Ether-Backed Loans and Blockchain Solutions Announced; New Crypto Guidance from CFTC, WEF, Basel, Texas and El Salvador; DOJ Seizes Ransomware Bitcoin

In this issue:

Bank Offers Ether-Backed Loans, Auction and Property Sales Accept Crypto

Supply Chains Innovate with Blockchain, China Launches Copyright Blockchain

CFTC and WEF Comment on DeFi, Basel Addresses Cryptoasset Exposure

Texas Enacts New Blockchain Law, El Salvador Makes Bitcoin Legal Tender

DOJ Seizes Bitcoin from Ransomware Attack as Crypto Enforcement Continues

Bank Offers Ether-Backed Loans, Auction and Property Sales Accept Crypto

By Jordan R. Silversmith

Digital asset bank Anchorage recently announced that its institutional clients will now be able to obtain Ethereum-backed loans through the bank’s financing wing, which will provide access to a USD line of credit backed by ether (ETH). According to a press release, the new offering will allow crypto-native funds that have investments in ETH to obtain funding in USD without liquidating ETH-based holdings.

A major British auction house recently said it would accept cryptocurrencies as a form of payment for artwork by Banksy worth millions. The auction house joins several other major competitors in now accepting cryptocurrencies as a form of payment. Bidding at the auction will be conducted in Hong Kong dollars and the winner will have the option to pay in either dollars or cryptocurrencies. The exchange rate of bitcoin, ETH and the Hong Kong dollar will be cited from a U.S. crypto exchange on auction day, and the seller will bear the risk of exchange rate volatility. Cryptocurrencies are also entering the real estate market: a Miami penthouse recently sold for $22.5 million in cryptocurrency, making it the most expensive known U.S. residential crypto real estate transaction to date.

For more information, please refer to the following links:

Supply Chains Innovate with Blockchain, China Launches Copyright Blockchain

By Veronica Reynolds and Danielle Richardson

This week, a leading Spanish seafood company announced a collaboration with a multinational technology company to trace seafood products using a blockchain-based network tailored for tracing products across the supply chain. The goal of the seafood traceability system is to improve the sustainability of the seafood industry by creating secure records of seafood production from their origin to the consumer. A global chemistry supplier also recently announced a blockchain-based supply chain initiative. The chemistry supplier plans to use blockchain technology to create secure digital records and ensure product traceability and authenticity.

An Austrian energy provider partnered with a large European blockchain interface company to launch MyPower, an energy tokenization platform, this week. According to a press release, MyPower’s blockchain-powered platform tokenizes solar photovoltaic (PV) assets and allows energy consumers to purchase shares in PV plants, allowing consumers to also participate in energy production. Consumers receive tokens based on the energy produced at PV plants and can use the tokens for various purposes, including paying electric bills.

Also, overseas, the Copyright Society of China (CSC) has reportedly launched the China Copyright Chain to facilitate the protection of copyrights in the nation. According to reports, the newly launched blockchain platform can “document proof of digital assets, monitor infringement activities, collect evidence online, issue notices to remove piracy products and help courts settle copyright-related disputes and process lawsuits.” Blockchain-authenticated evidence became legally binding in China in September 2018, and Internet courts in certain Chinese cities have reportedly started using blockchain technology to conduct meetings and document court records.

For more information, please refer to the following links:

CFTC and WEF Comment on DeFi, Basel Addresses Cryptoasset Exposure

By Teresa Goody Guillén

This week, Commissioner Berkovitz of the Commodities Futures Trading Commission (CFTC) addressed DeFi products in his remarks at the Asset Management Derivatives Forum 2021. The commissioner said that he views unlicensed DeFi markets for derivatives instruments as a “bad idea” and added, “I also do not see how they are legal” under the Commodities Exchange Act (CEA). He explained that the CEA provides that (1) futures contracts must be traded on a designated contract market (DCM) licensed and regulated by the CFTC; (2) it is unlawful for any person other than an eligible contract participant to enter into a swap unless the swap is entered into on, or subject to, the rules of a DCM; and (3) any facility that provides for the trading or processing of swaps must be registered as a DCM or a swap execution facility (SEF). Berkovitz indicated that DeFi markets, platforms or websites that are not registered as DCMs or SEFs are unlawful and warned of instability in the financial markets posed by DeFi.

The World Economic Forum (WEF), in collaboration with the Wharton Blockchain and Digital Asset Project, recently published a white paper, the DeFi Policy-Maker Toolkit, with the goal of identifying potential policy approaches and important considerations for the DeFi context. The paper explains that financial regulatory regimes vary depending on the jurisdiction and explores how to regulate and assert jurisdiction over DeFi activities. The toolkit provides (1) an overview of the DeFi space and major classes of DeFi protocols, (2) potential benefits and challenges associated with DeFi, (3) a detailed breakdown of the risks that DeFi may pose, and (4) potential legal and regulatory responses to DeFi.

This week, the Basel Committee on Banking Supervision issued a public consultation on preliminary proposals for the prudential treatment of banks’ cryptoasset exposures. The committee invites submissions on the proposals by Sept. 10. The proposals split cryptoassets into two broad groups: (1) those eligible for treatment under the existing Basel Framework with modifications and (2) those that are subject to a new conservative prudential treatment (e.g., bitcoin). The press release stated that banks’ current exposures to cryptoassets are limited, but the continued growth and innovation in cryptoassets and related services, along with the rising interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment.

For more information, please refer to the following links:

Texas Enacts New Blockchain Law, El Salvador Makes Bitcoin Legal Tender

By Teresa Goody Guillén

Texas Gov. Greg Abbott recently signed into law a measure creating a legal framework for cryptocurrencies and blockchain. The new law amends Texas’ Uniform Commercial Code to better adapt commercial law to blockchain and digital assets, formally defines virtual currencies, and offers individuals and businesses a legal environment for crypto investment. Abbott tweeted, “Blockchain is a booming industry that Texas needs to be involved in.” According to the National Law Review, approximately 25 states are considering blockchain- and/or digital asset-related measures in their 2021 legislative sessions.

This week, El Salvador’s Legislative Assembly voted in favor of President Nayib Bukele’s proposal for the country to adopt bitcoin as legal tender. According to reports, the approved bill will mandate that all businesses accept bitcoin for goods or services, but the government will act as a backstop for entities that are unwilling to bear the risk of a volatile cryptocurrency. The government is expected to establish a trust at the Development Bank of El Salvador to instantly convert bitcoin to U.S. dollars for merchants. Government officials from El Salvador are planning to meet with the International Monetary Fund to discuss the plan.

For more information, please refer to the following links:

DOJ Seizes Bitcoin from Ransomware Attack as Crypto Enforcement Continues

By Joanna F. Wasick

On Monday, the Department of Justice (DOJ) announced the seizure of $2.3 million in bitcoin paid to a hacker group known as DarkSide, which carried out the ransomware attack against the Colonial Pipeline in early May, resulting in the shutdown of critical infrastructure. The DOJ reportedly located the funds by tracking multiple bitcoin transfers and by discovering and using the attackers’ private keys – the rough equivalent of a password needed to access assets from specific bitcoin addresses. Reports of ransomware continued this week, with a major New York newspaper reporting that the world’s largest meat company paid $11 million in bitcoin in late May in a ransomware attack.

Late last week, the DOJ announced that a Latvian national was arraigned in federal court on multiple charges stemming from her role in a cybercrime organization responsible for creating and deploying Trickbot, a type of malware designed to steal financial information and deploy bitcoin ransomware. The government alleges that the individual and her cohorts operated in Russia, Belarus, Ukraine and Suriname, and primarily targeted victim computers at hospitals, schools, public utilities and governments, including those in the United States.

Earlier this week, Europol announced the arrest of roughly 800 criminals, and the seizure of over $48 million in various fiat currencies and cryptocurrencies, by a law enforcement operation known as OTF Greenlight/Trojan Shield. According to a press release, beginning in 2019, the FBI, with assistance from the Australian Federal Police, developed and covertly operated an encrypted device company called ANOM, which grew to service more than 12,000 encrypted devices to over 300 criminal syndicates worldwide. The FBI and 16 countries exploited the intelligence from the 27 million messages obtained and reviewed from the devices, which led to the arrests.

For more information, please refer to the following links:

Crypto Investment and Payment Products Launch, BiTA Platform Announced, SEC and OFAC Take Crypto Enforcement Actions, FCA Extends AML Exemption

In this issue:

Crypto Investment and Payments Products Launch, Payment Data Published

Acquisition Targets ‘Smart Agreements’ Tech, BiTA Platform Launched

SEC and OFAC Take Crypto Enforcement Actions, FCA Extends AML Exemption

Crypto Investment and Payments Products Launch, Payment Data Published

By: Veronica Reynolds

Last week Securitize announced the launch of Securitize Capital, which will serve as an investment manager of digital asset funds for institutional and accredited investors seeking exposure to cryptocurrencies and decentralized finance. Securitize Capital plans to launch two digital asset funds in early June. In a related development, the innovation and ventures unit of a major multinational financial services firm is reportedly working with the parent company of digital asset platform OSL to launch a new digital assets brokerage and exchange. The new venture will focus on providing investors access to digital asset liquidity pools.

According to a recently released report by PYMNTS and a major U.S. cryptocurrency payments provider, 18 percent of adults in the U.S. plan to make purchases using cryptocurrencies this year.  Approximately 25 percent of those who currently own cryptocurrency have used cryptocurrency to pay for day-to-day goods such as groceries and streaming services. The report also cites research indicating that 12 percent of consumers currently own at least one cryptocurrency. As to demographics, the report indicates that 19 percent of millennials own cryptocurrency and that men are more likely than women to invest in the digital asset space.

This week Coinbase announced that consumers can use the Coinbase Card, a debit card that allows cryptocurrency to be used for payments and purchases, to make cryptocurrency mobile payments, in partnership with two major mobile app payment providers. In other crypto payments news, a large Mid-Atlantic restaurant and convenience store chain recently announced plans to accept cryptocurrency payments, citing increased adoption of cryptocurrencies by the mass public as well as improved security.

For more information, please refer to the following links:

Acquisition Targets ‘Smart Agreements’ Tech, BiTA Platform Launched

By: Jordan R. Silversmith

A U.S. company specializing in managing electronic agreements recently announced its acquisition of a startup specializing in “smart agreements” (SAs). Like smart contracts, SAs use computer code to execute tasks automatically to promote efficiency and lower costs. SAs also have the ability to integrate with blockchain systems. The startup’s technology will be used for the company’s Agreement Cloud platform, which can help parties catch erroneous data in a contract or agreement.

The Blockchain in Transport Alliance (BiTA) recently introduced a new open-source collaboration platform to promote supply chain efficiency. According to a press release, BiTA’s collaboration platform will be the new workspace to provide feedback, iterate on works in progress and distribute new BiTA standards.

For more information, please refer to the following links:

SEC and OFAC Take Crypto Enforcement Actions, FCA Extends AML Exemption

By: Keith R. Murphy

The Securities and Exchange Commission recently filed suit against five individuals, alleging that they raised more than $2 billion from retail investors through their promotion of a global, unregistered digital asset securities offering. As noted in a recent press release, the complaint alleges that the defendants acted as promoters for BitConnect to market and sell securities without registering the securities offering or being registered as broker-dealers. The complaint seeks injunctive relief, disgorgement and civil penalties.

In an effort to provide additional surveillance tools to its investigators, the United States Office of Foreign Asset Control (OFAC) has sought another subscription to blockchain analytics software offered by a major blockchain analytics company, according to a recent report. The requested subscription reportedly is intended to help members of OFAC’s Office of Global Targeting collaborate with international partners on investigations into money laundering and terrorist financing.

A newly released report by another major blockchain analytics company addresses current issues and trends in cryptocurrency sanctions compliance. The report notes examples of increased sanctions activity and civil enforcement penalties by OFAC, and addresses proposed steps to help navigate compliance efforts, including identifying and avoiding interactions with cryptocurrency exchanges, miners and other services in countries such as North Korea, Iran and other jurisdictions that remain subject to broad financial and economic sanctions.

The Financial Conduct Authority in the United Kingdom has extended the date of its temporary registrations regime, according to a press release this week. The extension allows existing cryptocurrency businesses to continue to operate while undergoing review of their compliance with money laundering regulations.

One of the world’s largest Internet technology companies has advised that as of Aug. 3, 2021, anyone who seeks to advertise cryptocurrency exchanges and wallets to U.S. customers on its Internet search engine must be registered with the U.S. Treasury’s Financial Crimes Enforcement Network or a federal or state chartered bank regulator, based on a report this week. Certifications issued by the company prior to that date will be revoked at that time.

For more information, please refer to the following links:

NFTs Launch, Regulators Target Crypto Ads and Scams, Nebraska Passes Digital Asset Bank Charter, Reports Detail Crypto Hedge Funds and Sanctions Evasion

In this issue:

BD-ATS to Issue Blockchain Securities, Crypto Hedge Fund Report Published

NFTs and Loyalty Tokens Launch, Regulators Target Crypto Ads as Scams Spike

Nebraska Passes Digital Asset Bank Charter, Tax Case Addresses Crypto Mining

China and Hong Kong Implement New Crypto Regulation, Iran Halts Mining

Report Provides New Data on Cryptocurrencies and Sanctions Evasion

BD-ATS to Issue Blockchain Securities, Crypto Hedge Fund Report Published

By: Teresa Goody Guillén

Blockchain-based trading platform tZERO recently announced an agreement with an energy projects funding platform to digitize approximately $25 million of equity interest in an energy fund that will invest in oil and gas assets throughout the United States. According to a press release, the “digital security” will be “built on the Ethereum Blockchain” and “is expected to become tradeable on the tZERO ATS.” The energy projects funding platform reportedly expects to launch its Regulation D 506(c) offering this month.

A major U.S. bank has reportedly announced plans to offer a cryptocurrency investment platform for its wealthy clients by mid-June. The bank’s investment institute reportedly wrote that “[c]ryptocurrencies have gained stability and viability as assets, but the risks lead us to favor investment exposure only for qualified investors, and even then through a professionally managed fund.”

A Big Four accounting and consulting firm recently issued its annual crypto hedge fund report. Key takeaways from the report include:

  • The estimated total assets under management (AuM) of crypto hedge funds globally increased from US$2 billion in 2019 to nearly US$3.8 billion in 2020.
  • The median crypto hedge fund returned +128 percent in 2020 (vs. +30 percent in 2019).
  • The median management and performance fees remained unchanged at 2 percent and 20 percent, respectively; average management fees were stable at 2.3 percent; and average performance fees increased from 21.1 percent to 22.5 percent.
  • The vast majority of investors in crypto hedge funds are either high-net-worth individuals (54 percent) or family offices (30 percent).
  • The most common crypto hedge fund strategy is qualitative (37 percent of funds), followed by discretionary long/short (28 percent), discretionary long-only (20 percent) and multi-strategy (11 percent).
  • The proportion of crypto hedge funds using an independent custodian decreased in 2020 from 81 percent to 76 percent; the proportion with at least one independent director on their board decreased from 43 percent to 38 percent in 2020; and the proportion using an independent fund administrator increased from 86 percent in 2019 to 88 percent in 2020.
  • Funds tend to be domiciled in the same jurisdictions as traditional hedge funds, with the top three being the Cayman Islands (34 percent), the United States (33 percent) and Gibraltar (9 percent).

For more information, please refer to the following links:

NFTs and Loyalty Tokens Launch, Regulators Target Crypto Ads as Scams Spike

By: Veronica Reynolds

The Associated Press (AP) announced a non-fungible token (NFT) drop this week to celebrate 175 years of photojournalism. The organization plans to auction 10 NFTs that represent iconic photographs taken throughout history, some coupled with music scores. Proceeds from the auction will support the organization’s journalism efforts.

In Europe, the Italian post office, which operates an online marketplace in addition to mail delivery, has turned to Hyperledger Besu to build an integrated loyalty points system. According to a press release, the system allows customers to accrue points through merchant apps and convert those points into fungible loyalty tokens that can be redeemed across the platform for a variety of rewards.

Spanish economic authorities have launched a royal decree that grants the country’s financial services regulator the authority to regulate crypto-asset advertising. According to reports, the decree is based on the premise that cryptocurrencies pose risks related to anonymity, self-custody of private keys and accessibility.

In the United Kingdom, a self-regulating ad industry organization recently banned an advertising campaign by Luno, a cryptocurrency exchange, “for being misleading and irresponsible.” The ads reportedly encouraged people to buy bitcoin, stating that “it’s time to buy,” without warning consumers that the asset is highly volatile and risky. The exchange has reportedly agreed not to post such ads in the future and to include a “risk warning” on future ads.

According to a recent press release from the Federal Trade Commission (FTC), consumers have lost more than $80 million to cryptocurrency scams since October 2020 – a more than 10-fold year-over-year increase. The median amount individual consumers reportedly lost as a result of the scams was $1,900. According to the FTC, consumers between the ages of 20 and 49 “were over five times more likely than older age groups to report losing money to a cryptocurrency investment scam.”

For more information, please refer to the following links:

Nebraska Passes Digital Asset Bank Charter, Tax Case Addresses Crypto Mining

By: Keith R. Murphy

Nebraska’s state legislature recently passed a bill to create a state bank charter for digital asset depository institutions, which was signed into law by the state’s governor on Wednesday this week. According to recent reports, new businesses are able to obtain a state banking charter as digital asset depositories, and existing state-chartered banks are now permitted to open cryptocurrency banking divisions. The reports further note that while the digital asset depositories can engage in custody and payment services relating to digital assets, they are not able to accept deposits or make loans in fiat currency, and must maintain 100 percent of their assets in reserve under the law.

A Tennessee couple is challenging in court the right of the IRS to tax the mining or staking of cryptocurrency, arguing that mining is an act of creation and therefore not taxable, according to multiple news sources. The couple, who are seeking a refund for taxes paid, claim that the IRS instead must wait until cryptocurrency is sold or exchanged in order for a taxable event to have occurred.

For more information, please refer to the following links:

China and Hong Kong Implement New Crypto Regulation, Iran Halts Mining

By: Keith R. Murphy

Three major Chinese banking and finance associations recently issued a directive significantly limiting access to and protection for cryptocurrency in that country. According to a recent report, the restrictions prohibit banks from allowing their customers access to cryptocurrency trading or storage, and prohibit banks from providing insurance to cryptocurrency businesses or investments. The restrictions also reportedly prohibit web platforms from hosting cryptocurrency coin companies and running advertisements for cryptocurrency-related activities.

In Hong Kong, according to recent reports, the government has issued proposals to restrict cryptocurrency exchanges to professional investors, and to require that the exchanges be licensed by the city’s market regulator. The current existing rules reportedly provide for an “opt-in” approach pursuant to which exchanges may apply to the Securities and Futures Commission, but they are not required to do so.

Citing power grid concerns, the president of Iran has issued a moratorium on all cryptocurrency mining in the country until late September, according to a recent report. As noted in the report, a combination of authorized and unauthorized miners are utilizing more than 2,000 megawatts of electricity, and the country is experiencing hydropower shortages as a result of an unusually dry spring this year.

For more information, please refer to the following links:

Report Provides New Data on Cryptocurrencies and Sanctions Evasion

By: Joanna F. Wasick

A recent report by a major blockchain analytics firm finds that more than 4.5 million unique bitcoin addresses are linked to more than 72,000 unique Iranian IP addresses, which were either involved in direct cryptocurrency transactions or used to query the blockchain to verify funds in cryptocurrency addresses that they control. The report continues to find that many of the identified bitcoin addresses were linked to multiple Iranian IP addresses, indicating the usage of mobile wallets connected to multiple internet sources. A result of this, according to the report, is that financial institutions have little to no visibility into the connection between a bitcoin address and users in sanctioned countries, such as Iran. The report cautions that financial institutions should supplement all sanctions risk mitigation strategies to ensure that cryptocurrencies are not being used to transact with sanctioned countries.

For more information, please refer to the following link:

Reports Analyze Bitcoin Price, Energy Consumption; SEC Petitioned on NFTs, NFT Platform Sued; FDIC and FATF Focus on Crypto; Hacks and Fraud Continue

In this issue:

Reports Analyze Bitcoin Price Crash and Network Energy Consumption

SEC Petitioned on NFTs, NFT Platform Sued in Class Action as More NFTs Launch

FDIC Seeks Info on Crypto, FATF Focuses on DeFi, Payment Solutions Announced

Reports Cover Pipeline Ransomware, Crypto Schemes and DeFi Hacks

Reports Analyze Bitcoin Price Crash and Network Energy Consumption

By: Keith R. Murphy

A well-known blockchain analytics company has issued a report commenting on this week’s crash of the prices of cryptocurrency, including bitcoin. The report suggests there are significant differences between this week’s price decline and declines in prior years such as the major price declines in March 2020 and December 2017. According to the report, among other things the differences include the very large investments in bitcoin that have taken place since those prior declines. The report also notes that during this week’s price decline, “bitcoin inflows into exchanges are relatively low compared to past sell-offs,” which “suggests that much of the selling is from people with assets already on exchanges, who tend to be retail investors.”

Continuing the trend of bitcoin analysis, a research report issued this month by a digital asset financial services firm provides an analysis of the long-standing inquiry regarding the acceptability of the Bitcoin Network’s energy consumption. While recognizing the subjective nature of the question, the report draws comparisons of the network’s energy consumption to the energy footprints of long-established asset classes represented by the gold industry and the banking system. The report suggests that the energy used by each of the latter asset groups is more than double that consumed by the Bitcoin Network.

In other news, according to recent reports, a Wall Street banking giant has joined the Paxos Trust network utilizing blockchain technology in a move to make same-day stock trade settlements available to its clients, pending its approval as a clearing agency. Paxos previously applied its Ethereum-based system to effectuate same-day settlement capability for two other financial services firms in March of this year, according to the reports.

For more information, please refer to the following links:

SEC Petitioned on NFTs, NFT Platform Sued in Class Action as More NFTs Launch

By: Teresa Goody Guillén and Veronica Reynolds

A broker-dealer registered with the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) recently petitioned the SEC for rulemaking regarding non-fungible tokens (NFTs). According to the petition, the issue of when an NFT is a security is unclear and requires analysis by qualified legal counsel, which is cost-prohibitive to early-stage companies, which are the main drivers of innovation in the fintech space. The petition states that an NFT that is a security triggers the securities regulatory regime, which could also require companies with activities that involve NFTs to register as a broker-dealer, an exchange or an alternative trading system. The petitioner notes that NFTs have not been the subject of SEC interpretative guidance and the SEC has not initiated an enforcement action against the creator of an NFT or the operator of a platform that facilitates the offer and sale of NFTs. Consequently, the petitioner requests that the SEC publish a concept release on the regulation of NFTs and propose rules to address when NFTs are securities, to bring clarity to the market.

Dapper Labs, creator of NBA Top Shot, a digital marketplace for NFTs sold as collectible highlight videos called “moments,” is being sued in a private class action lawsuit, with plaintiffs asserting that the NFT Top Shot moments are securities. The basis of the lawsuit centers on the argument that the Top Shot NFTs are securities because they satisfy the Howey Test – a four-pronged analysis that courts and the SEC use to determine whether an instrument is a type of security called an investment contract. Among other things, the complaint alleges that Dapper Labs “used their control over the platform to prevent investors from cashing out” their NFT purchases.

Across the pond, an English soccer club recently announced plans to launch its own NFT collection to commemorate its Premier League title victory. The collection includes four pieces by artist Jon Noorlander, with one of the NFTs available to fans via a sweepstakes. The collection is being offered on the NFT marketplace, MakersPlace, starting May 24.

For more information, please refer to the following links:

FDIC Seeks Info on Crypto, FATF Focuses on DeFi, Payment Solutions Announced

By: Joanna F. Wasick

On Monday, the Federal Deposit Insurance Corp. (FDIC) issued a request for information and comment (RFI) about depository institutions’ activities related to digital assets (e.g., cryptocurrencies), in order to inform the FDIC’s understanding of digital asset activities and related risk and compliance management issues. The RFI categorizes these activities into five use cases: (1) technology solutions, such as token-based systems and distributed ledgers; (2) asset-based activities, such as investments and margin lending; (3) liability-based activities, such as deposit services and reserves; (4) custodial services; and (5) other activities, which could include market-making and decentralized financing. The submission deadline is July 16, 2021.

This summer, final guidance from the Financial Action Task Force (FATF) is expected to address various issues in DeFi, which is short for “decentralized finance,” an umbrella term for a variety of financial applications in cryptocurrency or blockchain, often geared toward disrupting financial intermediaries. The forthcoming guidance focuses on six areas: (1) clarification of the definitions of virtual assets and virtual asset service providers (VASPs); (2) stablecoins; (3) the risks and potential risk mitigants for peer-to-peer transactions; (4) licensing and registration of VASPs; (5) implementation of the Travel Rule; and (6) principles of information-sharing and cooperation among VASP supervisors. FATF issued a draft guidance in March.

Earlier this week, Ripple announced a partnership with the National Bank of Egypt (NBE) and a United Arab Emirates (UAE)-based financial service provider to process cross-border payments from the UAE to Egypt. A head executive of NBE stated: “NBE’s partnership with Ripple will help to improve overall efficiency by enabling NBE to establish new alliances across wider markets with reduced cost and quicker integration time.” Here in the United States, the city of Williston, North Dakota, announced a partnership with BitPay to begin accepting cryptocurrency payments for utility bills. And a leading luxury yacht charter company, which accepts bitcoin payments, said it expects a 40 percent growth in bitcoin transactions this year.

For more information, please refer to the following links:

Reports Cover Pipeline Ransomware, Crypto Schemes and DeFi Hacks

By: Jordan R. Silversmith

After a six-day outage, Colonial Pipeline reportedly paid almost $5 million in bitcoin to Eastern European hackers to restore functionality to the largest pipeline in the U.S., according to reports. Analysts have traced the bitcoin wallet used by the hackers to one owned by the DarkSide ransomware affiliate, which announced it would be ending operations after its servers were seized and its cryptocurrency was drained.

Eleven individuals were arrested in Europe on May 11 for their links to a criminal network involved in investment fraud, money laundering and a trading scheme resulting in almost €30 million in losses. According to a press release, the criminal network created different fraudulent trading platforms advertising substantial profits from cryptocurrencies.

This week, the Office of the Comptroller of the Currency (OCC) issued a warning concerning a fraud scheme in which consumers have been receiving fictitious email messages, alleging to be initiated by the OCC or senior officials of the agency, regarding funds purportedly under the control of the OCC. The scheme reportedly involves requests for users to provide bitcoin wallet addresses for a purported transfer of funds.

Meanwhile, although crypto hacks and thefts are bringing smaller amounts of money to illicit actors this year, a new report shows an alarming trend in DeFi hacks. According to the report, while DeFi hacks made up approximately 25 percent of total hack and theft volume in 2020, they now make up more than 60 percent of the total volume. The report also notes that, at $156 million, the amount taken from DeFi-related hacks in the first five months of 2021 already surpasses the $129 million stolen in DeFi-related hacks throughout all of 2020.

For more information, please refer to the following links:

Market Actors Integrate Cryptocurrency into Payment and Investment Products, More NFTs Launched, SEC Staff Issues Crypto Statement, DeFi Hacked for $14M

In this issue:

Market Actors Continue to Integrate Cryptocurrency into Payment Systems

US Firms Launch Bitcoin Investment Products and Enhance Crypto Offerings

Auction Houses Continue with NFT Sales, Dictionary Adds ‘Non-Fungible Token’

SEC Staff Statement Addresses Risks and Monitoring of Bitcoin Futures Funds

Report Provides Data on SEC Cryptocurrency Enforcement Activities

DeFi Protocol Hacked for $14 Million as Ether Increasingly Moves to DeFi

Market Actors Continue to Integrate Cryptocurrency into Payment Systems

By: Robert A. Musiala Jr.

According to a press release this week, California-based Silvergate Bank announced that it will become the issuer of Diem USD, a new cryptocurrency “stablecoin” with each Diem USD unit backed by U.S. dollars. Diem USD will reportedly be issued on the “Diem payment system,” a “blockchain-based payment system to support financial inclusion and responsible financial services innovation.”

Another central bank digital currency (CBDC) pilot was announced this week. According to reports, Israel’s central bank is “considering issuing a digital shekel that would create a more efficient payments system.” The Bank of Israel is reportedly asking for public comments on CBDCs and has established a panel to perform a feasibility study.

This week, a major U.S. money transfer service announced a partnership with “the largest licensed cryptocurrency cash exchange in the U.S.” According to a press release, the partnership “will bring bitcoin to thousands of new point-of-sale locations in the U.S., with plans to expand to select international markets in the second half of 2021.” In a separate announcement, a major U.S. fintech firm announced that its “Cash App generated $3.51 billion of bitcoin revenue and $75 million of bitcoin gross profit during the first quarter of 2021, each up approximately 11x year over year.”

More companies announced that they will begin accepting cryptocurrencies as payment this week. A U.S.-based “digital insurance platform and pay-per-mile auto insurer” will soon allow policyholders to pay for insurance and receive payment for eligible and approved insured claims in bitcoin. And a luxury condominium complex in Miami is reportedly now accepting cryptocurrency as payment for sales of its multimillion-dollar residences.

For more information, please refer to the following links:

US Firms Launch Bitcoin Investment Products and Enhance Crypto Offerings

By: Robert A. Musiala Jr.

According to reports this week, a major U.S. investment bank has “opened up trading with non-deliverable forwards, a derivative tied to Bitcoin’s price that pays out in cash.” As part of the new offering, the bank will reportedly seek to protect itself from volatility by buying and selling bitcoin futures in block trades on a major U.S. futures exchange and through a partnership with a Chicago-based cryptocurrency over-the-counter trading firm. The same investment bank also recently executed the first trades through its newly launched cryptocurrency trading desk, according to sources.

Another U.S.-based investment firm has reportedly launched a new exchange-traded fund (ETF) in Europe that offers investments in cryptocurrencies and blockchain. The fund will reportedly track an index of companies that generate at least 50 percent of their revenue from digital assets or have 50 percent of their assets invested in digital asset holdings or projects.

According to recent reports, Bitfarms, a Canadian bitcoin mining firm, has been approved to list its shares on the Nasdaq Global Market. And in the private markets, tZERO, a registered broker-dealer and alternative trading system (BD-ATS), issued a press release to announce that it has formed partnerships with three firms that will enhance its BD-ATS services, which enable issuance and secondary trading of blockchain-based private securities.

For more information, please refer to the following links:

Auction Houses Continue with NFT Sales, Dictionary Adds ‘Non-Fungible Token’

By: Veronica Reynolds

Two well-known auction houses generated millions this week via cryptocurrency-related auctions. The first involved an auction for nine rare CryptoPunks, early non-fungible tokens (NFTs) that launched in 2017, which collectively went for nearly $17 million. The CryptoPunks that were sold in the auction all were among the first 1,000 minted by creator Larva Labs, and they were sold from the company’s own collection. The second involved the sale of seminal artist Banksy’s protest piece “Love is in the Air.” The physical artwork sold for $12.9 million, and bidders had the option to bid in bitcoin or ether, with transactions to be effectuated through Coinbase Commerce. According to reports, the sale “marks the first time cryptocurrency was accepted as a payment option for a piece of physical artwork.”

Also this week, Merriam-Webster added to its dictionary a definition of “non-fungible token” and commemorated the announcement by auctioning an NFT version of the definition on OpenSea, a popular NFT marketplace. The auction ends today, with proceeds being donated to Teach For All, “a network of organizations from 60 countries aiming to tackle educational inequality around the world.”

One of the world’s largest online peer-to-peer marketplaces has begun experimenting with NFTs as well, for the first time allowing sellers to peddle NFTs on its platform. A select number of sellers will be provided with NFT inventory, with plans by the marketplace to expand its NFT offerings over time, according to reports.

With “Bitcoin Pizza Day” just around the corner, customers of a large pizza restaurant chain in the U.K. will have an opportunity to receive bitcoin for purchases that reach a certain threshold of value. Customers will be able to claim their bitcoin through the Luno cryptocurrency exchange. Bitcoin Pizza Day is a commemorative “holiday” that celebrates May 22, 2010, the day that is generally recognized as the first time a person engaged in a commercial transaction of cryptocurrency in exchange for two pizzas.

For more information, please refer to the following links:

SEC Staff Statement Addresses Risks and Monitoring of Bitcoin Futures Funds

By: Teresa Goody Guillén

The Division of Investment Management (IM) staff of the U.S. Securities and Exchange Commission (SEC) issued a statement this week on funds registered under the Investment Company Act of 1940 (Investment Company Act) that invest in the Bitcoin futures market. The statement strongly encourages investors interested in investing in a mutual fund with Bitcoin futures market exposure to carefully consider the risk disclosure of the fund, the investor’s risk tolerance and the possibility of investor loss. Among other things, the statement advised that IM staff and Division of Examinations staff will closely monitor and assess such mutual funds’ and investment advisers’ ongoing compliance with the Investment Company Act and other federal securities laws, including the impact of mutual funds’ investments in Bitcoin futures on investor protection, capital formation, and the fairness and efficiency of markets. As part of this monitoring, the staff expects to:

  • Analyze the liquidity and depth (e.g., number of participants) of the Bitcoin futures market.
  • Analyze mutual funds’ ability to liquidate Bitcoin futures positions as necessary to meet daily redemption demands and the efficacy of mutual funds’ derivatives risk management.
  • Monitor funds’ valuations of holdings in the Bitcoin futures market and the impact of mutual fund participation in the Bitcoin futures market on valuations in that market.
  • Consider, as part of funds’ compliance with the open-end fund liquidity rule, mutual funds’ liquidity classification of any position in the Bitcoin futures market and the basis for such classification, and also consider the overall construction of a fund’s liquidity risk management program.
  • Assess the ongoing impact of the potential for fraud or manipulation in the underlying Bitcoin markets and its possible influence on the Bitcoin futures market.
  • Consider whether the Bitcoin futures market could accommodate ETFs.

For more information, please refer to the following link:

Report Provides Data on SEC Cryptocurrency Enforcement Activities

By: Teresa Goody Guillén

An economic consulting firm recently issued a report on SEC cryptocurrency enforcement from July 1, 2013, to Dec. 31, 2020. According to the report, in that time period, the SEC brought 75 cryptocurrency-related enforcement actions along with a number of subpoenas and follow-on administrative orders. Defendants and respondents included cryptocurrency issuers, brokers, exchanges and other service providers. Highlights of the report include:

  • Of the 75 enforcement actions, 43 were litigated in U.S. district courts (litigations) and 32 were resolved within the SEC as administrative proceedings.
  • The SEC has issued 19 trading suspension orders.
  • In 34 of the 43 litigations, the defendants were a mix of individuals and firms; in seven actions, the defendants were individuals only; and in two actions, the defendants were firms only.
  • The most common allegations over the study period involved fraud (52 percent) and unregistered securities offerings (69 percent).
  • Twenty-eight actions (37 percent) contained allegations of both fraud and unregistered securities offerings, and more than half of all enforcement actions alleged unregistered securities offering violations related to initial coin offerings, or ICOs.
  • The SEC also alleged failures to register as broker-dealers or exchanges and promotion of securities without disclosing compensation.
  • Less frequent allegations included violations of unregistered offerings of swaps to noneligible contract participants.
  • In litigations, the median time for complaint filing to case resolution was 305 days, and average time was 343 days.
  • SEC v. Telegram Group Inc. et al., SEC v. Haddow et al. and SEC v. Shavers et al. were some of the actions resolved with multimillion-dollar remedies in terms of disgorgement and/or civil penalties.

For more information, please refer to the following link:

DeFi Protocol Hacked for $14 Million as Ether Increasingly Moves to DeFi

By: Joanna F. Wasick

On Wednesday, decentralized finance (DeFi) protocol xToken announced it suffered an exploit through which $14 million in SNX and BNT tokens were drained by an attacker using flash loans, a new type of near-instant, uncollateralized lending made possible with blockchain technology. While these loans have gained popularity, they also have made recent headlines, as they are being used to exploit a number of vulnerable DeFi protocols. xToken stated that minting paused on all contracts as it further investigates exactly what happened. Late last week, Glassnode, an on-chain analytics provider, published a comparison of the number of ether deposited in Ethereum-based smart contracts to the number held on centralized exchanges. According to the report, over the past 17 months, the percentage of ether locked in smart contracts increased from 13 percent to 22.8 percent, while the share of supply on exchanges dropped more than a quarter, from about 17 percent to 12 percent.

On Wednesday, Elon Musk said his electric-car company is discontinuing bitcoin payments, just months after announcing it would accept the cryptocurrency and after purchasing over a billion dollars’ worth of it. Musk cited environmental concerns arising from the electricity requirements for bitcoin mining and transacting as the reason for the reversal. Bitcoin’s environmental impact has been a known issue for years and was discussed in a report published by blockchain analysis company Chainalysis earlier this week.

For more information, please refer to the following links:

CBDC Paper Released, Crypto Firms Launch Products, NFT Craze Continues, IRS Gains Access to Crypto Records, Task Force Addresses Crypto Ransomware

In this issue:

CBDC Paper Released, NY DFS Grants License, Study Cites Crypto Adoption

Traditional Financial Firms Launch Crypto Products, Data Shows DeFi Growth

Auction House Embraces Cryptocurrencies, NFT Sales Continue

Federal Court Authorizes IRS John Doe Summons on Cryptocurrency Exchange

Ransomware Task Force Issues Report to Reduce Ransomware Attacks

CBDC Paper Released, NY DFS Grants License, Study Cites Crypto Adoption

By: Jordan R. Silversmith

The Digital Dollar Project, a partnership created by the Digital Dollar Foundation, released a white paper this week highlighting use cases for a U.S. central bank digital currency (CBDC, or a digital dollar) and proposing several pilot programs for the technology. The pilot programs highlight applications of a digital dollar for various types of consumers, ranging from underbanked consumers to large financial market infrastructure payers.

This week, New York’s Department of Financial Services (NY DFS) announced the granting of a trust charter to a major custody and trust company to engage in the state’s growing virtual currency market. NY DFS approval ensures that the trust company can provide digital asset custody and other related services to New York customers. Including this charter, NY DFS has to date approved 30 charters and licenses for companies working in virtual currency business activity going back to 2015.

A major American financial conglomerate’s recently released payments index, conducted across 18 markets around the world, has shown that 93 percent of people will consider using at least one new emerging payment method —such as cryptocurrencies, biometrics, contactless payment methods and QR codes — in the next year. The report also showed that 40 percent of people intend to use cryptocurrency payments in the next year, while 63 percent of respondents agreed they have tried a new payment method during the pandemic. The report states that digital currencies, biometrics, contactless payments and QR codes are trending as emerging payment technologies as consumer comfort with them grows, with 71 percent of respondents saying they expect to use cashless payments going forward.

For more information, please refer to the following links:

Traditional Financial Firms Launch Crypto Products, Data Shows DeFi Growth

By: Veronica Reynolds

This week, one of the world’s leading derivatives marketplaces announced Micro Bitcoin futures, allowing investors the ability to avoid the high costs often associated with cryptocurrency investments and to “fine-tune” their cryptocurrency exposure. The offering adds to the company’s existing cryptocurrency derivatives offerings.

A multinational financial services corporation recently released a digital assets data and analytics product that centralizes data and analytics tools in one place to help institutional investors navigate the digital asset landscape. Data aggregated by the tool is reportedly sourced from network, trading, social media activity, news and other digital asset research, and is combined with analytics capabilities to provide asset analysis. According to a press release, the new product will allow investors to make informed investment decisions and discover insights by monitoring market developments in a more sophisticated manner.

The first security token offering registered with the Securities and Exchange Commission closed this week. The Ethereum-based initial public offering was launched by INX, a trading platform for digital assets, and generated an estimated $85 million from over 7,200 investors. According to reports, “the exchange plans to offer cryptocurrency and digital securities trading.”

Meanwhile, Decentralized Finance (DeFi), comprised primarily of lending, trading and betting activities executed on the blockchain, continues to grow, with recent reports tallying its market cap at approximately $128 billion. Originating on the Ethereum blockchain, DeFi has also blossomed on other networks, with reports estimating the total locked value of deposited cryptocurrency assets on Binance Chain at $38 billion.

For more information, please refer to the following links:

Auction House Embraces Cryptocurrencies, NFT Sales Continue

By: Keith R. Murphy

Recent reports indicate that the art and entertainment industries continue to embrace blockchain and cryptocurrencies. A major auction house has announced that it will begin accepting bitcoin and ether as a means of payment for an upcoming auction involving a painting by the artist Banksy, according to a recent report. The auction house is partnering with a major U.S. cryptocurrency exchange to enable the new payment method.

In one of the latest non-fungible token (NFT) events, based on several reports, from May 6 to May 20 an NFT studio plans to auction three rare NBA Top Shot NFTs as a set featuring a renowned basketball player. One of the NFTs reportedly holds the record for the most expensive Top Shot moment sold to date.

For more information, please refer to the following links:

Federal Court Authorizes IRS John Doe Summons on Cryptocurrency Exchange

By: Robert A. Musiala Jr.

According to a press release this week from the U.S. Department of Justice (DOJ), a federal court in the Northern District of California has entered an order authorizing the IRS to serve a John Doe summons on a major U.S. cryptocurrency exchange. The John Doe summons reportedly seeks information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. The summons seeks information related to the IRS’ “investigation of an ascertainable group or class of persons” that the IRS has reasonable basis to believe “may have failed to comply with internal revenue laws.” The summons directs the cryptocurrency exchange to produce records related to these U.S. taxpayers and their cryptocurrency transactions.

According to recent reports, the U.S. Marshals Service (USMS) has signed a $4.5 million contract with BitGo, a major U.S. cryptocurrency custody provider, to assist USMS in storing and selling cryptocurrencies seized in criminal investigations. According to a website that tracks the amount of bitcoin auctioned off by U.S. authorities, the total value of seized bitcoin that has been sold in U.S. government auctions is approximately 185,230 BTC.

For more information, please refer to the following links:

Ransomware Task Force Issues Report to Reduce Ransomware Attacks

By: Teresa Goody Guillén

The Ransomware Task Force (RTF), which is comprised of a team of more than 60 experts from software companies, cybersecurity vendors, government agencies, nonprofits and academic institutions, recently issued a major report focused on strategies to resist, disrupt and develop resilience to the ransomware threat.

The report includes a framework with recommendations organized around four goals: (1) deter ransomware attacks through a comprehensive, nationally and internationally coordinated strategy; (2) disrupt the ransomware business model and reduce criminal profits; (3) help organizations prepare for ransomware attacks; and (4) respond to ransomware attacks more effectively.

The report recommends that the cryptocurrency sector, which enables ransomware crime, should be more closely regulated. The report notes that governments should require cryptocurrency exchanges, crypto kiosks and over-the-counter trading “desks” to comply with existing laws, including Know Your Customer (KYC), Anti-Money Laundering (AML) and Combatting Financing of Terrorism laws. The report’s other recommendations include the following:

  • Coordinated, international diplomatic and law enforcement efforts must proactively prioritize ransomware through a comprehensive, resourced strategy, including using a carrot-and-stick approach to direct nation-states away from providing safe havens to ransomware criminals.
  • The United States should lead by example and execute a sustained, aggressive, whole-of-government, intelligence-driven anti-ransomware campaign, coordinated by the White House and including (1) an Interagency Working Group led by the National Security Council in coordination with the nascent National Cyber Director, (2) an internal U.S. Government Joint Ransomware Task Force and (3) a collaborative, private industry-led informal Ransomware Threat Focus Hub.
  • Governments should establish Cyber Response and Recovery Funds to support ransomware response and other cybersecurity activities, mandate that organizations report ransomware payments, and require organizations to consider alternatives before making payments.
  • An internationally coordinated effort should develop a clear, accessible and broadly adopted framework to help organizations prepare for, and respond to, ransomware attacks, including incentives or regulations to drive adoption.

For more information, please refer to the following links:

Cryptocurrency and Blockchain Initiatives Continue in Payments, NFTs and Media; Crypto Enforcement and Threats Also Continue Across Globe

In this issue:

Crypto Adoption Continues in Credit Cards, OCC Approval, Restaurant Payments

NFT Initiatives Continue, Advertising and Media Firms Integrate Cryptocurrencies

Cryptocurrency Enforcement Actions Continue in US, Turkey and South Korea

Reports Detail Crypto Crime Statistics, $50M Hack, Anti-Cryptojacking Initiative

Crypto Adoption Continues in Credit Cards, OCC Approval, Restaurant Payments

By: Robert A. Musiala Jr.

According to recent reports, a major U.S. financial services firm and Gemini, one of the largest U.S. cryptocurrency exchanges, will soon launch a credit card that gives users cryptocurrency rewards on purchases. According to a blog post, the Gemini Credit Card will allow cardholders to “earn up to 3% back on qualifying purchases in bitcoin or any of the more than 30 cryptocurrencies available on Gemini.”

According to press releases issued this week, the office of the Comptroller of the Currency (OCC) has granted preliminary conditional approval to allow U.S. cryptocurrency firm Paxos to operate under a national trust bank charter. Paxos will reportedly also maintain its current New York state trust charter.

This week, a major U.S. bank and two Singapore-based financial services firms announced an initiative to launch Partior, a blockchain-based payment platform to “digitize commercial bank money” and “reduce current frictions and latency for cross-border payments, trade transactions and foreign exchange settlements.” According to a press release, “Partior will be actively engaging leading banks to join the platform to establish the scale required to benefit the industry.”

In a final notable item, according to reports, a major U.S. restaurant chain will soon begin accepting bitcoin as payment at most of its restaurants. Select restaurants of the chain will reportedly start accepting bitcoin as soon as this week.

For more information, please refer to the following links:

NFT Initiatives Continue, Advertising and Media Firms Integrate Cryptocurrencies

By: Jordan R. Silversmith

Earlier this week, an NBA basketball team announced that they would be auctioning a series of non-fungible tokens (NFTs), the first time a U.S. professional sports team has launched official NFTs. While NFTs for basketball and baseball have become popular, this is the first time a U.S. sports franchise has offered its own team-licensed NFTs. European sports teams are also launching NFTs: Five more Italian soccer teams recently joined a European digital soccer collectibles platform, bringing the total from Italy’s top league to 11.

A major cryptocurrency exchange recently announced plans to introduce its own NFT marketplace where users can create, buy and sell NFTs. The exchange said it would operate two markets: a premium venue for top auctions and exhibitions and a standard market for anyone to mint new NFTs. The premium market will reportedly give 90% of its proceeds to artists. The feature is set to debut in June.

A large U.S. media agency has announced that it will begin accepting cryptocurrency payments from its clients. While the agency plans to accept bitcoin, it will also accept whichever forms of currency its clients want. The agency reportedly based its decision on a desire to remove difficulties for clients that want to use cryptocurrency as payment for advertising services and media buys.

A Canadian medical cannabis chain-of-custody compliance and data platform recently announced plans to launch a Uniswap token as part of its digital marketing campaign aimed at decentralized finance users. According to a press release, the company believes that the Uniswap community targets its key customer demographic.

For more information, please refer to the following links:

Cryptocurrency Enforcement Actions Continue in US, Turkey and South Korea

By: Joanna F. Wasick

Earlier this week, U.S. officials arrested Roman Sterlingov in connection with his running Bitcoin Fog, a cryptocurrency mixing service, or “tumbler,” that obscures the source of cryptocurrencies. The criminal charges include unlicensed money transmission and money laundering. According to the government, Bitcoin Fog, over the course of its decade-long operation, moved over 1.2 million bitcoin – valued at approximately $335 million at the time of the transactions – most of which came from darknet marketplaces and was tied to illegal narcotics, computer fraud and abuse activities, and identity theft. Also this week, the U.S. Department of Justice announced that Eric Meiggs pled guilty to conducting a scheme involving “SIM-swapping,” i.e., obtaining victims’ cell phone numbers and SIM cards by lying to their phone carriers and tricking them into transferring the data and cards. According to the government, once Meiggs and his co-conspirators stole the phone numbers and SIM cards they were able to hack into various victim accounts and steal more than $530,000 in cryptocurrencies.

Late last week, Turkish officials detained dozens of people as part of an investigation into Thodex, a Turkish cryptocurrency platform accused of fraud, which froze user accounts and whose founder and CEO, Faruk Fatih Ozer, had gone into hiding at the beginning of the controversy – allegedly taking billions of dollars’ worth of user funds with him. Ozer has since resurfaced in Albania, and Turkey is reportedly working with Interpol to arrest him. The Thodex case comes on the heels of Turkey’s announcement, made earlier this month, that it was banning the use of cryptocurrencies for payments. According to reports, the Turkish government is currently contemplating new regulations for the cryptocurrency industry.

In South Korea, tax officials have reportedly begun an initiative aimed at individuals who have been hiding assets using cryptocurrencies. According to recent reports, government officials recently seized approximately $22 million in cryptocurrencies from exchange accounts of 676 alleged tax offenders.

For more information, please refer to the following links:

Reports Detail Crypto Crime Statistics, $50M Hack, Anti-Cryptojacking Initiative

By: Keith R. Murphy

Chainalysis, a blockchain analysis company, recently issued its “2021 Crypto Crime Report” in which it concludes that cryptocurrency thieves are relying on a surprisingly small number of service providers to liquidate their stolen assets. Among other statistics, the report states that 55% of all funds moved from illicit addresses are run through only five fund-receiving services, and with respect to money laundering activity, just 1,867 deposit addresses received 75% of all cryptocurrency value from illicit addresses.

This week, an automated market maker platform on the Binance Smart Chain revealed that its token migration event had been targeted by a hacker, resulting in a loss of approximately $50 million in bitcoin, ether and Binance coin, among other cryptocurrencies. This is the second hack of the market maker platform this month, according to the report.

A major chip manufacturer and one of the largest multinational technology companies recently announced a collaboration to advance endpoint detection and response to address advanced threats, such as cryptojacking malware, through greater integration of the chip company’s threat detection technology. According to a press release, the initiative is aimed at combating a growing shift in cybercrime from ransomware to cryptojacking.

For more information, please refer to the following links:

Firms Enable Crypto Payments; Blockchain Deployed for Luxury Goods, A&D and Postal Services; NFT Hype Continues; Turkey Bans Crypto; DeFi Hacked for $80M

In this issue:

Companies Enable Crypto Payments, Reports Address Market Developments

Blockchain Solutions Deployed for Luxury Goods, A&D and Postal Services

Charitable NFTs Raise Millions, Soccer Player Pelé Announces His First NFT

DOJ Actions Cite Crypto Use, Turkey Bans Crypto, DeFi Hacked for $80 Million

Companies Enable Crypto Payments, Reports Address Market Developments

By: Keith R. Murphy

A major U.S. fintech and payments company recently announced that it has begun allowing its customers to buy, sell and hold cryptocurrency directly through its peer-to-peer payments app. Users are permitted to choose among bitcoin, ether, litecoin and bitcoin cash for their transactions, and they also can access in-app tutorials to learn more about cryptocurrencies. The company’s parent company previously obtained a BitLicense from the New York State Department of Financial Services, which enabled this new offering, according to the company’s press release. In related developments this week, a major U.S. news magazine announced that it is now accepting payment in cryptocurrency for digital subscriptions to its content, and a global shared-workspace provider announced that it will begin accepting payment in various cryptocurrencies.

Gemini, a regulated cryptocurrency exchange, has issued its “2021 The State of U.S. Crypto Report,” accessible on the company’s website. The report contains the results of a survey of nearly 3,000 investors and cryptocurrency-curious consumers and focuses on key trends identified by the survey.

A Big Four accounting firm released its newly launched “Global CBDC Index,” which the firm states was issued to allow readers to monitor the ongoing transformation caused by Central Bank Digital Currencies (CBDCs) globally. According to a press release, the index is “designed to measure a central bank’s level of maturity in deploying their own digital currency” and focuses on two main CBDC operational designs: retail CBDCs, which are held by individuals and corporates, and interbank, or wholesale, CBDCs, relating to financial institutions.

Also this week, a large international bank and credit-card issuer released its Global Perspectives and Solutions report, which addresses CBDCs, China’s work in developing its own CBDC, stablecoins and cryptocurrencies, among other major topics. The report notes the soaring interest in cryptocurrencies and notes that among other effects, the tokenization of money could modify, reduce or eliminate the roles of incumbent financial intermediaries and existing payment forms, such as checks and cards.

For more information, please refer to the following links:

Blockchain Solutions Deployed for Luxury Goods, A&D and Postal Services

By: Jordan R. Silversmith

A French luxury goods conglomerate recently announced a new partnership with two other major European luxury goods businesses to develop the first global luxury blockchain, Aura Blockchain Consortium. The goal of founding Aura is to provide customers greater transparency and traceability through the life cycle of a product. With authenticity and traceability so crucial to the industry, the conglomerate said that “it made sense for these competitors to work together to drive change and develop a shared solution.”

An American aerospace and defense (A&D) company recently signed a strategic partnership with a blockchain company that will grant it access to the blockchain company’s secure supplier intelligence platform, which connects Original Equipment Manufacturers (OEMs) to members of Swissmem, the Swiss association of mechanical and electrical engineering industries. The blockchain platform will allow for OEMs to be matched with subject matter expert supplier capabilities across Switzerland.

In another recent development, the U.S. Postal Service has certified a U.S. company to begin producing blockchain-generated ePostage labels. According to a press release, USPS ePostage labels will use nonfungible token (NFT) mail technology to create the world’s first blockchain-supported postage.

For more information, please refer to the following links:

Charitable NFTs Raise Millions, Soccer Player Pelé Announces His First NFT

By: Veronica Reynolds

Last week, Mick Jagger auctioned an NFT to support indie music venues. The token includes a 30-second visual of a person running through skulls with “Eazy Sleazy” (a song recently released by Jagger and Dave Grohl) playing in the background. The token sold via a 24-hour auction on Nifty Gateway and fetched a price of $50,000. Proceeds went to two local charities that support independent music venues in the United Kingdom and the United States (Music Venue Trust and the National Independent Venue Association).

Another charitable NFT depicting Edward Snowden auctioned for $5.44 million on Foundation (a platform that facilitates NFT auctions) last week. The token is called “Stay Free,” and the $5.44 million closing bid makes it one of the most expensive NFT sales. Like “Eazy Sleazy,” proceeds from “Stay Free” will go to charity – this time to the Freedom of the Press Foundation. The NFT is based on a photo by the visual artist Platon and includes Snowden’s face overlaying court documents related to the 2013 leak that exposed the NSA’s domestic surveillance program.

The famed soccer player Pelé recently announced he will be launching his first NFT. The artists, Kingsletter and Visual Lab, have been working on the soccer player’s digital trading card collection for months, and the first card will be released on May 2 with Ethernity Chain. Ethernity Chain was built on the Ethereum Network and specializes in donating proceeds from digital art to charitable causes. Ninety percent of proceeds from Pelé’s collection will go to his namesake foundation.

For more information, please refer to the following links:

DOJ Actions Cite Crypto Use, Turkey Bans Crypto, DeFi Hacked for $80 Million

By: Joanna F. Wasick

Last Thursday, the U.S. Department of Justice (DOJ) announced that two men were charged with producing false identity documents and aggravated identity theft in connection with operating an illegal e-commerce business known as “SecondEye.” From at least 2011, the individuals, through various versions of its website, electronically produced, sold and transferred digital versions of false government-issued identity and other documents. As part of the operation, the defendants accepted more than $1.5 million in bitcoin transfers from customers.

This week, the DOJ announced that another individual, Sheng-Wen Cheng, pled guilty to various fraud charges for engaging in a scheme to fraudulently obtain more than $7 million in government-guaranteed loans designed to provide relief to small businesses during the COVID-19 pandemic. Part of Cheng’s fraud involved lying to investors in his blockchain-based peer-to-peer lending platform.

The Central Bank of the Republic of Turkey recently introduced legislation banning the use of cryptocurrency for payments throughout the country. The payments ban is set to go into effect on April 30; the trading of cryptocurrencies appears to be unaffected by the regulation. In related news, following the announcement of the new regulation, hundreds of thousands of users of a Turkish cryptocurrency exchange, Thodex, were allegedly left unable to access their digital assets after the trading platform abruptly halted trading Wednesday, spurring fraud allegations and criminal complaints. The CEO of the exchange is reportedly missing.

Earlier this week, a decentralized finance (DeFi) Polygon Network-powered protocol, EasyFi, reported it suffered a hack in which $80 million of assets were stolen. The hacker reportedly transferred out 2.98 EAST tokens and $6 million from liquidity pools in U.S. dollars, Dai and USDT. Amounts were then allegedly transferred to an unknown wallet on the Ethereum network. A $1 million reward has been offered by the company’s CEO and founder to the hacker for returning the funds in full.

For more information, please refer to the following links:

Crypto Exchanges Launch Initiatives, NFT Hype Continues, Token Safe Harbor Proposal Updated, Digital Euro Study Published, Hacked Bitcoin is On the Move

In this issue:

Cryptocurrency Exchanges Forge New Paths, Bitcoin ETF Applications Continue

MLB Gets In on NFT Hype, Chinese Alliance Seeks to Bring NFTs to Streamers

Token Safe Harbor Proposal Updated, IRS Memo Addresses Bitcoin Hard Fork

ECB Publishes Survey on Digital Euro, Study Addresses Bitcoin Electricity Usage

Judgment Entered in Crypto Fraud Case, Hacked Bitcoin Seen on the Move

Cryptocurrency Exchanges Forge New Paths, Bitcoin ETF Applications Continue

By: Keith R. Murphy

This week one of the largest U.S. cryptocurrency exchanges, Coinbase, completed its initial public offering through a direct listing of its shares on Nasdaq. Separately, according to a press release, last week cryptocurrency platform Exodus opened its blockchain-based SEC-qualified public offering of common stock, with each share of common stock represented by a “Common Stock Token.” The company, which offers a multi-asset cryptocurrency wallet, reportedly has received subscriptions for nearly $60 million from more than 4,000 accredited and non-accredited investors.

A well-known financial services company focused on digital assets and cryptocurrencies recently filed a bitcoin exchange traded fund (ETF) application with the Securities and Exchange Commission (SEC), according to a recent report. Another recent report noted that the SEC recently began review of a separate bitcoin ETF application by an ETF sponsor and index developer. The SEC has not yet approved any bitcoin ETFs, although multiple applications are currently pending at the agency.

Binance recently issued a press release announcing that it has launched no-commission, digital tradeable tokens that allow users to buy and trade fractional stocks.  The release states that the tokens are backed by a depositary portfolio of underlying securities, and that holders of the tokens qualify for economic returns, including dividends, relating to the underlying securities. A press release notes that the first stock available for use with the tokens is a well-known electric car company pioneer, and Binance also reportedly intends to tokenize Coinbase stock. Prices for the new Binance products will reportedly be settled in Binance USD (BUSD).

For more information, please refer to the following links:

MLB Gets In on NFT Hype, Chinese Alliance Seeks to Bring NFTs to Streamers

By: Veronica Reynolds

This week, a large U.S. trading card company, in partnership with a major U.S. professional sports organization, announced plans to release flagship baseball cards in the form of non-fungible tokens (NFTs), to be released on the Wax blockchain. The NFTs are set to launch on April 20, 2021, allowing consumers to “[b]uy, sell, and trade exclusive, officially licensed NFTs featuring modern-day stars in new and classic … card designs.” According to reports, the trading card company launched a low-profile test run of NFTs last year.

Last week, a large Chinese mobile streaming platform launched a strategic alliance through its wholly owned subsidiary and a global digital marketing promotions, rebates and loyalty solutions provider. The alliance seeks to leverage the in-app digital currency solutions offered by the Chinese subsidiary and the loyalty rewards system offered by the digital marketing promotions provider, allowing streamers the opportunity to earn points by generating engagement. Points generated through such use could be redeemed for digital rewards, including bitcoin and retailer gift cards, and in-app digital currency. In addition, the alliance seeks to provide a pathway for streamers to launch their own NFTs and allow users to use in-app points to bid on NFT “mementos” from their favorite streamers.

For more information, please refer to the following links:

Token Safe Harbor Proposal Updated, IRS Memo Addresses Bitcoin Hard Fork

By: Teresa Goody Guillén

This week, U.S. Securities and Exchange Commission (SEC) Commissioner Peirce (not the SEC) released an updated token safe harbor proposal, which amends her original proposal from February 2020. The safe harbor would seek to provide network developers with a three-year grace period to facilitate participation in and development of a functional or decentralized network, exempted from the registration provisions of the federal securities laws. The updated safe harbor proposal makes three significant changes from the prior version: (1) to enhance token purchaser protections, the proposal adds semi-annual updates to the plan of development disclosure and a block explorer; (2) at the end of the grace period, the proposal adds an exit report requirement, which would include either an analysis by outside counsel explaining why the network is decentralized or functional, or an announcement that the tokens will be registered under the Securities Exchange Act of 1934; (3) the exit report requirement provides guidance (not a bright-line test) on what outside counsel’s analysis should address when explaining why the network is decentralized.

In other regulatory news, the Office of the Chief Counsel of the Internal Revenue Service (IRS) recently released a memorandum responding to a request for tax advice from someone who received bitcoin cash as a result of the Bitcoin hard fork in August 2017. While this memorandum cannot be cited as precedent, it stated that cryptocurrency received from a so-called hard fork that altered Bitcoin’s underlying ledger to result in a split that generated bitcoin cash is considered taxable gross income. The analysis includes two hypotheticals that rely on whether the taxpayer had dominion and control over bitcoin cash to determine whether it is considered taxable income under Section 61 of the Internal Revenue Code.

A recent blog post brought to light the issue of whether virtual currency is subject to unclaimed property law given that state unclaimed property laws apply to a wide variety of assets or property types, and the IRS has defined virtual currency as property (IRS Ruling Notice 2014-21). The blog post provides an overview of state views and notes that the 2016 Revised Uniform Unclaimed Property Act developed and updated by the Uniform Law Commission (ULC), included virtual currency in its definition of property that is subject to unclaimed property laws.

For more information, please refer to the following links:

ECB Publishes Survey on Digital Euro, Study Addresses Bitcoin Electricity Usage

By: Jordan R. Silversmith

Earlier this week, the European Central Bank published a comprehensive analysis of its public survey on a digital euro, confirming that, by and large, what the public and professionals most desire from a digital currency is privacy. While 43 percent of respondents said privacy is the most important feature of a digital euro, fewer than one in 10 responses of members of the public showed support for full anonymity. Security was the second-most-important issue flagged by respondents. Absent from the responses was any discussion of Bitcoin’s continually rising power consumption: according to a report by a major U.S. bank, Bitcoin is consuming 66 times more electricity than it did in 2015. However, the Bitcoin Network’s electricity usage lags far behind its price, which has risen by around 170 times over that same period.

For more information, please refer to the following links:

Judgment Entered in Crypto Fraud Case, Hacked Bitcoin Seen on the Move

By: Joanna F. Wasick

Late last week, a Nevada federal court entered a default judgment against David Saffron, an Australian citizen residing in the U.S., and Circle Society, his Nevada corporation, for running a cryptocurrency Ponzi scheme. The case was brought by the Commodity Futures Trading Commission, which alleged that Saffron fraudulently solicited and accepted over $15 million of bitcoin and U.S. dollars from at least 179 individuals by falsely promising to invest the funds and generate guaranteed returns of up to 300 percent. Rather than using the funds as promised, the defendants allegedly misappropriated the funds, including by holding them in Saffron’s personal wallet and using some to pay out redeeming investors.

A former CIA director published an analysis last week of bitcoin’s use in illegal activities. The paper concludes that generalizations on the use of bitcoin in illicit finance are “significantly overstated” and cites a recent study by blockchain analytics firm Chainalysis stating that illicit activity among all cryptocurrencies was less than 1 percent of total cryptocurrency activity between 2017 and 2020. According to the paper, most of this activity consisted of “simple” scams and purchases on the dark web. For bitcoin specifically, the paper notes that illicit activity makes up less than 0.5 percent of total transaction volume. The paper also notes that blockchain ledger technology is underutilized by law enforcement and can become a highly effective crime-fighting and intelligence-gathering tool.

According to reports this week, long-dormant bitcoin stolen in the 2016 hack of cryptocurrency exchange Bitfinex were seen on the move. There were 63 transactions in all, totaling over $620 million, with the largest transaction worth over $78 million. Some of the transfers were between wallets associated with the hack, although many were to newly created wallets. Efforts to identify the hacker are ongoing.

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CBDC Initiatives Announced Across Globe, US Crypto Firms Pursue Licenses and Form Lobbying Groups, DOJ Targets Unlicensed Crypto MSB

In this issue:

Central Bank Digital Currencies Explored in Thailand, Japan and Sweden

US Crypto Firm Seeks Clearing Agency License, New Lobbying Group Formed

DOJ Targets Unlicensed Bitcoin Money Transmitter, ICO Extortion Scheme

Central Bank Digital Currencies Explored in Thailand, Japan and Sweden

By: Veronica Reynolds

According to a recent press release, the Bank of Thailand (BOT) is seeking public comment on the issuance and development of a Retail Central Bank Digital Currency (CBDC), an easily portable “digital form of money issued by the central bank comparable to physical banknotes,” which can be used in online and offline financial transactions. The main objective of the BOT’s exploration of Retail CBDC is to provide citizens with broader access to secure financial services. The BOT seeks to pilot Retail CBDC in spring 2022.

Similarly, the Bank of Japan recently announced plans to experiment with CBDC this year “to test the technical feasibility of the core functions and features required for CBDC.” Phase 1, Proof of Concept, began this week, with the goal being to “develop a test environment for the CBDC system and conduct experiments on the basic functions that are core to CBDC as a payment instrument such as issuance, distribution, and redemption.” Phase 1 is anticipated to last one year, with the goal being to test the functionality of CBDC and document key takeaways.

Sweden, too, announced CBDC-related news this week, with the country’s central bank, Sveriges Riksbank, publishing a recent study outlining the results of its digital currency pilot on a network based on R3’s Corda blockchain. The report cites, among other things, scalability as a major bottleneck in the development and adoption of the technology. Other issues also emerged from the report, including the need to protect information implicated in e-krona transactions in order to safeguard personal data and comply with bank secrecy laws. The head of Riksbank’s e-krona pilot division, Mithra Sundberg, said that Sweden’s CBDC may require “a new legal framework” before it can be launched.

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US Crypto Firm Seeks Clearing Agency License, New Lobbying Group Formed

By: Teresa Goody Guillén

A New York-based cryptocurrency firm recently announced that it will apply for a clearing agency license from the U.S. Securities and Exchange Commission (SEC) and hopes to secure registration in 2021. A clearing agency is an intermediary that facilitates the settlement of a trade between a buyer and a seller. Current settlement systems take two days to settle a trade. The crypto firm’s announcement follows its same-day trade settlement pilot test. This is reportedly the first live application of blockchain technology for equities markets in the United States. Reports state that, in February, the Depository Trust and Clearing Corporation said reducing the settlement time to one day would reduce market risk and lower margin requirements, especially during particularly volatile market conditions.

A group of major companies has formed the Crypto Council for Innovation to lobby policymakers. The council’s stated mission is to demonstrate the “transformational promise of crypto and communicate its benefits to policymakers, regulators, and people around the globe.” The council reportedly plans to appoint a board that would include each of the four initial members and add an executive team.

The U.K.’s Financial Conduct Authority (FCA) announced that it will increase its anti-money laundering supervision by expanding the types of companies that have to submit a special financial crime log to the FCA (known as REP-CRIM reports) to include cryptocurrency firms. The FCA stated that this will increase the number of reporting companies from 2,500 to 7,000 and brings the cryptocurrency sector further into line with banks and other finance firms. Companies that have been added to the list of reporting companies are required to start submitting financial crime reports in their first annual report after January 2022.

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DOJ Targets Unlicensed Bitcoin Money Transmitter, ICO Extortion Scheme

By: Joanna F. Wasick

On Monday, the U.S. Department of Justice (DOJ) announced that a New Jersey resident pled guilty to one count of running an unlicensed money transmitting business. According to the government, the individual had operated a website through which he converted clients’ fiat currency into bitcoin, transferred the bitcoin to client wallets and charged a fee for his services. The announcement contained no allegations of fraud or other wrongdoing, other than not registering his business as required by federal law.

In another announcement issued on Monday, the DOJ reported that Michael Hlady pled guilty in a Brooklyn federal court to conspiring to extort a startup company for millions of dollars’ worth of ether (ETH). According to court documents, while the company was planning its initial coin offering (ICO) in 2017, Hlady and a co-conspirator repeatedly threatened that they would destroy the company and its community unless the company sent them additional funds and company tokens. The company transferred 10,000 ETH in response to the threats.

According to reports published this week, South Korean prosecutors have sold bitcoin for the first time in the country’s history, transferring the proceeds into the national treasury. The 191 bitcoin had been confiscated in April 2017 from the operator of an illegal pornography site. While other countries, such as the United States, have been auctioning confiscated bitcoin for years, South Korean prosecutors have held on to the cryptocurrency due to legal ambiguity regarding its treatment. However, this recent sale follows the passage of the country’s new cryptocurrency legislation, which went into effect at the end of March.

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