Calls for Regulation of Crypto Investment Management Firms Amidst Growing Concerns

China’s Crypto Crackdown Reveals Capital Control LoopholesChinese authorities have been stepping up their efforts to crack down on cryptocurrency-related crimes, and with that, uncovering how digital currencies are being used to bypass strict capital controls imposed by Beijing.China may be a few years into a crackdown against the use of cryptocurrencies but despite that, their use and particularly their use for illicit purposes continue. That’s according to a report on Wednesday by the South China Morning Post (SCMP).Photo by Christian Lue on UnsplashCombating capital outflowsThe rising trend of capital outflows has prompted Chinese authorities to take action. Two prominent cases illustrate the extent of these illegal activities and the value of assets seized.In Jingmen, a city in Hubei province, police disclosed details of an online gambling case involving digital currencies used to evade regulation. The case has implicated over 50,000 individuals and a turnover of billions of dollars. Although the specific virtual currency was not mentioned, authorities revealed that they had frozen multiple accounts with a combined value of $160 million.Meanwhile, in Shanxi province, police solved a money laundering case linked to 380 million yuan worth of USDT, the US dollar stablecoin issued by Tether. China’s State Administration of Foreign Exchange is responsible for monitoring cross-border capital flows. Accordingly, it has taken steps to curb these illicit activities. Late last month, it fined ten firms in order to maintain order in the forex market.Digital yuan developmentThese recent cryptocurrency cases have exposed loopholes in China’s capital control system. Crypto mining and trading have long been banned by Chinese regulators. As an alternative, China has been actively developing its own central bank digital currency (CBDC), known as the digital yuan or e-CNY. 2023 has seen a raft of measures taken by various regional administrators throughout China to bring about further e-CNY adoption.However, the ban on cryptocurrencies and the launch of the e-CNY have driven many miners and traders underground or to overseas locations such as Hong Kong, which ironically, is vying to become a cryptocurrency hub. The continued depreciation of the yuan against the US dollar has intensified capital outflow pressures.Chinese bonds sell-offInternationally, fund managers have been selling significant amounts of Chinese securities since 2021. That goes against the current regional trend which sees emerging Asian markets experiencing substantial inflows of funds during the same period, according to the Institute of International Finance.That market activity has been in response to Chinese policies and escalating US-China tensions. An Atlantic Council report highlights that international institutional investors have been net sellers of approximately 1 trillion yuan in Chinese bonds since early 2022.China’s efforts to control capital outflows and stabilize the yuan’s value face ongoing challenges, as cryptocurrency-related crimes persist. While the crackdown exposes weaknesses in the country’s capital control system, it also underscores the difficulty authorities will have globally in trying to control digital currency use.

BIS Collaborates with Singapore’s MAS, Bringing CBDC Pilot to a CloseThe Bank for International Settlements (BIS) has recently signified the culmination of Project Mariana, a pilot initiative centered on exploring the cross-border trading and settlement of wholesale central bank digital currencies (CBDCs).Photo by Pixabay on PexelsUpdating financial market infrastructureThe bank of central banks published the findings of the project on Thursday. Conceived in partnership with the Monetary Authority of Singapore (MAS) alongside the central banks of France and Switzerland, the endeavor could have profound implications for the future landscape of financial market infrastructure.Project Mariana, conducted under the patronage of the BIS, harnessed principles gathered from the emerging world of DeFi to probe the viability of employing automated market makers (AMMs) for CBDC trading and settlement.The project involved three key facets:DeFi Ingenuity: Project Mariana took inspiration and cues from the DeFi universe, particularly AAMs, to streamline foreign exchange trading and settlement. This approach was designed to bolster market efficiency while curtailing settlement risks.Cross-Border CBDC Transactions: Hypothetical wholesale versions of the Swiss franc, euro, and Singapore dollar in CBDC form were tested for cross-border trading and settlement. The central banks of France, Singapore, and Switzerland orchestrated simulated transactions via AAMs to gauge feasibility.Interoperability and Token Standards: The project showcased the practical application of a standardized technical token format offered by a public blockchain, enabling seamless interoperability across various currencies. This interoperability element played a pivotal role in facilitating cross-border CBDC transactions.While the project represents a significant move forward for the BIS in its consideration of decentralized technology, the organization is still mindful that these decentralized tools are in their infancy and in need of further scrutiny and experimentation.With that, the BIS Innovation Hub has outlined its intent to further explore the prospective advantages and obstacles associated with DeFi-infused solutions within pertinent use cases going forward.Proof of conceptWhile the BIS and participating central banks were happy with the outcome of the project, the exercise was still a proof of concept and doesn’t mean there will be any immediate adoption of CBDCs by the participating nations.Rather, it spotlights the potentials of CBDCs and DeFi in streamlining financial transactions and enhancing efficiency. Central banks can oversee wholesale CBDCs without necessarily exerting control over the underlying infrastructure, thereby furnishing commercial banks with a potent tool for instantaneous FX trading and settlement while simultaneously mitigating credit and settlement risks.The project also shone a spotlight on certain challenges, including the logistical intricacies arising from the 24/7 availability of wholesale CBDCs. Nevertheless, the manifold advantages of instant foreign exchange trading and settlement appear to outweigh these hurdles.Central bankers are likely to want a different outcome from the use of this technology by comparison with those who are currently knee-deep in building out DeFi. One commentator on X had a cynical take on the project, stating: “Intermediaries attempting to justify their existence in an age with bitcoin.”Notwithstanding that, FX is the largest financial market in the world, where $7.5 trillion in value is traded every day. To utilize DeFi technology in that context would likely be profound, regardless of the nature of the application of the technology.

Rotonda, a subsidiary of crypto exchange Bithumb that operates Burrito Wallet, announced yesterday that it held “Partners Day 2024.” According to a report by local news outlet Etoday, the event was prepared to share the company’s business plan for this year and its partnership strategies and was attended by 50 stakeholders from 30 companies partnering with Burrito Wallet. The soon-to-be-released service, “Burrito Partners,” was also introduced in the venue.  Following the official launch in February last year, Bithumb’s Burrito Wallet has been collaborating with Web2 and Web3 firms in blockchain service development and co-marketing. Burrito Wallet is dedicated to contributing to bridging Web2 and Web3 ecosystems through forging partnerships.Photo by Christina @ wocintechchat.com on UnsplashSoon-to-be-launched service, Burrito Partners Burrito Partners is Rotonda’s new service to help its partners with marketing efforts. It has been designed to enhance the workflow and boost the quantitative growth of its partners that struggle with a lack of workforce.  Burrito Wallet will leverage Burrito Partners to provide services that can monitor user events, manage follower and marketing indexes, strengthen user community, provide airdrop solutions and secure transaction data, all of which are expected to maximize marketing performance. “By making partnerships with various companies that share the same values with Bithumb’s Burrito Wallet, we have been able to actively expand the blockchain ecosystem,” said Shin Min-chul, CEO of Burrito Wallet. “We are also planning to roll out a rewarding service for users sometime during next month. Burrito Wallet is dedicated to developing a system where all partners can thrive,” he added.