Financial Firms Integrate Crypto Offerings; Congressmen Address Bitcoin ETFs; NFT Boom Continues; Agencies Seek Crypto Oversight; Crypto Hacker Indicted

BakerHostetler

[co-author: Lauren Bass]

Traditional Financial Firms Integrate Crypto Services, CBDC Reports Published

By Jordan R. Silversmith

This week a fintech and e-commerce firm announced the integration of its payment gateway with a major U.S. financial services corporation’s new cryptocurrency processing service. According to the press release, merchants using the payment gateway “can now activate … cryptocurrency transaction processing at any time.” The fintech firm’s CEO noted that “crypto commerce … enables merchants to offer a broad choice of payment options that match customer’s expectations.”

According to reports this week, Australia’s largest bank has begun integrating bitcoin services into its banking app. The bank will reportedly enable its approximately 6.5 million customers to buy, sell and hold Bitcoin beginning next year. The bank’s customer base is believed to represent over 25% of Australia’s total population.

A major U.S. investment banking corporation and a U.S. consulting firm recently released a report discussing how banks can leverage central bank digital currencies (CBDCs) for global corporations. The report suggests that a $120 billion value in cross-border payments can be “unlocked” through a multicurrency central bank digital currency (mCBDC) network that would make round-the-clock and real-time, cross-border, cross-currency payments plausible.

In a related development, this week the Bank for International Settlements (BIS) released a new working paper addressing the potential role for digital money in emerging markets and developing economies. Among other things, the working paper discusses some of the benefits and drawbacks of stablecoin initiatives and CBDCs in emerging market countries and argues that improving the existential financial infrastructure in these economies may address many of the issues private stablecoins and CBDCs aim to address.

For more information, please refer to the following links:

Congressmen Advocate for Bitcoin Spot ETFs, Australia Issues Crypto ETP Regs

By Joanna F. Wasick

On Wednesday, two members of the Congressional Blockchain Caucus, Tom Emmer (R-Minn.) and Darren Soto (D-Fla.) wrote to the chair of the Securities and Exchange Commission (SEC) providing reasons why the SEC should approve bitcoin spot exchange traded funds (ETFs), especially in light of the SEC’s recent approval of two bitcoin futures ETFs. First, the letter urges, concerns of fraud and manipulation in bitcoin markets are no different for bitcoin futures ETFs (where the fund holds contracts to trade bitcoin at a future date at a specified price) as compared to spot ETFs (where the fund holds actual bitcoin). Second, spot ETFs are efficient and “strongly preferred” by investors. Third, permitting futures ETFs while denying spot ETFs causes alternative spot bitcoin investment vehicles to emerge, which goes against the SEC’s mission of protecting investors. The letter closes by stating that the congressmen take no position as to whether one type of bitcoin ETF is superior to the other, but that investors should have a choice to invest in a product that they decide is best for them.

Last week, the Australian Securities and Investments Commission (ASIC) issued a new set of regulatory requirements for funds seeking to offer crypto exchange traded products, including ETFS. ASIC also provided new guidance in which it stated that bitcoin and ether likely satisfy all factors that ASIC considers when determining whether an asset is suitable as an underlying asset for an ETP. ASIC also stated that it will not require domestic crypto custody for those entities issuing crypto ETFs, as such a restriction would unfairly limit competition.

For more information, please refer to the following links:

Sports Franchises and Music Platforms Continue to Embrace NFTs

By Lauren Bass

This week an American mixed martial arts (MMA) promotion company has reportedly teamed with a cryptocurrency app to release a collection of nonfungible tokens (NFTs) featuring memorabilia from the MMA universe. According to press releases, purchasers of the NFTs will also be entered into a sweepstakes to win exclusive MMA-centric prizes.

In other sports news, a Spanish soccer team is reportedly planning to offer an NFT collection featuring photos and videos from the team’s centurylong history. According to reports, the tokens will be available for auction later this month on an Ethereum-based blockchain.

Relatedly, an international cricket organization has reportedly partnered with a tech startup to create a virtual metaverse dedicated to the sport. According to press releases, the digital world, based on the Flow blockchain, will include unique NFTs, marquee activations, and immersive experiences featuring historical and iconic moments from the game.

In another recent development, last week a digital platform specializing in tokenized music assets reportedly teamed with a Japanese technology company to develop NFT- and blockchain-based services for musicians. According to reports, the new partnership aims to use blockchain technology to “reshap[e] the music industry.”

For more information, please refer to the following links:

Government Agencies Argue for Increased Oversight of Cryptocurrency Markets

By Keith R. Murphy

This week the President’s Working Group on Financial Markets released an interagency report on stablecoins, according to a press release. The release and corresponding report suggest that based on risks associated with increased use of stablecoins as payment, Congress should promptly enact legislation to provide a comprehensive regulatory framework and means to address risk concerning payment stablecoins and stablecoin arrangements. Secretary of the Treasury Janet L. Yellen is quoted as saying, “Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options. But the absence of appropriate oversight presents risks to users and the broader system.” Secretary Yellen further noted that current oversight is fragmented, allowing some stablecoins to fall beyond the regulatory perimeter.

In a speech this week, Michael Hsu, acting chief of the Office of the Comptroller of the Currency (OCC), suggested that large cryptocurrency firms seeking to provide multiple financial services should “embrace comprehensive, consolidated supervision” similar to banks, according to a report. Hsu noted that, currently, cryptocurrency firms are only partially and selectively regulated, resulting in risks and competitive inequalities, among other concerns. Following his arrival at the OCC, Hsu reportedly commenced a broad policy review of the OCC’s positions, including with respect to nontraditional bank charter applications and cryptocurrency-related guidance, the results of which he said are to be communicated shortly.

For more information, please refer to the following links:

DOJ Charges Cryptocurrency Hacker, Decentralized Exchange Hacked for $139M

By Elyssa S. Kates

This week, the United States Attorney’s Office for the Southern District of New York announced the unsealing of an indictment charging U.K. citizen Joseph “Plugwalk Joe” O’Connor with conspiracy to commit computer hacking, conspiracy to commit money laundering, conspiracy to commit wire fraud and aggravated identity theft. According to a press release, from approximately March 2019 to May 2019, Mr. O’Connor and his co-conspirators engaged in a SIM-swapping scheme through which they committed cyber intrusions and stole approximately $784,000 worth of cryptocurrency. According to the press release, Mr. O’Connor and his co-conspirators are alleged to have committed a cyberattack against a New York-based cryptocurrency company that provided wallet infrastructure and related software to its clients, and then allegedly stole, fraudulently diverted and laundered Bitcoin Cash, ether, bitcoin and Litecoin. Mr. O’Connor was previously charged with other crimes in connection with his alleged role in the hack of a major U.S. social media network. The United States is currently seeking Mr. O’Connor’s extradition from Spain.

In other news, according to reports, decentralized cross-chain exchange Boy X Highspeed (BXH) was hacked early this week, resulting in losses totaling $139 million in various cryptocurrencies. The CEO of the exchange reportedly said the hack was probably the result of a leaked administrator key and possibly an inside job.

For more information, please refer to the following links:

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