USA

US SEC Issues Stark Warning on ‘So-Called Initial Exchange Offerings’: The US Securities and Exchange Commission is issuing a crypto alert to investors through its Investor Education and Advocacy division, warning people to be extremely cautious when dealing with initial exchange offerings (IEOs).

IEOs are essentially the sale of new crypto assets that are entering the market for the first time, administered on a cryptocurrency exchange. The federal regulator’s January 14th statement says investors should be especially careful to avoid potential scams.

“Be cautious if considering an investment in an IEO. Claims of new technologies and financial products, such as those associated with digital asset offerings, and claims that IEOs are vetted by trading platforms, can be used improperly to entice investors with the false promise of high returns in a new investment space.”

The SEC points out that IEOs may be violating US federal securities laws and might not offer standard investor protections that come with registered and exempt securities offerings.

SEC Charges $600,000 ICO Project Opporty for Fraudulent Security Offering: The Securities and Exchange Commission (SEC) has charged Sergii Grybniak, the founder of the initial coin offering (ICO) project Opporty, according to a Jan. 21 press release. Despite raising approximately $600,000, the commission targeted Grybniak for falsely declaring the project as “100% SEC compliant.”

Opporty launched its ICO between September and October 2018. The project purported to provide a “blockchain-based ecosystem for small businesses and their customers,” primarily in the United States. The platform was meant to be a place where small businesses could list their services and enter into agreement via smart contracts.

The ICO for the OPP token raised $600,000 from approximately 200 investors, some of whom were located in the U.S.

While the SEC’s primary charge is for conducting an unregistered sale of securities, it also claims that the project made many misleading and false statements to encourage investment.

Among them, Opporty claimed to have onboarded thousands of “verified providers” to do business on the platform, the majority of which “had expressed no such willingness,” the SEC complaint reads.

A claim of having more than 17 million businesses in its database was revealed to be a simple purchase of a third-party catalog.

Finally, the SEC alleges that the project lied about a partnership with a “major software company.”

The accused founder is a resident of Brooklyn, against whom the SEC seeks injunctions against future digital offerings, the return of all ICO money and civil penalties.

Bill to Exempt Small Crypto Transactions From Taxes Returns to US Congress: A bill seeking to exempt personal cryptocurrency transactions from taxation for capital gains has been reintroduced in the Congress of the United States.

Called “The Virtual Currency Tax Fairness Act of 2020,” the bill would establish an exemption for virtual currency expenditures that qualify as personal transactions. Users would then not have to report instances when they spent crypto whose valued had changed relative to the U.S. dollar on day-to-day expenses.

Representatives Suzan DelBene (D-WA) and David Schweikert (R-AZ) introduced the bill on Jan. 16. Schweikert introduced an earlier version of this bill in 2017 that featured a substantially larger exemption.

Existing tax law struggles to cope with cryptocurrencies, as they sometimes behave as investments, sometimes commodities, and sometimes just like other currencies. It is to this last type of transaction that the bill looks to simplify for crypto traders and users.

Currently, the IRS could hold crypto users responsible for paying taxes on gains earned and realized unknowingly, based solely on the value of their crypto at a time of purchase. Such a system would make use of crypto as currency incredibly cumbersome within the U.S.

The newly reintroduced bill would exempt taxpayers from a reporting duty as long as the gains involved are under $200, which would generally only apply with major purchases or wild bull markets. The earlier version of the bill put this number at $600.

The bill would insert a new category within existing IRS exclusions from classification as gross income.

Taxing cryptocurrencies has proved a major sticking point in the U.S. In December, eight congresspeople sent a letter to the IRS asking the tax agency to clarify rules for reporting income due to hard forks or air drops.

Last year, just before the tax reporting deadline in April, 21 representatives sent a similar letter to the IRS, likewise dissatisfied with current clarity.

4,000 Lawyers at the SEC Struggle to Explain Algorithms and Keep Up With Crypto, Says Regulator: There are 4,000 lawyers at the U.S. Securities and Exchange Commission, but the agency is light on programmers who can actually explain all of the algorithms involved in today’s investments.

That’s according to SEC Commissioner Robert Jackson, who remarked that the rapid growth of digital assets and computer-driven investment advice has become a key challenge for regulators trying to keep up with technological advances, reports Reuters.

Speaking before an Israel Securities Authority conference on Monday, Jackson says the ratio needs to change in order for the agency to be more effective at regulating the markets.

“In 20 years we may need to be an agency of 2,000 lawyers and 2,000 programmers… I know what it looks like when a human being commits fraud. It’s a lot harder to detect when an algorithm defrauds the investor. But investors deserve no less protection simply because money is being moved around by an algorithm.”

Jackson also says cryptocurrencies are “exciting but come with risks,” describing them as another challenge for regulators. With a better grasp of the technology, the agency can create a legal framework for the space, preventing the industry’s association with scammers and fraudsters, while also protecting investors.

As the first Democrat appointed to the SEC by President Donald Trump, Jackson is stepping down from his post on February 14th to return to teaching at New York University School of Law.

Digital Dollar Project Officially Kicks Off to Push Exploration of New US Currency: Christopher Giancarlo, former Chairman of the Commodity Futures Trading Commission, along with Charles Giancarlo and Daniel Gorfine, are teaming up with Accenture to launch the Digital Dollar Project to develop a US central bank digital currency (CBDC).

Says Giancarlo,

“The digital 21st century is underserved by an analog reserve currency. A digital dollar would help future-proof the greenback and allow individuals and global enterprises to make payments in dollars irrespective of space and time.”

The Digital Dollar Project aims to create a framework to accelerate the development of a virtual, tokenized US currency that would “coexist with other Federal Reserve liabilities.” It could be used to settle transactions in a faster and more cost-effective manner.

The project is designed to support ongoing research and discussions on the potential benefits of issuing a dollar that utilizes new technology in an increasingly digital global economy. Unlike Bitcoin, which is decentralized and is not controlled by any government, organization or company, the proposed digital dollar would be issued by the Federal Reserve System.

Largest Bitcoin (BTC) Investment Vehicle Now Registered As an SEC Reporting Company: Grayscale: Grayscale Investments, sponsor of the largest Bitcoin investment vehicle and the world leader in crypto investing with over $2 billion in assets under management, has announced that the Grayscale Bitcoin Trust is now registered with the U.S. Securities and Exchange Commission as a reporting company.

The landmark achievement pushes Bitcoin one step further into the traditional financial markets, gaining regulatory oversight as the digital asset emerges from the shadows of Silk Road and lands in the portfolios of Wall Street investors. The top US securities regulator will now require Grayscale to file quarterly and annual reports as well as submit audited financial statements.

As the first crypto index fund to become an SEC reporting company, the Grayscale Bitcoin Trust is well positioned to draw more institutional and accredited investors. It offers investors exposure to BTC without having to hold the cryptocurrency directly in their portfolios. The Trust, which is solely and passively invested in Bitcoin, is tied to the performance of Bitcoin.

Says Grayscale,

“As many institutions restrict investments in instruments that are not registered with the SEC, a broader set of investors may now begin to consider the Trust accordingly.”

Bitwise Withdraws Long-Standing Bitcoin ETF Application: A Jan. 14 form with the United States Securities and Exchange Commission confirms that Bitwise Asset Management requested the withdrawal of its application for a Bitcoin Exchange Traded Fund (ETF). This is the second major ETF withdrawal in recent months following similar actions by VanEck.

Bitwise applied for ETF registration in January 2019. In March of the same year, it had released the Bitwise Report on exchange volume, claiming that 95% of trading volume is fabricated. The finding was used by the company as an argument for the SEC to accept the ETF. By disregarding the majority of the exchange volume, the firm maintained that price formation for BTC occurred mostly on regulated exchanges.

The reasoning did not convince the commission, which rejected the proposal in October 2019. One month later, however, the regulator decided to review its decision.

Matt Hougan, global head of research at Bitwise, explained to Cointelegraph why the ETF was withdrawn:

“This is the next step towards our long term goal of bringing a bitcoin ETF to market, and we plan to refile our application at an appropriate time. We are currently working hard on answering the questions that the SEC raised in its 112-page response to our initial filing. We remain fully committed to the development of a bitcoin ETP.”

Hawaii Introduces Bill Authorizing Banks to Offer Crypto Custody: The Hawaii State Senate has passed the first reading of a bill authorizing banks to hold digital assets in their custody.

The bill was introduced on Jan. 17 by five state senators, including the only Republican member of the Senate, Kurt Fevella. It passed the first reading on Jan. 21 and was then referred to the committees on Judiciary and Commerce, and Consumer Protection and Health on Jan. 23.

The bill specifies the set of provisions which a bank must adhere to in order to provide custodial services for digital assets. Custodial services cover “the safekeeping and management of customer currency and digital assets through the exercise of fiduciary and trust powers under this section as a custodian and includes fund administration and the execution of customer instructions.”

In order for a bank to qualify as a crypto custodian, it has to adhere to certain standards regarding accounting and internal controls, maintain IT best practices, and comply with federal Anti-Money Laundering and Know Your Customer requirements.

Digital Chamber of Commerce Weighs In on Telegram Legal Battle With SEC: The Chamber of Digital Commerce has filed an amicus brief in the ongoing court case between encrypted messenger service Telegram and the United States Securities Exchange Commission (SEC).

Filed on Jan. 21, the document was authored by Lilya Tessler, a partner and the New York head of Sidley Austin LLP, counsel to the Chamber.

In the amicus brief — a legal document that allows a non-litigant to submit its expertise or opinion in a case — the Chamber makes a number of arguments regarding how the U.S. District Court for the Southern District of New York should consider digital assets.

The Chamber is a non-profit trade association established in 2014 which aims to promote the adoption of digital assets and blockchain-based technology. As part of its mission, the Chamber established major blockchain and crypto-related advocacy groups including the Blockchain Alliance and the Token Alliance.

Given its supportive stance on blockchain technology, the Chamber emphasized that it is not trying to prove whether Telegram’s $1.7 billion Gram token sale was a securities transaction. Instead, the trade association aims to ensure that there is enough clarity around regulations applying to digital assets:

“Although the Chamber does not have a view on whether the offer and sale of Grams is a securities transaction, the Chamber has an interest in ensuring that the legal framework applied to digital assets underlying an investment contract is clear and consistent.”

Telegram CEO’s 18-Hour Deposition Transcript Is Published Online: Telegram CEO Pavel Durov gave a deposition regarding the company’s alleged violation of United States securities law by conducting $1.7 billion Gram token sale in 2018.

In line with a relevant court order, the deposition was held on Jan. 7 and Jan. 8 before a court reporter designated by the court reporting service engaged by plaintiff represented by the United States Securities and Exchange Commission.

During the deposition, which combined took around 18 hours with breaks, the SEC questioned Telegram extensively on the company’s expenses and funding used to set up the firm. Responding to one such question, Durov answered that the company plans to continue to spend funds in a way similar to budgets from previous years:

“My expectation is that we will continue to spend funds in a manner similar to which took place last year or this year — or, yeah, last year and the beginning of this year. So we don’t anticipate big changes up until the launch of TON when we expect that certain expenses might go down due to the fact that we will no longer be spending resources on developing and testing TON.”

Telegram’s Legal Battle With the SEC Heats Up Over TON Bank Records: Telegram’s battle with the United States Securities and Exchange Commission became one of the most closely followed legal dramas of the crypto space in 2019. This was not only because it appeared to be the first time the Durov brothers’ relentless expansion faltered but also because the court case could have lasting implications for future fintech projects around the world.

Although an initial court decision seemed to have allowed Telegram to maneuver around the request by the SEC to provide the company’s banking records, that decision has since been reversed. Telegram, however, confirmed that it would comply and issue the records — although most likely in a redacted form — by Jan. 15, even though the deadline is in late February.

Coinbase-Backed Crypto Ratings Council Adds eToro, OKCoin: The Coinbase-backed Crypto Ratings Council (CRC), a group of major United States’ cryptocurrency firms seeking regulatory clarity, has welcomed new members.

Established in late 2019, the CRC has expanded to include members like trading platform eToro, crypto exchange OKCoin and Radar, the startup behind decentralized exchange Radar Relay. Coinbase announced the news in a press release shared with Cointelegraph on Jan. 16.

US Threatens to Shut Down Iraq’s Bank Account As Crypto Proponents Point to Censorship-Resistant Bitcoin: Iraqi officials tell The Wall Street Journal that the US government is threatening to cut off access to its central bank account held at the Federal Reserve Bank of New York. Such a move could further destabilize Iraq’s economy.

The Trump administration issued the warning last week, according to WSJ, in an effort to compel Iraq to think twice before booting American troops from the region. The threat follows heightened tensions between Iran and the US in the aftermath of the US military airstrike that killed top Iranian general Qassem Soleimani.

President Trump says Soleimani was orchestrating an attack on four US embassies, including the American Embassy in Baghdad. Soleimani’s death provoked a counterattack by Iran on two bases housing US troops, inciting fears of increasing military action and war.

But the Trump administration seemed to pull back and soften its rhetoric last week with a more conciliatory tone expressing the desire for peace in the Middle East. Instead of military action, it delivered the message by hammering Iran’s economy with harsh new sanctions on its multi-billion-dollar metal industry.

Crypto entrepreneurs and supporters are weighing in on the impact of the US strategy to pressure Iraq into maintaining the status quo of housing thousands of American troops, by commandeering its money supply.

Lawsuit: Man’s Life Savings Held in Tupperware Container Seized at Airport, Highlighting Case for Bitcoin: Rebecca Brown watched her father’s entire life savings, accumulated over 79 years, get whisked away by a Drug Enforcement Administration agent in late August at Pittsburgh International Airport. Her story is firing up the Bitcoin and crypto community because Brown is alleging that the confiscation of $82,373 in cash was pure overreach.

On January 15, lawyers from the Institute for Justice, a nonprofit legal group in Washington, D.C., filed the father and daughter’s class-action lawsuit in U.S. District Court in Pittsburgh against the TSA and DEA.

The DEA reportedly informed Brown in October that it planned to permanently seize the cash, citing its authority to combat crime.