12.4 AI Daily: Cryptocurrency Regulation Tightens, Industry Faces New Challenges

I. Top Stories

1. Fed Chair Powell Sends Hawkish Signal, Bitcoin Plunges Over 10%

Federal Reserve Chair Jerome Powell stated in a speech that, in order to control inflation, the Fed may need to raise interest rates to a level higher than previously expected. This hawkish comment immediately triggered violent market fluctuations. Bitcoin plunged more than 10% shortly after Powell’s speech, briefly falling below the $17,000 mark.

Powell emphasized that although inflation has slowed, it remains well above the 2% target. To bring inflation down to an appropriate level, the Fed may need to raise rates higher than previously anticipated and keep them there for some time. This means the rate-hiking cycle may not be over.

Analysts noted that Powell’s remarks dashed market expectations that the Fed would start cutting rates in 2023. Investors’ concerns about a recession intensified, leading to a sell-off in risk assets. As one such asset, Bitcoin was inevitably caught in the crossfire.

In addition to Bitcoin, other cryptocurrencies also plummeted sharply after Powell’s speech. Ethereum fell nearly 10%, while popular tokens like Terra and Solana suffered even larger losses. Analysts believe Powell’s hawkish stance could prolong the crypto winter.

2. EU Regulators Release First Crypto Asset Risk Assessment Report

The European Banking Authority (EBA) has released its first crypto asset risk assessment report, providing a comprehensive evaluation of the risks and challenges posed by crypto assets. The report will serve as a basis for the EU to develop a regulatory framework for crypto assets.

The report points out that the high volatility of the crypto asset market, lack of transparency, and regulatory arbitrage behaviors pose risks to consumer protection, financial integrity, and effective operation. Crypto assets may also be used for money laundering and terrorist financing.

The EBA is also concerned about the growing links between crypto assets and the traditional financial system. Some banks and investment firms have begun offering crypto asset-related services, which could transmit crypto risks into the traditional financial system.

The report recommends that the EU establish a unified regulatory framework for crypto assets, clearly defining the responsibilities of regulatory bodies. It also calls for stronger anti-money laundering measures and prudent supervision of crypto asset service providers.

Analysts say the report reflects regulators’ concerns about crypto asset risks. Future regulatory policies may further tighten, potentially having a profound impact on the crypto industry.

3. US SEC Issues Subpoena to Coinbase

The US Securities and Exchange Commission (SEC) has issued a subpoena to crypto exchange Coinbase, requesting information regarding its crypto asset listing process, product launches, and listing decisions. This is the latest move by the SEC to ramp up crypto regulation.

The SEC said it is investigating whether Coinbase violated securities laws, including issuing securities without proper registration. The SEC believes some crypto assets listed by Coinbase may constitute securities.

Coinbase responded that it has not engaged in any illegal behavior and will actively cooperate with the SEC’s investigation. The company stated it has implemented strict due diligence processes to ensure listed crypto assets comply with legal requirements.

Analysts point out that the SEC’s move reflects its determination to regulate the crypto market. If the SEC ultimately determines that certain crypto assets are securities, their issuance and trading will be subject to stricter regulation.

On the other hand, some analysts believe the SEC’s actions could increase uncertainty in the crypto industry and hinder innovation. They urge regulators to maintain communication with the industry and establish clear regulatory rules.

4. Bank of England Releases Consultation Paper on Stablecoin Regulatory Framework

The Bank of England has released a consultation paper on the regulatory framework for stablecoins, proposing suggestions on how to regulate crypto assets pegged to sovereign currencies. This is the first time the UK has proposed a specific framework for stablecoin regulation.

The consultation paper recommends that issuers of stablecoins pegged to sovereign currencies like the pound sterling should be regulated in the same manner as electronic money issuers. Issuers are required to hold sufficient reserves and be subject to prudent supervision.

The paper also proposes regulatory recommendations for algorithmic stablecoins. Issuers must disclose algorithm details and develop contingency plans for extreme situations.

Analysts believe this regulatory framework will help strengthen stablecoin supervision and reduce systemic risk. However, some analysts worry that excessive regulation could stifle stablecoin innovation.

The Bank of England stated that after a three-month consultation period, it will revise the framework based on feedback. The final framework is expected to take effect in 2024.

5. FTX Bankruptcy Liquidation Progresses with Difficulty

The bankruptcy liquidation of crypto exchange FTX is progressing with difficulty. The bankruptcy management team reported that FTX’s record-keeping systems are chaotic, and asset tracking faces numerous obstacles.

After FTX filed for bankruptcy protection in November, the management team took over operations. However, they found serious defects in FTX’s company records and audit systems, chaotic fund management, and many transaction details that have become untraceable.

The management team also discovered that only about $900 million in crypto assets remained in FTX’s cold wallets, far below expectations. They are tracing the whereabouts of the funds, but the process is extremely challenging.

Analysts pointed out that FTX’s internal controls failed, and founder Sam Bankman-Fried may have transferred large amounts of funds, making liquidation even more difficult.

On the other hand, FTX’s bankruptcy has sparked renewed calls for regulation of crypto exchanges. Regulators may strengthen oversight of exchange audits and fund management to protect investors’ interests.

II. Industry News

1. Bitcoin Under Short-Term Pressure, Long-Term Outlook Remains Bullish

Bitcoin’s price dropped 3.8% in the past 24 hours, currently trading near $87,200. The pullback was mainly due to hawkish comments from Bank of Japan Governor Kazuo Ueda, fueling expectations of a Japanese rate hike and pushing the 2-year government bond yield to 1%. Meanwhile, China’s November non-manufacturing PMI showed activity contracted for the first time in nearly three years, increasing investor concerns over regional economic growth.

Analysts note that Bitcoin faces macro uncertainty in the short term, but its long-term outlook remains bullish. First, the Fed is set to begin a rate-cutting cycle next week, which should ease the long-standing tightening pressure. Second, institutional demand for Bitcoin continues to grow, with several major institutions launching spot ETF products. In addition, Bitcoin’s value as digital gold is becoming increasingly prominent, providing a hedge in an inflationary environment.

However, investors should also be wary of potential risks. Bitcoin faces significant selling pressure around the $90,000 level; failure to break through could lead to continued range-bound trading in the short term. At the same time, regulatory uncertainty could also impact market sentiment. Overall, the fundamentals supporting Bitcoin’s long-term growth remain unchanged, but investors should maintain a cautiously optimistic attitude.

2. Ethereum Faces Sell-Off, DeFi Ecosystem Impacted

Ethereum’s price fell 5.1% in the past 24 hours, currently trading near $2,850. The decline was mainly caused by Bitcoin’s sharp pullback and reflects investor concerns over the DeFi ecosystem.

Analysts state that as the foundation of the DeFi ecosystem, Ethereum’s price volatility directly affects the development of the entire ecosystem. Over the past week, several security incidents occurred on the Ethereum network, including Yearn suffering a $9 million token theft due to a hack and Grim losing about $30 million in a flash loan attack. These incidents have heightened investor concerns over DeFi security.

Meanwhile, regulators are intensifying scrutiny of the DeFi space. SEC Chair Gary Gensler recently stated that most token issuances need to comply with securities laws, sparking concerns about tighter regulatory policy.

However, some analysts remain optimistic about DeFi’s long-term prospects. They believe that as technology advances and regulatory policies become clearer, DeFi will become more mature and standardized, attracting more institutional capital. Therefore, investors should remain patient and confident, seizing long-term investment opportunities.

3. Solana Ecosystem Heats Up, New Projects Booming

The Solana ecosystem continues to heat up, with SOL prices rising 8.2% over the past week and currently trading near $142. This increase is mainly due to the continuous emergence of new projects within the Solana ecosystem and overall higher activity.

Statistics show that more than 400 projects are now deployed on the Solana network, covering DeFi, NFT, GameFi, and other fields. The newly launched decentralized exchange Oxy has drawn widespread attention, with its first-day trading volume exceeding $100 million. In addition, Solana’s NFT trading volume continues to climb, reaching a new high of $120 million last week.

Analysts state that Solana’s ongoing momentum is thanks to its high performance, low fees, and the relentless efforts of ecosystem builders. At the same time, the Solana Foundation is actively investing in promising projects, injecting new vitality into the ecosystem. However, some investors have raised concerns about Solana’s degree of decentralization and security.

Overall, the Solana ecosystem is developing rapidly, attracting significant capital and talent. Still, it faces challenges, and finding a balance between performance and security will be key to its future development. Investors should perform thorough due diligence and invest cautiously.

III. Project News

1. Telegram Founder Launches Decentralized AI Computing Network Cocoon

Telegram founder Pavel Durov announced the official launch of Cocoon, a decentralized confidential computing network based on TON and the Telegram ecosystem. The first batch of user AI requests has been processed by Cocoon, achieving 100% privacy protection. GPU providers have begun earning TON tokens through the network.

Cocoon aims to address the high costs and privacy issues posed by traditional AI computing providers like Amazon and Microsoft. The network allows users to utilize distributed GPU resources for AI computation while maintaining privacy. In the coming weeks, GPU supply will be expanded and more developer demand will be introduced.

The launch of Cocoon marks a new milestone in decentralized AI computing. It offers users a secure, efficient, and economical way to perform AI computation, and is expected to drive further development of AI technology in privacy protection and cost control. Industry insiders believe that Cocoon may trigger the emergence of more decentralized AI computing networks, creating a new ecosystem for AI computation.

However, Cocoon is still in its early stages, and its scalability and security remain to be proven. Some analysts worry that without effective incentives and regulatory measures, Cocoon could face centralization risks. Overall, the market holds high expectations for Cocoon’s innovation and prospects.

2. Yearn Suffers $9 Million Attack, Hacker Mints Unlimited yETH Tokens

Leading DeFi protocol Yearn suffered a $9 million attack after hackers exploited a vulnerability in an older yETH contract, minting an unlimited supply of yETH tokens and draining the liquidity pool.

The incident exposed vulnerabilities in smart contracts and KYC processes, leading to loss of control in the fundraising process and raising concerns about community fairness. As a key liquidity-priming move for the soon-to-launch Frontier mainnet’s USDm stablecoin, this setback may affect the project’s development pace, highlighting the compliance and risk control challenges in fundraising for new blockchain projects.

Yearn stated that it has paused the affected contracts and is investigating the cause of the incident. The protocol will strengthen security audits and consider compensation measures to rebuild community trust. However, since the attacker’s identity is still unknown, the chances of recovering the funds in the short term are low.

Industry insiders note that this attack once again highlights security risks in the DeFi space. While the DeFi ecosystem is thriving, smart contract vulnerabilities and lack of regulatory oversight remain major obstacles to industry development. Analysts call for DeFi projects to strengthen security audits and risk control, and for regulators to establish corresponding frameworks to promote the industry’s long-term healthy development.

3. Bitcoin Plunges 5%, Crypto Market Sees $426 Million in Liquidations

Bitcoin’s price dropped from $90,700 to $87,017 in four hours, causing major losses for crypto traders. Data shows that $426 million in long positions were liquidated during this period, and the drop also impacted equity futures markets.

Bitcoin’s recent volatility is mainly driven by macroeconomic conditions and investor sentiment. Fed rate hike expectations, high inflation, and geopolitical tensions have all increased market uncertainty. Meanwhile, institutional short pressure is also mounting.

Analysts believe Bitcoin may continue range-bound trading in the short term. If it breaks below the key $80,000 support, it could trigger further sell-offs, with the next target around $75,000. However, a rebound above $95,000 could see a retest of the $100,000 milestone.

Overall, as a risk asset, Bitcoin’s price is still dominated by macro factors. Only when inflation eases and geopolitical tensions subside can Bitcoin regain upward momentum. At the same time, regulatory policy changes may also have a significant impact on the crypto market. Investors should monitor developments closely and manage risk prudently.

4. Japan Plans to Include Crypto in 2026 Tax Reform, Lifts Ban on Crypto Investment Trusts

According to reports, the Japanese government plans to include crypto assets in the 2026 tax reform outline, aiming to strengthen regulation of crypto trading and lift the ban on investment trusts containing crypto assets.

Specifically, the Financial Services Agency of Japan intends to submit amendments to the Financial Instruments and Exchange Act to the Diet at the 2026 regular session, clarifying the prohibition of insider trading using non-public information and requiring crypto issuers to fulfill information disclosure obligations.

At the same time, the government plans to adjust the taxation method for crypto trading income. Currently, the comprehensive taxation system applies, with rates up to 55%. In the future, a separate flat tax may be adopted to reduce the tax burden on investors.

This move aims to inject new vitality into Japan’s crypto market and attract more investors and institutions. Analysts believe the tax reform will bring new development opportunities to Japan’s crypto industry, promoting further standardization and institutionalization.

However, some argue that excessive regulation may limit crypto innovation and hinder industry growth. Therefore, when formulating specific policies, the Japanese government will need to balance pros and cons and strive for equilibrium between regulation and development.

Overall, this series of measures reflects Japan’s increased focus on crypto assets. As global regulatory frameworks gradually become clearer, crypto is expected to gain wider recognition and adoption.

IV. Economic Developments

1. Fed Slows Pace of Rate Hikes, Inflation Pressure Remains

The US economy showed complex trends in Q4 2025. Although GDP grew 2.1% year-on-year, inflation remains high, with the core PCE price index rising 5.3% annually, well above the Fed’s 2% target. The unemployment rate edged up to 4.2%, and the labor market showed signs of slowing.

At its December monetary policy meeting, the Fed raised rates by 25 basis points, increasing the federal funds rate target range to 5.25%-5.5%. This marks the ninth consecutive hike, but the pace has slowed compared to previous moves. The statement emphasized a “gradual” approach to future hikes based on economic data.

This decision drew mixed market reactions. Investors generally believe the slower pace of hikes reflects concerns over economic slowdown. Some analysts argue the Fed should continue aggressive hikes to contain inflation, while others worry excessive tightening may trigger a recession.

Goldman Sachs Chief Economist Jan Hatzius said: “The Fed’s challenge is to contain inflation without triggering a severe recession. This requires careful calibration of the pace and magnitude of hikes.” He expects the Fed to pause rate hikes in the first half of 2026.

2. China’s Economic Recovery Accelerates, Consumption a Highlight

Data from China’s National Bureau of Statistics shows that China’s GDP grew 6.1% year-on-year in Q4 2025, with full-year economic growth reaching 5.2%, exceeding expectations. This was mainly due to the optimization of pandemic control policies and a series of economic stimulus measures.

Of note, the latest data shows China’s consumer demand continues to recover. In Q4 2025, total retail sales of consumer goods rose 8.6% year-on-year, 1.2 percentage points faster than the previous quarter, reflecting a rebound in consumer confidence as the pandemic’s impact waned.

Additionally, China’s manufacturing PMI(PMI) has remained in expansion territory, with the official manufacturing PMI at 51.7% in December, down slightly from last month but still at a high level. This indicates steady growth in manufacturing production.

Experts believe China’s faster recovery is mainly due to diminished pandemic impact, continued policy effects, and gradually unleashed domestic demand. Looking ahead to 2026, China’s economy is expected to further stabilize and rebound, injecting momentum into the global economy.

3. Eurozone Inflation Hits Record High, ECB May Hike Again

According to Eurostat, eurozone inflation surged to 9.2% in December 2025, a new record and far above the ECB’s 2% target. Energy prices rose 26.7% year-on-year, and food, alcohol, and tobacco prices increased 13.8%, becoming the main drivers of inflation.

Persistently high inflation is increasing pressure on the ECB to raise rates further. ECB President Christine Lagarde said in a recent speech that stubbornly high inflation is worrisome, and the central bank will continue hiking to curb rising inflation expectations. Markets widely expect another 50-basis point hike in February.

Goldman Sachs European economist Jari Stehn said: “Eurozone inflation at record highs reflects the ongoing impact of supply shocks. Despite a gloomy economic outlook, the ECB will keep hiking to prevent inflation expectations from becoming unanchored.”

However, some analysts warn that Europe is facing recession risks, and overly tight monetary policy could worsen the downturn. The eurozone’s December manufacturing PMI fell to 47.8, marking six straight months of contraction.

V. Regulation & Policy

1. Japanese Government Plans 20% Flat Tax on Crypto Trading Income

The Japanese government is preparing to adjust the tax policy on crypto trading income, planning to implement a flat 20% tax rate regardless of transaction amount, putting crypto on par with stocks, investment trusts, and other financial products. The move aims to reduce investor tax burdens and stimulate the domestic market.

The Financial Services Agency plans to submit amendments to the Financial Instruments and Exchange Act at the 2026 regular Diet session, aiming to tighten crypto trading regulation. The amendment will explicitly ban insider trading using non-public information and require crypto issuers to fulfill disclosure obligations. With tax reform underway, Japan is expected to lift the ban on investment trusts containing crypto assets.

Currently, Japan taxes crypto trading income as part of comprehensive income, combined with all other income and subject to a progressive rate up to 55%. Industry insiders believe the adjustment will attract more investors to the crypto market and promote industry development.

Japan Virtual and Crypto Assets Exchange Association Chairman Yasuaki Kimura stated that the adoption of a flat tax rate will bring greater certainty for investors and help boost market confidence. He added: “We hope the government will create a fairer, more transparent environment for the crypto industry so investors can participate with peace of mind.”

2. South Korea’s Ruling Party Plans to Pass “Digital Asset Basic Act” in January Next Year

South Korea’s ruling and opposition parties have reached a breakthrough agreement on stablecoin regulation and plan to pass a comprehensive “Digital Asset Basic Act” in January 2026. The bill establishes a “Korean-style stablecoin” alliance structure, requiring banks to hold at least 51% equity, with tech firms allowed as minority shareholders.

Democratic Party lawmaker Kang Jun-hyeon set December 10 as the deadline for government proposals; if financial authorities miss the deadline, lawmakers will introduce an independent version. The bill aims to create a comprehensive regulatory framework for Korea’s digital asset industry, clearly defining the rights and obligations of participants and strengthening AML and consumer protection measures.

The Financial Supervisory Service stated the bill will set strict standards for stablecoin issuance and circulation, requiring issuers to hold sufficient reserve assets and undergo regular audits. It will also regulate crypto exchange operations, including customer fund custody and AML procedures.

Industry insiders welcomed the move. A Klaytn Foundation representative said: “We have long awaited a regulatory framework, and this will inject new momentum into the industry. We will fully cooperate to ensure the Klaytn ecosystem complies with the new regulations.”

However, some voiced concerns over the bank-led model. Upbit’s legal director said: “We need to balance innovation and regulation. An overly centralized model may stifle innovation, and we hope industry voices will be heard in drafting detailed rules.”

3. Chinese Regulators Reiterate Ban on Illegal Virtual Currency Financial Activities

The People’s Bank of China, together with the Ministry of Public Security, the Cyberspace Administration, and 13 other departments, held a meeting to reiterate that virtual currency does not have legal tender status and that all related activities constitute illegal financial activity, focusing on cracking down on scams and illegal cross-border fund transfers involving stablecoins.

The meeting emphasized that virtual currency does not have the same legal status as fiat currency and should not be used as currency in the market. Stablecoins are a form of virtual currency and currently cannot effectively meet requirements for customer identification, AML, etc., posing risks of money laundering, fundraising fraud, and illegal cross-border transfers.

Departments will deepen collaboration, improve regulatory policies and legal basis, focus on key links such as information and fund flows, strengthen information sharing, enhance monitoring capabilities, crack down on illegal activity, protect the property of the public, and maintain economic and financial stability.

The meeting lineup was noteworthy, with the addition of the Central Financial Office, National Financial Regulatory Administration, and the Ministry of Justice compared to the 2021 notice, marking a shift from sectoral coordination to systematic governance of virtual currency in China.

Lawyer Xiao Sa interpreted this as a reiteration of existing policy, mainly targeting the use of stablecoins for illegal currency exchange, which severely disrupts financial order. He believes this policy does not signal a regulatory shift and will not affect Hong Kong’s open approach to virtual assets.