Market Actors Continue to Integrate Cryptocurrency into Payment Systems
By: Robert A. Musiala Jr.
According to a press release this week, California-based Silvergate Bank announced that it will become the issuer of Diem USD, a new cryptocurrency “stablecoin” with each Diem USD unit backed by U.S. dollars. Diem USD will reportedly be issued on the “Diem payment system,” a “blockchain-based payment system to support financial inclusion and responsible financial services innovation.”
Another central bank digital currency (CBDC) pilot was announced this week. According to reports, Israel’s central bank is “considering issuing a digital shekel that would create a more efficient payments system.” The Bank of Israel is reportedly asking for public comments on CBDCs and has established a panel to perform a feasibility study.
This week, a major U.S. money transfer service announced a partnership with “the largest licensed cryptocurrency cash exchange in the U.S.” According to a press release, the partnership “will bring bitcoin to thousands of new point-of-sale locations in the U.S., with plans to expand to select international markets in the second half of 2021.” In a separate announcement, a major U.S. fintech firm announced that its “Cash App generated $3.51 billion of bitcoin revenue and $75 million of bitcoin gross profit during the first quarter of 2021, each up approximately 11x year over year.”
More companies announced that they will begin accepting cryptocurrencies as payment this week. A U.S.-based “digital insurance platform and pay-per-mile auto insurer” will soon allow policyholders to pay for insurance and receive payment for eligible and approved insured claims in bitcoin. And a luxury condominium complex in Miami is reportedly now accepting cryptocurrency as payment for sales of its multimillion-dollar residences.
For more information, please refer to the following links:
US Firms Launch Bitcoin Investment Products and Enhance Crypto Offerings
By: Robert A. Musiala Jr.
According to reports this week, a major U.S. investment bank has “opened up trading with non-deliverable forwards, a derivative tied to Bitcoin’s price that pays out in cash.” As part of the new offering, the bank will reportedly seek to protect itself from volatility by buying and selling bitcoin futures in block trades on a major U.S. futures exchange and through a partnership with a Chicago-based cryptocurrency over-the-counter trading firm. The same investment bank also recently executed the first trades through its newly launched cryptocurrency trading desk, according to sources.
Another U.S.-based investment firm has reportedly launched a new exchange-traded fund (ETF) in Europe that offers investments in cryptocurrencies and blockchain. The fund will reportedly track an index of companies that generate at least 50 percent of their revenue from digital assets or have 50 percent of their assets invested in digital asset holdings or projects.
According to recent reports, Bitfarms, a Canadian bitcoin mining firm, has been approved to list its shares on the Nasdaq Global Market. And in the private markets, tZERO, a registered broker-dealer and alternative trading system (BD-ATS), issued a press release to announce that it has formed partnerships with three firms that will enhance its BD-ATS services, which enable issuance and secondary trading of blockchain-based private securities.
For more information, please refer to the following links:
Auction Houses Continue with NFT Sales, Dictionary Adds ‘Non-Fungible Token’
By: Veronica Reynolds
Two well-known auction houses generated millions this week via cryptocurrency-related auctions. The first involved an auction for nine rare CryptoPunks, early non-fungible tokens (NFTs) that launched in 2017, which collectively went for nearly $17 million. The CryptoPunks that were sold in the auction all were among the first 1,000 minted by creator Larva Labs, and they were sold from the company’s own collection. The second involved the sale of seminal artist Banksy’s protest piece “Love is in the Air.” The physical artwork sold for $12.9 million, and bidders had the option to bid in bitcoin or ether, with transactions to be effectuated through Coinbase Commerce. According to reports, the sale “marks the first time cryptocurrency was accepted as a payment option for a piece of physical artwork.”
Also this week, Merriam-Webster added to its dictionary a definition of “non-fungible token” and commemorated the announcement by auctioning an NFT version of the definition on OpenSea, a popular NFT marketplace. The auction ends today, with proceeds being donated to Teach For All, “a network of organizations from 60 countries aiming to tackle educational inequality around the world.”
One of the world’s largest online peer-to-peer marketplaces has begun experimenting with NFTs as well, for the first time allowing sellers to peddle NFTs on its platform. A select number of sellers will be provided with NFT inventory, with plans by the marketplace to expand its NFT offerings over time, according to reports.
With “Bitcoin Pizza Day” just around the corner, customers of a large pizza restaurant chain in the U.K. will have an opportunity to receive bitcoin for purchases that reach a certain threshold of value. Customers will be able to claim their bitcoin through the Luno cryptocurrency exchange. Bitcoin Pizza Day is a commemorative “holiday” that celebrates May 22, 2010, the day that is generally recognized as the first time a person engaged in a commercial transaction of cryptocurrency in exchange for two pizzas.
For more information, please refer to the following links:
SEC Staff Statement Addresses Risks and Monitoring of Bitcoin Futures Funds
By: Teresa Goody Guillén
The Division of Investment Management (IM) staff of the U.S. Securities and Exchange Commission (SEC) issued a statement this week on funds registered under the Investment Company Act of 1940 (Investment Company Act) that invest in the Bitcoin futures market. The statement strongly encourages investors interested in investing in a mutual fund with Bitcoin futures market exposure to carefully consider the risk disclosure of the fund, the investor’s risk tolerance and the possibility of investor loss. Among other things, the statement advised that IM staff and Division of Examinations staff will closely monitor and assess such mutual funds’ and investment advisers’ ongoing compliance with the Investment Company Act and other federal securities laws, including the impact of mutual funds’ investments in Bitcoin futures on investor protection, capital formation, and the fairness and efficiency of markets. As part of this monitoring, the staff expects to:
- Analyze the liquidity and depth (e.g., number of participants) of the Bitcoin futures market.
- Analyze mutual funds’ ability to liquidate Bitcoin futures positions as necessary to meet daily redemption demands and the efficacy of mutual funds’ derivatives risk management.
- Monitor funds’ valuations of holdings in the Bitcoin futures market and the impact of mutual fund participation in the Bitcoin futures market on valuations in that market.
- Consider, as part of funds’ compliance with the open-end fund liquidity rule, mutual funds’ liquidity classification of any position in the Bitcoin futures market and the basis for such classification, and also consider the overall construction of a fund’s liquidity risk management program.
- Assess the ongoing impact of the potential for fraud or manipulation in the underlying Bitcoin markets and its possible influence on the Bitcoin futures market.
- Consider whether the Bitcoin futures market could accommodate ETFs.
For more information, please refer to the following link:
Report Provides Data on SEC Cryptocurrency Enforcement Activities
By: Teresa Goody Guillén
An economic consulting firm recently issued a report on SEC cryptocurrency enforcement from July 1, 2013, to Dec. 31, 2020. According to the report, in that time period, the SEC brought 75 cryptocurrency-related enforcement actions along with a number of subpoenas and follow-on administrative orders. Defendants and respondents included cryptocurrency issuers, brokers, exchanges and other service providers. Highlights of the report include:
- Of the 75 enforcement actions, 43 were litigated in U.S. district courts (litigations) and 32 were resolved within the SEC as administrative proceedings.
- The SEC has issued 19 trading suspension orders.
- In 34 of the 43 litigations, the defendants were a mix of individuals and firms; in seven actions, the defendants were individuals only; and in two actions, the defendants were firms only.
- The most common allegations over the study period involved fraud (52 percent) and unregistered securities offerings (69 percent).
- Twenty-eight actions (37 percent) contained allegations of both fraud and unregistered securities offerings, and more than half of all enforcement actions alleged unregistered securities offering violations related to initial coin offerings, or ICOs.
- The SEC also alleged failures to register as broker-dealers or exchanges and promotion of securities without disclosing compensation.
- Less frequent allegations included violations of unregistered offerings of swaps to noneligible contract participants.
- In litigations, the median time for complaint filing to case resolution was 305 days, and average time was 343 days.
- SEC v. Telegram Group Inc. et al., SEC v. Haddow et al. and SEC v. Shavers et al. were some of the actions resolved with multimillion-dollar remedies in terms of disgorgement and/or civil penalties.
For more information, please refer to the following link:
DeFi Protocol Hacked for $14 Million as Ether Increasingly Moves to DeFi
By: Joanna F. Wasick
On Wednesday, decentralized finance (DeFi) protocol xToken announced it suffered an exploit through which $14 million in SNX and BNT tokens were drained by an attacker using flash loans, a new type of near-instant, uncollateralized lending made possible with blockchain technology. While these loans have gained popularity, they also have made recent headlines, as they are being used to exploit a number of vulnerable DeFi protocols. xToken stated that minting paused on all contracts as it further investigates exactly what happened. Late last week, Glassnode, an on-chain analytics provider, published a comparison of the number of ether deposited in Ethereum-based smart contracts to the number held on centralized exchanges. According to the report, over the past 17 months, the percentage of ether locked in smart contracts increased from 13 percent to 22.8 percent, while the share of supply on exchanges dropped more than a quarter, from about 17 percent to 12 percent.
On Wednesday, Elon Musk said his electric-car company is discontinuing bitcoin payments, just months after announcing it would accept the cryptocurrency and after purchasing over a billion dollars’ worth of it. Musk cited environmental concerns arising from the electricity requirements for bitcoin mining and transacting as the reason for the reversal. Bitcoin’s environmental impact has been a known issue for years and was discussed in a report published by blockchain analysis company Chainalysis earlier this week.
For more information, please refer to the following links:
