*This report is jointly produced by Beosin and Footprint Analytics. This chapter is written by Eaton, Beosin research team
This content will explore key regulatory and compliance events in the first half of 2024 in regions such as the United States, Dubai, Singapore and Hong Kong, providing insights into the evolving regulatory environment for digital assets.
1. The United States approves Bitcoin spot ETF
In January 2024, the U.S. Securities and Exchange Commission (SEC) approved a Bitcoin spot ETF for the first time in history, authorizing 11 ETFs to start trading on Thursday. The SEC said it had approved the listing and trading of spot Bitcoin ETFs through an expedited model. Subsequently, SEC Chairman Gary Gensler issued a statement saying, "Although some Bitcoin spot ETFs have been approved for listing and trading, Bitcoin has not been recognized. Bitcoin is a speculative and volatile asset, and the approval of Bitcoin spot ETFs will bring more regulation."
The SEC previously refused to approve the Bitcoin spot ETF due to concerns about market fraud and manipulation. All rejected ETF applications cited the securities law's reason for "protecting investors from fraud and manipulation of the market" (the products were not designed to prevent fraudulent and manipulative acts and practices). Until the Grayscale case, the judge believed that the SEC's rejection of Grayscale's application was arbitrary and unfounded (acting arbitrarily and capriciously) because the SEC failed to explain how it treated similar ETF products differently. The court believed that this administrative behavior of differential treatment violated administrative law and agreed to revoke the SEC's rejection of the application.
Subsequently, the SEC's attitude towards Bitcoin spot ETFs began to change, from passive disapproval to active review of various Bitcoin spot ETF proposals, and officially approved the listing and trading of Bitcoin spot ETFs in 2024.
2. The United States 21st Century Financial Innovation and Technology Act
On May 22, the U.S. House of Representatives passed a bill aimed at creating a new legal framework for digital currencies, the 21st Century Financial Innovation and Technology Act (FIT21), by a vote of 279 to 136. The bill aims to clarify the regulatory responsibilities of the U.S. SEC and CFTC for digital assets, provide clear rules for market participants, and protect investors and consumers.
FIT21 would introduce a “decentralization test” that would classify a cryptocurrency as a commodity if it is sufficiently decentralized: “Among other requirements, this bill would classify a blockchain as decentralized if no person has unilateral control or power to use the blockchain and no issuer or associated person controls 20% or more of the voting power of the digital asset.”
The SEC will be responsible for regulating digital asset securities, while the CFTC will regulate digital asset commodities. The FIT21 bill is still a long way from becoming law, and the U.S. Senate will vote on the bill next. U.S. President Biden issued a statement saying that he opposed the "current form" of the FIT21 bill, but was "eager to work" to ensure a balanced regulatory framework for cryptocurrencies.
3 The United States is about to approve Ethereum spot ETF
On September 6, 2023, VanEck and 21Shares&ARK submitted an application for Ethereum spot ETF to the SEC. Subsequently, Ethereum spot ETF ushered in a wave of intensive institutional applications, but the SEC's tough attitude made the market pessimistic about Ethereum spot ETF. The SEC and CFTC have been arguing over whether Ethereum is a security.
On March 28, 2023, Gurbir Grewal, head of the enforcement division of the U.S. Securities and Exchange Commission, approved a formal investigation order into the securities status of Ethereum, authorizing law enforcement officers to investigate and subpoena individuals and entities involved in the purchase and sale of Ethereum tokens. In April 2024, the SEC issued consecutive warnings to decentralized application project parties, and projects such as Uniswap and Consensys were frequently affected, causing market panic.
On May 21, 2024, when the market believed that the Ethereum spot ETF would hardly be approved, two analysts from Bloomberg suddenly posted on the X platform, saying that the probability of Ethereum approval had risen to 75%, and that the SEC might make a 180-degree turn on the Ethereum spot ETF (more of a political issue), and that this possibility was related to the approval of 19b-4.
On May 24, 2024, the U.S. Securities and Exchange Commission (SEC) approved the plans of the New York Stock Exchange, Chicago Board Options Exchange, and Nasdaq for spot Ethereum ETFs, namely the issuer's Ethereum spot ETF 19b-4 (Exchange Rule Change) application. Currently, the Ethereum spot ETF is still far from being officially approved, and the S-1/S-3 form review and approval is required. Ethereum spot ETF applicants must disclose detailed information about the ETF in the S-1 or S-3 form.
4 Hong Kong continues to improve its Web3 regulatory framework
With the establishment of regulatory rules and legislative infrastructure for the crypto industry, Hong Kong is positioning itself as a leader in Web3 and crypto asset innovation.
HKMA provides regulatory guidance on tokenized products
In February 2024, the Hong Kong Monetary Authority issued a circular on the sale and distribution of tokenized products, which sets out the expected regulatory standards that the HKMA must comply with when authorized institutions sell and distribute tokenized products to customers. The HKMA believes that it is time to provide guidance on activities related to tokenized products and provide clear regulatory requirements for the banking industry to support the industry's continued innovation and realize the benefits of tokenization, while taking appropriate safeguards from the perspective of consumer/investor protection.
The Securities and Futures Commission continues to warn the public to be wary of unlicensed exchanges and suspicious crypto products
In January 2024, the SFC warned the public to beware of two suspicious investment products named "Floki Staking Program" and "TokenFi Staking Program". Both products involved cryptocurrency staking services and claimed to provide high annualized return targets ranging from 30% to over 100%. In addition, the SFC and the police warned the public to beware of suspected fraudulent activities by two virtual asset trading platforms, Aramex and DIFX.
In February 2024, the SFC warned the public to beware of a suspicious investment product called "Yieldnodes.com masternode pool" operated by Exceptional Media Limited, and reminded investors that they should only buy and sell virtual assets on virtual asset trading platforms licensed by the SFC.
In March 2024, the CSRC warned the public to beware of several unlicensed virtual asset trading platforms, such as MEXC, Bybit, and BitForex.
Among them, MEXC actively promotes its services to Hong Kong investors, but it has not been licensed by the SFC or applied for a license from the SFC to operate a virtual asset trading platform (VATP) in Hong Kong. BitForex is suspected of engaging in virtual asset-related fraud.
Hong Kong regulates stablecoins
In December 2023, the Financial Services and the Treasury Bureau (FSTB) and the HKMA jointly published a consultation document on the legislative proposals for establishing a regulatory regime for stablecoin issuers and announced that the HKMA would set up a "sandbox" for stablecoin issuers. The consultation ended on February 29, 2024, with more than 100 submissions received. The FSTB and the HKMA are studying these submissions and strive to publish the consultation conclusions as soon as possible. In March 2024, the HKMA announced the launch of the "sandbox" for stablecoin issuers and launched a public consultation on the regulatory regime for stablecoin issuers, hoping to provide adequate protection for stablecoin holders and address the risks that stablecoins may bring to monetary and financial stability.
Hong Kong launches OTC licensing system
On February 2, 2024, Hong Kong Financial Services and the Treasury Bureau Director Paul Chan said that the government believes that there is a need to bring virtual currency over-the-counter (OTC) exchanges under regulation and will launch a consultation on the proposed regulatory framework in the short term.
At present, Hong Kong's regulation of virtual currencies is mainly focused on two aspects: one is the regulation of virtual asset trading platforms (VASPs), and the other is the regulation of over-the-counter (OTC) merchants. According to the preliminary on-site observations of Hong Kong law enforcement agencies, there are about 200 physical virtual asset OTC shops (including OTC shops operated by ATMs) in operation in Hong Kong, and about 250 online active virtual asset trading service providers.
On February 8, 2024, the Hong Kong government launched a public consultation on the legislative proposal to establish a licensing system for virtual asset over-the-counter (OTC) service providers. For example, according to the legislative proposal, all virtual asset OTC services, whether through offline physical stores (including ATMs) or online website services, must obtain relevant licenses issued by the Hong Kong Customs.
5. Hong Kong approves spot ETFs for Bitcoin and Ethereum
On April 15, the Hong Kong subsidiaries of China Public Fund, Bosera International, China Asset Management (Hong Kong), and Harvest International, have obtained approval in principle from the Hong Kong Securities Regulatory Commission to issue virtual asset spot ETF products. After the approval of the business, the fund can provide virtual asset management services to investors and apply to issue ETF products that can invest in spot Bitcoin and spot Ethereum. Ordinary investors can subscribe to related products through the Hong Kong Stock Exchange.
On April 30, the first six virtual asset spot ETFs issued in Hong Kong were officially listed on the Hong Kong Stock Exchange and opened for trading, becoming the first batch of virtual asset spot ETFs in Asia.
6. Singapore strengthens regulation of financial markets
In January 2024, the Financial Institutions (Miscellaneous Amendment) Bill was submitted to Parliament, which seeks to strengthen the investigative, supervisory and inspection powers of the Monetary Authority of Singapore (MAS) within its remit.
MAS has noted that Capital Market Services Licensee (CMSL) holders may conduct unregulated business, including offering products not regulated by MAS (such as Bitcoin futures and other payment token derivatives traded on overseas exchanges), and that these activities may pose a proliferation risk to their regulated activities. MAS has issued guidance to CMSL holders to take steps to mitigate risks when conducting unregulated business with retail investors, and the Draft FIMA will allow MAS to issue written instructions on the minimum standards and safeguards that CMSL holders and their representatives should implement when conducting unregulated business.
On June 20, 2024, the Singapore government released a 126-page money laundering risk assessment report, which deeply assessed the money laundering risks currently faced by Singapore. The report pointed out that in the process of attracting global super-rich and building an international financial wealth center, Singapore also faces severe anti-money laundering challenges and is easily used as a channel for laundering funds from overseas financial fraud and other crimes. In a recent money laundering case, the Singapore authorities seized more than 1.5 billion Singapore dollars from related bank accounts.
7. Dubai optimizes the regulatory environment for digital assets
In recent years, Dubai has continued to play an active role in creating a crypto-friendly environment and providing clear regulatory guidelines for investing in digital assets.
Dubai International Financial Centre (DIFC) promulgates Digital Assets Law
In March 2024, the Dubai International Financial Centre (DIFC) announced the promulgation of the world's first "Digital Asset Law", which aims to ensure that DIFC laws keep pace with the rapid development of international trade and financial markets driven by technological development, and provide legal certainty for investors and users of digital assets.
The new law came into effect on March 8, defining the legal characteristics of digital assets as a form of property and outlining how relevant parties can control, transfer and deal with digital assets. In addition to the Digital Assets Law, DIFC has also introduced a new Security Law modeled on the United Nations Commission on International Trade Law Model Law on Secured Transactions and made relevant amendments to existing laws.
Dubai Financial Services Authority (DFSA) Updates Cryptocurrency Regime
In June 2024, the Dubai Financial Services Authority (DFSA) announced amendments to its cryptocurrency token regime to strengthen and advance the regulatory framework for tokens within its special economic zones.
These changes are derived from the recommendations made in the "Consultation Paper No. 153 - Update of Crypto Token System" published in January 2024, covering multiple aspects, including the ability of external and foreign funds to invest in unit offerings of recognized cryptocurrencies, the ability of domestic qualified investor funds to invest in unrecognized cryptocurrencies, and the custody of cryptocurrencies. In addition, this amendment adopts anti-financial crime compliance guidelines to address financial crime issues, including the application of the "travel rule", transaction monitoring and blockchain analysis, and the fees for recognized crypto tokens.
