Reports Address CBDCs and Security Tokens, Banks Launch Crypto Initiatives
By: Veronica Reynolds
A recent report released by the Bank for International Settlements (BIS) analyzes results from a survey of 50 central banks in the first quarter of 2021 on the cross-border use of central bank digital currencies (CBDCs). Among other things, the report finds that “28% of surveyed central banks are considering options to make CBDCs interoperable by forming multi-CBDC arrangements.” Even so, the report indicates that while many central banks are considering permitting CBDCs to be used within their own borders, fewer are open to use of the same CBDCs outside of their jurisdictions, due in part to risks of tax avoidance and other enforcement issues. The risks of CBDCs were recently highlighted by analysts at a major investment bank, who reportedly have warned that in a bear case scenario, deployment of a digital euro could siphon 8 percent of banks’ customer deposits in the European region.
A recently launched division at a global financial services and bank holding company will focus on CBDCs and other cryptographic assets. According to a press release, one objective of the newly launched division is to build a multi-asset platform that will support cryptographic assets alongside other asset classes. In a related development, a multinational investment bank announced plans this week to expand its trading desk by offering ether derivatives to customers in the coming months.
Coin telegraph published its first report on security tokens earlier this month. Among other things, the report suggests that by 2030, most securities will be tokenized due to demands for greater transparency, instant settlement and liquidity. The report cites a projection that the security token market could increase to $8 trillion by 2025 and predicts that the emergence of self-custody securities will grow, with investors attracted by the ability to use their securities as collateral for loans or earn interest by depositing their securities and allowing exchanges to lend shares to other borrowers. The report also provides a survey of the current regulatory frameworks applicable to security tokens.
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NFT Sales Continue at Auction House, US Space Force and News Organization
By: Veronica Reynolds and Sally Kim
One of the world’s largest fine art auction houses recently sold “CryptoPunk 7523,” a non-fungible token (NFT) of digital artwork, for a record price of $11.7 million last Thursday. The piece was one of 28 NFTs sold at the auction over the course of a week, for a total sale of $17.1 million. The same auction house also recently opened its first-ever virtual gallery powered by Ethereum, and in May it announced its acceptance of cryptocurrencies bitcoin and ether as payment for physical artworks.
The United States Space Force launched its first NFT collection this week, to commemorate its launch of the fifth vehicle of its GPS III fleet of satellites in honor of Neil Armstrong, the first astronaut to set foot on the moon. The collection, titled “Armstrong Satellite NFT Launch with Space Force,” features augmented reality NFTs and is the first official, corresponding NFT campaign for a space launch. The collection also includes a limited-edition digital twin NFT of the satellite and a 3D NFT depicting at least 30 satellites currently in orbit.
Also this week, a major news organization announced the launch of tokenized collectible historic moments, such as space travel, technological advances and election results, and a vault for buyers to store the moments. The news organization will retain the copyright and ownership of the content and will not require cryptocurrency in order to purchase the NFTs.
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Blockchain Initiatives Announced in Food, Automotive and IP Sectors
By: Jordan R. Silversmith
In a first, a cattle ranch in western Nebraska announced it will begin using new blockchain-based digital tracking technology to trace cattle through the supply chain. Twenty steers at the ranch received an implanted Bluetooth sensor that will track the animals’ health and catalog proof-of-life records. The data will be stored in a private digital wallet and can be shared with inspectors, buyers and other cattle producers.
A major Japanese general trading company announced on Monday it is participating in the Los Angeles-based Mobility Open Blockchain Initiative (MOBI), a nonprofit working to set blockchain standards for the automotive sector supply chain. MOBI and the Japanese company will focus on creating an efficient global supply chain for in-demand lithium-ion batteries and will work together to create a global decarbonized society.
A global cybersecurity company recently announced that it has developed functionality on its new TrustedNFt.IO platform to tokenize patents, thereby allowing intellectual property to be treated as unique business assets. The platform, which converts patents into NFTs, makes each patent a unit of data on the blockchain. The company believes that this will make patents easier to license, sell and commercialize.
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US Congress Members and Foreign Regulators Pursue Cryptocurrency Reforms
By: Keith R. Murphy
This week, the top-ranking Republican on the Senate Banking Committee cautioned that a proposed Financial Crimes Enforcement Network counterparty rule could have a detrimental effect on cryptocurrency firms, while simultaneously not aiding in the combat of illicit activity. According to a report, Sen. Pat Toomey raised his concerns in a letter to Janet Yellen, the U.S. Treasury secretary, arguing that cryptocurrencies have the potential to significantly improve consumers’ privacy and access to financial services, and that the proposed regulation could negatively impact financial technology, among other pitfalls.
In related news, several members of the House of Representatives Blockchain Caucus recently joined in a letter sent to the commissioner of the Internal Revenue Service (IRS) requesting that the commissioner amend a certain tax form utilized for charitable giving to eliminate an unnecessary, and perhaps unintended, cryptocurrency reporting requirement. According to a report, the existing provision prevents donors from reporting the fair market value of a donation by reference to the exchange price or an index price, and instead imposes a burden of obtaining a written appraisal by a qualified IRS appraiser.
Last week the Intergovernmental Fintech Working Group, a group of South African financial sector regulators, released a position paper on cryptocurrency assets. According to a summary, the paper recommends that South Africa implement a staged process to bring cryptocurrency assets within the country’s regulatory structure via regulation of cryptocurrency asset service providers, and sets forth 25 recommendations for a revised South African legal, regulatory and policy position with respect to cryptocurrency assets and associated activities.
According to a report this week, regional authorities in China have begun cracking down on cryptocurrency mining operations in several areas of the country in response to China’s recent ban on such activity. Despite enforcement of the new restrictions, the report notes that China has indicated its intention to create an “advanced blockchain industrial system” in connection with its goal to become a world blockchain leader by 2025.
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SEC Charges ICO Fraud, SEC/CFTC Warn Bitcoin Futures Are Highly Speculative
By: Teresa Goody Guillén
This week, the U.S. Securities and Exchange Commission (SEC) charged three additional individuals for their roles in a $30 million initial coin offering (ICO) fraud that was spearheaded by a convicted criminal. In January 2020, the SEC had charged the convicted criminal, his associate and their companies, CG Blockchain Inc. and BCT Inc. SEZC, in connection with the scheme. The SEC’s complaint charges the three additional defendants with violating and aiding and abetting violations of the antifraud provisions of the federal securities laws and with violating securities registration requirements. The complaint seeks disgorgement of ill-gotten gains plus interest, penalties and injunctive relief.
The SEC’s Office of Investor Education and Advocacy and the Commodity Futures Trading Commission’s (CFTC) Office of Customer Education and Outreach recently issued a joint investor bulletin that urges investors to “weigh carefully the potential risks and benefits” of an investment in bitcoin futures. The bulletin warns that bitcoin futures are “highly speculative,” and discusses bitcoin’s price volatility and the “lack of regulation and potential for fraud or manipulation” in the bitcoin market. The bulletin notes that bitcoin is a commodity in the U.S., and therefore, bitcoin futures trading is required to take place on futures exchanges regulated and supervised by the CFTC. Before investing in a fund that buys or sells bitcoin futures, the bulletin advises investors to consider (1) the investor’s risk tolerance, (2) the fund’s disclosure of its risks, (3) the potential loss of the investment and (4) the difference in investment outcome.
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