Crypto Products Launch in Payments, ETFs, DeFi; Bitcoin Mining Data Published
By Veronica Reynolds
This week, a digital asset marketplace announced a partnership with a major multinational technology company specializing in Internet and cloud-based products and services. According to a press release, the partnership will allow consumers to use virtual debit cards funded with cryptocurrencies to pay for goods and services using the tech company’s popular digital payment portal.
Last week, the U.S. Securities and Exchange Commission (SEC) approved a new exchange-traded fund (ETF) that provides exposure to “Bitcoin Industry Revolution Companies,” defined in a related SEC filing as entities that “hold a majority of their net assets in bitcoin … or derive a majority of their revenue or profits directly from [Bitcoin] mining, lending, or transacting.” In a related development, the price of bitcoin reportedly rose above $60,000 for the first time in almost six months following a report that a bitcoin futures ETF may soon be approved by the SEC.
Overseas, a Swiss-regulated digital-asset exchange and bank has introduced a platform that will allow institutional clients to lend bitcoin and ether and earn yield on proof-of-stake protocols including Polkadot, Tezos and Cardano. According to reports, this will make the bank the first in the nation to provide access to these decentralized finance activities on a fully regulated basis.
According to a recently released report, the location of Bitcoin Network mining activity has experienced a seismic shift following China’s increased regulation of the mining sector, with the U.S. taking the lead in mining operation growth and development. According to the report, the “leading share of global Bitcoin Network hashrate now sits in the U.S.,” followed by Kazakhstan and the Russian Federation. The report indicates that the U.S. global hashrate has increased by 16.8 percent since the end of April, for a total global share of 35.4 percent as of August.
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G7 Considers Impact of CBDCs in New Publications
By Veronica Reynolds
This week, the G7 issued “G7 Finance Ministers and Central Bank Governors’ Statement on Central Bank Digital Currencies (CBDCs) and Digital Payments” and an accompanying guidance document titled “Public Policy Principles for Retail Central Bank Digital Currencies (CBDCs).” Among other things, the publications discuss “foundational issues” and “opportunities” associated with CBDCs, including monetary and financial stability; legal and governance frameworks; data privacy; competition; operational resilience and cybersecurity; illicit finance; spillovers; energy and environment; innovation; financial inclusion; payments to and from the public sector; cross-border functionality; international development; and dependencies that may be encountered in designing a retail CBDC ecosystem. The reports note that “[n]o G7 authority has yet taken the sovereign decision to issue a CBDC and careful consideration of the potential policy implications will continue.”
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Blockchain Solutions Launch in B2B Software; Cobalt and Leather Supply Chains
By Robert A. Musiala Jr.
Recent press releases announced the launch of blockchain solutions across various industries to streamline business operations. In one press release, a provider of B2B payments software announced that it had integrated blockchain to “unlock new supply chain financing opportunities,” “power digital B2B payments,” “streamline … manual processes” and mitigate fraud risk. In another press release, “one of the world’s largest physical commodity trading companies” and a “leading provider of supply chain provenance and emissions tracking services” announced a blockchain solution aimed at tracking emissions in the nickel and cobalt supply chains, with a focus on the electric vehicle industry. A final press release, published by a major global automobile manufacturer, announced a pilot program that will leverage “blockchain technology to ensure full transparency within a sustainable leather supply chain” in the automobile manufacturing process.
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SEC Commissioners Address Crypto Market Regulation in Contrasting Speeches
By Joanna F. Wasick
Last week at the Texas Blockchain Summit, U.S. Securities and Exchange (SEC) Commissioner Hester Peirce addressed SEC Chair Gary Gensler’s description of the crypto space as the “Wild West,” which, according to Peirce, “we imagine to have been lawless” and where “the gunslinger with the best reflexes and worst morals wins at everyone else’s expense.” Peirce accepted Gensler’s nomenclature but emphasized that the West, and by extension the crypto “frontier,” was a place for hard workers, idealists and freethinkers—an environment that breeds innovation and healthy industrialism. Addressing the regulatory environment, among other things, Peirce noted a “conflict between the SEC and the public” on whether there is “clarity as to when crypto assets are securities” and pointed to her proposed “safe harbor” provision as a step toward resolving this conflict. Peirce also posed questions that she believes should be at the forefront of regulators’ minds, including whether they were fighting for investors or “jurisdiction,” whether enforcement actions are the correct vehicle to bring legal clarity to the space, whether the value of stable coins (which Gensler has sharply criticized) was being overlooked and whether it made sense to treat certain decentralized finance protocols as centralized entities.
During this week’s SEC Speaks event, SEC Commissioner Caroline Crenshaw also commented on crypto regulation. Like Pierce, Crenshaw stated that regulation should support innovation. However, Crenshaw stressed that such support should not come at the expense of other industries, and she highlighted instances of fraud within the space. Crenshaw stated that there was no lack of clarity from the SEC in terms of guidance, and said that analyzing regulatory compliance has always been, “first and foremost, the responsibility of the enterprise and their counsel.” She criticized Peirce’s safe harbor idea, saying it would only delay regulatory decisions and would harm investors in the interim. Crenshaw stressed the need for transparency and encouraged blockchain businesses to meet with and collaborate with the SEC to achieve compliance. Both Peirce and Crenshaw noted that the views expressed in their speeches were personal and not those of the SEC.
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Foreign Regulators Address Crypto Advertising, Mining and Ransomware
By Keith R. Murphy
The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) recently published a joint staff notice intended to provide guidance to cryptocurrency trading platforms (CTPs) as to how securities regulation and IIROC rules concerning marketing, advertising and the use of social media might apply to them. The notice was reportedly issued following discovery by the CSA and the IIROC that certain advertising and marketing activities by CTPs may be in violation of securities rules, or otherwise raise public interest or investor protection concerns.
Separately, Canadian authorities are reportedly considering a multimillion-dollar fine against a company accused of operating a bitcoin-mining power plant without notifying the utilities commission, the county or surrounding neighbors. According to a recent report, the company operated two additional sites for the same purpose and has plans for three additional sites by year-end. The company is reportedly attempting to work through the issues with the utilities commission.
The Australian government recently issued a Ransomware Action Plan that discusses the country’s strategic approach to cybercriminals and ransomware. The plan discusses the wide-ranging effects of ransomware and identifies strategies and initiatives to address it, citing three primary objectives: prepare and prevent; respond and recover; and disrupt and deter. The plan’s proposed disruption and deterrence initiatives include “tackling cryptocurrency transactions associated with the proceeds of ransomware crimes.”
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ICO Founders Plead to Tax Evasion, Crypto Used in Illegal Sale of Nuclear Data
By Jordan R. Silversmith
This week the U.S. attorney for the Northern District of Texas announced that the founders of a crypto initial coin offering have pleaded guilty to tax evasion. According to plea papers, the two founders of the company raised approximately $24 million from more than 13,000 investors and then used those funds on personal expenses. The defendants’ guilty plea comes after a civil settlement with the Securities and Exchange Commission, in which the company agreed to pay an $8.3 million penalty to resolve claims that it defrauded investors and operated an unregistered digital asset exchange. Both men now face up to five years in federal prison.
According to a recent criminal complaint filed in the District Court for the Northern District of West Virginia, a nuclear engineer, who worked for the U.S. Navy, and his wife have been charged in a conspiracy to sell restricted data relating to the design of U.S. nuclear submarines to a foreign nation in exchange for cryptocurrency. The charge alleges that the pair violated the Atomic Energy Act, which prohibits the communication, transmission or disclosure of restricted nuclear data “with the intent to injure the U.S. or to secure an advantage to any foreign nation,” according to the statute. The couple allegedly received a total of $100,000 in cryptocurrency before they were arrested by the FBI and the Naval Criminal Investigative Service in West Virginia.
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