Crypto regulation in the world: weekly digest #117
USA
The U.S. government has taken significant steps to address wash trading practices in the cryptocurrency market, particularly concerning cryptocurrency market makers. This week the SEC has filed fraud charges against Gotbit and several other market makers for engaging in wash trading to manipulate the markets for various crypto assets. This practice was intended to create a false appearance of active trading, luring retail investors into purchasing these assets under misleading pretenses.
Gotbit's activities included generating fake trading volumes that constituted the majority of trading for specific tokens. Reports indicate that their self-trading often exceeded 90% of the total trading volume for these assets. This manipulation not only misled investors but also harmed the integrity of the broader market. The SEC's complaints allege that Gotbit collaborated with promoters of crypto assets to artificially inflate trading volumes and prices, creating a deceptive environment for potential investors. This included detailed agreements where Gotbit would execute trades designed solely to create the illusion of market interest.
To observe and gather evidence against various entities engaged in market manipulation, the FBI created a cryptocurrency token named NexFundAI. The investigation led to charges against 18 individuals and organizations, including Gotbit and other market-making firms like ZM Quant and CLS Global. These entities were accused of artificially inflating token prices and volumes through deceptive trading practices. By creating its own token, the FBI was able to closely monitor how these market makers attempted to pump the price of NexFundAI through illegal tactics, thereby gathering substantial evidence for prosecution.
The operation has resulted in multiple criminal charges related to fraud and market manipulation, with several defendants already pleading guilty. The FBI's actions signify a robust approach to tackling fraud in the cryptocurrency sector.
The U.S. government's commitment to combating wash trading is evident through its recent actions against Gotbit and other market makers. By enforcing regulations and pursuing legal actions, authorities aim to enhance market integrity and protect retail investors from fraudulent activities in the cryptocurrency sector.
UAE
Dubai's Virtual Assets Regulatory Authority (VARA) has recently taken enforcement actions against seven unidentified crypto entities operating without the necessary licenses and violating marketing regulations. This move underscores Dubai's commitment to maintaining a compliant and transparent cryptocurrency market, especially as it positions itself as a global crypto hub.
Each of the seven firms was fined between 50,000 and 100,000 dirhams (approximately $13,600 to $27,000) for their infractions. VARA also issued immediate cease-and-desist orders, instructing these entities to halt all activities related to virtual asset services, including any marketing or advertising efforts. The regulator is collaborating with local authorities to investigate these firms further, although their identities have not been disclosed.
This crackdown is part of a broader effort by VARA to enforce stricter regulations following recent changes aimed at enhancing market integrity and compliance within the UAE's cryptocurrency sector. The actions serve as a public warning against engaging with unlicensed virtual asset service providers and highlight VARA's zero-tolerance policy towards unauthorized operations.
Dubai has actively sought to bolster its reputation as a safe and regulated environment for crypto investments, recently granting full regulatory approvals to major exchanges like Binance and Crypto.com. Additionally, the UAE has exempted crypto transactions from VAT, further incentivizing legitimate crypto operations in the region.
The EU
As the European Union's Markets in Crypto-Assets (MiCA) regulations come into full effect, significant changes are expected for stablecoins like Tether USDT.
Major exchanges, including Coinbase, plan to delist non-compliant stablecoins by December 30, 2024. This is aligned with MiCA's requirements, which mandate that stablecoin issuers obtain e-money authorization in at least one EU member state.
Tether has faced scrutiny regarding its reserve transparency. MiCA requires stablecoins to be fully backed by liquid reserves and to maintain extensive audit trails. If Tether cannot meet these standards, it risks being delisted from crypto platforms operating in the EU. Coinbase has explicitly stated its intention to remove all non-compliant stablecoins from its platform in the European Economic Area by the end of 2024. Users will be encouraged to convert their holdings to compliant alternatives, such as Circle's USD Coin (USDC).
Other exchanges, including Bitstamp and Binance, are also taking steps to limit access to non-compliant stablecoins. This regulatory shift is expected to reshape the European cryptocurrency landscape significantly.
The potential delisting of USDT from EU exchanges is part of a broader regulatory overhaul under MiCA, which aims to enhance compliance and transparency in the cryptocurrency sector. With the deadline approaching, Tether's ability to adapt will be crucial for its continued presence in European markets.
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