Legislation, Charles Schwab and the City of Lugano

Legislation, Charles Schwab and the City of Lugano

Table of Contents

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The wild jungle of legislation

The European Parliament was set to vote on new disputed cryptocurrency legislation on the 28th of February. A controversial statement in the draft would have enabled the prohibition of “consensus mechanisms consuming large amounts of energy” in the EU region. The law was set to be implemented in 2025, but this part in the draft has at least for now been removed and the vote postponed.

After Russia invaded Ukraine, several western countries have together imposed sanctions on Russia. These sanctions also include cryptocurrency transactions and to some extent crypto exchanges. Janet Yellen, the United States Secretary of the Treasury, has announced authorities are supervising the effect of the imposed sanctions, including the cryptocurrency sector. The French finance minister has also announced the EU will take action to bypass Russian sanctions with cryptocurrencies.

Jerome Powell, chairman of the US Federal Reserve, has underlined the need for more encompassing legislation concerning cryptocurrencies. Powell has already earlier spoken of the need to harmonize cryptocurrency legislation, including the assimilation of stablecoins and other tokens directly to fiat currencies. According to him, such currencies should be regulated in ways mirroring fiat currencies.

Large cryptocurrency exchanges Coinbase, Kraken, and Binance have for principal reasons refused to impose voluntary sanctions on Russian users requested by Ukraine. The companies do not see any benefit in preventive censorship, which could cause harm to potentially innocent Russian citizens. Despite symbolic value, preventing Russians from accessing their platforms is regarded as having a more negative than positive practical effect. Kraken’s CEO also stated that preventive censorship is against the general value atmosphere of the cryptocurrency industry. However, the cryptocurrency exchanges have announced they will act accordingly with laws governing them and prevent access for sanctioned users if so required.

According to Bloomberg’s report, the United States SEC is interested in NFT markets. They see a possibility that NFTs may be used in ways similar to securities without appropriate authorization procedures. In the last year, the SEC has visibly feuded with Ripple Labs. The general consensus is that the SEC is currently an underdog, even though the case is still ongoing with the final result uncertain.

Charles Schwab seeks SEC approval for ETF fund 

Charles Schwab, one of the world’s leading financial industry groups, has sought permission from the United States’ financial authority SEC for its Crypto Economy Index ETF.

Charles Schwab is the next company interested in launching cryptocurrency ETFs in the United States. At the moment cryptocurrency-related ETFs in the country are among others provided by Bitwise, Global X, Siren, Amplify, First Trust, VanEck, and Capital Link, with their total assets reaching $1.7 billion US dollars.

The SEC has up to date not permitted Bitcoin ETF products for direct investments in the US. Therefore ETFs are interesting targets for institutional investors since many states have legislation preventing direct institutional funds to be invested in cryptocurrencies.

If Charles Schwab’s ETF would be greenlighted by the SEC, the ETF would not invest customer funds directly in cryptocurrencies or ICOs (Initial Coin Offering).

Instead, this ETF would invest at least 80% of its net taxes in companies benefiting from the development or use of Bitcoin or other digital assets. These companies would then be included in a Schwab Crypto Economy Index administered by Charles Schwab.

The ETF would also use the Schwab Crypto Economy Index as a comparison index. The success of the ETF’s profit-risk relationship could be measured with tracking error among other tools.

The interest in launching a cryptocurrency ETF is largely due to increased demand by customers, as reported by Charles Schwab’s investment services chief Jonathan Craig. According to Craig, up to 16% of Charles Schwab’s customer base intends to invest in cryptocurrencies during the first half of 2022. This is why Charles Schwab also wants a share of this growing market.

Charles Schwab is, however, not the only financial group seeking permission from the SEC for an ETF launch. In January the world’s largest asset manager Blackrock also applied for approval for their own ETF, which aims to invest in technologies utilizing cryptocurrencies. Blackrock’s assets under management (AUM) are currently $10 billion US dollars.

Similar plans have also been expressed by another leading financial group Fidelity Investments.

It is at this point hard to say if Charles Schwab’s ETF will be authorized. Nonetheless, it is clear that institutional investors have a continuously growing interest in cryptocurrencies and related products.

The city of Lugano enables tax payments with cryptocurrencies

Tether Operations Limited, which works as a platform enabling the stablecoin Tether (USDT) has entered a collaborative partnership with the city of Lugano in southern Switzerland. The contract is set to facilitate the possibility of paying taxes with cryptocurrencies in the future.

According to an announcement by Tether and Lugano, taxes can in the future be paid with Bitcoin, Tether, and a few other CHF-based stablecoins in the city of Lugano.

The collaboration aims to first enable citizens and entrepreneurs in Lugano to pay taxes with cryptocurrencies. After this, the city is set to permit all purchases with cryptocurrencies.

The goal is to practically implement blockchain technology solutions to a level corresponding to fiat currencies, which can be enabled for instance by using payment-related applications. 

A noteworthy part in the news is that Bitcoin’s lightning network will be utilized in planning the payment system. In order to construct this properly, the scalability problems of Lugano need to be addressed as a priority.

In the announcement Bitcoin’s lightning network is described as a notable, scalable, and strong system, which is also safe, based on trustlessness, and enables privacy. Tether is also set to be implemented as a part of this payment system. 

Furthermore, the collaboration includes Tether setting up a fund, which will finance startup companies focusing on blockchain technology in the Lugano region. Additionally Tether will provide Lugano’s universities and research institutes its own expertise in the industry.

According to Lugano’s city manager Michele Folet, Lugano now intends to invest in its future. In recent years the city has also partaken in developing payment tokens such as the LVGA Points citizen tokens project.

According to Folet, the city of Lugano has actively participated in blockchain technology-related projects for years. Examples of these include MyLuganoApp, Lugano’s digital franc, and the 3Achain blockchain infrastructure.

At the moment Switzerland already has several cities and cantons enabling tax payments with cryptocurrencies.

Lugano’s current plans sound very similar to the state of Colorado in the United States. In Colorado tax payments with cryptocurrencies are set to be introduced already by this year’s summer

In Colorado’s payment systems cryptocurrencies are automatically converted to dollars once they arrive. Colorado also has plans to enable tax payments with several other cryptocurrencies aside from Bitcoin.

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