Non-Fungible Insights: Blockchain Decrypted

On July 17, 2024, the Financial Services and Treasury Bureau (FSTB) and Hong Kong Monetary Authority (HKMA) jointly issued a legislative proposal on stablecoin regulation in response to a two-month public consultation period with industry stakeholders. The consultation—which began earlier this year—generated 108 responses from market participants, industry associations, business organizations, and individuals, many of whom expressed support for a “well-regulated environment” as “a prerequisite for sustainable and responsible development of the stablecoin ecosystem in Hong Kong.”

On February 16, 2024, the Cabinet of Japan approved a bill to amend, among three other laws, the Limited Partnership Act for Investment (the Act). The proposed amendment provides for crypto assets to be added to the list of assets that investment limited partnerships (LPs) can acquire or hold.

On February 7, 2024, the Securities and Exchange Commission (SEC) announced charges against TradeStation Crypto, Inc. for “failing to register the offer and sale of a crypto lending product” that it offered to U.S. investors from approximately August 2020 to June 2022.

Yesterday marked a historic milestone in the history of bitcoin. On January 10, 2024, the U.S. Securities and Exchange Commission declared effective the applications to list shares of the following 11 spot bitcoin exchange-traded products and greenlighted the commencement of trading shares of the spot bitcoin ETPs beginning today.

On February 23, 2023, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (collectively, the “agencies”) issued their second joint statement of the year regarding crypto-asset market vulnerabilities.

In this more recent joint statement, the agencies have drawn their attention to the liquidity risks created by funding from crypto-asset-related entities, and the methods to mitigate such risks.

On February 9, 2023, the U.S. Securities and Exchange Commission announced charges against Payward Ventures, Inc. and Payward Trading Ltd. for failing “to register the offer and sale of their crypto asset staking-as-a-service program.”

On January 3, 2023, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement on crypto-asset risks to banking organizations.

On November 7, 2022, the United States District Court for the District of New Hampshire ruled that the digital asset LBRY Credits (LBC), offered to purchasers by LBRY, Inc., is an unregistered security for U.S. federal securities law purposes. This summary judgment follows a March 2021 Securities and Exchange Commission (SEC) enforcement action in which the agency claimed that LBRY’s offer and sale of LBC violated Sections 5(a) and 5(c) of the Securities Act of 1933 prohibiting unregistered offerings or sales of securities in interstate commerce. Ruling in favor of the SEC, the court determined that LBRY offered LBC as a security and rejected LBRY’s argument that it lacked “fair notice.”

On September 22, 2022, the Commodity Futures Trading Commission filed a complaint against Ooki DAO, a decentralized autonomous organization, and its members for (i) offering to enter into and executing leveraged retail commodity transactions outside of a registered futures exchange, (ii) failing to register as a futures commission merchant, and (iii) failing to implement know-your-customer and customer identification program procedures as required of FCMs under the Bank Secrecy Act. Concurrent with the complaint, the CFTC published a settlement order against the individual founders of bZeroX, LLC for the same violations.

Summary of the U.S. Department of the Treasury’s Action Plan to Address Illicit Financing Risks of Digital Assets. 

Winston & Strawn’s Digital Assets & Blockchain Technology Group reviews the DOJ’s Report issued pursuant to the Executive Order on Ensuring Responsible Development of Digital Assets.

On September 8, 2022, Securities and Exchange Commission (SEC) Chair Gary Gensler expounded his thoughts on cryptocurrency tokens (“Tokens”) and cryptocurrency intermediaries (“Intermediaries”) at the Practising Law Institute’s “SEC Speaks” program.

The recent cessation of operations by some cryptocurrency exchange companies has led the Federal Deposit Insurance Company (FDIC) to increase its scrutiny of bank/digital asset partnerships, particularly of how those partnerships are marketed and the extent of federal deposit insurance coverage.

The Commission recently filed S.E.C. v. Wahi, et. al. (2022), an insider trading case brought in federal court in the state of Washington against a former Coinbase manager and others. The crux of the action is whether the former manager unlawfully provided the others advance notice of which digital assets were to be listed on the Coinbase platform before the listing was announced publicly.

Our Global Trade & Foreign Policy Insights Blog recently posted an article discussing the heightened risk of Russia sanctions evasion—including through the use of cryptocurrencies. Financial institutions, crypto markets and exchanges, and other persons and individuals subject to U.S. jurisdiction or doing business with U.S. Persons, should consider implementing enhanced due diligence and/or taking extra precautions to avoid prohibited transactions or parties.

On June 13, 2022, a class-action lawsuit was filed in the Northern District of California against Binance U.S. (“Binance”), the United States-headquartered partner of one of the most prominent global digital asset exchange platforms. The named Plaintiff, who had purchased Terra USD (“UST”) through Binance since April 13, 2022, alleges, among other things, that Binance misrepresented UST as a “safe” asset to purchasers and violated U.S. federal and state securities laws.

Governments and regulators have struggled to keep pace as new digital asset classes and other blockchain applications have risen to prominence. This regulatory uncertainty has caused confusion in the markets and impeded greater adoption of distributed ledger technologies in the United States.

On May 12, 2022, Florida Governor Ron DeSantis signed new legislation, CS/HB 273, defining and deregulating cryptocurrency in the state. The legislation amends Florida’s financial regulations targeting money service businesses (MSBs), creates a new definition for “virtual currency,” and ultimately eases restrictions on Florida’s crypto industry.

The Securities and Exchange Commission (SEC) and its Chair Gary Gensler are making good on their promise to increase oversight of the crypto markets.

The Office of the Comptroller of the Currency (OCC) recently entered into a consent order with the first federally-chartered digital asset bank, Anchorage Digital Bank (Anchorage Digital), for “fail[ing] to adopt and implement a compliance program that adequately covers the required Bank Secrecy Act/Anti-Money Laundering (BSA/AML) program elements.”