Roundup #5 - US Crypto Lobbying Soars 1,386%

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Welcome to our fifth edition of the regulatory roundup. If you know anybody who would benefit from this content, please help us spread the word!

Crypto money is flooding US politics to both major political parties. A more lenient approach is expected in the next political terms whoever the winner is. The next question is, how can technological innovation be fostered and a competitive and secure environment in the crypto space ensured?

In Today's Edition:

• Headline: US Crypto Lobbying Soars 1,386% 🚀 

• Global Legal Roundup: Russia Crypto Scheme, US vs Crypto, etc.

• Case Study: Empower Builders, Not Speculators ✊ 

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HEADLINE

US Crypto Lobbying Soars 1,386%

State of play: Crypto lobbying efforts in the US have seen a massive increase of 1,386% since 2017. Out of the total $131.91M spent, almost 60%, which translates to $78.94M, was invested in the past two years alone.

• Apollo Global Management, a major private equity firm, has spent the most on crypto lobbying, totaling $28.7M since 2017.

• Managed Funds Association, representing hedge funds and investment managers, has also spent $21.9M since 2017.

• Coinbase's lobbying expenditure surged by 3,475% since 2017, reaching $2.86M in 2023.

• Ripple Labs also dramatically ramped up lobbying spending, with a 1,780% increase since 2017, reaching $940,000 in 2023.

• Binance.US also significantly increased lobbying efforts, with spending rising 656% since 2017 to reach $1.2M in 2023.

• Other major spenders in 2023 include Tether ($1.2M), Block Inc. ($1.7M), and Uniswap ($280,000).

• Many companies heavily investing in lobbying have recently been involved in legal disputes and regulatory challenges.

Crypto PACs are spending $14M to support candidates in congressional races of the 2024 United States elections.

• According to a Sept. 5 FEC filing, Fairshake spent over $6.9M on media buys supporting House candidates in Colorado, North Carolina, Iowa, and Alaska.

• Fairshake's affiliate, Protect Progress, reported spending over $6.7M to support Senate candidates, including $3.5M for Ruben Gallego in Arizona and $3.2M for Elissa Slotkin in Michigan.

• Future Forward PAC also has partnered with Coinbase to accept crypto donations on behalf of Kamala Harris' presidential campaign

What’s Next: The outcomes of these lobbying efforts will have far-reaching implications, shaping the future of crypto regulations, market stability, innovation, and public trust.

Why it Matters: Crypto PACs and companies backing political candidates could signal a growing influence of the crypto industry in the political arena.

Our Take: This year might be the last we see extreme opposition toward crypto in the US, as both major political parties utilize crypto or receive funds from crypto companies for their campaigns.

GLOBAL LEGAL ROUNDUP

🇷🇺 Russia Turns to Crypto for Sanctions Evasion and Trade

According to Chainalysis, the Central Bank of Russia (CBR) is leading efforts to use cryptocurrencies for international trade to bypass Western sanctions.

• Recent legislation, signed by President Putin on August 8, legalized cryptocurrency mining and allowed crypto for international payments, with trials starting in September.

• The CBR will oversee these cross-border transactions and is also testing its digital ruble, which is set to launch in 2025.

• Russia-based non-KYC exchanges like Garantex and Exved could facilitate sanctions-evading payments under the new law.

• Chainalysis noted that Russia's crypto initiatives will complicate investigations but provide transparency through blockchain technology.

• Additionally, Russia is exploring blockchain projects with BRICS and a potential gold-backed stablecoin with Iran.

🇺🇲 Fed Issues Cease and Desist to Crypto-Friendly United Texas Bank

United Texas Bank, which has ties to the crypto industry, has been issued a cease and desist order by the Federal Reserve due to "significant deficiencies" related to crypto customers and risk management.

• The Federal Reserve identified shortfalls in the bank's governance and oversight by the board of directors and senior management.

• The bank is required to submit a written plan detailing how it will improve its compliance with Bank Secrecy Act and anti-money laundering requirements.

• United Texas Bank has previously worked with crypto firms like Stellar Foundation and Circle's USDC.

• This is the second time in a month the Federal Reserve has taken enforcement action against a crypto-adjacent bank.

• Some in the crypto industry see this as part of a coordinated crackdown, referred to as "Chokepoint 2.0".

🇺🇲 SEC Charges Galois Capital, Challenges FTX Repayment Plan

The SEC has taken action against Galois Capital for custody issues, alleging it exposed investors to risks by failing to properly secure crypto assets and misled investors about redemption notice periods.

• The SEC charged and settled with Galois Capital over custody and misleading practices.

• Galois held crypto assets on platforms including FTX, which wasn't a qualified custodian.

In a separate development, the SEC has also indicated it may challenge the FTX bankruptcy estate's plan to distribute stablecoins to creditors, potentially delaying the bankruptcy process.

• The SEC might challenge FTX bankruptcy estate's plan to pay back creditors with stablecoins.

• The SEC has concerns regarding the use of stablecoins for distribution and the identification of the distribution agent.

• The SEC also objects to a provision in the FTX plan and reserves the right to object to the plan's confirmation.

🇺🇲 CFTC vs Political Prediction Market

The CFTC and prediction marketplace Kalshi is in a legal and regulatory battle over election prediction contracts. Kalshi recently won a federal lawsuit allowing it to offer contracts predicting Congressional election.

• The CFTC has since filed an emergency motion seeking to halt Kalshi's new offerings.

• The CFTC argues that allowing these contracts could harm election integrity and that it lacks recourse once contracts are listed.

• Kalshi's wins might clear any future scrutiny on other decentralized prediction markets operating in the US.

🇺🇲 Robinhood Settles $3.9M Penalty Over Crypto Withdrawal Issues

Robinhood has agreed to a $3.9M settlement with the California Department of Justice over past restrictions on cryptocurrency withdrawals.

• The settlement addresses issues from 2018 to 2022, during which customers were unable to withdraw their crypto and were forced to sell it back to Robinhood.

• The company must now ensure customers can withdraw their crypto assets and provide clearer information on custody and settlement.

• Robinhood is expanding its crypto operations, including a planned acquisition of Bitstamp.

🇺🇲 Uniswap Settles $175K CFTC Penalty Over Derivatives Trading

Uniswap Labs has settled with the U.S. Commodity Futures Trading Commission (CFTC) for $175,000 over charges related to offering unregistered digital asset derivatives trading.

• The settlement addresses violations of commodities laws due to the firm's facilitation of leveraged token trading on its decentralized exchange.

• While Uniswap Labs did not admit to the charges, it has agreed to the fine and will continue to focus on developing decentralized finance (DeFi) solutions.

• The New York State Attorney General’s office has also issued subpoenas to venture capital firms investing in Uniswap.

🇶🇦 Qatar Launches 2024 Crypto Regulatory Framework

Qatar's Financial Centre has unveiled the "QFC Digital Assets Framework 2024," enhancing regulatory clarity for cryptocurrency activities.

• The QFC Digital Assets Framework 2024 sets legal standards for tokenization and digital asset management.

• It includes provisions for token property rights, custody arrangements, and the legal recognition of smart contracts.

• Developed with input from 37 domestic and international organizations.

• The framework is part of Qatar’s broader "Third Financial Sector Strategy" to lead regional financial innovation.

• The QFC Digital Assets Lab, launched in October 2023, supports over 20 startups and fintech firms in developing crypto products.

🇰🇷 South Korea to Inspect Crypto Exchanges for Suspicious Transactions

South Korea's Financial Supervisory Service (FSS) will begin inspecting crypto exchanges for suspicious transactions, enforcing strict penalties for illegal activities and advocating for regulatory updates as needed.

• This follows the July 19 implementation of the "Virtual Asset User Protection Act," which aims to safeguard investors by insuring against hacks and separating user assets from exchange assets.

• The FSS will ensure compliance with regulations and investigate any suspicious activities on exchanges like Upbit, Bithumb, and Coinone.

🇯🇵 Japan Proposes Lower Crypto Taxes for 2025

Japan’s Financial Services Agency (FSA) has proposed a significant overhaul of the nation's tax code for fiscal year 2025, aiming to reduce the tax rate on crypto assets.

• The FSA's plan seeks to align crypto asset taxation with traditional financial assets, suggesting a more favorable tax treatment.

• Currently, crypto profits are taxed between 15% and 55%, compared to a maximum of 20% for stock trading profits.

• This reform would need approval from Japan's House of Representatives and House of Councilors to become law.

More Regulatory Updates:

• VanEck to shutter Ethereum futures ETF.

• Crypto advocates to rally in Washington D.C.

• Trump vows to make US ‘world capital of crypto.’

• CFTC recovers $18M worth of crypto from alleged Ponzi scheme.

• NY judge orders SEC to provide some documents in Coinbase case.

• 90% of UK crypto registrations failed due to weak fraud, and AML controls.

• SEC Commissioner Uyeda said the SEC should create customized S-1 registration forms for digital asset securities.

CASE STUDY

Empower Builders, Not Speculators

State of play: Christian Catalini, Jai Massari, and Rebecca Rettig's recent piece, "Crypto Policy Needs to Empower Builders, Not Speculators," underscores the importance of updated regulations that foster technological innovation and ensure a competitive and secure environment.

Here are the key takeaways from the piece:

Current discussions around crypto policy, especially in light of the upcoming presidential election, reveal a gap between the industry's needs and the candidates' proposals.

• Neither presidential candidate has fully addressed the need for regulations that prioritize builders over speculators in the crypto space.

• The current regulatory environment has been criticized for its lack of constructive dialogue with the crypto industry.

• Current regulations have often favored speculative activities and scams, while innovators face challenges.

• Effective crypto policy should balance innovation with oversight, recognizing blockchain networks as critical infrastructure and encouraging responsible practices.

• Proposals to embrace stablecoins need to ensure they promote a competitive market and avoid negative impacts on capital controls and emerging economies.

• The industry and policymakers must collaborate to draft new regulations that support technological advancement while addressing compliance and security challenges.

Our Take: Current policy discussions and proposals fall short of addressing the industry's needs, and existing regulations have often prioritized speculative activities over innovation.

Take a peek at our referral reward at the bottom of this issue. Share this newsletter and receive our comprehensive database of crypto regulations around the world👇

NOTEWORTHY READS & MEME

• Antony Lewis read on KYC in stablecoins.

• Cahill’s read on secondary crypto transactions.

• Forbes’s article on the next US president and crypto future.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.