The Breakdown - Paraguay's Leaked Crypto Law: Depressing Dud or Too Early to Tell?

Episode Date: July 17, 2021

On this edition of the “Weekly Recap,” NLW covers: The latest in Binance’s global regulatory troubles  Leaked crypto legislation from Paraguay  Capital Group’s big bet on MicroStrategy The U.K.’s Financial Conduct Authority slated to spend £11M on an anti-crypto campaign for young people  -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is sponsored by NYDIG https://nydig.com/nlw/ The Breakdown is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: naruedom/iStock/Getty Images Plus, modified by CoinDesk.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, July 17th, and that means it's time for the weekly recap. I want to use this recap to catch back up on a few stories I've been following over the past few weeks. And the first is the rising regulatory screen. scrutiny around Binance. The last few weeks have seen a serious pan-global turn against the company. At least that's what it feels like to the outside observer. Thailand's SEC issued a criminal complaint

against Binance for operating without a license. The Cayman Islands Financial Board said that Binance wasn't authorized to operate in their territory. The Monetary Authority of Singapore said that it was following up with Binance because of regulatory scrutiny elsewhere. Japan's financial services agency warned consumers that Binance was operating without registration. And of course, the UK's financial conduct authority said that Binance wasn't allowed to offer services in the UK. The UK thing is a bit muddled because the FCA specifically pointed to a different division of Binance that wasn't their main Binance.com property.

But that hasn't stopped an absolute exodus of partners. Binance has been unplugged from numerous payments networks. Two more were announced this week, and clearly this is having ramifications not only in the UK but in Europe as a whole. This week, there were two more big bits of news beyond just ripple effects from the FCA. Italy's financial regulator Consub published a statement to its website, and the TLDR is this. Quote, companies of the Binance Group are not authorized to provide investment services and activities in Italy. Period, full stop. This isn't the first we've heard from Consub lately.

Last month, Chairman Palo Savona went in on cryptos, saying that, one, they could be a shield for criminal activity, including not only tax evasion but the funding of terrorism, two, that they could undermine monetary policy. Three, that there are between 4,000 and 5,000 unregulated cryptos. Savona said that if Europe wouldn't make a European-level solution, that Italy was going to be forced to do something on their own. So apparently, Binance is a part of that. Then on Friday, the Securities and Futures Commission of Hong Kong said that no entity in the Binance Group was registered to conduct any regulated activity in Hong Kong. Given the confusion around the FCA's announcement, this no entity clarification is potentially important.

But what about over here in the U.S.? Well, truly, this is one of the weirder stories I've seen lately. Here's the headline from Bloomberg. After Binance solicits praise from U.S. agencies, DOJ says, Stop. Okay, so let me try to simplify this. One, Binance is often asked to comply with U.S. agency request for information in the pursuit of criminals. Two, Binance complies. Three, Binance asks for thank you notes for said compliance. Yes, thank you notes. Four, authorities start investigating Binance or just generally raising questions. Five, Binance says, but we are such good crime-stopping

helpers. Look at these thank you notes we have for evidence. I'm not even exaggerating this here. This is what Binance said in a direct statement. Quote, we engage with regulators and law enforcement in a collaborative fashion to combat cybercrimes as part of our ongoing effort to make the industry a better place. The letters we've received acknowledging our assistants speak for themselves. Binance also showed Bloomberg a bunch of these letters and they were basically all written by Binance and just signed by the officials and were frankly super awkward. Numerous of them apparently included the line, I have much pleasure in sending you this note of appreciation for your cooperation in

assisting our investigations. Well, anyway, now the U.S. is fed up with this. Earlier this month, the U.S. Justice Department sent an email to the FBI, to the Secret Service, to the IRS, and more, demanding that their agents stop signing these letters. There is a lot of heat coming at Binance. I completely acknowledge this, but still, it is absurd to me that they seem to think that holding up a bunch of thank you notes is actually going to get them less scrutiny. But either way, they are still clearly ground zero for a rising regulatory tide, so I think we'll have to continue to wait and see what happens. The breakdown is sponsored by NIDIG,

the institutional-grade platform for Bitcoin. As long-time listeners know, NIDIG is a major force in the Bitcoin space, and they're now making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers to offer Bitcoin. That mainstream access is critical for all of us, and you can learn more about it at Nidig.com.

That's nydig.com forward slash nLW. Next up, let's discuss the much-anticipated crypto legislation from Paraguay. A leaked draft was obtained by DeCript this week, and their headline pretty much sums it up. Quote, leaked draft shows what's inside Paraguay's proposed Bitcoin law. It's nothing like El Salvador's Bitcoin law. So what does this law actually do? Well, one, it would require registration of cryptos with the undersecretariat of state taxation. Two, it would regulate mining, trading, and peer-to-peer marketplaces, forcing the actors in those

ecosystems to register. Three, if you're waiting for the good thing, well, then you're going to keep waiting. This bill has had a really weird provenance. Lawmaker Carlos Realejumped jumped on a laser-eyed train, but his initial drafts weren't well received. One person who had early access said, quote, I found that 90% of the bill was a literal transcription of two previous unsuccessful bills, one from the Argentinian Congress and the other from the Colombian Congress.

In addition, it had excerpts from a Venezuelan blog and others from a not-so-popular antivirus software site. Those were the last places an informed person would turn to for a project on such an important topic. Another person, an open-source software activist named Luis Benitez, called the law, quote, one of the most regrettable documents I saw drafted on technology issues in the last 10 years. Now, the bill did get something of a new life when Senator Silva Fetchetti got involved. Fichetti is a leader in one of the country's main opposition parties versus Riala, whose party only holds two seats. But still, the law has been criticized in both substance and in process. Juan Pesanali, an expert who decrypt calls an architect and tech enthusiasts, said, quote,

the draft Bitcoin law in Paraguay does not encourage innovation, does not establish incentives, and does not generate economic development opportunities for society. On the contrary, it creates obstacles and disadvantages for some and benefits for others. So out of all of this, what is the actual upside of this law. It seems to be that crypto-related companies would at least be formalized and so they could work with the banking sector, but we're still dealing with leaked documents and opaque processes and random experts, so I don't want to judge too harshly yet. However, for those hoping that this would be another El Salvador, it's pretty clear it won't be anything like that. Next, another theme I explored a couple days ago was BlackRock's argument that

no one is asking about Bitcoin and crypto. Was it, I wondered then, an indicator that institutional interest was on a down swing? Well, if so, here's one counterpoint. Capital Group, an investment services provider that manages more than $2 trillion in assets, has purchased 12.2% of the common shares of micro-strategy. The disclosure happened on July 9th, and the purchases seem to have been mostly made in June. This makes Capital Group the third biggest shareholder in MSTR. No one who sees this has any doubts about what's going on.

Bloomberg writes, quote, The move is likely a bet on appreciation of the world's biggest cryptocurrency, Bitcoin. So clearly, at least from this, there is still some institutional interests showing up. By the way, I said that this made Capital Group Micro Strategies third biggest shareholder. As you could probably guess, Michael Saylor is number one holding over 25% of the stock. But do you know who the second largest shareholder is? Ding, ding, ding, it's BlackRock, baby. the same people who are on TV saying that no one cared about crypto anymore.

As always, watch what people do, not what they say. Finally, one more little one to wrap up today. The UK's Financial Conduct Authority, the same group who issued that warning against finance, is launching a campaign to warn young people about the dangers of crypto. It was announced by FCA CEO Nikiel Rathie, and he cited research that found almost 2.5 million Britons hold crypto assets but that those who do are more likely to be younger and behave, quote, less rationally and more

emotionally, egged on by anonymous and unaccountable social media influencers. He also said, quote, this is a category of consumer that we are not used to engaging with, 18 to 30 year olds more likely to be drawn in by social media. So what is the FCA going to do? Well, they're going to spend 11 million pounds, almost $15 million on this ad campaign telling kids not to get into crypto. I mean, can you imagine anything, anything less useful to spend money on? I'm having flashbacks to every PSA from the 80s and 90s about sex and drugs, whose primary impact was to make all of us want to do more drugs and have more sex, if only out of sheer spite for these absurdly patronizing ads. Perhaps I'm being too harsh and the ads will be brilliant and save a bunch of kids who would otherwise

be taken in by the latest scam, a bunch of pain and agony. Or perhaps, I'm right on, but I should be thanking them because we're going to have a full Streisand effect situation where all this money and this ad campaign will do is get kids to start thinking about crypto. Either way, I just think this is hilarious as an indicator of where governments are on their crypto journeys. It is still so early and we have much work to do. In that journey, I appreciate you coming along for the ride. I hope you're having a great weekend. Until tomorrow, guys, be safe and take care of each other. Peace.