Tag Archives: cryptocurrency

U.S. Justice Department Announced Digital Asset Coordinator Network

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The U.S. Department of Justice announced significant actions regarding digital assets, including the public release of its report, pursuant to the President’s March 9 Executive Order on Ensuring Responsible Development of Digital Assets, on The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets; and the establishment of the nationwide Digital Asset Coordinator (DAC) Network, in furtherance of the department’s efforts to combat the growing threat posed by the illicit use of digital assets to the American public.

“As digital assets play a growing role in our global financial system, we must work in tandem with departments and agencies across government to prevent and disrupt the exploration of these technologies to facilitate crime and undermine our national security,” said Attorney General Merrick B. Garland. “The efforts announced today reflect the commitment of the Justice Department and our law enforcement and regulatory partners to advancing the responsible development of digital assets, protecting the public from criminal actors, and meeting the unique challenges these technologies pose.”

The White House released a FACT SHEET regarding cryptocurrency. From the Fact Sheet:

…Digital assets pose meaningful risks for consumers, investors, and businesses. Prices of this assets can be highly volatile: the current global market capitalization cryptocurrencies is approximately one-third of its November 2021 peak. Still, sellers mislead consumers about digital assets features and expected returns, and non-compliance with applicable laws and regulations remains widespread. One study found that almost a quarter of digital coin offerings had disclosure or transparency problems – like plagiarized documents or false promises of guaranteed returns. Outright fraud, scams, and theft in digital asset markets are on the rise: according to FBI statistics, reported monetary losses from digital asset scams were nearly 600 percent higher than in 2021 than the year before…

The Wall Street Journal reported that the Justice Department has tapped more than 150 federal prosecutors across the country to bolster law enforcement’s efforts to combat the rise in crime linked to the use of cryptocurrencies, such as bitcoin, officials said.

According to The Wall Street Journal, The Digital Asset Coordinators Network is intended to designate subject-matter experts in U.S. attorneys’ offices on the complex and technical and legal complications posed by cryptocurrency cases, the officials said.

Regulators, lawmakers and law-enforcement officials have said some cryptocurrency platforms afford users anonymity that helps them to launder criminal proceeds, finance terrorism, or engage in public corruption. Sanctions and other tools have been deployed with more frequency in recent months, but criminal prosecutors remain a key part of the administration’s strategy to police against bad actors, The Wall Street Journal reported.

Personally, I can see why it is necessary for the federal government to crack down on cryptocurrency, especially since it has been used in frauds, scams, and theft. It will be interesting to see how effective The Digital Asset Coordinators Network will be on cracking down on cryptocurrency.

U.S. SEC To Set Up Offices For Crypto Filings

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The U.S. securities regulator will set up two new offices to deal with filings related to crypto assets and the life sciences sector, Reuters reported. According to Reuters, the “Office of Crypto Assets” and the “Office of Industrial Applications and Services” will join seven other existing offices under the Securities and Exchange Commission (SEC) department, which handles corporate disclosure findings.

The Securities And Exchange Commission (SEC) posted a press release titled: “SEC Division of Corporation Finance to Add Industry Offices Focused on Crypto Assets and Industrial Applications and Services”. From the press release (posted September 9, 2022):

The Securities and Exchange Commission today announced plans to add an Office of Crypto Assets and an Office of Industrial Applications and Services to the Division of Corporation Finance’s Disclosures Review Program (DRP). The DRP has long had offices to review company filings by issuers. The two new offices will join the seven existing offices that provide focused review of issuer filings and that are grouped by industry experts to further the Division’s work to promote capital formation and protect investors. The DRP anticipates the new offices to be established later this fall…

According to the press release, The Office of Crypto Assets will continue the work currently performed across the DRP to review filings involving crypto assets. Assessing companies and filings to one office will enable the DRP to better focus its resources and expertise to address the unique and evolving filing review issues related to crypto assets.

The Office of Industrial Applications and Services will be responsible for the non-pharma, non-biotech, and non-medical products companies currently assigned to the Office of Life Sciences. In recent years, the life sciences industry has experienced significant growth, which has added to the number of filings and companies assigned to that office. Transitioning a subset of these companies to a separate group will allow the DRP staff to build better specialized expertise.

Reuters reported that cryptocurrencies and other digital assets have soared in popularity over recent years and are getting increasingly intertwined with the regulated financial system, saddling policymakers with monitoring risks in a largely unregulated field. Allegations of money laundering against some crypto firms as well as consumer data violations in the United States, the biggest market for digital assets, have also affected demand.

In March of 2022, President Joe Biden signed an executive order calling on the government to examine the risks and benefits of cryptocurrencies, CNBC reported. According to CNBC, that order was signed by President Biden. The order called on federal agencies to take a unified approach to regulation and oversight of digital assets (according to a White House fact sheet).

Personally, I am not surprised that the U.S. federal government wants to put in place specific offices that can review filings of crypto assets. Cryptocurrency, after all, is a form of currency. As such, it appears to fall under rules similar to that of other types of currency or assets.

FDIC Sent Cease and Desist Letters to Crypto Companies

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The Federal Deposit Insurance Corporation (FDIC) issued letters demanding five companies and their officers, directors, and employees cease and desist from making false and misleading statements about FDIC deposit insurance and take immediate corrective action to address these false or misleading claims.

Here is more information from the FDIC’s post:

Based upon evidence collected by the FDIC, each of these companies made false representations – including on their websites and social media accounts – stating or suggesting that certain crypto-related products are FDIC-insured or the stocks held in brokerage accounts are FDIC-insurance. In one case, a company offering a so-called cryptocurrency also registered a domain name that suggests affiliation with or endorsement by the FDIC. These representations are false and misleading.

The Federal Deposit Insurance Act (FDI Act) prohibits any person from representing or implying that an uninsured product is FDIC-issued or from knowingly misrepresenting the extent and manner of deposit insurance. The FDI Act further prohibits companies from implying that their products are FDIC-insured by using “FDIC” in the company’s name, advertisements, or other documents. The FDIC is authorized by the FDI Act to enforce this prohibition against any person.

The FDIC sent cease and desist letters to the following crypto-companies: Cryptonews.com, Cryptosec.info, SmartAsset.com, FTX US, and FDICCrypto.com.

The FDIC provided examples of the misinformation posted by Cryptonews:

“Coinbase is one of a few exchanges which is actually regulated and insured by FDIC”

“Coinbase is FDIC insured exchange, meaning that all the funds are kept online (remaining 2%) are protected against theft.”

“eToro’s US users will be glad to know that their cash funds up to USD 250,000 are FDIC-insured, meaning you are guaranteed to get your funds back even in the event of eToro’s failure.”

“Gemini is described as “one of the biggest regulated crypto exchanges with the FDIC insurance for USD deposits, a user-friendly platform, and zero publicly known large scale hacks”

The FDIC also wrote the following in the letter to SmartAsset:

“Among other false and misleading statements, SmartAsset published an article on its website entitled, “List of FDIC-Insured Crypto Exchanges”… “This article includes, among other statements, the claim that “[w]ith those [purportedly insured] exchanges, if you lose your money on deposit the FDIC will reimburse those losses up to the program’s cap.” The article also includes a list of cryptocurrency exchanges that it claims offer FDIC insurance.”

The FDIC also wrote the following in the letter to FDICCrypto.com:

“The FDIC demand that you cease use of the domain name www.fdiccrypto.com, as well as any similar website domain names, immediately. This demand applies to the use of the website with the domain name www.fdiccrypto.com as well as advertising or consumer-facing documenting referencing fdiccrypto. The FDIC further demands that, within fifteen (15) business days of receipt of this letter, you provide written confirmation to the undersigned that you have complied with this demand.”

CNBC reported that in a letter specifically sent to FTX US, the FDIC said it appeared that on July 20, Brett Harrison, the president of FTX.US, published a tweet stating that direct deposits from employers are stored in FDIC-insured accounts in the user’s name.

According to CNBC, Harrison tweeted on Friday that he deleted the post and didn’t mean to indicate that crypto assets stored in FTX are insured by the FDIC, but rather “USD deposits from employers were held at insured banks.”

In my opinion, it is incredibly unwise to make it sound as though the FDIC has endorsed, or will pay back losses of cryptocurrency, when it is abundantly clear that the FDIC wants no part of that. These types of shenanigans are deceitful and potentially harmful to those who engage with disingenuous crypto companies.

Dutch Detain Suspected Developer Of Crypto Mixer Tornado Cash

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Dutch Authorities said they had arrested a 29-year-old man believed to be a developer for the crypto mixing service Tornado Cash, which the United States put on its sanctions list recently, Reuters reported. According to Reuters, the U.S. sanctions followed allegations that Tornado Cash was helping conceal billions in capital flows, including for North Korean hackers.

The Dutch FIOD posted information on its website that included the following:

“On Wednesday 10 August, the FIOD arrested a 29-year-old man in Amsterdam. He is suspected of involvement in concealing criminal financial flows and facilitating money laundering through the mixing of cryptocurrencies through the decentralized Ethereum mixing service Tornado Cash. Multiple arrests are not ruled out.

“These advanced technologies, such as decentralized organizations that may facilitate in money laundering are receiving extra attention from the FIOD. Also in the cryptocurrency domain, the FIOD stands for a safe financial Netherlands and investigates with effect and impact. Today the suspect is brought before the examining judge.”

In addition, the FIOD stated that FACT (the Financial Cyber Team of the FIOD) started a criminal investigation against Tornado Cash, that is offered on the Internet by means of a decentralized autonomous organization (DAO).

The FOID also wrote:

“… FACT suspects that through Tornado Cash has been used to conceal large-scale criminal money flows, including from (online) thefts of cryptocurrencies (so-called crypto hacks and scams). These included funds stolen through hacks by a group believed to be associated with North Korea. Tornado Cash started in 2019 and according to FACT it has since achieved a turnover rate of at least seven billion dollars. Investigations showed that at least one billion dollars worth of cryptocurrencies of criminal origin passed through the mixer. It is suspected that persons behind this organization have made large-scale profits from these transactions….”

Previous to the FOID’s statement, on August 8, the U.S. Department of the Treasury posted a press release titled: “U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash”.

Here are some key points from the Press Release:

“Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned virtual currency mixer Tornado Cash, which has been used to launder more than $7 billion worth of virtual currency since its creation in 2019. This includes over $455 million stolen by the Lazarus Group, a Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group that was sanctioned by the U.S. in 2019, in the largest known virtual currency heist to date. Tornado Cash was subsequently used to launder more than $96 million of malicious cyber actors’ funds derived from the June 24, 2022 Harmony Bridge Heist, and at least $7.8 million from the August 2. 2022. Today’s action is being taken pursuant to Executive Order (E.O.) 13694, as amended…”

Financial Times reported: The US sees mixing services as money transmitters that must comply with money laundering rules. It’s the second time this year that the US has hit a crypto mixing service for helping North Korean hackers after it imposted sanctions against blender.io in May.

According to Financial Times: Now, all property and interests belonging to Tornado Cash in the US are blocked. All transactions passing through Tornado Cash’s virtual desk are blocked too, if they involve US users or are conducted anywhere in or through the country.

It appears that whomever the Dutch authorities alleged to be involved with Tornado Cash could – potentially – be facing legal problems in not one, but two, countries.

DFR Says Celsius Network Is “Deeply Insolvent”

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Vermont Department of Financial Regulation (DFR) said it believes cryptocurrency lender Celsius Network is “deeply insolvent” and does not have assets and liquidity to honor its obligations to customers and other creditors, Reuters reported.

According to Reuters: The crypto lender has been involved in an unregistered securities offering, selling cryptocurrency interest accounts to retail investors including investors in Vermont. Celsius also lacks a money transmitter license and until recently was operating largely without regulatory oversight.

The Vermont Department of Financial Regulation (DFR) posted information titled: “DFR Encourages Celsius Network Investors To Proceed With Caution”.

Here are some key points from that information:

“Celsius Network is a cryptocurrency company, unlicensed in Vermont, that offered its customers interest-bearing accounts. Celsius promised customers high interest rates (up to 17%) on deposits of cryptocurrencies. On June 12, 2022, Celsius announced that it was pausing all withdrawals, swaps, and transfers between customer accounts. This action impacts hundreds of thousands of customers and billions of dollars of cryptocurrencies, including accounts of some Vermonters.

“The Department believes Celsius is deeply insolvent and lacks the assets and liquidity to honor its obligations to account holders and other creditors. Celsius deployed customer assets as collateral for additional borrowing to pursue leveraged investment strategies. Additionally, some of the assets held by Celsius are illiquid, meaning they may be difficult to sell, and a sale may result in financial losses. The company’s assets and the investments are probably inadequate to cover its outstanding obligations.

“In addition, the Vermont Department of Financial Regulations also stated that Celsius Network had been operating in multiple jurisdictions, including Vermont. The Department believes that Celsius has been engaged in an unregistered securities offering by offering cryptocurrency interests to retail investors. Celsius also lacks a money transmitter license.”

CNBC reported that Celsius has started the process of filing for Chapter 11 bankruptcy protection after a month of turmoil. CNBC also reported that, In a Wednesday statement, Celsius said it would look to stabilize its business by restructuring in a way “that maximizes value for all stakeholders.” Celsius said it has $167 million in cash on hand to support operations in the meantime.

According to CNBC, “Wednesday’s news marks the latest high-profile crypto bankruptcy as prices plummet.”

Personally, I don’t think people who put a lot of cryptocurrency into Celsius are ever going to be able to obtain it. A bankruptcy filing could potentially mean that Celsius could get out of paying whatever it owed to customers.

U.S. Department Of Treasury Made Framework For Digital Assets

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The U.S. Department of Treasury announced they have outlined an interagency approach to address the risks and harness the potential benefits of digital assets and their underlying technology, including through international engagement to adapt, update, and enhance the adoption of global principles and standards for how digital assets are used and transacted.

This was done in response to an executive order from President Biden titled: “Ensuring Responsible Development of Digital Assets”. In short, the Department of Treasury has developed regulations regarding digital assets.

Technology-driven financial innovation is frequently cross-border and can impact households, businesses, and governments across the world. International cooperation among public authorities, the private sector, and other stakeholders is therefore critical to maintaining high regulatory standards and a level playing field, expanding access to safe and affordable financial services, and reducing the cost of domestic and cross-border payments, including through the continued monetization of public payment systems…

Objectives Of The Framework include:

Protect consumers, investors, and businesses in the United States and globally by promoting technology and regulatory standards that reflect U.S. values;

Protect U.S. and global financial stability and mitigate systemic risk;

Mitigate illicit finance and national security risks posed by misuse of digital assets and counter and response to efforts by foreign adversaries to drive standards and promote their protocols;

Reinforce U.S. leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets by advancing technology and regulatory standards that align with U.S. values;

Promote access to safe and affordable financial services; and

Support technological advances that promote responsive development and use of digital assets by advancing research and relationships that increase shared learning.

What does this all mean? For further information, you can read the Fact Sheet on the U.S. Department of the Treasury’s website. It’s a bit long, and not very easy to understand.

CoinDesk reported that the U.S. Treasury Department’s fact sheet states the framework’s policy objectives also include reducing the potential use of crypto for illicit finance promoting access to financial services, supporting technological advancement and “reinforc[ing] U.S. leadership in the global finance system.”

The Register reported that the framework suggests wide engagement with allies and international institutions to create mutually agreeable arrangements. In the field of crypto – or “digital assets” …that means working with G7, G20, OECD, International Monetary Fund, World Bank, and others.

One thing to keep in mind is that the Department of Treasury included this: “Such international work should continue to address the full spectrum of issues and challenges raised by digital assets, including financial stability; consumer and investor protection, and business risks; and money laundering, terrorist financing, proliferation financing, sanctions evasion, and other illicit activities.” In other words, one should be extremely careful with their cryptocurrency if they want to avoid having to face sanctions for using it in nefarious ways.

Don’t Run Your Government On Cryptocurrency

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On February 2, 2022, Mayor Francis Suarez tweeted: “I’m so excited to announce that the @CityofMiami has received it’s first-ever disbursement from @mineCityCoins totaling $5.25M. This is a historic moment for our city to collaborate with an innovative project that creates resources for our city through innovation not taxation.”

Quartz reported (on May 16, 2022) that MiamiCoin’s creator, an organization called CityCoins, has been no less enthusiastic, portraying the coin as a financial experiment that will empower citizens with a “community-driven revenue stream” while spurring new digital city services.”

According to Quartz, CityCoins announced a similar cryptocurrency for New York in November 2021, and plans to release a coin for Austin, Texas soon. Other cities have launched their own crypto ventures: Fort Worth, Texas, for example, will soon be running bitcoin mining rigs in city hall.

How did cryptocurrency work out for Miami? Quartz explains: Over the last nine months, however, MiamiCoin has lost nearly all of its value, falling about 95% from its September peak to just $0.0032 as of May 13. Its rapid descent has burned investors on the way down, muting the dreams of Miami’s city leaders, and possibly raising red flags for regulators now investigating cryptocurrency transactions.

On April 19, 2022, Mayor Francis Suarez tweeted: “As President of the @usmayors,we’re leaning into this next era of American innovation. Today’s eGov Summit Crypto Panel at @eMergeAmericas welcomes everyone to learn the fundamentals of crypto and the impact this technology will have on democracy!”

Houston Chronicle reported that The Electric Reliability Council of Texas (ERCOT), which manages the state’s electrical grid, is projecting that the explosion in cryptocurrency and other “large load” operators could bring as many as 16 gigawatts of new electricity demand by 2026. That’s about a quarter of the grid’s current capacity and enough to power 3 million homes on a summer day.

Will that work? According to Houston Chronicle – For a state that failed so spectacularly to secure the power supply during last year’s winter blackouts, piling on more demand will be a critical new test, especially in the face of climate change. Last week alone, unseasonably high temperatures drove electricity demand to midsummer levels. Late Friday, the state asked Texans to conserve power after six natural gas-fired power plants tripped offline.

The Atlantic reported about the recent “Crypto Crash”. From the article: …As fear and interest rates spike, investors are selling off their positions and billions of dollars of value are being erased from the industry. By one estimate, more than $200 billion of stock-market wealth has been destroyed within crypto alone, in just a matter of days…

In my opinion, if that much crypto wealth can be so quickly erased, there is absolutely no valid reason for state (or federal) governments to decide to make cryptocurrency into the thing that is going to – supposedly – fund everything. All of it could be gone in the blink of an eye, depending on the market.