NFT Initiatives Launch, Congress Writes to CFTC on Crypto, SEC Charges ICO Fraud Scheme, GAO Addresses Crypto ATMs, Reports Address Crypto Threats

In this issue:

From Music to Marketplaces: NFT Use Cases Continue to Expand

Congress Writes CFTC on Crypto, Firms Make DeFi and Crypto Derivative Moves

SEC Charges ICO Fraud Scheme, GAO Recommends Crypto ATM Regulation

New Reports Provide Data on 2021 Cryptocurrency Criminal Activities

From Music to Marketplaces: NFT Use Cases Continue to Expand

By Lauren Bass

According to recent reports, a Philadelphia rapper has announced that the final installment of his mixtape series will drop as a non-fungible token (NFT). Details regarding the release – including the choice of marketplace and the price for the digital album – have yet to be confirmed.

In more NFT news, a U.S. clothing retailer has reportedly teamed with a popular artist to create a bespoke NFT series, launching this week on the Tezos blockchain. Separately, a nonprofit news agency has reportedly announced plans to launch a proprietary marketplace on which it plans to sell NFTs of photographs pulled from the collective’s 175-year-old archives. According to reports, the NFTs will be minted on the Polygon blockchain and will contain detailed metadata describing the history of each photograph.

With an eye on an official opening in 2023, a New York restaurant has reportedly begun selling memberships to its private dining club through an exclusive NFT offering. According to reports, the NFTs – which range in price from 2.5 ETH (approx. $8,000) to 4.25 ETH (approx. $14,000) – grant prospective patrons various levels of eatery access, ranging from the restaurant’s main dining room and outside terrace to its private 14-seat omakase room. Food, however, is sold separately.

In a final development, this week a new decentralized NFT marketplace launched. According to reports, in just one day the marketplace hosted more than $100 million in NFT trading volume and has had more than 75,000 Ethereum addresses claim the airdrop of its governance token.

For more information, please refer to the following links:

Congress Writes CFTC on Crypto, Firms Make DeFi and Crypto Derivative Moves

By Joanna F. Wasick

This week, a bipartisan group of congresspeople wrote to the chairman of the Commodity Futures Trading Commission (CFTC) requesting guidance and clarity on how digital assets will be considered and regulated by the CFTC, which has historically considered certain digital assets, including bitcoin and ether, to be commodities. Specifically, the letter asks for a response to eight questions related to the size and scope of the digital asset market, what misconduct the CFTC has observed in the digital asset market, whether there are gaps in the CFTC’s authority to adequately protect customers and markets, and how the CFTC has collaborated with other federal regulators regarding digital assets. The letter also asks how the CFTC has been working with stakeholders in the digital asset and decentralized finance (DeFi) spaces to safely and responsibly support innovation and development.

According to recent reports, a major consumer credit reporting agency is now bringing credit rating data on-chain through a partnership with Spring Labs and its ky0x Digital Passport identity system. The Digital Passport reportedly allows users to provide information about themselves in order to access permissioned smart contract applications, while preserving the privacy of their off-chain identity. According to the CEO of Spring Labs, the move is the “first building block” to bringing reputation on-chain, which will support a more efficient DeFi lending environment.

In a significant step toward offering crypto derivatives to retail and institutional U.S. customers, a major U.S. cryptocurrency exchange recently announced its acquisition of FairX, a CFTC-regulated derivatives exchange, or designated contract market. The exchange plans to first offer derivatives through FairX’s existing partner ecosystem and then leverage FairX’s infrastructure to offer crypto derivatives to all of its U.S. users.

For more information, please refer to the following links:

SEC Charges ICO Fraud Scheme, GAO Recommends Crypto ATM Regulation

By Veronica Reynolds

Last week, the U.S. Securities and Exchange Commission (SEC) announced charges against an Australian man and two companies he founded and used to make “materially false and misleading statements in connection with an unregistered offer and sale of digital asset securities.” According to the SEC’s complaint, the man claimed to have raised $40.7 million through the two entities via an initial coin offering (ICO) in 2018, telling the investors that their funds would be used to develop blockchain technology. In reality, the man diverted $5.8 million of the ICO proceeds to invest in South African gold-mining entities. In addition, the SEC alleges the man did not properly register the token offering and sale as required by applicable securities laws, and he sold tokens to “ICO pools” without conducting diligence to determine whether the investors were accredited.

A study released this week by the U.S. Government Accountability Office (GAO) reported that cryptocurrency ATMs are increasingly used in human trafficking due to their perceived anonymity, difficulty in tracing cryptocurrency transactions, under-regulation of the kiosks, and because cryptocurrencies offer an additional method of payment in an illicit market where traditional debit and credit card payment methods are difficult to implement. The report recommends that the Internal Revenue Service and Financial Crimes Enforcement Network review money services’ business registration requirements that pertain to cryptocurrency ATMs and “consider new requirements for kiosk operators to regularly update law enforcement on the physical addresses of their kiosks.”

According to a recent blog post by the U.S. Federal Trade Commission, scammers are also using cryptocurrency ATMs to perpetuate fraud. The scheme operates by a scammer deploying social engineering techniques designed to mislead victims into withdrawing money from their financial accounts, traveling to a cryptocurrency ATM and exchanging the cash for cryptocurrency. Then the scammer will send the victim a QR code with the scammer’s cryptocurrency address embedded in it and direct the victim to scan the code and irrevocably transfer their newly purchased cryptocurrency to the scammer’s cryptocurrency wallet.

For more information, please refer to the following links:

New Reports Provide Data on 2021 Cryptocurrency Criminal Activities

By Robert A. Musiala Jr.

Recent reports by blockchain analytics firm Chainalysis provide details on cryptocurrency crime statistics in 2021. According to one report, “Cryptocurrency-based crime hit a new all-time high in 2021, with illicit addresses receiving $14 billion over the course of the year, up from $7.8 billion in 2020.” The report further notes that among the cryptocurrencies tracked by Chainalysis, “total transaction volume grew to $15.8 trillion in 2021, up 567% from 2020’s totals.” The report finds that “with the growth of legitimate cryptocurrency usage far outpacing the growth of criminal usage, illicit activity’s share of cryptocurrency transaction volume has never been lower,” and that “[t]ransactions involving illicit addresses represented just 0.15% of cryptocurrency transaction volume in 2021 despite the raw value of illicit transaction volume reaching its highest level ever.”

A second Chainalysis report focused on North Korean cybercriminals finds that “North Korean cybercriminals had a banner year in 2021, launching at least seven attacks on cryptocurrency platforms that extracted nearly $400 million worth of digital assets last year.” The report notes that 2021 attacks “targeted primarily investment firms and centralized exchanges, and made use of phishing lures, code exploits, malware, and advanced social engineering to siphon funds out of these organizations’ internet-connected ‘hot’ wallets into DPRK-controlled addresses.”

Another recently released report from security firm CertiK, titled “The State of DeFi Security 2021,” provides details on “the massive growth of decentralized finance (DeFi), top tactics used by hackers … the critical importance of auditing based on hack events … [and] the industry-wide security changes that will be needed for blockchain to shift into the mainstream in 2022 and beyond.” Among other things, the report finds that “[c]ryptocurrency losses due to hacks, exploits, and scams in 2021 reached an all-time high of $1.3 billion – a 2500% increase from 2020.”

For more information, please refer to the following links:

New Initiatives Launch in Stablecoins, CBDCs, Tokenized Securities, Supply Chain; Crypto Guidance Published for Credit Unions; CFTC Fines Events Market

Financial Messaging Network Launches Experiments in Stablecoin Sector

Technology and Finance Firms Announce CBDC and Digital Securities Initiatives

Gold, Wool and Cargo: Global Supply Chains Continue to Adopt Blockchain

NCUA Clarifies Crypto Guidance for Credit Unions; Crypto Tax Report Published

CFTC Targets Smart Contracts Market; DOJ Traces Bitcoin Linked to Theft

Financial Messaging Network Launches Experiments in Stablecoin Sector

By Veronica Reynolds

A global messaging network used by financial institutions to send and receive financial information recently announced that it is exploring the tokenized asset market – specifically, options for improving interoperability between market participants. In furtherance of this objective, the messaging network is planning Q1 2022 experiments using established payment forms and central bank digital currencies (CBDCs) that will explore the “issuance, delivery versus payment, and redemption processes, to support a frictionless and seamless tokenized asset market.” Asset tokenization typically refers to dividing traditional (or digital) assets, such as stocks, bonds and commodities, into fractions that have values according to the size of the division. According to its website post, the messaging network notes that while the tokenized asset ecosystem remains relatively small, it has the potential to reach 24 trillion USD by 2027.

Stablecoin credit risks and market opportunities around stablecoin issuance could improve with greater regulatory certainty, according to a recent press release and report published by a U.S. credit rating agency. Clearer regulation “could clarify how far the credit profiles of stablecoin issuers diverge from traditional developed market participants in the deposit-taking space,” the press release posits. The release also notes that the EU has published draft regulations calling for stablecoin issuers to be regulated as banks or electronic money institutions, with similar recommendations included in a recent U.S. regulatory report, but that it is unclear whether or when legislation to implement these recommendations will be enacted.

For more information, please refer to the following links:

Technology and Finance Firms Announce CBDC and Digital Securities Initiatives

By Keith R. Murphy

A multinational bank and a multinational technology company recently announced that they successfully tested an end-to-end transactional life cycle covering central bank digital currencies (CBDCs), eBonds and foreign exchange settlement capability, according to a recent press release. The test, which involved direct transactions between two CBDCs in a hybrid cloud environment, is reportedly part of an effort to explore the possibility of a digital Euro and helps demonstrate how to reduce market risk and improve security for transactions among banks.

In a separate development, a digital asset trading platform announced its recent acquisition of a Securities and Exchange Commission-registered transfer agent, according to a report. The transfer agent was reportedly instrumental in the issuance and listing of some of the earliest SEC-qualified digital securities, including the token of the acquiring company. According to the company’s CEO, the intention is to build a global regulated hub for digital assets, focused on the digital securities capital markets infrastructure.

For more information, please refer to the following links:

Gold, Wool and Cargo: Global Supply Chains Continue to Adopt Blockchain

By Lauren Bass

The government of Burkina Faso has reportedly teamed with a Rwandan-based blockchain platform in an effort to bring transparency, security and efficiency to its country’s artisanal gold production. The partnership recently exported its first kilo of gold, for which each mining source was independently tracked and verified along the blockchain. According to reports, the company hopes to replicate this partnership with other mineral producing countries in sub-Saharan Africa.

In a similar move, an Australian wool industry not-for-profit has reportedly joined forces with a London-based digital transparency company to create a proof-of-concept that will help trace the lifetime journey of authentic wool products. According to reports, the blockchain-based project will provide immutable records to vendors and consumers to help verify the provenance and biodiversity claims made by Australian woolgrowers.

In related news, a multinational blockchain-based supply chain platform has reportedly entered an exclusive agreement with Pakistan Customs to digitize the import-export documentation of containerized cargo moving into and out of the country. According to reports, the technological integration will help improve the operational efficiency of legal trade and identify and deter illegal activities.

For more information, please refer to the following links:

NCUA Clarifies Crypto Guidance for Credit Unions; Crypto Tax Report Published

By Joanna F. Wasick

Late last month, the National Credit Union Administration (NCUA), a U.S. regulator overseeing credit unions, issued a statement clarifying existing authority and concluding that, provided certain conditions are met, federally insured credit unions (FICUs) can work with third-party providers that offer digital asset services to FICU members, including buying, selling and holding uninsured digital assets such as cryptocurrencies. The NCUA cautioned that FICUs should conduct “adequate due diligence” and ensure compliance with all applicable laws and regulations when engaging in such crypto activities, and that FICUs should protect cybersecurity and comply with consumer financial protection, investor protection and anti-money laundering/terrorism finance law. This letter follows the request for information that the NCUA issued last July, in which it asked how distributed ledger technology and decentralized finance (DeFi) might affect the credit union system and how the NCUA’s regulated entities could interact with these technologies and other crypto tools.

A leading U.S. accounting firm recently released its 2021 Annual Global Crypto Tax Report. As in previous reports, the 2021 report tracks the increasing number of jurisdictions issuing crypto tax guidance and employs a crypto tax index, which measures whether a particular issue is addressed by existing guidance, to illustrate and compare the comprehensiveness of tax guidance between jurisdictions. This year’s edition also includes insights from more countries; covers the tax implications of several key, newly emerging areas such as NFTs and DeFi; and addresses the impact of other notable events in 2021, including El Salvador’s adoption of bitcoin as legal tender. The report concludes by identifying areas in need of more guidance in the coming year, including guidance on how to approach Web3 decentralized business models and decentralized autonomous organizations.

For more information, please refer to the following links:

CFTC Targets Smart Contracts Market; DOJ Traces Bitcoin Linked to Theft

By Kayley B. Sullivan

According to a recent press release, the U.S. Commodity Futures Trading Commission (CFTC) entered an order settling charges against Polymarket, a cryptocurrency betting service, for failing to seek the necessary registrations to offer binary options in the U.S. According to the press release and order:

[B]eginning in approximately June 2020, Polymarket had been operating an illegal unregistered or non-designated facility for event-based binary options online trading contracts, known as “event markets.” … Polymarket offered the public the opportunity to “bet on your beliefs” by buying and selling binary options contracts related to an event taking place in the future that are susceptible to a “yes” or “no” resolution, such as: “Will $ETH (Ethereum) be above $2,500 on July 22?” … Polymarket has offered more than 900 separate event markets since its inception, while deploying smart contracts hosted on a blockchain to operate the markets.

As part of the settlement, the company agreed to pay a fine of $1.4 million, shut down its markets and offer users refunds on charges the company failed to register.

In the U.K., the Advertising Standards Authority (ASA) recently issued a decision against a cryptocurrency payment and trading platform finding that the firm’s advertisements were misleading. The ASA said that the ads took advantage of consumers’ “inexperience or credulity” and failed to clarify the risk of the investment and make clear the limitations of purchasing a cryptocurrency with a credit card.

In a final development, the U.S. Department of Justice announced in a recent press release that it has successfully returned $154 million in funds that were stolen from a major multinational electronics company after tracking that money to bitcoin. An employee of the company had diverted the $154 million and then quickly converted the funds to bitcoin. According to the press release, the FBI “was able to trace bitcoin transfers and identify that approximately 3,879.16 bitcoins, representing the proceeds of the funds stolen … had been transferred to a specific Bitcoin address and then to an offline cryptocurrency cold wallet.”

For more information, please refer to the following links:

Banks to Use Blockchain for FX; Avalanche Adds USDC; NFT Boom Continues; Regulators Address Crypto Ads, Derivatives; Reports Address Crypto Threats

Banks to Use Blockchain for FX Settlement, Avalanche Network Adds USDC

From Auctions to Venture Capital, NFTs Continue to Generate Millions

IMF Calls for Crypto Regs, UK Bans Ads, ISDA Addresses Crypto Derivatives

Cryptocurrency Exchange Hacked for $77M; Reports Discuss Crypto Threats

Banks to Use Blockchain for FX Settlement, Avalanche Network Adds USDC

By Jordan R. Silversmith

In a recent press release, two major banks announced an agreement to implement a new blockchain-based solution for the netting and settlement of matched foreign exchange (FX) transactions. The two banks will jointly use a shared settlement ledger to process USD, Canadian dollar, British pound sterling and euro transactions. They plan to extend the platform to settle other currencies soon.

Also this week, Avalanche, a smart contract blockchain, announced that it is adding a native version USDC – the stablecoin pegged to the U.S. dollar – to its platform. According to reports, this will allow native USDC to be minted and printed on the Avalanche network rather than requiring users to find alternate and less efficient methods. Avalanche will be the seventh blockchain to incorporate USDC into its network.

According to reports, as of Monday morning, Dec. 13, 90 percent of all bitcoins have been mined, which means that 18.89 million bitcoins out of a maximum of 21 million are now in circulation. The first bitcoins were mined in January 2009, but the remaining supply is not expected to be mined until February 2140, based on network activity estimates and Bitcoin’s halving schedules.

In a final notable development, according to reports, two key open-source Bitcoin developers recently announced they were stepping back from their work on the Bitcoin Core software. The developers left their roles working on Bitcoin Core, an implementation of the Bitcoin Network code that connects to the blockchain and keeps the Bitcoin Network running. The report notes that after the departures, the maintainers who have commit access to Bitcoin’s code now number just three people.

For more information, please refer to the following links:

From Auctions to Venture Capital, NFTs Continue to Generate Millions

By Lauren Bass

One of the top auction houses recently reported that its sale of nonfungible token (NFT) works in 2021 accounted for $100 million in revenue. According to reports, the venue attributes this “meteoric rise” in interest to its new “Metaverse” platform that allows clients to view available digital artworks prior to auction and learn about the artists in a “seamless digital and physical experience.”

In related news, last week an NFT-focused crypto startup announced a $27 million Series B fund raise, which reportedly attracted investments from major technology and entertainment backers. According to a company statement, the raise will enable the platform to scale its technology, launch additional NFT projects, and continue to be a “transformative force across entertainment, fine art, gaming, and creative culture.” The technology platform has reportedly attracted supporters due to its focus on environmental sustainability and market accessibility.

For more information, please refer to the following links:

IMF Calls for Crypto Regs, UK Bans Ads, ISDA Addresses Crypto Derivatives

By Robert A. Musiala Jr.

A recent blog post by the International Monetary Fund underscored the need for “comprehensive international standards that more fully address risks to the financial system from crypto assets, their associated ecosystem, and their related transactions, while allowing for an enabling environment for useful crypto asset products and applications.” Among other things, the blog advocates for a “global regulatory framework” that includes a license requirement for “crypto-asset service providers”; requirements that account for the different use cases of “crypto assts,” including as investment products and payment products; and “clear requirements on regulated financial institutions concerning their exposure to and engagement with crypto.”

In other regulatory developments, according to recent reports, this week the U.K.’s advertising regulator issued seven rulings finding violations involving advertisements by six different cryptocurrency firms and a seventh firm that operates a pizza chain. The rulings reportedly banned certain cryptocurrency advertisements based on allegations of “irresponsibly taking advantage of consumers’ inexperience and for failing to illustrate the risk of the investment.”

Also this week, the International Swaps and Derivatives Association (ISDA) published a white paper that addresses contractual standards for digital asset derivatives. Among other things, the paper “[i]dentifies novel technology and market-driven events that could disrupt the operation of a digital asset derivatives transaction and provides a framework for dealing with these events; explores how digital assets (and the derivatives that reference them) can be valued and what happens when a valuation cannot be obtained; and analyzes how digital assets might interact with the existing ISDA documentation architecture, including the ISDA Master Agreement and industry standard collateral documentation.”

For more information, please refer to the following links:

Cryptocurrency Exchange Hacked for $77M; Reports Discuss Crypto Threats

By Keith R. Murphy

A cryptocurrency exchange recently suffered a hack resulting in approximately $77 million in losses, according to a report this week. The company reportedly noticed unauthorized activity in one of its hot wallets over the weekend and has since moved unaffected assets to cold wallets while an investigation is undertaken. The lost funds were spread among three chains: Ethereum, Binance Smart Chain and Polygon.

In related news, a decentralized finance platform revealed how it was hacked earlier this month for $120 million. The company reportedly experienced a phishing incident in early December as a result of a “maliciously injected snippet” from its content delivery network. According to a report, the hacker used a compromised API key to periodically inject malicious code that affected a subset of the platform’s customers, but the platform has since patched the exploit and is working to recover the funds.

A recent update to a global technology firm’s annual cyberthreats report included significant findings involving cryptocurrencies. Among other things, the report noted that ransomware losses are expected to exceed $20 billion by year-end. The report also notes that more attacks are expected to be focused on smart contracts and Web 3.0 apps in 2022, and that “new and increasingly sophisticated attacks, such as flash loan attacks, will allow attackers to drain millions of dollars from cryptocurrency pools.”

This week, Chainalysis released a blog post with a preview of its 2022 Crypto Crime Report. According to the blog, in 2021, “[s]cams were once again the largest form of cryptocurrency-based crime by transaction volume, with over $7.7 billion worth of cryptocurrency taken from victims worldwide,” which represents a rise of 81 percent compared with 2020.

For more information, please refer to the following links:

US Financial Services Firms Announce Crypto Initiatives; Crypto Firms Pursue LATAM Market; Products Launch in DAOs, NFTs; Exchange Hacked for $200M

Multiple US Financial Services Firms Announce Cryptocurrency Initiatives

Crypto Firms Pursue LATAM Market, Launch Cold Storage and DAO Products

New NFT Initiatives by Beer Co., Crypto Exchange; NFT Market Report Published

Crypto Exchange Hacked for $200M, Lawsuit Targets Crypto Malware Botnet

Multiple US Financial Services Firms Announce Cryptocurrency Initiatives

By Robert A. Musiala Jr.

This week a major U.S. financial services firm announced the launch of a “Crypto Advisory Practice” that will leverage the firm’s work “with more than 60 crypto platforms … to help financial institutions evaluate … crypto opportunity, develop concrete strategies, and pilot new user experiences and innovations like crypto rewards programs and CBDC-integrated consumer wallets.” In a related development, the same financial services firm, along with other major U.S. financial services firms, participated in a $60 million Series B funding round for TRM Labs, a blockchain analytics and intelligence firm focused on detecting cryptocurrency-related fraud.

Also this week, another major U.S. financial services firm announced that five new cryptocurrency and digital assets firms have joined its “Start Path Crypto” startup engagement program. The five new startups joining the program are Ava Labs, Envel, Kash, LVL and NiftyKey.

Late last week, the world’s largest financial derivatives exchange announced that “it will expand its crypto derivatives offerings with the introduction of Micro Ether futures … pending regulatory review.” According to a press release, “Micro Ether futures will provide an efficient, cost-effective way for a range of market participants … to hedge their spot ether price risk or more nimbly execute ether trading strategies.”

In another development, the institutional cryptocurrency custody and service arm of a major U.S. financial services provider announced plans to collaborate with a cryptocurrency exchange “to launch a wide range of institutional-focused products.” And in a final notable item, this week a major U.S. technology firm opened a pilot program to a limited number of people in the United States, to allow users of its messaging app to send and receive cryptocurrency through its recently debuted cryptocurrency wallet.

For more information, please refer to the following links:

Crypto Firms Pursue LATAM Market, Launch Cold Storage and DAO Products

By Jordan R. Silversmith

 

In recent weeks, there have been various announcements related to cryptocurrency initiatives in the Latin American market. First, a Brazilian e-commerce corporation, Latin America’s largest by market value, announced that it is integrating a new blockchain infrastructure to allow users in Brazil to buy, sell and hold cryptocurrencies. Beginning later this month, users of the company’s digital wallet will be able to buy and sell bitcoin, ether and the stablecoin Pax dollar (USDP). In a second announcement, a major U.S. cryptocurrency exchange announced its new partnership with a Colombian bank. The partnership will provide bank customers with opportunities to seamlessly trade bitcoin, ether, litecoin and Bitcoin Cash through the U.S. crypto exchange. In a final development, a U.S. fintech firm announced a partnership with a Latin American crypto exchange and the Stellar Development Foundation to create a cross-border payment service for businesses. The service will leverage the Stellar blockchain and is geared toward small- and midsize enterprises, with the goal of enabling companies in Mexico to pay for goods and services in their native peso and have their counterparts in the United States receive the payments in dollars.

In other recent developments, a popular cryptocurrency “cold storage” hardware wallet provider announced a new crypto debit card in partnership with a major U.S. financial services firm. The hardware wallet provider also announced integrations with two major U.S. cryptocurrency exchanges. Separately, a U.S. cryptocurrency consulting company recently announced its new governance aggregator and voting platform for distributed autonomous organizations (DAOs). Noting the historical difficulty of participation processes in DAOs, the company hopes its new platform will make it easier to participate in and track DAO governance.

For more information, please refer to the following links:

New NFT Initiatives by Beer Co., Crypto Exchange; NFT Market Report Published

By Joanna F. Wasick

Last week, a major U.S. beer company announced it was celebrating its first beer can, which was first sold in 1936, by launching a series of 1,936 NFTs built on the Ethereum blockchain. Thirty-six of the NFTs are designated as “Gold NFTs” and cost $999; the other “Core NFTs” are priced at $499. The company says it looks forward to welcoming buyers to “the best beer community in the metaverse.”

Blockchain.com, a cryptocurrency financial services company, recently announced the launch of its NFT marketplace, where users will be able to browse, buy, sell and store NFTs on Blockchain.com wallets. The announcement states that while the existing NFT market is undeniably new and exciting, it can be “far too complex and unintuitive.” Blockchain.com states that its own marketplace solves the problem and makes handling NFTs as easy and accessible as dealing with cryptocurrencies.

This week, Chainalysis, a blockchain data platform, released its 2021 NFT Market Report. According to the report, in 2021, at least $26.9 billion worth of cryptocurrency was sent to Ethereum smart contracts associated with NFT marketplaces and collections. The report proceeds to examine the rising value of NFT investments, track the most popular NFT collections through various transactions and marketplaces, and analyze web traffic data to look at where most NFT users are located. The report also addresses factors that help NFT value retention and resale, such as creating and rewarding a cohesive community for NFT collections.

For more information, please refer to the following links:

Crypto Exchange Hacked for $200M, Lawsuit Targets Crypto Malware Botnet

By Lauren Bass

A Cayman Islands-based cryptocurrency trading platform reportedly suffered a large-scale security breach this weekend, as hackers stole close to $200 million in Ethereum- and Binance Smart Chain-based assets from the exchange. According to reports, the funds were stolen from hot wallets accessed via a purloined private key; hackers then used a decentralized exchange aggregator and cryptocurrency mixer to launder the money. The trading exchange has reportedly announced plans to resume trading activity and compensate affected users.

In related news, a multinational technology conglomerate has reportedly filed a lawsuit against the operators of a blockchain-enabled botnet. The malicious botnet was allegedly using the Bitcoin blockchain to target available computer servers and then hijacking systems to mine cryptocurrency. According to reports, the litigation pending in S.D.N.Y. was designed to “create legal liability for the botnet operators” and to help deter future attacks.

For more information, please refer to the following links:

Financial Firms Plan Decentralized Exchange, Launch Digital Bond; NFTs Launch in Sports, Fashion; Blockchain Tracing Solutions Launch; OCC Clarifies Crypto Guidance for Banks

US and Swiss Financial Firms Announce Decentralized Exchange, Digital Bond

Sports and Fashion NFTs Launch; Food Delivery Service Adds Bitcoin Rewards

Blockchain Solutions Track Data for Carbon Footprints, Medical Supplies, Wine

OCC Letter Clarifies Crypto Guidance for Banks, IRS Reports Crypto Seizures

US and Swiss Financial Firms Announce Decentralized Exchange, Digital Bond

By Kayley B. Sullivan

A major U.S. fintech and digital payments company recently released a white paper detailing tbDEX, a new decentralized protocol for exchanging digital and other assets that “makes crypto assets and decentralized financial services more accessible to everyone.” According to the white paper, “tbDEX is a protocol for discovering liquidity and exchanging assets (such as bitcoin, fiat money, or real world goods) when the existence of social trust is an intractable element of managing transaction risk.” As described in the white paper, the tbDEX protocol uses “decentralized identity (DID) and verifiable credentials (VCs) to establish the provenance of identity in the real world” and “allows willing counterparties to negotiate and establish the minimum information acceptable for the exchange.”

In another recent development, SIX, a Swiss financial services and infrastructure provider, announced that it has launched its SIX Digital Exchange by “issuing the world’s first digital bond in a fully regulated environment.” According to the announcement, “the offering was oversubscribed several times and attracted strong interest from a very broad institutional investor base in Switzerland.”

For more information, please refer to the following links:

Sports and Fashion NFTs Launch; Food Delivery Service Adds Bitcoin Rewards

By Keith R. Murphy

A major U.S. sports league announced that it is pairing tickets purchased for certain games with virtual commemorative tickets in the form of non-fungible tokens (NFTs) on the Polygon blockchain, based on a recent report. The league also recently released commemorative collectible NFTs, including over 100 different collectibles for each of the league’s teams, as it tests consumer sentiment for these types of offerings. The report notes that in the fall of this year, the league paired with Dapper Labs in an effort to create an NFT collectible marketplace on the Flow blockchain, which could be released during the current season.

In more NFT news, a well-known French luxury fashion brand has created 15 NFTs launched on Polygon in collaboration with the artist Chito. According to a report, auction proceeds from the sale of the NFTs on the OpenSea marketplace will benefit The Ocean Cleanup, a nonprofit that aims to develop technology to eliminate plastic pollution.

According to a press release this week, a well-known online food ordering and delivery company has paired with a bitcoin rewards company to offer free bitcoin with every food order, with representatives for each company highlighting the benefits of rewards to diners and the increased accessibility to bitcoin by consumers. According to the press release, “[c]ustomers will earn $5 in bitcoin on their first order … and $1 in bitcoin on all subsequent orders.”

For more information, please refer to the following links:

Blockchain Solutions Track Data for Carbon Footprints, Medical Supplies, Wine

By Lauren Bass

Earlier this week, a German technology corporation reportedly launched the Estanium Network—a platform to help businesses track their carbon footprint and securely share reliable data directly with industry partners and consumers. According to reports, the new network will use verifiable credentials via the IDUnion blockchain to ensure the veracity of the data supplied.

In related news, a branch of the U.S. military has reportedly granted a contract to a U.S. technology company to create a blockchain-enabled logistics tool to help the military track medical inventory at home and abroad. According to reports, the pilot program, which is on track to begin in early 2022, will leverage the technology of the IoTeX Network to provide real-time monitoring of crucial medical supplies.

Similarly, a Swiss wine association has reportedly partnered with a technology trio consisting of a blockchain-based ecosystem, a holographic security system and a data certification system to digitize the supply and value chain for its winemakers. According to a press release, the project aims to deliver wine drinkers a “more immersive and digital product experience” by providing data about each varietal, such as the production, ingredients, quality and sustainability. This metadata will be stored on the blockchain and available to consumers via a holographic label, containing an embedded QR code, affixed to each wine bottle.

For more information, please refer to the following links:

OCC Letter Clarifies Crypto Guidance for Banks, IRS Reports Crypto Seizures

By Joanna F. Wasick

Late last month, the Office of the Comptroller of the Currency (OCC) published a letter clarifying previous guidance on whether national banks and federal savings associations (collectively, “banks”) can engage in certain cryptocurrency, blockchain and stablecoin activities. The OCC concludes that such activity is permissible, provided that the bank demonstrates to its supervisory office that it has controls in place to conduct the activity safely. Specifically, the bank must notify its supervisory office in writing of its intent to engage in this activity, and proceed only after the office, having evaluated the bank’s risk management systems and controls, and risk measurements systems, states that it does not object. The bank must also demonstrate an understanding of any compliance obligations related to the specific activities the bank intends to conduct, including obligations under the federal securities laws, the Bank Secrecy Act, anti-money laundering laws, the Commodity Exchange Act and consumer protection laws.

The OCC letter was followed by a joint statement by the OCC and other financial regulators recognizing certain opportunities and risks that crypto-asset activities present for banks, their customers and the overall financial system. According to the joint statement, the agencies recently conducted a series of interagency “policy sprints,” focused on crypto issues, including developing a common vocabulary for crypto banking activity, identifying and assessing risks inherent to the space, and reviewing current regulations and guidance to identify areas in need of clarification.

According to a recent report issued by the Internal Revenue Service (IRS), the IRS Criminal Unit seized $3.5 billion in cryptocurrency during fiscal 2021, which accounted for 93 percent of its criminal investigation seizures. Nearly a third of the recovered funds were from the government’s case against Ross Ulbricht, founder of the Silk Road darknet marketplace.

For more information, please refer to the following links:

The Four Areas Online Merchants and E-Commerce Companies Must Know About Cryptocurrency

Partner Jeewon Serrato and Counsel Rob Musiala discuss what online merchants and e-commerce companies should know about cryptocurrency.

Questions & Comments: jserrato@bakerlaw.com, rmusiala@bakerlaw.com

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Crypto Initiatives Launch; Bitcoin Upgrade Activated; Reports Address DeFi, Tether; SEC Rejects Bitcoin ETF; DOJ to Sell $56M in Crypto Fraud Proceeds

Raising Municipal Funds and Rewarding Loyalty: New Cryptocurrency Use Cases

Bitcoin’s Taproot Upgrade Activated to Improve Network Security

Reports Address DeFi Security, Tether Distribution and Liquidity

SEC Rejects Proposal for Spot Bitcoin Exchange Traded Fund

US and Canadian Authorities Pursue Fraud Schemes, Recover Stolen Crypto

Raising Municipal Funds and Rewarding Loyalty: New Cryptocurrency Use Cases

By Lauren Bass

Earlier this week, a cryptocurrency nonprofit organization reportedly launched a Bitcoin-based digital asset designed to raise funds for New York City’s municipal government while simultaneously allowing individual stakeholders to earn rewards. According to reports, although NYC has yet to officially partner with the nonprofit, funds generated by the token will be stored in a secured wallet and can be claimed and used by the city at any time.

The NYC-related coin is the second in a series and follows Miami’s earlier adoption of its city-specific token in August. According to reports, the staking of the Miami cryptocurrency has reportedly generated over $21 million in revenue for the city. To celebrate and promote the success of its digital asset, Miami’s mayor is reportedly working on a plan to distribute a “bitcoin yield” dividend to each of the city’s residents.

In related news, a multinational hamburger fast food chain will reportedly reward loyal customers with cryptocurrency. According to reports, any customer who spends at least $5 at the restaurant will be eligible to receive digital tokens, including Dogecoin, Ethereum and Bitcoin.

For more information, please refer to the following links:

Bitcoin’s Taproot Upgrade Activated to Improve Network Security

By Veronica Reynolds

This week, a 90 percent lock-in consensus from Bitcoin Network miners and mining pools (achieved in June 2021) resulted in the successful activation of the long-awaited and discussed Taproot upgrade, the first protocol upgrade to the Bitcoin Network in over four years implemented via soft fork. Taproot’s goal is to modify the way Bitcoin’s scripts operate to improve scalability, privacy and security. To do this, “the soft fork introduces the concept of Merkelized Abstract Syntax Tree (MAST),” which can increase the privacy and efficiency of smart contracts by revealing only their relevant parts when transacting.

A cryptocurrency network “fork” refers to a change in a cryptocurrency network’s underlying protocol (software or code), resulting in a split into two different chains. A soft fork differs from a hard fork in that soft forks are backward-compatible upgrades to the network software, with validators (nodes) running older versions of the software able to recognize network blocks added by validators running the newer software. In contrast, hard forks are not backward compatible and typically represent an ideological difference between validators, resulting in two separate, parallel blockchains and separate digital assets.

Not since SegWit, a community-implemented upgrade that occurred in August 2017, has a Bitcoin upgrade been so highly discussed and anticipated. Reports indicate that the Taproot upgrade will result in lower transaction fees and improved smart contract functionality.

For more information, please refer to the following links:

Reports Address DeFi Security, Tether Distribution and Liquidity

By Veronica Reynolds

A report published earlier this month titled “Top 10 DeFi Security Best Practices” outlines numerous measures developers can take to improve the security of decentralized applications (dApps). This list includes measures to prevent “reentrancy attacks,” which is “when a contract calls an external contract before updating its own state.” The infamous DAO hack of 2016 reportedly fell victim to this particular flaw, resulting in $60 million in ether being stolen. The report also cautions against using decentralized exchange (DEX) or automated market maker (AMM) reserves as price oracles because doing so can allow users to “manipulate the spot price of an order book or AMM DEX, often through the use of a flash loan,” and recommends using a decentralized oracle instead. The report further recommends using Chainlink VRF as a verifiable randomness oracle instead of Keccak256 or Blockhash and encourages developers to incorporate DeFi security principles generally to ensure heightened security.

According to a study released last week purporting to have analyzed blockchain data from various sources, Tether, a company that distributes the Tether (USDT) stablecoin, distributed $108.5 billion USDT and received $32.7 billion USDT during the 2014-2021 time period. Of the total USDT distributed, 89.2 percent reportedly went to market makers, with two market makers receiving a reported 55 percent of all outbound transfers ever distributed and 60 percent of outbound transfers distributed over the past year. According to the study, the majority of the USDT transferred to these two market makers was done through just two exchanges – FTX and Binance.

For more information, please refer to the following links:

SEC Rejects Proposal for Spot Bitcoin Exchange Traded Fund

By Joanna F. Wasick

Last Friday, the SEC issued a decision rejecting a proposal for a spot bitcoin exchange traded fund (ETF), stating that the proposal failed to demonstrate that the ETF would follow federal securities laws, particularly the requirement that the ETF be “designed to prevent fraudulent and manipulative acts and practices” and “protect investors and the public interest.” While the proposal emphasized facets inherent to bitcoin and the bitcoin market that purportedly deter fraud and manipulation, the SEC found them inadequate.

Instead, the SEC explained that any bitcoin ETFs would need a “comprehensive surveillance-sharing agreement,” with a regulated market of significant size related to the underlying or reference bitcoin assets,” in order to get clearance for trading. Such agreements would provide for the collection and sharing of information about market trading activity, clearing activity and customer identity between parties. This, the SEC stated, would be a “necessary deterrent” to manipulation because it would make available information needed to investigate a manipulation should one occur.

The decision may seem inconsistent with the SEC’s October decision permitting ETFs linked to bitcoin futures contracts. However, SEC Chair Gary Gensler has pointed out that bitcoin futures trade on highly regulated exchanges, which is not the case with actual bitcoin.

For more information, please refer to the following links:

US and Canadian Authorities Pursue Fraud Schemes, Recover Stolen Crypto

By Keith R. Murphy

The United States Department of Justice and the U.S. Attorney’s Office for the Southern District of California were granted court authority to liquidate almost $56 million in fraud proceeds recovered from a promoter of the cryptocurrency BitConnect, according to a press release this week. The government intends to sell the seized cryptocurrency and will hold the proceeds in U.S. dollars in furtherance of its effort to provide restitution to the victims. The BitConnect scheme is reportedly the largest cryptocurrency scheme to be prosecuted criminally, and the promoter is set to be sentenced in January 2022.

According to a report this week, a Canadian youth was charged with stealing $46 million in cryptocurrency from a United States resident through a SIM swap attack. The youth’s age was not released; however, the report notes that Canadian police, working along with the U.S. Federal Bureau of Investigation and the U.S. Secret Service, were able to crack the case after the thief used some of the stolen funds to purchase a gaming username. Seven million dollars in cryptocurrency was reportedly seized this week in connection with the case.

For more information, please refer to the following links:

Crypto Payment Products Launch; SEC Addresses DeFi, Targets DAO Tokens; OFAC Adds Crypto Exchange to SDN List; Crypto Fraud Schemes Revealed

New Crypto Payment Products Launch, Report Cites Exchange Consolidation

SEC Commissioner Publishes Article Addressing DeFi Risks and Regulation

OFAC Adds Crypto Exchange and Cryptocurrency Addresses to OFAC SDN List

Enforcement Agencies Target DAO Offering and Fraudulent Crypto Companies

New Cryptocurrency Fraud Schemes Revealed, DeFi Protocol Hacked

New Crypto Payment Products Launch, Report Cites Exchange Consolidation

By Kayley B. Sullivan

This week, a major U.S. financial services firm announced its partnership with three leading cryptocurrency service providers in the Asia Pacific region to launch cryptocurrency-funded payment cards. The cards will reportedly allow consumers and businesses in the Asia Pacific region to apply for crypto-linked credit, debit or prepaid cards that instantly convert their cryptocurrencies into traditional fiat currencies for use in online and point-of-sale payments.

In another recent announcement, a major U.S. payments firm disclosed in its third-quarter earnings letter that it’s peer-to-peer payment service, which enables bitcoin transactions, generated $1.82 billion in bitcoin revenue during the quarter and $42 million of gross profit, up 115% and 29%, respectively, year over year.

In another development this week, a national dining and hospitality company announced plans to team up with bitcoin payments and technology firm NYDIG to offer a bitcoin loyalty rewards program. According to the press release, the program will allow customers of the dining and hospitality group to earn bitcoin points when dining at any of its 500 nationwide locations. The offering will reportedly be powered by NYDIG’s secure, regulated, full-stack platform.

A recent “report preview” from blockchain analytics firm Chainalysis cites a recent trend of the consolidation of companies in the cryptocurrency exchange landscape, noting that the number of active exchanges peaked in July 2020 and has since been falling. Among other things, the report breaks down different categories of exchanges and describes the trends and patterns in centralized exchanges, decentralized exchanges, high-risk exchanges, over-the-counter brokers and derivatives exchanges.

For more information, please refer to the following links:

SEC Commissioner Publishes Article Addressing DeFi Risks and Regulation

By Robert A. Musiala Jr.

This week, the U.S. Department of the Treasury “announced a set of actions focused on disrupting criminal ransomware actors and virtual currency exchanges that launder the proceeds of ransomware.” According to a press release, the actions are part of the Biden administration’s efforts to “to disrupt ransomware infrastructure and actors and address abuse of the virtual currency ecosystem to launder ransom payments.” The announced actions include “the designation of Chatex, a virtual currency exchange, and its associated support network, for facilitating financial transactions for ransomware actors.” The press release notes that Chatex “has direct ties with SUEX OTC, S.R.O. (Suex),” which “was sanctioned on September 21, 2021, for facilitating financial transactions for ransomware actors.”

Concurrently with the Department of the Treasury announcement, its Office of Foreign Assets Control (OFAC) added Chatex, as well as four other entities and two individuals, to OFAC’s List of Specially Designated Nationals and Blocked Person (SDN List), which means that “all property and interests in property of the designated targets that are subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them” and with entities 50 percent or more owned by such targets. Three of the designated entities were listed because they “set up infrastructure for Chatex, enabling Chatex operations.” These additions to OFAC’s SDN List also included multiple cryptocurrency addresses that are associated with the newly designated individuals and entities.

For more information, please refer to the following links:

OFAC Adds Crypto Exchange and Cryptocurrency Addresses to OFAC SDN List

By Joanna F. Wasick

An article by Caroline Crenshaw, a commissioner of the U.S. Securities and Exchange Commission (SEC), was published earlier this week on investor risks in decentralized finance (DeFi) and how the DeFi community and SEC should combat them. The commissioner begins by noting that although its underlying technology is new, DeFi is “fundamentally about investing,” and many DeFi products and activities have close analogs within the SEC’s jurisdiction. Likewise, Crenshaw notes in the article that risks associated with traditional financial products, such as fraud, self-dealing, information asymmetry and manipulation, also exist with DeFi products. The commissioner’s article states that these risks are exacerbated by certain DeFi fundamentals, including less transparency, limited gatekeepers and pseudonymity.

To protect investors in the DeFi space, Crenshaw asserts that the DeFi community must work with the SEC to maintain certain conduct expectations that ensure a fair market where all investors can exist on a level playing field. And if a development team is unsure as to whether its project is within the SEC’s jurisdiction, according to the commissioner, that team should reach out to the SEC for guidance before proceeding to market. She then cautions that for any noncompliant DeFi projects in the SEC’s jurisdiction, “we do have an effective enforcement mechanism.”

For more information, please refer to the following link:

Enforcement Agencies Target DAO Offering and Fraudulent Crypto Companies

By Veronica Reynolds

This week, the U.S. Securities and Exchange Commission (SEC) filed an “Order Instituting Administrative Proceedings and Notice of Hearing” against American CryptoFed DAO LLC, a decentralized autonomous organization (DAO) established under Wyoming’s DAO statute. According to an SEC press release, the order halts the effectiveness of American CryptoFed’s registration of two digital tokens as securities. The order alleges that American CryptoFed submitted a Form 10 document to the SEC on Sept. 16 seeking to register two tokens – Ducat and Locke – as equity securities under the Securities Exchange Act of 1934. Thereafter, according to the order, SEC staff communicated to American CryptoFed certain deficiencies in its Form 10 submission, including failure to provide certain financial information and audited financial statements as well as providing inconsistent and misleading statements and omissions. The order states that American CryptoFed resubmitted a purported amended Form 10 two days later, asserting the tokens were not securities. According to the order, because American CryptoFed did not correct its Form 10 deficiencies or withdraw its Form 10, it must attend a hearing to determine whether the allegations in the order are valid and whether American CryptoFed’s purported token registration should be denied or suspended.

In New Jersey, the state’s Bureau of Securities recently issued summary cease and desist orders against five companies “touting fraudulent investment opportunities relating to cryptocurrencies” and requiring they stop operating in violation of New Jersey law. According to the orders, the companies all promote fraudulent statements and omissions, including vague promises of profit, limited and misleading disclosures, bogus client endorsements, and failure to identify the companies’ principals. A press release issued by the bureau asserts that none of the companies are registered with the bureau to sell or offer securities or act as broker-dealers in New Jersey, even though some of the companies targeted by the orders falsely claim to be licensed, insured or otherwise authorized to sell securities in the state. According to the press release, at least three of the five companies targeted by the orders have been found by the bureau to have defrauded investors out of approximately $89,000.

For more information, please refer to the following links:

New Cryptocurrency Fraud Schemes Revealed, DeFi Protocol Hacked

By Keith R. Murphy

The FBI recently issued a public service announcement (PSA) warning about cryptocurrency fraud schemes that utilize cryptocurrency ATM machines and QR codes. The PSA provides details of typical encounters between a victim and criminal actors who make use of impersonation schemes, romance schemes and lottery schemes in order to steal funds. The victim is encouraged to deposit funds into a cryptocurrency ATM, populate the transfer recipient information through a QR code directed by the criminal actors and then transfer the funds in the form of cryptocurrency, often to foreign locations. The PSA further notes the difficulty of trying to recover such stolen funds given the decentralized nature of cryptocurrency.

A recent report warns of ads posted on a major international technology and search engine company website through which users are being directed to fake cryptocurrency wallet providers. According to the report, scammers are purchasing ads in response to users’ searches for the names of popular cryptocurrency wallets. However, the ads, which appear to mimic sites of actual wallet providers, instead direct the users to a phishing website. Once at the fraudulent website, users are asked to provide their credentials, or to enter a recovery password if they are trying to create a new wallet, resulting in the potential immediate transfer of funds directly to the scammer. According to a comment in the report, this appears to be a new trend in cybercrime, where a search engine is used as a primary way to reach victims as opposed to the typical phishing attack through email.

A decentralized finance lender reportedly suffered a hack of over $55 million, based on a report last week. The company indicated that a private key related to the protocol’s deployment was affected, but its smart contracts were not, according to the report. The company reportedly experienced three hacks last year and was previously able to recover some of the funds involved in those hacks.

For more information, please refer to the following links:

Financial Firms Integrate Crypto Offerings; Congressmen Address Bitcoin ETFs; NFT Boom Continues; Agencies Seek Crypto Oversight; Crypto Hacker Indicted

Traditional Financial Firms Integrate Crypto Services, CBDC Reports Published

Congressmen Advocate for Bitcoin Spot ETFs, Australia Issues Crypto ETP Regs

Sports Franchises and Music Platforms Continue to Embrace NFTs

Government Agencies Argue for Increased Oversight of Cryptocurrency Markets

DOJ Charges Cryptocurrency Hacker, Decentralized Exchange Hacked for $139M

Traditional Financial Firms Integrate Crypto Services, CBDC Reports Published

By Jordan R. Silversmith

This week a fintech and e-commerce firm announced the integration of its payment gateway with a major U.S. financial services corporation’s new cryptocurrency processing service. According to the press release, merchants using the payment gateway “can now activate … cryptocurrency transaction processing at any time.” The fintech firm’s CEO noted that “crypto commerce … enables merchants to offer a broad choice of payment options that match customer’s expectations.”

According to reports this week, Australia’s largest bank has begun integrating bitcoin services into its banking app. The bank will reportedly enable its approximately 6.5 million customers to buy, sell and hold Bitcoin beginning next year. The bank’s customer base is believed to represent over 25% of Australia’s total population.

A major U.S. investment banking corporation and a U.S. consulting firm recently released a report discussing how banks can leverage central bank digital currencies (CBDCs) for global corporations. The report suggests that a $120 billion value in cross-border payments can be “unlocked” through a multicurrency central bank digital currency (mCBDC) network that would make round-the-clock and real-time, cross-border, cross-currency payments plausible.

In a related development, this week the Bank for International Settlements (BIS) released a new working paper addressing the potential role for digital money in emerging markets and developing economies. Among other things, the working paper discusses some of the benefits and drawbacks of stablecoin initiatives and CBDCs in emerging market countries and argues that improving the existential financial infrastructure in these economies may address many of the issues private stablecoins and CBDCs aim to address.

For more information, please refer to the following links:

Congressmen Advocate for Bitcoin Spot ETFs, Australia Issues Crypto ETP Regs

By Joanna F. Wasick

On Wednesday, two members of the Congressional Blockchain Caucus, Tom Emmer (R-Minn.) and Darren Soto (D-Fla.) wrote to the chair of the Securities and Exchange Commission (SEC) providing reasons why the SEC should approve bitcoin spot exchange traded funds (ETFs), especially in light of the SEC’s recent approval of two bitcoin futures ETFs. First, the letter urges, concerns of fraud and manipulation in bitcoin markets are no different for bitcoin futures ETFs (where the fund holds contracts to trade bitcoin at a future date at a specified price) as compared to spot ETFs (where the fund holds actual bitcoin). Second, spot ETFs are efficient and “strongly preferred” by investors. Third, permitting futures ETFs while denying spot ETFs causes alternative spot bitcoin investment vehicles to emerge, which goes against the SEC’s mission of protecting investors. The letter closes by stating that the congressmen take no position as to whether one type of bitcoin ETF is superior to the other, but that investors should have a choice to invest in a product that they decide is best for them.

Last week, the Australian Securities and Investments Commission (ASIC) issued a new set of regulatory requirements for funds seeking to offer crypto exchange traded products, including ETFS. ASIC also provided new guidance in which it stated that bitcoin and ether likely satisfy all factors that ASIC considers when determining whether an asset is suitable as an underlying asset for an ETP. ASIC also stated that it will not require domestic crypto custody for those entities issuing crypto ETFs, as such a restriction would unfairly limit competition.

For more information, please refer to the following links:

Sports Franchises and Music Platforms Continue to Embrace NFTs

By Lauren Bass

This week an American mixed martial arts (MMA) promotion company has reportedly teamed with a cryptocurrency app to release a collection of nonfungible tokens (NFTs) featuring memorabilia from the MMA universe. According to press releases, purchasers of the NFTs will also be entered into a sweepstakes to win exclusive MMA-centric prizes.

In other sports news, a Spanish soccer team is reportedly planning to offer an NFT collection featuring photos and videos from the team’s centurylong history. According to reports, the tokens will be available for auction later this month on an Ethereum-based blockchain.

Relatedly, an international cricket organization has reportedly partnered with a tech startup to create a virtual metaverse dedicated to the sport. According to press releases, the digital world, based on the Flow blockchain, will include unique NFTs, marquee activations, and immersive experiences featuring historical and iconic moments from the game.

In another recent development, last week a digital platform specializing in tokenized music assets reportedly teamed with a Japanese technology company to develop NFT- and blockchain-based services for musicians. According to reports, the new partnership aims to use blockchain technology to “reshap[e] the music industry.”

For more information, please refer to the following links:

Government Agencies Argue for Increased Oversight of Cryptocurrency Markets

By Keith R. Murphy

This week the President’s Working Group on Financial Markets released an interagency report on stablecoins, according to a press release. The release and corresponding report suggest that based on risks associated with increased use of stablecoins as payment, Congress should promptly enact legislation to provide a comprehensive regulatory framework and means to address risk concerning payment stablecoins and stablecoin arrangements. Secretary of the Treasury Janet L. Yellen is quoted as saying, “Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options. But the absence of appropriate oversight presents risks to users and the broader system.” Secretary Yellen further noted that current oversight is fragmented, allowing some stablecoins to fall beyond the regulatory perimeter.

In a speech this week, Michael Hsu, acting chief of the Office of the Comptroller of the Currency (OCC), suggested that large cryptocurrency firms seeking to provide multiple financial services should “embrace comprehensive, consolidated supervision” similar to banks, according to a report. Hsu noted that, currently, cryptocurrency firms are only partially and selectively regulated, resulting in risks and competitive inequalities, among other concerns. Following his arrival at the OCC, Hsu reportedly commenced a broad policy review of the OCC’s positions, including with respect to nontraditional bank charter applications and cryptocurrency-related guidance, the results of which he said are to be communicated shortly.

For more information, please refer to the following links:

DOJ Charges Cryptocurrency Hacker, Decentralized Exchange Hacked for $139M

By Elyssa S. Kates

This week, the United States Attorney’s Office for the Southern District of New York announced the unsealing of an indictment charging U.K. citizen Joseph “Plugwalk Joe” O’Connor with conspiracy to commit computer hacking, conspiracy to commit money laundering, conspiracy to commit wire fraud and aggravated identity theft. According to a press release, from approximately March 2019 to May 2019, Mr. O’Connor and his co-conspirators engaged in a SIM-swapping scheme through which they committed cyber intrusions and stole approximately $784,000 worth of cryptocurrency. According to the press release, Mr. O’Connor and his co-conspirators are alleged to have committed a cyberattack against a New York-based cryptocurrency company that provided wallet infrastructure and related software to its clients, and then allegedly stole, fraudulently diverted and laundered Bitcoin Cash, ether, bitcoin and Litecoin. Mr. O’Connor was previously charged with other crimes in connection with his alleged role in the hack of a major U.S. social media network. The United States is currently seeking Mr. O’Connor’s extradition from Spain.

In other news, according to reports, decentralized cross-chain exchange Boy X Highspeed (BXH) was hacked early this week, resulting in losses totaling $139 million in various cryptocurrencies. The CEO of the exchange reportedly said the hack was probably the result of a leaked administrator key and possibly an inside job.

For more information, please refer to the following links:

Financial Firms Integrate Crypto, NFT Market Expands, Blockchain Pilots Launch, FATF Publishes New Crypto Guidance, Crypto Enforcement Actions Continue

Financial Firms Integrate Crypto Products, New Bitcoin Network Data Published

From Digital Art to Alcohol: The NFT Marketplace Continues to Expand

Blockchain Pilots Launch in News Data, Satellite Networks and Trade Finance

FDIC Chair Addresses Crypto, FATF Publishes Updated Crypto AML Guidance

Global Agencies Target Darknet Market; CFTC Investigates Crypto Platform

Financial Firms Integrate Crypto Products, New Bitcoin Network Data Published

By Veronica Reynolds

This week, a large financial services corporation and a digital wallet app company announced a partnership to reduce friction among merchants, banks and financial technology firms by making increased access to digital assets available to consumers. According to a press release, the partnership will allow consumers to buy, sell and store digital assets through a custodial wallet provided by the digital wallet app company, will streamline the issuance of branded crypto credit and debit cards, and will allow for the issuance of cryptocurrency rewards to consumers, thereby creating a fungible relationship between digital assets and loyalty points.

According to reports, a large cryptocurrency investment was made late last week by a large Houston-based pension fund, making it the first pension fund in the U.S. to invest in digital assets. The fund reportedly purchased bitcoin and ether for one of its plans’ portfolios through a partnership with a leading bitcoin company that supported the purchase through the provision of a regulated, audited and insured custody system.

Another recent report noted that tuition for an Ivy League university’s blockchain program can now be paid in bitcoin and other cryptocurrencies. The university expects thousands to enroll in the program and is charging $3,800 as tuition.

A study published this week found that approximately 11,000 entities are responsible for more than half of the Bitcoin Network’s on-chain volume. In addition, the study found that roughly 15.9 percent of circulating bitcoin is controlled by the top 1,000 largest investors and that the network continues to remain highly centralized even as new investors have flooded the market in 2021. Moreover, the bitcoin mining sector appears to remain concentrated, with the study estimating that 10 percent of miners control 90 percent of the global hash rate, with 50 miners commanding 50 percent of the network’s hashing power. Still, according to the report, individual bitcoin holders represent approximately 45.1 percent of total supply.

For more information, please refer to the following links:

From Digital Art to Alcohol: The NFT Marketplace Continues to Expand

By Lauren Bass

Earlier this month, a Vancouver-based digital design agency reportedly sold out its new class of nonfungible tokens (NFTs) in just 37 minutes, generating a net profit of approximately $6.2 million. According to reports, these unique digital avatars represent a new multimedia franchise for which the design firm will retain a 5 percent royalty in perpetuity for all secondary market sales of the tokens.

Last week, an online auction house reportedly sold an NFT representing title to a rare cask of Scotch whisky for $2.3 million. According to reports, the digital collectible also included two one-of-a-kind, specially commissioned, whisky-themed digital art works from a Scotland-based artist.

To help provide attribution for digital content, developers of a popular graphic design suite have reportedly added a new feature to their software. According to press releases, the tool will allow artists to embed personal information – including social media profiles and cryptocurrency wallet addresses – into their digital creations. The metadata will then be displayed as a digital certificate on partner NFT marketplaces and media outlets to allow purchasers to verify authenticity and origin of the work.

In other NFT news, a U.S.-based cryptocurrency exchange has reportedly announced that it will discontinue listing any NFT that pays secondary market royalties to its holders. According to reports, the president of the exchange cited potential regulatory risk from the U.S. Securities and Exchange Commission as the reason for the decision.

For more information, please refer to the following links:

Blockchain Pilots Launch in News Data, Satellite Networks and Trade Finance

By Robert A. Musiala Jr.

According to a recent press release, a major U.S. nonprofit news agency has launched a Chainlink node to allow its data to be “supplied and sold directly to applications running across various blockchains.” The press release notes that the news agency “will make its trusted economic, sports and race call datasets available to leading blockchains via Chainlink, the world’s largest decentralized network of oracles, enabling smart contracts on any blockchain to securely interact with the [news agency’s] real-world data.” The data will reportedly be cryptographically signed to verify it is from the news agency, and will include “U.S. race calls, economic data, sports game outcomes and business financials.”

Another recent press release reported that a major U.S. satellite television provider has partnered with the Helium Network to utilize the Helium Network’s “unique blockchain-based incentive model with customers deploying their own 5G CBRS-based hotspots.” According to the press release, customers participating in the new platform “will earn rewards in the form of $HNT, a Helium network-based token” that will underpin “a new wireless economy through a breakthrough economic model.”

In a final recent development, a trade finance and working capital platform provider announced a pilot to integrate “blockchain, smart contracts and AI to automate trade credit policy management and compliance processes and integrate the policies into financial workflows.” The pilot will aim to enable insurers to “gain a real-time view of actual value at risk” and automate certain policy compliance requirements.

For more information, please refer to the following links:

FDIC Chair Addresses Crypto, FATF Publishes Updated Crypto AML Guidance

By Joanna F. Wasick

On Monday, the chair of a U.S. bank regulatory agency stated that U.S. bank regulators are trying to provide a new road map for banks to engage with crypto assets. The chair acknowledged that if banks cannot enter the crypto space, that activity will develop outside the banking system, and then “the federal regulators won’t be able to regulate it.” However, she also identified banks’ challenges in working with crypto assets, such as how to use them as collateral, or how to include them on balance sheets, given the asset class’s volatility. Still, these statements suggest movement by the cryptocurrency “sprint” team first announced in May, which aims to ensure cryptocurrency policy coordination among various U.S. financial regulators.

The Financial Action Task Force (FATF), a global, intergovernmental money laundering and terrorist financing watchdog, recently issued its Updated Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers (VASPs). This guidance, a revision of the FATF’s 2019 guidance, includes updates on six areas: (1) definitions of virtual assets and VASPs; (2) how FATF standards apply to stablecoins; (3) addressing money laundering and terrorist financing risks related to peer-to-peer transactions; (4) licensing and registration of VASPs; (5) implementation of the “travel rule” in the public and private sectors; and (6) principles of information-sharing and cooperation among VASP supervisors. Overall, the guidance aims to help countries and VASPs understand their anti-money laundering and counterterrorist financing obligations, and effectively implement the FATF’s requirements as they apply to this sector.

For more information, please refer to the following links:

Global Agencies Target Darknet Market; CFTC Investigates Crypto Platform

By Keith R. Murphy

Following a coordinated international and multiagency effort to locate and stop the illegal sale of drugs and other illicit goods and services on the darknet, law enforcement agents across multiple countries arrested 150 drug traffickers and others engaged in the illicit sale of goods and services around the globe, according to a recent press release. The release notes that in addition to the arrests, the efforts resulted in the recovery of drugs, weapons and millions of dollars in cryptocurrency.

A decentralized information markets platform has come under scrutiny by the U.S. Commodity Futures Trading Commission (CFTC), according to a recent report. The CFTC reportedly commenced an investigation to determine whether the platform is allowing its customers to trade binary options and swaps that should be regulated. The platform, which is in the process of pursuing a new round of funding, has reportedly hired a former CFTC enforcement division director to help address the matter.

For more information, please refer to the following links:

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