FT Cryptofinance: Digital asset groups rush to acquire crypto registrations in Europe

Before we start: Welcome to the second edition of the FT’s Cryptofinance newsletter, part of our newly launched Cryptofinance hub, which you can check out here. It’s the best place to find all our news, analysis and commentary on digital assets.

Story of the week: Digital asset groups rush to acquire crypto registrations in Europe

Cryptocurrency exchanges are racing to plant their flags across Europe in anticipation of EU-wide regulation that would coordinate the bloc’s approach to the digital financial industry.

Crypto.com and Coinbase said this week that they had secured virtual asset provider registrations with regulators in Italy, while Gemini obtained a registration in Ireland. Binance, the world’s largest crypto exchange, has received registrations in France, Italy and Spain in recent weeks.

Registrations lack full licenses to operate as a regulated financial company. But it is important to bring them up, because it shows how crypto companies are struggling to establish themselves in the EU before comprehensive rules, known as the Regulation on Markets in Crypto-assets (Mica), come into force.

Earlier this month, EU member states and the European Parliament outlined preliminary rules that would mean crypto service providers would need an authorization from one national authority to offer services across the EU.

It’s not just crypto companies trying to get a head start before Mica is approved. Spanish MEP Ernest Urtasun told me that “national regulators want exchanges to choose their member state”. There is plenty of evidence to support Urtasun’s thinking, at least when it comes to key stakeholders in France and Italy, who have enthusiastically welcomed Binance.

“Look, we welcome you here. Please apply for a license,” French President Emmanuel Macron told Binance CEO Changpeng Zhao last year. Italian MP Davide Zanichelli, meanwhile, highlighted Binance’s sheer scale in a LinkedIn post following a meeting with Zhao along with other key Italian politicians just weeks before the exchange was granted registration in the country.

Many crypto groups employ hundreds or even thousands of staff, so it’s easy to see why some governments would be eager.

One big question: Will consumers understand that just because a crypto firm has been granted a virtual asset registration, this does not mean they are being monitored by a regulator like a traditional financial company?

This is a concern for Urtasun, who said he believed member states were “behaving a bit irresponsibly, giving citizens the impression that they have this activity under control”.

I would love to hear from you. What do you see as the most important issues and questions in the digital economy right now? Email me at [email protected].

Highlights of the week

• The Dutch central bank has fined Binance more than 3 million euros for offering services without proper registration, in a blow to the crypto exchange’s campaign to win over European regulators.

• FTX, Sam Bankman-Fried’s crypto exchange, is trying to transform the US futures market – with potentially far-reaching effects far beyond crypto. Here, FT has a deep dive into FTX’s plans.

• A combination of inflation and rising interest rates has rocked the crypto markets. But many young investors are not ready to give up the risk.

• Tesla has sold three quarters of its bitcoin holdings. CEO Elon Musk made waves last March when he said Tesla would accept crypto as a payment method for its electric vehicles, so the company’s conversion of a large portion of its digital assets into traditional currencies is significant.

• The Finnish government is not hanging on to its bitcoin (HODLing in crypto parlance). The country has collected 47 million euros after selling a cache of crypto it picked up in law enforcement operations.

Soundbite of the week: “fraud is fraud is fraud”

US federal prosecutors on Thursday slapped a former Coinbase employee and two associates with criminal charges in an alleged insider trading scheme.

The Securities and Exchange Commission, Wall Street’s top cop, filed a parallel civil suit against the trio. It marked the first insider trading case related to cryptocurrency markets for both federal prosecutors in Manhattan and the SEC – two of the most important financial enforcement agencies globally.

Damian Williams, US Attorney for the Southern District of New York, said:

“Our message with these charges is clear: fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street. And the Southern District of New York will continue to be relentless in bringing fraudsters to justice wherever we find them them.”

Data mining

Ether and bitcoin are both still sharply down in price so far this year. But ether has risen about 58 percent this month, a much bigger increase than its larger rival, which is up about 23 percent.

Ether lives on the digital ledger known as Ethereum, which is also home to many other crypto projects. The gain for ether comes in anticipation of a “merger” where Ethereum will switch from a “proof of work” blockchain (often criticized for its huge energy requirements and resulting carbon footprint) to a less energy-intensive “proof of stake” model.

Bitcoin uses the proof of work model, where miners with powerful computers solve complex puzzles to add new transactions to the blockchain, for which they receive newly minted coins.

The merger has been a topic of intense anticipation for years, but the planned September deadline has Ethereum’s followers excited.

“Crypto markets rebounded strongly in recent weeks helped by the announcement of a tentative date for Ethereum’s merger of September 19,” JPMorgan analyst Nikolaos Panigirtzoglou said.