Category: Regulation

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Crypto Exchange Crypto Wallets Regulation Russia

Several Crypto Exchanges Close Russian Accounts Following EU Sanctions

cryptocurrency on a russian flag

A number of cryptocurrency exchanges, including Bitcoin.com, LocalBitcoins and Crypto.com, have reportedly opted to stop serving Russia-based customers following a raft of new sanctions enacted by the European Union against Russia on October 6th.

This news follows an earlier move by the blockchain-focussed developer Dapper Labs’ to ban Russian citizens from accessing its services. With numerous major exchanges set to follow suit, Russian residents’ access to crypto markets seems severely restricted.

New Sanctions Further Restrict Russian Access to Crypto

Previous sanctions had limited the value of crypto transfers between EU nations and Russia to €10,000, or approximately US$9,700. These new sanctions go much further, essentially banning the provision of crypto-asset wallet services to any person residing in Russia:

“Decision (CFSP) 2022/1909 removes the threshold for the existing prohibition on the provision of crypto-asset wallet, account or custody services to Russian persons and residents, thereby banning the provision of such services regardless of the total value of such crypto-assets…It shall be prohibited to provide crypto-asset wallet, account or custody services to Russian nationals or natural persons residing in Russia, or legal persons, entities or bodies established in Russia.” 

Offical Journal of the European Union, Volume 65

It’s unclear if this ban includes non-custodial wallets, such as those offered by Bitcoin.com and Crypto.com, or if it’s limited to custodial wallets held on exchanges and used by customers for trading.

Exchanges Set to Block Russian Customers Starting This Month

According to reports in the Russian media, Bitcoin.com gave Russia-based customers until October 27th to remove their assets from the exchange. After the deadline, Bitcoin.com will block customers from accessing their accounts.

Peer-to-peer crypto exchange, LocalBitcoins, blocked access to its services by Russian residents on October 7th, the day after the new sanctions were announced.

Many other exchanges will follow, with most major exchanges, including Binance and Coinbase, reportedly working towards complying with the new sanctions as quickly as possible. Having said that, it’s not currently known exactly when Russian access to most exchanges will end, as it could take some time to safely and effectively implement the restrictions.

Could Any Exchanges Defy The Sanctions?

It’s unclear whether any crypto exchanges intend to defy the new restrictions and continue offering services to Russian residents. 

Bitfinex has previously expressed opposition to EU sanctions against Russians. In March of this year, Bitfinex CTO Paulo Ardoino, expressed concern about cutting services to Russia, saying Bitfinex was prepared to safeguard customers’ access to their accounts unless ordered to do otherwise by regulatory agencies.

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Bored Ape Yacht Club Crypto News NFTs Regulation

SEC Investigates Bored Ape Creator Yuga Labs 

bored apes

Yuga Labs Inc., the company behind the wildly successful non-fungible token (NFT) collections Bored Ape Yacht Club (BAYC) and Mutant Ape Yacht Club (MAYC) is being investigated by the US Security and Exchange Commission (SEC), according to a report from Bloomberg. 

Speaking to Bloomberg, an anonymous source claims that the SEC is looking into whether Yuga Labs’ NFTs should be regulated like stocks and should therefore comply with disclosure laws applicable to traditional securities. 

The SEC will apparently also be examining Yuga Labs’ governance and utility token, Ape Coin (APE), which has been distributed to holders of their NFTs.

Case to Clarify Status of NFTs

The main issue of law that the SEC is seeking to clarify in this case is whether or not NFTs should be regulated as securities. 

An earlier report from Bloomberg published in March of this year had previously revealed the regulator had started looking closely at the NFT market generally, so an investigation specifically into Yuga Labs, one of the most prominent market participants, is not entirely surprising.

Yuga Labs One of the Largest Players in NFT Space

Since launching in 2021, Yuga Labs has grown to become one of the largest and most successful players in the burgeoning NFT collectibles space. The company’s Bored Ape Yacht Club (BAYC) NFT collection, which depicts cartoonish apes, soared in value following their release, hitting a record sale price of a whopping US$3.4 million dollars in October of 2021.

To support Yuga Labs’ growing NFT ecosystem, the Ethereum-based Ape Coin governance token was released and distributed to NFT holders earlier this year through a separate body known as the Ape Foundation. Ape Coin was released by this foundation rather than by Yuga Labs due to regulatory concerns. 

Around 62 percent of Ape Coin was distributed to community members, with 15 percent going to NFT holders. A sizeable percentage also went to Yuga Labs and the founders of BAYC. 

At the time of writing, data from Coin Gecko showed Ape Coin was down around four percent on the news of the investigation.

Yuga Labs “Happy to Cooperate“

Yuga Labs claims it’s happy to cooperate with the SEC’s investigation and understands the regulator is keen to learn more about the booming crypto industry:

“It’s well-known that policymakers and regulators have sought to learn more about the novel world of Web3. We hope to partner with the rest of the industry and regulators to define and shape the burgeoning ecosystem. As a leader in the space, Yuga is committed to fully cooperating with any inquiries along the way.”

Yuga Labs Spokesperson, speaking to Bloomberg

The SEC hasn’t spoken publicly about this case, but based on other cases it’s clear the regulator believes virtually all crypto assets should be viewed as securities and adhere to relevant securities law. 

SEC Chair, Gary Gensler, has repeatedly stated that he believes many forms of crypto could pass the Howey Test — the standard under US law used to determine if an asset is a security, which centres around an investor pledging money to an enterprise with the intention of making profits from its efforts. 

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Crypto News Illegal Regulation Social media

Kim Kardashian Fined $1.26 Million by SEC Over Unlawful Crypto Promo

Kim Kardashian adjusting hair

High-profile influencer and star of the reality TV show ‘Keeping Up With The Kardashians’, Kim Kardashian, has paid a total of US$1.26 million to settle charges brought against her by the US Securities and Exchange Commission (SEC) relating to her promotion of the cryptocurrency EthereumMax (EMAX) in 2021. 

The SEC filed the charges against Kardashian for failing to disclose that she received a US$250,000 payment to promote EthereumMax to her social media followers. 

Kardashian’s Promotion Biased, Banned From Promoting Crypto

The Instagram post from Kardashian that attracted the charges contained a link to the EthereumMax website and provided instructions to buy EMAX tokens, the cryptocurrency sold by EthereumMax.

Kardashian’s post was part of EthereumMax’s aggressive 2021 marketing push which saw numerous other celebrities, including boxer Floyd Mayweather Jr. and former basketball player Paul Pierce, endorse the cryptocurrency on social media. 

According to the SEC, Kardashian’s failure to disclose the payment she received for her part in the promotion was a breach of the anti-touting provisions of US federal securities laws, which are intended to protect consumers from biased and self-interested promotion of securities. Speaking about the case, SEC Chair Gary Gensler said:

“The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion…Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.”

SEC Chair Gary Gensler

As part of her settlement, Kardashian also agreed to cooperate with the SEC’s ongoing investigation into EthereumMax and to refrain from promoting any cryptocurrencies for three years.

What Is EthereumMax?

Despite having ‘Ethereum’ in its name, EthereumMax’s EMAX tokens aren’t related to Ethereum’s native ETH cryptocurrency. Rather EthereumMax is simply an ERC-20 token built on top of the Ethereum blockchain. It has a total supply of 2,000,000,000,000,000 — that’s right, two quadrillion tokens — and an unknown current circulating supply.

EthereumMax’s founders claim it’s a “progressive coin” that provides “lifestyle perks and financial rewards” to holders. However, it’s unclear exactly what these perks and rewards are. 

At the time of writing, EMAX is down over 98 percent from its all time high, which it hit on May 31, 2021, on the back of its aggressive celebrity endorsement drive.

SEC Charges Follow Investor Lawsuit

Kardashian’s charges aren’t the first legal stoush related to EthereumMax — in January 2022 a lawsuit filed in the US District Court of California’s Central District alleged the founders of EthereumMax, Steve Gentile and Giovanni Perone, and their celebrity spruikers were effectively running a pump and dump scheme. 

The complainant claims that while the celebrities pumped the price by promoting the cryptocurrency to their followers, they, along with the founders, were already dumping their EMAX tokens for a significant profit, while their followers were left holding the bag.

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Australia Bitcoin Crypto News Regulation

Aussie Government Prioritises ‘Token Mapping’ for New Regulatory Framework

The Australian government has released a statement indicating that it will begin a review as to how digital assets should be managed. This starts with a process it has termed “token mapping”:

Crypto Reform Under Way

In the statement, Treasurer Jim Chalmers highlighted that the review was designed to ensure that Australia kept in line with global best practices:

Australians are experiencing a digital revolution across all sectors of the economy, but regulation is struggling to keep pace and adapt with the crypto asset sector.

Jim Chalmers, Australian federal Treasurer

In doing so, the first item on the agenda was a so-called “token mapping” exercise aimed to establish how different digital assets and related services ought to be regulated. Apparently, this is the first of its kind, making Australia “leaders in this work”.

What Is Token Mapping?

The process of token mapping is said to entail uncovering the characteristics of all digital asset tokens, including the different types, their underlying protocols, and any other relevant technological features.

Chalmers added: “As it stands, the crypto sector is largely unregulated, and we need to do some work to get the balance right so we can embrace new and innovative technologies while safeguarding consumers.”

Noting the increased proliferation of crypto investments to the extent that related promotions are “plastered all over big sporting events”, Chalmers stressed that “we need to make sure customers engaging with crypto are adequately informed and protected”.

Prior to the token mapping exercise, government is expected to release a consultation paper with industry regarding a proposed regulatory framework.

Given the widespread belief among mainstream pundits that most cryptos amount to unregistered securities (including NFTs), the so-called token mapping exercise may yield at least one positive outcome – that it simply isn’t feasible to have different sets of rules for the traditional and crypto sectors (particularly with regards to fundraising and disclosures).

If government does the work, you’d expect it to find that Bitcoin is best reviewed as a commodity, whereas all the other cryptocurrencies are more accurately seen as companies. Most Bitcoiners aren’t, however, holding their breath:

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Bitcoin Canada Crypto News Ethereum Regulation

Ontario-Based Exchanges Impose $30,000 Annual Buy Limit on Altcoins, a Trend?

Canadian cryptocurrency platforms Newton and Bitbuy are imposing a CA$30,000 annual net buy limit on altcoins in some provinces, though the limit will not apply to unrestricted cryptocurrencies such as Bitcoin, Ethereum, Litecoin, and Bitcoin Cash:

Toronto-based exchange Newton says the limit will apply to what are being called restricted cryptocurrencies, or altcoins. A net buy limit tallies up all crypto purchases minus sells (at average cost) over a rolling 12-month period, according to Bitbuy.

Nine Provinces Affected

Provinces where the buy limits will be imposed are New Brunswick, Newfoundland, Nova Scotia, Nunavut, Northwest Territories, Ontario, Prince Edward Island, Saskatchewan, and Yukon. Users can still resell restricted cryptocurrencies to reduce their balance towards the limit, which resets after one year.

The limits, put in place by the Ontario Securities Commission (OSC) and the Canadian Securities Administrators, are calculated based on the amount in Canadian dollars altcoins are worth at the time of trade and are thereby unaffected by increases or decreases in the value of one or more digital assets.

The decision has rightly caused some confusion of frustration among Canadian residents who took to Twitter to express their concern:

On the other hand, Ethereum co-founder Vitalik Buterin is understandably happy about the decision to privilege major coins such as Ethereum:

Canada’s Shifting Crypto Landscape

Canada’s crypto scene has caused much confusion and frustration this year after Prime Minister Justin Trudeau took unprecedented steps in February by invoking the 1988 Emergencies Act, which enables the government to freeze bank accounts without going through the courts, in an attempt to deny funding to the Canadian “Freedom Convoy”, thus essentially banning cryptocurrencies.

The Freedom Convoy was established through a loose affiliation of truckers and citizens who launched protests over vaccine mandates for truckers crossing the US/Canada border. Many have slated the country’s decision as undemocratic and authoritarian.

Categories
Australia ETFs Investing Regulation

Brisbane-Based ‘Monochrome’ Gets Approval for Spot-Based ETF  

A Brisbane asset management company will offer spot-based crypto exchange traded funds (ETFs), becoming the first to be authorised under an Australian financial services licence (AFSL).

Monochrome Asset Management announced on August 15 that it had gained approval from financial services regulator the Australian Securities and Investments Commission (ASIC) to operate spot-based crypto ETFs under an AFSL. 

The approval opens the door for retail investors to benefit from fully regulated and direct insured exposure to crypto assets, including Bitcoin and Ether. The funds will be headlined by the Monochrome Bitcoin ETF (ticker code: IBTC).

To date, no crypto asset ETFs operate under an AFSL with a crypto-asset authorisation. ASIC’s decision to provide this AFSL authorisation opens new regulated investment opportunities for direct retail investors and through licensed financial advisers.

Monochrome Asset Management

ASIC Approval Offers Regulated Crypto Investing

Monochrome’s spot-based crypto ETFs are not the first launched in Australia – that honour went to ETF products established by Sydney-based Cosmos Asset Management in May, followed closely by 3iQ’s launch of a Bitcoin and Ethereum feeder ETF in June. 

However, Monochrome being the first to operate an ETF under an AFSL – a licence issued by ASIC that’s required to run a financial services business – could be a key differentiator for investors seeking trustworthy advice and investment vehicles.

Monochrome CEO Jeff Yew said that in addition to meeting market demand, its ETF would give crypto investors the protection of a “much higher degree of regulation”.

The regulator’s approval of this licence variation represents a major step forward for both the advice industry and retail investors, allowing advisers to meet the market demands of their clients when it comes to the nascent crypto-asset class. 

Jeff Yew, CEO, Monochrome Asset Management
Categories
Crypto News Regulation

US Regulator Sues ‘Dragonchain’ Over $16.5 Million ICO

The US Securities and Exchange Commission (SEC) has filed a complaint against Dragonchain, a blockchain venture that allegedly failed to register US$16.5 million in digital asset sales over a period of five years:

Unregistered Securities Here, There and Everywhere

The term “securities” refers to tradeable financial assets, and under US securities law a company may not offer or sell securities to the public unless the offering has been registered with the SEC. Registered offerings are subject to a plethora of laws and regulations that purport to protect investors.

Full disclosure is one of the core elements required within a public listing, designed to help investors make informed choices, and this is typical not just in the US but across virtually all capital markets.

Some of the required information to be disclosed includes the history of the company and its founders, shareholding structure, financial statements, executive compensation, risk factors (both current and future), management’s explanation of operations, and any other material facts relevant to the offering.

Michael Saylor, as well as current SEC chairman Gary Gensler, are of the opinion that the vast majority of tokens constitute unregistered securities, and the regulator’s actions are beginning to gain steam. Already this year we’ve witnessed a veritable feast of lawsuits and probes relating to unregistered securities, most notably against Coinbase.

Dragonchain Flies Too Close to the Sun

The complaint alleges that chief executive John Roets violated securities laws by raising millions of dollars from the sale of Dragon (DRGN) tokens in an initial coin offering (ICO) in 2017. The firm then diverted the proceeds into marketing and development:

Dragonchain undertook its distribution of DRGNs without registering its offers and sales of DRGNs with the SEC as required by the federal securities laws, and no exemption from this requirement applied.

SEC complaint

“Through this offering, the defendants allegedly raised approximately $14 million from approximately 5,000 investors worldwide, including in the United States,” the SEC wrote. The SEC argues that DRGN was marketed to crypto investors by touting the token’s investment value, pricing, and “listing” on trading platforms.

Despite marketing itself as a hybrid blockchain for “solving business problems at an enterprise scale”, Dragonchain has to date demonstrated little to any real-world value.

Interestingly, this isn’t the firm’s first encounter with authorities. In 2021, a court filing by the State of Washington also called DRGN tokens a security, arguing the firm was “not currently registered to sell its securities in the state of Washington and has not previously been so registered”.

Dragonchain was subsequently fined US$50,000 and issued with a cease and desist order. The SEC is now looking to follow suit by seeking a permanent injunction, the return of what it believes are wrongfully obtained profits, and civil penalties.

Dragonchain appears to have embraced regulatory arbitrage to circumvent laws designed for investor protection. Bitcoiners such as Saylor would likely argue it is but one, and there are around 20,000 remaining:

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Australia Crypto News Investing Regulation

ASIC Chair ‘Troubled’ by Extent of Risk Taken in Crypto Investing

The Australian Securities and Investments Commission (ASIC) has admitted it holds concerns over the crypto investment increase seen during the Covid-19 pandemic, particularly among new, inexperienced investors.

According to ASIC’s new investment behaviour research, conducted among more than 1000 investors in November 2021, crypto was the second most common investment product last year.

Almost Half of Investors Own Crypto

ASIC chairman Joe Longo pointed to the increasing number of new investors buying cryptocurrency without fully understanding the associated risks.

Of those surveyed, 44 percent of investors stated they owned crypto, and of these, 25 percent claimed crypto was their only investment:

https://www.finsia.com/news-hub/the-standard/joe-longo-will-make-access-affordable-financial-advice-one-his-priorities

According to the survey, only 20 percent of cryptocurrency owners considered their investment approach to be ‘risk-taking’, raising concerns that investors did not understand the risks of this asset class.

Joe Longo, ASIC chairman

Perhaps even more concerningly, 41 percent of investors surveyed stated they had received their investing information from social media platforms – predominantly Reddit, TikTok, Facebook, and YouTube.

Longo finds these figures troubling and believes consumers are failing to weigh the risks and fully understand what they are participating in. Andrew Bragg, a NSW Liberal Senator and vocal proponent of the crypto industry, agrees with Longo and recommends “sweeping reforms to regulate crypto”.

ASIC Pleads for Smart Investing

April 2022 was a notable month for ASIC warnings regarding cryptocurrency and other financial matters. Firstly, the regulator released a guidance note for Aussie ‘finfluencers’. The document outlined which financial influencers could be in breach of the law, and recommended these people check they had the right qualifications to be providing financial advice. The move was met with contention by many ‘finfluencers’ at the time.

Only days later, ASIC’s former chairman Greg Medcraft called for urgent Australian crypto regulatory clarity. Medcraft, joined by venture capitalist Mark Carnegie, requested that Aussie regulators join the crypto start-up race. According to the Australian Financial Review, Medcraft hoped to develop a plan to encourage digital asset tech and investment.

Categories
Crime DeFi Regulation Tornado Cash

US Treasury Sanctions Crypto Mixer ‘Tornado’, Freezing USDC and ETH Addresses  

Tornado Cash, a mixing service that obscures crypto transaction information, has been sanctioned by the US Treasury, which claims the DeFi protocol is regularly used for money laundering to cover up cybercrime.

Treasury added Tornado Cash and 44 of its Ethereum and USDC wallet addresses to its Specially Designated Nationals list of embargoed entities typically used to prohibit people in the US from dealing with terrorists and authoritarian regimes.  

According to Treasury, more than US$7 billion had been laundered via Tornado Cash, including some US$455 million of the US$625 million stolen by North Korean hacking group Lazarus in an exploit of the Ronin Network in March this year. Tornado Cash was also used to conceal the source of more than US$96 million in dirty money from June’s Harmony Bridge heist, Treasury said. 

Protocol Fails to Balance Privacy and Compliance 

Tornado Cash ‘mixes’ crypto transaction details to break the links in on-chain activity, in the interests of preserving users’ privacy. Deposits are made via one address and withdrawn by a different address, meaning transactions are harder to trace – and therefore appealing to criminals.

In April 2022, Tornado Cash moved to block access by addresses sanctioned by Treasury’s Office of Foreign Assets Control (OFAC) in an attempt to demonstrate compliance. More recently, the protocol transitioned to a fully open-source user interface to increase transparency by enabling contributors to suggest code improvements.

However, it’s clear Treasury did not feel the protocol was meeting its anti-money-laundering obligations, making it a threat to US national security.

Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks. Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.

Brian E. Nelson, Treasury Under Secretary for Terrorism and Financial Intelligence

Treasury Issues Broader Warning

Treasury also had a warning for the broader crypto ecosystem: “As today’s action demonstrates, mixers should in general be considered as high-risk by virtual currency firms, which should only process transactions if they have appropriate controls in place to prevent mixers from being used to launder illicit proceeds.”

Categories
Crypto News Cryptocurrency Law Regulation Security

Tough Week for Robinhood: 25% of Staff Cut and a $30 Million Fine for Money Laundering Violations

California-based crypto trading platform Robinhood has been fined US$30 million by a New York regulator for failing in its anti-money-laundering obligations.

To make matters worse, the company has also been forced to lay off 25 percent of its staff after performance failed to match expectations.

Additional Cybersecurity and Consumer Protection Violations

The New York State Department of Financial Services (NYDFS) has issued details of the penalties. Additional to its anti-money-laundering failure, Robinhood is to be penalised for cybersecurity and consumer protection violations.

The platform’s cybersecurity program was found to lack sufficient resources to address risk. Its crypto division had also failed to transition from a manual transaction monitoring system to one more adequate for its user size and transaction volume, in a timely manner.

NYDFS Superintendent Adrienne Harris has spoken publicly about Robinhood’s shortcomings:

As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance – a failure that resulted in significant violations of the department’s anti-money laundering and cybersecurity regulations.

Adrienne Harris, NYDFS Superintendent

Unfortunately for Robinhood, the bad news does not stop there. On August 2, the company released a message from Vlad Tenev, its CEO and co-founder, announcing that the company would be forced to cut almost a quarter of its staff.

Ironically, considering Robinhood’s cybersecurity program was found to be inadequately staffed, overhiring in 2021 in anticipation of growing retail engagement with stock and crypto markets was blamed for the layoffs. Performance failed to match expectations, and Robinhood is bracing for approximately US$30-40 million in cash restructuring charges from employee benefits costs and severance.

One Ordinary Year Follows Another

Last year saw Robinhood also make the news multiple times for all the wrong reasons. In July, the crypto trading app was fined US$70 million for misleading its customers.

Then in October, Robinhood experienced a 78 percent decline in its Q3 crypto revenue. User growth in investment apps had skyrocketed as retail investors piled into stocks and crypto in the wake of the March 2020 Covid-19 financial meltdown. As a result, memecoins were receiving a lot of attention and Robinhood’s exposure to DOGE was blamed for the drop.