Law Decoded: Lawmakers in World’s Largest Markets Warm to Crypto, July 17-24

Major breakthroughs the U.S., Russia and China lead this week’s cryptocurrency policy news as it looks like everyone is trying to bring the industry in from the cold.

Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.

Editor’s note

Without breaking out the fanfare prematurely, it has been a red-letter week for crypto news. Some of the biggest markets in the world are welcoming new laws and decisions that promise to upgrade global approaches to the industry. 

What we are seeing seems to be the early fruits of a broad harvest of interest in crypto, probably owing to something we’ve been talking about for months: The pandemic has people at the highest levels reconsidering how people transact. The fact that blockchain technology has become a standard part of conversations on monetary policy and international settlements has given it new legitimacy for regulators to approach.

If you graphed public attention on crypto over time, there are certainly other peaks that would dwarf the present. Late 2017 comes to mind. But the current attention from regulators worldwide is unprecedented not in quantity, but quality. They are looking to onboard blockchain tech. That license to proceed — even cautiously — seems to be thawing some of the world’s frostiest crypto laws.

Kollen Post, Policy Editor, @the_postman_

U.S. banks welcome crypto custody

The U.S. Office of the Comptroller of the Currency issued a new opinion that banks can custody cryptocurrencies for clients.

The decision is a major breakthrough for institutionalizing crypto assets. In the face of consumer demand, banks had hitherto been able to deny that they could handle custody of crypto assets while shunting responsibility onto the regulator. While the ruling doesn’t require that all banks provide custody services, it authorizes them to do so, opening up a whole new world.

While many of the crypto faithful are appalled at the notion of turning over custody of their tokens to a third party, some people and, especially, businesses would be more comfortable not holding their own private keys. And, given the choice, they might prefer an FDIC-backed institution to an exchange or custodial wallet.

The authorization only applies to custody, which at this point would work like safe deposit boxes rather than bank accounts. Banks will not be able to take crypto and use it for their own investments as they do with money under deposit.

The news comes just months into the beginnings of Brian Brooks’ term at the head of the OCC, which he joined after running Coinbase’s legal team. With his background in crypto, many view Brooks as an almost evangelical figure for the industry.

New cracks in China’s great crypto wall

In an action that may help undermine one of the most famous crypto blockades in the world, China’s Supreme Court has come out in favor of new protections on crypto as property.

China’s relationship to crypto is infamously bipolar. The country dominates the mining industry, yet it has a long-standing ban on all cryptocurrency transactions. The recent ruling would give new standing for crypto to be treated as property and thus be subject to legal protections — which would seem to run contrary to the overall ban.

Some have interpreted China’s crypto ban as a means of clearing the way for subsequent developments from the state, including last fall’s advocacy of blockchain technology and the ongoing work on a CBDC. Maybe, considering the progress on those fronts, China is willing to ease up on these restrictions, having become less self-conscious about other entities upstaging it.

Russian Duma blinks on earlier threats of crypto illegality

Russia’s legislative body, the State Duma, has passed the long-awaited bill governing cryptocurrencies in the country.

Wildly different versions of the bill have emerged over the past two years, with some amendments in recent months proposing punishments of up to 7 years in jail for crypto usage. So while the newest version still prohibits use of crypto as money, it does allow trading as an asset and has much less aggressive punishments than earlier proposals.

Government concerns over crypto’s use as a payment mechanism are fairly common, with many perceiving assets like Bitcoin as a threat to monetary sovereignty. Which is fair, especially given the ruble’s collapse in 2014, which may have helped push Russians to Bitcoin. Despite uncertain legal status, the country’s crypto market is huge. The bill also should put controversies over whether the government protects crypto ownership to rest.

The bill still needs to get approval from the Federation Council, the upper body of Russia’s legislature, and a signature from President Putin. Those are, however, largely formalities. Though the council is roughly analogous to the Senate, it is much less assertive in its relationship to new legislation. Anything stopping the crypto bill following three readings in the State Duma would require a fairly shocking turn of events.

Further reads

A team of writers for the Brookings Institution have put out a comprehensive breakdown of design choices for central bank digital currency development.

Marta Belcher of the Electronic Frontier Foundation writes on how the US v. Gratowski decision neglects privacy concerns on crypto exchanges.

Coin Center’s Peter Van Valkenburgh expounds on the OCC’s new bank ruling and the relationship between institutional acceptance and innovation.