Cryptocurrency & Digital Assets

Sept. 29, 2023: Cryptocurrency & Digital Assets Articles

U.S. Crypto Industry Comes to Washington But Faces Uphill Struggle

Courtesy of Hannah Lang, Reuters

Crypto companies are descending on Capitol Hill on Wednesday, but their push to advance industry-friendly laws is likely to be overshadowed by a fight over the federal budget and a Senate crackdown on the use of crypto for money laundering.

Dozens of executives from digital asset companies are meeting with lawmakers and their staff on Wednesday as part of a grassroots advocacy campaign organized by Coinbase (COIN.O), the biggest U.S. crypto exchange, and Stand With Crypto, a non-profit it founded.

The House Financial Services Committee in July passed two major bills that would help provide clarity over which existing financial rules apply to the industry, and crypto lobbyists hope they can convince lawmakers to advance those through Congress.

But with lawmakers focused on averting a government shutdown and other competing bills that must pass this year, including the Farm Bill and National Defense Authorization Act (NDAA), the industry may struggle to be heard.

“There’s a mind-boggling number of competing areas but … we need to keep pounding the table,” said Katherine Dowling, general counsel and chief compliance officer at Bitwise, a crypto investment manager. The company is one of several pushing for the U.S. Securities and Exchange Commission to approve a spot bitcoin exchange-traded fund.

Crypto companies have been expanding in Washington to combat growing regulatory scrutiny, especially from the SEC which says the industry has been flouting its rules. Lobbying escalated after the SEC sued Coinbase and its rival Binance in June for allegedly failing to register tokens, claims they deny. Read more

Crypto Regulation Need to Evolve: Regulators and Innovators Both Need to Compromise

Courtesy of Sean Stein Smith, Forbes

It is no secret that the SEC, under the leadership of Gary Gensler, has seemingly been on a crusade to regulate the crypto industry in the courtroom rather than via policy. During his tenure, the Commission has filed lawsuits and other enforcement actions against firms involved in initial coin offerings, stablecoin issuance, governance tokens, non-fungible token minting, and trading of what have been labeled as unregistered securities. This does not even touch on the decidedly combative approach taken against crypto exchanges and other market makers, even including Coinbase, the only registered and publicly traded crypto broker-dealer in the United States. Even stablecoins, thought of by some crypto advocates as both boring and too much of a compromise to begin with, have found themselves under increasing scrutiny.

On the other hand, there has been an interesting barbell effect taking shape in the crypto marketplace. On the one hand, entrepreneurs and innovators continue to state that job growth and economic growth will need to redomicile overseas, with Ripple CEO Brad Garlinghouse stating that 80% of new hires will be located outside of the United States serving as an example. In addition there is growing evidence that other jurisdictions are capitalizing on the slow pace of U.S. federal lawmaking to 1) pass more comprehensive regulation, and 2) market themselves are friendlier jurisdictions for aspiring crypto-firms. At the same time, however, there has seemingly been a stampede of efforts by TradFi institutions and even some state governments to create, issue, and capture economic benefits directly connected to the crypto space.

Given the apparent contradiction, the following reality becomes clear; U.S. crypto regulation needs to evolve.

Crypto Firms Need to Overcompensate

As much as aspiring entrepreneurs are not going to like this news, the marketplace regulatory outlook has soured on crypto innovation for logical reasons. The spectacular collapse of FTX, driven back to the virtual front page as Samuel Bankman-Fried’s trial is set to begin on October 3, attracts the majority of headlines and conversation, but that masks a larger problem. Virtually every year since crypto has achieved mainstream awareness and understanding there have been hundreds of hacks and breaches that have caused losses in the billions of dollars for U.S. as well as other investors. Read more

Senator Gillibrand Rallies Democrat Colleagues to Adopt Digital Assets Regulation

Courtesy of David Pokima, CryptoNews

Senator Kirsten Gillibrand is in talks with her Democrat colleagues in the Senate to support cryptocurrency regulation amid speculations of a government shutdown.

Speaking at the Mainnet Conference on Sept 22, Gillibrand noted that she is on track to convince her party members to embrace more digital asset regulations to move it from a partisan to a bi-partisan approach.

According to her, the Senate Banking Committee is key to setting a huge milestone in a sector that remains uncertain in terms of legislation leaving investors at risk.

In partnership with crypto skeptics like Senator Elizabeth Warren and Senator Sherrod Brown, the chairperson of the Senate Banking Committee she hopes to achieve a vote on the bill by the end of this Congress.

Gillibrand is among few Democrat lawmakers that continue to push for virtual assets regulations in the United States following similar global efforts.

Gillibrand and Lummis’ attempt by the community 

Although full-scale digital asset regulation in the US is still described as a long shot, Sen. Cynthia Lummis and Gillibrand have rolled out a new crypto bill to create a template for digital asset regulation. Read more

EU Tenders for Project to Assess the Environmental Impact of Crypto-Assets

Courtesy of FinExtra

The European Commission’s financial services directorate has put out to tender for a model-based approach to mitigating the environmental impact of crypto-assets.

The Commission is concerned about the negative environmental impact caused by excessive power consumption generated by the crypto industry.

“The increasing demand for crypto-assets and expansion of crypto-mining, including within the EU, could undermine EU’s efforts to achieve its climate and sustainability goals, in line with the Paris Agreement,” states the tender document. “The action aims at enhancing the EU capacity to assess and mitigate the impact of crypto-mining and develop specific sustainability standards.”

The aim of the project is to develop a methodology to measure the climate and environmental impact of the consensus mechanisms used by crypto-assets and assess the feasibility of establishing environmental sustainability standards with a view to future financial legislative action.

The estimated total value of the tender is €800,00 over 13 months, with a closing date for applications of 10 November.

Sept. 22, 2023: Cryptocurrency & Digital Assets Articles

How Ohio Became a Key Player in The Fight Over Cryptocurrency Regulations

Courtesy of Anna Staver, Columbus Dispatch

Coinbase, the largest U.S. cryptocurrency exchange, is making a play for Ohio voters. The company hosted a “Stand With Crypto” event in Columbus, launched ads urging voters to call their lawmakers, graded Ohio lawmakers based on their support for legislation and retained former Congressman Tim Ryan to sell crypto as the vehicle to bring good-paying jobs to rural Ohio.

“There’s a real opportunity here,” Ryan said. “I’ve always made the argument coming from Youngstown that there will not be another steel mill with 30,000 people in it. That’s not how the economy works anymore.” Ryan was the Democratic nominee for the U.S. Senate in 2022.

But he’s convinced the data centers necessary to log and maintain records of every Bitcoin or Ethereum transaction would be a boon for communities like Coshocton or Marietta. “Ohio is open for business in so many ways with Intel, electric vehicles and Google,” Ryan said. “Why wouldn’t we want to add this into the portfolio of opportunities?”

What is crypto?

Cryptocurrencies are an alternative to traditional cash and banks, where your transactions are recorded into ledgers known as blockchains that get downloaded by a decentralized system of computers instead of a centralized authority like a bank. Read more

U.S. House Committee Pushes Anti-CBDC Bill

Courtesy of Anna Kharitonova, Crypto.News

Republican House Financial Services Committee representatives have put forward a bill prohibiting the Federal Reserve from issuing digital dollars directly to individuals.

“State CBDC Anti-Regulatory Legislation” was proposed by Tom Emmer. Its goal is to strengthen national security, protect Americans’ financial privacy, and prevent the issuance of CBDC without explicit authorization from Congress.

Under the proposal, the Federal Reserve could not directly or indirectly hold accounts for individuals or on behalf of individuals. It would also prohibit the head of the Treasury Department from directing the Federal Reserve Board to issue a CBDC. Thus, a central bank digital currency can only be issued with the approval of Congress.

Will crypto bills get approval?

In recent months, the committee has put forward several other bills in the field of digital currencies. These include a bill that would significantly change how cryptocurrencies are regulated in the U.S. and another that focuses specifically on stablecoins. Read more

 PayPal’s Stablecoin Is Now Available on Venmo

Courtesy of Aisha Malik, TechCrunch

PayPal announced today that PYUSD, its stablecoin for payments and transfers, is now available on Venmo. PYUSD is available to select users starting today and will be rolling out fully in the coming weeks. Venmo users can purchase PYUSD and send it to others on PayPal, Venmo and compatible external wallets.

Users using compatible external wallets, and merchants accepting payments in PYUSD, will also be able to receive transfers from Venmo users. PayPal notes that blockchain network fees apply.

PYUSD, which launched last month, is issued by Paxos Trust Company and is backed by U.S. dollar deposits, short-term U.S Treasuries and similar cash equivalents. Initially, about $24.9 million PYUSD came from Paxos treasury. As it stands, the total supply of circulating PYUSD is $44.376 million, according to Etherscan data.

PYUSD also announced that it has been greenlisted by the New York State Department of Financial Services.

A stablecoin is a type of cryptocurrency whose value is tied to an external asset, such as the U.S. dollar. There is some controversy around stablecoins. Last year, Meta ended up abandoning its plan of having its own stablecoin, called Diem, after regulatory backlash. PayPal itself paused working on its stablecoin earlier this year amid regulatory scrutiny of crypto, as reported by Bloomberg at the time.

PayPal first introduced crypto services back in 2020 when it began letting users in the U.S. buy, hold and sell cryptocurrencies. Read more

Crypto Firms ‘Disregard’ U.S. Amid Regulatory Crackdown

Courtesy of PYMNTS.com

Cryptocurrency companies apparently don’t feel at home in America these days. Amid a regulatory crackdown, crypto executives say they are now looking outside the U.S. for growth, at least for now, The Wall Street Journal (WSJ) reported Thursday (Sept. 21).

“In the short term, we can afford to disregard the U.S.,” Matthew Graham, founder and managing partner of Ryze Labs, told the WSJ. “But in the long term, it’s a loss for everyone.”

His company, Ripple, and Zodia Markets are among the firms mentioned in the report as focusing their efforts outside the U.S. The WSJ also notes that MakerDAO, a leaderless stablecoin protocol, recently barred U.S.-based users from its platform.

According to the WSJ, moves like these have sparked concern about how much money crypto companies can take in without the world’s largest economy following a clampdown by regulators such as the U.S. Securities and Exchange Commission (SEC). The SEC in June sued both Binance and Coinbase — the largest crypto companies in the world and the U.S. respectively — alleging a host of securities law violations.

As covered here a month later, the SEC has determined that “pretty much every crypto token outside of bitcoin, all 25,000-plus of them, can be defined as a security and should therefore be regulated by the agency.”

Instead of going token by token, that report added, “the SEC is going right for the jugular and targeting the major players that facilitate the exchange and trading of digital assets, as well as the sector’s on-and-off ramps to traditional financial ecosystems.” Read more 

Sept. 15, 2023: Cryptocurrency & Digital Assets Articles

CFPB: ‘Pig Butchering’ And Other Frauds Are the Top Crypto Complaint

Courtesy of Ryan Deffenbaugh, Protocol

The Consumer Financial Protection Bureau said fraud and scam reports comprise the top complaint it receives about virtual currencies — and that customers are finding little help from companies when it happens.

In an analysis published Thursday, coming as FTX’s potential collapse has roiled the entire industry, the CFPB detailed how reports of fraud make up about 40% of the more than 8,300 cryptocurrency-related complaints it received between October 2018 and September 2022.

“Our analysis of consumer complaints suggests that bad actors are leveraging crypto-assets to perpetrate fraud on the public,” CFPB director Rohit Chopra said in a statement. “Americans are also reporting transaction problems, frozen accounts, and lost savings when it comes to crypto-assets. People should be wary of anyone seeking upfront payment in crypto-assets, since this may be a scam.”

The analysis found “that complaints related to crypto-assets may increase when the price of bitcoin and other crypto-
assets increase,” as noted in the report. With prices falling rapidly this year, fraud and scam reports have captured a greater share of overall complaints.

“This issue appears to be getting worse, as fraud and scams make up more than half of virtual currency’ complaints received thus far in 2022,” the report said. “Some consumers stated that they have lost hundreds of thousands of dollars due to unauthorized account access. The prevalence of fraud and scam complaints raises the question of whether crypto-asset platforms are effectively identifying and stopping fraudulent transactions.”

A common scam, the report found, is called “pig butchering.” As described in the report, “fraudsters spend time gaining the victim’s confidence, trust, and romantic affection in order to get victims to set up crypto-asset accounts, only for the scammers to ultimately steal all their crypto-assets.”

The FBI has also warned consumers about pig-butchering scams. Read more

 NASCUS summary: Financial Crimes Enforcement Network (FinCEN) Alert on Prevalent Virtual Currency Investment Scam Commonly Known as “Pig Butchering”

Crypto Freedom Alliance of Texas Launches to Support Clear Digital Asset Regulation for Texans

Courtesy of Allie Page, BusinessWire

The Crypto Freedom Alliance of Texas is launching today to advocate for clear and consistent regulation of digital assets in the state of Texas. The Association draws from the technical and legal expertise of its founding members, a coalition of leading crypto and blockchain organizations including a16z crypto, Bain Capital Crypto, Blockchain Capital, Coinbase, Ledger, and Paradigm.

Amidst the failures of the federal government to pass sensible legislation regulating digital assets, there is an enormous opportunity for Texas to take a proactive stance by embracing pragmatic and forward-thinking crypto regulations. The Alliance will serve as a vital resource to regulators and industry members in Texas, who are eager to learn and use this transformative technology.

Key Objectives and Policy Priorities of the Crypto Freedom Alliance of Texas:

  • Promoting Clear and Consistent Regulation:The Alliance’s primary goal is to facilitate the development of coherent and predictable regulations for digital assets in Texas. By creating a framework that enables innovation while upholding consumer protection, the Alliance aims to create a fertile ground for crypto-related businesses to thrive.
  • Fostering Collaboration:The Alliance is committed to fostering collaboration between all stakeholders involved in the digital asset space. By facilitating open dialogue and cooperation between regulators, consumers, and industry participants, the Alliance aims to create a robust ecosystem that benefits all parties.
  • Educating and Advocating:The Alliance recognizes the significance of education in shaping favorable crypto policies. Through educational initiatives targeted at government officials, business leaders, corporations, and nonprofits, the Alliance aims to highlight the benefits that Web3 technologies can bring to the great state of Texas.
  • Supporting Innovation:The Alliance is resolute in its commitment to nurturing blockchain ventures. Through mentorship and educational programs, the association seeks to empower budding entrepreneurs and startups, thus contributing to the growth of a dynamic and thriving crypto landscape.

Read morehttps://www.businesswire.com/news/home/20230911980557/en/Crypto-Freedom-Alliance-of-Texas-Launches-to-Support-Clear-Digital-Asset-Regulation-for-Texans

CFTC Calls for U.S. Crypto Regulatory Sandbox

Courtesy of FinExtra

On Thursday, Commodity Futures Trading Commission (CFTC) commissioner Caroline Pham advocated for a limited pilot program for digital asset regulation in the US.

In a speech delivered during a Cato Institute event, Pham called for the regulatory sandbox on crypto jurisdictions to keep the US at pace with advances in the field. In her speech, Pham indicated that US efforts are lagging behind in standardising crypto regulation. Her proposed program would be similar to previous state-level sandboxes.

She announced: “Today, I will propose that the CFTC launch the first-ever US pilot program for digital asset markets. Our principles-based framework is built for innovation in technology, new products, and market structure. In waiting and seeing, we’re missing opportunities to capitalize on all the benefits of the technology before us, while others take a more strategic and long-term view. The US may soon find ourselves constantly playing catch-up, unable to effectively leverage this technology for economic growth.”

Pham proposed that the CFTC adopt regulations addressing the risks of crypto assets based on the results of previous programs, and to determine the permanency of the regulation based on the conclusion of the proposed sandbox. Read more

European Lawmakers Approve Crypto Tax Regulatory Initiative

Courtesy of Juan Frers, Crypto.News

European lawmakers overwhelmingly approved the DAC8 directive, empowering tax authorities to oversee and regulate cryptocurrency transactions within the EU.

On Sept. 13, the proposal got 535 member votes in favor, only 57 against, and 60 abstentions. The DAC8 will enable tax authorities to monitor and regulate all cryptocurrency transactions conducted by individuals and companies within the European Union.

The EU members will have until Dec. 31, 2025, to implement the new regulatory framework. The initiative will go into effect on Jan. 1, 2026.

DAC8 will use the reporting standards under the Crypto-Asset Reporting Framework (CARF) OECD format and operate under the MiCA standards.

The initiative was proposed in December 2022 by the European Commission, creating a reporting framework for crypto-asset service providers towards the transactions that their EU clients do.

EU crypto regulation

The European Union has been actively working towards regulating the crypto sector in recent years. The EU’s efforts aim to establish a uniform crypto regulation across all member states, ensuring consistency and clarity in the industry. One of the key legislative priorities for the EU is implementing the Markets in Crypto-Assets (MiCA) legislation.

This comprehensive crypto licensing regime is expected to provide a framework for regulating cryptocurrencies and digital assets within the EU. The MiCA legislation has attracted global attention, with other jurisdictions closely observing its implementation and outcomes. Read more

Sept. 8, 2023: Cryptocurrency & Digital Assets Articles

Wyoming Effort to Support Crypto-Focused Banks Set Back by Fed Concerns About Industry

The state’s new special-purpose depository institutions haven’t received Fed approval for master accounts at the central bank

Courtesy of of Fernandez, Wall Street Journal

In early 2019, Wyoming enacted legislation authorizing the creation of state-chartered banks catering to firms doing business with bitcoin and other cryptocurrencies.

The banks would serve as custodians of digital assets and take dollar deposits, forming a bridge between cryptocurrency and dollars for firms to make payroll and payments, or help realize crypto investment gains or losses.

Four years later, the Cowboy State’s experiment with state-chartered crypto banking has gone slower than expected. And it isn’t just because of last year’s cryptocurrency market crash and the collapse of crypto lenders and platforms.

The Federal Reserve hasn’t approved any of Wyoming’s four new special-purpose depository institutions, or SPDIs, that have filed applications for so-called master accounts that would give them access to the Fed’s financial payment systems that handle $4 trillion a day, according to state and private banking officials.

The Federal Reserve System’s board of governors sets guidelines for master accounts. The 12 regional Fed banks make the decisions on the applications. The Kansas City Fed has oversight of Wyoming banks. Officials at the Kansas City Fed declined to comment.

About 9,300 banks and credit unions have Fed master accounts, which industry officials refer to as bank accounts for banks. They are considered a lifeblood for the SPDI, or “speedy,” startups.

Wyoming officials say that state-chartered banks under law should have the same access to master accounts as federally chartered banks. They also insist that the SPDIs are safe because they can’t lend, and state law restricts them in other ways. But the Fed says it has discretion in approving master accounts and warns about risks that cryptocurrencies present to the financial system. Read more

Blanket Crypto Bans Won’t Work, IMF and FSB Warn in Joint Paper

The global standard-setters also warned stablecoins adopted by multiple jurisdictions “may transmit volatility more abruptly” than other crypto.

Courtesy of Sandali Handagama, CoinDesk

  • A joint policy paper on crypto published by the IMF and FSB warned jurisdictions against implementing blanket bans to mitigate risks associated with the sector, and recommended targeted restrictions and sound monetary policy instead.
  • Global stablecoins, which are designed to hold a stable value, could become abruptly volatile and pose a greater risk to financial stability than other crypto, the paper said.

Just banning cryptocurrency won’t eliminate its risks, a joint policy roadmap published by global standard setters Thursday said.

The policy paper, commissioned by the intergovernmental forum G20 under India’s leadership, combines norms set by the Financial Stability Board (FSB), the International Monetary Fund (IMF) and other international standard-setters for the crypto sector in one report, which found “comprehensive regulatory and supervisory oversight of crypto-assets should be a baseline to address macroeconomic and financial stability risks.”

The IMF-FSB synthesis paper is set to be presented to the G20 this weekend and is part of a series of efforts by international bodies to introduce global norms for the industry, particularly following the numerous crypto enterprise collapses of 2022. To tackle macroeconomic risks from crypto, the report says jurisdictions should “strengthen monetary policy frameworks, guard against excessive capital flow volatility and adopt unambiguous tax treatment of crypto.”

Thursday’s report reiterated the IMF’s stance that crypto blanket bans may not help in mitigating associated risks and added that targeted restrictions might come in handy for emerging economies in particular.

Countries like India have raised concerns about the enhanced threat from widespread crypto use to monetary policy in emerging economies, and have called for policy bodies to recommend stronger prohibitions or address those specific concerns. Read more

Crypto Isn’t as Transparent as It Claims

Courtesy of Protocol

Off the chain
Crypto is all about transparency and accountability now! I think I read that on Twitter, unless the person who wrote it deleted their tweet, which seems to be happening a lot now. On Thursday, Pershing Square’s Bill Ackman praised then-FTX CEO Sam Bankman-Fried: “I have never before seen a CEO take responsibility as he does here.” Bankman-Fried politely thanked him … and then Ackman removed his tweet. “The problem with Twitter is that it is too easy to tweet,” Ackman then posted. “The good news is that you can recall the missile before it causes too much collateral damage.” FTX customers might define “collateral damage” a little differently here.

The wonder of transparency
A common theme in the liquidity crunches that struck crypto firm after crypto firm this year is allegations — often later substantiated — that they mishandled customer funds. Even if they hadn’t, how would they prove they were above board? That lack of transparency has only fueled the bank-run-like behavior of crypto customers. With Celsius and Voyager Digital’s bankruptcies fresh in their minds, FTX customers piled on the withdrawal orders before it, too, filed for Chapter 11.

In the case of FTX, suspicions were well-founded: Despite CEO Sam Bankman-Fried’s claims otherwise, his firm lent out more than half of customer assets — up to $10 billion — to Alameda Research, the investment firm he also controlled, according to The Wall Street Journal.

To save crypto, the industry’s turning to the blockchain. A number of crypto exchanges are pledging to publish “proof of reserves,” blockchain-based evidence that they actually hold the assets they claim.

  • Why doesn’t this already exist? That’s a fair question, and the lack of answers shows the opaque business practices that have sprung up around crypto. Think hedge funds but with even less regulation. It took the collapse of one of the world’s largest exchanges to force a rethink.
  • “We need consumers to have more trust in crypto in order to drive more mainstream adoption,” said Jason Baptiste, CEO and co-founder of crypto app YDY. “Proof of reserves does this.”
  • After CEO Changpeng “CZ” Zhao pledged to publish Binance’s reserves, the exchange put up a page on its website that links to various crypto wallets it claims to control. Binance says it has $2.2 billion in bitcoin and $2.5 billion in ether, among other tokens.
    OKX and Huobi also said they’d publish proof of reserves.

Transparency is just a stopgap. This type of transparency is a good step by the industry to demonstrate security and solvency, said Michael Fasanello, crypto compliance officer at Anchain.AI, but ultimately regulation is necessary to ensure safety and security of assets, he added. Read more

PODCAST: Analyzing the Treasury’s Illicit Finance Risk Assessment of Decentralized Finance

Courtesy of JDSupra

In this episode of The Crypto Exchange, Troutman Pepper Partner Ethan Ostroff welcomes his colleagues Mike Lowe and Matt Orso to discuss the U.S. Department of Treasury’s Illicit Finance Risk Assessment of Decentralized Finance (DeFi), which assesses how illicit actors are abusing DeFi services, as well as vulnerabilities unique to DeFi services.
With this assessment, the Treasury has signaled its intent to increase focus on the DeFi sector, expecting DeFi market actors to integrate anti-money laundering (AML) and counter-terrorism financing (CFT) compliance into their services.

Ethan, Mike, and Matt take a deep dive into the biggest takeaways from the assessment, including:

  • DeFi services often don’t comply with the Bank Secrecy Act, as well as AML and CFT regulations.
  • Illicit actors use DeFi for money laundering due to the high level of anonymity it offers.
  • DeFi services, often small startups, are vulnerable to hacking.

Additionally, the Treasury also posed five questions in the assessment and is seeking public input on those questions. Our attorneys discuss the key points that the Treasury is looking for through the public’s input.

Aug. 25, 2023: Cryptocurrency & Digital Assets Articles

Deposit Risk: What Do Crypto Exchanges Really Do with Your Money?

The effectiveness of security measures employed by a crypto exchange are useless if the operations are under the control of a dubious CEO.

Courtesy of Ciaran Lyons, CoinTelegraph

So, you’ve deposited some cryptocurrency onto an exchange. You expect that these funds will be held in your name as a liability, with safeguards in place to make sure that you can withdraw them when you wish. However, this is not necessarily the case.

Sitting down with Magazine, Simon Dixon, CEO of global online investment platform BnkToTheFuture, warns that the murky lines between regulations in the crypto industry mean that customers must be extremely cautious about where they stash their crypto.

[The cryptocurrency industry] was created by businesses that want to build financial institutions, and robust financial history has shown that if you leave them to their own devices, they won’t respect client money.”

Take FTX for example. Dixon notes that former FTX CEO Sam Bankman-Fried allegedly treated customer funds as if they were his own, tipping billions into Alameda Research. “FTX would use those assets for their sister company hedge fund and then find themselves in a position where the hedge fund had lost all of their money,” Dixon says, emphasizing that this led to there being no assets for clients to withdraw.

Dixon has invested more than $1 billion in “over 100” different crypto companies, including Kraken and Ripple Labs. One of the projects BnkToTheFuture raised money for turned out to be one of the biggest crypto disasters in recent times: bankrupt crypto lending platform Celsius.

Before its collapse in July 2022, Celsius was allegedly using money from new customers to pay off attractive yields promised to other existing customers. He says Celsius caught investors and customers off guard by treating their client money “as if it were their own.” Read more

OPINION: FedNow Is a Reminder That Payments Aren’t Crypto’s Differentiator

Existing payments like FedNow systems are hard to beat, but there may be niches where blockchain companies can play.

Courtesy of Paul Brody, CoinDesk

Payments, especially those across borders, are often touted as a key use case and value proposition for the blockchain industry. Unfortunately, a look at both the technology, competition, and regulatory environment doesn’t really support that idea. And the launch of FedNow by the Federal Reserve in late-July is a good occasion to take a look at why, for most people and companies, the value proposition of using crypto or blockchains for basic payment services isn’t very appealing.

Blockchains and crypto ecosystems have compelling advantages in other areas, but fiat payments aren’t one of them. First and foremost, simple, high-volume payments are cheaper and faster to execute in centralized systems. Blockchains have complex consensus mechanisms and many nodes in which ledger data is distributed. This means that while centralized payments flow quickly through a single infrastructure, blockchain payments get copied to thousands of nodes and are subject to varying degrees of speed and cost based on network congestion.
Transaction fees for FedNow are expected to be in the range of $0.05 each or less. Automated Clearing House (ACH), the most common inter-bank payment method in the U.S., presently costs between $0.25 and up depending on the provider. Bitcoin fees average around $1, though they can vary a lot, and transaction fees on Ethereum are similarly high and variable. Both Bitcoin and Ethereum have accelerator networks that can bring costs back down towards $0.04, though these are not yet widely available and we don’t have experience with large volumes to know if they will stay that low. Read more

FCA Sets Out Expectations for UK Cryptoasset Businesses Complying with the Travel Rule

We are setting out our expectations for cryptoasset businesses that need to comply with a change in money laundering legislation legislated by the government in July 2022.

Courtesy of the Financial Conduct Authority

From 1 September 2023, cryptoasset businesses in the UK will be required to collect, verify and share information about cryptoasset transfers, known as the ‘Travel Rule’. The Financial Action Task Force (FATF) has called on other jurisdictions to swiftly implement the Travel Rule, which aligns practices for cryptoasset businesses sending and receiving transactions with those common in other areas of financial services.

In June 2023, FATF highlighted the challenges arising from delays in adoption and different timelines for enforcement of the Travel Rule across jurisdictions. As a result, we have worked closely with industry to provide guidance on how to comply and what we reasonably expect of firms ahead of other countries following the UK’s position.

Our expectations for firms include:

  • Take all reasonable steps and exercise all due diligence to comply with the Travel Rule.
  • Firms remain responsible for achieving compliance with the Travel Rule, even when using third-party suppliers.
  • Fully comply with the Travel Rule when sending or receiving a cryptoasset transfer to a firm that is in the UK, or any jurisdiction that has implemented the Travel Rule.
  • Regularly review the implementation status of the Travel Rule in other jurisdictions and adapt business processes as appropriate.

When sending a cryptoasset transfer to a jurisdiction without the Travel Rule:

  • Take all reasonable steps to establish whether the firm can receive the required information.
  • If the firm cannot receive the necessary information, the UK cryptoasset business must still collect and verify the information as required by the Money Laundering Regulations (MLRs) and should store that information before making the cryptoasset transfer. Read more
North Korean Affiliates Suspected in $40M Cryptocurrency Heist, FBI Warns

Courtesy of The Hacker News

The U.S. Federal Bureau of Investigation (FBI) on Tuesday warned that threat actors affiliated with North Korea may attempt to cash out stolen cryptocurrency worth more than $40 million. The law enforcement agency attributed the blockchain activity to an adversary the U.S. government tracks as TraderTraitor, which is also known by the name Jade Sleet.

An investigation undertaken by the FBI found that the group moved approximately 1,580 bitcoin from several cryptocurrency heists over the past 24 hours and are currently said to be holding those funds in six different wallets.

North Korea is known to blur the lines among cyber warfare, espionage, and financial crime. TraderTraitor, in particular, has been linked to a string of attacks targeting blockchain and cryptocurrency exchanges with the goal of plundering digital assets to generate illicit revenue for the sanctions-hit nation.

This includes the $60 million theft of virtual currency from Alphapo on June 22, 2023; the $37 million theft of virtual currency from CoinsPaid on June 22, 2023; and the $100 million theft of virtual currency from Atomic Wallet on June 2, 2023, as well as attacks targeting Sky Mavis’ Ronin Network and Harmony Horizon Bridge last year. Read more

Aug. 18, 2023: Cryptocurrency & Digital Assets Articles

Crypto Regulatory Affairs: Fed Issues Guidance on US State Banks’ Engagement With Digital Assets

Courtesy of Elliptic Connect

Last week, the US Federal Reserve released two important pieces of regulatory guidance, through which it clarified its stance on the issuance of – and engagement with – stablecoins by the entities that it oversees, and declared that it will start a new program to oversee member banks’ digital asset activities.

The first piece of guidance – SR 23-8 / CA 23-5: Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens – makes clear that member banks must obtain a letter of supervisory non-objection prior to engaging in any stablecoin activity, including testing.

In order to obtain this non-objection letter, banks must demonstrate that they have established appropriate risk management practices for the proposed activities, with particular emphasis in those related to:

  • operational risks;
  • cybersecurity risks;
  • liquidity risks;
  • illicit finance risks; and
  • consumer compliance risks.

The second piece of guidance – SR 23-7: Creation of Novel Activities Supervision Program – establishes a program to address the “novel activities related to cryptoassets, distributed ledger technology (DLT), and complex, technology-driven partnerships with nonbanks to deliver financial services to customers”. The program will not stand alone, and will instead complement existing supervisory processes.

This is a major development in the evolution of regulatory policy in the US, as it signifies a movement toward the creation of a compliance framework that regulated banks may work toward to safely engage with the digital asset sector.

While this is not a perfect solution to the many regulatory issues facing the industry, it is nonetheless significant in its scope and attempt to create “rules of the road”. There is likely to be pushback from some participants, who find this guidance and the new regime established by it to be duplicative of existing regulatory edicts.

Click here to read more Elliptic analysis of the Fed’s new guidance.

OPINION: How PayPal Upended the Crypto Debate in Washington D.C.

Courtesy of John Rizzo, CoinDesk

As the end of July arrived, House Financial Services Committee Republicans achieved its goal of passing a bipartisan stablecoins bill. Still, they left D.C. without the broad bipartisan vote Chair Pat McHenry had labored to achieve. The session ended with new recriminations over old disputes, namely the degree of federal vs. state regulation in a new regulatory framework, casting a dark cloud over the prospect of legislation that could garner support from McHenry, Ranking Member Maxine Waters, and the Biden White House.

And then PayPal and Paxos entered the chat. The surprise unveiling of PYUSD may be the accelerant needed to forge compromise in D.C. and bring about the legal enshrinement of a comprehensive regulatory framework for stablecoins. It may also represent a new, more aggressive strategy for how American fintech companies deal with the federal government and D.C. regulators.

To understand why PYUSD’s launch is so monumental, one must recognize that it comes from one of the world’s largest digital payment companies, which boasts 430 million accounts. With the flip of a switch, hundreds of millions of users can access and transact in stablecoins through a service with which they are already familiar. It will speed up crypto adoption and make the ecosystem more challenging to bring to heel through Congressional action.

The prospect of a significant market participant exploring a stablecoin project is a dynamic I observed up close while serving as a senior spokesperson at the U.S. Department of the Treasury in 2021 and 2022. Those years saw the federal government attempting to implement a comprehensive regulatory framework for stablecoins in the backdrop of Diem, Meta’s stablecoin project’s failure during the summer of 2021 (when it was announced, the project was known as Libra and Meta was called Facebook). Read more

What Makes Cryptocurrencies Different?

Courtesy of Anders Brownworth, Jon Durfee, Michael Lee, and Antoine Martin, Federal Reserve Bank of New York

Permissionless blockchains, which support the most popular cryptocurrency networks like Bitcoin and Ethereum, have shown that it is possible to transfer value without relying on centralized trusted third parties, something that is new and remarkable (although perhaps most clearly useful for less developed financial markets). What makes permissionless blockchains able to transfer value without relying on a small number of trusted third parties is the combination of several components that all need to work together. The components themselves are not particularly new, but the combination of these components is more than the sum of its parts. In this post, we provide a high-level overview of these components and how they interact, taking Bitcoin as an example.

Payments and Trust
Payment systems traditionally operate with a small number of economic agents playing key roles, such as making sure only authorized transactions take place. This requires participants to trust these agents to perform their duties. This trust is bolstered by law, rules, and regulations that provide incentives for the agents playing these central roles not to misbehave. Nevertheless, bad behavior, while rare, cannot be ruled out.

Cryptocurrencies, such as bitcoin, were designed to operate using a different model of trust, one that does not rely on law and regulations. Instead, they rely on two features, open access and a set of incentives to induce good behavior. Open access, or “permissionlessness,” is necessary to eliminate the risk that a gatekeeper could exert power to their advantage. Mechanisms that offer incentives aimed at limiting misbehavior by participants in the system are necessary since open access permits anyone to opt into any role in the system. While each feature is important on its own, we argue that the combination of the two is necessary for a permissionless blockchain to work as intended. We now describe each feature in more detail.

Open Access or Permissionlessness
In permissionless blockchains, anyone can use the payment system without restrictions. In addition, anyone can choose to take part in any of the roles necessary for the operations of the payment system. If any role that is essential to operations has limited access, then select groups could be positioned to gatekeep those roles and misuse their power. Read more

Bank of Canada Paper Casts Doubt on CBDC Value

Courtesy of FinExtra

The usefulness of a central bank digital currency in addressing unmet payment needs in a cashless environment has been called into question by a Bank of Canada discussion paper. Canada’s central bank has spent the last few years carrying out research into a digital loonie and what design features would be relevant to citizens with diverse payment needs and circumstances.

But in a new paper, bank staffers note that most Canadians do not experience gaps in their access to a range of payment methods, and this would probably continue to be the case in a cashless environment.
Nearly all – 98% – of Canadian adults have a bank account, while 87% have a credit card and internet access is high.
The paper notes that this still leaves some people that could face difficulties making payments if merchants no longer generally accepted cash as a method of payment. However, for a payment-oriented CBDC to successfully address this issue, it would have to see widespread adoption among the majority of people who would not need it. If these people did not take to a digital loonie, widespread merchant acceptance would also be unlikely.
Concludes the paper: “The minority of consumers with unmet payment needs will only be able to benefit from a CBDC if the majority of consumers experience material benefits and therefore drive its use.”

Aug. 4, 2023: Cryptocurrency & Digital Assets Articles

‘A Lot of Nonsense’: Crypto Lobby Faces New Capitol Hill Reality

A growing and bipartisan group of senators is rallying behind a crackdown that crypto firms hate.

Courtesy of Eleanor Mueller, Politico

House Republicans are about to hand the cryptocurrency lobby a big win via legislation that would set up special rules for trading digital assets.

There’s just one problem: A growing and bipartisan group of senators – including everyone from Sens. Mitt Romney (R-Utah) to Elizabeth Warren (D-Mass.) – is rallying behind a crackdown that crypto firms hate, following a wave of scandals and fears that digital currency is ripe for criminal abuse. They want to impose new safeguards designed to root out crypto’s use in money laundering.

Even allies like Sen. Cynthia Lummis (R-Wyo.) — dubbed the Senate’s “crypto queen” — are warning that the industry needs to accept the emerging political reality. “If we can get this part of it addressed from the very beginning, before the regulatory framework is passed, then we’ve taken that concern off the table,” Lummis said in an interview. “And we can actually talk about digital assets in terms of how to regulate.”

The divide in Congress illustrates a new political challenge for crypto exchanges and token providers.

They made big advances in winning over Washington in recent years, and that lobbying campaign is helping drive a major victory in the GOP House. But recent revelations of widespread mismanagement and fraud, long-running concerns about crypto’s use to facilitate criminal transactions and the lack of clear economic benefits have left a critical mass of lawmakers unwilling to grant the industry its legislative wish-list scot-free.

“In some ways, I think the Senate approach is smarter — because they’re solving a very clear and present problem,” said Rep. Jim Himes (D-Conn.), who has been negotiating with House Republicans and is considering supporting some of their proposals. “[In the House] it’s this idea that, ’Oh my goodness, exchanges may set up in Australia.’ That would make me sad. But again, I just don’t know that. I just think there’s a lot of nonsense in this industry.” Read more

Binance Could Face U.S. Fraud Charges, but Prosecutors Worry About Risk of Bank Run

The price of bitcoin (BTC) and Binance’s BNB token immediately fell following the report.

Courtesy of Elizabeth Napolitano, Coindesk

Crypto exchange Binance could face U.S. Department of Justice fraud charges, though prosecutors are weighing alternatives given the risk of an FTX-style bank run, Semafor reported, citing people familiar with the matter. The price of bitcoin (BTC) and Binance’s BNB token immediately fell following the report.

U.S. officials are worried an indictment could imperil the broader cryptocurrency industry, according to Semafor. For that reason, they are weighing alternatives such as “fines and deferred or non-prosecution agreements,” sources told the publication.

Binance declined to comment. The Justice Department didn’t immediately respond to CoinDesk’s request for comment. It was already publicly known U.S. officials were scrutinizing Binance. Earlier this year, the Commodity Futures Trading Commission (CFTC) sued the company and founder and CEO Changpeng “CZ” Zhao for “willful evasion” of U.S. laws.

But the pain caused by last year’s collapse of Sam Bankman-Fried’s FTX, as well as the long history in traditional finance of failed firms – like Lehman Brothers in 2008 – dragging down the rest of the industry, show the risk of going after a systemically important institution. Binance is the largest crypto exchange in the world.

FTX’s demise erased billions of dollars in value from crypto markets, tarnished the industry’s image and pushed the large lending business of Genesis (which, like CoinDesk, is owned by Digital Currency Group) into bankruptcy court. Read more

OPINION: Bitcoin Is Not Crypto, the SEC Confirms 

Courtesy of Martin Leo Rivers, Forbes

Talk to a bitcoin maximalist – someone who believes that bitcoin is the only digital asset with innate value – and, more likely than not, they’ll tell you the world’s oldest cryptocurrency is, in fact, ‘not crypto’ at all.

The refrain can be confusing: clearly, bitcoin pioneered the use of cryptography – an ultra-secure type of encryption – with the aim of creating a digital currency. Bitcoin is the archetypal crypto.

And yet, in the context of how the digital asset marketplace has evolved since 2009, when bitcoin was created, it’s easy to see why maximalists distance themselves from the more generic term. Today, there are thousands of copycat cryptos. It’s true that a few are experimenting with innovative technologies – algorithms that bitcoin may, one day, absorb into its code – but the vast majority can be dismissed as scams and get-rich-quick-schemes.

To many in the space, crypto has become a euphemism for fraud and exploitation – the opposite of the autonomous digital cash Satoshi Nakamoto set out to create.

The US Securities and Exchange Commission (SEC), America’s financial regulator, shares this concern and has tried to protect consumers from unscrupulous players in the cryptosphere. Its main weapon is an offensive defense: clipping the wings of dodgy cryptos by attacking the exchanges, or digital marketplaces, where they’re traded. That’s why the SEC sued Binance and Coinbase last month: fewer consumers will be left out of pocket, the regulator hopes, if it becomes harder to buy and sell these speculative instruments.

The SEC’s strategy hinges on a claim that most cryptos can be classified as “securities”, or financial instruments that give the holder a tradable stake in a profit-making enterprise. As such, any entity facilitating their trade needs to jump through certain hoops in order to stay on the right side of US Securities law. If they fail to do so, they face lawsuits, fines and potential dissolution. Read more or listen to the article.

July 28, 2023: Cryptocurrency & Digital Assets Articles

Crypto Must Take Fraud Prevention Seriously: Crypto Long and Short

Countries that enable regulatory technology while avoiding reliance on legacy bureaucratic approaches will be a breakaway leader in cryptocurrencies.

Courtesy of Beth Haddock, CoinDesk

For months, the crypto landscape has been plagued by regulatory uncertainty. Recent events, including the split Ripple decision, the indictment of Celsius’ former CEO and competing congressional bills serve as reminders of the pressing need for guidance.

Rather than passively waiting for ideal regulations or hoping for a regulation-free environment, as we saw with false reports of U.S. Securities and Exchange Commission Chair Gary Gensler’s resignation, it is imperative that we shift our focus towards action grounded in expertise and sound judgment.

Despite the ongoing debate regarding the adoption of a traditional finance (TradFi) framework for crypto, it is clear that regulation looms ahead. This trajectory is evident from enforcement cases in the U.S. and the issuance of prudential guidance notes from Europe and Asia. There is also a growing consensus that crypto users require protection from theft, fraud and manipulation. Addressing these challenges necessitates taking action through due diligence efforts and consensus-driven measures.

When evaluating a crypto investment in this environment, it becomes crucial to investigate the project’s governance, risk and compliance (GRC) approach, especially with regard to fraud prevention. Due diligence should show a tech GRC program informed by U.S. Department of Justice (DOJ) guidelines and smart risk mitigations that reflect planning for what is ahead. By way of example, this includes:

  • undertaking security audits
  • adhering to public communication standards
  • ensuring the team possesses adequate experience and conducts conflicts of interest checks
  • maintaining standards for confidentiality and adherence to NDAs
  • conducting global sanctions and new product launch testing
  • managing a regulatory developments strategy

Read more

Crypto Bill Passes Congressional Committee in Victory for Industry

Courtesy of Hannah Lang, Reuters

A key congressional committee on Wednesday advanced a bipartisan bill that aims to develop a regulatory framework for cryptocurrencies, a milestone for Capitol Hill in its efforts to codify federal oversight for the digital asset industry. The crypto industry has been in the regulatory crosshairs since investors were burned last year by sudden collapses of Celsius Network, Voyager Digital, FTX and other companies.

The bill passed by the House Financial Services Committee would define when a cryptocurrency is a security or a commodity and expand the Commodity Futures Trading Commission’s (CFTC) oversight of the crypto industry, while clarifying the Securities and Exchange Commission’s jurisdiction, as many crypto advocates complain of the agency’s perceived overreach.

A handful of Democrats, including Reps. Jim Himes and Ritchie Torres, joined committee Republicans in voting for the bill. The House Agriculture Committee is scheduled to consider the same bill Thursday. “As other jurisdictions like the UK, the [European Union], Singapore and Australia have moved forward with clear regulatory frameworks for digital assets, the United States is at risk of falling behind. We intend to change that today,” said Representative Patrick McHenry, the Republican chair of the House Financial Services Committee, at the markup.

The markup – where legislation is debated and brought to a vote, paving the way for a full vote by the House of Representatives – is the first time a crypto regulatory bill was put to a vote in Congress, a victory for crypto lobbyists who have pushed lawmakers to provide regulatory clarity for the industry. Read more

ICYMI: Binance, Coinbase and the Future of Crypto Regulation a Beginners Guide

Courtesy of Andy Rosen  and Kurt Woock , NerdWallet

U.S. regulators are in the midst of a crackdown on cryptocurrency that has created new uncertainty about the future of the market for digital assets. In June of 2023, the U.S. Securities and Exchange Commission filed enforcement actions against the world’s largest crypto exchange, Binance [1] . The following day, the agency went after Coinbase, the dominant exchange in the U.S.

And if the waters weren’t muddy enough, a federal judge ruled in another SEC case in July 2023 that Ripple had not violated securities laws when it sold its XRP cryptocurrency to consumers. The court did say that some private sales had been securities contracts, however.

Taken together, the developments intensify lingering questions about just how existing laws governing investment and trading will apply to this relatively new asset class. The fallout from the latest flurry of litigation could have a lasting effect on how consumers are allowed to buy and sell crypto.

What’s at stake with cryptocurrency regulation?
At the very basic level, the challenges by the SEC accuse the targeted companies of violating securities laws. That might sound technical, but in the United States, securities laws are essential for investors to understand why markets operate the way they do. Read more

Canada Financial Regulator Proposes New Capital Guidelines for Crypto Assets

Courtesy of Nivedita Balu, Reuters 

Canada’s financial regulator on Wednesday proposed changes to its capital and liquidity approach to crypto-assets, citing a risky environment and in response to international banking standards. The Office of the Superintendent of Financial Institutions (OSFI)said guidelines were for federally regulated deposit-taking institutions, that includes banks and credit unions, and another for insurers, on the regulatory capital treatment of crypto-asset exposures.

OSFI’s Superintendent Peter Routledge said banks and insurers need clarity on how to treat crypto-asset exposures when it comes to capital and liquidity and the regulator looks to provide clarity through the new guidelines. The two draft guidelines will be open for public consultation until Sept. 20 and is expected to come into effect in early 2025. The new guidelines will replace the interim advisory on the regulatory treatment of crypto-asset exposures, published in August 2022, OSFI said.

The regulator in June raised the amount of capital the country’s biggest lenders must hold as a stability buffer by 50 basis points to 3.5%, citing rising borrowing costs, high debt levels and stress on the financial system.

July 21, 2023: Cryptocurrency & Digital Assets Articles

Digital Assets: The Evolving Landscape from a Regulatory, Litigation, and Tax Standpoint 

Courtesy of National Law Review, Volume XIII, Number 196

Expert guests David Gannaway and Frank Weigand join IMS Client Success Advisor and podcast host Adam Bloomberg to discuss how the latest trends in digital asset regulation, cryptocurrency litigation, and tax compliance are shaping US financial markets.

Listen here

Transcript:
Hello, and welcome to the IMS Insights Podcast. I’m your host, Adam Bloomberg. Today we’re speaking with expert guests David Gannaway and Frank Weigand about how the latest trends in digital asset regulation, cryptocurrency litigation, and tax compliance are shaping US financial markets.

David Gannaway is a principal at Bederson Accountants and Advisors and is a former IRS Criminal Investigation Special Agent with expertise in forensic accounting, litigation support, and tax controversy. Frank Weigand is an experienced general counsel with a strong background in digital assets, securities law, derivatives, and broker-dealer regulation.

Adam Bloomberg: Thank you, David and Frank, for joining me today. I want to I want to start our discussion with the regulatory environment surrounding digital assets. Frank, why don’t you go ahead and start us off.

Frank Weigand: Thank you, Adam, and thank you to IMS for inviting me. Today, I’m going to speak about the current regulatory environment for digital assets and companies doing business in this arena. As you probably know, it’s been a very busy week for digital asset regulation, with the SEC suing both Binance and Coinbase in the last few days. Both cases bring charges based on allegations that these firms are operating securities related businesses in an unregistered and therefore illegal manner. I’ll discuss these cases in more detail later. But first, I want to begin my discussion by defining digital assets and giving a brief chronology about how this industry got to where it is today.

UK Treasury Rebuffs Calls For Crypto To Be Regulated As Gambling

Courtesy of Finextra

The UK Treasury has firmly rejected proposals by an all-party parliamentary committee for consumer trading in unbacked crypto such as bitcoin and ether to be regulated as gambling.

The committee in May called into question Government plans to regulate consumer crypto trading as a financial service, arguing that this will create a ‘halo’ effect, leading consumers to believe this activity is safe and protected, when it is not.

In presenting its conclusions, comittee chair Harriett Baldwin said the events of 2022 had highlighted the risks posed to consumers by the cryptoasset industry, “large parts of which remain a wild west”.

“With no intrinsic value, huge price volatility and no discernible social good, consumer trading of cryptocurrencies like bitcoin more closely resembles gambling than a financial service, and should be regulated as such,” she said. “By betting on these unbacked ‘tokens’, consumers should be aware that all their money could be lost.”

In its reponse, the Treasury said it “firmly disagrees” with the Committee’s recommendations, arguing that such an approach would risk misalignment with international standards and potentially create unclear and overlapping mandates between financial regulators and the Gambling Commission.

Wyden, Crapo Solicit Feedback on Tax Treatment of Digital Assets

Courtesy of Dave Kovaleski, Financial Regulation News

U.S. Sens. Ron Wyden (D-OR) and Mike Crapo (R-ID) have launched an initiative to address uncertainties surrounding the tax treatment of digital assets. Wyden, chair of the Senate Finance Committee, and Crapo, the ranking member on the committee, issued an open letter seeking input from experts, stakeholders and interested parties on the matter.

“The rapid emergence of digital assets has raised novel regulatory issues, including the appropriate treatment under our federal tax law. The [tax code] draws distinctions between types of property, with no straightforward classification for digital assets. This uncertainty creates complex reporting issues for taxpayers, and warrants examining how the [code] can provide clearer guidance for taxpayers on the treatment of digital asset transactions,” Wyden and Crapo wrote in the letter.

They are seeking feedback from interest parties to better understand how Congress can address the tax challenges and opportunities presented by digital assets. They posed a series of questions on a variety of topics related to the tax treatment of digital assets. The complete list of questions can be found on the Senate Finance Committee website.

The senators requested that the responses to the questions be returned to them by Sept. 8. Responses can be emailed to responses@finance.senate.gov. The committee will collect answers to these questions on a rolling basis until the Sept. 8 deadline.

U.S. Regulators Continue Crypto Crackdown – But Here’s Why the Latest Charges Are Different

Courtesy of Andrew Urquhart, The Conversation

The US Securities and Exchange Commission (SEC) sued the cryptocurrency platform Coinbase shortly after launching a lawsuit against the world’s largest cryptocurrency exchange, Binance.

This isn’t the first time Binance and Coinbase have caught the SEC’s attention – it’s not even the first time this year. But the latest charges are much more serious, including accusations that the exchanges are operating without the correct registration.

Both cases boil down to whether or not cryptocurrency tokens should be classed as “securities”, like stocks, and regulated in the same way. Binance and Coinbase have spoken out in support of regulation. And many crypto firms believe that by taking legal action instead of creating clear rules, the SEC has failed to provide the industry with enough guidance, leading to uncertainty for people and businesses.

Since Gary Gensler became chair of the SEC in April 2021, he has regularly testified before Senate committees on the need for more staff to regulate cryptocurrencies, calling the market a “wild west”. On the other hand, he has also said he has no plans to ban cryptocurrencies, while the SEC approved the first Bitcoin ETF in 2021, as well as Coinbase’s stock exchange listing that same year. Read more

Related Reading: U.S. Senators Reintroduce Crypto Bill Aimed at Comprehensive Regulation

July 14, 2023: Cryptocurrency & Digital Assets Articles

US Industry Watchdogs Oppose Draft Bill on Crypto Market Structure

The group sent a detailed letter to the U.S. House Financial Services Committee accusing the crypto market of seeking favorable legislation under the guise of crypto innovation.

Courtesy of Amaka Nwaokocha, CoinTelegraph

An alliance of industry watchdogs based in the United States has united to express opposition to a proposed draft bill on the crypto market structure by the United States House Financial Services Committee.

In detailed correspondence addressed to the committee, groups, including Americans for Financial Reform and the Center for Responsible Lending, claimed that stakeholders in the crypto industry had actively lobbied in support of the committee’s draft proposal, known as the Digital Asset Market Structure Discussion Draft bill. The watchdogs asserted that the crypto industry failed to demonstrate any practical use cases beyond speculative investment.

The letter accused the crypto market of seeking favorable legislation under the guise of crypto innovation:

“Of particular concern is the proposed bill’s provision that would alter the SEC’s evaluation of regulatory rulemaking in all securities markets, compelling the agency to assess new rules based on the criterion of ‘innovation.‘”

The intention behind the comprehensive digital asset bill was to establish a regulatory framework in the United States, encompassing well-defined rules and guidelines for the crypto industry. Earlier, Cointelegraph reported that the committee chair, Representative Patrick McHenry planned to hold a committee vote in July 2023. The focal point of the draft bill revolves around the involvement of the U.S. Securities and Exchange Commission (SEC) in overseeing the regulatory framework. Read more

NY Fed and Banks Upbeat on Digital Dollar Pilot Results

Courtesy of Finextra

The Federal Reserve Bank of New York says that proof-of-concept run with a host of banks has demonstrated the feasibility of a regulated digital asset settlement platform supported by shared ledger technology.

The NY Fed’s New York Innovation Center worked with banks – including Citi, HSBC and Wells Fargo – as well as Swift and SETL on the PoC exploring a Regulated Liability Network (RLN), which is envisioned as an interoperable network for wholesale payments operating on a shared multi-entity distributed ledger.

The experiment was designed to see whether shared ledger technology could tackle some of the frictions – such as speed, cost, off-hours availability, and the settlement process – that traditional payment systems suffer from. A working group split into three stream looking at the business applicability, technical feasibility, and legal viability of using shared ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank money.

The business workstream concluded that a global, near real-time, 24/7, dollar payment system could be delivered through the RLN concept, enhancing the processing of cross-border payments denominated in USD. The technical workstream validated that the proposed architecture was able to deliver the benefits of settlement finality, a common source of truth, standard transaction data, and privacy for all participants on the network. The system demonstrated programmability through smart contracts that could enable efficient liquidity management.

Meanwhile, including a theoretical wCBDC and commercial bank deposit tokens on the same platform enabled a shared ledger to settle payment transactions simultaneously and in near real-time. Finally, the legal workstream did not identify any insuperable legal impediments under existing US legal frameworks that would prevent the establishment of an RLN system as contemplated in the PoC.

The working group has not committed to future phases connected to the PoC but says that the findings highlight areas for further research and analysis.

Google Play Embraces Digital Assets & NFTs: What You Need to Know

Courtesy of Joel Frank, cryptonews

In an unprecedented move, Google Play, the popular Andriod app and game marketplace, has announced policy changes to allow the integration of digital assets such as non-fungible tokens (NFTs) into its platform. Google Play Group Product Manager, Joseph Mills, unveiled the policy shift on Wednesday via a blog post.

In it, he underlined that the move will usher in a new era of enriched user experiences and novel forms of user content. The policy change stipulates that developers will now be permitted to incorporate blockchain-based elements like NFTs in their apps and games, as long as they maintain full transparency with users about the presence of these digital assets.

Google Play’s move has been lauded as an innovative way to reconceptualize traditional games, allowing unique user-owned content, and augmenting user loyalty through rare NFT rewards. Reddit, a forerunner in leveraging the potential of blockchain technology, notably via its Avatar NFTs, partnered with Google in the run-up to the policy shift.

Developers Banned from Glamorizing Potential Earnings to Protect Users
“While tokenized assets are meant to build more enriched, immersive experiences,” Mills noted, “as an added user protection, developers may not promote or glamorize any potential earning from playing or trading activities.” Read more

Interview: David Plouffe on Crypto Policy and Potential

Courtesy of CoinDesk

From Politics to Alchemy Pay: David Plouffe on Crypto Policy and Potential

People forget this now, but at the time, the “conventional wisdom” was that Hillary Clinton would easily clinch the Democratic nomination. Enter David Plouffe. He ran a campaign that was innovative and groundbreaking – data-driven, online, grassroots, and hyper-organized.

Since then, Plouffe has been a coveted Big Brain in the halls of both the government and the private sector. He served as a senior advisor to President Obama. He worked on strategy and policy for Uber. Now he’s lending his strategy chops to another insurgent underdog: Crypto.

“Crypto and blockchain, ultimately, can save people a lot of money, particularly in the lower end of the income spectrum, which couldn’t be more important,” says Plouffe, who has advised Binance and is now Strategic Global Advisor for Alchemy Pay, a payment gateway that bridges fiat and cryptocurrency. The company’s partnerships range from OKX to Bitget to Arbitrum, and it supports Visa, Mastercard, Apple Pay, and Google Pay.

Why blockchain? Plouffe views international remittances, for example, as a way to expand financial inclusion. “How do we get more access for lower-income people to financial products? How do we save them time? How do we save money? You know, this is the promise,” says Plouffe.
Then there’s the trillion-dollar question that the crypto space is now grappling with: How should it be regulated? Plouffe has a unique perspective here. Because he advises both the U.S. government and the private sector, he can truly see both sides.

Plouffe’s stance is that it’s essential for governments to educate themselves and introduce smart and adaptable regulations in the crypto industry. Likewise, smart businesses should actively embrace these regulations, as Alchemy Pay has worked to bridge the divide between the crypto economy and the traditional economy.

In a recent interview, Plouffe shares the regulatory advice he would give to both the government and the crypto space, reveals why he’s optimistic on mobile blockchain voting and explains why, in the next 10 to 50 years, crypto, blockchain and Web3 “are just going to get increasingly important.”

June 30, 2023: Cryptocurrency & Digital Assets Articles
Over $204M Was Lost in Q2 DeFi Hacks and Scams

More than $208.5 million was lost initially, but approximately $4.5 million was recovered, making the total amount of unrecovered funds over $204 million.

Courtesy of Tom Blackstone, CoinTelegraph

Over $204 million was lost in decentralized finance (DeFi) hacks and scams in the second quarter of 2023, according to a June 27 report from Web3 portfolio app De.Fi. The report, titled “Q2 De.Fi Rekt Report,” was partially based on data from De.Fi’s “Rekt Database.” Over $208.5 million was initially lost during the quarter, but $4.5 million was recovered through prosecutions, deals with hackers and other recovery methods.

Funds lost and recovered in Q2 2023. Source: De.Fi

According to the report, the number of DeFi hacks in Q2 rose by “almost 7 times” year-over-year, with 117 incidents during the period compared with only 17 in the same quarter of 2022. A total of over $665 million was lost during the first half of 2023.

The top five hacks of the second quarter were against Atomic Wallet, Fintoch, MEV-Boost, Bitrue and GDAC. The June 3 Atomic Wallet exploit was responsible for $35 million, or around 17% of the total. Fintoch users lost $30.6 million from its alleged rug pull, and the MEV-Boost attack was responsible for $26.1 million. Together, these three attacks resulted in over 45% of the total losses for Q2.

De.Fi reported that the most common cause of losses was “access control issues,” or issues where an attacker gained unauthorized control of a wallet. This was responsible for $75.8 million of losses, or a quarter of the total. The second most common cause was exploits, totaling $55.3 million. Users lost $47.3 million through rug pulls or exit scams in Q2, as well.

Losses from DeFi hacks and scams were actually smaller in Q2 than in Q1, with CertiK reporting in April that over $320 million was lost from January to March. Read more

Bitcoin No Longer Crypto of Choice for Illicit Crypto Activity

While fiat channels remain the dominant tool for criminal financing, Bitcoin appears to have fallen out of favor for criminals as far as cryptocurrencies go.

Courtesy of Martin Young, CoinTelegraph

According to new research, fewer cybercriminals are turning to Bitcoin as their primary method of moving illicit funds, with bad actors opting to go back to fiat channels or choosing other cryptocurrencies. Digital asset compliance and risk management firm TRM Labs revealed that illicit finance volumes involving Bitcoin tickers had fallen significantly over the past seven years, according to its “Illicit Crypto Ecosystem Report,” released on June 28.

TRM Labs said instead a new multichain era has led to a “qualitative leap” away from Bitcoin as a primary means of moving criminal proceeds. The firm also highlighted that cash and other forms of fiat-related finance remain the “default” means of criminal money movements.

TRM Labs also noted that while illicit activity involving crypto has increased, “crypto did not invent these criminal forms.” The firm reported that around $2 billion in crypto was stolen through attacks on cross-chain bridges in 2022, but very little of that was Bitcoin. “The multi-chain era has had a sweeping impact on the distribution of illicit crypto volume as a whole,” it noted, adding that Bitcoin’s share of illicit transactions plummeted from 97% in 2016 to just 19% in 2022. Read more

EC Stresses Privacy in Digital Euro Plan

Courtesy of FinExtra

The European Commission has published its legislative proposal establishing the legal framework for a possible digital euro, stressing that the CBDC would be a compliment to, not replacement for, cash.

A digital euro would be available alongside existing national and international private means of payment, such as cards or applications.

It would work like a digital wallet, with people and businesses able to pay with it anytime and anywhere in the euro area.

The euro would be available for payments both online and offline. While online transactions would offer the same level of data privacy as existing digital means of payments, offline payments would essentially be like paying with cash – with nobody able to see what people are paying for.

The digital euro would be distributed by banks and other payment service providers, with basic services provided to people free of charge. Merchants would be required to accept the digital currency unless they are cash-only firms.

The proposal still needs to be adopted by the European Parliament and Council before the European Central Bank decides whether to roll out a digital euro.

UK Crypto, Stablecoin Rules Receive Royal Assent, Passing into Law

The Financial Services and Markets Act 2023 classifies crypto as a regulated financial activity.

Courtesy of Camomile Shumba, Jack Schickler, CoinDesk

A U.K. bill giving regulators the power to supervise crypto and stablecoins was approved by King Charles Thursday, marking the last formal stage that makes the bill law.
Royal assent, a purely procedural step following agreement from lawmakers, makes the Financial Services and Markets Bill an Act, and includes measures to bring crypto and stablecoins into the scope of regulation. The bill was last week approved by the upper chamber of Parliament.

The Act “gives us control of our financial services rulebook,” following the U.K.’s exit from the EU, enabling regulation of crypto assets to support their safe adoption in the U.K., said Financial Services Minister Andrew Griffith in a statement.

The bill, which was introduced in July 2022, gives regulators more power over the financial system, including crypto. While the bill was debated in Parliament, amendments were added to treat all crypto as a regulated activity and to supervise crypto promotions. The bill will also bring stablecoins into the scope of payments rules. The U.K.’s Treasury, Financial Conduct Authority, Bank of England, and the Payments Systems Regulator will soon be able to introduce and enforce rules to regulate the sector.

The Treasury has been consulting on its proposed rules for the sector since February, in line with the Conservative Government’s objective to turn the country into a crypto hub. New specific rules for the crypto sector could come within 12 months, Griffith told CNBC in April. Read more

 

June 23, 2023: Cryptocurrency & Digital Assets Articles

Crypto Firms Tout ‘Fictitious’ Regulatory Stamps, Canadian Regulator Warns

“Fake” regulatory and dispute resolution entities are being used to make some crypto providers look legitimate, warns the Canadian Securities Administrators.

Courtesy of Felix Ng

Canadian citizens are being advised to double-check crypto trading service providers, as the platforms may be using “fictitious” regulatory bodies to boost their credibility.

According to a June 20 Investor Alert from the Canadian Securities Administrators, some “purported” crypto platforms are claiming to be approved by dubious regulatory authorities or dispute resolution organizations in “an effort to appear legitimate.”

“The websites appear to be credible at first glance, with references to complaint processing, dispute resolution and providing redress to aggrieved investors,” the CSA said in a statement.

“But upon closer inspection, the websites’ language can be awkward and unpolished, with errors in spelling, grammar or syntax — a common ‘red flag’ of illegitimate entities.”

The CSA has labeled 10 entities as being “fictitious” regulatory bodies and organizations, including the Financial Standard Commission FSC Canada, Financial Commission/Finacom PLC Ltd., and its associated entity, Blockchain Association, among several others. In its notice, the regulator said none of the listed entities are “known,” and has also suggested any entity claiming to be a member of the organizations is “likely fraudulent.” Read more

‘A New Wave’—Major Bank Reveals A $15 Trillion Earthquake Could Be Headed for The Bitcoin, Ethereum, BNB, XRP, Cardano, Dogecoin, Tron, Solana and Polygon Price

Courtesy of Billy Bambrough, Forbes

Bitcoin, ethereum and other major cryptocurrencies were rocked last week by news the world’s largest asset manager, BlackRock, is delving further into the world of crypto.

The bitcoin price jumped following BlackRock’s exchange-traded fund (ETF) filing, helping the wider crypto market—including ethereum, XRP, dogecoin, tron, solana and polygon—to rally (amid a flurry of bullish crypto price predictions that could happen “very quickly”).

Now, alongside BlackRock’s near-$10 trillion in assets under management potentially being opened up to the bitcoin and crypto market, a survey by Laser Digital, the digital assets subsidiary of major banking giant Nomura, has revealed 96% 0f professional investors managing almost $5 trillion are keen to invest in crypto.

“Our comprehensive study reveals that the majority of institutional investors surveyed saw a clear role for digital assets in the investment management landscape, and the benefits they can bring, such as greater diversification of portfolios,” Laser Digital chief executive Jez Mohideen said in a statement reported by Coindesk. Read more

AI and Crypto Are Becoming Regulatory Frenemies

Courtesy of Aaron Brown, Advisor Perspectives

In 1865, Britain passed its infamous “Red Flag” Act — copied in many other places — to regulate self-propelled vehicles. It required a crew of three for each vehicle, one member of which was to walk 60 yards ahead with a red flag to warn horses and riders of the vehicle’s approach. It also imposed a four-mile-per-hour speed limit, or two miles-per-hour in populated areas.

Why is this relevant now? Because attempts some 158 years later to regulate cryptocurrencies and artificial intelligence will seem equally silly to future generations. Technology transforms society according to its functionality and what people want to do with it, not conservative regulations passed by clueless officials.

The collapse of crypto exchange FTX in November 2022, capping a “horribilis annus” for big-name, regulated digital currencies, combined with the demo release of ChatGPT the same month, sent venture capital money fleeing from crypto and into AI. A harder-to-measure, longer-term trend among academics and top developers seems to be favoring the steady, quiet progress of working in AI over the scandal-ridden, boom-and-bust of crypto. These trends are more consequential for the future than anything done in Washington, the ups and downs of Bitcoin, or how non-venture capital is allocated. The automobile — and radio and the Internet and genetic engineering — transformed society in fundamental ways, unrelated to regulators’ wishes or stock prices or anything the media was covering at the time. Read more

Opinion: A Straightforward Explanation for Why Financial Giants Want to Issue a Spot Bitcoin ETF

The institutions are taking a fresh look at crypto, and they’re flooding in.

Courtesy of George Kaloudis, CoinDesk

Last week, BlackRock (BLK) applied for a spot bitcoin exchange-trade fund (ETF). This week, another comically large asset manager in Invesco (IVZ) reapplied for approval to offer a spot bitcoin ETF. The less-comically large ETF-sponsor WisdomTree also refiled for a spot bitcoin product yesterday (WisdomTree’s filing was initially rejected by the SEC in 2022).

Elsewhere in non-bitcoin crypto, a crypto exchange backed by Fidelity, Schwab and Citadel Securities launched in the United States and Deutsche Bank applied for a digital asset license in Germany.

So yes, the institutions are back. But why did $10 trillion asset manager BlackRock and $1.5 trillion asset manager Invesco decide it was time for the spot bitcoin ETF again? Many have offered convoluted and tinfoil-hat theories (some which I quite like).

Theories like BlackRock is scrambling to backstop Coinbase for some reason or the big firms are acting on behalf of three letter agencies to keep self-custodied bitcoin away from everyday people or that Wall Street can’t let the crypto crowd get too far ahead of them. There are more theories out there, but here’s a much simpler one: Financial institutions like making money and offering a spot bitcoin ETF is a way to make money. Read more

June 16, 2023: Cryptocurrency & Digital Assets Articles

Will Crypto’s Regulatory Woes Hijack Congress’s Stablecoin Hearing?

Courtesy of PYMNTS.com

When it comes to cryptocurrency in America, the pressure is on for lawmakers in part because the pressure is already stifling for digital asset firms — deserved or not. 

Following recent Securities and Exchange Commission (SEC) lawsuits against Coinbase and Binance, the crypto sector is facing more uncertainty and challenges than ever when it comes to regulation and compliance with existing U.S. laws.

A congressional hearing Tuesday (June 13) titled “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem” will be closely watched by industry observers looking for clues about the crypto industry’s future, as well as any insights into what a comprehensive regulatory framework might look like.

“Emerging laws in the European Union, Japan and Hong Kong are establishing new rules for U.S.-issued dollar stablecoins,” Jeremy Allaire, co-founder, chairman and CEO of stablecoin issuer Circle and a witness for the hearing, wrote in his prepared testimony. “That is a point worth repeating — other nations are enacting laws to regulate the use of the U.S. dollar. The time has come for the United States to lead the development of global rules that will determine how our own currency moves around the world.”

Under discussion Tuesday afternoon are two pieces of legislation, “a bill to provide for the regulation of payment stablecoins, and for other purposes,” and the freshly introduced “Digital Asset Market Structure Discussion Draft.” While the hearing represents the third time that the current congressional session has met to discuss stablecoin legislation, the Digital Asset Market Structure draft is something new.

The discussion draft outlines a functional framework that would provide digital asset firms with regulatory certainty and fill the gap that exists between the authorities of the Commodity Futures Trading Commission (CFTC) and the SEC. Read more

US House of Rep., Committee on Financial Services Hearing: The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem

BlackRock Close to Filing for Bitcoin ETF Application

BlackRock will be using Coinbase (COIN) Custody for the ETF and the crypto exchange’s spot market data for pricing, the source said.

Courtesy of Ian Allison, CoinDesk

  • BlackRock, the world’s biggest asset manager, is close to filing an application for a Bitcoin ETF (exchange-traded fund), according to a person familiar with the matter.
  • BlackRock will be using Coinbase (COIN) Custody for the ETF and the crypto exchange’s spot market data for pricing, the person said. Coinbase declined to comment.
  • BlackRock began working with Coinbase to make crypto directly available to institutional investors midway through last year.

It wasn’t clear if the ETF will be spot or futures. BlackRock did not immediately respond to requests for comment. To date, the Securities and Exchange Commission (SEC), which oversees ETFs in the U.S., has rejected every application for a spot bitcoin ETF, though it has approved several bitcoin futures ETFs for trading.

Read more: Everything You Need to Know About Bitcoin ETFs

Video: Banking Empowered: Harnessing Crypto, DLT, and CBDC Innovations

Speaking at TCF 2023, Jeremy Boot, Product Strategist, Digital Assets & Currencies, Temenos, discusses the innovation happening in crypto, distributed ledger technology, and central bank digital currency, and how banks can leverage these innovations to meet their goals.

FCA Cracks Down on Crypto Advertising

Courtesy of Finextra

The UK’s Financial Conduct Authority is to introduce tough new rules for the marketing of crypto assets, including a 24-hour cooling off period for first time investors.

As part of a package of measures designed to ensure those who buy crypto understand the risk, ‘refer a friend’ bonuses will also be banned.

Set to come into force in October, the new rules mean crypto firms must ensure that people have the appropriate knowledge and experience to invest in crypto. Those promoting crypto must also put in place clear risk warnings and ensure adverts are clear, fair and not misleading, similar to the rules introduced by the FCA last year to tackle misleading financial advertisements of high-risk investments.

The UK’s Advertising Standards Authority has previously banned several crypto firms’ promotions for being misleading and irresponsible. For example, Luno’s out of home billboards told people it’s time to buy bitcoin without a clear risk warning. Meanwhile, Arsenal Football Club’s promotion of its fan token with partner Socios on its website and Facebook was deemed by the ASA to have trivialised investing in crypto.

The FCA’s guidance follow government legislation to bring crypto promotions into the regulator’s remit.

Sheldon Mills, executive director, consumers and competition, says: “It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice. Read more

 

June 9, 2023: Cryptocurrency & Digital Assets Articles

DeFi Integration – Why TradFi May Be the Missing Piece

Courtesy of Isabelle Castro Margaroli

You’d be forgiven for thinking that DeFi integration was dead.

After months of U.S. regulators’ blasting the crypto ecosystem for its “non-compliance” and over a year of evidence that some of the leaders in the space were far from trustworthy, “crypto” has become somewhat taboo.

However, this week the Financial Times reported that some of the financial sector’s most well-known names have continued the development of their own digital markets trading platforms. Making the bet that consumers are more likely to engage in the digital asset space through legacy institutions, they continue to believe in the power of DeFi.

Surprised? These institutions are not alone. Despite the chaos instigated by FTX’s fall, incumbents are still investing in tokenization infrastructure and blockchain integration.

“We’ve seen a tremendous increase in the interest and actual willingness to execute from financial institutions in the new Web3 world,” said Dan Doney, CTO of Securrency. “Rather than discouraging our institutional partners, this has actually dramatically accelerated their commitment to using blockchain tools and their desire to move out.”

Larry Fink, CEO of Blackrock, has, very publically, taken a positive stance on the potential for blockchain, despite the chaos. Mere weeks after FTX blew up, Fink took to the stage at Dealbook Summit 2022 and stated, “This technology is going to be very important…I believe the Next Generation for markets, the Next Generation for Securities, will be tokenization.” Read more

US Financial Services Committee Sets Date to Discuss Future of Crypto

The U.S. House of Representatives committee did not disclose all the topics for discussion, but the community expects the hearing to address critical issues in the space.

Courtesy of Ezra Reguerra, CoinTelegraph

The United States House of Representatives Financial Services Committee has scheduled a hearing on crypto to discuss its future and provide clarity for the digital assets ecosystem.

On June 6, Representative Patrick McHenry, the House Financial Services Committee chairman, announced a full committee hearing titled: “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem.” The hearing is scheduled for June 13 at 2:00 pm Eastern Time. According to the committee, the hearing will be live-streamed on its website.

The Financial Services Committee oversees the country’s economy through its supervision of individual reserve banks and the Federal Reserve Board, the United States Treasury, the capital markets, and currency production and distribution.

While the committee did not provide more detailed information about what will be discussed in the hearing, members of the crypto community are hoping it will address some of the most pressing issues in the space. Read more

The framework under the bill would allow certain tokens to qualify as digital commodities if they were decentralized and crack down on the SEC’s previous approach to crypto.

Courtesy of Turner Wright, CoinTelegraph

Lawmakers with the United States House Financial Services Committee and House Agriculture Committee have released a draft discussion offering certain crypto assets a pathway to being labeled digital commodities.

According to a discussion draft published on June 2, lawmakers proposed “establishing a functional framework” aimed at providing regulatory clarity for crypto firms in the United States. The draft bill would prohibit the U.S. Securities and Exchange Commission (SEC) from denying digital asset trading platforms from registering as a regulated alternative trading system and allow such firms to offer “digital commodities and payment stablecoins.”

Specifically, the proposed legislation cracks down on the approach many in the crypto space have criticized the SEC for taking by not offering clear rules of the road. The framework under the bill would allow certain digital assets to qualify as digital commodities if they were “functional and considered decentralized” and require the SEC to provide a “detailed analysis” of any objections to a classification of a firm as decentralized.

“The Act also requires the SEC to modify its rules to allow broker-dealers to custody digital assets, if they meet certain requirements,” said the draft. “Additionally, the Act would require the SEC to write rules to modernize certain regulations for digital assets.” Read more

Instagram, YouTube, TikTok, Twitter Target of EU Crypto Advertising Complaint

Courtesy of Foo Yun Chee, Reuters

Meta Platforms’ Instagram, Alphabet’s YouTube, TikTok and Twitter could face regulatory action after European consumer group BEUC complained to the European Commission and consumer authorities that the online platforms allegedly facilitate the misleading promotion of crypto assets.

U.S. regulators suing crypto platforms Coinbase COIN.O and Binance, along with last year’s collapse of FTX, have sparked concerns over consumer protection related to crypto assets such as bitcoin and ether. The European Union last month adopted the world’s first comprehensive set of rules for cryptoasset regulation (MiCa).

BEUC in its complaint filed on Thursday said the proliferation of misleading advertisements of crypto assets on the social media platforms is an unfair commercial practice as it exposes consumers to serious harm such as the loss of significant amounts of money. It said this was happening through advertising and influencers. Read more

June 2, 2023: Cryptocurrency & Digital Assets Articles

Welcome, Crypto, to the Fiery Cauldron of U.S. Presidential Politics

Before the push for the White House really gets rolling, digital assets – including bitcoins and CBDCs – are being hefted as ideological effigies, but will it matter?

Courtesy of Jesse Hamilton, CoinDesk

Whether the crypto industry wants the spotlight or not, digital assets are among the earliest talking points in the 2024 U.S. presidential election, with the most prominent of the new candidates even invoking bitcoins in his campaign opener as evidence of President Joe Biden’s missteps.

In an election in which the heaviest fireworks will likely be seen on the side of the Republican challengers, former President Donald Trump – occupying the role as Biden’s leading nemesis – is himself facing an early-days threat from Florida Gov. Ron DeSantis, who immediately staked out crypto as a kind of political shorthand.

“The current regime, clearly, has it out for Bitcoin,” DeSantis said from his campaign’s Twitter Spaces launch pad, using crypto to represent innovation and personal freedom. “Bitcoin represents a threat to them, they’re trying to regulate it out of existence.”

If digital assets keep figuring into presidential politics, they’ll likely feature as a stand-in to illustrate the perceived abuses of the federal government, according to industry insiders and political experts. But the attention may not contribute to the policy progress crypto businesses crave, because the sector is waiting for comprehensive rules, not political sentiments.

So far, Biden’s administration is being accused of squeezing emerging crypto businesses and trying to set up a central bank digital currency (CBDC) to spy on citizens, according to DeSantis and one of Biden’s challengers from his own party, Robert F. Kennedy, Jr. Read more

Seven Presidential Candidates Have Dropped Clues About Their Crypto Stance

Here’s what the Democratic and Republican candidates running for the job of president of the United States have said about crypto.

Courtesy of Jesse Coghlan, CoinTelegraph

In late 2024, citizens of the United States will take to the voting booths to elect their next president — a four-year term that could have a vast impact on the next crypto bull run. Though polls aren’t set to open until Nov. 5, 2024, dozens of U.S. politicians have already signaled an intention to contest President Joe Biden for the country’s top position.

The current Biden administration appears to have been taking an increasingly anti-crypto stance. Meanwhile, former president Donald Trump is again bidding for the job — setting the stage for a rematch. Others are seeking to carry the Democrat and Republican presidential nominations.

‘No fundamental value’: Joe Biden — Democrat
The current president of the United States, Joe Biden, kicked off his re-election bid on April 25 and is at the moment the likely favorite for the Democrat’s presidential nominee.

Biden’s attitude toward crypto is possibly best summarized by his 2023 Economic Report of the President, which included a section on crypto for the first time since it began in 1950.The section aimed to debunk the “Perceived Appeal of Crypto Assets.” It argued crypto doesn’t deliver on “touted” benefits and claimed “many of them have no fundamental value.” Read more

Is The Digital Euro Near? Prototype Exercise Results Revealed

Courtesy of Isabelle Castro Margaroli, FintechNexus

This year is a pivotal one for the European Central Bank. Years of investigation into creating a digital euro will finally culminate in a decision to proceed with its production in October 2023. While it won’t be the end of the story, it will be a significant moment for CBDCs. Ahead of the US and UK, the EU has been extremely vocal about its investigation into the digital euro, despite many EU citizens still voicing concerns.

In late May 2023, the ECB published a report on the prototyping exercise from July 2022 to February 2023. It’s a critical moment for the future of the digital euro as it nears the possible launch of a pilot. Exploring front-end and back-end functions, both online and offline, the exercise aimed to span the full range of use cases that could be important to the currency’s future usage.

Payments could remain private
Like a jigsaw puzzle, the ECB’s prototyping exercise divided the creation of the digital euro into pieces that would eventually make up the whole CBDC. A settlement engine dubbed N€XT was created on the back-end to process digital euro payment and funding/defunding transactions. Opting for an unspent transaction output (UTXO) data model in place of a distributed ledger, the engine can be accessed via a web-based API.

The ECB stated that the UXTOs refer to a digital representation of an asset that can only be spent once in its entirety in one payment, similar to banknotes in the physical world. This differed from a balance-based approach that records the changes in a holding balance according to the transactions made. Read more

EU Formally Signs New Crypto Licensing, Money Laundering Rules Into Law

Courtesy of Jack Schickler, CoinDesk

The European Union formally signed its landmark Markets in Crypto Assets (MiCA) regulation into law on Wednesday, taking the bloc closer to becoming the first major jurisdiction in the world with tailored rules for the sector.

The law was signed by the European Parliament President Roberta Metsola and Swedish Rural Affairs Minister Peter Kullgren, alongside a separate anti-money laundering law that requires crypto providers to verify their customers’ identity when they transfer funds.

The news was announced on Twitter by the Swedish government, which is chairing legislative talks as it holds the EU presidency. A parliament spokesperson confirmed to CoinDesk that the laws in question include MiCA and the transfer of funds rules as well as two unrelated regulations on trade with Ukraine.

MiCA will enter into force in a few weeks after being published in the EU’s official journal, which is likely in June. Its provisions – offering crypto exchanges and wallet providers a license to operate across the 27-nation bloc, and requiring stablecoin issuers to hold appropriate reserves – will take effect between 12 and 18 months later. Read more

May 26, 2023: Cryptocurrency & Digital Assets Articles

Federal Reserve’s FedNow Will Connect with Metal Blockchain

The integration will allow users to instantly convert cash to stablecoin for use in DeFi protocols.

Courtesy of Tom Blackstone, CoinTelegraph

The Federal Reserve’s forthcoming instant payment service FedNow will be connected to Metal Blockchain, according to a May 11 announcement from the Metal Blockchain team. The announcement said that the integration will allow Metal users to instantly convert funds to stablecoin and back again using FedNow’s “send/receive” function.

FedNow is an instant payment system developed by the United States Federal Reserve. It allows for round-the-clock, near-instant payments between banks. Currently, U.S. residents can only make instant payments domestically through third-party apps such as PayPal and Venmo, or crypto wallets. The Federal Reserve has stated that the new service will launch in July.

Metal Blockchain is a crypto network developed by Metallicus, based on a fork of Avalanche’s code. It was created to offer compliance-friendly options for decentralized finance (DeFi) developers. In the May 11 announcement, Metal developers claimed that the network is “built on the foundation of BSA [Bank Secrecy Act] Compliance,” implying that it has identity verification and Anti-Money Laundering features built in.

According to its documents, the network features a subnet called “X-Chain” that allows developers to enact rules for transferring assets. For example, a token can be issued with the rule that it “can only be sent to US citizens” or “can’t be traded until tomorrow.”

Cointelegraph couldn’t verify what criteria FedNow will use to decide who can integrate with the payment system. However, most blockchain networks use pseudonymous addresses as user identities, which means that they could be seen as not complying with the Bank Secrecy Act. This may explain why Metal is one of the first blockchain networks to be listed as a FedNow service provider. Read more

Regulate Crypto as Gambling Says UK Treasury Committee

Courtesy of FinExtra

The UK Treasury Committee has called for consumer trading in unbacked crypto such as bitcoin and ether to be regulated as gambling.

The influential cross-party Committee of MPs declared that cryptocurrencies such as bitcoin have no intrinsic value and serve no useful social purpose, while consuming large amounts of energy and being used by criminals in scams, fraud and money laundering.

The Committee’s conclusions are at odds with Prime Minister Rishi Sunak’s ambitions to make the UK into a global hub for cryptoasset technology. It also calls into question Government plans to regulate consumer crypto trading as a financial service, arguing that this will create a ‘halo’ effect, leading consumers to believe this activity is safe and protected, when it is not.

In its conclusion, the Committee drew clear and critical parallel’s between Sunak’s previous enthusiasm for NFTs – since abandoned – and his public backing of cryptoassets.

“Given the future benefits of crypto remain unclear, the Government should take a balanced approach to supporting the development of cryptoasset technologies and avoid spending public resources on projects without a clear, beneficial use, as appears to have been the case with its now-abandoned Royal Mint non-fungible token (NFT),” the report concludes. “It is not the Government’s role to promote particular technological innovations for their own sake.”

Harriett Baldwin MP, chair of the Treasury Committee, says the events of 2022 have highlighted the risks posed to consumers by the cryptoasset industry, “large parts of which remain a wild west”. Read more

Crypto Reg Affairs: G7 and DoJ Crypto Czar Point to DeFi Crime Risks as Priority Issue

Courtesy of Elliptic Connect

Leading policymakers and financial sector watchdogs have raised warnings about the importance of addressing financial crime risks in decentralized finance (DeFi), adding to a mounting chorus of voices seeking to extend regulatory oversight to the DeFi space.

In a communique issued on May 13th ahead of a Group of Seven (G7) summit in Japan, finance ministers from the G7 countries indicated that controlling the financial crime risks of DeFi is a major international priority.

The G7 said: “In light of the growing threats from illicit activities, in particular by state actors – including the theft of cryptoassets for proliferation financing, ransomware attacks, terrorist financing, and sanctions evasion – we support initiatives by the Financial Action Task Force (FATF) […] and its work on emerging risks, including from DeFi arrangements.”

The above statement refers to the updated guidance on virtual assets in which the FATF – the global standard-setter for anti-money laundering and countering the financing of terrorism (AML/CFT) indicated that countries – states that countries should take steps to regulate those with influence and control over DeFi arrangements.

The FATF’s focus on DeFi has accelerated across the past 18 months as financial sector watchdogs have expressed growing alarm over illicit finance in the DeFi space – and concern in particular over cases of cybertheft and money laundering in DeFi involving North Korean cybercriminals.

In referring to the FATF’s work on DeFi in its communique, the G7 is making clear that cracking down on such illicit activity is not just a technical problem, but an increasingly important issue of international security.  Read more

Opinion: U.S. Is ‘Losing’ the Bitcoin Movement

Courtesy of Jamie Crawley, CoinDesk

Cathie Wood, founder of investment manager ARK Invest, has said the U.S. is ‘losing’ the bitcoin movement owing to its regulatory system.

Speaking at Fortune’s Most Powerful Next Gen conference last week, Wood described how the center of gravity of cryptocurrency is moving away from the U.S, using the example of crypto exchange Coinbase (COIN) receiving licensing to operate in Bermuda while also looking to expand its presence in Singapore.

In the crypto world, ARK Invest is best known for its regular sizeable orders of COIN stock. “It would be nice if the U.S. were leading this movement, but we’re losing it, and we’re losing it because of our regulatory system,” Wood said.

Frustration over the regulatory picture for crypto in the U.S. is largely directed at the Securities and Exchange Commission (SEC) over its insistence that the industry does not require any bespoke framework beyond existing securities laws, not to mention ongoing disputes with Coinbase and Ripple.

Cathie Wood also referenced last year’s dramatic collapse of crypto exchange FTX, saying it “proved the concept” of bitcoin, as did this year’s banking crisis in which Silicon Valley Bank, Silvergate and Signature all went to the wall. Wood believes these crises underlined the dangers of centralization in financial systems, something to which bitcoin runs counter. Read more

May 12, 2023: Cryptocurrency & Digital Assets Articles

Joint U.S. House Hearing on Crypto’s Future Opens with Discord

Relevant House committees decided to meet together to figure out how to move forward with legislation, but one key Democrat pushed back on the need for special crypto rules.

Courtesy of Jesse Hamilton, CoinDesk

The unusual joint meeting of the two most crypto-relevant committees in the U.S. House of Representatives was called to work out the best legislative approach to digital assets, but one of the top Democrats questioned whether Congress should be writing a bill at all.

The hearing of both the House Financial Services Committee and House Agriculture Committee was called Wednesday as an urgent response to the lack of government oversight of a financial sector that’s passing through a period of turmoil. The group included the Republican chairs and ranking Democrats of the committees and the subcommittees doing the work, among them Rep. Stephen Lynch (D-Mass.), the senior Democrat on the digital assets subcommittee, who threw cold water on the idea of legislation.

“I’m worried that erecting a new law could be viewed as a light touch,” Lynch said in his opening remarks, and it could encourage other sectors to move their own financial products into the digital-assets space. “Creating a separate regulatory regime through legislation is not the answer.” Read more

New York Attorney General James Proposes Nation-Leading Regulations on Cryptocurrency Industry

New York Attorney General Letitia James today announced landmark legislation to tighten regulations on the cryptocurrency industry to protect investors, consumers, and the broader economy. The multi-billion-dollar industry lacks robust regulations, making it prone to dramatic market fluctuations, and has been used to hide and facilitate criminal conduct and fraud. Attorney General James’ program bill, which proposes the strongest and most comprehensive set of regulations on cryptocurrency in the nation, would increase transparency, eliminate conflicts of interest, and impose commonsense measures to protect investors, consistent with regulations imposed on other financial services.

The bill would require independent public audits of cryptocurrency exchanges and prevent individuals from owning the same companies, such as brokerages and tokens, to stop conflicts of interest. Crypto platforms would also have responsibilities to customers similar to banks under the federal Electronic Fund Transfer Act by requiring platforms to reimburse customers who are the victims of fraud. The bill would also strengthen the New York State Department of Financial Services’ (DFS) regulatory authority of digital assets.

Overview of the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act:
Millions of investors have lost hundreds of billions in the value of their cryptocurrency investments because of rampant fraud, including market manipulation, hacking, and opaque business practices. Currently, the cryptocurrency industry lacks a robust regulation regime that would prevent or intercept fraud and market failures. While there are millions of investors who have lost significant investments because of these failures, lower income investors and people of color have been disproportionately harmed by the risks of crypto. Read more

SEC Thwarts Progress on U.S. Crypto Regulations as It Refrains From Defining “Digital Assets”

Courtesy of Investing.com

  • The SEC was yet to define the term “digital assets” in rules governing reporting disclosures for hedge funds.
  • The U.S. regulator proposed a definition of digital assets in an August 2022 petition for revisions.

The U.S. Securities and Exchange Commission (SEC) was yet to ratify the definition of the term “digital assets” in rules governing reporting disclosures for hedge and private equity funds. It was first proposed nine months ago.
SEC issued revisions on 3 May to document PF, a document that SEC-registered funds use to submit basic information about their fund so that the regulator can examine potential “systemic risks.”

The SEC earlier proposed a definition of digital assets in an August 2022 plan for the revisions. If it became law, it would be the first time the SEC defined “digital assets.” But the regulator now says that it will not add the definition, at least not for the time being.

The statement read as follows, “We proposed adding ‘digital assets’ as a new term to the Form PF Glossary of Terms. The Commission and staff are continuing to consider this term and are not adopting ‘digital assets’ as part of this rule at this time.”

SEC tough on crypto but doesn’t define it in words The definition the SEC put forward initially for digital asset was an asset “that is issued and/or transferred using distributed ledger or blockchain technology” and included other commonly used terms such as “virtual currencies,” “coins” and “tokens.” Read more

White House Pushes for Punitive Tax on Crypto Mining

The Biden administration is campaigning for a tax first sought in a recent federal budget proposal, advocating that crypto miners pay an amount equal to 30% of their energy costs.

Courtesy of Jesse Hamilton, CoinDesk

President Biden is looking to impose a punitive tax on crypto mining operations for the “harms they impose on society,” the White House’s Council of Economic Advisers (CEA) said Tuesday in an online post.

The administration’s blog entry made the case for a U.S. tax equal to 30% of a mining firm’s energy costs – an unusual industry-specific penalty that could threaten the profits of such businesses.

“Currently, crypto mining firms do not have to pay for the full cost they impose on others, in the form of local environmental pollution, higher energy prices, and the impacts of increased greenhouse gas emissions on the climate,” according to the CEA’s description of the levy it calls the Digital Asset Mining Energy tax.

While other energy-intensive industries wouldn’t be similarly saddled with the new tax, the CEA contends that “crypto mining does not generate the local and national economic benefits typically associated with businesses using similar amounts of electricity.”

The Biden administration first proposed the excise tax in a March 9 document published by the U.S. Treasury Department. The so-called Greenbook lays out the administration’s proposals and priorities for generating revenue over the next year, but such proposals often fail to survive the process as Congress finalizes the nation’s spending plans. The tax could raise up to $3.5 billion in revenue over the next 10 years, the post said. Read more

 

May 5, 2023: Cryptocurrency & Digital Assets Articles

Coinbase Sued for Illegal Harvesting of Biometric Data

Courtesy of BtcCasey for Bitcoin Magazine

The lawsuit alleges the company collected detailed face maps and fingerprints of customers without consent. Cryptocurrency exchange Coinbase Inc. is facing a class-action lawsuit for allegedly collecting face templates and fingerprints of its customers without their consent, in violation of Illinois’ new biometric privacy law.

The suit, which was filed in federal court in San Francisco, claims that Coinbase harvests facial data from IDs and selfies that customers upload.

As reported by Bloomberg, the company also harvests fingerprint data when customers log into their accounts using the required fingerprint scanning technology. The company’s collection and storage of this data exposes users to “serious and irreversible privacy risks,” according to the lawsuit.

The case highlights the growing concern over data privacy and the need for companies to be transparent about how they collect and use user data, especially sensitive biometric information such as facial recognition and fingerprint data. Read more 

Coming Out of Crypto’s Regulatory ‘Dark Age’

Courtesy of Isabelle Castro Margaroli FinTechNexus

The headlining takeaway of Consensus 2023, along with most crypto conversations being had these days, is that regulation of the space is one of the industry’s single largest issues.

In a poll made during the conference, almost 90% felt regulation is the most pressing issue facing crypto in the U.S. This issue is perceived as reduced outside of the U.S., with around 35% of respondents seeing crypto’s public image as an issue almost equal to regulation.

This year U.S. regulators, perhaps burned by instances of fraud in 2022, have gone into enforcement mode, much to the dismay of many.

Despite SEC Chair Gary Gensler’s, claims that crypto already has clear guidelines, the resounding response of the industry begs to differ. With every Wells notice and settlement, the parameters become ever more blurry, with regulators reportedly reluctant to enter into dialogue. Read more

What Binance’s US Lawsuit Says About the Future of Cryptocurrency Regulation

Courtesy of Andrew Urquhart and Hossein Jahanshahloo, The Conversation

The world’s largest cryptocurrency exchange, Binance, has been hit with a lawsuit by US regulator the Commodity Futures Trading Commission (CFTC). This is not the first time a cryptocurrency exchange has been charged by a regulator. But this particular case involves a regulator that does not directly oversee cryptocurrencies. This indicates how regulators – particularly those in the US – hope to clamp down on the cryptocurrency industry.

The CFTC’s lawsuit alleges that Binance violated US derivatives laws by offering its derivative trading services to US customers without registering with the right market regulators. It says Binance has prioritised commercial success over regulatory compliance.

The CFTC has also levied charges against Binance’s founder and CEO, Changpeng Zhao (known as CZ) and former chief compliance officer Samuel Lim. They are charged with taking steps to violate US laws, including directing US-based “VIP customers” to open Binance accounts under the name of shell companies. The regulator has pointed to chat messages as evidence of CZ and Sim’s knowledge of various criminal groups using the exchange. Read more

Recent Legislative Proposals and IRS Guidance on the Taxation of Digital Assets

Courtesy of Proskauer Rose LLP; National Law Review, Volume XIII, Number 122

This blog post summarizes recent federal bills that have been introduced (but not yet passed), proposals by the Biden Administration, and guidance issued by the Internal Revenue Service with respect to the taxation of digital assets.

Summary of the Guidance:
The Responsible Financial Innovation Act (the “RFIA”) introduced in Congress by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) on June 7, 2022.

  • Would exempt from tax up to $200 of income or gain per transaction (adjusted for inflation) from virtual currency used for the purchase of goods or services in a “personal transaction” (i.e., not in connection with a trade or business or otherwise for profit)…

The Virtual Currency Tax Fairness Act: 
On July 26, 2022, Senators Patrick Toomey (R-PA) and Kyrsten Sinema (D-AZ)) proposed the Virtual Currency Tax Fairness Act, which would exempt cryptocurrency transactions of $50 or less from tax.

S. 4751

  • On August 3, 2022, Senators Toomey, Sinema, Lummis, Mark Warner (D-VA) and Rob Portman (R-OH) introduced S. 4751, which would modify and narrow the definition of “broker” for purposes of the reporting requirements for digital assets added by the Infrastructure Investment and Jobs Act (the “Infrastructure and Jobs Act”). As noted above, the RFIA contains an identical proposal.

Read more

 

Apr. 28, 2023: Cryptocurrency & Digital Assets Articles

Draft Bill Suggests Separating Legislation on Payment Stablecoins and Digital Asset Markets

The draft bill no longer included aspects of an earlier version that included legislation of custodial service providers and algorithmic stablecoins, as well as a CBDC study.

Courtesy of Turner Wright, CoinTelegraph

Republican lawmakers with the United States House Financial Services Committee have released a draft of a bill focused on payment stablecoins rather than overseeing other aspects of digital asset markets.

A senior Republican committee staffer involved in drafting the legislation told reporters on April 24 that they had narrowed the scope of a stablecoin bill proposed in September 2022 in response to feedback from lawmakers. The bill, aimed at providing “for the regulation of payment stablecoins,” would be separate from legislation focused on custodial service providers, algorithmic stablecoins, and a study on central bank digital currencies.

Under the current draft of the bill, the Federal Reserve would largely be in charge of non-bank stablecoin issuers. The issuers would also have to meet certain federal criteria to also qualify as a payment stablecoin issuer, even under a state charter. In addition, the wording of the draft bill no longer included a two-year ban on algorithmic stablecoins first proposed in September in the wake of the depegging of TerraUSD Classic (USTC).

Related Reading: McHenry, Hill, Huizenga Demand Information from Prudential Regulators Regarding Efforts to De-Bank the Digital Asset Ecosystem

Anonymity in Crypto Must End, Says Top US Regulator at CFTC – Here’s Why

Courtesy of Daily Hodl Staff

A member of the U.S. Commodity Futures Trading Commission (CFTC) is reportedly calling for an end to anonymous crypto transactions in a push to curtail illicit activity.

According to a new Reuters report, CFTC commissioner Christy Goldsmith Romero says that tighter governmental and industry controls on digital assets are needed to curtail risks to national security. During remarks at a City Week conference in London, Romero said that criminals are turning to crypto to fund cybercrimes.

Says Romero, “Fraud is a hallmark of digital asset markets, the human toll of which may be overlooked. It’s essential for governments and particularly the industry to address that which makes crypto so attractive to illicit finance, and that is the allure of anonymity.”

Reuters notes how the US, citing national security concerns, recently banned currency mixer Tornado Cash, which pools together funds from differing sources, mixes them up and then redistributes them to increase anonymity. US Congress is considering new laws to address anonymity in digital assets, according to Reuters. Read more

OPINION Enjoy the Final Crypto Winter: Regulations Are Coming Soon

With U.S. regulations coming soon, the frauds, schemes, and irresponsible investment management practices that led to the current market downturn will be things of the past.

Courtesy of Paul Brody, CoinDesk

Got your skis on? If not, clip in and try to have some fun because this is going to be our very last crypto winter. We’ve had two or three, depending on how you count and this one has certainly been the worst and the most frustrating, but fortunately, it’s going to be the final one and let me explain why: Crypto and blockchain are on the cusp of becoming ordinary, regulated businesses. While it’s always extremely difficult to separate signals from noise, I see three big positive signs for the future.

Surge in enforcement actions by law enforcement
The world of crypto and blockchain has always had an uncomfortable relationship between starry-eyed do-gooders (count me among that crowd) and ruthless opportunists trying to hijack that message to sell whatever they’ve come up with. One of things that has been immensely frustrating over the years is seeing the warnings we and others have made about the dangerous, speculative and downright absurd nature of some crypto and blockchain investments go unheeded. We (EY) warned about the abysmal track record of initial coin offerings (ICO) in 2018 and again in 2019 and we were hardly alone in expressing our concerns. Enforcement actions are much more effective than warnings and social-media flame-wars. Read more

Crypto Assets Deemed as Securities by the SEC

The US Securities and Exchange Commission (SEC) has designated dozens of crypto assets as securities. The five commissioners jointly published these determinations publicly on their governmental website.

Courtesy of Protos

The SEC employs over 4,500 workers who oversee $115 trillion worth of annual US securities transactions. As a regulator and civil enforcement agency, the commission usually reveals its determinations of unregistered securities offerings within court filings. Of course, for non-contentious designations — such as accepting a securities registration statement from a willing and compliant registrant of securities tokens — the SEC will simply post customary notices within EDGAR or elsewhere on SEC.gov.

Due to legal obligations with the court system, plus hundreds of rules and regulations that govern its actions, the SEC is limited in when and to what extent it can reveal its determinations. For example, commissioners will always decline to comment on determinations that are subject to ongoing investigations or legal proceedings.

In almost every case that relates to a crypto asset whose issuers intended as a “utility token,” the SEC reveals its determinations when it publicly files a civil lawsuit. This timing is understandable, allowing employees at the SEC to complete their investigation and deliberations in private. Read more

Apr. 21, 2023: Cryptocurrency & Digital Assets Articles

NY Financial Regulator Adopts Virtual Currency Assessment Rule

Courtesy of Helene Braun, CoinDesk

The regulation affects only companies with a state-issued BitLicense. The New York Department of Financial Services, or NYDFS, has adopted a new regulation for how crypto companies will be assessed for costs associated with their supervision.

The regulation will require companies to meet rigorous standards for capitalization, cybersecurity protection, and anti-money-laundering protocols, NYDFS said in a statement Monday.

“As the first prudential regulator of virtual currency in the nation, New York has created a framework that sets the highest standards for safety, soundness, and consumer protection while fostering responsible growth,” NYDFS Superintendent Adrienne Harris said. “This regulation provides the department with additional tools and resources to regulate the virtual currency industry now and in the future, as innovators create new products and use cases for digital assets.” Read more

Stablecoin Debate Divides Along Party Lines During House Hearing

Courtesy of PYMNTS.com

The political parties are reportedly divided over potential congressional action on stablecoin regulations.

During a Wednesday (April 19) hearing in the House, Republicans favored reviving a bill that would regulate stablecoin issuers and give them access to Federal Reserve banking services, while Democrats expressed concern about encouraging stronger ties between crypto and the banking system, The Wall Street Journal (WSJ) reported Wednesday.

The bill had previously had bipartisan support, according to the report. Advocates of stablecoin regulation said during the hearing that stablecoins have potential uses beyond speculation on crypto and that the developers of digital assets are moving their business to other countries that already have regulatory frameworks, the report said.

Opponents of the bill said that they want to rewrite the bill from scratch, that a new bill must reflect the collapse of FTX and other recent turmoil in the crypto sector, and that they are not sure stablecoins are even necessary, per the report.

As PYMNTS reported Monday (April 17), a draft bill published Saturday (April 15) by the House Financial Services Committee is proposing that the Federal Reserve’s board of governors be given oversight of nonbank entities and digital asset firms looking to issue stablecoins. Read more

Fed’s Bowman Sees Potential for Interbank Digital Dollar

Courtesy of Ann Saphir and Hannah Lang, Reuters

A so-called “wholesale” central bank digital currency could hold promise for the future settlement of certain financial market transactions and processing international payments, Federal Reserve Governor Michelle Bowman said on Tuesday.

While a digital dollar could make sense for interbank transactions, there could be unintended consequences like disruptions to the banking system if the Fed were to design a central bank digital currency that would be directly available to the public, Bowman said in prepared remarks for an event at Georgetown University’s Psaros Center for Financial Markets and Policy.

The U.S. central bank has not yet said if it would embark on an effort to create a central bank digital currency, and has previously said it would seek authorization from Congress and the executive branch before doing so.

Read: Governor Michelle W. Bowman’s Speech “Considerations for a Central Bank Digital Currency”

EU Parliament Votes for New Crypto Rules

The European Parliament has overwhelmingly voted in favor of the Markets in Crypto-Assets (MiCA) crypto licensing regulations.

Courtesy of FinExtra

MEPs voted 517-38 in favor of the new regime, which has already been given the green light by EU member states. The world’s first comprehensive regulation for the crypto sector, MiCA requires firms in the sector to obtain a license in order to offer their services in the bloc and to meet money laundering and terrorist financing rules.

“Significant” service providers will also have to disclose their energy consumption in order to tackle the sector’s carbon footprint. A separate vote of 529-29 waved through Transfer of Funds regulation, requiring crypto firms to identify their customers. MiCA will now be introduced in phases, beginning next July.

EU financial services commissioner Mairead McGuinness called on other parts of the world to follow the EU’s lead, adding: “We believe had FTX been captured under the EU’s jurisdiction, many of its practices would not have been permissible under MiCA.”

Anna Carrier, legal consultant at Norton Rose Fulbright warns that firms will need to take swift action: “With a relatively short implementation timeframe and a need for technical secondary legislation to be developed before MiCA becomes applicable, the industry faces some busy months ahead.”

 

Apr. 14, 2023: Cryptocurrency & Digital Assets Articles

Is Your Cash Safe in Digital Wallets? CFPB Chief Says More Regulation Needed

Courtesy of Nick Robertson, The Hill

After high-profile bank collapses sent shockwaves through the banking system last month, regulators also hold some concerns about digital wallets and money transfer apps that consumers often use as bank accounts. “I’m very worried,” said Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB), during a Tuesday event hosted by the Washington Post.

“A lot of people are storing money in peer-to-peer apps and online payment systems,” he continued. “Apps like CashApp, Venmo, Paypal have become part of the digital wallets of so many Americans, but many may not know whether those funds are insured or not.”

Many of these apps are regulated as money transmitters — commonly used for international remittance payments — instead of banks, Chopra said. Banks are subject to stricter federal regulation and oversight. Banks overseen by the Federal Deposit Insurance Commission (FDIC) are also backed up by up to $250,000 in deposit insurance per account.

“Many people think of this as like a bank account, as a place I can store funds, but the reality is it’s not like a bank account and there are certain circumstances where those balances may not be fully insured,” he said.

Both Venmo and CashApp fall under FDIC insurance for their partner banks, according to their websites, but that insurance would not apply if the companies themselves were to fail. Chopra recommended that people store very little money on these apps and rather keep money in traditional banks, especially low-income people. The growing popularity of the apps also brings an increased need for regulation, he argued. Read more

Circle and BlockFi Questioned on Banking with SVB by Congress

Courtesy of Cointelegraph

Executives at the stablecoin issuer Circle and the bankrupt cryptocurrency lender BlockFi have been questioned by two members of Congress investigating the so-called “mutual backscratching arrangements” alleged to have taken place with the now-failed Silicon Valley Bank (SVB). On April 9, letters from Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez (AOC) were sent to Circle, BlockFi and 12 other non-crypto tech firms asking a series of questions on each firm’s relationship with SVB.

The lawmakers stated that more needs to be known about SVB’s reported “coddling” and “white glove” treatment towards its largest depositors in order to understand if these firms played a role in SVB’s collapse. Jeremy Allaire and Zac Prince, the respective chief executives of Circle and BlockFi, were questioned on the length of their financial relationships with SVB, amounts deposited with the bank along with what “agreements” were made between their firms.

In addition, the pair wanted to know if SVB offered “perks” such as low-interest rate mortgages or SVB-sponsored “ski trips, conferences and fancy dinners.” “Congress, bank regulators, and the public are owed an explanation for the bank’s hyper-reliance on tech industry firms and investors,” Warren and AOC wrote.

They added the extent of SVB’s depositors in the tech industry resulted “in an abnormally high percentage of deposits” not insured by the Federal Deposit Insurance Corporation (FDIC) and questioned the executives on “the role that companies like yours might have played in precipitating the $42 billion single-day-run on SVB.” “Obtaining information on these factors is important for understanding how SVB failed and how to prevent the next failure,” they added. Read more

International CBDC Aims to Unify Fragmented Digital Currency Landscape

Courtesy of PYMNTS.com

The central bank digital currency (CBDC) field has become crowded, global in scope, and yet in many cases, fragmented. Generally speaking, in concept, the CBDC affords a central bank a way to battle the proliferation of cryptocurrencies, which are still in the midst of a ferocious regulatory debate no matter where you look.

As proof positive of the fragmentation, consider these stats from the Atlantic Council: 11 countries have launched CBDCs, 18 are in pilot programs and dozens more are in various stages of research and/or development. What’s been lacking is one CBDC to rule them all, to borrow a phrase from author J.R.R. Tolkien. Call it Tolkien on tokens? (We’ll stop with the puns).

The issue with CBDCs is one of global reach, of interoperability. Each central bank can conceivably — if it has the willpower and the digital infrastructure in place and the acceptance of businesses and consumers — launch a CBDC that works well for domestic commerce and disbursements of government aid.

For CBDCs to truly gain ground, though, they need to be interoperable across borders to facilitate trade and commercial payments in the global age, existing alongside and interacting with far-flung payment systems. To that end, as reported on Monday (April 10), the Digital Currency Monetary Authority has unveiled what has been termed an international version of a CBDC.

The digital offering was introduced at the spring meeting of the International Monetary Fund.

Dubbed the Universal Monetary Unit (UMU), the CBDC is designed to act “legally a money commodity,” and “can transact in any legal tender settlement currency, and functions like a CBDC to enforce banking regulations and to protect the financial integrity of the international banking system,” per the Monday announcement. In terms of the workings of the CBDC itself, Banks can attach SWIFT codes and bank accounts to a UMU digital currency wallet and transact “SWIFT-like cross-border payments over digital currency rails.” Read more

OPINION: UN Cybercrime Treaty Could Lead to Sweeping Surveillance of Crypto Worldwide

The treaty’s current draft language would require crypto companies to implement intrusive mass surveillance systems, turning over financial information to governments automatically.

Courtesy of Marta Belcher & Kurt Opsahl, Coindesk

On Tuesday, the United Nations kicked off the second-to-last round of negotiations for a new international treaty on cybercrime. The latest draft includes language that, if adopted, would impose sweeping surveillance requirements on cryptocurrency and threaten financial privacy worldwide.

Article 93 of the draft treaty would require all nations that sign the treaty to implement onerous financial surveillance laws for cryptocurrency. Those financial surveillance laws would apply to any organization “engaged in activities related to the circulation of digital financial assets and digital currency,” even if they are nothing like a traditional financial institution. Like the dangerously broad Digital Asset Anti-Money Laundering Act introduced in the U.S. Senate, this incredibly broad language could be interpreted to include software developers, custodial and self-hosted wallet providers, miners, validators, nodes, non-fungible token non-fungible token (NFT) trading platforms and even users.

Those organizations would be required to implement intrusive mass surveillance systems and turn over their users’ sensitive financial information to the government automatically. They would need to collect identity information for all users engaging in transactions, maintain that sensitive data so that it can be handed over to the government, monitor for “suspicious” activities and automatically report certain transactions to the government. In addition, when any person is suspected of “possible involvement” in a cybercrime, these organizations would have to give the government not only the financial records of the suspect, but also the financial records of the suspect’s “associates” and family members – a shocking overreach. Read more

 

Apr. 7, 2023: Cryptocurrency & Digital Assets Articles

Crypto Firms Brace For ‘Carpet-Bombing Moment’ In U.S. as Europe Beckons

The EU’s openness toward crypto is a striking turnaround.

Courtesy of Zachary Warmbrodt And Bjarke Smith-Meyer

Crypto lobbyists have a new cudgel in their intensifying battle with U.S. regulators: Europe wants their business.

Industry leaders are increasingly making the trans-Atlantic juxtaposition to argue for clearer regulations as U.S. agencies begin to enforce decades-old rules for trading and banking in the crypto world. Congress is nowhere near the point where it might craft a federal standard for digital currency, so regulators appointed by President Joe Biden are filling the void.

That’s in contrast with the European Union, which is preparing to activate new laws tailor-made for digital asset companies. Many European officials are beginning to pitch the EU as a welcoming place for crypto businesses to set up shop.

“We will have the best framework in the world in which companies can develop,” said Stefan Berger, the conservative German lawmaker who shepherded the EU crypto rulebook that will come into force in the second half of 2024. “We will have everything that you need for a workable market.” Read more

Crypto Investors Beware: Legislators Might Drop the Hammer

Courtesy of RJ Fulton, the Motley Fool

KEY POINTS

  • A barrage of lawsuits by regulators in 2023 show that the government is ready to turn up the heat on crypto.
  • Cryptocurrencies could give a boost to the future economy.
  • If regulation is too stringent, the U.S. risks losing a competitive edge on the global stage.

While some regulation probably is needed, fostering growth and innovation needs to be prioritized. Cryptocurrencies and blockchains have emerged as innovative and exciting technological developments in recent years. However, due to their novelty and uniqueness, many governments around the world have been playing catch-up to enact a clear regulatory framework for this burgeoning asset class.

In the U.S., crypto operates within an opaque framework with no specific agency responsible for oversight. As such, a piecemeal approach to regulation has started to unfold. But with multiple high-profile lawsuits targeting companies such as Coinbase and Binance already in 2023, this reality might be beginning to change as regulators start to present a united front.

Yet, there’s just one problem.
While some countries have enacted conducive and supportive legislation to embrace the potential economic benefits that come with cryptocurrencies and blockchain technologies, these recent lawsuits seem to be targeting the industry as a whole. Accordingly, there is growing concern that the U.S. is on the cusp of imposing stringent and sweeping regulation, which risks impeding the sector’s growth. If this path is taken, it will hurt not only crypto but likely the economy as a whole.

To ensure the country remains competitive and at the forefront of this rapidly growing industry, it is crucial that the U.S. regulation of cryptocurrency is supportive rather than punitive. Regulation is a balancing act and should be a top priority of lawmakers for a plethora of reasons. Read more

How Can I Recover Stolen Crypto Assets?

Courtesy of Lucy Warwick-Ching, Financial Times

I worked my way from rags to riches, founding an ecommerce business in sustainable clothing during the pandemic. As a cryptocurrency enthusiast, I’ve been looking at ways of increasing my digital asset savings through various investment schemes. However, I’m aware that investment scams have tripled. How do I protect myself? If I were subject to such criminal activity, how might I recover any stolen assets and what are the added complexities of tracing stolen cryptocurrency compared with fiat currency?

Stephen Ross, partner at law firm Withers, says you need to approach this with detailed due diligence and a healthy dose of skepticism. Start with the FinancialConduct Authority’s own Warning List, which sets out the firms that are operating without their permission or running known scams. But don’t assume that if a firm isn’t mentioned, then all is well.

If you are looking at regulated investments with underlying crypto assets then inspect the FCA’s register. That said, fraudsters are highly sophisticated and often use “clone” companies which exploit details and websites of real companies to dupe investors and divert their business.

Try checking details independently at Companies House, where you can search for company names and directors for free and use the contact details provided on the FCA register to ensure you are dealing with the real entity and not a clone.

It goes without saying that unsolicited approaches, online and social media promises of high returns and any pressure to act quickly are all red flags.

If you have invested in a regulated scheme and find you have been scammed, you may have access to the Financial Ombudsman Service or the Financial ServicesCompensation Scheme, but there are limits on the compensation you may receive. If you invested in an unregulated scheme you are far less likely to recover any money. Read more

Behind the Scenes of Blockchain and Crypto

Courtesy of Bill Hortz, NASDAQ

Recent advancements and current development are vastly accelerating the transformative potential of blockchain technology. Imagine a future where crypto meets cash; where blockchain is driven by strong regulation, preventive security, verified identity and a seamless customer experience. This will scale the uses of digital assets and cryptocurrencies into everyday financial services and global economic activities.

It represents a complete transformation in all the incumbent technology in the banking and payments world and there is no going backward. For the first time in history, we have universal transparent ledgers that are unalterable, that any customer in the world can access. It is an important moment for banking and payments. The idea that a government can ban or say, Let’s just stop this blockchain and cryptocurrency thing. It is like saying, hey, let’s stop the internet. You cannot. So, the big question is how do you shape it in the right direction?

To better understand where we are and where we are going in blockchain development, and get beyond the hype and the noise, we were introduced to Marshall Hayner, CEO of Metallicus – a San Francisco-based FinTech company building the world’s most customer-centric, digital asset banking network supporting retail and corporate clients by providing global access between traditional banking and digital assets. Marshall has been actively involved in the forefront of blockchain technology development for 14 years and can give us a behind-the-scenes view on what is currently happening in this space and how it will lead to building a better global financial system. Read more

Mar. 31, 2023: Cryptocurrency & Digital Assets Articles

European Banking Federation Sets Out Vision for Digital Euro

The European Banking Federation (EBF) has published a vision paper on a Digital Euro Ecosystem.
Courtesy of Finextra

The EBF sets forth its perspective on the digital money ecosystem of the future, where a retail digital euro, a wholesale CBDC and bank-issued money tokens could all play a role in enabling innovation, supporting customer needs and ensuring that Europe stays at the forefront of digital finance and the digital economy. It argues that a retail digital euro could be envisaged in the mix of new tools and solutions to meet evolving payment needs, as long as it adds value to consumers, is appropriately designed, in close cooperation with the private sector, and mitigates ex ante the accompanying risks.

The paper focuses on the retail digital euro – given its prominence in the current debate – but also sets out main principles for the other elements of a digital money ecosystem. The EBF that, should the European authorities move forward with the project, it is most appropriate to issue a retail digital euro as raw material, allowing the industry to develop solutions and fully deploy its innovative potential to deliver future-proof and competitive payment solutions to the European market. To make this a reality, a retail digital euro should be developed with strong market involvement, in a full and transparent public-private partnership, to ensure that it:

  • creates value for end-customers and the economy for existing and new innovative use cases, without crowding out payment services provided by the private sector,
  • preserves financial stability and bank funding, thus maintaining European banks’ lending capacity to the economy,
  • foresees a robust business model so as to incentivize intermediaries to provide services and innovate based on the digital euro,
  • balances design choices to safeguard privacy and enable the fulfilment of compliance requirements (KYC, AML, CFT) while allowing intermediaries to process customers’ payment data based on customers’ consent to provide value-added services, and
  • leaves ample room for the private sector to add on solutions and services to better serve customers.

Read more

Opinion CoinDesk Editorial: It Sure Looks Like the U.S. Is Trying to Kill Crypto

The federal government’s recent actions against crypto are – rightly or wrongly – widely perceived as a coordinated attempt to maim digital assets. This risks sending a vital industry overseas without actually protecting investors.

Courtesy of Kevin Reynolds, CoinDesk

When walking my dogs, I often run into a septuagenarian named “Harry” (not his real name), a former New York City detective who each morning feeds a colony of stray cats at a nearby golf course. We’ve bonded over animals, but that’s where the touchy-feely part of Harry starts and ends. His worldview includes belief in several QAnon conspiracy theories, and that another American Civil War is around the corner. He’s been waiting for the “signal.”

Sometimes I engage with Harry, other times I just listen. Sometimes we talk about cryptocurrency while he says “hello” to the pups. A couple of days ago, I told him it’s been a rough stretch for the sector, with a banking crisis and government pressure ramping up fast.

He responded quickly: “Did you really think that central banks and governments would allow a competitor to fiat money to exist?”

That stopped me cold. Here he was spouting a conspiracy theory that I’d been finding it increasingly hard to argue against.

Over the course of just a few weeks, it has become increasingly easy to believe – rightly or wrongly – that in its understandable desire to Do Something in the wake of the collapse of cryptocurrency exchange FTX, the regulatory and administrative state of the United States of America is trying to kneecap (if not out-and-out neuter) all of crypto as a technological project within its borders.

As conspiracies go, this one doesn’t need much suspension of disbelief. Even well-placed observers, including former regulators, have characterized this as a coordinated attack. Heck, the current administration’s animus against cryptocurrency is clear in official statements, and then there’s all the actions. After ignoring industry pleas for guidance and regulation for years, the U.S. government seems to be going after all parts of crypto with a vengeance. Read more

Five Things to Know in Crypto Today: XRP Surges on Gensler News

Courtesy of Bob Mason, FX Empire, NASDAQ

Key Insights:

  • XRP reacts to news of Congress calling on SEC Chair Gary Gensler to answer crypto policy questions.
  • CFTC lawsuit against Binance and ether classification as a commodity demonstrates the fractured state of the US crypto regulatory environment.
  • The SBF story gets no better.

XRP Makes another Move as Congress Prepares to Grill Gensler

Today, Patrick McHenry announced on Punchbowl News that Gary Gensler would appear before a digital assets subcommittee on April 18 to discuss his rule-making and approach to cryptos and the broader digital asset space.

House Financial Services Chair McHenry plans a regulatory sphere for digital assets. The subcommittee hearing will be the first of many regulatory hearings throughout the summer.

A rendezvous between US lawmakers and the SEC Chair has been due for a long time. US lawmakers sent Gary Gensler a letter in March 2022 questioning the SEC’s targeted approach towards crypto firms.

The crypto markets took the news buoyantly as bets of a Ripple victory in the SEC v Ripple case gained momentum. Read more

Citigroup Believes CBDCs Will Lead the Way To Mass Adoption

Courtesy of Assad Jafri, CryptoSlate

U.S. banking giant Citigroup believes that mass adoption is six to eight years away and will be driven by central bank digital currencies (CBDCs) and the tokenization of financial, gaming and real-world assets, according to the lender’s latest blockchain report.

Citi compared blockchain innovation to the early days of gas-powered vehicles or digital cameras and said that the world usually does not recognize the value and benefits of disruptive technologies at first. This factor is compounded by the nature of blockchains, which are a “backend infrastructure technology with no prominent consumer interface,” unlike automobiles and cameras.

However, Citi believes that the mass adoption of blockchain tech will happen in the near future as it starts to establish itself in real-world use cases. Citi said:

“Momentum on adoption has positively shifted as governments, large institutions, and corporations have moved from investigating the benefits of tokenization to trials and proofs of concept.” Read more

 

Mar. 24, 2023: Cryptocurrency & Digital Assets Articles

US Enforcement Agencies Are Turning Up the Heat on Crypto-Related Crime

Recent high-profile indictments by the Department of Justice and collaborative agencies suggest that the federal government intends to aggressively go after alleged crypto criminals in the United States and abroad.

Courtesy of Mitch Eiven, CoinTelegraph

On the evening of Jan. 7, Anatoly Legkodymov, founder of the cryptocurrency exchange Bitzlato, was arrested in Miami. The following day, the United States Department of Justice (DOJ) unsealed a complaint in federal court charging him with “conducting a money transmitting business that transported and transmitted illicit funds.” According to the DOJ, Bitzlato failed to meet U.S. regulatory safeguards, including Anti-Money Laundering requirements.

Less than a month earlier, former FTX CEO Samuel Bankman-Fried was arrested in the Bahamas. In a statement, U.S. Attorney General Merrick Garland said, “The Justice Department has filed charges alleging that Samuel Bankman-Fried perpetrated a range of offenses in a global scheme to deceive and defraud customers and lenders of FTX and Alameda, as well as a conspiracy to defraud the United States government.”

Garland stated, “The U.S. Department of Justice will aggressively investigate and prosecute alleged criminal wrongdoing in the financial system and violations of federal elections laws.” But is it really a new day? Will U.S. law enforcement be able to go after alleged crypto criminals at home and abroad?

According to Oberheiden PC attorney Alina Veneziano, who represents executive clients under criminal investigation against U.S. Securities and Exchange Commission subpoenas and DOJ fraud allegations, the answer is yes.

Bitcoin and the Liquidity Question: More Complex Than It Seems

Courtesy of Noelle Acheson, Coindesk

Three years ago this past weekend, markets were reeling from a particularly bad week. The S&P 500 had lost almost 17% of its value, the Dow Jones Industrial Average had suffered its worst one-day drop on record, and bitcoin (BTC) had plummeted over 50% to just below $4,000 before recovering slightly. The number of COVID-19 cases was rocketing up around the world; New York City was closing all bars, restaurants and schools; in Spain, we were several days into lockdown. Things were looking bad.

Noelle Acheson is the former head of research at CoinDesk and Genesis Trading. This article is excerpted from her Crypto Is Macro Now newsletter, which focuses on the overlap between the shifting crypto and macro landscapes. These opinions are hers, and nothing she writes should be taken as investment advice.

The financial machine was springing into action. On March 15, 2020, the U.S. Federal Reserve slashed its benchmark interest rate by 100 basis points to almost zero and committed to boosting its bond holdings by at least $700 billion. The message was one of “we’ll do whatever it takes,” and it worked. The global economy staggered and then limped, but markets soared. Read more

Cracking the Crypto Code: Unraveling the Complexities of Digital Finance

Courtesy of Bracewell LLP; National Law Review, Volume XIII, Number 81

Crypto Bits, host Seth DuCharme is joined by Amanda Wick, founder and CEO of the Association for Women in Cryptocurrency. Amanda explores cryptocurrency value, the advantage of blockchain technology’s advantages, and the importance of efficiency, competition and compliance. Amanda envisions a crypto future driven by inclusivity, constructive regulatory dialogue and innovation. She also highlights the unique value of NFTs as verifiable, authentic digital assets with intrinsic worth.

When you get into crypto, what are the analogies that make sense and what are the analogies that don’t make sense?

The skill set that is most needed in crypto right now is the ability to explain by analogy so that people can understand it. I have conversation after conversation with people where I say, if you could explain this to people in a way that they get it right, that is so critical. And to your point a moment ago, there are positive use cases to crypto.

For example, I used to do white-collar money laundering cases with traditional finance and cash. I didn’t have to explain how cash worked because obviously people had cash in their pockets. All of those people had cash and weren’t necessarily criminals. There’s nothing inherently criminal about a technology or about a financial service. There are people who then use it in a criminal way, and we must be able to separate and make that distinction. Read more

Crypto Entrepreneurs and Celebrity Promoters Face S.E.C. Charges

Courtesy of David Yaffe-Bellany, New York Times

The Securities and Exchange Commission announced charges on Wednesday against a prominent cryptocurrency entrepreneur and a group of celebrities who promoted his ventures, including the actress Lindsay Lohan.

The S.E.C. filed a complaint in federal court in the Southern District of New York charging the entrepreneur, Justin Sun, with securities law violations linked to his management of three crypto companies. The agency also charged eight celebrities, including Ms. Lohan and the social media influencer Jake Paul, with illegally promoting Mr. Sun’s cryptocurrencies.

Ms. Lohan, Mr. Paul and four of the other celebrities agreed to pay a total of $400,000 to settle the charges. The S.E.C. charges are the latest in a series of federal enforcement efforts targeting the crypto industry, which has faced mounting scrutiny in the nearly five months since the implosion of FTX, the exchange founded by Sam Bankman-Fried. Read more

 

Mar. 17, 2023: Cryptocurrency & Digital Assets Articles

Why Digital Asset Regulation Can Positively Impact Mass Adoption

Courtesy of Finextra

Following industry turbulence, governments in the US, UK, and Europe are proposing measures to protect digital asset owners from the threat of unregulated risk.

The fall of FTX has capped off a difficult year for cryptocurrencies. With an estimated industry-wide loss of $3.9bn in 2022, a recent report into all crypto losses has identified that over 95 percent occurred as a result of digital hacking. To protect consumers from the current risks associated with crypto investment and decentralisation, the US, UK, and European governments are proposing regulatory measures—by doing so, there’s likely to be a positive impact on mainstream adoption.

Protecting consumers and providing reassurance

Given the recent turbulence of collapsing crypto tokens and their tumbling values, US Congress has moved to implement its first ever subcommittee dedicated to developing the legal frameworks surrounding digital assets, fintech, and inclusion. Importantly, this includes providing clear legislation, policies that promote financial technology for underserved communities, and a commitment to best practices within the entire ecosystem.

In the UK, the government has announced plans to regulate crypto in the same vein as traditional finance—through the mitigation of risk, ensuring fair and robust standards, and strengthening rules around custodians and intermediaries. In short, who has the authority to facilitate customer transactions, store their funds, and why. Read more

Crypto Investment Fraud in the US Hits Record $2.57B – up 183% YoY

Crypto investment fraud losses made up roughly 25% of all money lost to online scams and fraud during 2022 and almost 90% of the $3.31 billion lost to online investment fraud.

Courtesy of Assad Jafri, CryptoSlate

Cryptocurrency investment fraud in the U.S. was up almost 3x year-over-year in 2022 — making investment fraud the “costliest scheme reported,” according to the FBI’s 2022 internet crime report.

Crypto fraud up 183%
Crypto investment fraud hit a record $2.57 billion in 2022, compared to $907 million in 2021 — a 183% increase on an annual basis. Crypto investment fraud losses made up roughly 25% of all money lost to online scams and fraud during 2022 and almost 90% of the $3.31 billion lost to online investment fraud.

Overall, Americans lost a total of $10.3 billion to online scams during the year, versus $6.9 billion in 2021. The FBI began gathering data on online scams in 2000 through its internet crime complaint center (IC3) and the $10.3 billion lost in 2022 is the highest amount ever stolen by online scammers and fraudsters. Similarly, crypto-based fraud also hit record numbers during the year, with a vast majority of the complaints tagged with the “cryptocurrency wallet” descriptor. Read more

OPINION: Stop Blaming Crypto for Traditional Finance Failures

Courtesy of DJ Windle, CoinDesk

After the recent collapse of three banks – Silicon Valley Bank, Silvergate Bank and Signature Bank – many pointed fingers at crypto as the cause. But crypto may actually be the solution, not the problem.

Recent news has been dominated by the collapse of several banks, including Silicon Valley Bank, Silvergate and Signature Bank – all of which provided vital services to the crypto industry by bridging the gap between blockchain technology and traditional finance.

However, some media outlets are quick to blame the crypto industry for these financial disasters. Is this fair, or are traditional financial institutions failing us again? Many crypto advocates argue that blockchain technology offers a solution to the issues plaguing traditional finance and it isn’t the problem.

What happened to Silicon Valley Bank?

Silicon Valley Bank, the 16th largest bank globally with $210 billion in deposits, recently experienced a devastating collapse that impacted the global financial system. As a leading provider of banking services to nearly half of the United States’ venture capital-backed technology and life-science companies and over 2,500 venture capital firms, the bank’s downfall had a significant effect on the technology and financial sectors. Read more

Signature Bank’s Prospective Buyers Must Agree to Give Up All Crypto Business

The Federal Deposit Insurance Corp. has reportedly asked banks interested in acquiring the shuttered New York institution to submit bids by Friday.

Courtesy of Cheyenne Ligon, CoinDesk

Signature Bank is on the market after being shuttered by New York state regulators on Sunday, but any potential buyer reportedly has to agree to a major caveat: no crypto. Reuters first reported the development on Wednesday evening, citing people familiar with the matter. The Federal Deposit Insurance Corp. said bids for the bank must be submitted by Friday, the report said.

The New York-based bank’s weekend closure came two days after the collapse of another bank, California-based Silicon Valley Bank, and less than a week after the voluntary closure of another California-based bank, Silvergate Bank. All three of the now-defunct banks were considered crypto-friendly financial institutions. Signature Bank, whose crypto clients accounted for a quarter of its deposits, was reportedly under investigation by the Department of Justice and the U.S. Securities and Exchange Commission for potentially lax monitoring that may have enabled money laundering.

A class-action lawsuit was filed against Signature Bank in February, alleging the bank knew about – and facilitated – the “now infamous FTX fraud.” Specifically, the suit accuses Signature Bank of having knowledge of and permitting “the commingling of [the FTX exchange’s] customer funds within its proprietary, blockchain-based payments network, Signet.” Read more

Mar. 10, 2023: Cryptocurrency & Digital Assets Articles

HSBC and Nationwide Block Transactions With Crypto Exchanges

Courtesy of Abdelaziz Fathi, FinanceFeeds

HSBC Holdings and Nationwide Building Society joined major UK banks in banning purchases of bitcoin and other cryptocurrencies via credit card following a recent regulatory crackdown. The move is another blow for the crypto traders ‎who recently saw a sizable number of banks deciding not to ‎finance the wobbly asset class.‎

The decision follows several of the biggest UK banks banning ‎cryptocurrency transactions over the past few months as part of a global crackdown ‎led by major lenders and credit card issuers. While HSBC and Nationwide are not the first, but the action exacerbates pressures and makes it more ‎difficult for enthusiasts to buy into the market as more other banks could shortly ‎follow suit.‎

Describing the activity as “high risk and heavily used for criminal purposes,” HSBC told cardholders they are no longer allowed to purchase cryptos or receive incoming transfers from related exchanges or merchants.

Following the bankruptcy of FTX, the world’s second-largest cryptocurrency exchanges, Lloyds, Barclays, and RBS cut off card purchases and transactions involving cryptocurrency. The banks fear that allowing purchases of cryptocurrencies using money ‎borrowed on credit cards could leave them on the hook if the buyers’ bets were ‎wrong and couldn’t repay their debts.‎ Read more

Hsu: Crypto Needs Lead Regulator, Global Framework of Rules

The OCC’s acting chief, during a speech Monday, likened FTX’s collapse to that of the Bank of Credit and Commerce International in 1991.
Courtesy of Gabrielle Saulsbery, BankingDive.com

Crypto companies need a consolidated supervisor and a global regulatory framework to mitigate risk, Acting Comptroller of the Currency Michael Hsu told bankers Monday at a Washington conference.

Until such a framework is established, crypto companies with international subsidiaries “will be able to arbitrage local regulations and potentially play shell games using interaffiliate transactions to obfuscate and mask their true risk profiles,” Hsu said.

The need for crypto regulation has steadily gathered steam since late 2021, but has particularly escalated since the spectacular collapse of crypto exchange FTX and its more than 130 international subsidiaries in November.

Hsu compared FTX’s collapse to the failure of the Bank of Credit and Commerce International in 1991, which the Los Angeles Times, at the time, called “history’s biggest bank fraud scandal.” Read more

US Lawmakers Planning To Reintroduce Bill Aimed At Fixing Crypto Reporting Requirements

Representatives Patrick McHenry and Ritchie Torres reportedly plan to reintroduce the Keep Innovation in America Act to address reporting requirements in the infrastructure law.
Courtesy of Turner Wright, CoinTelegraph

A group of United States lawmakers is reportedly planning to reintroduce legislation to change the reporting requirements for certain taxpayers involved in crypto transactions.

According to a March 7 report from Punchbowl News, Representatives Patrick McHenry and Ritchie Torres plan to reintroduce the Keep Innovation in America Act. McHenry was one of the leading voices behind the previously proposed bill in an effort to change the definition of a broker as defined in the U.S. infrastructure law — President Joe Biden signed the legislation in November 2021.

Under a draft of the bill, the requirement for brokers to report on digital asset transactions worth more than $10,000 to the Internal Revenue Service would be pushed from 2024 to 2026. In addition, “miners and validators, hardware and software developers, and protocol developers” would not be considered brokers.

Some lawmakers identified potential conflicts as the infrastructure bill was being considered in Congress in 2021 and attempted to amend the legislation. Many have still criticized the law for setting impossible crypto reporting requirements for firms and individuals. Read more

Mar. 3, 2023: Cryptocurrency & Digital Assets Articles

US Regulators Warn Banks of Crypto Liquidity Risks

Courtesy of Finextra

Federal bank regulatory agencies issued a joint statement highlighting liquidity risks to banking organizations associated with certain sources of funding from crypto-asset-related entities and some effective practices to manage those risks.

Recent events in the crypto-asset sector have underscored the potential heightened liquidity risks presented by certain sources of funding from crypto-asset-related entities. The joint statement highlights key liquidity risks and some effective practices to monitor and appropriately manage those risks. The statement reminds banking organizations to apply existing risk management principles; it does not create new risk management principles.

Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.

Read the statement from the Federal Reserve

Fed Again Denies Custodia’s Request for Central Bank Supervision

Courtesy of Anna Hrushka, BankingDive.com

Meanwhile, Custodia inches closer to facing the central bank in court after a district judge Wednesday denied a Fed motion to dismiss the bank’s lawsuit against it.

The Federal Reserve denied Custodia Bank’s request that it reconsider the crypto-focused bank’s application to be supervised by the Fed, the central bank announced on Thursday.

The Fed last month denied the Cheyenne, Wyoming-based bank’s application to become a member of the Federal Reserve System. Hours after the Fed’s denial last month, the Federal Reserve Bank of Kansas City announced its decision to reject the bank’s separate request for a Fed master account.

Custodia, which was granted a special-purpose depository institution license in Wyoming in 2020, claims access to the Fed’s payments system is vital to its ability to operate effectively and efficiently. Read more

Regulation in the Post-FTX Environment: SEC’s Proposed Enhanced Custody Rule and Its Effects on Crypto

Courtesy of Jason Finger and Timothy Karcher, Proskauer

When it rains, it pours. On January 23, 2023, the New York Department of Financial Services announced that it had issued certain Guidance on Custodial Structures for Customer Protection in the Event of Insolvency in which it emphasized the importance of sound custody and disclosure practices to protect customers in the event of an insolvency or similar proceeding. This month, the Securities and Exchange Commission (“SEC”) followed suit.

On February 15, 2023, the SEC proposed amendments to the Custody Rule under the Investment Advisers Act of 1940, which, among other changes, expands the current custody rule’s application to a broader array of client assets under the rule managed by registered investment advisers and clarifies certain aspects of the existing rule (see more digestible SEC Fact Sheet here).

The SEC’s proposed amendments are aimed at reducing the risk of loss of client assets by expanding the types of assets covered by the rule beyond “funds and securities” that will be subject to custodial safeguards and helping ensure assets are properly segregated. The proposed amendment would also impose certain reporting and compliance requirements on investment advisers, including requiring them to provide information about their practices in safeguarding client assets. Notably, if the amended rule is adopted after the 60-day comment period, which is not certain, then crypto assets will undoubtedly be affected. In a statement discussing the proposed amendments, SEC Chair Gary Gensler noted that the rule “covers a significant amount of crypto assets” and that “most crypto assets are likely to be funds or crypto asset securities covered by the current rule.”

Read more

FDIC Says 136 Banks Engaging, Planning Crypto Activities

Courtesy of Ledger Insights

According to the FDIC, 136 insured banks in the U.S. are involved in crypto-assets or are planning some kind of activity. This includes enabling customers to buy or sell cryptocurrencies or providing services to crypto asset exchanges such as bank deposits, custody or lending.

Last week the FDIC’s Office of the Inspector General (OIG) released its annual report on the key challenges facing the FDIC. Supervising the risks posed by digital assets is one of nine concerns.

It highlighted the digital asset volatility risk, citing Silvergate as an example. About 90 percent of its deposit base related to digital asset customers, and there was a drawdown from around $11.9 billion in deposits to $3.8 billion within a quarter. “The bank sold $5.2 billion in debt securities at a loss of $718 million, which is greater than the bank’s total profits since about 2013,” said the report.

So volatility risks for banks was one of the issues mentioned. It reiterated the digital asset risks mentioned in a joint January warning by the FDIC, OCC and Federal Reserve.

Conflicts of interest

Conflicts of interest were highlighted in the report. The Office of Government Ethics introduced a rule in mid-2022 for employees holding a cryptocurrency or stablecoin. If their work could directly affect the crypto value, they should not participate in the matter. Read more

 

Feb. 17, 2023: Cryptocurrency & Digital Assets Articles

Senator Warren Is Building an Anti-Crypto Army. Some Conservatives Are on Board.

Warren is zeroing in on national security concerns as her focus for potential crypto legislation, even as she raises red flags about a host of issues in the space, from consumer protections to environmental impact.

Courtesy of  Zachary Warmbrodt, Politico

Sen. Elizabeth Warren is branding herself as the scourge of crypto. And she’s not doing it alone. The progressive Massachusetts Democrat is starting to recruit conservative Senate Republicans to her anti-crypto cause and getting some early positive vibes from bank lobbyists, who also want to rein in digital asset startups.

Warren has emerged as a lead lawmaker on crypto oversight and is trying to build support behind a bill that would have sweeping implications for the industry via tougher anti-money laundering restrictions, including requirements that more crypto service providers verify customer identities. “I want to emphasize how good her office has been to work with,” said Sen. Roger Marshall, the Kansas Republican who co-sponsored Warren’s legislation.

Crypto advocates are resisting Warren’s push, and some dismiss her as an outlier. But her budding partnership with GOP lawmakers reflects broader forces that are poised to unite progressives and conservatives, watchdog groups and bankers, who share common cause in wanting to derail the unfettered growth of crypto. That’s in stark contrast to last year, before the crypto market meltdown, when digital currency lobbyists had gained serious traction with lawmakers who drafted friendlier, bipartisan legislation with the industry’s input. Read more

Related Reading: Crypto CEOs Need to Accept That Existing Regulations Also Apply to Them

U.S. Regulator Orders Crypto Firm to Stop Minting Binance Stablecoin

Courtesy of Michelle Toh, CNN

New York’s top financial regulator has ordered a crypto company to stop minting a major stablecoin, widening a clampdown on the embattled digital assets sector. Paxos, a blockchain company, announced Monday that it had been instructed by the New York State Department of Financial Services (NYDFS) to stop issuing BUSD, a Binance-branded stablecoin pegged to the US dollar.

The firm said in a statement that it would stop issuing the token on February 21. The ones already circulating “have and always will be” backed one-to-one with US dollar reserves, it added.

Paxos has told customers they will be able to redeem their BUSD through February 2024, with options to redeem funds in US dollars or to convert their tokens to Pax Dollar, another stablecoin issued by the company. Paxos also said it would “end its relationship” with Binance, the world’s largest crypto exchange. It did not give detail on why the regulator had ordered it to stop issuing BUSD.

In a statement, the NYDFS told CNN the order was “a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance.” Read more

Global Standard Setters Will Team Up to Tackle DeFi Regulation

Decentralized finance “does not differ substantially” from traditional finance in its functions or vulnerabilities, according to the Financial Stability Board.

Courtesy of Camomile Shumba, CoinDesk

The Financial Stability Board (FSB) will work with other international standard setters to determine how decentralized finance (DeFi) activities should be regulated across different jurisdictions, it said in a report published Thursday.

The FSB will also explore the extent to which its proposed policy recommendations for the crypto sector needs to be enhanced to address risks specific to DeFi, the report said. In collaboration with other international standard-setters, it also plans to explore how to fill data gaps in measuring and monitoring the interconnectedness of DeFi with traditional finance. “DeFi does not differ substantially from traditional finance in the functions it performs or the vulnerabilities to which it is exposed,” the FSB said in a Thursday press release.

Regulators around the world have been monitoring how interlinked the crypto space has been with the real economy as businesses and banks dove into the sector during the crypto boom that started in 2021. Since then, billions have been wiped out from crypto markets and prompted successive collapses including that of token issuer Terra, crypto lender Celsius Network and crypto exchange FTX. The market turmoil has only encouraged regulators to set up better safeguards for people investing in crypto. Read more

Related Reading: FSB Steps up Investigation Into DeFi Risks

PayPal Pauses Stablecoin Work Amid Regulatory Scrutiny of Crypto

Courtesy of Manya Saini, Reuters

PayPal Holdings Inc. is pausing work on its stablecoin as regulators increase scrutiny of cryptocurrencies and a key partner on the project faces a probe by the New York State Department of Financial Services, Bloomberg News reported on Friday. PayPal had hoped to debut the stablecoin, which will be backed one for one by the dollar, in the coming weeks, Bloomberg reported, citing a person with knowledge of the matter.

“We are exploring a stablecoin; if and when we seek to move forward, we will of course, work closely with relevant regulators,” a spokesperson for the payments firm said in an emailed statement.

The cryptocurrency market is going through a turbulent period as the collapse of some of its biggest players, including FTX, has shaken the faith of investors in what was seen as the next big thing in the world of finance. A string of high-profile bankruptcies has sparked tough global regulatory scrutiny of firms operating in the crypto industry.

The macroeconomic weakness has also begun to pressure growth at PayPal’s core business as consumer spending, particularly discretionary purchases, comes under pressure due to a cost-of-living crisis, triggered by decades-high inflation.

 

Feb. 10, 2023: Cryptocurrency & Digital Assets Articles

Risk Spotlight: OFR Identifies Three Ways DeFi Growth Could Threaten Financial Stability

Courtesy of Kevin Zhao, Office of Financial Research
Views and opinions expressed are those of the authors and do not necessarily represent official positions or policy of the OFR or Treasury.

If decentralized finance (DeFi) continues to grow in size and scope, and if it continues to lack the guardrails that exist for traditional finance, then it could become a threat to financial stability. This blog post summarizes three channels through which threats could emerge in the DeFi market. More information can be found in the OFR’s 2022 Annual Report to Congress.

1. Effects from Price Declines of Digital Assets Could Spill Over into Traditional Financial Markets

If traditional financial market participants and institutions accumulate significant exposure to digital assets, then future price declines in or disruptions of the digital-assets market could have spillover effects in traditional financial markets and the real economy. Reports indicate that a majority of the world’s largest banks have already invested in companies operating in the digital-asset or blockchain-related space, to some degree.1 However, this information is primarily based on press releases from the banks or companies involved. Regulatory data on the exposures of traditional institutions to crypto assets are currently scarce, making it difficult to monitor the interconnectedness of crypto assets and traditional financial markets. Some indirect evidence of this interconnectedness can be gleaned from return correlations. For example, the 30-day rolling correlation between the returns on Bitcoin and the S&P 500 has increased noticeably since the beginning of 2021. Read more

The 30-day rolling correlation between the S&P 500 and Bitcoin has recently increased noticeably.

 

U.S. Enforcement Seeks Fraud Among Emerging, Unregulated Finance Spaces

U.S. securities enforcement authorities are sharpening their focus on deceptive and unsafe practices in an attempt to identify fraud before it leads to blowups that are too big to control

Courtesy of Richard Satran, Thomson Reuters Regulatory Intelligence

After the sudden collapse of top crypto exchange FTX, which was presumed to be “doing things right,” regulators are looking harder at whether enough effective controls are in place to prevent fraud. Even before the rapid demise FTX, agency enforcers were recognizing the need to update their strategies to keep up with the velocity of digital fraud. Lawmakers who have asked regulators why they failed to head off the recent disaster were told the same.

Broader crackdown in unregulated spaces
In the year ahead, regulators are expected to crack down more forcefully on firms in many emerging sectors that have overlooked compliance. The FTX case showed the danger that can emerge practically overnight in an opaque market that lacks oversight. The enforcement focus will hit a wide range of complex, illiquid products and financial services where less transparent practices pose hidden risk to investors.

The FTX collapse has marked a turning point. Even crypto-friendly lawmakers and consumer advocates now want stronger enforcement against bad actors to restore trust. In fact, consumer advocates have railed against new rules that could be seen as legitimizing the novel products as mainstream investments. Read more

Flux Finance Launches Lending Token Collateralized by U.S. Treasury

Flux Finance invests in Ondo’s Short-Term U.S. Government Bond Fund (OUSG) a tokenized version of a Blackrock Treasury Bond ETF.

Courtesy of Sam Reynolds, Coindesk

What’s the latest trend in decentralized finance (DeFi)? Yield farming backed by U.S. government debt.

Following the recent launch of Ondo Finance’s U.S. Treasury-backed Government Bond Fund (OUSG), Flux Finance has launched a decentralized lending protocol that allows users to deposit USDC or DAI into Flux’s protocol, which is backed by OUSG, and, in turn, receive fUSDC or fDAI, two derivative tokens representing the USDC and DAI on Flux.

Flux is a fork of the popular lending and borrowing protocol Compound, which holds billions of dollars in locked tokens as of Thursday.

DeFi protocols like Flux rely on smart contracts instead of intermediaries to provide financial services – such as lending and borrowing – to users. On the other hand, yield farming refers to users getting rewarded with a project’s tokens for providing liquidity to that project. Read more

U.S. Senate Banking Committee Schedules ‘Crypto Crash’ Hearing for February 14th

Courtesy of Conor Devitt, The Daily Hodl

The U.S. Senate Committee on Banking, Housing, and Urban Affairs is primed to probe last year’s crypto crash on Valentine’s Day.

The committee scheduled a hearing for February 14th at 10 a.m. titled “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets,” according to an announcement released by committee chairman Sherrod Brown (D-Ohio) on Friday.

Tim Scott (R-South Carolina), the banking committee’s ranking Republican member, released a statement this week outlining the committee’s priorities for the current congressional legislative session. Scott says one of his top priorities is developing a framework for digital assets.

“Recent years have seen expansive growth in the digital assets industry, including an increasing number of consumers interacting with cryptocurrencies. Several high-profile failures resulted in lost consumer assets, exposed regulatory gaps, and highlighted concerns with illicit finance. Moving forward, the Committee should work to facilitate a bipartisan regulatory framework.”

The Senate banking committee previously held a hearing on December 14th to discuss the collapse of now-bankrupt crypto exchange FTX. Read more

Ramp Scores FCA Approval for ‘Off-Ramp’ Crypto Product

Courtesy of FinExtra

Crypto infrastructure startup Ramp has rolled out its platform for transferring digital assets back into fiat currency, after receiving regulatory approval. In 2021, Ramp secured approval from the UK’s FCA and US’s FinCEN for ‘on-ramp’, its product that allows users to buy cryptocurrencies from traditional currencies.

Now it has secured the green light from the FCA for ‘off-ramp’, which empowers users to transfer their digital assets back into fiat currency. The approval means that customers in more than 130 countries can exchange from any of 38 cryptocurrencies into US Dollars, Euros, and British Pounds.

Several leading Web3 companies, including Brave, Ledger, and Trust Wallet, have already committed to integrating off-ramp.

“To obtain and maintain our FCA registration, we must meet and operate within their strict anti-money laundering and counter-terrorist financing standards. This is a huge achievement for us, as compliance is a cornerstone of our business and what we stand for,” says Paulina Jóśków, head of commercial, Ramp.

The move comes shortly after Ramp secured $70 million in a Series B funding round.

 

Feb. 3, 2023: Cryptocurrency & Digital Assets Articles

Examiner Finds Celsius Used Customer Funds to Prop Up Token and Cover Shortfalls

Courtesy of Soma Biswas, Wall Street Journal

The crypto firm sold customers’ Ethereum and bitcoin to fund purchases of its proprietary CEL token before bankruptcy, according to a court-appointed examiner

Celsius Network LLC used customer funds to cover shortfalls in its obligations to pay lofty yields and to prop up the value of its CEL token while some company insiders were cashing out, according to an examiner’s probe into the crypto lender’s practices before its collapse last year.

Celsius sold customers’ Ethereum and bitcoin to fund purchases of the firm’s proprietary CEL token since it wasn’t earning enough yield through its various investment activities to cover obligations under its flagship customer offering, according to the report by Shoba Pillay, the examiner appointed to probe the firm’s business practices.

The increasing price of the CEL token made it possible for Celsius insiders to make millions of dollars selling it before Celsius went bankrupt, the examiner’s report found. Celsius founders Alex Mashinsky and Daniel Leon sold a substantial portion of their holdings of the native digital coins, realizing at least $68.7 million and at least $9.7 million respectively, between 2018 and when Celsius filed for bankruptcy in July, according to Tuesday’s report. Read more

Related Reading: Crypto Bank Custodia Denied Membership in US Federal Reserve System
The U.S. Federal Reserve Board has rejected the attempt of Custodia Bank to become member of the Federal Reserve System. According to the decision announced Friday, the application submitted by the digital asset bank is inconsistent with legal requirements.

The UK’s New “Big Bang” for Crypto Regulation

Courtesy of Arun Srivastava, Chris Daniel, Eric C. Sibbitt, & Nina Moffatt, Paul Hastings

The UK Government has successfully positioned the UK as a FinTech and Crypto-friendly jurisdiction. At the same time, in a post-Brexit world, UK regulation of the crypto sector has lagged behind developments in the EU where the MiCA Regulation is nearing the end of the European legislative process. The UK has taken a step-by-step approach following the implementation of anti-money laundering registration requirements for the crypto-asset sector. The UK Treasury Committee has been examining the potential risks and opportunities associated with the use of crypto-assets, and the UK Money Laundering Regulations have been updated to introduce the travel rule for crypto-assets. In addition to this, the Law Commission has been undertaking a project on digital assets which is likely to result in legal changes to clarify the status of crypto-assets as property.

The new UK rules will impact UK-based businesses as well as crypto businesses located outside the UK (e.g., US or other offshore crypto-exchanges). Businesses in the UK will need to obtain authorization from the Financial Conduct Authority (“FCA”) when the new rules come into force and enhance their systems, controls and governance arrangements to meet the new increased regulatory standards. US and other non-UK businesses will need to comply with the new requirements in order to access the UK market. The UK presently takes a benign approach to cross-border business in the UK. This will start to change in 2023 with the introduction of the new UK marketing rules (for financial promotions) and subsequently with the new authorization requirements. Non-UK firms will need to navigate the new requirements and will find the UK less open to cross-border business. Read more

Related Reading: FinCEN Issues Enforcement Order Against Crypto Exchange Bitzlato in First-Time Use of Section 9714(a)
In its first use of Section 9714(a) of the Combating Russian Money Laundering Act, the Financial Crimes Enforcement Network (FinCEN) issued a notice of enforcement order on January 18, 2023, against the cryptocurrency exchange Bitzlato. Bitzlato has processed over four billion dollars in cryptocurrency transactions since 2018. According to the government, a substantial portion of those transactions involved criminal proceeds.

New AI Framework Offers Guide on Bias, IP, Data Privacy Risks

Courtesy of Skye Witley, BloombergLaw

Developers of artificial intelligence should be cognizant of potential biases perpetuated by their systems and address risks of intellectual property infringement, according to finalized AI guidance by the National Institute of Standards and Technology.

The AI Risk Management Framework released Thursday by the non-regulatory agency emphasized the importance of trustworthy AI systems and outlined general considerations that users of the technology could implement in their work to build public trust.

The guidance comes as the use of AI to create art, hire people, and write code has heightened concerns over copyright violations, employment bias, and cybersecurity. The framework is intended to help those creating and implementing AI address the complex and often unique risks posed by the technology.

“AI technologies can drive inclusive economic growth and support significant scientific advances that improve our world, but these same technologies also pose risks for negative impacts,” NIST Director Laurie Locascio said at a launch event for the framework. “If we’re not careful, and sometimes even when we are, AI can exacerbate biases and inequalities that already exist in our society. The good news is that understanding and managing the risks of AI systems will help to enhance their trustworthiness.” Read more

Opinion: Better Exchange Due Diligence Could Help Define Crypto’s 2023

Courtesy of Christopher Robbins, Coindesk

The crypto industry lost a lot in 2022, but there’s plenty of optimism it will rebound stronger and better in the years to come.

One reason for that optimism is more risk-conscious investing and better due diligence, according to Doug Schwenk, CEO of Digital Asset Research (DAR), a securities analyst operating within the digital assets space.

“When prices were always going up, it became pretty easy for people in general to kind of ignore risk management,” said Schwenk. “With the collapse of Terra/Luna, FTX, Three Arrows Capital, Celsius Network, BlockFi, we’ve seen a lot of refocus in the industry on risk management.”

For most of the past five years, DAR has preached the need for advisors and investors to vet their counterparties within the digital assets space. Ten exchanges were considered “watchlist exchanges” for potential future inclusion on the vetted exchanges list: Binance, Bitrue, CoinEx, CoinTiger, Crypto.com, Gate.io, Huobi, KuCoin, LATOKEN and Phemex. Read more

Jan. 27, 2023: Cryptocurrency & Digital Assets Articles

NYDFS Releases Consumer Protection Guidance in the Event of Virtual Currency Insolvency 

New York Department of Financial Services (“DFS”) Superintendent Adrienne A. Harris released Regulatory Guidance to better protect customers in the event of an insolvency or similar proceeding. The Regulatory Guidance reiterates expectations for sound custody and disclosure practices and the paramount importance of the equitable and beneficial interest in the asset always remaining with the customer.

The guidance applies to those entities the Department has licensed or chartered to custody, or temporarily hold, store, or maintain virtual currency assets on behalf of their customers. As stewards of others’ assets, virtual currency entities that act as custodians, including, without limitation, storing, holding, or maintaining custody or control of virtual currency on behalf of others, must have robust processes in place, akin to traditional financial service providers.

New Regulatory Guidance on Insolvency Addresses the Following:

  • Segregation of and Separate Accounting for Customer Virtual Currency
  • VCE Custodian’s Limited Interest in and Use of Customer Virtual Currency
  • Sub-Custody Arrangements
  • Customer Disclosure

Click here to read further details and a copy of the guidance.

Blockchain Developers Urge Congress – Be Bold About Data Privacy and Security

Courtesy of Polsinelli PC, Polsinelli LLP, National Law Review, Volume XIII, Number 24

Crypto is dead or on life support, waiting for regulation to rid it of ‘crypto contagion.’ Meanwhile, blockchain technology – the virtual, public ledger technology that records crypto transactions – is very much alive, as evidenced by emerging applications in the healthcare, transportation, and real estate industries.1

Even crypto skeptics who mockingly blame “magical thinking” for infecting a generation of investors agree, at a minimum, there is a potential legitimate use of crypto “as part of new payment systems using blockchain technology” for such things as “sending money internationally more efficiently and cheaply than current systems.”2

For these and related reasons, last week twenty-eight technology organizations, including various blockchain alliances, implored US Lawmakers “for the sake of freedom and democracy” to defend privacy for everyday people, asserting that software developers in the US are “being chilled by clumsy, misguided legislative and regulatory actions.” Read more

With Eyes on FTX Bankruptcy, U.S. Regulator Seeks More Due Diligence Authority

Courtesy of Chris Prentice, Reuters

A top official with the U.S. Commodity Futures Trading Commission (CFTC) is pressing lawmakers to give regulators authority to dig into the books of any firm seeking to acquire a significant interest in any registered market player.

In remarks expected to be published on Thursday, Democratic CFTC Commissioner Kristin Johnson said the agency needs authority to conduct “effective due diligence” on any firm that wants to purchase 10% or more of the equity interest in an exchange or clearing house registered with the agency. Without this, unregistered firms can buy their way into U.S.-regulated markets without meaningfully opening their books to regulators, she said.

Her statements, prepared for a speech given at Duke University last week, come as bankrupt crypto exchange FTX prepares to sell assets including LedgerX, a digital currency futures and options clearing house registered with the CFTC. The Commission needs Congress to give the agency authority to conduct due diligence to protect customers and maintain market stability, she said. Read more

Dutch Central Bank Fines Coinbase €3.3M

Courtesy of FinExtra

Coinbase has been fined €3.33 million for providing crypto services in the Netherlands without securing registration with the country’s central bank. Cryptocurrency firms have been required to register as money transmitters under anti-money laundering laws since May 2020. Coinbase was not in compliance for nearly two years before registering in September 2022.

The non-compliance is punishable by a base fine of €2 million, but Coinbase’s punishment was increased because of the size of the exchange and that it enjoyed a competitive advantage over rivals by not paying supervisory fees.

Coinbase has signaled that it could appeal the decision, which “includes no criticism of our actual services.” Last July, the central bank fined Coinbase rival Binance the same amount for the same offense.

Jan. 20, 2023: Cryptocurrency & Digital Assets Articles

Bank of America Proclaims CBDCs as a New Form of Money 

Courtesy of Connie Diaz De Teran, PaymentsJournal

Like cryptocurrency, central bank digital currencies (CBDCs) are considered digital currency and are issued by a central bank. Many countries have either adopted or are developing CBDCs in order to enhance the efficiency of payments, as well as decrease costs. This recent article by Coindesk features the latest report by Bank of America, where it says that central banks and governments will be at the forefront of driving the digital asset revolution.

According to research from Bank of America, “CBDCs and stablecoins are the natural evolution of money and payments.” Alkesh Shah, lead analyst for the Crypto Research Team at Bank of America said that central bank digital currencies have, “the potential to revolutionize global financial systems.” He also believes that CBDCs could be the most important technological advancement in the history of money.

CBDCs use blockchain technology, or more specifically, distributed ledger technology or (DLT). This type of technology enables governments to retain control of the money supply. Plus, a central entity will determine which financial entity will oversee the distributed ledger. Bank of America believes that developed countries will focus their efforts on the efficiency of payments, while countries with developing economies will hone in on financial inclusion. Read more

Despite Polarizing FTX Hearing, Bipartisan Support Exists for Crypto Regulation

Courtesy of Brett Wolf and Richard Satran, Thomson Reuters Regulatory Intelligence

Even as disagreements flared at a recent Congressional hearing on the FTX collapse, sentiment emerged that some sort of crypto-regulation was a likely possibility

The no-show of star witness Sam Bankman-Fried at a December 2022 congressional hearing into the collapse of the FTX crypto exchange may have drained drama from the event, but the methodical testimony of the man who replaced him as FTX’s chief executive officer, John Ray, III, helped expose problems that could shape legislation following the largest meltdown to hit the troubled crypto industry.

The hearing exposed some partisan differences even as broad agreement emerged on what needs to be done to reduce risks for crypto investors. Republicans and Democrats remained apart in their views of the future of a digital-asset world shaken by the swift collapse of a firm regarded as one of the safest bets in the industry. Indeed, the FTX failure showed basic concerns that must be resolved before mainstream firms can assure regulators that investor protections are in place.

Republicans who have been ardent advocates of deregulation used the hearing to slam U.S. agencies for failing to act sooner to halt fraud at FTX and for going too slow in drafting rules. Numerous Democrats argued against taking hasty actions until more is known about the FTX failure, which led to Bankman-Fried’s recent arrest and indictment on multiple criminal charges. Read more

OPINION: 2023- The Year Regulators Finally Grasp Crypto?

Courtesy of Christopher Robbins, Coindesk

Amid a prolonged collapse in asset prices, the digital assets space had a wild 2022. The problems may force regulators’ hands on the crypto space. 2023 seems to have gotten off to a pretty good start for the digital assets space.

Instability at several crypto projects seems to have at least temporarily resolved itself, and it’s been a few weeks since the last disastrous headlines. Asset prices are up, crypto miners are reportedly ready to reboot their rigs and retail speculators are once again hungrily eyeing the markets.

Regulatory frameworks lie ahead

Despite recent crypto market buoyancy and enthusiasm, we should not so quickly forget about the challenges of 2022. For one thing, many of the structural difficulties for the crypto markets remain in place, according to ZK Zheng, CEO of ZX Squared, a crypto hedge fund.

Several of the notable developments last year will help set the course for this year – not only the failures of FTX and Three Arrows Capital, but also the ongoing work to create a regulatory framework for digital assets in the financial industry undertaken by government agencies. Read more

US Charges Crypto Exchange Bitzlato With Laundering $700M

Courtesy of Jesse Hamilton, CoinDesk

Authorities have accused the little-known platform of laundering funds tied to illicit Russian finance and have arrested its founder.

The U.S. Justice Department and Treasury Department have charged Bitzlato Ltd. with money laundering and arrested its founder in Miami, officials said at a press conference in Washington on Wednesday.

Bitzlato, a Hong Kong-based platform, has been effectively shut down, and founder Anatoly Legkodymov was taken into U.S. custody, moves that will stop Bitzlato from catering to criminals tied to Russia, Deputy Attorney General Lisa Monaco said at the press conference. She outlined the coordinated enforcement actions, which also included the Federal Bureau of Investigation, French authorities and the U.S. Treasury Department, saying they disrupted “a busy corner of this criminal ecosystem.”

The Treasury’s Financial Crimes Enforcement Network (FinCEN) formally labeled the company a “primary money-laundering concern,” which is among the most serious sanctions in the government’s criminal-fighting arsenal because it usually cuts off a business off from the global financial system. Read more

 

Jan. 13, 2023: Cryptocurrency & Digital Assets Articles

OPINION: What’s the Relationship Between Crypto and AI? Is There Any?

Courtesy of David Morris, CoinDesk

Distributed AI projects such as SingularityNET want composable artificial intelligence managed through public blockchains. That’s far preferable to Silicon Valley’s corporate authoritarianism.

The past six months has been a banner stretch for the development of artificial intelligence (AI). Image processors such as Midjourney and text generators including ChatGPT have sparked immense public fascination and debate. Unlike the promise of self-driving cars, these applications seem ready for real commercial deployment.

That could pose a problem for tech innovators focused on public blockchains and distributed computing. At minimum, artificial intelligence will be a huge competitor for investment funding for the foreseeable future, particularly given the reputational damage various scammers and frauds inflicted on crypto over the past year. Read more

2023 Predictions for the Digital Asset Ecosystem

Courtesy of Peter Hans, WeathManagement.com

While cryptocurrencies have experienced recent collapses, the underlying blockchain technology still has immense potential to propel the modern innovation of finance.

Blockchain technology has enabled a digital asset ecosystem that can change how we live, work, play and interact on a global scale. While the digital assets market unfortunately experienced high-profile collapses lately, it is essential to distinguish volatile price action, process failures and fraud by bad actors from the robust foundation. The underlying distributed ledger technology (DLT) has immense potential to propel the modern innovation of finance.

Considering the promising advancements of blockchain networks and their diverse applications and projects, here are my top three predictions to look out for in 2023:

  1. There will be a more overt distinction between investing in blockchain technology infrastructure, cryptocurrencies and Web3.
    Currently, cryptocurrency is the most well-known application of blockchains, but the technology’s capabilities transcend digital currencies. Blockchain technology has evolved from early roots in a single blockchain network and cryptocurrency to a diverse, ever-expanding digital assets universe. The technology gave rise to dozens of major blockchains now driving the industry (nearly 1,000 more exist), over 13,000 tokens with diverse utilities and functions, decentralized finance (DeFi), more than 4,000 decentralized applications (dApps), the exploration of Web3 and burgeoning metaverses.

Read more

DeFi Regulatory Alert: CFTC Files Its First Ever Oracle Manipulation Case

Courtesy of K & L Gates, National Law Review

The Commodity Futures Trading Commission (“CFTC”) filed a civil enforcement action this week against Avraham Eisenberg, charging him with a scheme to defraud others and engage in price manipulation (as announced by the CFTC here). While there have been other enforcement actions related to decentralized finance (“DeFi”) protocols, this is the first case in which the CFTC has charged a person for fraud in connection with “oracle manipulation” on a decentralized exchange.  In addition to this CFTC action, the U.S. Department of Justice previously charged Eisenberg with criminal fraud and commodity price manipulation in connection with this same alleged scheme.

As background, an “oracle” is a source of data used by a smart contract to execute or to establish the conditions under which that smart contract’s code may execute. An oracle may be any stream of data, including pricing information from another protocol which may be used by a Defi Protocol to establish, for example, the price for exchange of a pair of given assets. Read more

Related Reading: What is Institutional DeFi and How Can Banks Benefit?
Institutional DeFi could be a new paradigm that banks can leverage for product innovation, new pricing models and operational efficiencies.

Crypto Bankruptcy: Celsius Cryptocurrency Woes

Courtesy of Miller, Canfield, Paddock and Stone PLC, National Law Review

Bad News for Those Whose Cryptocurrency Is Trapped in the Estate, Could Be Worse for Those Who Think They’ve Escaped

On January 4, 2023, the judge in the Celsius Network bankruptcy case[1] ruled that Celsius users who had deposited cryptocurrency in Celsius’s “Earn Accounts” had transferred ownership of their cryptocurrency to Celsius. These users had deposited their cryptocurrency in the hopes of earning a high rate of interest. Unfortunately, Celsius’s terms and conditions came with a “catch”—while the cryptocurrency was in the Earn Account, it belonged to Celsius. Thus, at the time it filed for bankruptcy protection, Celsius owned any cryptocurrency in the Earn Accounts; depositors had nothing more than an “I.O.U.”–the same as any other creditor.

Media reports have noted that this clearly is bad news for Earn Account users, as they only hold unsecured claims against the estate instead of claims to their original cryptocurrency. Yet, the news may be even worse for those who withdrew their cryptocurrency from Celsius in the three months before it filed. Read more

 

Jan. 6, 2023: Cryptocurrency & Digital Assets Articles

Bank of England Answers Professionals’ Questions About Upcoming CBDC Wallet

Courtesy of Ezra Reguerra, CoinTelegraph

The Bank of England answered more than 70 questions from applicants who wish to win over the $244,000 contract.

Companies that applied to win over the $244,000 contract to develop a central bank digital currency (CBDC) wallet proof-of-concept (PoC) for the Bank of England (BOE) provided questions about the project. In response, the central bank published its answers to over 70 questions.

On Dec. 9, the BOE opened applications asking suppliers to submit applications. About 20 companies submitted their applications and handed in their questions before Dec. 25. Following this, the BOE published the questions asked by the competing providers and gave its answers that aimed to offer insights into the project.

According to the BOE, it wants to create a back-end server for a core ledger, a mobile wallet application and a merchant website. The bank clarified that it has not yet committed to developing a sample wallet and will only use the PoC to expand its knowledge.

Related Reading: Aussies Warned to Avoid Crypto Paper Wallets They Find on the Street
Fraudsters have reportedly been leaving fake crypto paper wallets in public places as part of a scam to dupe Australians out of their crypto.

OPINION 2023: The Year of Regulation vs. Decentralization

Courtesy of Michael Selig, CoinDesk

Crypto regulation remains a dark forest. In the year ahead the SEC and CFTC will likely push the boundaries of their existing authorities through novel enforcement actions, says attorney Mike Selig.

It has been more than a decade since Satoshi introduced the world to the peer-to-peer electronic cash system called Bitcoin, and yet the regulatory landscape for crypto-assets remains a dark forest. After one of the most eventful years in crypto to date, what can we expect from the Securities and Exchange Commission and Commodity Futures Trading Commission (crypto’s primary U.S. market regulators) in 2023?

European Central Bank Executive Says Gambling Rules Should Be Applied to Curb Crypto Speculation

Courtesy of Finextra.com

ECB board member Fabio Panneta says trading in unbacked digital assets should be treated by regulators like gambling. In a blog post, Panetta describes crypto investments as a gamble disguised as an investment asset.

“They do not perform any socially or economically useful function,” he says. “They are rarely used for payments and do not fund consumption or investment. As a form of investment, unbacked cryptos lack any intrinsic value, too. They are speculative assets.”

While other senior payments experts at the European Central Bank have dismissed bitcoin as a marketing scam that will soon burn itself out and should not be legitimized by regulatory intervention, Panneta believes this would be a mistake.

He believes regulation should acknowledge the speculative nature of unbacked cryptos and treat them as gambling activities.

What’s Ahead for Crypto In 2023? 

(Podcast and transcript) Courtesy of Meghan Mccarty Carino and Daniel Shin, Marketplace.org

2022 was not a great year for crypto. It started with a bang as crypto ads went mainstream in the Super Bowl. And then the year ended with an implosion.

Crypto hacks piled on scandals and sliding valuations, one company fell and then another, culminating with the spectacular collapse of the FTX cryptocurrency exchange and its founder Sam Bankman-Fried, who is now under investigation for fraud.

So will this crypto winter start to thaw in 2023 or head into deep freeze? Marketplace’s Meghan McCarty Carino spoke with crypto journalist and host of the “Unchained” podcast, Laura Shin, about what she thinks is in store for the industry this year. Listen and/or read more here

 

Dec. 23, 2022: Cryptocurrency & Digital Assets Articles

Visa Explores Auto Payments for Crypto Wallets

Courtesy of FinExtra.com

Researchers at Visa have been investigating how to enable automatic recurring payments for self-custodial crypto wallets. In a new technical paper, the researchers investigate how to bring the commonplace automatic recurring payment option to the world of crypto and blockchain.

This, the paper says, “is not a trivial task on a blockchain like Ethereum”, adding: “For self-custodial wallets where the user has sole control over the wallet and private keys, automated programmable payments that can pull payments automatically from a user’s account at recurring intervals requires engineering work.”

Visa’s answer is a smart contract application that allows a user to set up a programmable payment instruction that can push funds automatically from one self-custodial wallet account to another at recurring intervals, without requiring the user’s active participation each time.

It relies on a concept known as “Account Abstraction” (AA) which makes user accounts on Ethereum function more like smart contracts by allowing a user to have programmable features embedded into their wallets. Read more.

Alaska Adds ‘Virtual Currency’ to Its Regulatory Regime

Starting in 2023, the companies will have to obtain a new type of license to operate with crypto in the state.

Courtesy of David Attlee, CoinTelegraph.com

From Jan. 1, 2023, the term “virtual currency” will take its place in the money transmission regulations of Alaska. It will oblige the companies dealing with digital currencies to obtain a money transmission license in the state. As reported by the law firm Cooley on Dec. 19, the state of Alaska amended its money transmission regulations to include the definition of “virtual currency.” According to the amendment to the local Administrative Code, adopted by the Division of Banking and Securities (DBS), virtual currency is:

“[A] digital representation of value that is used as a medium of exchange, unit of account, or store of value; and is not money, whether or not denominated in money.” The most obvious impact of this change, which will come into force on Jan. 1, is the requirement to submit a licensing application for “a person engaging in money transmission activity involving virtual currency.” Read more.

Coinbase Offers Recommendations on Global Crypto Regulatory Framework

Courtesy of Alex Richardson, DailyHodl.com

Top US-based crypto exchange Coinbase is responding to the Financial Stability Board (FSB) regarding its proposal to internationally regulate crypto assets, which the regulator is set to reveal in the coming months. Penned by Coinbase’s chief policy officer Faryar Shirzad, the exchange identifies several key areas that it says should be considered in any global regulatory framework.

Coinbase names stablecoins as the foundation for a “new era of innovation in financial services.” However, Shirzad writes that Coinbase has some issues with the FSB’s perspective on stablecoins. Coinbase also covers the importance of decentralized finance (DeFi) and recommends that the FSB look to promote innovation in the sector rather attempt to stifle it altogether.

“Governments and regulators encouraged the internet’s early development, and they should likewise encourage DeFi innovation at the base layer to flourish. DeFi developers only develop and publish code; they do not directly facilitate financial transactions for customers or hold their assets, and we believe it would be inappropriate to regulate developers as if they were cryptoasset market intermediaries.” Read more.

International Banking Regulatory Body Backtracks on Stablecoins

The Basel Committee seems less certain about stablecoins in new draft guidance on bank exposure to digital assets. 

Courtesy of Colin Wilhelm, TheBlock.com

A Switzerland-based organization that sets international banking standards released new proposed guidance for banks to manage exposure to digital assets that retracts previous draft rules for stablecoins.

The Basel Committee on Banking Supervision, which expects to finalize a new framework for banking standards by 2025, published a new version of proposed guidance for banks to follow around the handling digital assets, including “tokenized traditional assets, stablecoins and unbacked cryptoassets.”

The new draft incorporates stakeholder feedback and recent developments in crypto markets, like the algorithmic stablecoin crash last spring, and retracts an effort to allow stablecoins to be stress-tested based on whether they could be sold for an amount that closely tracks its peg value. Read more.

*The Basel Committee – initially named the Committee on Banking Regulations and Supervisory Practices – was established by the central bank Governors of the Group of Ten countries at the end of 1974 in the aftermath of serious disturbances in international currency and banking markets (notably the failure of Bankhaus Herstatt in West Germany).

 

Dec. 16, 2022: Cryptocurrency & Digital Assets Articles

New York Regulator Releases Virtual Currency/Crypto Guidance, Reiterating DFS’ Expectation for Prior Approval, and Outlining Evaluation Criteria

New York Department of Financial Services (DFS) Superintendent Adrienne A. Harris released Guidance to banking organizations that wish to engage in virtual currency-related activities. The Guidance is applicable to all New York regulated banking organizations, as well as branches and agencies of foreign banking organizations licensed by the Department (“Covered Institutions”).

Covered Institutions are reminded of the current requirement to seek prior approval before commencing virtual currency-related activity, including where any portion of those activities will be conducted by a third party. The Guidance outlines six broad categories of information that DFS will consider in assessing a Covered Institution’s proposal: business plan; risk management; corporate governance and oversight; consumer protection; financials; and legal and regulatory analysis. The Guidance also includes a supplemental checklist of initial documents and information that a Covered Institution should provide for DFS to consider in its assessment.

“It is critical that regulators communicate in a timely, transparent manner about the evolution of our regulatory approach,” said Superintendent Harris. “Today’s Guidance is critical to ensuring that consumers’ hard-earned money is protected, that New York regulated banking organizations remain resilient and competitive, and that the expectations are clear for those that wish to submit proposals for virtual currency-related activity.” Read more here.

U.S. Senators Introduce Digital Assets Anti-Money Laundering Bill

Courtesy of Jamie Crawley, Coindesk.com

U.S. Senators Elizabeth Warren (D-Mass.) and Roger Marshall (R-Kan.) are introducing a bill to crack down on money laundering and financing of terrorists and rogue nations via cryptocurrency.

If it becomes law,

The Digital Asset Anti-Money Laundering Act will bring know-your-customer (KYC) rules to crypto participants such as wallet providers and miners and prohibit financial institutions from transacting with digital asset mixers, which are tools designed to obscure the origin of funds.

The act would also allow the Financial Crimes Enforcement Network (FinCEN) to implement a proposed rule requiring institutions to report certain transactions involving unhosted wallets – wallets where the user has complete control over the contents rather than relying on an exchange or other third party.

Concerns over the use of crypto to facilitate money laundering and terrorist financing are frequently aired by lawmakers or regulators and are often used to highlight the need for more robust regulation of the digital asset industry.

U.S. Senate Committee on Banking, Housing, and Urban Affairs: Brown on FTX—Crypto Puts Consumers and Our National Security at Risk

U.S. Sen. Sherrod Brown (D-OH), Chairman, made the following statement: I trust that Mr. Bankman-Fried will soon be brought to justice. It is clear he owes the American people an explanation. Meanwhile, our job is to keep learning more about the collapses of FTX and other crypto firms, and work with regulators to put consumers—not the crypto industry—first.

This isn’t just about crypto. This is about protecting the consumers and the regulated financial sector from bad actors who think rules don’t apply to them.

Two and half years ago, I explained why I thought Facebook’s Libra currency was dangerous. At the time, Facebook was moving full steam ahead to create its own “currency” to impose on its billions of users.

Congress, regulators, and policymakers saw Facebook Libra for what it was: a shiny new tool Facebook could use to reach into Americans’ pockets and profit from– no matter the risk to consumers or our economy. Members of this Committee, and others in Congress, responded. Republicans and Democrats alike made it clear that Facebook couldn’t be trusted, and our financial system was not to be played with. Read the entire statement here.

Watch the hearing here. 

Is Decentralization Just a Pipe Dream?

Courtesy of Isabelle Castro Margaroli, Fintech Nexus News

A decentralized economy — the Holy Grail of DeFi.

Since the inception of bitcoin and blockchain technology, the concept of decentralization has been the pinnacle goal. Once an amalgamation of different theories and mechanisms floating around the deepest and darkest web forums, the DeFi sector has morphed to become (subjectively) the next big thing to happen to financial services.

While controversial, especially given this year’s track record of supposedly “DeFi” companies being brought to their knees, the idea of true decentralization has taken hold. Now some say a decentralized economy could and should become a reality.

Before you roll your eyes and put this down to the dreams of a crypto crazy with their head in the clouds, I invite you to reserve judgment — significant steps are being made, which may make all the difference. Read more here.

Dec. 9, 2022: Cryptocurrency & Digital Assets Articles

Stripe Announces Fiat-to-Crypto Onramp Widget

Courtesy of Romain Dillet, TechCrunch

Payment giant Stripe is going to offer a new product that makes it easier to hold cryptocurrencies without signing up to a cryptocurrency exchange. The company’s new fiat-to-crypto widget can be embedded in any crypto product so that users can enter their card information and acquire crypto that can be used in another web3 product.

There are a few use cases where widgets like this one make sense. The most common is probably non-custodial wallets. Once you have crypto assets in your wallet, you can interact with various web3 products using WalletConnect. You can buy NFTs, use DeFi products, etc.

But how do you upload crypto assets to these software wallets? The most logical use case is that you first sign up to a centralized crypto exchange like Coinbase or Kraken. Once you have verified your identity, you can buy cryptocurrencies and then transfer those assets to your non-custodial wallet. Read More

  • Related Reading: What Is Web3 & How Does It Work? Web3 is a new iteration of the world wide web that hosts decentralized apps that run on blockchain technology.
U.S. Court Weighs Novel Issue of Crypto Ownership in Bankruptcy

Courtesy of Tom Hals and Dietrich Knauth, Reuters

A U.S. judge this week is considering for the first time the question of who owns bitcoin and other tokens in frozen accounts at a bankrupt digital asset exchange in a case that could shape customer protections in the cryptocurrency industry. Unlike bank deposits or brokerage accounts, which are backed by the U.S. government up to $250,000 and $500,000 respectively, crypto deposits are not insured and digital asset companies are lightly regulated and often operate offshore.

Courts will also have to look beyond the user agreements and examine how crypto companies actually handled the deposits, according to bankruptcy specialists.

If a company was using the deposited crypto to make loans or comingled it with other clients’ holdings, as was the case with Celsius’ high-yield accounts, it would be evidence the firm owned the crypto the same way a traditional bank owns its deposits. Read More

Senators Ask Fed for Accounting of Banks’ Crypto Ties

Courtesy of Ann Saphir, Thomson Reuters

Senators are demanding an accounting from the Federal Reserve and other U.S. financial regulators of banks’ cryptocurrency activity and ties to the industry following the implosion of crypto exchange FTX.

“While the banking system has so far been relatively unscathed by the latest crypto crash, FTX’s collapse shows that crypto may be more integrated into the banking system than regulators are aware,” the lawmakers wrote to the chiefs of the Fed, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency in letters dated Wednesday. Read More

2022 – Crypto Markets: A Year in Review

Courtesy of Jackson Wood, CoinDesk

It’s no secret that 2022 has been a difficult year for global markets. The failures and bankruptcies seen in 2022 have led many people to call for further regulation in crypto. As we move into 2023, investors should be aware that the current macro environment, lack of regulation and confidence in crypto, and unclear regulatory frameworks will continue to put pressure on crypto. While these issues are significant and will not be easy to overcome, blockchain innovation and progress is continuing to grow, and the use cases for the technology are continuing to be adopted. Read More

 

Dec. 2, 2022: Cryptocurrency & Digital Assets Articles

What’s Behind a Consolidation of Counsel in the Red-Hot Cryptocurrency Sector

Courtesy of Joseph A. Castelluccio,  Matthew F. Kluchenek, Mayer Brown

In recent decades, the fastest-growing law firms have hitched a ride to thriving industries. First, it was the banks. Then, it was private equity. Today, it’s technology. There’s plenty of demand and plenty of firms looking to service the technology sector. Out on the West Coast, firms with a strong base of technology clients are riding a wave of demand in the fintech space. But as financial and technology sectors continue on a collision course, firms with a background in financial services and regulation are also generating more work.

With the recent boom in the space, there’s been a heightened—and more selective—need for top-notch regulatory expertise. “You cannot escape the regulatory implications,” Kluchenek said. “The regulation or absence of regulation is informing what participants do or don’t do, and that is [part of the reason] you see market participants focusing on a more narrow group [of firms] viewed as qualified counsel.”

Opinion: A Self-Regulatory Organization Is the Best Way to Advance Crypto While Protecting the Public

Courtesy of Todd White, Ralph Benko, CoinDesk

The financial industry, collectively, has greater domain expertise than can be expected of regulators. This reality invites transparent, fully accountable, self-regulation.

Adelle Nazarian, CEO of the American Blockchain PAC, and Alex Allaire, CEO of the American Blockchain Initiative, recently proposed chartering a self-regulatory organization (SRO) for the decentralized finance (DeFi) sector. Doing so would advance U.S. President Joe Biden’s executive order calling for the responsible development of digital assets, arguably the most consequential presidential technology initiative since John F. Kennedy’s speech at Rice University launched America’s magnificent moonshot. Read More

Does Crypto Still Have a Role in the Evolving Payments Landscape?

Courtesy of PYMNTS.com

Even with all the questions swirling around the cryptocurrency industry after the staggering implosion of Sam Bankman-Fried’s once-heralded FTX exchange, customers and merchants are still keen on the ability to easily and securely accept and send cryptocurrency payments.

It bears repeating that FTX is not, by any means, a direct stand-in for crypto, and it is unfair to paint the entire industry with the scarlet letter of the exchange’s failure. Despite the echo chamber of negative headlines surrounding crypto, the Web3-grounded currency solution is still viewed as an important and emergent, bleeding-edge space — particularly within commerce. Read More

Related Reading: A Credit Union’s Guide to Proof of Digital Asset Custody

Cryptocurrency Industry Must Stop Abuse of ‘Mixers,’ Says Treasury Official 

Courtesy of CUToday

The cryptocurrency industry must follow Treasury’s AML regulations and sanctions to prevent bad actors from abusing platforms known as “mixers” to launder illicit funds, according to one Treasury official.

“Mixers,” which enable users to exchange cryptocurrencies with relative anonymity, can be a way for illicit actors to obfuscate the ownership and movement of funds while making it harder for law enforcement to have visibility into the transfers, Elizabeth Rosenberg, the Treasury assistant secretary for terrorist financing and financial crimes, said in recent remarks, according to the Wall Street Journal. Read More

Bitcoin ‘Rarely’ Used For Legal Transactions, on ‘Road to Irrelevance,’ Say European Central Bank Officials

Courtesy of Manish Singh, Techcrunch.com

European Central Bank officials alleged on Wednesday that bitcoin is “rarely used for legal transactions,” is fueled by speculation and the recent erosion in its value indicates that it is on the “road to irrelevance,” in a series of stringent criticism (bereft of strong data points) of the cryptocurrency industry as they urged regulators to not lend legitimacy to digital tokens in the name of innovation.

The central bankers argue that bitcoin’s conceptual design and “technological shortcomings” make it “questionable” as a means of payment. “Real bitcoin transactions are cumbersome, slow and expensive. Bitcoin has never been used to any significant extent for legal real-world transactions,” they wrote. Read More

Nov. 18, 2022: Cryptocurrency & Digital Assets Articles

NY Fed, Big Banks, Mastercard Testing Use of Digital Tokens for Payments, Settlements

The Federal Reserve Bank of New York and a group of major banks and Mastercard have joined in a test of the use of digital tokens representing digital dollars to improve how central bank money is settled between institutions. In addition to the Fed bank and Mastercard, participating in the test are Citigroup, HSBC, BNY Mellon and Wells Fargo, along with Mastercard.

According to the participants, the 12-week proof-of-concept pilot program will explore the use of a platform known as the regulated liability network, or RLN, whereby banks issue tokens that represent customers’ deposits that are settled on a central bank reserve on a shared distributed ledger.

The project will be conducted in a test environment using only simulated data. In a statement, the Federal Reserve Bank of New York said, “It is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed. READ MORE

Holding Digital Assets Through Custodial Wallets

The recent headlines regarding cryptocurrency exchange FTX’s collapse, and subsequent bankruptcy filing have put renewed focus on whether customers of a cryptocurrency exchange should hold digital assets through a custodial wallet. When a customer holds digital assets through a custodial wallet, the service provider holds both the public key and the private key and effectively has control over the assets.

The issue for cryptocurrency exchange customers is if a cryptocurrency exchange files for bankruptcy protection are the customers’ digital assets property of the exchange’s bankruptcy estate and available to be used to satisfy debts of other creditors? Bankruptcies involving cryptocurrency exchanges or cryptocurrency lending platforms is a developing area of the law and presents issues of first impression.

Recent cryptocurrency bankruptcies include Voyager Digital LLC, Celsius Network LLC, and most recently FTX Trading Ltd. If customers of a cryptocurrency exchange or cryptocurrency lending platform hold their digital assets in a custodial wallet, rather than a non-custodial wallet (i.e., a private wallet), it may increase the risk that such assets are treated as corporate assets of the exchange or lending platform. READ MORE

OPINION: The FTX Collapse Looks an Awful Lot Like Enron

Nov. 16, 2022 — The corpses of FTX and Alameda Research are barely cold, but financial coroners are already deploying scalpels and bone saws to try and figure out what went wrong. These autopsies are far from complete, but the findings so far suggest deep parallels between the Alameda and FTX blowup and the most infamous business fraud in American history – the Texas-based energy trading con Enron (ENE).

Those parallels are extensive and nuanced, even apart from the strange twist that Enron’s former lawyer is the new CEO of FTX. But one core similarity is the role of publicly-traded, equity-like assets ultimately linked to the performance of the firms themselves. In both cases, these internal assets flowed between entities that were nominally or even legally separate, but that in fact served the same masters. This enabled egregious financial self-dealing in the form of balance sheets pumped up by fictional valuations, a very fragile form of bootstrap leverage that unwound rapidly as soon as the falsely-inflated assets began to waver. READ MORE

CFTC Chair Calls for International Coordination Between Regulators for Crypto Industry

The head of the U.S. Commodity Futures Trading Commission (CFTC) says financial regulators around the world should coordinate to effectively oversee the crypto industry. In a new interview with CNBC, CFTC Chair Rostin Behnam calls for international coordination among financial regulators to protect customers and ensure market stability in the crypto space.

Behnam and other US regulators are facing questions over following the collapse of the FTX exchange, and the CFTC Chair says that the event could help push officials into finally defining the difference between a security and a commodity, a longstanding issue on crypto regulation. READ MORE

Statement by Treasury Secretary Janet L. Yellen on Recent Crypto Market Developments

The recent failure of a major cryptocurrency exchange and the unfortunate impact that has resulted for holders and investors of crypto assets demonstrate the need for more effective oversight of cryptocurrency markets.

Over the past year, through the President’s Working Group on Financial Markets and in response to the President’s Executive Order on Digital Assets, the Treasury Department worked with its regulatory partners to identify risks in crypto markets. Some of the risks we identified in these reports, including comingling of customer assets, lack of transparency, and conflicts of interest, were at the center of the crypto market stresses observed over the past week.

We have very strong investor and consumer protection laws for most of our financial products and markets that are designed to address these risks.  Where existing regulations apply, they must be enforced rigorously so that the same protections and principles apply to crypto assets and services.  The federal government, including Congress, also needs to move quickly to fill the regulatory gaps the Biden Administration has identified.  In terms of financial stability, spillovers from the events in crypto markets have been limited, but a recent report by the Financial Stability Oversight Council, which Treasury chairs, warned that further interconnections of the traditional financial system and crypto markets could raise broader financial stability concerns. Going forward, it’s vital we do what is necessary to address these concerning risks and act to protect consumers and promote financial stability.”

Nov. 11, 2022: Cryptocurrency & Digital Assets

Money Crypto Versus Tech Crypto: How the Two Faces Of The Ecosystem Impact the Regulatory Discussion.

Our internal and external debates regarding regulation would improve if we thought of crypto as two ecosystems rather than one. There is a basic dichotomy that has a big effect on the policy debate, explains where we are with regulation today and will define how we move forward. But we never talk about it. That should change.

One side of crypto is predominantly about investment. Call it “money crypto.” In essence, it is about buying, holding, lending and trading tokens as investable assets. Money crypto wants big institutions and retirement funds to invest and a spot exchange-traded product that every retail investor buys. When money crypto says “it’s still early,” this means that most people haven’t bought yet. This side has the attention of regulators. READ MORE

Federal Reserve Bank of New York: Advances in Digital Currency Experimentation

Speech by Michelle Neal, Executive Vice President and Head of Markets

Digital innovation has the potential to benefit the financial system writ large by reducing transaction costs, increasing competition, and broadening access to a wider range of participants. However, harnessing the full potential of financial innovation and related technologies – especially regarding cross-border settlements and payments – will require collaboration across a range of international partners.

When I consider the ways in which digital assets impact the mission of the Federal Reserve, I see several channels – including monetary policy and the provision of an elastic currency, the preservation of financial stability, and the smooth operation of the payments system. READ MORE

CFPB Publishes New Bulletin Analyzing Rise in Crypto-Asset Complaints

“Pig Butchering” and Other Scams Lead List of Crypto-Asset Complaints.

The Consumer Financial Protection Bureau (CFPB) released a new complaint bulletin that highlights complaints the CFPB received related to crypto-assets. Consumers most commonly reported being victimized by frauds, theft, account hacks, and scams. Consumers also had issues with executing transactions and transferring assets between exchanges. Many consumers had issues with accessing funds in their account due to outright platform failures, identity verification issues, security holds, or because of technical issues with platforms. Poor customer service is a common theme across crypto-related complaints. READ MORE

Podcast: How does DeFi Impact Insurance, Employment, And Litigation?

How are these developments with cryptocurrencies and decentralized finance going to impact areas that range from insurance to employment to litigation?
In this episode of the More with McGlinchey podcast, attorneys Aaron Kouhoupt, Lauren Ybarra, Chase Stoecker, and Gregg Stevens discuss DeFi through the lens of insurance, employment, and litigation. What does DeFi insurance look like? Can employees be paid in crypto? What are some best practices for successful DeFi litigation? Tune in for a discussion on these topics and more. LISTEN HERE

Podcast: DeFi and Tax: How are Digital Currencies Treated by the IRS?

Cryptocurrency has gained in popularity. Many finance companies have begun offering digital loyalty points and rewards. This sounds appealing until it’s time to figure out how and when digital currency may be taxed. In this episode of the More with McGlinchey podcast, attorneys Douglas Charnas and Aaron Kouhoupt discuss the tax implications of receiving cryptocurrency, using it as a form of payment, and associated capital gains and capital losses. LISTEN HERE

New York Fed Tests Wholesale CBDC for Cross-Border Payments

The Federal Reserve Bank of New York has developed a wholesale CBDC prototype for an experiment on cross-border digital currency transactions supported by blockchain technology. The inaugural project of the New York Fed’s new innovation centre, Project Cedar is a research effort to develop a technical framework for a theoretical wholesale CBDC.

The first phase of the project simulated a foreign exchange spot trade and introduced a wholesale CBDC prototype to test whether using blockchain technology could improve speed, cost, and access to cross-border wholesale payments. The experiment found that payments could be settled in under 15 seconds and that the simulated ledger network enabled atomic settlement, meaning both sides of the transactions were settled either simultaneously or not at all – slashing risks. READ MORE

 

Nov. 4, 2022: Cryptocurrency & Digital Assets

Short-Term Crypto Uncertainty is Long-Term Credit Union Opportunity

While the volatility and complexity surrounding cryptocurrency has caused given many investors second thoughts or cold feet, it’s this very reason that some financial industry observers say it precisely the time for institutions to stay in and up to date as a service to confused customers —   especially small community based lenders and credit union.

“I don’t want credit unions to feel that this market downturn is permission to do nothing,” said Scott Young, vice president of innovation and design at PSCU, a payments credit union service organization (CUSO). “Quite to the contrary. I think this is truly the long game and not the short game — digital assets and blockchain technology, those use cases are going to continue to evolve. And we’re just starting to see companies now really start experimenting with these use cases and testing out the interest level of consumers.”

One key factor to keep in mind when gauging that interest level, he said, is that 23% of respondents in PYMNTS’ April study on the U.S. Crypto Consumer said they have owned crypto in the prior 12 months, and “a large portion after that are crypto-curious.” READ MORE

Related Reading: The Data Point: 23% of US Consumers Owned Cryptocurrency in 2021

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FSOC Report on Digital Assets: Mitigate Crypto Risks through Regulatory Oversight

On October 3, 2022, as lawmakers in the United States continue to debate which agencies should regulate crypto-based activities, the Financial Stability Oversight Council (FSOC) released its Report on Digital Asset Financial Stability Risks and Regulations (the “Report”).[1] The Report highlights how several key features of “crypto-assets,” such as crypto’s near immutability, automation and consumer accessibility, can pose risks to consumers, investors and institutions. In sum, the Report finds six main financial stability vulnerabilities connected to crypto-assets.

Though these risks are diverse, and many could have system-wide effects, FSOC asserts that many crypto-asset services are similar to existing financial services. Accordingly, several current regulatory structures could effectively manage these risks—so long as crypto businesses are willing to comply. For those risks that are truly unique to crypto-assets, the Report proposed that Congress enact legislation to lay the foundation for comprehensive regulatory schemes to address the current regulatory gaps and prevent systemic risk build-up. READ MORE

Moneygram Enables Customers to Buy and Sell Cryptocurrency via Its Money Transfer App

Moneygram has launched a new crypto service to allow customers to buy, sell, and store cryptocurrencies using its mobile money transfer app. Initially, three cryptocurrencies are supported, including bitcoin and ethereum.

The company is expected to expand its selection of supported cryptocurrencies in 2023, the announcement adds. According to the Moneygram website, the new service is available in all U.S. states (except Hawaii, Idaho, and New York) and the District of Columbia.

The ability to buy, sell and hold crypto using the Moneygram money transfer app is made possible through the company’s existing partnership with Coinme, a licensed U.S. crypto exchange platform. READ MORE

401(k) Plans Now Let Workers Put Retirement Money Into Cryptocurrency

Though employers and regulators remain cautious, some plans are beginning to offer the option.

A small group of workers is finding something new in their 401(k) plan: the option to invest in cryptocurrency. Momentum has been building to allow workers to invest retirement savings in bitcoin, ether and other cryptocurrencies, despite crypto’s sharp dives and warnings from regulators.

Retirement-plan providers have moved ahead, and some of the 24,500 401(k) plans that Fidelity Investments administers began offering bitcoin in their investment menus this fall, the company said. ForUsAll Inc., a San Francisco-based 401(k) provider that caters to small companies and has $1.4 billion in retirement-plan assets, says 50 of its 550 clients began allowing workers to invest some of their retirement savings in cryptocurrency, including bitcoin and ether, about eight weeks ago. READ MORE

Lots of Interest in Crypto, But 60% Say They Don’t Understand It, Survey Finds

Cryptocurrency investors are attracted by the opportunity for growth, but a high level of skepticism and lack of understanding remain, according to new research. In fact, 60% of respondents to the survey of more than 10,000 people admitted they don’t understand cryptocurrency

The research by consumer insights provider Toluna surveyed people between the ages of 18 and 64 years from four regions and 19 markets to understand consumer perceptions around cryptocurrency during August 2022. The survey builds on previous waves of research carried out in December 2021 and June 2022, and examines how perceptions of cryptocurrency have continued to develop and change over time, the company said. READ MORE