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

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Story of the Week: Digital asset groups rush to collect crypto registrations in Europe

Cryptocurrency exchanges are vying to plant their flags across Europe in anticipation of EU-wide regulation that will coordinate the bloc's approach to the digital finance industry.

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

Registrations are not enough to obtain full licenses to operate as a regulated financial firm. But the rush to collect them is important because it shows how crypto companies are struggling to establish themselves in the EU before comprehensive rules, known as Regulation on Markets in Crypto-assets (Mica), come into force.

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

It's not just crypto companies trying to gain an advantage 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 embraced Binance.

"Look, we want to 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 large scale in a LinkedIn post after meeting with Zhao alongside other key Italian politicians, just weeks before the exchange was granted registration in the country.

Many crypto groups employ hundreds or even thousands of people, so it's easy to see why some governments would be interested.

A big question: Will consumers understand that just because a crypto firm has received a virtual asset registration does not mean they will be supervised by a regulator like a traditional financial firm?

This is a concern for Urtasun, who said he thinks member states are "acting a little irresponsibly and giving their citizens the impression that they have this activity under control."

I would like to hear from you. What do you think are the most important topics and questions in digital finance right now? Email me at scott.chipolina@ft.com.

This week's highlights

• The Dutch central bank fined Binance more than $3 million.

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

• A combination of inflation and rising interest rates has rocked the crypto markets. But many young investors are unwilling to give up the risk.

• Tesla has sold three quarters of its Bitcoin holdings. Chief Executive Officer Elon Musk caused a stir last March when he said Tesla would use crypto as a payment method for its electric vehicles, so the company's conversion of a large portion of its digital asset holdings into traditional currencies is significant.

• The Finnish government is not holding on to its Bitcoin (HODLing in crypto jargon). The country has raised €47 million after selling a crypto cache it picked up in law enforcement operations.

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

U.S. federal prosecutors on Thursday prosecuted a former Coinbase employee and two employees over suspected insider trading.

The Securities and Exchange Commission, Wall Street's top bull, filed a parallel civil lawsuit against the trio. It was the first insider trading case involving cryptocurrency markets for both federal prosecutors in Manhattan and the SEC - two of the world's top financial enforcement agencies.

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

"Our message with these indictments is clear: Fraud is fraud is fraud, whether it's on blockchain or Wall Street. And the Southern District of New York will continue to work tirelessly to bring fraudsters to justice wherever we find them."

Data mining

Ether and Bitcoin have both fallen sharply in price so far this year. But Ether is up about 58 percent this month, a much bigger rally than that of its larger rival, which has gained about 23 percent.

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

Bitcoin uses the proof-of-work model, in which miners use powerful computers to 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 supporters upset.

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