Company Announces Stablecoin Pilot; BIS Publishes Reports on CBDCs
By Robert A. Musiala Jr.
According to a blog post by a major multinational software company, the company has begun a pilot project to experiment with using the USDC and EUROC stablecoins (which are backed by U.S. dollars and euros, respectively) for cross-border payments. The blog post notes that the project aims to create a user experience that is as simple as online banking but that leverages blockchain technology to reduce costs, increase speed, and improve transparency for cross-border funds transfers.
In related news, the Bank for International Settlements (BIS) recently published two new papers addressing central bank digital currencies (CBDCs). The first paper provides the results of a 2022 BIS survey on CBDCs and crypto. Among other things, the paper finds that almost a quarter of central banks are piloting a retail CBDC and that more than 80 percent of central banks see potential value in having a retail CBDC, and suggests that there could be 15 retail and nine wholesale CBDCs publicly circulating by 2030.
The second paper is a report on CBDCs submitted by BIS to the G20 Finance Ministers and Central Bank Governors. Among other things, the report finds that wholesale CBDCs will be driven by the public and private sectors’ quest to shape the future of trading and settlement; the most promising CBDC model is a two-tier model with public-private partnership; the most fundamental feature of a CBDC is privacy; the greatest challenge for a CBDC is cybersecurity; and cross-border CBDC arrangements will present significantly increased complexity compared with domestic CBDCs.
For more information, please refer to the following links:
Bitcoin ETF Applications Refiled, Crypto Hedge Fund Report Published
By Robert A. Musiala Jr.
According to reports, a major U.S. equities exchange recently filed amended applications to list proposed bitcoin exchange-traded funds (ETFs) offered by four major financial firms. The amended applications reportedly include a commitment by the equities exchange to enter into a bitcoin spot market price surveillance-sharing agreement with a major U.S. cryptocurrency exchange. The U.S. Securities and Exchange Commission (SEC) has yet to approve a single bitcoin ETF application and has previously rejected approximately 30 prior applications. The rejection of the prior applications is reportedly due in part to the SEC requiring the listing exchange to have a surveillance-sharing agreement with a regulated market of significant size related to the underlying or reference bitcoin assets.
A “Big Four” professional services firm recently published its 5th Annual Global Crypto Hedge Fund Report. Among other things, the report finds that (1) crypto hedge fund investors are making greater demands for regulation and risk management, including through segregation of assets, financial audits, independent statements of reserve assets, and platform security assurances; (2) crypto hedge funds are seeking to improve their liquidity management tools, counterparty risk management, custody solutions, and use of decentralized exchanges; (3) 93 percent of crypto hedge funds expect the capitalization of the crypto-assets market to be higher at the end of 2023 than at the end of 2022; and (4) the U.S. regulatory environment has led to around a quarter of traditional hedge funds currently investing in crypto-assets to state that they may reconsider the viability of their crypto-assets strategy.
For more information, please refer to the following links:
Report Provides Data on Top NFT Royalty Earnings
By Robert A. Musiala Jr.
A recent report provided data on the top royalty earnings for nonfungible tokens (NFTs). As reported, the top three NFT royalty earners were the Bored Ape Yacht Club (over $58 million), Azuki (over $43 million), and Pudgy Penguins (over $7.2 million). In related news, in a recent NFT initiative, a French fashion brand has reportedly released NFTs that offer new features, including the ability for NFT holders to access physical merchandise and exclusive in-person and virtual events.
For more information, please refer to the following links:
Senate Finance Committee Members Seek Input on Digital Asset Taxation
By Robert A. Musiala Jr.
According to a recent press release, “Senate Finance Committee Chairman Ron Wyden, D-Ore., and Finance Committee Ranking Member Mike Crapo, R-Idaho … launched an effort to address uncertainties surrounding the tax treatment of digital assets with an open letter seeking input from experts, stakeholders and interested parties.” The letter is addressed to “Members of the Digital Asset Community and Other Interested Parties” and poses numerous questions on digital asset taxation issues related to the following topics:
- Marking-to-Market for Traders and Dealers (IRC Section 475)
- Trading Safe Harbor (IRC Section 864(b)(2))
- Treatment of Loans of Digital Assets (IRC Section 1058)
- Wash Sales (IRC Section 1091)
- Constructive Sales (IRC Section 1259)
- Timing and Source of Income Earned from Staking and Mining
- Nonfunctional Currency (IRC Section 988(e))
- FATCA and FBAR Reporting (IRC Sections 6038D, 1471-1474, 6050I, and 31 U.S.C. Section 5311 et seq.)
- Valuation and Substantiation (IRC Section 170)
The letter sets a deadline of September 8 for responses, which should be sent to responses@finance.senate.gov. The press release also notes, “To provide background on current law, Chair Wyden and Ranking Member Crapo asked the Joint Committee on Taxation to compile a report on the taxation of digital assets,” and provides a link to the recently completed report. Among other things, the report provides an in-depth analysis of each of the nine topics raised in the letter.
For more information, please refer to the following links:
Multiple DOJ and CFTC Actions Target Crypto Spoofing, Hacks, and Fraud
By Christopher Lamb
According to a recent press release issued by the U.S. Department of Justice (DOJ), a four-count indictment has been unsealed, charging an individual for “a scheme to impersonate the OpenSea marketplace in order to obtain unauthorized access to cryptocurrency and non-fungible tokens (NFTs).” The indictment alleges that the defendant stole approximately $450,000 worth of cryptocurrencies and NFTs. According to the release, the defendant allegedly used spoofing—in this instance, creating a fake version of the OpenSea login page—to obtain the victim’s digital wallet seed phrase, which allowed the defendant to steal the victim’s cryptocurrency and NFTs.
According to another recent DOJ press release, DOJ has charged an individual with wire fraud and money laundering in connection with an “attack on a decentralized cryptocurrency exchange.” According to the release, the defendant carried out an attack by “exploiting a vulnerability in one of the Crypto Exchange’s smart contracts and inserting fake pricing data to fraudulently cause that smart contract to generate approximately $9 million dollars’ worth of inflated fees that [the defendant] did not legitimately earn.” The defendant then laundered the stolen funds through a variety of methods, including token swaps, bridging, anonymized cryptocurrency, and overseas cryptocurrency exchanges.
A third DOJ press release announced charges against an individual in connection “with a scheme to steal money from investors and other victims by offering a variety of fraudulent cryptocurrency-related investment services, including sales of multimillion-dollar batches of cryptocurrency, marketing and advertising services, and short-term investments and loans.” The defendant allegedly worked together with his son in the scheme.
A recent press release issued by the U.S. Commodity Futures Trading Commission (CFTC) announced a default judgment by a U.S. district court granting a permanent injunction against a Florida resident and four companies he controlled, prohibiting them from trading in any CFTC-regulated markets or registering with the CFTC, as well as disgorgement and civil monetary penalties. According to the release, the individual attempted to manipulate the price of his own digital asset exchange, illegally offered futures transactions, failed to register with the CFTC, and failed to implement a know-your-customer program.
A second CFTC press release announced charges against two Florida residents for “perpetrating a multi-million dollar bitcoin fraud.” According to the release, the defendants engaged in “a deceptive and fraudulent scheme where they knowingly or recklessly made false representations to investors” in which they induced the investors to send money to the individuals to buy bitcoin. After receiving the funds, the individuals “failed to deliver the bitcoin as promised and failed to return the investors’ funds.”
For more information, please refer to the following links:
DOJ, SEC, CFTC, and FTC Bring Charges Against Crypto Firm and Executives
By Robert A. Musiala Jr.
According to recent press releases by the U.S. Department of Justice (DOJ), U.S. Securities and Exchange Commission (SEC), U.S. Commodity Futures Trading Commission (CFTC), and U.S. Federal Trade Commission (FTC), all four agencies have brought charges against Celsius Network, LLC (Celsius) and its former executives. According to the DOJ press release, among other things, the Celsius founder and former chief executive officer (CEO) and its former chief revenue officer (CRO) were charged with manipulating the market for the Celsius crypto token, CEL. The former CEO was charged with securities fraud, commodities fraud, and wire fraud for defrauding customers and misleading them about core aspects of the company. The former CEO and former CRO were further charged with “conspiracy, securities fraud, market manipulation, and wire fraud for illicitly manipulating the price of CEL … all while secretly selling their own CEL tokens at artificially inflated prices.”
According to the SEC press release, the SEC charged Celsius and its founder and former CEO “for violating registration and anti-fraud provisions of the federal securities laws, including by failing to register the offers and sales of Celsius’s crypto lending product, the Earn Interest Program; making false and misleading statements to investors of the Earn Interest Program and Celsius’s own crypto asset security, CEL; and engaging in market manipulation as it relates to CEL.”
According to the CFTC press release, the CFTC charged Celsius and its former CEO “with fraud and material misrepresentations in connection with the operation of its digital asset-based finance platform, which falsely touted high profits and security to induce customers to deposit their digital asset commodities on the platform.” The CFTC also alleged Celsius “acted as an unregistered commodity pool operator (CPO) and [the CEO] operated as an unregistered associated person (AP) of a CPO.”
Finally, according to the FTC press release, the FTC reached a settlement with Celsius that “will permanently ban it from handling consumers’ assets.” The FTC also charged three former Celsius executives with “tricking consumers into transferring cryptocurrency onto the platform by falsely promising that deposits would be safe and always available.”
For more information, please refer to the following links:
NFT Project Hacked, Mid-Year Crypto Crime Report Published
By Robert A. Musiala Jr.
According to reports, hackers recently stole $765,000 of NFTs in a SIM swap attack on the Gutter Cat Gang NFT project. The hackers reportedly took control of the project’s social media account and used it to share links to fraudulent NFT airdrops. The fraudulent links directed victims to take steps that allowed the hackers to gain access to the victims’ digital wallets and steal the NFTs and cryptocurrencies stored in the wallets.
Blockchain analytics firm Chainalysis recently published its Crypto Crime Mid-year Update. According to the report, “[t]hrough the end of June, crypto inflows to known illicit entities … are down 65% compared to … the same time in 2022” and “[i]nflows to risky entities (made up primarily of mixers and high-risk exchanges) are down 42%.” However, the report notes that ransomware is on pace to grow in 2023, “with attackers having extorted $175.8 million more than they did at the same time in 2022.”
For more information, please refer to the following links:
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