Crypto Custody, Stablecoin Products Launch; El Salvador is Mining Bitcoin
By Christopher Lamb
According to a recent press release, Fireblocks has launched the Fireblocks Global Custodian Partner Program, a global network of licensed digital asset custodians aimed at helping customers meet “rapidly rising regulatory standards.” Initially including custodians from the U.S., UAE, UK, Singapore, Thailand and Australia, the program allows Fireblocks customers to “connect to licensed providers securely while seamlessly managing their digital asset operations on the Fireblocks platform.” The release also announced Fireblocks’ plans to establish a limited-purpose trust company under the regulation of the New York Department of Financial Services to offer cold storage custody solutions.
According to another recent press release, Coins.ph has received approval from the Bangko Sentral ng Pilipinas (BSP) to pilot a Philippine Peso-backed stablecoin called PHPC under the BSP’s Regulatory Sandbox Framework. The PHPC stablecoin is pegged 1:1 to the Philippine Peso and backed by Coins.ph’s cash reserves in Philippine banks, ensuring “users can reliably redeem their PHPC for Phillipe Peso.” The pilot will assess PHPC’s “functionality and potential benefits” in real-world applications such as domestic and cross-border payments, virtual asset trading, and providing liquidity in DeFi applications. Successful pilots may transition to public implementation, pending BSP’s final approval.
According to recent reports, since 2021, El Salvador has mined nearly 474 bitcoins using geothermal energy from the Tecapa volcano, increasing the government’s bitcoin holdings to around $354 million at current prices. This initiative reportedly dedicates a small portion of the 102 megawatts produced by the state-owned power plant to cryptocurrency mining. In related news, El Salvador has launched its own proof-of-reserves website accompanied with various tools that allow users to monitor the country’s bitcoin holdings using on-chain data. The country’s “Bitcoin Office” reports that El Salvador now possesses 5,750 bitcoins.
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Executive Order Halts Crypto Mining Operations Based on Ties to China
By Robert A. Musiala Jr.
According to a press release by the U.S. Department of the Treasury, on May 13 President Joe Biden “issued an order prohibiting the purchase and requiring the divestment of certain real estate operated as a cryptocurrency mining facility located within one mile of Francis E. Warren Air Force Base (F.E. Warren AFB), as well as requiring the removal of certain improvements and equipment at the property” by a group of affiliated companies based on the companies’ ties to the People’s Republic of China.
According to the press release, the U.S. Committee on Foreign Investment in the United States (CFIUS) “identified national security risks arising from the transaction relating to the proximity of the property to F.E. Warren AFB.” The press release further noted, “The proximity of the foreign-owned cryptocurrency mining facility to a strategic missile base and key element of America’s nuclear triad, and the presence of specialized and foreign-sourced equipment potentially capable of facilitating surveillance and espionage activities, presented a significant national security risk that led to CFIUS’s referral to the President.”
According to reports, a U.S. cryptocurrency mining company had reached an agreement to purchase the mining site less than a week prior to the President’s order. The U.S. company reportedly intends to press forward with the purchase agreement.
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House to Vote on Bill Providing Regulatory Clarity for Digital Assets
By Isabelle Corbett Sterling
The House Committee on Rules recently announced that it will put to floor vote the Financial Innovation and Technology for the 21st Century (FIT21) Act. A press release from the House Financial Services Committee says the bill represents a bipartisan effort years in the making to provide regulatory clarity for digital assets that will encourage innovation, protect consumers and maintain the U.S. as a global financial leader. The FIT21 Act is a joint effort by the House Financial Services Committee and the House Agriculture Committee. According to the press release, the bill would give the U.S. Commodity Futures Trading Commission (CFTC) new jurisdiction over digital commodities, clarify the jurisdiction of the U.S. Securities and Exchange Commission (SEC) over investment contracts, and create comprehensive registration regimes. The press release further notes that the bill will give digital asset developers clarity around raising funds in a compliant way and create a process to allow secondary trading of digital commodities that were initially offered as an investment contract.
According to the press release, the bill contains disclosure requirements, asset safeguarding provisions and operational requirements for SEC and CFTC registrants. Under the bill, digital asset developers would have to disclose information including the ownership and structure of the digital asset project, as well as information about its operation, while digital asset customer-serving institutions (e.g., exchanges and brokers) would have to provide customer disclosures, segregate customer funds and put in place conflicts-of-interest controls.
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U.S. Senators Express Concerns Over Recent DOJ Crypto Enforcement Actions
By Robert A. Musiala Jr.
According to a recent press release by the office of U.S. Senator Cynthia Lummis, “U.S. Senators Cynthia Lummis (R-WY) and Ron Wyden (D-OR) sent a letter to U.S. Attorney General Merrick Garland raising significant concerns that the U.S. Department of Justice (DOJ) has diverged from the clear, logically sound and well-established definition of ‘money transmission’ established by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).” According to the press release, “DOJ’s unprecedented and unlawful change in interpretation of the law threatens to criminalize core elements of Bitcoin and other crypto networks and prevents responsible financial innovation from occurring in the U.S.” The press release states that the DOJ’s “new expansive interpretation that argues money transmission requirements extend to non-custodial software has been seen in two recent criminal cases” and cites the DOJ’s recent enforcement action against the co-founders of Samourai Wallet and the DOJ’s recently filed reply brief in the ongoing criminal case against Roman Storm, a developer of Tornado Cash.
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DOJ, CFTC, FINTRAC Announce New Crypto Enforcement Actions
By Isabelle Corbett Sterling
The DOJ recently announced the indictment of two brothers for wire fraud, conspiracy to commit wire fraud and conspiracy to commit money laundering when they attacked the Ethereum blockchain and stole $25 million in a matter of seconds. According to a DOJ press release, the brothers gained access to pending transactions, altered them and obtained the victims’ cryptocurrency, which they then hid and refused to return. The DOJ press release called the exploit “a first-of-its-kind manipulation of the Ethereum blockchain.” If convicted, each defendant will face a maximum sentence of 20 years in prison for each count.
In another recent enforcement action, the CFTC announced that it filed and settled charges against a company organized in the Seychelles that was acting as an unregistered Futures Commission Merchant by providing U.S. persons with access to digital asset derivatives trading platforms. According to a CFTC press release, the CFTC has made clear it will pursue unregistered exchanges, but this settlement demonstrates it will charge unregistered intermediaries as well. The CFTC said the company paid almost $1.2 million in disgorgement and almost $600,000 in a civil monetary penalty. The CFTC noted the company’s substantial cooperation and remediation and, as a result, assessed a smaller penalty in hopes that it would encourage others to come forward and report their activities.
In a news release, Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) announced that it imposed on a foreign cryptocurrency exchange a monetary penalty of $6,002,000 for noncompliance with money laundering prohibitions and the Terrorist Financing Act and its associated regulations. Specifically, the company was found to have failed to register as a foreign money services business and failed to report large virtual currency transactions of over $10,000.
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Multiple Crypto Hacks and Scams Continue by Both State and Private Actors
By Keith R. Murphy
According to a recent report, sanctions monitors advised the United Nations (U.N.) Security Council sanctions committee that they had been investigating 97 suspected cyberattacks connected to North Korea on cryptocurrency companies during the period from 2017 through 2024. The total value related to those cyberattacks was reported to be $3.6 billion, with part of those proceeds being laundered at various times through mixing service Tornado Cash, including $147.5 million laundered through Tornado Cash in March. Among other revelations, the report notes information that many thefts have been conducted by North Korean information technology workers who were inadvertently hired by small cryptocurrency companies, and that such workers operating abroad “generate substantial income for the country.” The report further notes that the U.N. sanctions monitors were disbanded in April of this year following a veto of their annual renewal by Russia, but that the monitors turned over their unfinished work to the U.N. regardless.
According to another recent report, a cryptocurrency user was tricked into sending $68 million worth of wrapped bitcoin to the wallet address of an exploiter through the use of address poisoning. The exploiter reportedly mimicked the first six and last six numbers of a longer number address string, with the hope that the user would not notice differences in the middle address numbers that led instead to the exploiter’s wallet. The exploiter reportedly executed a 0.05 ETH transaction with the user from the mimicked wallet address prior to the user then sending 1,155 WBTC to the same wallet.
In another recent hack, a lending protocol lost $20 million in various cryptocurrencies, based on a recent report. The attack was discovered by a Web3 security firm, and within 25 minutes of discovery the $20 million had already been drained, causing the protocol to pause operations, according to the report. An investigation of the hack revealed that it was a donation attack conducted on the protocol’s Compound V2 forks, which had a known vulnerability, as noted in the report.
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