The EU’s potential Proof of Work ban was voted down. Ripple got an important victory in court. Joe Biden’s executive order was seen as a positive development in the United States. Ukraine has received support from crypto exchanges. Fed rate hikes begin.
EU voted against a Proof of Work ban
There has been a rather strange Bitcoin episode in the EU. We wrote a week ago about positive development, as the ban on Proof of Work (Bitcoin) was removed from the EU’s crypto-regulation draft. However, things quickly took a turn for the worse.
The Proof of Work ban was unexpectedly brought back into the draft last Friday. The timing was quite interesting as the vote on the bill took place on Monday afternoon. This got the crypto industry very nervous.
Henry Brade, a well-known Finnish Bitcoin influencer, condemned the proposal strongly.
This is absolute and complete madness. I truly hope they come to their senses and scrap the PoW clauses.
Bitcoin is not going to change nor is it going anywhere. This would simply hinder EU drastically in the cryptocurrency innovation. Most relevant innovation being bitcoin. https://t.co/p2zrcphoOm
— Henry Brade ⚡ (@Technom4ge) March 12, 2022
Fortunately, common sense won this time. The EU Parliament voted 30 vs. 23 against the PoW ban. The vote was between two different drafts. One of them was aiming for a de facto ban on PoW-based cryptocurrencies (such as Bitcoin) at the corporate level, banning not only mining but also trading Bitcoin on cryptocurrency exchanges.
2/ 4 days ago the rapporteur @DrStefanBerger tweeted that his new compromise dropped any ban/addressing of POW.
Now just before the vote a last-minute draft brings back the ban. This is totally unexpected & I was too quick to dismiss that yesterday night.https://t.co/KDkX8inQcS
— Patrick Hansen (@paddi_hansen) March 12, 2022
The law would not have interfered with the holdings of private individuals. It would still have been a very bad signal at the EU level against innovation around Bitcoin.
MEP Stefan Bergen, who was pushing for the Bitcoin-friendly proposal, commented:
By adopting the MiCA report, the European Parliament has paved the way for an innovation-friendly crypto-regulation that can set standards worldwide. The regulation being created is pioneering in terms of innovation, consumer protection, legal certainty and the establishment of reliable supervisory structures in the field of crypto-assets. Many countries around the world will now take a close look at MiCA.
The quote is taken from the official press release.
One battle was won, but Bitcoin mining will be discussed in the future in other contexts. It’s worth reading this Twitter thread by Patrick Hansen on the implications of the vote and future scenarios.
Ripple scores an important victory in court
Let’s continue with news on regulation. If Bitcoin scored an important victory at the EU level, the Ripple team scored a win on the other side of the Atlantic.
Some readers may remember the news from more than a year ago. In December 2020, Ripple was sued by the SEC over whether the XRP token meets the definition of security.
A similar debate has also taken place with other cryptocurrencies. This is a big issue, as securities are covered by different regulations than cryptocurrencies. It means that crypto exchanges cannot offer securities to U.S. customers. For this reason, U.S. cryptocurrency exchanges removed XRP in early 2021 just to be on the safe side.
However, the definition of security is problematic, as it is based on the Howey Test which dates back to the 1930s. Classifying digital currencies based on a 90-year old definition does not make sense. For now, there is no better guideline.
The Ripple vs. SEC case has been ongoing for over a year. Ripple has occasionally scored smaller victories, but the defense got a big one last week.
If you weren’t paying attention then, you should be now. Huge win for Ripple today! https://t.co/dMeUQuIPHM
— Brad Garlinghouse (@bgarlinghouse) March 11, 2022
It’s all about the term fair defense. Ripple has argued that the SEC has had years to raise regulatory concerns about the XRP token. Yet, the SEC has done nothing. In 2020, seven years after issuing the XRP token, the SEC suddenly sued Ripple’s founders.
Apparently, the SEC tried to prevent this fact from being used in defense, but the court sided with Ripple. Time will tell how big a victory this will ultimately be. The trial is expected to last until the end of 2022. If you are interested in more detail, there are numerous channels on YouTube that follow the case almost daily.
The SEC has come under lots of criticism about the way it operates. The term regulation by enforcement is often used. A regulatory entity should first establish the laws and allow the industry to comply with them. Now the SEC is setting precedents by taking crypto companies to court one by one.
Joe Biden’s executive order on the crypto industry
Let’s continue with regulatory news from the United States. The long-awaited executive order on the cryptocurrency sector was published last week. Joe Biden’s order was not precise in terms of details, but it was received positively in the industry.
The U.S. President’s executive order is like a fast track past Congress. It can be used to create quick regulations and instructions for the authorities. The President can also override executive orders from his predecessors.
Biden’s executive order did not directly put new laws on the table. It was more of a call to action for the various authorities in the country to coordinate and prepare regulations. The video below summarizes the topic in five minutes.
If you want to keep up with the latest news on US regulation, you should follow Jake Chervinsky of the Blockchain Association. He also commented on Biden’s executive order in a very positive tone.
Anyone worried that President Biden's executive order would spell doom & gloom for crypto can fully relax now.
The main concern was that the EO might force rushed rulemaking or impose new & bad restrictions, but there's nothing like that here. It's about as good as we could ask.
— Jake Chervinsky (@jchervinsky) March 9, 2022
At this point, it should be clear to everyone that regulation is tightening everywhere. In the U.S., in the EU, and in the Asian countries. It’s important that politicians do not make rash and innovation-killing decisions. This was precisely the risk in the EU vote mentioned earlier.
The U.S. is also moving in the right direction. The crypto industry is being taken seriously by the administration, which wants to regulate it better. The U.S. still wants to support innovation and the jobs it brings. Hopefully, the same approach will be taken in Europe.
Cryptocurrency exchanges support Ukraine
Russia’s invasion of Ukraine has been going on for three weeks. The consequences of the war have also brought cryptocurrencies to the headlines in a variety of ways. Bitcoin has been used both by people in the midst of the war and by Russians sheltering from the collapse of the ruble.
Ukraine has also been accepting donations in cryptocurrencies since the early days of the war. The total amount of crypto donations reached almost $60 million last week. Alex Bornyakov, Ukraine’s deputy minister in charge of IT sector development, reported on how the donations have been spent.
Crypto assets proved extremely helpful in facilitation of funding flows to the Amed Forces of Ukraine. Huge thanks to everyone who donated to the Crypto Fund of Ukraine.
Each and every helmet and vest bought via crypto donations is currently saving Ukrainian soilders' lives. pic.twitter.com/CghDmXEcJG
— Alex Bornyakov (@abornyakov) March 11, 2022
Cryptocurrency exchanges have also been active. We reported earlier on how exchanges refused to ban all Russian customers. Though, exchanges are working with authorities to block sanctioned people and crypto addresses. For example, Coinbase has blocked 25,000 cryptocurrency addresses. Most of these blocks were made before the war in Ukraine.
The US-based exchange Kraken announced a donation of $10 million. Kraken will donate $1000 worth of bitcoin to its Ukrainian customers. The donations will come partly from the fees paid by Russian traders.
Binance Charity is also actively helping. Its goal is to raise $20 million to support Ukraine.
Read the latest update on our #Ukraine efforts.
"Our entire Binance community has rallied around this cause, we’ve even had people offering their homes to displaced people. The response has been truly humbling…"
⬇️⬇️https://t.co/pmn1me6p8D#Binance #HumanitarianCrisis https://t.co/yqJE8HJ1Kw pic.twitter.com/RgxItA9J7K
— Binance Charity (@BinanceBCF) March 14, 2022
FTX works directly with the Ukrainian government. It is involved in the recently launched Aid For Ukraine service, which has raised almost $50 million at the time of writing.
Nine different cryptocurrencies can be donated through the service. FTX will process the crypto deposits into fiat money and then it sends the dollars to the account of the National Bank of Ukraine.
Fed rate hikes begin
This week we enter a new era. The party of zero interest rates and free money is over – at least for now. The reason, of course, is the sharp rise in inflation. We have covered this topic on numerous occasions in previous news overviews.
Last week we reached more milestones. On Thursday, the latest U.S. inflation figures were released. The CPI, which measures consumer price inflation, rose by almost half a percentage point from last month to 7.9%. This is a year-over-year reading, meaning that prices have risen 7.9% since March 2021.
Inflation is being driven up sharply by the cost of cars and fuel. The rise in fuel prices has also been felt recently in other countries.
Price increases over last year (CPI report)
Used Cars: +41.2%
Gas Utilities: +23.8%
New Cars: +12.4%
Food at home: +8.6%
Overall CPI: +7.9%
Food away from home: +6.8%
— Charlie Bilello (@charliebilello) March 10, 2022
Many believe that real inflation is much higher. One reason for this is that the shelter is only +4.7%. Rents in the U.S. are up by 10-20% in many major cities, but the actual rents are not used when calculating the CPI.
The Federal Reserve, or Fed, also completed its purchases of securities about a week ago. This market support program was launched at the time peak of the COVID panic in March 2020. The Fed announced in late 2021 that it would taper its support to zero before interest rates would be raised.
Now we are in for an interesting play. The consequences of the war in Ukraine are threatening the world economy with various crises. Rising energy prices and a potential food crisis are particularly at the top of the agenda. Not to forget that the U.S. economy is also on its way into recession.
Stock markets are also in a weak state. The S&P 500 index has only had three worse starts for a new year since 1928.
— Charlie Bilello (@charliebilello) March 14, 2022
The Fed is now in a very difficult position. It would like to support the markets, but high inflation is forcing it to raise interest rates. Too tight a monetary policy, however, could cause stocks to collapse even further.
Many analysts believe the Fed will raise interest rates as promised. The year 2022 is an election year in the United States. In November, there will be a so-called mid-term election to choose all the members of the House of Representatives and a third of the senators. The main concern of the people at the moment is inflation. It forces politicians to do something about the problem, which in turn drives the Fed policy.
The market is currently forecasting 6-7 rate hikes for 2022, so small increases are already priced in. Many expect Jerome Powell to announce a 0.25 percentage point increase this week.
If Powell surprises the market with more tightening than anticipated, there will be a fall in the stock market and certainly in cryptocurrencies.