US SEC to Scrutinize Crypto Firms Operating as Qualified Custodians in New Rule: Report

The United States Securities and Exchange Commission (SEC) plans to propose new rules that would toughen the requirements for cryptocurrency firms to become qualified custodians for institutional fund managers.

Although the draft proposal will be submitted on Wednesday, the affected area remains unclear, Bloomberg reported, citing people familiar with the matter.

Crypto Firms to Face Scrutiny as Qualified Custodians

According to the report, the SEC intends to submit a draft proposal with rule changes that would make it difficult for crypto firms to be qualified custodians for money managers.

The new rules would affect hedge funds, private equity firms, some venture capital firms, and pension funds, as they are required to secure clients’ assets with qualified custodians.

If approved, the affected entities will need to move their customers’ assets to other custodians. They may also undergo audits on their custodial relationships and other ramifications.

SEC Intensifies Crackdown on Crypto Firms

The SEC’s move would be it’s latest aimed at curbing the risks that crypto might pose to the broader financial system. The agency has already taken an aggressive stance against the crypto sector after a long list of firms met their demise last year, dragging investors’ funds alongside.

Such cases include crypto exchange FTX, whose bankruptcy caused a contagion that led to the insolvency of other firms and the revelation of the actual state of customers’ assets.

Although litigation against FTX’s founder and executives is still ongoing, the SEC has strengthened its resolve to scrutinize the nascent industry, as seen in its cases against crypto lenders Nexo and BlockFi. The regulator has insisted that most crypto tokens and offerings are classified as securities and should be registered to ensure proper oversight and disclosures.

Meanwhile, before the proposal is released to the public, a majority of the five-member SEC would have to approve it. The agency would then have to collate the feedback, vote again, and finalize the rule before it takes effect.

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Bitcoin Miners Generated $600K From Ordinals Transactions in 2 Months: Dune

Since the launch of the new controversial Bitcoin-based non-fungible token (NFT) protocol Ordinals in mid-December, miners on the largest blockchain have made nearly $600,000 in BTC transaction fees.

According to data from blockchain data platform Dune Analytics, a total of 81,468 Ordinals have been inscribed into the Bitcoin network. This has caused an upsurge in user activity and, as a result, increased the number of non-zero Bitcoin addresses.

BTC Miners Cash Out From Ordinals in 2 Months

As reported by CryptoPotato, Ordinals are Bitcoin NFTs that leverage the Taproot soft fork to inscribe data in the witness portion of BTC transactions. Created by Bitcoin Core contributor Casey Rodarmor, they were designed to number individual satoshis – the smallest unit of a Bitcoin – on the network.

Despite the level of opposition that Ordinals faced upon its launch, the protocol has helped increase miners’ revenue on the Bitcoin network. In just two months, miners have generated a cumulative $574,000 in transaction fees while the number of inscriptions continues to grow.

Blockchain data platform Glassnode noted that the emergence of Ordinals marks the first time in Bitcoin’s 14-year history that the network is being used for non-monetary purposes.

“This is a new and unique moment in Bitcoin history, where an innovation is generating network activity without a classical transfer of coin volume for monetary purposes. This describes a growth in the user base and an upwards pressure on the fee market from usage beyond the typical investment and monetary transfer use cases,” Glassnode said.

Ordinals Occupy 50% of Bitcoin Block Space

Furthermore, Glassnode disclosed that the new protocol had brought many new active users with non-zero bitcoin balances to the network, creating upward pressure on the market without significantly increasing transaction fees.

Notably, the Ordinals protocol has caused some competition for block space demand. The upper range of mean block size has increased from 1.5-2.0MB to between 3.0-3.5MB, with the inscriptions occupying almost 50% of the space.

In addition, Taproot adoption and utilization have increased to 9.4% and 4.2%, respectively.

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