The week’s developments in the crypto currencies world including Coinbase, Kraken to jointly define which cryptos are securities

Coinbase, Kraken to jointly define which cryptos are securities

In a move to provide more clarity on which tokens can be traded without the supervision of regulators, the major U.S.-based exchanges have formed the Crypto Ratings Council, the Wall Street Journal (WSJ) reported on Sept. 30. According to the report, other members of the Crypto Ratings Council include Circle Internet Financial, Bittrex, Genesis Global Trading, Grayscale Investments, Anchor Labs and DRW Holdings’ Cumberland unit. The group continues to recruit participants, the report notes.

The new crypto council will be publishing online ratings for digital assets on a scale of 1 to 5. The highest score means that a certain token is considered as a security that cannot be issued, sold or traded by unregulated firms. As such, Bitcoin (BTC) is rated at 1, as regulators publicly said that Bitcoin is not a security, participants reportedly stated. Brian Brooks, chief legal officer of Coinbase, who reportedly conceived the rating system, emphasized that the question whether a certain token is a security or not is “one of the biggest uncertainties around crypto and the reason why more asset managers are not comfortable with it.”

Mary Beth Buchanan, Kraken’s general counsel, expressed hope that the U.S. Securities and Exchange Commission (SEC) will view the initiative as a positive step, claiming that the council aims to show the regulator the exchanges’ efforts to come to a decision on the matter.

Source: “Coinbase, Kraken to Jointly Define Which Cryptos Are Securities”, available at https://cointelegraph.com/news/coinbase-kraken-to-jointly-define-which-cryptos-are-securities-report)

ECB President: Stablecoins and crypto not suitable money substitutes

On Sept. 27, in a letter addressed to European parliament member Eva Kaili, ECB president Mario Draghi noted that the European System of Central Banks (ESCB) is closely monitoring developments in the cryptocurrency industry. Despite displaying a positive approach towards new technologies, Draghi apparently thinks that stablecoins and cryptocurrency in general are of little value. He said, “Thus far, stablecoins and crypto-assets have had limited implications in these areas and are not designed in ways that make them suitable substitutes for money.” Draghi also addressed the opportunities and challenges that come with releasing a digital form of the Euro coin. He pointed out that the technological part of a European stablecoin is not the issue, but “rather its utility in terms of costs and benefits to the public.”

Source: “ECB President: Stablecoins and Crypto Not Suitable Money Substitutes”, available at https://cointelegraph.com/news/ecb-president-stablecoins-and-crypto-not-suitable-money-substitutes

TalkTalk hacker Elliott Gunton: Cryptocurrency auctioned by police

A police force has auctioned off more than £240,000 of cryptocurrency confiscated from a teenage hacker.

The Eastern Region Special Operations Unit sold the stash, which included Bitcoin, Ripple and Ethereum, in what it said was a first for UK police.

It is understood the currency came from Elliott Gunton, of Old Catton, near Norwich, who received a jail sentence for hacking internet provider TalkTalk. The unit said the money raised would go towards fighting crime. The assets were sold in small lots by Wilsons Auctions and all bidders were approved users of cryptocurrency, to ensure the digital money could not fall back into criminal hands.

Source: “TalkTalk hacker Elliott Gunton: Cryptocurrency auctioned by police”, available at https://www.bbc.com/news/uk-england-norfolk-49880630

The US and UK are losing the cryptocurrency race

Institutional investment continues to pour into the cryptocurrency space. With names like the New York Stock Exchange and Microsoft getting on board and legitimizing Bitcoin like never before.

Major corporations around the world like MasterCard and Allianz are investing in blockchain initiatives. The search for talented blockchain developers continues to grow, and many countries around the world are ramping up their efforts in the cryptocurrency race as well.

Portugal, for example, recently announced that it will eliminate tax on all earnings in cryptocurrency. The country’s tax authority further declared that payments and trading cryptocurrency in Portugal are now 100% tax-free. France has also taken steps toward a friendlier approach to cryptocurrencies. French economy minister Bruno Le Maire recently declared that crypto-to-crypto trades will be tax-exempt. The French authorities will collect tax only when cryptocurrency is converted into fiat.

China, thus far, is the clear leader in the cryptocurrency race. It not only holds 72% of the mining power for Bitcoin, but the astute Asian country also invests the most in blockchain technology.

China is even busy building its own cryptocurrency, taking inspiration from the Marshall Islands.

In the US and UK, even worse than their inaction on fostering cryptocurrency innovation, is the negative steps taken so far. Many an innovative startup in the U.S. has been stubbed out by the IRS or SEC. The UK’s FCA is determined to ban retail crypto derivatives products. The U.S. doesn’t allow its citizens to use them. Rather than give cryptocurrency entrepreneurs incentives in the form of lower tax, the UK authorities are actively seeking to penalize crypto earners. Last month, British authorities sought data from exchanges like Coinbase and eToro in a bid to find tax evaders.

Trump has tweeted, “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity….” and the UK seems to preoccupied with Brexit. While the giants are sleeping, other countries are getting ahead. The cryptocurrency race is on in earnest and the U.S. and UK don’t seem to care.

Source: “The US and UK Are Losing the Cryptocurrency Race”, available at https://bitcoinist.com/us-uk-losing-cryptocurrency-race/

Facebook reveals which currencies will back libra cryptocurrency

Facebook has revealed more details about its controversial cryptocurrency project, unveiling which currencies will be used to back it. In a letter to German politician Fabio de Masi, Facebook said that half of the Libra cryptocurrency would be backed by reserves of US dollars, while the euro, Japanese yen, British pound and Singapore dollar would also provide support. Backing Libra with traditional currencies is designed to help solve the problem of price volatility, which continues to plague cryptocurrencies like bitcoin.

But notably absent from the basket of support currencies is the Chinese yuan – the currency of the world’s second largest economy. This may be a strategic decision by Facebook, who may hope that leaving out the yuan will help appease US regulators critical of Chinese economic and trade policy.

Facebook says it will launch Libra at some point in 2020, however it has faced criticism from financial policy makers and regulators since being unveiled earlier this year. French finance minister Bruno Le Maire said earlier this month that Libra’s development would be blocked in Europe as it poses a threat to “monetary sovereignty”.

Facebook has consistently claimed that it welcomes feedback from global regulators and will work with them to address any concerns.

A Libra spokesperson recently told The Independent: “We welcome this scrutiny and have deliberately designed a long launch runway to have these conversations, educate stakeholders and incorporate their feedback in our design.”

Source: “Facebook reveals which currencies will back libra cryptocurrency”, available at https://www.independent.co.uk/life-style/gadgets-and-tech/news/facebook-libra-cryptocurrency-usd-dollar-china-yuan-a9116586.html

Claire Cummings

Claire practises financial services law with a focus on regulatory issues, cryptocurrencies and tokens, trading and brokerage documentation and advising both existing and start-up funds and fund managers.

If you would like to discuss any of the points we raise, please contact me or one of our other lawyers.

Phone: 0207 585 1406
Email: claire.cummings@cummingsfisher.com

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