In this issue:

 US Institutional Financial Firms, and Fintech Startups, Launch Crypto Products

• Creative NFT Launches and Bitcoin Giveaways Continue To Trend

• US Crypto Exchange Acquires Broker Dealer, SEC Action Targets Token Sales

• US Enforcement Actions Target Cryptocurrency Darknet Activities and Fraud

• DOJ and IRS Actions Target Crypto Tax Evaders, UK Addresses Staking Taxation

US Institutional Financial Firms, and Fintech Startups, Launch Crypto Products

A major U.S. financial services corporation announced this week that it would begin to settle transactions over the Ethereum Network in USD Coin (USDC), a stable coin backed by the U.S. dollar, becoming the first major payments network to do so. The corporation is piloting the capability with an online cryptocurrency platform and plans to offer the USDC settlement capability to additional partners later in 2021. According to a press release, the corporation believes that the ability to settle in USDC will help crypto native companies evaluate new business models without needing traditional fiat in their treasury and settlement workflows. Meanwhile, on Tuesday, another major U.S. financial services corporation launched its own crypto checkout service, which will allow U.S. consumers to use their cryptocurrency holdings to pay at millions of online merchants globally.

A U.S. cryptocurrency marketplace founded in 2018 recently announced the launch of its digital wallet to manage various cryptocurrencies and digital assets across one platform. The app will reportedly allow consumers to use their cryptocurrencies according to their preferences by converting participating rewards points to cash, or by using bitcoins as payment, for example. According to a press release, the company hopes that consumers will be able to use the new wallet to track and utilize the value of all kinds of digital assets, from bitcoins to gift cards to loyalty points.

According to a recent blog post, Ripple Labs has agreed to acquire 40 percent of a leading Asia-based cross-border payments firm. The new partnership will reportedly allow for the expansion of RippleNet’s On-Demand Liquidity service, which uses the XRP cryptocurrency, to instantly send money and reduce working capital needs.

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Creative NFT Launches and Bitcoin Giveaways Continue To Trend

A major U.S. news magazine recently sold three of its covers – two iconic and one original – as non-fungible tokens (NFTs) on NFT platform SuperRare. The magazine is one of many brands leaning into the NFT-hype, with the covers going for a total of $435,000. “This is not just about the collectibles and big drops,” according to the magazine’s president. “The more interesting part is what does this mean about the future of subscriptions, the future of community, the future of membership.” In another recent NFT campaign, a large U.S. brand of potato chips recently offered a new virtual chip “flavor” – limited-edition animated images of a gold-plated tube of chips, available as NFTs on Rarible. SuperRare and Rarible are NFT marketplaces where consumers can buy, sell, auction and bid on NFTs.

Bitcoin continues to be an attractive marketing hook, with a corporate restaurant chain offering $100,000 in free bitcoin giveaways this week. The restaurant chain launched the campaign as a game, requiring participants to guess the correct six-digit code, which, if guessed correctly, would give them a chance to win free bitcoins. The campaign was announced in partnership with Stefan Thomas, a programmer who gained notoriety when he became unable to access a digital wallet containing over 7,000 bitcoins due to his failure to remember a password that would allow him access to an encrypted device. Sports fans, too, gained exposure to bitcoin this week, with a major-league baseball team selling tickets in exchange for bitcoins for the first time ever.

A recent article published in Forbes and a recent report from a Big Four accounting and consulting firm address the potential impact of blockchain and cryptocurrencies on the digital advertising industry. Among other things, the publications discuss blockchain-and cryptocurrency-based applications and their potential to reduce costs, enable new reward campaigns, reduce fraud and secure data in the ad industry.

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US Crypto Exchange Acquires Broker Dealer, SEC Action Targets Token Sales

Earlier this week, a major U.S. cryptocurrency exchange announced that the Financial Industry Regulatory Authority (FINRA) approved its acquisition of a U.S. broker-dealer. The acquisition will reportedly make the exchange one of the first cryptocurrency firms to own a broker-dealer approved to offer equities on an omnibus basis to U.S. retail investors. According to a press release, the exchange plans to launch fractional equities in the U.S. later this year and will provide seamless trading between cryptocurrencies, U.S. stocks, precious metals, carbon credits, FX products and other assets, all with one interface.

This week the U.S. Securities and Exchange Commission (SEC) filed a complaint charging LBRY Inc., a blockchain-based publishing platform and video-sharing company, with “conducting an unregistered offering of digital asset securities” related to the company’s “LBRY Credits,” which were sold between 2016 and 2020 to institutional investors and other platform users. LBRY issued a detailed statement responding to the SEC’s complaint. According to LBRY, the SEC refused offers to settle, despite the fact that LBRY did not conduct an initial coin offering and despite the absence of any alleged fraud. LBRY asserts that the SEC’s stance “would make almost all blockchain tokens securities,” thereby creating “a bureaucratic nightmare for United States residents and businesses operating in the U.S.”

According to reports, while answering questions at last week’s virtual Security Token Summit 2021, SEC Commissioner Hester Peirce warned that fractionalized non-fungible tokens (NFTs) could be considered securities, and therefore selling or otherwise issuing them could be subject to U.S. securities laws. Commissioner Peirce reportedly criticized the Howey Test, which is the standard means for determining what constitutes a security, stating the test “hasn’t worked that well” for cryptocurrencies and other digital assets. The commissioner also reportedly said that she hopes to develop a “safe harbor plan,” which would reduce regulatory scrutiny of emerging blockchain networks.

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US Enforcement Actions Target Cryptocurrency Darknet Activities and Fraud

According to a recent press release from the U.S. Department of Justice (DOJ), the chief executive officer of a communications network and service provider and a former distributor of the company’s devices have been indicted on charges that they intentionally participated in a criminal enterprise that facilitated the international distribution of illegal drugs through the use of the company’s encrypted communications devices. The DOJ indictment charges that company employees utilized cryptocurrencies including bitcoin to facilitate illegal transactions on the company’s website, to retain the anonymity of the customers and to launder their customers’ ill-gotten gains.

According to another DOJ press release, an Israeli national pleaded guilty this week to operating a website that enabled users to access darknet marketplaces in order to purchase illegal drugs and firearms as well as malware and hacking tools. The defendant and co-defendant who operated the website allegedly received kickbacks in the form of cryptocurrency, including more than 8,000 bitcoins, for providing the links. The defendant allegedly attempted to conceal the kickbacks by transferring funds from the company’s bitcoin wallet to other bitcoin accounts and bank accounts in the name of shell companies he controlled.

A default judgment was entered last week against an individual in connection with his involvement in a 2017 fraud scheme where he and his company solicited bitcoins valued at more than $22 million from customers under the false premise of providing them with guaranteed returns, according to a press release from the Commodity Futures Trading Commission (CFTC). The press release notes that the default judgment requires the defendant to pay more than $500 million in restitution and civil monetary penalties and enjoins him from trading in any CFTC-regulated markets.

For more information, please refer to the following links:

DOJ and IRS Actions Target Crypto Tax Evaders, UK Addresses Staking Taxation

By: Keith R. Murphy and Robert A. Musiala Jr.

According to a recent press release from the U.S. Department of Justice (DOJ), a Massachusetts federal court has entered an order authorizing the Internal Revenue Service (IRS) to serve a “John Doe” summons on a major U.S. cryptocurrency exchange and its affiliates. According to the press release, the IRS is “seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020.” In a separate development, the DOJ Division of Tax has reportedly filed a “John Doe” subpoena in the Northern District of California seeking to obtain information from another major U.S. cryptocurrency exchange regarding U.S. taxpayers who held cryptocurrency assets with the exchange.

An IRS press release last week highlighted an event called “The Challenge” that recently took place among members of the Joint Chiefs of Global Tax Enforcement (J5). According to the press release, the focus of this year’s event was fintech companies, and the participating countries brought datasets for teams of technology experts and investigators to work through in order to generate leads and to locate tax offenders who are using cryptocurrency. The chief of the IRS Criminal Division is quoted in the release as stating that the Challenges jump-start investigations and end up in real enforcement actions.

According to reports, the U.K. tax authority, Her Majesty’s Revenue and Customs (HMRC), recently updated its Cryptoassets Manual with new guidance on the taxation of income from participation in staking on proof-of-stake blockchain networks. The updated guidance is available on the HMRC website.

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