Weekly Crypto Policy News Roundup, January 21, 2022

Federal Reserve Requests CBDC Feedback

The Federal Reserve released a report on Thursday entitled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation”, which discusses the pros and cons of a central bank issued digital dollar or CBDC.

The much-anticipated report was non-committal in terms of policy, but rather discussed the implications of implementing a CBDC, and how the Federal Reserve would proceed with the process if the creation of a CBDC was considered appropriate.

The paper states that any roll-out of a digital dollar would be a consultative process, both with “key stakeholders” and the American public.

The introduction of a CBDC would represent a highly significant innovation in American money. Accordingly, broad consultation with the general public and key stakeholders is essential. This paper is the first step in such a conversation.

Money and Payments: The U.S. Dollar in the Age of Digital Transformation – Federal Reserve

The Federal Reserve will be accepting feedback from the public until March 20, 2022. The Fed will only consider moving forward with the creation of a digital dollar if “benefits for households, businesses, and the economy overall… exceed the downside risks”.

Several Countries Begin to Tighten Rules on Cryptocurrency Promotion

This week we saw a number of countries beginning to regulate the promotion of cryptocurrencies.

• Singapore’s Central Bank, the Monetary Authority of Singapore (MAS) issued guidelines stating that digital payment token (DPT) providers should not promote their services directly to the general public. The MAS clarified that DPT providers (for example crypto exchanges or wallet services) must not advertise on “public transport, public transport venues, public websites, social media platforms, broadcast and print media, or provision of physical ATMs”. In addition, the rules also apply to third parties, such as social media influencers.
• Spain also announced the introduction of new rules this week. Starting next month, influencers who wish to promote crypto will have to notify the National Securities Market Commission before doing so.
• We also reported that the UK published plans to include digital assets in their “financial promotions” rules. Read the article here.

Crypto Mining Discussed before US Congress

Yesterday, a number of experts including Ari Juels, Cornell professor and expert in financial cryptography, Brian Brooks of Bitfury, and John Belizaire, CEO of Soluna Computing – a company that harnesses the power of otherwise wasted energy for computing-intensive processes such as bitcoin mining, testified before the US congress.

The hearing was entitled “Cleaning Up Cryptocurrency” and looked at the environmental impact of cryptocurrency mining, as well as the use of renewable energy and alternative blockchains, in particular proof-of-stake.

Juels was particularly critical of bitcoin’s energy consumption. The Cornell professor, whose paper from the 1990s actually coined the term “proof-of-work” began his testimony by stating that “blockchain does not equal bitcoin”. He went on to emphasize that the “promise of blockchain does not require bitcoin or its energy-intensive component called proof-of-work”.

On the contrary, Brooks said that proof-of-stake is not a substitute for proof-of-work and that without proof-of-work “innovations like Defi would likely not exist”.

Belizaire testified regarding the use of otherwise wasted renewable energy for bitcoin mining.

ESMA Call for Evidence on DLT Pilot Regime

On 4 January 2022 ESMA (the EU equivalent of the US SEC) has issued a ‘call for evidence‘ on whether EU securities laws need to be amended for ‘tokenized securities’ (i.e. digital
representations of traditional securities) traded and settled with the help of distributed ledger technology (DLT).

The DLT Pilot Regime requires ESMA to assess the fitness for purpose of current EU securities laws on pre-and post-trade transparency and data reporting for tokenized securities issued, traded, and recorded on DLT.

Comments on the possible amendment of EU securities law for DLT trading are invited by March 4, 2022.

The DLT Pilot Regime is likely to start in early 2023, leaving ESMA little time to develop its DLT specific amendments to EU securities laws.

Luxembourg Regulator updates mutual fund crypto rules

On 4 January 2022, the Luxembourg securities regulator (the Commission de Surveillance du Secteur Financier or CSSF) updated its FAQ on Virtual Assets for funds.  The CSSF clarified that an alternative investment fund marketed to qualified investors (‘professional investors’ in the EU) may invest in virtual assets.