A leaked memo reveals plans for a US crackdown on crypto, as crypto exchanges are questioning – and challenging- the legals of the US government’s stance on crypto. More FTX ties to paying politicians are coming out. Binance is leaving Canada, blaming new regulation that it says makes it unfavourable to stay there, as the US branch is looking to downplay the involvement of founder CZ. Some more key examples of not your keys not your coins, as users of failed lending platform BlockFi and of failed/ scam crypto exchange Quadriga set to get back only a fraction of what they lost. Asset management firm Franklin Templeton is reportedly set to launch its second blockchain fund, as VCs invested $2.6 billion into crypto in the first quarter of 2023. How ChatGPT and AI are contributing to memecoin mania. And the eyeball scanning Worldcoin by OpenAI founder Sam Altman is said to be close to closing a $100 funding round, to give crypto to people who let their irises be scanned……
Eyeball scanning Worldcoin nears $100M funding round amid security concerns
OpenAI CEO Sam Altman’s eyeball-scanning startup Worldcoin is close to securing $100 million in funding for its global identification system using iris-scanning technology, according to a FT report. The system aims to provide free access to its global cryptocurrency for those who allow their eyeballs to be scanned, ie giving away some pretty sensitive and potentially valuable- and usable against you- data. The project, founded in 2019, says it aims to tackle issues concerning the distinction between humans and bots and plans to provide a form of universal basic income to offset AI-induced job losses. It’s also faced heavy criticism concerning potential privacy risks posed by biometric scanning. TechCrunch has also reported that hackers allegedly stole passwords giving hackers access to the Worldcoin operator dashboard, by installing malware on devices used by WorldCoin operators, who earn compensation for each new user they register. Despite this, the company has surpassed 1 million sign-ups globally, according to its own data. The Worldcoin wallet app, which allows users to transfer Worldcoin, launched on May 8.
Leak Reveals Secret Democratic Plan For A U.S. Crackdown That Could Hit Crypto
A leaked memo intended for Democratic members of the House financial services committee has reportedly exposed possible “key messages” that could lead to most cryptocurrencies being classified as securities. Some believe the efforts are an attempt to “kill crypto and Bitcoin.”This proposed reclassification could have substantial consequences for the industry, possibly subjecting a vast range of tokens to stringent regulatory supervision. The memo was shared on Twitter by Fox Business journalist Eleanor Terrett who tweeted “It contained “key messages” for the @FSCDems to stick to including supporting the @SECGov’s total authority over crypto regulation, its assertion that nearly all cryptos constitute securities, and that crypto’s problem isn’t ambiguity, it’s mass non-compliance”.
FTX’s SBF’s Ties to Charged Congressman George Santos Are Just the Beginning
Long Island Congressman George Santos was arrested this week. What’s the connection, when he had no obvious ties to crypto? SBF of course, the founder and ex-CEO of collapsed crypto exchange FTX, who is facing multiple indictments. Critics suggest that Bankman-Fried’s political influence campaign may have aimed at passing the Digital Commodities Consumer Protection Act, potentially favouring FTX at the expense of the wider crypto industry, possibly with the aim of letting FTX get away with continued embezzlement etc. Santos’ campaign received the maximum individual donations from three FTX associates, but he wasn’t associated in any way with crypto. However, according to Puck News, these donations were part of a ‘swap’ agreement with Michelle Bond, former CEO of the FTX-backed crypto trade group Association for Digital Asset Markets, who also ran as a MAGA Republican for Congress in a district near Santos’ in 2022. Bond is also the girlfriend of FTX’s Bahamian subsidiary CEO Ryan Salame, who alone donated over $24 million to Republican candidates and committees during the midterms. Such donation ‘swaps’ are reportedly common in political campaigns. The FBI raided $4m home Bond and Salame share in late April.
Kraken’s Top Lawyer Says Signs of Progress in U.S. Congress Put SEC in Legal Bind
Kraken’s Chief Legal Officer has suggested that a principle of US administrative law known as the major questions doctrine could restrict the SEC’s authority over the crypto industry. This legal principle argues that federal agencies shouldn’t overstep Congress on major economic issues. Marco Santori’s comments echo Coinbase’s stance in their ongoing defence against the SEC. The basic belief is that US federal agencies have been overstepping and that regulators should leave the big crypto questions to Congress, which appears to be advancing on crypto regulation. He expressed optimism about bipartisan support for crypto legislation among lawmakers, though he acknowledged the Senate’s views remain uncertain.
Coinbase establishes advisory council with former US lawmakers
Coinbase has set up a Global Advisory Council of five former US lawmakers and crypto industry insiders, including ex-Pennsylvania Senator Patrick Toomey and ex-Ohio Representative Tim Ryan. This isn’t exactly shock news. The exchange is currently in a legal tussle with the US SEC over various things including digital asset classification. Stepping up your team to include a bunch of experienced ex-regulators is a sensible step. Coinbase plans to expand the council with a bipartisan group of leaders equally well-versed in regulatory matters. This also follows speculation that it might shift operations outside the US due to regulatory uncertainty. It’s currently exploring the UAE as a potential hub for its global operations (as is pretty much every other crypto company).
Binance leaves Canada, blames new regulation
Binance is set to exit the Canadian market, citing regulatory challenges. The exchange referred to the move as “proactive” in light of new guidelines from Canadian regulators that have unsettled the country’s crypto industry. The Canadian Securities Administrators (CSA) introduced rules in February requiring crypto firms to file new preregistration undertakings and comply with additional restrictions. The rules also classify stablecoins as a security. Binance tweeted the news, that “Unfortunately, new guidance related to stablecoins and investor limits provided to crypto exchanges makes the Canada market no longer tenable for Binance at this time.” It has directed Canadian users to close their open positions by September 30, 2023, after which accounts will be in liquidation only mode. Binance isn’t alone. It’s following exchanges OKX, dYdX, and Paxos in leaving the Canadian market due to the regulations.
Binance.US seeking ways to cut CEO CZ’s majority stake
Binance.US and founder Changpeng Zhao (CZ) are reportedly seeking ways to decrease CZ’s ownership in the exchange, amidst growing regulatory pressure over the last year. The CFTC sued both Binance and CZ in March for allegedly operating what it called an “illegal” exchange with a “sham” compliance program. Ouch. The exchange was accused of deliberately sidestepping U.S. laws “while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.” Binance claims it has maintained compliance with regulations. Since then, Binance.US leadership has reportedly been seeking ways to reduce CZ’s stake and influence, worried his majority ownership may hinder its ability to acquire certain regulatory licenses. CZ is the founder, majority owner and chair of Binance.US and CEO and co-founder of the global crypto exchange, Binance.
QuadrigaCX creditors set to receive 13% of their claims as an ‘interim dividend’
A classic example of not your keys, not your coins, and why to not trust anyone. Bankrupt crypto exchange QuadrigaCX’s creditors are set to receive an “interim dividend” equal to 13% of their total claims. EY, the trustee in the bankruptcy case, which classically ‘inadvertently’ lost $1 million of the Quadriga’s remaining Bitcoin in 2019 by not knowing how to send a crypto transaction and sending that to defunct wallets (that Bitcoin is now ‘inexplicably’ on the move again), announced a distribution of around 87% of the funds it’s currently holding. The remaining balance will be reserved for future bankruptcy administration disbursements. The total claims amount to 305.6 million Canadian dollars, worth US$223 million, filed by 17,648 creditors. Most of the creditors are owed between $0 to $10,000, while 15 creditors are owed over $1 million. QuadrigaCX was one of Canada’s largest crypto exchanges before it went insolvent in 2019 following the supposed death of its CEO, Gerald Cotten, under suspicious circumstances, with law enforcement soon working out that the exchange was basically a scam all along. Cotten was the only one with access to private keys to the exchange’s offline storage systems, so with him gone, crypto gone.
BlockFi users to get back $297M from Wallet accounts
Another case of not your keys, not your coins. Bankrupt crypto lender BlockFi has received court permission to repay $297 million to customers who used its Wallet program. This is great, except BlockFi owes around $10 billion to over 100,000 creditors. Bankruptcy Judge Michael Kaplan clarified that repayments will not apply to users of BlockFi’s interest-bearing accounts (BIA). Those funds were used in BlockFi’s lending business and now form part of the bankruptcy estate, meaning they’ll be used to repay creditors, later. The Wallet program, which didn’t offer interest on customer deposits, kept its funds separate. The judge also ruled that interest-bearing account users who tried to transfer funds to wallets after BlockFi froze services following FTX’s collapse won’t be refunded at this stage. This just isn’t fair. Just under 48,000 BlockFi users tried to transfer $375 million from their BIA accounts to Wallet accounts after the company froze services on Nov. 11. BlockFi allowed this, letting users make the transactions between accounts and even receive email confirmations, and did not disable transfer options from its front-end application. The problem is, it did disable them on its back-end, meaning they could not be completed, and so users lost their crypto. Their lawyers argue that BlockFi should refund their transfers. Instead, Judge Japlan said that, according to its terms of service, BlockFi was entitled to block transaction requests during the shutdown. Send your crypto to any platform = no guarantee of seeing it again.
Terraform’s Do Kwon pleads not guilty to fake travel documents charges
Terraform Labs co-founder, Do Kwon, has pleaded not guilty to charges of forging his passport and travel documents in a Montenegrin court. Both Kwon and former colleague Chang-joon Han are set to be released on supervised bail of €400,000 each as they await trial, under surveillance and not permitted to leave their apartment. The charges came after Kwon and Han were arrested at an airport in Podgorica, Montenegro while attempting to fly to Dubai a year after The Terraform Labs TerraUSD (UST) stablecoin lost its $1 peg, resulting in a loss of around $40 billion in market value and leading to the collapse of numerous crypto firms. If Kwon is found guilty, he may serve his sentence in Montenegro before potential extradition to the U.S. or South Korea.
Franklin Templeton launches second blockchain fund
Asset management firm Franklin Templeton is set to launch its second blockchain fund, according to a recent SEC filing. It already established its first blockchain fund in 2021 with a cap of $20 million. Unlike the previous fund, which was a venture capital fund, the 2023 one is classified as private equity with a minimum investment of $100,000. Beyond investing, the asset manager has also integrated blockchain technology into its operations. It has tokenised funds on-chain, with its tokenised money market fund on the Stellar blockchain managing over $270 million in assets, and has expanded to the Polygon blockchain.
Crypto VCs made $2.6B worth of deals in the first quarter of 2023
VC firms invested $2.6 billion through 353 rounds in the first quarter of 2023, continuing to invest despite the bear market, according to PitchBook’s Q1 2023 Crypto Report. This represents an 11% quarter-on-quarter decrease in deal value and a 12.2% drop in total deal number. This past quarter also saw the lowest amount of capital investment in the sector since 2020, indicating that the market isn’t as robust as it once was.
Canada to Explore Digital Dollar Potential
The Bank of Canada is considering launching a digital Canadian dollar. The bank says other cryptocurrencies and other countries’ central bank digital currencies (CBDCs) could “compromise” traditional currencies and pose a risk to economic stability. “A digital Canadian dollar would ensure Canadians always have an official, safe, and stable digital payment option issued by Canada’s central bank” it stated, but added that a digital dollar was not essential and would require parliamentary and government approval. It has noted potential issues such as the risk of excluding some Canadians due to decreased physical cash usage. It didn’t mention the numerous and huge risks that CBDCs bring, specifically around privacy. The bank is seeking public feedback on various aspects of the potential digital dollar by June 19.
Brazilian CBDC to enable banks to tokenise balance sheets
Brazil’s central bank is looking to use its central bank digital currency (CBDC) program to encourage banks to use DLT (distributed ledger technologies) such as blockchain, and to tokenise their balance sheets, according to its deputy governor Renato Gomes. Tokenisation would let the central bank explore the advantages of programmability and composability in financial services, another way for saying more control in the hands of the central bank. Gomes detailed how this could allow for instantaneous settlements when purchasing high-value items like cars and real estate with the digital real and facilitate offline payments and cross-border transactions. Brazil’s CBDC won’t (initially) focus on retail payments, rather the project claims to aims to develop a wholesale framework for innovation based on DLT.
SEC Blocks Dozens of Websites Offering Fraudulent Investment Schemes
The US SEC has charged several platforms with fraud for offering deceptive securities, including crypto asset mining pools. The platforms in question lured investors by promising unrealistically high returns, some as high as 61.9% per day, but typically guaranteeing between a still totally unsustainable 2% and 4.5%. Some of the flagged websites impersonated legitimate broker-dealers. The SEC is shutting down the platforms, freezing assets, and recovering investor funds. One of the platforms, GA Investors, directed the victims to purchase crypto from a separate trading platform and transfer them to a GA Investors wallet address, a frequent trick used by scams.
This artist made a memecoin that hit a $77m market cap. Mostly using GPT-4
An Australian digital artist going by Rhett “Mankind” used GPT4 to create a meme cryptocurrency, including coming up with the name and doing all of the coding for him, with a little help from his Twitter followers. His initial $69 personal investment, plus $500 for the launch, led to new token Turbo. Turbo’s market cap promptly surged to a peak of $77 million within weeks, before crashing back down. Despite Mankind’s lack of coding or smart contract knowledge, GPT-4 guided him through the creation process and helped with all of the other processes. It’s hopefully worked out for its creator if nothing else. This project allowed Mankind, not his real surname, to buy a house closer to his 13 year old daughter’s school, and he still holds over 10% of the 69 billion tokens. He said he initiated the project as a “digital performance art piece” to test the AI’s capabilities.
Money Laundering in Crypto and Real Estate in the UAE
Crypto investors in Dubai and tAbu Dhabi are converting their digital assets into physical property. This has led to many real estate brokers an accepting crypto for property transactions. All good so far, except this has raised regulatory concerns as these transactions often involve unregulated players such as buyers, real estate brokers, and liquidity providers leading the UAE Ministry of Economics to flag these companies for potential money laundering activities. These real estate facilitators typically mask illicit activities behind the guise of financial markets, analytics, and development while acting as liquidity providers for crypto holders through a third-party provider. This issue is now a focus for the UAE’s Financial Intelligence Unit (FIU) in its efforts to curb money laundering.
LG Electronics files patent for an NFT trading TV. Yes really.
LG Electronics has submitted a patent application for a blockchain-powered smart TV that supports NFT transactions- and trades. According to the filing, the TV will be able to connect an NFT marketplace with a crypto wallet to facilitate transactions. All users would need to do is scan on-screen QR codes to complete transactions with their crypto wallets. LG already launched its own NFT platform, the LG Art Lab Marketplace, on the Hedera network in September 2022.