In this issue:

Cryptocurrency Capital Markets Announcements by Institutional and Startup Firms

Public and Private Blockchain Pilots Announced, CFTC Warns on Smart Contracts

Crack Down on ICOs Continues, U.S. Marshals Prepare to Auction Seized Bitcoin

Cryptocurrency Capital Markets Announcements by Institutional and Startup Firms

By: Jordan R. Silversmith

On Oct. 15, a major global financial services firm – the fourth-largest asset management firm in the world – announced plans to spin off a new company focused on making it easier for institutional investors, such as hedge funds and family offices, to invest in digital assets such as Bitcoin and Ether. The announcement comes amid positive news for institutional cryptocurrency exchanges Paxos and Gemini, which both recently launched stablecoins backed 1:1 by U.S. dollars. This week, Paxos reported that its stablecoin, Paxos Standard, has been listed on more than 20 exchanges and over-the-counter desks around the globe. According to reports, Gemini’s Gemini Dollar (GUSD) traded above its $1.00 peg this week, reaching a high of $1.19. In other institutional news, a major multinational options and futures exchange announced that the daily average trading of its bitcoin futures products increased 41 percent from Q2 to Q3.

In the startup space, this week New York-based media startup Civil was forced to cancel its ongoing initial coin offering (ICO) and issue refunds to token purchasers after failing to reach its preset funding minimum of $8 million. Another New York-based startup, BlockFi, recently announced that it is adding Litecoin and GUSD to the crypto assets it will accept as collateral for loans. Overseas, the world’s largest cryptocurrency exchange by volume, Binance, announced that beginning Oct. 17, users of Binance Uganda, Africa’s first cryptocurrency exchange, will be able to make deposits in leading cryptocurrencies bitcoin and ether as well as the Ugandan Shilling. Binance’s move into Uganda is part of the exchange’s plan to expand into Africa – a continent with one of the youngest populations in the world and very limited access to traditional banking services.

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Public and Private Blockchain Pilots Announced, CFTC Warns on Smart Contracts

By: Brian P. Bartish and Robert A. Musiala Jr.

New blockchain pilots for shipping and property registries were announced this week. A subsidiary of Abu Dhabi Ports and the Port of Antwerp signed a memorandum of understanding to launch a pilot that seeks to use blockchain to secure transactions, including identification and acknowledgement of cargo documents, and reduce costs at their respective ports. In Australia, the state of South Wales is reportedly partnering with a Swedish startup to build a proof of concept for a blockchain-based land registry system.

In the private sector, one of the world’s oldest and most renowned art auction houses recently announced a pilot project with blockchain-powered digital art registry Artory, which will store the purchase history of an artwork on a blockchain, accessible to the buyer via a registration card issued at the time of purchase, thus offering buyers greater confidence in the piece’s provenance. Also this week, a major global electronics and entertainment company announced that it is using blockchain technology to streamline rights management of educational digital content, including digital textbooks, music, films, VR content and e-books. The new system will be able to automatically verify the rights generation, such as the date and time the electronic data was created, of a piece of written work. And in the automotive industry, blockchain advertising analytics are helping improve performance in the $15 billion ad market. The auto industry’s first-ever blockchain campaign reportedly led to a 21 percent improvement in performance over previous campaigns by leveraging blockchain-based digital ad supply chain data. The project was a result of a partnership between startup Lucidity, a major Japanese auto manufacturer, and a global communications and advertising agency.

In a development for merchants, bitcoin payment processor BitPay announced that merchants will now be able to settle bitcoin and Bitcoin Cash transactions in Gemini Dollars and Circle USD Coin, both 1:1 U.S. dollar-backed stable coins. This new service will help decrease the price volatility that merchants are subject to when settling Bitcoin transactions. And in a recent speech at the GITEX Technology Week Conference in Dubai, Brian Quinentz, a commissioner at the Commodity Futures Trading Commission (CFTC), discussed the challenges of enforcing CFTC regulations in the context of smart contracts applications that trigger automatic payments upon the occurrence of specific events. The commissioner suggested that some applications of smart contract-triggered payments may be considered illegal “prediction markets.” Noting the potential for smart contracts to be used to propagate predictive “event” contracts, including those concerning war, terrorism, assassinations or similar events, Commissioner Quinentz stated his view that the coders behind such contracts may be liable under CFTC regulations.

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Crack Down on ICOs Continues, U.S. Marshals Prepare to Auction Seized Bitcoin

By: Taylor Thompson

In an Oct. 11 press release, the office of North Dakota Securities Commissioner Karen Tyler announced the issuance of cease-and-desist orders against three companies “promoting unregistered and potentially fraudulent securities in North Dakota in the form of Initial Coin Offerings (ICOs).” The press release reported that none of the companies has registered to sell securities in North Dakota, and the Commissioner alleges that each of the three entities made false or unsubstantiated claims about the nature, value, or upside potential of their tokens. The Commissioner’s effort is said to be part of Operation Cryptosweep, a coordinated multijurisdiction investigation and enforcement effort involving 40 U.S. and Canadian securities regulators. In a related development, recent reports indicate that two global credit card companies are moving to classify purchases related to cryptocurrencies and ICOs in “high risk” payment categories.

Late last week, the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) issued an advisory to U.S. financial institutions regarding Iran’s efforts to evade sanctions. The advisory included a section on virtual currency, stating that Iran has engaged in millions of dollars of bitcoin-denominated transactions since 2013. The FinCEN advisory included a reference to guidance from the Office of Foreign Assets Control (OFAC), under which “compliance obligations with respect to transactions are the same, regardless of whether a transaction is denominated in virtual currency or not.”

The U.S. Marshals Service recently announced that it will be auctioning off approximately 660 bitcoin forfeited in various federal criminal, civil and administrative cases involving the FBI, DEA, CBP, and other agencies. According to the U.S. Marshals Asset Forfeiture webpage, the sealed bid auction will require a deposit of $200,000.

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