Cryptocurrency & Digital Assets

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 By 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

Related Reading:  Credit Union Innovation: Cryptocurrency as a Key to Member Loyalty


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