Blockchain Week in Review - February 2021

Perkins Coie

Perkins Coie

Weekly Focus:

  • US Senate Confirms Janet Yellen as Secretary of the Treasury
  • FinCEN Extends Comment Period for Rulemaking on Cryptocurrency Transaction Requirements
  • Hawaii’s Digital Currency Innovation Lab Reopens for Applications
  • Philippines Central Bank Issues Anti-Money Laundering Guidelines for Cryptocurrency
  • Bank of International Settlements Publishes Survey on Central Bank Digital Currency
  • Coinbase Announces More Details Related to Its Proposed Public Offering
  • Valkyrie Investments Files Application for Bitcoin ETF

US Regulatory Developments

US Senate Confirms Janet Yellen as Secretary of the Treasury

The U.S. Senate confirmed Janet Yellen’s appointment as secretary of the treasury after a vote on Monday. Secretary Yellen previously served as chair of the Federal Reserve and is the first woman to hold the office.

Secretary Yellen has previously given mixed assessments on Bitcoin, cryptocurrencies, and blockchain technology generally. In her 2016 testimony to the House Committee on Financial Services, Secretary Yellen stated that blockchain technologies “could be extremely helpful and bring benefits to society,” and she reiterated this belief in later statements. However, in a 2018 speech to the Canada Fintech Forum, Yellen noted that she was “not a fan” of bitcoin, going on to state that many of the transactions that “take place on bitcoin are illegal, illicit transactions.”

In her confirmation hearing, Secretary Yellen stated that it is her belief that many cryptocurrencies “are used, at least in transactions sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels.”

Secretary Yellen’s confirmation hearing may be found here.

An article that outlines Secretary Yellen’s previous statements on Bitcoin, cryptocurrencies, blockchain, and regulation may be found here.

FinCEN Extends Comment Period for Rulemaking on Cryptocurrency Transaction Requirements

FinCEN has extended the comment period for a proposed rulemaking related to cryptocurrency and digital asset transactions. The initial notice, issued on December 23, 2020, set a deadline of January 4, 2021, for comment submissions. After public criticism, the comment period was extended an additional fifteen days, and following an announcement on Tuesday, the comment period has been extended again to March 29, 2021.

The proposed rule would implement “recordkeeping, verification, and reporting requirements for certain deposits, withdrawals, exchanges, or other payments or transfers of [convertible virtual currencies] or [legal tender digital asset] by, through, or to a bank or [money services business].” The proposed rule would target transactions with unhosted wallets, imposing recordkeeping and reporting requirements, and redefine cryptocurrencies as “monetary instruments” for purposes of the Bank Secrecy Act.

The notice of the proposed rulemaking may be found here, and the press release and notice of extension may be found here.

Hawaii’s Digital Currency Innovation Lab Reopens for Applications

In a Monday press release, the State of Hawaii Department of Commerce and Consumer Affairs, Division of Financial Institutions (the Division) announced the reopening of applications for Hawaii’s Digital Currency Innovation Lab, a digital currency regulatory “sandbox” program. In the press release, the commissioner of the Division, Iris Ikeda, stated that the Division wished to grow the program given the program’s “strong start” and “positive traction with the first cohort of companies.” The deadline for applications is February 26, 2021, at 5:00 p.m. (HST).

The program allows companies to provide money transmitter services in the State of Hawaii without obtaining the requisite license. Upon acceptance to the program, the Division issues a “no action” letter, which states that the Division will not take action against participating companies so long as they adhere to reporting and consumer protection requirements contained within the letter. Eleven companies are currently participating in the sandbox program, and nineteen applied.

A copy of the press release may be found here.

We have previously discussed the impact of regulatory sandboxes here.

International Regulatory Developments

Philippines Central Bank Issues Anti-Money Laundering Guidelines for Cryptocurrency

The Central Bank of the Philippines (Bangko Sentral ng Pilipinas) published guidelines related to “Virtual Asset Service Providers,” replacing previous guidance directed at virtual currency exchanges. The guidelines provide a set of rules and regulations to govern cryptocurrency business in the Philippines in line with the Financial Action Task Force Recommendations. In discussing the policy behind the guidelines, the Bank discussed the balance between the benefits of innovation related to virtual currencies and the risks posed by cryptocurrencies, such as its use for money laundering and terrorist financing.

Virtual Asset Service Providers must receive a “Certificate of Authority” prior to operating in the Philippines as a money services business. Approval for a Certificate requires that the provider adhere to minimum capital requirements and pay an annual service fee. Additionally, providers must meet minimum security standards for risk management, cybersecurity, internal controls, and vendor management. Once operational, providers must record and report transaction information, conduct due diligence on customers, and adhere to consumer financial protection requirements.

The guidelines may be found here.

Bank of International Settlements Publishes Survey on Central Bank Digital Currency

The Bank of International Settlements (BIS) published the results of a survey on central bank digital currencies (CBDCs). The survey, conducted in late 2020, was an effort to gauge current central bank interest and activity related to CBDCs. Sixty central banks were surveyed.

There were several highlights from the survey results. Notably, the “vast majority” (86%) of the central banks surveyed are currently analyzing the use, benefits, and consequences of CBDCs, and the report also pointed to the Bahamian Central Bank’s issuance of the first general purpose CBDC as a significant milestone. Additionally, the survey found that the number of central banks conducting general research has increased in each of the three years surveyed—2018, 2019, and 2020. The number of central banks conducting experiments using CBDCs, along with the number developing pilot programs, also increased after seeing a drop in 2019.

The full text of the survey may be found here.

Industry Developments

Coinbase Announces More Details Related to Its Proposed Public Offering

Coinbase Global, Inc. provided additional background into the nature of its proposed public offering in a press release issued January 29, 2021. As we have previously reported, Coinbase submitted a draft registration statement on December 17, 2020. Following the announcement of the registration statement, press outlets speculated as to the nature of the listing and potential valuations. In the January 29 press release, Coinbase confirmed “its intent to become a publicly-traded company pursuant to a proposed direct listing of its Class A common stock.”

The press release can be found here.

Valkyrie Investments Files Application for Bitcoin ETF

Valkyrie Digital Assets LLC submitted an application for a Bitcoin based “exchange traded fund” (ETF). The application, as a Form S-1 Registration Statement, was submitted to the Securities and Exchange Commission (SEC) on Friday, January 22, 2021. The application is one of a long line of previous applications for a Bitcoin ETF, all of which have been denied. Although the SEC has requested comment on Bitcoin ETFs, it has yet to approve any of the applications that have been submitted.

The “Valkyrie Bitcoin Fund” registration statement may be found here.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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