The European Parliament’s Economic and Monetary Affairs Committee voted to impose strict restrictions on banks that hold crypto – though the changes must be passed by the European Commision. According to a leaked bill, banks will have to treat crypto as among the riskiest class of holdings and hold fiat collateral backing crypto deposits. Meanwhile, a new EU budget suggests raising taxes on crypto capital gains, mining and transactions to help fund the trading bloc. Finally, French lawmakers are softening their stance on compulsory crypto licenses while the U.K. is looking to fill a role for CBDC lead.
Bin It
Binance, the world’s largest crypto exchange by trading volume, mistakenly kept client funds in the same wallet it used for collateral meant to back something called B-Tokens. The exchange issued 94 so-called Binance-peg tokens and stored 1:1 reserves in a cold wallet called Binance 8, which apparently showed a higher balance than expected indicating client funds were mixed in, Bloomberg suggested and Binance confirmed. Elsewhere in B-land, Chainalysis found that the exchange processed $345.8 million worth of bitcoin transactions for Bitzlato, the crypto exchange that was recently seized by the U.S. government over money laundering allegations.
New Methods
Cité Gestion, an independent Swiss private bank founded in 2009, is using the Taurus blockchain to tokenize its own shares as the bank delves deeper into blockchain technology. The move is a first for ledger-based securities under Swiss law, the press release said. Meanwhile, DeFi conglomerate Sushi voted to fund its treasury with fees. That comes as Pantera Capital, a VC firm with some $3.8 billion in assets under management, is doubling down on decentralized finance, according to an investor letter. Finally, Web3 dev portal QuickNode closed a $60 million Series B at an $800 million valuation to fund expansion plans. 10T Fund led with participation from Tiger Global and others.
Sound Bites
“The SEC [Securities and Exchange Commission] is asleep at the wheel.”
For years crypto businesses have been plagued with an inability to establish and maintain banking relationships – a situation downstream of a general lack of regulatory clarity. Today, banks in the U.S. and reportedly the European Union are facing increasing pressure to stand aside from the crypto industry. While it might sound like a positive thing for a movement looking to establish a parallel financial system – one bound by code rather than human intervention – the return to a lack of bank access would be devastating for many in crypto.
But that’s an unlikely scenario. Instead, in the coming years more banks – with higher profiles – will likely be willing to work with crypto firms. Better policy will be put in place, and mature crypto firms that survive, or start in, the bear market will have to meet tighter regulations and submit to more scrutiny. This prediction is in part based on a hunch, and a few background calls with bankers who could not go on the record and who said that crypto is still an area of business development. While things seem bleak, it’s important to recognize that bitcoin did not go to zero and that much of the industry is more than holding up.
Crypto is not going away, in other words, and the longer that stays true the more likely it is that banks will again see it as a growth area. But compliance is dear to banks, and there is a patchwork of laws snaking through the federal legislative process that may impose strict requirements for both banks and their crypto clients. There are a number of institutions, such as crypto exchange Coinbase and stablecoin issuer Circle, that already function more like fintech firms than crypto-anarchists. It’s that “form factor” to which banks will try to sell banking services.
Far from challenging banks, regulated blockchain products and the companies that build them are only going to improve legacy financial businesses.
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Off-Chain Signals
Not financial advice: Three words crypto execs love to abuse (Protos)
Twitch Co-Founder’s Solana Gaming Platform Fractal Expands to Polygon (Decrypt)
You Can Now Earn Bitcoin for Listening to Podcasts (Decrypt)
Celsius to store 20,000 mining machines, remains optimistic about new hosting sites (The Block)
