Weekly Cryptocurrency Policy Roundup, January 29 2022

IMF Asks El Salvador to Reconsider Bitcoin’s Legal Tender Status

The IMF Executive Board published its Article IV Consultation with El Salvador this week. Most notably the IMF was critical of how El Salvador made Bitcoin legal tender in September 2021 – the first country to do so.

The IMF stressed that it believes Bitcoin presents “large risks”, in particular for “financial stability, financial integrity, and consumer protection”. Ultimately, the IMF urged El Salvador to “narrow the scope” of its Bitcoin law and consider removing its legal tender status altogether.

While critical of Bitcoin, the consultation did however concede that digital currencies could play a role in creating greater financial inclusion. It’s estimated that around 70% of Salvadoreans do not have access to the traditional banking system.

It still remains to be seen what impact this will have on El Salvador’s future use of Bitcoin. To date, President Nayib Bukele has ignored IMF warnings regarding Bitcoin, including that the country could have limited access to credit markets due to its heightened risk profile.

The fresh warning from the IMF coincided with a major Bitcoin sell-off, leaving the world’s most popular cryptocurrency worth 50% less than it was late last year.

SEC’s Proposal for New Definition of “Exchange” Causes Concern

On January 26, the SEC published its proposals for updates to the Alternative Trading Systems (ATS). The new rules, if introduced, would include “communication protocols to bring together buyers and sellers of securities.” 

Speaking about the rationale for the rules, Gary Gensler, Chairman of the SEC, said “Over the decades since Congress put in place the definition of an exchange, there have been many changes to platforms — in particular, that they are increasingly electronified. I think it’s important that we revise the SEC’s rules to reflect those changes”.

However, the proposal has caused concern, with some in the crypto community wondering if the rules would apply to DeFi protocols and automated market makers.

While the proposal does not expressly reference blockchain, DeFi or automatic market-making protocols, cryptocurrency lawyer Gabriel Shapiro suggested that the SEC might use the rules to “bolster” their arguments that automated market makers are securities exchanges under SEC rules.

He goes on to say that “under this new rule, EVEN A BLOCK EXPLORER LIKE ETHERSCAN could be argued to be a SECURITIES EXCHANGE because it could be argued to constitute a COMMUNICATIONS PROTOCOL through which buyers and sellers can interact with smart contracts to communicate TRADING INTEREST resulting in a trade”. 

You can read Shapiro’s full article here.

Biden Admin to Introduce Executive Order Regulating Crypto?

Also this week, Barron’s reported that the Biden administration is in the process of issuing an executive order that would give federal agencies the role of regulating digital currencies “as a matter of national security”.

See Also

Mid-Week Policy News Roundup, February 22, 2022

The memo is expected to be released within a matter of weeks. Watch this space!

Putin Challenges Russian Central Bank’s Call for Outright Ban on Crypto

We’ll end this week’s round-up with a little bit of good news from Russia, where President Vladimir Putin challenged a proposal by the Bank of Russia to ban cryptocurrency. Last week the Russian Central Bank issued a report calling for an outright ban on crypto, primarily citing its volatility and use in illegal activities.

Instead, Putin said that the risks associated with crypto should be balanced against certain competitive advantages, including Russia’s “surplus of energy”, which makes it an attractive place for crypto miners.

Putin’s comments strongly suggest that Russia will not implement a ban on crypto, which has likely given miners operating in the country some comfort.