US Exchange Closes, Swiss Bank Expands Crypto Offering; NFA issues rule for digital assets; Encryption enforcement continues; Market data published | Baker Hostetler

Crypto Exchange Ends US Operations, Swiss Bank Expands Crypto Offerings

Of Joanna F. Wasick

Late last month, Bittrex, a leading cryptocurrency exchange founded in Seattle, announced that it is closing US operations effective April 30, 2023 due to “regulatory uncertainty” in the country. Bittrex stated that all funds “are safe and can be withdrawn immediately” and that the decision does not affect customers of Bittrex Global. Bittrex co-founder and CEO Richie Lai stated that “operating in the US is no longer possible,” noting that US regulatory requirements are “often unclear and enforced without appropriate discussion or input.”

In contrast to the Bittrex news, Sygnum, a Swiss- and Singapore-licensed digital asset bank, announced on April 5 its partnership with a leading Swiss retail bank to expand crypto offerings. The partnership is set to provide customers with a range of regulated digital asset banking services through Sygnum’s “fully regulated” B2B banking platform, which will enable “flexible and efficient access to a range of cryptocurrencies” and allow customers to buy, store and sell “leading cryptocurrencies”, including bitcoin and ether. The partnership will also introduce new revenue-generating services, such as staking.

In other news, a major American fashion brand recently announced the opening of a new luxury-focused concept store in Miami’s Design District that will serve as the focal point for a targeted push into the city’s active Web3 community. In particular, the store will accept cryptocurrency payments (a first for the label) through a partnership with a major US crypto payment processor. To kick-start its “season of interactive customer experiences,” the label also announced a multi-tiered partnership with Miami-based Web3 leisure community Poolsuite, where members will receive NFTs that will unlock access to an exclusive in-person event.

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The National Futures Association rule addresses Digital Asset Commodity activities

Of Robert A. Musiala Jr.

The National Futures Association (NFA) recently published a press release announcing the adoption of NFA Compliance Rule 2-51, which “imposes anti-fraud, fair trading principles and due diligence requirements on NFA members and affiliates engaged in digital asset commodity activities.” Among other things, the rule references previous NFA virtual currency guidance, noting that for “purposes of this rule, the term digital asset or commodity means Bitcoin and Ether.” The rule also provides that NFA members engaged in digital asset spot activities must adopt and implement appropriate oversight policies and procedures. According to the press release, the NFA adopted the rule in part “to give the NFA the ability to discipline a member or take other action to protect the public if a member commits fraud or similar misconduct with respect to its spot digital asset commodity activities.”

In foreign regulatory news, the Japan Financial Services Agency recently published a warning letter citing four cryptocurrency exchanges operating illegally in the country without proper registration. And in Australia, the Australian Securities and Investments Commission (ASIC) recently published a notice indicating that ASIC has canceled the Australian financial services license of cryptocurrency exchange Binance in response to a request from the company. Among other things, the ASIC notice states that “ASIC has conducted a targeted review of Binance financial services in Australia” and cites the many actions against Binance taken by foreign regulators, including the recent enforcement by the US Commodity Futures Trading Commission.

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DOJ, courts and state securities regulators are cracking down on cryptocurrency scams

Of Keith R. Murphy

The US Department of Justice (DOJ) recently seized approximately $112 million worth of cryptocurrency in connection with a cryptocurrency investment scam, according to a recent press release. Judges located in Los Angeles, the District of Arizona and the District of Idaho collectively approved the seizure of six virtual currency accounts allegedly used to launder the proceeds of various cryptocurrency scams. The scammers “fatten up” victims by making them believe they are in a romantic or other close personal relationship, cultivate long-term online relationships with victims and encourage them to invest in fraudulent cryptocurrency trading platforms, according to the press release. The release further notes that cryptocurrency scams in 2022, including pig slaughter, increased by 183 percent compared to 2021 figures, with most reported victims in the 30-49 age group.

According to multiple reports and press releases, securities regulators in Texas, Montana and Alabama have jointly filed an enforcement action against YieldTrust.ai, alleging that the company illegally solicited investments related to a decentralized application (DApp) that “allegedly uses quantum artificial intelligence to trade digitally assets” and operates a Ponzi scheme. The regulators’ actions accuse the company and its owner of illegally soliciting investments in connection with the company’s DApp that claimed to achieve extraordinary returns through the use of AI to trade digital assets. Following the collapse of the scheme, regulators allege that the respondents now operate a Ponzi scheme by raising capital from new investors to pay withdrawals from previous investors, as mentioned in the press releases.

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Report on cryptocurrency crime and anti-money laundering published

Of Christopher Lamb

Blockchain analytics and investigative firm Ciphertrace recently published its March 2023 Cryptocurrency Crime and Anti-Money Laundering report, which addresses the state of cryptocurrency at the end of the third quarter of 2022. Among its many findings, the report provides the following key findings as of Q3 2022:

• The total market capitalization of all crypto assets had reached approximately $1.1 trillion, with approximately $54 billion in total value locked (TVL).

• The largest blockchain by volume was Ethereum, with 57 percent of virtual assets held on Ethereum’s blockchain.

• Key enforcement activities included the Office of Foreign Assets Control (OFAC) sanctioning Tornado Cash, a virtual currency mixer, for being used to launder “virtual currency worth more than $7 billion since its creation in 2019” and the IRS seizing “approximately $4 billion in virtual assets vs $3.5 at the end of fiscal year 2021.”

• The report also mentions that “the third quarter was plagued with bankruptcy filings across the industry” in addition to seven major hacks or exploits totaling $383 million.

• Additionally, the report indicates that while “NFTs exploded in both market volume and dollar value in 2021, values ​​eroded rapidly in 2022.” The largest platforms for NFT trading saw their total volume reduced from $9.2 billion in the second quarter of 2022 to $2.3 billion in the third quarter – a reduction of 76 percent.

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