Crypto Payments Firms Make Moves; NFT and Blockchain Supply Chain Projects Launch; Central Bank Addresses CBDCs; SEC and DOJ Bring Crypto Actions

By Robert A. Musiala, Veronica Reynolds, Keith R. Murphy, Joanna F. Wasick & Jordan R. Silversmith on January 28, 2022

In this issue:

• Crypto Payments Consortium Sells Assets; Other Crypto Firms Make Moves

• New NFT Projects Launch in Art, Music, Fashion, Sports and Social Media

• Firms Launch Blockchain Supply Chain Initiatives in Pharma and Liquor Products

• U.S. Central Bank Addresses CBDCs; Congressman Proposes Crypto Action

• SEC Scrutinizes Crypto Interest Accounts and Bitcoin GAAP Reporting

• DOJ Charges CEO of Crypto Exchange; Reports Provide Crypto Crimes Data

Crypto Payments Consortium Sells Assets; Other Crypto Firms Make Moves

By Veronica Reynolds

A well-known digital payments consortium announced this week that it will sell its blockchain-based technology to a large cryptocurrency-focused U.S. bank for approximately $200 million. The digital payments consortium was established in 2019 with much fanfare and the participation of numerous global payment platforms, but it was met with scrutiny by U.S. lawmakers.

In other payments news, a large e-commerce company in Latin America recently invested undisclosed amounts in two firms: the parent company of a major Brazilian cryptocurrency exchange, and a major multinational blockchain infrastructure platform. And in the U.S., a large consumer-facing investment platform recently announced the beta launch of its crypto wallets program, which will allow customers to send and receive cryptocurrency to external cryptocurrency wallets. Separately, a well-known global cryptocurrency exchange launched a waitlist for its exchange-branded debit card. According to reports, the debit card will not be available in the U.S.

This week the Bank for International Settlements (BIS) Innovation Hub announced via a press release that it will “launch new projects into central bank digital currencies (CBDCs), next generation payments systems and Decentralised Finance (DeFi).” And in a final recent development, this week a large cryptocurrency exchange app released a report predicting that, based on the current cryptocurrency adoption rate, the number of “global crypto users” could reach 1 billion by the end of 2022. According to the report, the global population of cryptocurrency users increased from 106 million in January to 295 million by December – a 178% increase.

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New NFT Projects Launch in Art, Music, Fashion, Sports and Social Media

By Keith R. Murphy

According to recent reports, John Lennon’s son Julian Lennon recently announced plans to sell nonfungible tokens (NFTs) of Beatles memorabilia in the form of audiovisual collectibles, including guitars, clothing and other items from his father. In other NFT news, a well-known luxury fashion house and a sportswear conglomerate reportedly have teamed up to launch an NFT project that will allow fans to contribute their own designs using a filter designed by digital artist Zach Lieberman. Proceeds of the NFT sales are reportedly being donated to a charity supporting creators and artists.

According to a recent report, an American mixed martial arts league is launching an NFT marketplace in conjunction with Dapper Labs, adding to the latter’s roster of high-profile sports league partnerships. The marketplace is expected to feature NFT moments drawn from the league’s history as well as those based on their pay-per-view events.

In a final development, a popular microblogging and social networking service recently announced that it will be releasing iOS support for NFT hexagonal avatars, which users will be able to set as their profile photos. Reports indicate that users will be able to learn about other people’s avatars, including such information as their creators and owners, and verify the NFTs’ authenticity on third-party platforms.

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Firms Launch Blockchain Supply Chain Initiatives in Pharma and Liquor Products

By Robert A. Musiala Jr.

According to a recent press release, “Chronicled, the technology company behind MediLedger Network, has entered into a partnership with Parity Technologies, the developer behind Polkadot and Substrate.” The press release notes that the companies “will leverage modern peer-to-peer communication and blockchain technologies to improve the integrity and efficiency of the Life Sciences supply chain.”

In related news, a recent report predicts that “[t]he Global Blockchain in Healthcare market size is expected to reach USD 1189.8 Million by 2028, exhibiting a Compound Annual Growth Rate (CAGR) of 61.3% during the forecast period.” According to a press release, the factors contributing to this growth include “the rising cases of healthcare data breaches, threat of counterfeit drugs, and increasing acceptance of blockchain as a service coupled with transparency and immutability of the distributed ledger technology.”

In other supply chain developments, the Aura Blockchain Consortium recently announced that a major French cognac distiller will soon be integrated into the consortium’s blockchain traceability platform. The cognac distiller’s goal in joining the consortium is “to provide full traceability across the supply chain direct from the distillery to the consumer.”

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U.S. Central Bank Addresses CBDCs; Congressman Proposes Crypto Action

By Joanna F. Wasick

Last week, the board of the U.S. central banking system released a discussion paper examining the pros and cons of a potential U.S. central bank digital currency (CBDC). The paper acknowledges that the public has already held and transferred money in digital forms for many years. However, those digital forms of money are the liabilities of private entities, such as commercial banks. A CBDC would be a liability of a central bank. The paper goes on to summarize the current state of the domestic payments system and discusses the different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies. The paper then analyzes the potential benefits and risks of a CBDC and identifies specific policy considerations. The paper concludes by inviting comment from the public on whether and how a CBDC could improve the safety and effectiveness of the domestic payments system. Comments are due May 20, 2022.

Earlier this week, Republican congressman Patrick McHenry sent a letter to the Financial Services Committee Chairwoman Maxine Waters urging her to use future hearings on digital assets to review the current regulatory environment and prioritize statutory policies that are clear and consistent, and foster innovation in a way that complies with anti-money-laundering regulations and basic concepts of transparency and accountability. McHenry stressed that digital assets hold “great promise” and have the potential to address wealth gaps and “revolutionize” payments systems. McHenry also took aim at “vocal” heads of regulatory commissions and stated that neither the Commodity Futures Trading Commission’s (CFTC) nor the Securities and Exchange Commission’s (SEC) position on digital assets is based on statute. Policies on digital assets, he stated, should be the province of Congress and reflect a bipartisan consensus among policymakers. The risk of Congress not acting, he continued, will have the damaging effect of crypto marketplace participants moving out of the country.

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SEC Scrutinizes Crypto Interest Accounts and Bitcoin GAAP Reporting

By Jordan R. Silversmith

According to recent reports, several major crypto lending firms are currently being scrutinized by the U.S. Securities and Exchange Commission (SEC) as part of a broad inquiry into companies that pay interest on cryptocurrency deposits and whether such products should be registered as securities. The SEC has reportedly not accused any of the firms of wrongdoing.

In related news, a U.S. firm with large bitcoin holdings has reportedly come under scrutiny from the SEC, with the agency telling the company in a Dec. 3 filing that “we object to your adjustment for bitcoin impairment charges in your non-GAAP measures. Please revise to remove this adjustment in future filings.” According to reports, the company responded to the SEC in mid-December, agreeing to “revise its disclosures of non-GAAP measures in future filings to remove the adjustment for impairment losses and gains on sale related to bitcoin, as requested by the Commission.”

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DOJ Charges CEO of Crypto Exchange; Reports Provide Crypto Crimes Data

By Robert A. Musiala Jr.

According to a recent press release from the U.S. Department of Justice (DOJ), the CEO of Cryptsy, a Florida-based cryptocurrency exchange, has been charged with “criminal violations for his involvement in a sophisticated theft scheme involving his cryptocurrency exchange. The charges include tax evasion, wire fraud, money laundering, computer fraud, tampering with records, documents, and other objects, and destruction of records in a federal investigation.” Among other things, the press release notes that the CEO, Paul E. Vernon, “used his control over Cryptsy’s accounts … to steal over one million dollars from Cryptsy’s cryptocurrency wallets.” Separately, according to another recent DOJ press release, “[a] former professional skateboarder was sentenced … to 97 months in federal prison for selling nearly two pounds of methamphetamine and laundering Bitcoin for the dark web operations of other drug traffickers.”

A recently published blog by blockchain analytics firm Chainalysis provides an overview of 2021 cryptocurrency money-laundering activity. Among other things, the blog notes the following:

“While billions of dollars’ worth of cryptocurrency moves from illicit addresses every year, most of it ends up at a surprisingly small group of services, many of which appear purpose-built for money laundering based on their transaction histories.”
“For the first time since 2018, centralized exchanges didn’t receive the majority of funds sent by illicit addresses last year, instead taking in just 47%.”
“DeFi protocols received 17% of all funds sent from illicit wallets in 2021, up from 2% the previous year.”

Another blockchain analytics firm, Elliptic, recently published a report finding that a bug was exploited to purchase NFTs on OpenSea at well below market value. The report identifies “at least five attackers who have exploited this loophole to purchase at least twelve NFTs for much less than their market value,” including Bored Ape Yacht Club, Mutant Ape Yacht Club, Cool Cats and Cyberkongz NFTs.

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