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US CFTC Asks for Comments to Improve Understanding of Ethereum Blockchain, Altcoin

The U.S. Commodity Futures Trading Commission has asked for public comments to improve its knowledge of the Ethereum blockchain.

The United States Commodity Futures Trading Commission (CFTC) is seeking public comments and guidance on the Ethereum (ETH) blockchain, according to an official press release published Dec. 11.

In order to improve the commission’s understanding of Ethereum and its underlying technology, the CFTC has announced its intention to publish a respective Request for Information (RFI) with the Federal Register.

In the upcoming RFI, the commission will request public comments on a wide range of questions such as Ethereum-related “technology, opportunities, risks, mechanics,” its market features, as well as use cases of Ethereum network applications.

Moreover, the CFTC has expressed the wish to better understand the differences and similarities between Ethereum and the seminal cryptocurrency Bitcoin (BTC), specifically the “opportunities, challenges, and risks” associated with the Ethereum altcoin.

According to the statement, all public comments to the Ethereum-related RFI will be accepted within 60 days after publication in the Federal Register. In addition, the commission noted that the results of the RFI will assist the CFTC’s fintech initiative called LabCFTC.

Founded in May 2017, LabCFTC is a dedicated hub for “engagement with the fintech innovation community,” aiming to examine “new regulatory fintech developments in the marketplace,” as noted by CFTC chairman Christopher Giancarlo earlier this year.

In late November, LabCFTC published a primer concerning smart contracts, following its first crypto-publication in October 2017. In the document entitled “Primer on Smart Contracts,” the CFTC’s innovation hub formed a working definition of the technology in addition to outlining its risks and benefits.

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US Needs ‘More Nuanced’ Cryptocurrency Regulations: Academic Paper

The patchwork regulatory setups at federal level mean it is “easy to see” how the U.S. has a bad reputation among crypto operators and investors.

United Statescryptocurrency regulations are creating a problematic image for the country as an innovator and it needs a “more nuanced approach.”  Two university professors have made this claim in an article Friday, Dec. 7, referring to a paper originally published Nov. 16.

Discussing the current regulatory setup governing cryptocurrency, Carol Goforth of Oxford University and Arkansas School of Law’s Clayton N. Little blamed the “overlapping” authority of various regulators as hindering progress.

The U.S. Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Internal Revenue Service (IRS) and more all attempt to govern cryptocurrency, the professors say, but each from a different perspective.

“Because different agencies in the U.S. have different regulatory powers and responsibilities, each agency has tended to classify the very same assets differently in order to assert jurisdiction,” the paper reads.

As Cointelegraph has often reported, representatives of the SEC and CFTC in particular continue to be vocal about the need to comply with existing laws when issuing, dealing in or trading cryptocurrencies.

In October, CFTC chairman Christopher Giancarlo acknowledged the complexity of the situation regarding his agency and the SEC.

“…Different orientation, different histories, so we do come at these things from different perspectives,” he told CNBC’s ‘Fast Money’ segment at a conference.

For Goforth and Clayton, however, the situation does more harm than good. In a summary of their work for the Oxford Faculty of Law Dec. 7, Goforth wrote:

“Although various authorities in the US have repeatedly claimed that they do not wish to over-regulate cryptoassets or to stifle innovation in the space, overlapping regulations produced by a multitude of distinct agencies with different missions and priorities have produced a confusing mix of classifications and requirements.”

It was “easy,” she said, to “see why the US is not regarded as being receptive to crypto.”

This year, cryptocurrency exchanges including Coinbase and Bittrex began a trend of setting up operations in a more permissive jurisdiction beyond the control of the SEC and CFTC in order to offer international clients additional coins not available to their U.S. counterparts.

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Report: US Congressman Announces Plans for Federal Cryptocurrency and ICO Regulation

U.S. Rep. Warren Davidson of Ohio announced plans to introduce a bill in the House of Representatives that would regulate ICOs and cryptocurrencies.

U.S. Rep. Warren Davidson (R) has announced plans to introduce legislation that would clearly regulate cryptocurrencies and Initial Coin Offerings (ICOs), local Ohio news agency reports Dec. 3.

According to, Davidson announced his intention to introduce new legislation at the Blockchain Solutions conference. The bill would create an “asset class” for cryptocurrencies and digital assets, which “would prevent them from being classified as securities, but would also allow the federal government to regulate initial coin offerings more effectively.”

This development would bring clarity to U.S. crypto regulation. Currently, state regulatory agencies classify tokens differently in ways that place them under their jurisdiction.

The Securities and Exchanges Commission (SEC) stance is that most cryptocurrencies are securities. The Commodity Futures Trading Commission (CFTC), on the other hand, treats cryptocurrencies as commodities.

In other words, the CFTC states that Bitcoin (BTC) has more in common with gold than with currencies or securities since it is not backed by a government and does not have liabilities attached to it. The Financial Crimes Enforcement Network (FINCEN), the agency managing anti-money laundering (AML) and know your client (KYC) standards, views crypto as money.

The U.S. Office of Foreign Assets Control (OFAC), which enforces economic sanctions, views crypto as money and blacklists wallets of sanctioned persons. Lastly, the Internal Revenue Service (IRS) treats cryptocurrencies as property, meaning that profits from selling them are subject to capital gains tax.

A group of U.S. Congressional representatives sent a letter in September to the SEC Chairman Jay Clayton calling for “clearer guidelines between those digital tokens that are securities.”

The same month, over 45 representatives of major crypto companies and Wall Street firms attended a Congressional roundtable discussion on cryptocurrency and ICO regulation. During meeting, which was hosted by Davidson, experts expressed concerns about a lack of regulatory clarity in the industry and discussed “token taxonomy.”

Davidson has previously demonstrated his support for the crypto industry, suggesting that the ICO market needs “light touch” regulation. A spokesman for the U.S. representative said in November that Davidson is working on a bill that, once law, would treat ICOs as products rather than securities at the federal and state level, effectively “sidestepping” security laws.

As Cointelegraph reported yesterday, seven Ohio funds will hand over $300 million to blockchain startups by the end of 2021. Of this funds, $100 million will be invested by nonprofit JumpStart.

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New Data From CFTC Shows Bearish Bitcoin Futures Are on the Decline

Bearish positions for non-commercial contracts of Bitcoin (BTC) futures are on the decline, according to the latest Commitments of Traders (COT) report released by the U.S. Commodity Futures Trading Commission (CFTC) August 24.

For the week ending August 21, the report shows that the net position on BTC futures declined by 1,266. Short positions fell by 210 contracts to 3,426 as compared with the previous week, with long positions up by 56 contracts at 2,160.

As shown by the negative total tally, the market is still overall net short, yet -1266 is a sharp turnaround from the -1926 recorded June 5th. The fresh data appears to reveal a trend away from bearish sentiment, bolstered by strong price performance on Bitcoin spot markets.

Speaking on CNBC last week, crypto analyst Brian Kelly cited statistics from CME exchange which suggested that the Bitcoin futures market overall is signalling both heightened demand and greater maturity:

“Here’s CME Futures open interest of large holders. [As of] April, you’re starting to see a big increase… about an 85 percent growth rate. If you extrapolate that out, by February 2019, you’re going to have a very robust market here.”

Kelly bolstered his claims that the U.S. Securities and Exchange Commission’s (SEC) likelihood of approving a Bitcoin exchange-traded fund (ETF) would come by February 2019, based on demonstrable growth in the Bitcoin derivatives market, alongside other factors. As Kelly noted, even the fresh spate of ETF disapproval orders has not lead the market to “sell off,” yet a further sign of market resilience.

Bitcoin (BTC) is trading around $6,743 at press time, up almost 1 percent on the day and almost 7 percent on the week.

Bitcoin’s 7-day price chart. Source: Cointelegraph’s Bitcoin Price Index

Bitcoin’s 7-day price chart. Source: Cointelegraph’s Bitcoin Price Index

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Hodler’s Digest: SEC May Make U-Turn on BTC ETF Rejections, While India and China Crack Down on Crypto Scammers

Coming every Sunday, the Hodler’s Digest will help you to track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions, and much more — a week on Cointelegraph in one link.

Top Stories This Week

Top Stories This Week

SEC Rejects—Then Will Review—9 Bitcoin ETF Application

The U.S. Securities and Exchange Commission (SEC) has rejected a total of nine applications to list and trade various Bitcoin (BTC) exchange-traded funds (ETFs) from ProShares, Direxion, and GraniteShares. However, the SEC then noted that it will be reviewing its decision, which was based on the claim that the products did not comply with the requirements by the “Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.”

Clean Energy Researcher Claims Bitcoin Energy Consumption Isn’t That Bad

A clean energy expert has written an article explaining why she thinks that Bitcoin’s high energy consumption is not as bad as it is often made out to be. In her article, Katrina Kelly, strategy manager at the University of Pittsburgh’s Center for Energy, writes that we need to shift the debate around Bitcoin mining away from energy-intensivity focus instead on where that energy is produced and how it is generated. Kelly notes that although BTC mining consumed 30 terawatt hours in 2017, banking continues to consume an estimated 100 terawatts of power each year.

Chinese Police Arrest Hackers for Allegedly Stealing $87.3 Million in Crypto

Police in China have arrested three “highly experienced” hackers suspected of stealing up to 600 million yuan (around $87.3 million) in crypto. At the end of March, an individual with the surname Zhang filed a complaint with local police in the northwestern city of Xi’an, claiming that his computer had been hacked and BTC, ETH, and other crypto holdings worth up to $14.5 million stolen. The police hypothesize that the suspects had used a remote attack to transfer funds from Zhang’s computer without leaving a trace, in what is reportedly considered to be a “rare case.”

Indian Man Arrested for Allegedly Promoting Bitconnect Investment Scam

Indian police have arrested a man who was allegedly involved in promoting the Bitconnect investment scam. The suspect is reportedly the India head of Bitconnect, the high-yield investment program that stopped operating in January 2018 after coming under scrutiny for appearing to be a fraudulent Ponzi scheme. According to a recently filed Freedom of Information Report (FIR), this is the third case under investigation in India associated with Bitconnect. Local promoters of Bitconnect are alleged to have fled with 1.14 crore (11.4 million) rupees worth of Bitcoin from one investor.

Analysis Shows Bitcoin Cash Use in Commerce Has Decreased

A review of payments received by the world’s 17 largest crypto exchanges has shown that Bitcoin Cash (BCH) use in commerce has gone down, according to data from blockchain analytics firm Chainanalysis. They found that BCH payments dropped to $3.7 million in May from $10.5 million in March, while the volume of Bitcoin (BTC) payments was estimated $60 million in May, down from a high of $412 million in September. Chainalysis also noted that between 10,000 and 100,000 BCH are held by just two wallets.


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Most Memorable Quotations

Most Memorable Quotations


“It may be a stunt, but a stunt that is working. The question is though – working for whom? President Nicolas Maduro and his cohorts? Or the people of Venezuela? Sadly, it’s more likely to be the former,” — Dickie Armour, CCO at Corre Innovation


“I’m involved with, very soon, my first time being involved in a blockchain company […] Our approach is not like a new currency, or something phony where an event will make it go up in value. It’s a share of stock, in a company,” — Steve Wozniak, Apple co-founder

Laws And Taxes

Laws and Taxes

CFTC Wins Court Order to Permanently Ban Crypto Firm

The U.S. Commodities Futures Trading Commission (CFTC) has won a court order to permanently bar the operator of the New York-based firm CabbageTech Corp. for cryptocurrency-related “bold and vicious fraud.” Earlier this year, Patrick McDonnell, cryptocurrency promoter and operator of CabbageTech Corp., was charged with “fraud and misappropriation in connection with purchases and trading of Bitcoin (BTC) and Litecoin (LTC).” A New York judge has now ruled that McDonnell must pay $290,429 in restitution and $871,287 in penalties.

Four US Cryptocurrency Exchanges Create Self-Regulatory Organization

Gemini, Bitstamp, Bittrex, and bitFlyer USA have created a self-regulatory organization for digital commodities such as cryptocurrencies. The new group, dubbed “Virtual Commodity Association Working Group,” aims to help large-scale investors get more comfortable with the crypto market, work on formulating industry standards, and “be a precursor to the formation of a self-regulatory organization for digital commodities like Bitcoin and Ethereum.”



World Bank, Commonwealth Bank of Australia Issue Public Bond On Blockchain

The World Bank and the Commonwealth Bank of Australia (CBA), the country’s largest bank, have issued a public bond exclusively through blockchain technology. According to the CBA, the $100 million ($73.16 million) deal entails two-year bonds that will settle August 28 and have been priced to yield a 2.251 percent return. The World Bank’s official mandate for the project had been first reported on August 10.

Liechtenstein’s Union Bank AG to Issue Security Token, Fiat-Backed Crypto

Union Bank AG of Liechenstein announced this week that it was issuing its own security tokens and in-house cryptocurrency backed by fiat. The bank, which has concentrated increasingly on blockchain this year, said issuing its so-called “Union Bank Payment Coin (UBPC)” was a further step towards becoming a “full-service blockchain investment bank.” The bank noted that the UBPC will act as a stable coin and will have fiat currencies like the Swiss franc to back it.

U.S. Customs and Border Protectio Agency to Test Blockchain Shipment System

The U.S. Customs and Border Protection (CBP) agency will launch a live test of a blockchain-based shipment tracking system, combining the CPB’s legacy application and a blockchain-powered platform developed by the agency’s parent body — and the country’s primary border control organization — the Department of Homeland Security (DHS). While testing, the agency intends to establish standards of interaction between different blockchains in order to ensure that all firms and software will be easily connected to customs without the need for additional customization, as well as see how blockchain can enhance the verification of certificates of origin.

Mergers, Acquisitions, And Partnerships

Mergers, Acquisitions, and Partnerships

Pornhub and Startup PumaPay Partner for Crypto Payments

Adult entertainment streaming website Pornhub has partnered with crypto payment and billing startup PumaPay in order to allow its users to pay in cryptocurrencies. Pornhub is now accepting PumaPay, with its “unique” pull payment protocol that will allow users automatically pay for their subscriptions, including PornHub Premium.

Singapore Central Bank Partners With Deloitte, Nasdaq for Digital Asset Settlement

The de facto central bank of Singapore has signed a deal with multiple big name entities including the Singapore Exchange (SGX), Anquan, Deloitte and Nasdaq to ease digital asset settlements. Together, the parties will create “Delivery versus Payment (DvP)… capabilities for settlement of tokenized assets across different blockchain platforms,” with the latter three acting as technical partners.

Shanghai Stock Exchange Partners With Insurance Association for Blockchain

The Shanghai Stock Exchange (SSE) and Insurance Asset Management Association of China (IAMAC) have agreed to cooperate on improving the insurance and pension industries with the use of blockchain tech. The SSE, the world’s fourth largest stock exchange, was joined by several major insurance industry players, including the IAMAC, Changjiang Pension Insurance Company, Tokyo Maritime Sunshine, and others in order to create a “new, high-efficiency, low-cost and safer insurance industry” through the use of blockchain technology.

Chinese Electric Bus Operating Giant Partners With Tech Firm for Blockchain

U.S. technology firm Seven Stars Cloud Group (SSC) has partnered with with China’s largest electric bus operator, the National Transportation Capacity Co Ltd (NTS), to provide finance services using blockchain technology. The partnership will run for three years and was worth $24 billion. According to the press release, the SCC will provide “fixed income lease financing-based products” through its regulated network, which will in turn provide NTS with regulatory-compliant blockchain finance products.

Seven Premier Soccer Clubs Sign BTC Advertising Deal With eToro

UK-based trading platform eToro has signed an advertising deal with seven Premier League football clubs paid in Bitcoin for the first time, according to various sources. The UK soccer clubs involved are reportedly Tottenham Hotspur, Brighton & Hove Albion, Crystal Palace, Cardiff City, Leicester City Football Club, Newcastle United and Southampton. Blockchain and cryptocurrency integration in football stadiums and the industry will also form a focus for the partnerships, eToro so far not giving details as to the nature of the “exploration.”

Funding Rounds

Funding Rounds

Japan’s SBI Holdings Invests in Trouble Crypto Exchange LastRoots

Japanese financial services giant SBI Holdings announced this week that it had made a second investment, amount undisclosed, in troubled cryptocurrency exchange LastRoots. SBI had originally invested in LastRoots, which is one of the exchanges singled out by regulators for improvement following Coincheck’s $530 million hack in January this year, in December 2017. This investment aims to help LastRoots make the changes needed to adhere to regulation guidelines, as SBI will send in its own executives to bring practices up to scratch and bring the platform in line with regulation.

Atlas Protocol Concludes Several Million Dollar Investment Round Led by SoftBank

Blockchain marketing platform Atlas Protocol (ATP) has concluded a seed investment round of several million dollars led by SoftBank China Venture Capital, with participation by Baidu Ventures, Danhua Capital, and Fenbushi Digital. Atlas Protocol was formed by Nebulas Labs and the xGoogler Blockchain Alliance (xGBA), with co-founder of Jide Technology and the “first engineer” of Google Adwords Jeremy Zhao, as well as professor Ronghui Gu of Columbia University, all acting as technical advisors for Atlas Protocol.

Winners And Losers

Winners and Losers


The crypto markets are slightly up this week after some recent lows, with Bitcoin trading around $6,706 and Ethereum at $275. Total market cap is around $215 billion.

The top three altcoin gainers of the week are Protean, 808Coin, and Ccore. The top three altcoin losers of the week are Thore Cash, Ferron, Haracoin.

For more info on crypto prices, make sure to read Cointelegraph’s market analysis.

FUD Of The Week

FUD of the Week

Fraudulent Ethereum Application Appears and Disappears From Google Play Store

An Ethereum scam application appeared on Android’s Google Play Store this week, offering a fraudulent “Ethereum” application – which seemed to just be a picture of the Ethereum logo – for around $388. The app, which has since been removed, showed that it had over 100 downloads.

U.S. Federal Trade Commission Warns Men About BTC Ransom Scam

The U.S. Federal Trade Commission has published a warning to “men” about a type of Bitcoin blackmail scam that involves threatening the victims with exposure of an alleged affair unless a BTC ransom is paid. Among the “classic signs” of blackmailing, the FTC lists “threats, intimidation and high-pressure tactics” and advises consumers to “report it immediately to your local police, and the FBI.”

North Korean Hackers Reportedly Hack Crypto Exchange With MacOS Malware

North Korean hackers have infected an unnamed crypto exchange with malware for both Windows and macOS for, reportedly, the first time, according to a report by Kaspersky Lab. The malware, dubbed “AppleJeus,” entered the exchange’s systems after an employee downloaded a “tainted” app believed to be from a fake developer with fake security certificates in a major operation by North Korean hacker collective Lazarus Group.

Alleged Crypto Cell Phone Hacker Arrested in California

A hacker who allegedly stole Bitcoin totalling more than $1 million by hijacking cellphones has been arrested by police in California. The alleged hacker used “SIM swapping,” a technique also known as a “port out scam,” to reportedly steal cryptocurrency from victims’ devices. Over a period of several years, the recently arrested alleged hacker and another suspect already under arrest used the funds to buy items such as luxury sports cars.

Best Features

Best Features

After the Bitcoin Boom: Hard Lessons for Cryptocurrency Investors

The New York Times takes a look at crypto traders from America to South Korea that lost large amount of their savings in the recent crypto market slump, delving into whether they think the risk of investing was worth it.

How Bitcoin’s Crash Compares to History’s Biggest Bubbles

Bloomberg provides an analysis of all of history’s “biggest bubbles,” juxtaposing Bitcoin’s recent fall over crashes like the much-talked-about tulip crash and the dot com bubble.

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New York District Judge Rules That CFTC Can Permanently Ban Crypto Firm

The U.S. Commodities Futures Trading Commission (CFTC) has won a court order to permanently bar the operator of the New York-based firm CabbageTech Corp. for cryptocurrency-related “bold and vicious fraud,” Bloomberg reported August 24.

Earlier this year, Patrick McDonnell, cryptocurrency promoter and operator of CabbageTech Corp., was charged with “fraud and misappropriation in connection with purchases and trading of Bitcoin (BTC) and Litecoin (LTC).” McDonnell subsequently argued that the CFTC did not have the authority to regulate his commercial operations; however, New York district judge Jack B. Weinstein rejected his claim.

In July, Weinstein reportedly held a nonjury trial where he claimed that McDonnell ran a “boiler room,” deceptively luring investors in different states and counties using “trickery, false statements and misappropriation of funds,” Bloomberg notes. Weinstein delivered a judgement that McDonnell must pay $290,429 in restitution and $871,287 in penalties.

According to Bloomberg, CabbageTech was not represented by a lawyer, as McDonnell claimed he could not afford to pay for counsel. McDonnell also stopped appearing in court during the trial.

McDonnell was also involved in a different lawsuit by the CFTC against his another company, Coin Drop Markets. The CFTC claimed in the the lawsuit that customers who paid McDonnell and Coin Drop for crypto trading advice did not receive the advice they paid for, and that McDonnell shut down Coin Drop’s website and failed to respond to customers. The lawsuit also notes that Coin Drop was not registered with the CFTC.

Last month, speaking from Capitol Hill, Congressman Bill Huizenga argued that Congress should empower financial regulators such as the U.S. Securities and Exchange Commission (SEC) and the CFTC to regulate the cryptocurrency market in compliance with the same rules governing other currencies and stocks.

In May, the CFTC chairman Chris Giancarlo said he doesn’t see comprehensive crypto legislation coming from the federal level in the near future, pointing out that the statutes by which the CFTC is operating were written in 1935. He added that embracing a modern innovation like Bitcoin within terms invented decades ago will take time.

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Top Crypto Exchanges Join Hands To Tackle Regulatory Issues

Just weeks ago, the Winklevoss Twins’ Bitcoin ETF proposal was sadly denied by the SEC, with the US regulatory body citing concerns of manipulation and security as primary reasons why such an ETF would not be successful. Following the disappointing turnout for the final verdict, the twins took to Bloomberg to declare that they were not deterred by the SEC’s decision and would continue to trudge forward.

And it seems with a recent announcement that the twins are back, and are seemingly ready to tackle regulatory worries in the crypto community. In late-July, Ethereum World News reported that representatives from Gemini met with the Nasdaq, along with a variety of other firms, to tackle the regulatory development of the crypto industry.

With the arrival of a recent announcement, it seems that Gemini has kept with the theme of pro-regulation in the cryptosphere. As per a press release issued by the so-called “Virtual Commodity Association (VCA) Working Group” will work towards becoming a prominent self-regulatory body for “virtual commodity marketplaces (exchanges).”

The VCA will be initially composed of Bitstamp, BitFlyer, Bittrex, and Gemini, which all are home to a substantially sized American audience.

Representatives from the aforementioned four firms are scheduled to exchange formalities for the first time in September, where they will also flesh out the idea and aspirations of the newly-established VCA.

According to a somewhat pre-established meeting plan, the VCA will first highlight the guidelines for membership of the association. Secondly, exchange representatives will begin to create an outline for industry “best practices” and rules, that will only help to propagate “transparency, liquidity, risk management, and fairness.” Thirdly, member bodies will draw out a series of guidelines to address “member conflicts of interest, client communications, client disclosures, and record keeping.” And last but not least, the VCA members will do its best to establish a strong, dedicated and non-bias team of individuals to run this consortium.

Although this move is somewhat of a jab at governmental-operated bodies, the CFTC expressed its excitement for the VCA. CFTC commissioner Brian Quintez stated:

Given the absence of federal oversight jurisdiction in the crypto market, in February and again in March of this year I called on the crypto platform community to come together and develop a self-regulatory organization-like entity that could develop and enforce rules. Today’s announcement is a positive step towards that realization.

For the time being, this group will be headed by Maria Filipakis, who previously worked for the New York Department of Financial Services, where she was an integral part of the NYDFS’ move to establish the coveted “BitLicense.”

It is widely speculated that the introduction of a self-regulating conglomerate, like the VCA, will hail in another round of institutional interest, as traditional firms may realize that the crypto industry isn’t as rife with anti-regulatory madness as they may think.

Photo by Hunters Race on Unsplash


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FinCEN Director: Agency Receives 1,500 Suspicious Activity Reports on Crypto per Month

Kenneth A. Blanco, director of the U.S. Financial Crimes Enforcement Network (FinCEN), has revealed that the agency has seen a surge in filings of crypto-related Suspicious Activity Reports (SARs). The number of complaints now exceeds 1,500 per month, according to him.

Blanco’s remarks were made as part of a speech he delivered at the 2018 Chicago-Kent Block Legal Tech Conference August 9.

The director outlined FinCEN’s ongoing role in regulation and law enforcement for the emerging crypto space, which it coordinates in tandem with the Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC). He noted that,

“[While] innovation in financial services can be a great thing… we also must be cognizant that financial crime evolves right along with it, or indeed sometimes because of it, creating opportunities for criminals and bad actors, including terrorists and rogue states.”

Blanco emphasized that in order to safeguard the “incredible innovations” of the fintech frontier, actors’ compliance with specific regulatory measures is critical, given that “harm can be done with devastatingly increasing speed, breadth, and obscurity in the digital world.”

As indicated in FinCEN’s March 2013 guidelines, any acceptance or transfer of value that substitutes for fiat currency – including crypto – is considered to be money transmission, and entails specific regulatory obligations under the U.S. Bank Secrecy Act (BSA).

As money transmission businesses (MSBs), crypto exchanges are therefore required to report both SARs and Currency Transaction Reports (CTRs), as well as to comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) frameworks.

Blanco clarified that identical obligations pertain to businesses that provide anonymizing services — often dubbed “mixers” or “tumblers” — that seek to conceal the source of the transmission of crypto. Exchanges located outside of the U.S. but that nonetheless do business in part with residents of the country are also monitored by the agency.

The director gave the example of FinCENs action in 2017 against Russian crypto exchange BTC-e for flouting AML laws as a case in which SARs had “played a critical role,” with filings by both banks and other crypto exchanges providing crucial leads for law enforcement.

He commented that while SARs are increasingly being submitted, the agency has been “surprised” to see businesses taking appropriate steps to meet their regulatory requirements “only after they receive notice [that an examination is forthcoming].” “Let this message go out clearly today:  This does not constitute compliance,” he stressed.

According to Blanco, FinCEN, BSA examiners and the Internal Revenue Service (IRS) have examined over 30 percent of all registered crypto exchangers and administrators since 2014.  

Blanco further devoted attention to initial coin offerings (ICOs), stressing that while they may fall under overlapping jurisdictions of different U.S. regulatory agencies, their AML/CFT obligations remain “absolute.”

At a recent hearing on crypto and ICOs in Washington DC, Coinbase’s Chief Legal and Risk Officer called out the gamut of American regulators —  including the SEC, CFTC, IRS, and FinCEN — over an extreme “lack of coordination” that he considered to be negatively impacting innovation.

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Chamber of Digital Commerce Report, Reviewed

On July 30, the Chamber of Digital Commerce (CDC) Token Alliance published a 108-page collaborative report of proposed guidelines for the “responsible growth” of the cryptocurrency market.

In the accompanying press release, CDC member Paul Atkins, CEO of Patomak Global Partners and former U.S. Securities and Exchange Commission (SEC) Commissioner, argued that guidelines are needed for the smart regulation that “strikes the right balance between protecting investors while allowing for innovation in this new technological frontier.”

What is Chamber of Digital Commerce?

The CDC is a U.S.-based advocacy group that promotes the industry behind virtual currencies and underlying technologies like blockchain. It was founded in July 2014 by Perianne Boring, who previously worked as a legislative analyst in the U.S. House of Representatives and a television anchor of an unspecified “international finance program,” according to her bio aon the CDC’s website.

Being established as a public education outlet, as well as a tool for influencing lawmakers and regulators about digital currencies, the Chamber started to build up its credibility with authorities from the very start: In August 2014, it registered a political action committee (PAC) with the U.S. Federal Election Commission (FEC). Two months after that, in October, the CDC received a nonprofit status from the Internal Revenue Service (IRS).

At this point, the CDC is comprised of approximately 350 participants — ranging from technologists and economists, to token experts, lawyers, former regulators and membership companies as large as Microsoft, Deloitte and IBM.

Tokens are not necessarily ‘securities’ or ‘commodities’ and therefore fall into a grey zone

The CDC report is dubbed “Understanding Digital Tokens.” It is the first installment of what is supposed to become a series, and it focuses upon a particular type of coin — tokens that are not designed to represent securities or commodities, meaning that they should be situated in a grey zone not controlled by the SEC and U.S. Commodity Futures Trading Commission (CFTC) respectively.

In the introduction of the paper, the authors argue that the industry has come to a point where digital tokens do not necessarily fall into one precise category, a sentiment similar to the one voiced by experts at a recent U.S. Congressional hearing, which argued that a digital token’s legal status is fluid these days:

“Some tokens may serve as a virtual currency, others may represent or track physical assets in the real world, some may explicitly represent a security and others may have a utility function. These functionalities are not necessarily mutually exclusive, and a token’s legal treatment may depend on the manner in which the token was marketed.”

The CDC then lists examples of U.S. regulatory bodies’ various approaches toward virtual currencies, outlining the uncertainty of the current regulatory landscape. “In such a volatile regulatory regime (not to mention economic market), reasonable guidelines
are imperative,” the paper argues.

The first part of the report is a regulatory overview of five different jurisdictions: namely, the U.S., Canada, the U.K., Australia and Gibraltar. The CDC goes over various legal aspects like taxation of tokens, Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance, investors protection, etc.

In every reviewed case, a specific regulatory framework for generation and distribution of digital tokens is absent. Therefore, such actions tend to fall on the periphery of the law and are defined on a case-to-case basis, where certain aspects of a token are studied by regulators. Even in Gibraltar, where a DLT framework was brought into effect in January 2018 and aimed to help facilitate DLT-backed businesses, it “does not extend to the generation and sale of digital tokens,” albeit with some exceptions, the paper concludes.

Token’s white paper: Dos and don’ts

Based on the assumption that digital tokens “can take a variety of forms and serve many purposes” that was supported by the aforementioned examples, the paper then attempts to outline principles and guidelines for ‘Token Sponsors’ — defined as an individual or group that either “generates or distributes” or “undertakes to lead or control the development, adoption, or distribution of a digital token” — to manage the risk that the offering and distribution of a digital token may entail, considering certain securities and commodity laws.

Significantly, tokens mentioned in this report are not securities or CFTC-regulated instruments, and the paper itself does not contain legal advice.

The CDC suggests risk management based on the broad definition of what might be deemed as “securities” along with the Howey Test, as well as stating the cases in which the CFTC may exercise general anti-fraud and anti-manipulation authority over any digital token.

The next section in the report focuses on what should and what should not be included in the token’s white paper:

“Thus, the Token Sponsor should provide clear explanation of the project, along with the underlying technology, include descriptive or illustrative case studies of the application, disclose potential risks and employ utility-oriented promotion that does not ‘encourage interest in acquiring the token based solely on investment expectations or a fear of missing out on an investment,’ as it would constitute securities.”

The authors then argue that the white paper should not, however, describe the process of token distribution — as those details can be disclosed in additional materials, if needed:

“If a Token Sponsor’s digital token will be distributed in private sales, a limited public sale or auction, airdrop or a similarly limited event, it may be more appropriate to describe the event in separate materials that can be superseded when the event is completed, rather than in the Token Sponsor’s white paper.”

Moreover, the white paper should stay away from making misleading statements, promising financial returns, discussing strictly investor-oriented details and mentioning prior investments or major projects completed by the development team, its advisors and consultants.

The CDC stresses that following these guidelines “provides no guarantee that a federal or state regulator will not take issue with the digital token issuance, sale or other distribution” as they are intended to assist a Token Sponsor when thinking through critical issues related to “its digital token issuance, sale and distribution.”

Due diligence is the number one priority for platforms trading tokens

Further, the Chamber report focuses on token trading platforms, “entities that allow the trading of digital tokens.” The paper first warns that “responsible” platforms “should do more than merely avoid regulation by the SEC or the CFTC”:

“They should voluntarily conduct business in a manner that protects token consumers, protects the integrity of secondary markets and builds public confidence in the broader blockchain industry.”

Then, the section discusses how token trading platforms may manage risks that arise when a regulator or a court contends that a digital token trading on their platform is a security or a CFTC-regulated instrument “notwithstanding the Token Sponsor’s claims to the contrary.” Essentially, the report suggests the platform to do due diligence, keep the Howey Test in mind and review the token’s present utility before listing it on their service.

CDC will continue publishing reports to improve the token ecosystem

The report comes to a close by noting that the “concept of digital tokens is complex” and by citing SEC Commissioner Hester Peirce, who declared that she “used to know what a token was,” while its present state is much more perplexing — which, in turn, shouldn’t “breed anxiety and therefore bad regulation.”

The subsequent CDC reports will highlight topics including AML/KYC potential regulatory adjustments; promoting the concept of a “utility token” among policymakers; and how the industry might play a role in self-regulation, among others.