Before We Regulate Crypto, We Need to Know What It Is

Plus: FinCEN prioritizes crypto, Congress hears about it and more |

What you need to know today in crypto and beyond  July 1, 2021 Sponsored By:     Welcome to The Node.   If you were forwarded this newsletter and would like to receive it, sign up here.   Questions? Feedback? We'd love to hear from you! Simply reply to this email.   –Daniel Kuhn Today's must-reads Top Shelf WAY TO GO: A new law in Germany takes effect today that could see up to 350 billion euros ($415 billion) flow into crypto. Germany's Fund Location Act allows Spezialfonds, or special funds, the dominant institutional investment vehicle in the country, to invest up to 20% of their portfolios in crypto. Theoretically, if all special funds invested the maximum amount that would total $415 billion, according to Sven Hildebrandt, CEO of Distributed Ledger Consulting.    MAKING HISTORY: Brazil's largest bitcoin exchange, Mercado Bitcoin, raised $200 million in funding from the Softbank Latin America Fund. This is Softbank's largest investment in a Latin America crypto company so far, and the largest Series B round in the region's history.   BIG PRIORITY: The U.S. Financial Crimes Enforcement Network (FinCEN) is taking a closer look at the crypto industry. The agency published its first list of eight government-wide priorities Wednesday, including researching cryptocurrency's use in cybercrime. According to the statement by FinCEN, the agency will specify at a later point how financial institutions should incorporate these priorities.   REGULATION: South Africa is looking into ways to regulate crypto assets following two scams this year. According to the country's financial regulator, a structure is expected to be in place in three to six months.   –Helene Braun  A message from Nexo Your digital assets deserve a savings account in their BEST INTEREST. 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At its core, the code change is designed to make transaction fees on Ethereum less volatile and more predictable.    At the same time, EIP 1559 also poses several risks to Ethereum including risks of miner capitulation or revolt, technological risk in the form of unexpected bugs, and risk of user disappointment.  In this report, CoinDesk Research gives an overview of how EIP 1559 works and its intended impact for investors, miners and users. Download the full report.  What others are writing... Off-Chain Signals The U.S. saw over 80,000 crimes involving cryptocurrency (Forbes) Steven Cohen's Point72 Asset Management is looking to hire a head of cryptocurrencies (Bloomberg) The difficulty of bitcoin mining is about to drop by 27%, following China's crackdown (Decrypt) –H.B. A message from Mimo Introducing PAR, the #1 decentralized Token algorithmically pegged to the Euro, powered by Mimo    The Parallel Protocol makes storing crypto collaterals inside vaults and minting stable assets easier than ever before. Put money in, take money out, safe & sound, all without any tie-ins and at an astounding interest rate of 2%.   To get started, open a vault, choose from an array of collaterals to lock up, and begin minting at aggressively low rates today.   Enter the Future of Capital with Mimo Putting the news in perspective The Takeaway Before We Regulate Crypto, We Need to Know What Crypto Is The government needs to know more about crypto before it can regulate it.    That was a central premise of a congressional hearing yesterday devoted to the risks crypto presents for retail and institutional investors. The hearing was provocatively titled: "America on 'FIRE': Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?"   "Today's hearing will ... assess the systemic risks to the economy, as well as the risk of loss to individual investors caused by recent periods of extreme volatility in crypto assets that are not backed by any form of tangible collateral," Rep. Al Green (D-Texas) said, kicking off the event.    The hearing took place at a moment when U.S. lawmakers seem to be cranking up the heat on the crypto industry. A host of government officials and agencies have stated the importance of rethinking the nation's crypto strategy. CoinDesk Managing Editor Nik De said yesterday's meeting on Capitol Hill seemed to be more of a fact-finding mission for Congress than a witch hunt. (He live-tweeted the event if you want a full rundown.) Finding facts could be a difficult task in crypto. Despite the fact the industry is (mostly) built on fully transparent and audible ledgers, there's a remarkable amount that's unknown. For instance, exactly how big is this industry? How many cryptocurrencies are there?   "At the outset it is worth noting that there is no official public data source for cryptocurrency prices, market size or volatility. This lack of data is a significant problem," Sarah Hammer, managing director of the Stevens Center for Innovation and Finance at the Wharton School at UPenn, testified. "Financial regulators are at a distinct disadvantage in evaluating their regulatory options," she added later, conceding a general lack of knowledge.    Hammer brings up a significant point: Before regulators can get clear about the risks to consumers or the economy as a whole, they need to get a better grasp on crypto. She noted that before the 2007-2008 financial crisis, there were no official data sources for credit default swaps (the derivatives product that blew a whole in the world's biggest banks) or clarity on how to regulate them.    Of course, there are a number of independent and trustworthy data sources in crypto. But sometimes even getting a clear answer on what bitcoin's price is could be daunting – fractured markets mean there is no unified price, only various estimates using different measures.  A similar question came up this week when a judge dismissed the U.S. government's case against Facebook for monopolistic practices. U.S. District Court Judge James Boasberg wrote in an opinion: The Federal Trade Commission's "inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook's market share" makes its argument "too speculative and conclusory to go forward."  Boasberg gave the government 30 days to come up with a metric that measures how big the social media economy is and how much attention share Facebook has captured. It'll be a difficult task.  Of course, the government isn't pursuing legal action against "crypto," but it is trying to answer a similar question about size.    –D.K. Sponsored Content   Pirate Chain: Don't Settle for Government Surveillance Coins In this world of government surveillance coins, what is the way out? The only possible answer is a new generation of privacy coins. Pirate Chain, for example, is built on the principle of "Privacy by Design." It takes advantage of zk-SNARKS (zero-knowledge succinct non-interactive argument of knowledge) to allow users to prove ownership of their assets without revealing any details about the parties in a transaction or the amounts transacted. The cryptocurrency movement has never been so sprawling, reaching every corner of the planet.   Crypto State by CoinDesk aims to connect with local communities to explore this movement of financial disruption and how it trickles down to every corner of the globe, from DeFi investment opportunities to alternative ways to transact and store wealth.    We're making virtual stops with audiences in Nigeria, the Middle East and Southeast Asia this year. Register for the Crypto State virtual tour. The Chaser... ATTENTION: Scammers have been sending fraudulent emails with links to sites disguised to look like coindesk.com. If you are in doubt about a link, type https://www.coindesk.com directly into your browser; do not copy and paste. Remember, if something seems too good to be true, it probably is. The Node   A newsletter from CoinDesk   See Previous Editions Copyright © 2021 CoinDesk, All rights reserved.    250 Park Avenue South New York, NY 10003, USA You can manage your preferences here or unsubscribe from all CoinDesk email.