US Firms Invest in Bitcoin; Blockchain Consortia Expand; Industry and Regulators Address Tech Standards, CBDCs, Crypto Investments, Enforcement, Stablecoins, Taxes | BakerHostetler

Fintech Firm Brings $50 Million BTC on to Balance Sheet, Major CBDC Report Published

By: Joanna F. Wasick and Jordan R. Silversmith

Late last week, a major U.S. fintech and payments firm published a “Bitcoin Investment Whitepaper” and announced that it purchased $50 million worth of bitcoin (approximately 4,709 bitcoins). The white paper cites the “rapid evolution of cryptocurrency” and “unprecedented uncertainty from a macroeconomic and currency regime perspective” as two reasons why this was the right time to expand the company’s largely USD-denominated balance sheet. The white paper also details how the purchase was executed, the cold storage used to custody the bitcoin, the policy insuring the bitcoin and how the bitcoin will be classified from an accounting perspective.

The Italian Banking Association (ABI) recently announced that, after the addition of 42 more banks, about 100 Italian banks are officially operating on the country’s banking blockchain network, Spunta, built on R3’s Corda. According to the announcement, 204 million transactions had been processed on Spunta’s infrastructure since March, and the association predicts the number to exceed 350 by year’s end.

Last week, the Bank for International Settlements, together with seven central banks, released a report on how a central bank digital currency (CBDC), which the report describes as a “digital payment instrument,” could be used to help central banks meet their public policy objectives. The report outlines foundational principles and core features of a CBDC, including that it would (1) coexist with cash and other types of money within a payment system, (2) support wider policy objectives and do no harm to monetary and financial stability, and (3) promote innovation and efficiency. The report notes that a CBDC could be an important instrument for central banks to provide a safe means of payment; it also identifies ways in which a CBDC could adversely impact bank funding and institutional financial activity. The report concludes that “far more work” is required to understand the many issues that a CBDC could generate.

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US Firms Announce Crypto Investment Initiatives, Crypto Fundraising Report Published

By: Robert A. Musiala Jr.

A New York-based cryptocurrency asset management firm recently announced that its Ethereum Trust has become a registered reporting company under the Securities Exchange Act. The move follows in the footsteps of the firm’s Bitcoin Trust, which became a reporting company in January 2020. In a separate development, late last week, as part of an announcement related to a new funding round, the bitcoin-focused subsidiary of a major New York-based asset manager noted that it acts as custodian of 10,000 bitcoin (valued at $115 million) on behalf of its parent company.

A Big Four accounting and consulting firm recently published its 2nd Global Crypto M&A and Fundraising Report. Among other findings, the report notes a “sharp decline” in volume/value for crypto fundraising and mergers and acquisitions; a slight shift in investment from the Americas to APAC, EMEA and other geographies; and trends indicating consolidation of fundraising and deal flow to later-stage companies. According to the report, “the United States remains the main incubator for crypto, with the top 10 companies receiving funding during 2019 and 2018 mostly coming from the United States.” For 2020, the report predicts continued industry consolidation and increased fundraising and M&A driven by the APAC and EMEA sectors.

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Blockchain Consortia Expand, Reports Detail Blockchain Standards and Economic Impact

By: Robert A. Musiala Jr.

A major Canadian railway has announced that it has joined the TradeLens blockchain shipping platform. In a press release, the railway notes that the TradeLens platform will help enable “secure and transparent transfer of container-shipping documents” and help the firm “create, amend and share documents with other supply chain participants, including consignees, beneficial cargo owners, customs agencies, dray operators and steamship lines.” In related news, a technology firm and creator of a machine learning-based logistics platform has joined the Blockchain in Transport Alliance, a major industry consortium focused on creating standards for the development of blockchain applications in the transportation, logistics and freight industries.

Late last week, the U.S. Department of Homeland Security awarded contracts totaling $817,712 to five different blockchain startups. The contract awards are aimed at developing proofs of concept for anti-forgery and counterfeit prevention systems.

A new white paper from the World Economic Forum (WEF) addresses blockchain technical standards. The paper “maps standards that focus broadly on distributed ledger technology (DLT) in order to take a comprehensive view of the evolution of standards” and “to map the wide ecosystem contributing to technical standards.” Among other topics, the paper addresses standards related to tokens, software, network governance and defined terms. The paper also notes some of the gaps, divergence and overlap among the various standards identified.

A recent report from a Big Four accounting and consulting firm “explores the impact blockchain technology can have on the global economy.” The report notes that blockchain “has the potential to boost global gross domestic product (GDP) by US$1.76 trillion over the next decade.” Among other findings, the report ranks the “top five” blockchain use cases, based on economic value, as provenance, payments and financial instruments, identity, contracts and dispute resolution, and customer engagement.

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US and Foreign Guidance Addresses Crypto Enforcement, Stablecoins, Taxes and More

By: Robert A. Musiala Jr.

Late last week, the U.S. Department of Justice published its Cryptocurrency Enforcement Framework. According to a press release, the framework “provides a comprehensive overview of the emerging threats and enforcement challenges associated with the increasing prevalence and use of cryptocurrency … and outlines the Department’s response strategies.”

This week the Financial Stability Board (FSB), an international body that monitors the global financial system, published a report that “sets out high-level recommendations for the regulation, supervision and oversight of ‘global stablecoin’ (GSC) arrangements.” The recommendations address legal authority, regulations proportionate to stablecoin risks, coordination across jurisdictions, accountability for stakeholders, anti-money laundering and cybersecurity frameworks, data safeguarding standards, orderly wind-down and recovery plans, disclosure requirements, stablecoin redemption rights, and licensing/registration.

A recent report from the Organization for Economic Cooperation and Development (OECD) addresses taxation of cryptocurrencies around the globe. The report was prepared “for presentation to the meeting of G20 Finance Ministers and Central Bank Governors in October 2020.” The 69-page report discusses tax policy considerations, provides an overview of how cryptocurrencies are taxed in different jurisdictions and addresses key challenges in taxing cryptocurrency-related transactions. In a related development, a recent report noted that South Korea has initiated a new 20 percent tax on gains derived from trading cryptocurrencies.

In Europe, this week the Isle of Man Financial Services Authority published new cryptocurrency guidance that classifies crypto-assets into three categories: security tokens, electronic money tokens and “unregulated tokens that fall outside the regulatory perimeter for financial services.” The report highlights registration requirements for businesses engaged in “convertible virtual currency activity” and notes that even “unregulated tokens” are subject to requirements related to anti-money laundering and countering the financing of terrorism. And in the Netherlands, the central bank recently approved the first registered cryptocurrency business under new regulations designed to implement the European Union’s 5th Anti-Money Laundering Directive.

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