Credit Card Company To Integrate USDC Payments, 401(k) Advisor Integrates Bitcoin
By: Jordan R. Silversmith
A major U.S. credit card company has announced plans to link its global payments network of over 60 million merchants to a cryptocurrency startup’s Ethereum-based U.S. Dollar Coin (USDC). Although the credit card company itself will not custody the digital asset, the two companies will begin working to help credit card issuers begin integrating software for USDC into their platforms to enable USDC payments. Those businesses will in turn be able to send international USDC payments to any business supported by the credit card company, convert USDC into the local national currency and spend the funds anywhere that accepts the company’s credit card. The companies also plan to release a new credit card in the future that lets businesses send and receive USDC payments directly from any business using the card.
Digital Asset Investment Management (DAiM), a California-based registered investment advisor, recently announced that it has launched the first ERISA-compliant employer-sponsored 401(k) plans that integrate bitcoin into plans’ asset allocation. DAiM will serve as advisor and fiduciary to companies looking to create model portfolios of varying risk profiles comprising traditional assets and allocations of up to 10 percent of bitcoin.
A Japanese banking giant has announced plans to launch a blockchain payment network in 2021. The company expects the network to be fully functional throughout Japan by summer 2022.
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SEC Issues No-Action Letter on Digital Assets, Second Addresses ERC20 Token
By: Teresa Goody Guillén
The Division of Corporation Finance (CorpFin) of the U.S. Securities and Exchange Commission (SEC) issued its third no-action letter addressing digital assets, which is its second no-action letter addressing an ERC20 token. The no-action letter request involves “an online software application that people use to interact in virtual venues, play games … and offer and obtain virtual goods and services.” The “heart” of the platform is a virtual economy using digital credits, which cannot be transferred or used off the platform. The platform requested no-action relief to use an ERC20 token instead of the credits. The ERC20 token would have real value and can be transacted on and off the platform. CorpFin noted significant factors in granting the no-action relief, which include:
- The company will not use proceeds from the sale of the digital asset to finance the upgrade from credits to the digital asset, which will be fully functional and operational immediately upon its launch and before any digital asset is sold.
- The digital asset will be immediately usable for its intended purpose at the time it is sold.
- Digital asset holders will be subject to know your customer/anti-money laundering checks when they establish open wallets and on an ongoing basis.
- The digital asset will be made continuously available in unlimited quantities and at a fixed price.
- The company will not promote or support listing or trading of the digital asset on any third-party trading platform.
- Users who purchase the digital asset from the company will be required to affirm that they are acquiring the digital asset for consumptive use and not for speculative purposes.
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FinHub Role Expands, Foreign IPO and Lending Service Integrates Crypto
By: Teresa Goody Guillén
This week, the U.S. Securities and Exchange Commission (SEC) announced that its Strategic Hub for Innovation and Financial Technology (FinHub) will become a stand-alone office. Valerie Szczepanik will continue to lead FinHub as its first director and will report directly to the SEC chairman. FinHub was created in 2018 and housed within the Division of Corporation Finance. FinHub has been the SEC’s contact for market and technology innovators and domestic and international regulators to engage the SEC on emerging financial innovations and technologies in compliance with the federal securities laws.
An Australia-based company recently completed the nation’s first initial public offering (IPO) to use cryptocurrency for its capital raise, raising more than AU$5 million (US$3.65 million). It is reported that just over 89 percent, or approximately AU$4.4 million (US$3.2 million), of the total raise was made using the Stablecoin tether (USDT). The remaining funds were raised in Australian dollars. The company used a capital-raising platform that is reportedly Australia’s first such platform to accept both cryptocurrency and Australian dollars.
A subsidiary of a major Japanese financial services firm has launched a crypto lending service that will allow users to deposit bitcoin (BTC) and earn interest. The reported minimum and maximum amounts of BTC users can deposit is 0.1 BTC and 5.0 BTC, respectively. The firm said it plans on expanding the service to other cryptocurrencies, including XRP and Ethereum.
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Tax Bodies Address Cryptocurrencies, Exchanges React to Evolving Landscape
By: Robert A. Musiala Jr.
New tax reporting rules for cryptocurrencies may be on the horizon, according to reports covering the recent 2020 Global Blockchain Policy Forum hosted by the Organization for Economic Cooperation and Development (OECD). An OECD official reportedly said the OECD expects to release standards for the tax treatment of “cryptoassets” sometime in 2021. A U.S. tax official reportedly commented that the U.S. is concurrently developing domestic reporting rules for the tax treatment of cryptocurrencies. And in other regulatory news, the Bank for International Settlements, an international financial institution owned by central banks, recently published a working paper addressing risks and regulation of Stablecoins.
Cryptocurrency exchanges have recently announced actions that appear to be in response to the evolving regulatory landscape. A major U.S. exchange recently announced that for the 2020 U.S. tax season it will depart from its prior practice of issuing IRS Form 1099-K to certain users and will instead issue Form 1099-MISC. The same exchange also recently announced that it has disabled margin trading based on new guidance from the Commodity Futures Trading Commission.
Meanwhile, a major foreign-based exchange has reportedly escalated its efforts to remove U.S. persons from access to its platform.
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US and State Enforcement Agencies Take Action Against Crypto Fraud Schemes
By: Robert A. Musiala Jr.
Early this week, the U.S. Department of Justice announced that a Brazilian citizen has been extradited from Panama in connection with an indictment involving an international fraud and money laundering ring allegedly perpetrated “through investments in AirBit Club, a purported cryptocurrency mining and trading company.” According to a press release, the defendants “falsely promised victims that AirBit Club earned returns on cryptocurrency mining and trading and that victims would earn passive, guaranteed daily returns on any membership purchased.” Instead, according to the press release, no bitcoin mining or investment took place and the defendants enriched themselves.
In a series of recent actions by the Texas State Securities Board (TSSB), the TSSB issued cease-and-desist orders to 15 firms related to alleged fraudulent schemes involving cryptocurrencies. The schemes all appear to have used social media platforms to perpetrate fraud involving various illegal activities, including illegal referral programs, false claims of licensure, registration violations, material misstatements and omissions, false claims, and other deceptive activities.
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Foreign Regulators Scrutinize Privacy Coins, Seize/Sell Criminal Crypto
By: Joanna F. Wasick
The South Korean government, in an effort to reduce money laundering, recently enacted a law banning privacy coins (cryptocurrencies with additional anonymity features) on South Korean exchanges. The law will also require exchanges to implement a variety of “know your customer” measures.
Earlier this week, the Financial Transactions and Reports Analysis Centre of Canada issued guidance to financial institutions for detecting and reporting suspicious cryptocurrency transactions that may reflect money laundering and terrorist financing. Twenty-six types of suspicious activity are listed, including a number related to privacy coins, e.g., portfolios consisting primarily of privacy coins, transactions in which large quantities of bitcoin are exchanged for privacy coins, or clients unwilling or unable to identify the source of their privacy coins. Other listed activities focus on abnormalities in cryptocurrency addresses, how and when transactions take place, and other details that suggest criminal activity.
Last week, a report was released detailing the seizure of $4.2 billion in cryptocurrency by the Chinese government in a raid that occurred earlier in November. The raid was part of a case against PlusToken, a massive Ponzi scheme that pretended to offer high-yield returns after people deposited funds into the system.
In Lithuania, a local news source reported last week that the country’s tax department sold off confiscated cryptocurrencies for the first time, bringing in $7.5 million. The department reportedly gained possession of the cryptocurrency in February but no details were provided as to why the cryptocurrency was initially seized.
Pickle Finance, a popular decentralized finance (DeFi) protocol, recently announced that it was hacked last week, draining $19.7 million in DAI, a decentralized Stablecoin pegged to the U.S. dollar, from a Pickle wallet. The vulnerability that may have led to the attack has reportedly been fixed. The company stated that the hack, which did not appear to affect any other funds, was “very complicated”; however, the company said it would not disclose any specific details at this time.
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