Context

In 2019, France adopted the PACTE law. This law introduced the concept of digital assets into French law and the PSAN (digital asset service provider).

This status regulated by the French Market Authority (hereinafter AMF) means that any entity considered a PSAN must apply for registration (or approval) from the market authority to carry out its activity, which has become regulated.

Registration and approval are two distinct things under the law.

To simplify, registration is a “lighter” procedure compared to approval.

In 2020, the AMF issued the first PSAN registrations. Since then, many players have registered with the AMF and some have chosen France as their European headquarters given its position on crypto (Binance & Crypto.com, to name a few).

France: the crypto paradise?

While the enthusiasm is significant, France has above all benefited, I believe, from very good work by the crypto-asset industry players.

It also has the fortune of counting, among its twenty or so unicorns, two active in the sector (Ledger & Sorare) (to qualify as a unicorn, a startup must reach a valuation of one billion dollars without being listed on the stock exchange).

Nevertheless, following the FTX scandal, a regulatory tightening was proposed to prevent this type of catastrophe from occurring with a PSAN.

Legislative amendment proposals were made by politicians not particularly well-versed in the technology and this sector.

Ultimately, the tightening project was not carried through and France is heading toward an enhanced version of the PSAN before being subject, like the rest of Europe, to the MiCA regulation.

For those who want a TL;DR of the enhanced regime: it’s here.

Political analysis: are they serious?

Well, this information was shared on social media but the political intervention received very little commentary.

Below, an intervention by Ugo Bernalicis, LFI deputy, which I invite you to watch:

[

Marco.BTC.fr @MarcoBTCfr

“of crypto-assets where you have the thing going up 300% [..] new speculation toy [..] it’s the new highway for organized crime laundering [..] it’s an objective reality [..] Yes these financial flows are suspicious by nature” LFI Deputy @Ugobernalicis

](https://twitter.com/MarcoBTCfr/status/1618190495506915328?t=W5dVJp_6LUyxBLXTOyviuA&s=19)

[

10:14 AM ∙ Jan 25, 2023

292Likes59Retweets

](https://twitter.com/MarcoBTCfr/status/1618190495506915328?t=W5dVJp_6LUyxBLXTOyviuA&s=19)

I will focus on the content of his intervention without taking into account the political convictions of this parliamentarian or his party.

I have, indeed, no difficulty admitting that a political party decides on measures in this or that direction. Tax the rich, reduce taxation on labor, incentivize innovation or virtuous behavior, etc. Each party has its line of conduct and its proposals are inspired by its convictions.

However, in Mr. BERNALICIS’s political speech, nothing works!

Let’s go through the absurdities:

+300% then -500% at once

Right. Let’s start with something simple. Mathematicians will have immediately spotted the absurdity of this statement since, assuming a crypto-asset could gain 300% at once and lose 500% very shortly after, the value of this crypto-asset would then be negative, which is of course impossible in the market.

While I can accept a certain degree of overstatement in Mr. BERNALICIS’s remarks, the fact remains that he uses this fluctuation and high volatility to justify the measures he supports.

However, the figures he uses are false and mathematically inaccurate.

He is therefore arguing on the basis of an inaccuracy. Moreover, the announced and cited figures demonstrate a certain desire to impress the uninitiated who populate this parliamentary assembly.

The tone and level are set…

Crypto-assets: the new speculation toy

On this point, the argument is recurring. Indeed, the market uses crypto-assets as a speculation toy, just like the majority of assets that exist.

In 2022, gas prices soared due to geopolitical conflicts. This price surge resulted notably from market forces (supply and demand).

There is also speculation on wheat and a range of commodities.

I can understand that speculation displeases a political opinion.

However, it is necessary to put this argument back into the relevant context. Indeed, this concerns discussions about the status of digital asset service providers and regulating these actors more severely.

According to Article L54-10-2 of the French Monetary and Financial Code, digital asset services include the following services:

1° The service of custody on behalf of third parties of digital assets or access to digital assets, where applicable in the form of private cryptographic keys, for the purpose of holding, storing and transferring digital assets;
2° The service of buying or selling digital assets for legal tender currency;
3° The service of exchanging digital assets for other digital assets;
4° The operation of a digital asset trading platform;
5° The following services:
a) The reception and transmission of orders on digital assets on behalf of third parties;
b) Portfolio management of digital assets on behalf of third parties;
c) Advice to digital asset subscribers;
d) Firm underwriting of digital assets;
e) Guaranteed placement of digital assets;
f) Non-guaranteed placement of digital assets.

Based on these definitions, I am not sure I see any responsibility on the part of French digital asset service providers regarding speculation.

Indeed, while speculation exists within the crypto-asset sector, it is not digital asset service providers, or any other service provider established in Europe, that participates in this speculation.

In fact, the majority of speculation takes place on unregulated offshore marketplaces accessible to anyone.

When it arrived in France, BINANCE limited the use of leverage under European pressure. As a result, clients turned away from BINANCE and went to FTX, which offered a “high-level” trading platform whose company was based in the Bahamas…

The parliamentary deputy is therefore missing his target. He is attacking digital asset service providers when they are not the source of the ills he denounces.

The new money laundering highway for organized crime

Here again, the argument generally developed by those against crypto-assets concerns money laundering.

Recurrently but unfortunately never demonstrated (the latest corruption scandal at the European Parliament offers a concrete example: no crypto-assets and only bundles of banknotes), the detractors of this technology claim that crypto-assets make money laundering easier.

This unfortunately shows a profound misunderstanding of the system and the nature of this technology since, as a good reader of this newsletter, you know that blockchain technology provides absolute traceability of transactions.

While there are tools available to users to mix the origin of their crypto-asset transactions, returning to the fiat world necessarily requires demonstrating the lawful origin of funds.

To date, the regime established in France or in other EU member states integrates all the provisions of the anti-money laundering directive and therefore subjects crypto-asset or digital asset service providers to the control of national market authorities.

The latter must therefore demonstrate compliance with provisions relating to the fight against money laundering and terrorist financing.

Finally, more fundamentally, this argument can no longer be sustained when reading the MiCA regulation.

Indeed, under this regulation, stablecoins are regulated and emission caps are imposed for stablecoins used as a means of exchange or payment.

The implementation of such provisions demonstrates that crypto-asset issuers will need to monitor the use made of the crypto-assets they have issued.

Following the thesis of crypto-skeptics, one can legitimately question the effectiveness of the surveillance obligations placed on stablecoin issuers under the MiCA regulation.

Indeed, if crypto-assets were the money laundering highway described by the deputy, how could a crypto-asset issuer then comply with its surveillance obligations and know whether a crypto-asset is being used as a means of payment?

This once again demonstrates, at worst the bad faith (or “at best” the lack of knowledge) of certain detractors of crypto-assets who attempt, in a rather unintelligent manner, to undermine crypto-assets.

These financial flows are suspicious by nature

This statement is once again inaccurate since, under applicable legal provisions, financial flows are never considered first under anti-money laundering legislation.

Indeed, this legislation places specific surveillance and client identification obligations on regulated entities.

It is only on the basis of these preliminary analyses that the financial flow could be considered suspicious based on the client’s profile.

If we take the example of an unemployment benefit recipient who receives an income of EUR 1,000 per month for years, it would indeed be suspicious if they received EUR 500,000 from a bank account in another European country. Indeed, this type of transaction could be considered suspicious or abnormal by the regulated entity. In this situation, it would have to process this flow and then carry out an additional analysis and examination under the anti-money laundering law and file a suspicious activity report with the supervisory authority if applicable.

Therefore, to peremptorily assert that financial flows are suspicious by nature is legally incorrect but moreover contrary to the principle of presumption of innocence.

Indeed, if we consider that every crypto-asset flow is suspicious by nature, we undermine the presumption of innocence since every person using crypto-assets would be presumed guilty. To my knowledge, the legal principles relating to the presumption of innocence have not been modified and still apply in Europe.

I have already mentioned this in #CryptoReflexions1 that I wrote and refer you to it for more details.

Let us therefore not fall into these excesses.

Convertibility into hard euros

This is where we see that the parliamentarian, although he claims to have knowledge of the sector having worked on it for 4 years, does not know as much as he claims. Indeed, repatriating funds resulting from the conversion of crypto-assets to fiat currency has become a real nightmare for all crypto investors.

The vast majority of banks are very reluctant to accept funds from the conversion of crypto-assets, and the termination of contractual and commercial relationships for this reason is commonplace (no pun intended).

Furthermore, thinking that simply using crypto-assets is enough to launder the proceeds of illicit activity demonstrates a complete lack of nuance, understanding, and information on the part of this parliamentarian.

To go further: cryptomonnaie.be — The Belgian cryptocurrency blog | Newsletter CryptoBelgique — Stay informed of news and updates