The Breakdown - The UK Heading Towards Stablecoin Rules

Episode Date: April 17, 2024

NLW does a whistlestop tour of global AI regulation and market updates. Today's Show Brought To You By Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet Consensus 2024 is happening May 29-31 in Austin, Texas. This year marks the tenth annual Consensus, making it the largest and longest-running event dedicated to all sides of crypto, blockchain and Web3. Use code BREAKDOWN to get 15% off your pass at https://go.coindesk.com/3PWW96A. Superintelligent - Learn AI fast. Get 50% off your first month with code "breakdown" https://besuper.ai/ Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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. What's going on, guys? It is Tuesday, April 16th, and today we are talking about crypto around the world. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. friends, it is a little slow out there, I will admit. I think there are a couple reasons for that. We have been on a blistering pace the past few months, both with news and with price action,

and there's naturally a little bit of a calm and a pullback, I think, that's happening now. Second, as we discussed yesterday, there are, of course, a lot of geopolitical and sort of macro instabilities right now that are kind of chilling everything out at the moment. Third, however, I think there is also the pre-having lull. We're now a few days before the anticipated it having, and to some extent it feels like the market catching their breath. Travis Kling actually had an interesting thought about the state of the markets last night. He tweeted, The thing that makes right now so interesting is that Bitcoin is probably fine and heading higher,

and the market is kind of trained at this point to equate that to alts moving higher too. But very few market participants have any real conviction in hardly any alts, certainly not at these levels. It's almost entirely a game of hot potato. The price action in alts over the last few days and the last six weeks has pulled the curtain back on the market structure for alts. there is very little bid for hardly any of these assets. When they all ripped together, it's mostly been a mirage.

Anyone that's actually in the books trading 5 to 10 million of this stuff will tell you the same. It can get super thin. Over the last few days, we all just collectively saw how thin it actually is. And that was pretty spooky if you're long any of this stuff, you have little or zero conviction in. So everyone is kind of thinking it's probably a good time to bid alt because BTC probably heads higher, but at the same, collectively worrying about how Fugazi most of it is.

Tricky. Anyways, takeaway being it is a liminal moment. And so we're going to use that to catch up on some of the global stories that are shaping crypto around the world right now. We kick it off in the UK, where the government there plans to put forward wide-ranging crypto legislation by July of this year. During an event on Monday, Economic Secretary Bim Afalami said that the legislation will cover stable coins as well as crypto-staking, exchange, and custody. Ophalami said, we are now working at pace to deliver the legislation to put our final proposals for our regime in place. Once it goes live, a whole

host of crypto asset activities, including operating in exchange, taking custody of customer assets and other things will come within the regulatory perimeter for the first time. This legislation will be the next step in the government's plan to establish the UK as a crypto hub. Last year, the UK passed the landmark financial markets bill, which included the groundwork to include stablecoin and crypto within the scope of regulated financial services. Since then, regulators have embarked on a series of public consultations to nail down the details. The resolution was that the Bank of England would assist an oversight of large stablecoin issuers, while the wider crypto industry would be regulated by the Financial Conduct Authority

or FCA. A UK election is expected to be called towards the end of this year, and the incumbent Tory government is currently trailing badly in the polls. This means there will be limited time to push this legislation through Parliament. Currently, the state of the regulatory environment in the UK is somewhat mixed. Licensing requirements have gone into force, however, crypto firms have found it difficult to register with regulators. Retail investors are frequently reporting that strict banking sector policies are making it difficult or impossible to move money in and out of crypto exchanges. At the same time, regulators are consulting on a digital asset sandbox, which they plan to launch in December. The sandbox will allow existing financial institutions

to experiment with asset tokenization and crypto settlement rails. The initiative will run for five years, and regulators hope it will inform future regulatory changes. The weird dichotomy then is that in practice the UK is hostile to crypto, but the policies being considered could make it one of the more crypto-forward jurisdictions. Certainly, there has been optimism reflected in crypto firms flocking to the country. Late last year, venture capital firm A16Z established offices in London, and has been pouring resources into UK crypto startups. Coinbase and Circle have also taken a keen interest in the region, advising on policy and seeking to make the UK a key part of their global ambitions. It is a sad comment on the affairs in the U.S. that the UK is simply holding public consultations

and promising workable legislation makes it the envy of U.S.-based crypto builders. Indeed, on a recent podcast appearance, Raoul Paul made the point that the U.S. has a long history of pushing new financial markets offshore, with the UK often picking up the baton. He gave the examples of foreign exchange markets after the end of the gold standard, Eurodollar markets in the 80s, and OTC derivatives markets moving into the 90s. Rohl said, The U.S. has a history of doing this in its fear of screwing up. The U.K. has an innate ability to arbitrage that. That's why the city of London is so big.

They took all the business from the U.S. What's very interesting is they see the U.S. fumbling the ball yet again with crypto. And the UK stood up and said, we want to regulate this properly, we want to bring this here to the city, and we want to turn this into a huge market. Chain Yoda put it like this. Is UK crypto regulation a test net for U.S. crypto regulation? Next up, we move to Hong Kong, where regulators have granted in-principle approval to multiple-spot Bitcoin and Ethereum ETFs. The products will be offered by China asset management, Harvest Global, and Bocera. OSL and Hashkew will be providing infrastructure support,

making these products a collaboration between crypto-native firms and established asset managers based in mainland China. A launch date has not yet been announced, but shouldn't be far off. OSL head of regulatory affairs, Gary Chu, said, Typically with the product authorization, if they already have in-principle approval, it means we are getting very, very close. The products will use in-kind creations and redemptions, meaning that crypto holdings can be converted directly into ETFs. This is in contrast to the U.S. Bitcoin ETFs, which use a cash-based creation mechanism. There is some suggestion that regular investors would have access to this creation mechanism, but the details are unclear on what the limits will look like.

Adrian Wong, CEO of Asia-based digital asset management firm MetAlpha said, I think the ETH-EETF could be more influential and important compared to that of Bitcoin, as investors have options to gain Bitcoin exposure with Bitcoin-related stocks like mining companies, but there are no Ethereum-related stocks as of now. Angela Ong, a senior policy advisor at TRM Lab said, Hong Kong's approval of the spot Ether ETHs comes ahead of a U.S. decision and is a significant milestone in Hong Kong's journey to become a leading crypto hub. With fewer alternatives for Ethereum exposure, we might see the Ether ETFs attract more investor interest.

Decentralized gaming ventures co-founder Joseph Young said, HKETF approval means Bitcoin and Ether becoming mainstream assets that even your mother could buy from a bank. This is a game changer. Still, Bloomberg's senior ETF analyst Eric Bokunis is skeptical that the ETFs would move the needle, tweeting, don't expect a lot of flows. I saw one estimate of $25 billion. That's insane. We think they'll be lucky to get $500 million. Here's why. One, the Hong Kong ETF market is tiny, only $50 billion, and Chinese locals cannot buy these at least officially. Two, the three issuers that were approved are tiny, no big fish like BlackRock involved yet. Three, the underlying ecosystem there is less liquid and efficient, so these ETFs will likely

see widespread and discounts. Four, the fees on these are likely to be between 1 and 2%. Nowhere near the dirt cheap fees in the U.S. Terrordome. Takeaway, other countries adding Bitcoin ETFs is no doubt additive, but it's nickel-dime compared to the mighty U.S. market. Fellow ETFs James Safart chimed in to note, there are more assets in U.S. listed Bitcoin ETFs than there are assets in every single ETF listed in Hong Kong. Yes, it could be a big deal down the line, but it's a whole different animal.

Now, of course, the big unlock would be if investors on the mainland were allowed to access these ETFs. Access to Hong Kong listed securities is provided by the Southbound Stock Connect program. Currently, Stock Connect doesn't allow access to crypto futures ETFs which are already trading, so the prospects aren't seen as good. Gary Chu of OSL said, Day 1, I don't believe these products have been included or will be immediately included. But I think certainly the market is optimistic that there is a chance or a potential for inclusion in the future. Hello, Breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same. Ledger is the global platform for securing Bitcoin and other crypto. Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap, and stake without sacrificing on security or self-custody.

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from AI to ZK Proofs and everything in between. The event is three days of jam-packed content, networking, and so much more. Some of the speakers at the event include Chris Dixon, the founder and Managing Partner at A16Z Crypto, Sergey Nazaroff, the co-founder of Chainlink, Kathy Wood, the CEO of Arc, Hester Perce, commissioner, of course, from the U.S. SEC, and Tom Emmer, Republican Majority whip for the U.S. House of Representatives. Visit Consensus24.com to learn more and save 15% on registration with the code breakdown. That is 15% on registration with the code breakdown. Still, overall, the approval of crypto ETFs in Hong Kong is the latest sign that

Chinese officials are willing to tolerate a loosening of anti-cryptop policy. It also suggests that Hong Kong is serious about pushing to once again become a globally relevant crypto hub. Here's one now that has implications not only for Bitcoin, but could. could be a precedent for future AI-related battles. Norway has introduced legislation to regulate data centers in a move that could slam the door on Bitcoin miners. The new law would require registration of data centers, including information about the owners, as well as the type of digital services they offer. Norway is the first country in Europe to establish this kind of regulatory

regime for data centers, but similar policies have been proposed elsewhere. The law is explicitly intended to gather information to be used as the basis for local governments to accept or reject operations. Terzaslan, Norway's Minister of Energy, said, The purpose is to regulate the industry in such a way that we can close the door for projects we do not want. Could not be any clearer with that statement, right? Aslan went on to call out Bitcoin mining as the prime example, stating that the industry, quote, is associated with large greenhouse gas emissions and is an example of a type of business we do not want in Norway.

He added that Norway is not interested in businesses looking to extract cheap energy from the country. The number of Bitcoin mining firms operating in Norway is currently unknown to the government. Public data from Chain Bulletin suggests that Norway hosts less than 1% of global hash rate. mining firms that are there are clustered in northern Norway, which is sparsely populated but features the cheapest electricity prices in Europe. Over 98% of Norway's electricity is generated from renewable sources, largely hydroelectric power with some additional wind power. This makes Oslin's claim that Bitcoin mining is associated with greenhouse gas emissions, perplexing to say

the least. The energy minister noted that data centers which fulfill societyly beneficial roles, like data storage, are still welcome. Of course, anti-mining policies have been on the rise in Europe in recent years. For example, during the debates on the EU's crypto-regulations, there was a push to ban cryptocurrencies that used proof-of-work consensus mechanisms. The measure was defeated before the legislation was passed. Last year, Sweden abolished tax concessions on electricity for data centers, driving the price up by 6,000 percent and effectively ending Bitcoin mining in the country. Over in Germany, that country's largest federal bank will begin offering crypto custody in the second half of this year. The publicly owned Landis Bank,

BW, will offer the service in partnership with Austrian Exchange BitPanda. The offering will include at least Bitcoin and Ethereum. Stephanie Munn, a member of the LBORN, BBW board said, By offering crypto asset custody, we are positioning ourselves with a clear value ad for our corporate clients while ensuring the highest security standards. Bitpanda provides the necessary technical and regulatory infrastructure to offer our customers innovative and above all secure solutions in the area of digital assets. This announcement comes after larger German commercial banks, Deutsche Bank, DZ Bank,

and Commerce Bank announced custody offerings last year. The services will be limited to institutional clients at this stage. Juergen-Harengeld, C-O-O of LBB said, the demand from our corporate customers for digital assets is increasing. We are convinced that crypto assets will establish themselves as a building block for further business models. With the cooperation of BitPanda, we are creating the technical and regulatory basis at an early stage to best support the individual crypto strategies of our corporate customers. Moving down into Africa, a finance executive who escaped custody in Nigeria has been located.

In February, you'll remember, two finance executives were detained in Nigeria shortly after they arrived to negotiate with the government. Nadim Andrawala escaped the following month during a trip to a mosque and fled the country, apparently using a secondary passport he was somehow able to obtain. According to local reporting, the executive has been located in Kenya where he went into hiding. The Nigerian government claimed they are working with Interpol and Kenyan authorities to secure his extradition. A Nigerian detective suggested this process could have some complications.

Speaking anonymously, he said, You cannot just walk in and arrest him based on the request. It's a process. Also, the Andrawalas are influential and have the backing of some powerful people. Nadim Andrawala is the son of a senior partner at one of the largest commercial law firms in East Africa. Binance, along with a pair of executives, are facing charges of money laundering and tax evasion in Nigeria, with a trial set to begin next month. Lastly, for completeness one from the U.S. Senator Elizabeth Warren has demanded further details about meetings between the CFTC and Sam Bankman

freed. Prior to the collapse of FTA Act, Sam was deeply involved in policy and met with regulators frequently. In 2022, Sam began pushing for legislation which would see the CFTC placed in charge of regulating the crypto industry. Warren believes apparently that CFTC Chair Rostenbenham has been less than forthcoming about his meetings with Sam. In a letter co-signed by Republican Chuck Grassley, she asked for a, quote, accounting of all meetings and correspondence between you and Sam Bagman-Fried during your tenure. Over a 14-month period, CFTC officials met with Sam as many as 10 times on his request. Benham also told lawmakers that he'd exchanged, quote, a number of messages with Sam. There hasn't been any serious indication these communications were inappropriate.

Sam had been seeking approval for a novel derivatives clearing system implemented through FTCS subsidiary, Ledger X. In the wake of the FTX collapse, multiple lawmakers demanded full records of Sam's interactions with government agencies in the White House, but apparently these have not been provided. In her letter, Warren wrote, Safeguarding the Savings and Retirements of Americans requires Congress and market regulators like the CFTC to determine how this multi-billion dollar crime was allowed to happen. She is seeking then a, quote, timeline of CFTC's knowledge of the fraud committed, including but not limited to a description of any proposed or ongoing investigations into those

parties. A spokesperson for the CFTC said, we will work with the office to get them the information they need. Look, overall, as Elizabeth Warren letters go, this one feels relatively straightforward to me. We should have a full accounting of Sam's engagement with government officials. However, Adam Cochran points out the politicization of this when he writes, Warren and Grassley want to know about SBF's relationship with the CFTC, but not with Gensler, who SBF privately met with via his father, and who was set to give FTX an exemption for U.S. operations, such BS.

So, friends, that is the story. That's our global crypto roundup. For now, all that's left to do is thank my sponsor for today's show. check out the Ledger Bitcoin Orange Nano. 5% of your purchase will go to support Bitcoin development. Until next time, be safe and take care of each other. Peace.