Law Decoded: Russia flounders, America competes, IMF keeps fuming, Jan. 24–31

  • February 1, 2022

Uncertainty about crypto regulation can engender internal disagreement even within seemingly monolithic governments.

One of the most fascinating implications of the collision between traditional political institutions and the crypto space is how it can reveal the glaring lack of cohesion within power systems that otherwise look monolithic. Digital assets reside in a parallel policy dimension where neither a centralized consensus nor a clear rulebook exists, leading to a surprising variety of voices and opinions emerging in the absence of a politically coordinated course. Last week, a rare lively policy debate broke out in Russia in the aftermath of its central bank’s attempt to promote a hardline stance on crypto. One does not often see such a public interagency disagreement on substantive issues.

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Russia: Competing visions clash

Following the central bank’s blanket ban proposal, it emergedthat the Ministry of Finance had been working on its own crypto regulatory framework all along, whose tenets are fundamentally opposed to the Central Bank of Russia’s prohibitive drive. In all, the ministry proposes using the traditional banking system’s rails to facilitate crypto payments all the while categorizing investors as qualified or unqualified and introducing strong financial surveillance mechanisms. Even former President and Prime Minister Dmitry Medvedev came out of the woodwork to offer comments in support of regulation, rather than a blanket ban on cryptocurrency operations.

Apparently, the narrative battle over how to deal with the power of the digital asset space is underway within the halls of the Russian government, and its ultimate outcome is anyone’s guess.

Tagging along with omnibus bills

First tested with the inclusion of the problematic digital asset broker definition into the infrastructure bill last year, the tactic of stealthily appending crypto-hostile provisions to gigantic must-pass bills could be crypto opponents’ new weapon of choice. Having examined almost 3,000 pages of the recently introduced America COMPETES Act, crypto advocates found a clause that could empower the Treasury Department to bypass existing checks and the logic of due process to order “special measures” against certain financial transactions, including those executed using cryptocurrency. Such measures could include imposing surveillance or outright prohibition to financial institutions to offer certain services or products.

Spot BTC ETF shall not pass

The U.S. Securities and Exchange Commission’s principled stance against exchange-traded funds that offer direct exposure to cryptocurrencies is well-known, so its rejection of yet another spot ETF last week is not a shocker for anyone who follows this space. Neither is the extension of the review period of another BTC-related product, ARK 21Shares Bitcoin ETF: Pushing such deadlines as far back as the existing rules allow is the regulator’s preferred strategy.

Some analysts, however, begin to see this pattern as part of the executive branch’s broader crypto regulatory strategy rather than a single agency’s policy. Bloomberg senior ETF analyst Eric Balchunas opined on Twitter that the SEC’s stance on spot Bitcoin ETF jibes well with the rumors of the Biden administration’s upcoming executive order that would cast cryptocurrencies as a national security threat.