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In this issue:
• <a href="#Multiple"> Multiple Pilots Drive Momentum for Leveraging Blockchain in the Food Supply Chain</a>
• <a href="#SEC"> SEC Rejects Winklevoss Bitcoin Trust, Commissioner Dissents</a>
• <a href="#New"> New Reports Detail ICO Scrutiny and Seek to Provide Clarity</a>
• <a href="#Blockchain"> Blockchain Adoption Continues in Both Institutional and Startup Environments</a>
<a id="Multiple"></a>Multiple Pilots Drive Momentum for Leveraging Blockchain in the Food Supply Chain

By: <a href="https://www.bakerlaw.com/JaimeBPetenko">Jaime B. Petenko</a>

A major global technology company recently shared additional details about the Food Trust, a consortium consisting of 10 of the world’s largest companies that are building a blockchain to improve visibility and accountability in the food supply chain. According to recent reports, the Food Trust has recorded over half a million transactions and includes full end-to-end traceability for approximately 200 stock keeping-units (SKUs). The Food Trust reportedly implements GS1 standards to ensure uniformity among all participants. Also according to recent reports, during the third quarter of 2018, the Food Trust plans to announce general availability of the technology and onboard additional companies.

The same major global technology company has partnered with Brooklyn Roasting Co., a roastery in Brooklyn, New York, to use blockchain to track and confirm the authenticity of 150 bags of Ethiopian Yirgacheffe coffee beans as they move from a co-op in Ethiopia to a Djibouti export warehouse to a port in New Jersey to the Brooklyn roastery. During a recent event, Brooklyn Roastery and its technology partner opened the blockchain ledger to the general public. By scanning the QR code on mugs connected to the blockchain, customers could view their coffee’s journey through the supply chain and view documents verifying the coffee’s authenticity, including fair trade certificates, packing invoices and delivery receipts.

This week, an Australian multinational bank announced the completion of a successful global trade using its new blockchain platform. The bank partnered with five domestic and international supply chain leaders to track the shipment of 17 tons of almonds from a packer in Victoria, Australia, to end delivery in Hamburg, Germany. The platform – underpinned by blockchain, the “internet of things” and smart contracts – digitizes the operations, documentation and finance areas of global trade. It provides partners with greater transparency and efficiency, allowing them to view and track the location of a shipment along the supply chain, as well as the temperature and humidity of the container, and to upload and access documents such as bills of lading, certificates of origin and customs documentation.

The Sustainable Sugar Project, led by the Queensland Cane Growers Organization, recently received an AU$2.25 million (US$1.7 million) grant from the Australian government for its Smart Cane Best Management Practice initiative. The initiative will use blockchain to track the provenance of sugarcane and allow for proof of provenance and sustainability of the farm producing the sugarcane. Blockchain will also enable farmers who are using sustainable practices to attract a premium for their product.

To read more about the use of blockchain in the food supply chain, please see the following:
<ul>
 	<li><a href="https://www.forbes.com/sites/stevebanker/2018/07/25/blockchain-gains-traction-in-the-food-supply-chain/#72ee93e21cf9">Blockchain Gains Traction in the Food Supply Chain</a></li>
 	<li><a href="https://www.adweek.com/digital/brooklyn-roasting-co-and-ibm-are-letting-you-track-your-coffee-on-the-blockchain/">Brooklyn Roasting Co. and IBM Are Letting You Track Your Coffee on the Blockchain</a></li>
 	<li><a href="#ftag=RSSbaffb68">Commonwealth Bank Tracing Almond Supply Chain via Blockchain</a></li>
 	<li><a href="https://cointelegraph.com/news/commonwealth-bank-of-australia-ships-17-tons-of-almonds-to-europe-with-blockchain">Commonwealth Bank of Australia Ships 17 Tons of Almonds to Europe with Blockchain</a></li>
 	<li><a href="https://cointelegraph.com/news/australian-government-awards-grant-to-blockchain-project-for-sustainable-sugar">Australian Government Awards Grant to Blockchain for Sustainable Sugar</a></li>
</ul>
<a id="SEC"></a>SEC Rejects Winklevoss Bitcoin Trust, Commissioner Dissents

By: <a href="https://www.bakerlaw.com/RobertAMusiala">Robert A. Musiala Jr</a>. and <a href="https://www.bakerlaw.com/JonathanAForman">Jonathan A. Forman</a>

On July 26, 2018, the U.S. Securities and Exchange Commission (SEC) issued an order disapproving a proposed rule change sought by Bats BZX Exchange Inc. (BZX) that would have allowed BZX to list and trade shares of the Winklevoss Bitcoin Trust (WBT). Had the rule change been approved, the WBT would have held bitcoins as its sole asset, shares of WBT would have been issued and redeemed in exchange for bitcoin, and WBT shares would have been available only to certain “authorized participants.” The WBT would have sought to have its shares track the price of bitcoin by calculating the net value of its bitcoin holdings every 15 seconds based on the price of bitcoin on the Gemini Exchange, a cryptocurrency exchange that is also owned by the Winklevoss twins.

Cameron and Tyler Winklevoss first sought SEC approval for the WBT more than five years ago, in July 2013. The brothers have amended the WBT registration statement nine times, with the recent disapproval order being the latest in a long string of rejections by the SEC. The SEC explained its rationale for this most recent disapproval order in a 92-page document. In brief, the SEC concluded that BZX was unable to show that it could design rules to prevent fraud and manipulation and to protect investors related to the WBT shares.

The SEC rejected the argument that the bitcoin market was inherently resistant to manipulation. In doing so, the SEC cited, among other things, the “51% vulnerability”; the concentration of bitcoin ownership; the prevalence of cyberattacks on bitcoin exchanges; and recent studies finding evidence of bitcoin price manipulation involving Tether, a cryptocurrency claimed to be backed 1:1 by U.S. dollars that is used as a store of value for cryptocurrency market participants. According to the SEC, because the bitcoin market is not resistant to manipulation, BZX would have had to have entered into appropriate surveillance-sharing agreements with “significant” regulated bitcoin markets in order to sufficiently deter fraud and price manipulation and protect investors. The SEC found that adequate surveillance-sharing agreements were not in place.

Notably, SEC Commissioner Hester M. Peirce issued a written dissent from the SEC’s disapproval order. Commissioner Peirce wrote that the SEC erroneously focused on the characteristics of the spot market for bitcoin. According to her dissent, the appropriate focus should have been on the ability of the exchange to prevent manipulative and fraudulent trading pursuant to Section 6(b)(5) of the Securities Exchange Act of 1934. Commissioner Peirce noted that the standards, requirements and controls under which BZX proposed the trading of WBT shares offered sufficient protection. By looking beyond them and weighing the merits of bitcoin itself, Commissioner Peirce wrote that the SEC overstepped what should have been a limited inquiry. Commissioner Peirce also criticized the order because, in her view, it inhibits institutionalization and dampens innovation in the industry, which would mitigate the risks on which the disapproval order was based. According to a July 24, 2018, notice published in the Federal Register, the SEC intends to issue an order approving or disapproving a similarly situated exchange-traded product by Sept. 21, 2018.

For more information on the SEC’s recent order, see the following:
<ul>
 	<li><a href="https://www.sec.gov/cgi-bin/browse-edgar?company=Winklevoss+Bitcoin+Trust&amp;owner=exclude&amp;action=getcompany">WINKLEVOSS BITCOIN TRUST CIK#: 0001579346</a></li>
 	<li><a href="https://www.sec.gov/rules/other/2018/34-83723.pdf?mod=article_inlinev">SECURITIES AND EXCHANGE COMMISSION (Release No. 34-83723; File No. SR-BatsBZX-2016-30)</a></li>
 	<li><a href="https://www.sec.gov/news/public-statement/peirce-dissent-34-83723#_ftn1?mod=article_inline">Dissent of Commissioner Hester M. Peirce to Release No. 34-83723; File No. SR-BatsBZX-2016-30</a></li>
 	<li><a href="https://www.gpo.gov/fdsys/pkg/FR-2018-07-24/html/2018-15768.htm">Federal Register Volume 83, Number 142 (Tuesday, July 24, 2018)</a></li>
</ul>
<a id="New"></a>New Reports Detail ICO Scrutiny and Seek to Provide Clarity

By: <a href="https://www.bakerlaw.com/NjeriSChasseau">Njeri S. Chasseau</a>

Earlier this week, Stanford Law School released a report finding that U.S. class action lawsuits related to initial coin offerings (ICOs) are set to double in the next few years. According to the report, there have been 12 class action lawsuits related to ICOs since 2016, alleging abuse due to a lack of accountability and failure to adhere to securities laws. ICOs also appear to be under increasing scrutiny abroad. Switzerland’s Financial Market Supervisory Authority recently launched proceedings against blockchain startup Envion AG, alleging that the company breached financial market laws during a January 2018 ICO that raised almost $100 million through the acceptance of nearly 100 million Swiss francs. The Swiss regulators are investigating whether Envion may be in violation of Swiss banking laws. The risk of fraud in the ICO industry was further highlighted by recent reports of an online ICO white paper writing service that apparently seeks to commoditize white paper writing for startups looking to launch ICOs.

Two recently released publications seek to provide guidance on the legal status of ICOs. The Chamber of Digital Commerce, along with the Token Alliance, released a report titled “UNDERSTANDING DIGITAL TOKENS: Market Overviews and Proposed Guidelines for Policymakers and Practitioners.” Additionally, the Stanford Journal of Blockchain Law &amp; Policy published an article that discusses the top 25 ICO jurisdictions and evaluates the related regulatory activity taking place in those jurisdictions.

For more information on blockchain and ICO lawsuits and regulation, see the following:
<ul>
 	<li><a href="https://www.forbes.com/sites/michaeldelcastillo/2018/07/25/ico-class-action-lawsuits-are-set-to-double-represent-just-a-tiny-fraction-of-historic-rates/#4c162a7692c6">Federal Class Action Lawsuits Against ICOs Are Set To Double</a></li>
 	<li><a href="https://www.law360.com/capitalmarkets/articles/1067175?utm_source=rss&amp;utm_medium=rss&amp;utm_campaign=section">Swiss Regulator Set to Launch Proceedings Against ICO Issuer</a></li>
 	<li><a href="https://www.coindesk.com/swiss-markets-authority-investigates-troubled-100-million-ico/">Swiss Markets Authority Investigates Troubled $100 Million ICO</a></li>
 	<li><a href="https://onlineshoppes.com/blockchain-ico-white-paper-writing-service/">Blockchain ICO White Paper Writer</a></li>
 	<li><a href="https://digitalchamber.org/token-alliance-whitepaper/">Token Alliance White Paper: Understanding Distributed Tokens</a></li>
 	<li><a href="https://stanford-jblp.pubpub.org/pub/ico-comparative-reg">Initial Coin Offerings: The Top 25 Jurisdictions and their Comparative Regulatory Responses</a></li>
</ul>
<a id="Blockchain"></a>Blockchain Adoption Continues in Both Institutional and Startup Environments

By: <a href="https://www.bakerlaw.com/RobertAMusiala">Robert A. Musiala Jr.</a>

Institutional financial services firms continue to integrate blockchain into their business models. Earlier this week, Forbes reported that a 129-year-old global asset management firm based in Chicago recently began offering fund administration services to three “mainstream hedge funds” that are “diversifying their portfolios with cryptocurrency investments.” The same firm has also begun implementing a blockchain solution based on Hyperledger Fabric to settle private equities transactions, and recently filed two blockchain patents. According to Cointelegraph, the same firm is exploring launching a cryptocurrency custody service.

In related news, a recent transaction took place in which, for the first time, two institutional traders swapped a position in the CME bitcoin futures market for an equivalent amount of the “physical asset” of bitcoin. This type of transaction is common in commodities trading, but now appears to be possible with bitcoin as the underlying commodity. And in international news, the Bank of Canada recently published a working paper analyzing the potential benefits of a “central bank digital currency” (CBDC). According to the paper, “[t]he welfare gains of introducing a CBDC are estimated at up to 0.64% for Canada.”

Fintech startups also continue to see increased adoption of blockchain. The cryptocurrency exchange Coinbase recently announced that it is now offering deposits and withdrawals denominated in the British pound. Square, the mobile payments firm, recently announced that its revenue from bitcoin sales reached $37 million in the second quarter of 2018. According to a recent article in Fortune, Bitmain – the world’s largest cryptocurrency mining company – earned approximately $1 billion in net profits in the first quarter of 2018. And in Switzerland, the online bank Swissquote reportedly experienced a 44 percent increase in profits in the first half of 2018, as a result of its new service offering bitcoin trading accounts for its clients.

For more information on recent trends in blockchain adoption, see the following:
<ul>
 	<li><a href="https://www-forbes-com.cdn.ampproject.org/c/s/www.forbes.com/sites/michaeldelcastillo/2018/07/31/northern-trust-opens-doors-to-cryptocurrency-hedge-funds-as-part-of-pervasive-blockchain-expansion/amp/">Northern Trust Opens Doors to Cryptocurrency Hedge Funds As Part Of Pervasive Blockchain Expansion</a></li>
 	<li><a href="https://cointelegraph.com/news/asset-management-firm-northern-trust-to-start-crypto-custody-business">Asset Management Firm Northern Trust to Start Crypto Custody Business</a></li>
 	<li><a href="https://www.ccn.com/institutional-investors-swap-bitcoin-futures-for-physical-btc-in-wall-street-first/">Institutional Investors Swap Bitcoin Futures for Physical BTC in Wall Street First</a></li>
 	<li><a href="https://www.bankofcanada.ca/wp-content/uploads/2018/07/swp2018-36.pdf">BANK OF CANADA: Central Bank Digital Currency and Monetary Policy</a></li>
 	<li><a href="https://www.coindesk.com/coinbase-adds-british-pound-for-uk-crypto-users/">Coinbase Adds British Pound for UK Crypto Users</a></li>
 	<li><a href="https://www.coindesk.com/square-sees-profits-from-bitcoin-sales-double-in-q2/">Square Sees Profits From Bitcoin Sales Double in Q2</a></li>
 	<li><a href="https://cointelegraph.com/news/bitmain-plans-overseas-ipo-earned-1-billion-in-net-profit-in-q1-sources-report">Bitmain Plans Overseas IPO, Earned $1 Billion in Net Profit in Q1, Sources Report</a></li>
 	<li><a href="http://fortune.com/2018/07/30/bitmain-valuation-profits/">Scoop: Bitcoin Mining Company Bitmain Hit $1.1 Billion in Profits in Q1 2018</a></li>
 	<li><a href="https://cointelegraph.com/news/major-swiss-online-bank-posts-soaring-profits-after-offering-clients-crypto-investing">Major Swiss Online Bank Posts Soaring Profits After Offering Clients Crypto Investing</a></li>
</ul>

Blockchain Developments: Food Supply Chain, Bitcoin ETPs, ICOs and Tech Adoption