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Crypto lobby forms to shake reputation as criminals’ currency

Posing a challenge to the nascent industry as it seeks to win wider respect.
Image: Angel Garcia/Bloomberg

Even as cryptocurrencies steadily gain support on Wall Street, they’re still regarded by regulators as a tool for criminals to conceal shady transactions — posing a challenge to the nascent industry as it seeks to win wider respect.

That’s creating a potentially lucrative opportunity for new groups in Washington advocating for digital currencies. Some prominent crypto lobbying organisations say they’ve increased their membership and raised millions of dollars to help improve the industry’s image.

While banks including Goldman Sachs Group Inc. are exploring digital assets for certain clients, recent actions by regulators show an uncertain road ahead. Late last month, an international anti-fraud watchdog proposed regulations that crypto advocates say would squash a large part of their industry.

The recommendations, from the 39-member Financial Action Task Force, would increase surveillance of many cryptocurrency transactions. They come on the heels of a similar anti-money-laundering proposal from the US Treasury Department that could be finalised later this year. Many crypto proponents are opposed to increased surveillance.

The Treasury and FATF proposals come as Bitcoin has rocketed into the financial mainstream. On Monday, the virtual currency traded at about $59 000, more than twice its level at the end of 2020 and more than eight times its level last April. Other cryptocurrencies such as ether have seen similar gains.

The soaring prices have given ammunition to Bitcoin lobbying groups emerging in Washington. In the past three months, they’ve used the new regulatory pushes to raise millions of dollars in funding and convince cryptocurrency firms to establish a Washington presence.

Even as the finance world has embraced cryptocurrencies and pumped up their prices, they’ve struggled to shake their reputation as a tool allowing thieves and drug dealers to hide illegal transactions. Some crypto advocates say disabusing regulators of that perception is the biggest challenge virtual assets face.

“We in the industry think it’s hugely problematic,” said Blockchain Association executive director Kristin Smith of the proposed rules. She said they would put heavy surveillance burdens on investors and operators of cryptocurrency networks and make it difficult for some services to remain decentralized.

“It misses the entire point of this innovation,” Smith said.

Since December, the Blockchain Association, a trade group for crypto firms, has added 10 members, bringing its total to 34, Smith said. The association, which is less than three years old, has more than doubled its employees to seven. She said the association’s members, which include crypto-exchange Binance. US and Ripple Labs, have discussed making large contributions to the association to ramp up hiring and buy advertising to polish Bitcoin’s image.

Coin Center, a Washington-based think tank and cryptocurrency advocacy group, since December has garnered more than $300,000 through a fundraising drive with mostly individual donors contributing small amounts of cryptocurrency. It also received $2 million from crypto-investment firm Grayscale Investments LLC and $1 million from Twitter-founder Jack Dorsey, whose other firm, Square Inc., recently made a $30 million investment in Bitcoin.

Coin Center executive director Jerry Brito said that, for now, his group is saving the money as a war chest in case it needs to fight a larger lobbying battle or file a lawsuit over the new regulations.

“Our job is to say absolutely there is a real risk here and that we all need to work together, but don’t throw away the baby with the bathwater,” Brito said.

One of Bitcoin’s earliest uses was as the only accepted currency on a website for drugs and other illicit goods known as the “Silk Road,” which the Federal Bureau of Investigation shut down in 2013. More recently, Bitcoin has been the preferred payment method of hackers locking up computer data in so-called ransomware attacks.

Even January’s riots at the US Capitol had a Bitcoin connection. A month before the attacks, a now-deceased computer programmer in France sent more than $500 000-worth of the cryptocurrency to far-right groups that helped stage the assault.

Bitcoin’s defenders say illicit activity has become less of an issue. Bitcoin wallets are only identified by a string of characters, but the “blockchain” ledger that records Bitcoin transactions is public, allowing authorities to follow the money trail when wallet owners attempt to convert Bitcoin into dollars. They can see that a wallet is hosted by Coinbase, for example, and subpoena Coinbase for the owner’s name.

Chainalysis, a Bitcoin forensics firm that works with law enforcement agencies, says illicit activity makes up a decreasing proportion of Bitcoin transactions, though there are still problem areas like the ransomware attacks.

“Law enforcement investigators are becoming increasingly savvy” in tracking criminal activity on Bitcoin’s network, said Jesse Spiro, Chainalysis’ chief government affairs officer.

Still, world governments have remained wary. A government official in India earlier this year said the country would move to ban cryptocurrencies. Nigeria and China have also cracked down on purchases.

In the US, Representative Brad Sherman, a California Democrat, wants to bar Bitcoin’s use by Americans. Though Sherman’s idea hasn’t taken root, in March billionaire investor Ray Dalio of Bridgewater Associates LP said he viewed it as a high probability that the US would at some point ban its use.

The regulatory threats aren’t stopping some banks from tiptoeing into the market. Goldman Sachs in March said it was close to offering investment vehicles for digital assets to clients of its private wealth management unit. Morgan Stanley is planning to offer its clients access to cryptocurrency funds. So far, the largest US banks still don’t let their clients hold Bitcoin directly.

At the heart of the Treasury and FATF proposals are recommendations to expand how much governments monitor cryptocurrency transactions. Both proposals would require financial firms to make more frequent reports on large transactions and to identify the counterparties of their customers on certain activities.

Opponents of the FATF proposal say it would make impossible several recent cryptocurrency innovations. For example, the past year has seen explosive growth of “smart contracts” built on the Ethereum network, an open-source crypto platform, that allow for the automatic enforcement of transactions without a financial firm ever taking custody of the cryptocurrency.

The FATF proposal would require the operators of those networks to keep track of the activity of their users, something many of the networks don’t have the resources to carry out.

The Treasury proposal, for which the official comment period ended on March 29, drew thousands of comments from both small Bitcoin investors and major financial firms. Some lobbyists had said they were optimistic Treasury officials would scale back at least some of the rules.

Now, the FATF proposal is giving them new reason to worry. FATF’s recommendations aren’t binding on members, which include the US, the European Union and other major economies, but are considered a blueprint for anti-fraud regulators. In some cases, not following the recommendations can lead to sanctions or trade limits.

The FATF rule would require participants in a cryptocurrency network, even if they didn’t have custody of any currency, to register with regulators and report their activities — and those of their users — to authorities.

Such participants could include people like software developers who have created decentralised cryptocurrency exchanges or who operate certain kinds of nodes that process transfers over the Bitcoin network, according to Coin Centre.

Coin Center wrote that the recommendations amounted to “mass warrantless surveillance.”

FATF is taking comments on its new proposal through April 20 and could finalise it later this year.

Smith said that FATF, which is based in Paris, doesn’t have an open process for its recommendations, which made the proposal more of a surprise to the industry and harder to affect through lobbying. FATF is accepting comments on the proposal, and Smith said the Blockchain Association and some of its members plan to submit comments.

Smith said her group also plans to reach out to officials at some of FATF’s member countries, including the U.S. and Japan, which co-chair a virtual-asset working group at FATF, as well as to Singapore, which has been especially proactive in trying to grow its cryptocurrency industry.

© 2021 Bloomberg

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The very reason for crypto to exist in the first place, is to circumvent the law. If not for buying drugs, then to evade tax. Not that anybody likes paying tax, especially not when it gets stolen, as in SA.

You really know absolutely nothing about money in general, do you?
Fiat currency have been a fraud since the beginning and lost value on all fronts. From print on demand, inflation & to manipulation for decades, maybe even centuries.
Real criminals are those in parliament, Wall Street and who ever prints the money, as they affect everybody in society with their silly rules/regulations.
Why should a couple of people decide what is good for the world.
You do understand why there is a “Covid pandemic” in the world?

Yet you’re using fiat money every single day of your life.

making some valid points and then go full on conspiracy….. eish! fiat currency isn’t all bad either. I’m a firm believer in the future of crypto but the conversation can do without knee-jerk responses.

Actually, Satoshi Nakamoto created crypto/blockchain in response to the 2009 financial crisis where banks were bailed out instead of their leadership going to jail.

Crypto exists as a direct result of the fraud & corruption endemic in the financial system operated by the very same people attempting to regulate it now.

Satoshi Nakamoto doesn’t exist. Please tell me you know that?

Just for your inadequate brain, I will rephrase, “…the creator & author of the Bitcoin White Paper…”

@Myricals – again reverting to personal insults, which detract even further from the already execrable quality of your so-called argument.

Mine is not an argument; it is fact.

Have you even read the Bitcoin White Paper by Satoshi Nakamoto?

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” – Satoshi Nakamoto.

Again: Satoshi Nakamoto doesn’t exist. There. Is. No. Such. Person.

Secondly, about 1000 individuals possess about 40% of all the bitcoins out there. It would be trivially easy for them to manipulate the price at will. You’re putting your trust in faceless, nameless individuals, who are totally free to manipulate the price of cryptocurrencies at will. Pump and dump schemes – i.e. manipulation and fraud, also debasement – in crypto are rife, but of course, in your frothing at the mouth fanaticism, you don’t want to hear this.

Who said Satoshi Nakamoto was a person? It’s is however, the name on the Bitcoin White Paper, hence the “author & creator”.

Of course the fact that 1% of world populace owns 50% of all fiat currency wealth eludes you; you cannot see that the existential fraud & corruption in the fiat currency system is endemic & the root cause of financial pain & suffering across the globe.

You know nothing about the history of money. How do you think crooks, mafia, gangs survived before crypto?
On the fiat currency- apart from printing on demand, inflation and manipulation of currency, think about how how sneaky bankers/politicians make rules and regulations that fit them and “wall street” and NOT the general public.

“Fiat lobby forms to shake reputation as criminals’ currency” Oh, forgot , they have had the IMF , Central Banks , Private banks, G7-or whatever the number of current schemers is…..etc etc. Quite an impressive network to promulgate the notion that dollars and rands are as clean as….(cant find something to compare it with–money can never be clean) If the Ministers niece buys a Rolls with the ZAR accrued by fake tender means , the salesperson will take the “filthy” lucre, all of a sudden sprightly clean and pay off the bond on the house , the groceries , buy shares via the stock broker–who gets hiss slice…All so clean. Perhaps that is why the blockchain is so threatening: the Fiat Universe is murky , filthy —and I have not even touched on “creative accounting” and big brown envelopes or briefcases laden with 100 USD bills changing hands. Fiat and the associated embezzlement/ funny practices are threatened. They know it and will use all the means to keep the status quo(like Sensei mentioned often–the State Might) Infatuation with tax aka protection money may well be one of the last remnants of the Mafia state to fall—replaced by a blockchain verification of exactly where YOUR crypto goes that you pay for maintenance of street lights, roads etc in your own burb. Not into a Rolls of a tenderpreneur , then trickling down into obscure alleys of the fiat mess

Ah, yes, shrill personal insults, and irrelevant rantings about fiat money, thereby refuting my point, right?

DO read more and improve your argument, please.

Yes you clearly do not know what you are talking about. Crypto was not designed for the above. I do own crypto and I do pay taxes and certainly do not buy drugs.

My intend is to let it grow substantially, and then to help those close to me. Once done with this round I’ll seek others to help. None of this would have been possible if I invested in fiat or any traditional market.

I think you need to do a little bit of homework and stop citing these statements.

Congratulations. Of course, being a good citizen, you realize that, if you are an investor worth your salt who earns sufficient money from your investments, and have another income, you have to register as a provisional taxpayer. You have, naturally, done so, and in the process, you’ve fully declared all your crypto investments in your statement of assets and liabilities to SARS, and, when you sell your crypto and take profits, you’re also paying your share of CGT?

I find it interesting and slightly intriguing that Nigeria is the country with the fastest growth in crypto use – apparently 33% of the country own or use crypto as their main source of exchange. Interesting that the head of the World Bank is also Nigerian….I wonder if these two facts are connected in some way? Just saying …..

End of comments.

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