Bitcoin News from around the world
The local government in Dubai has officially launched its own cryptocurrency called emCash, according to announcements by local news media outlets. The cryptocurrency would be used for payment of governmental and nongovernmental services.
According to Ali Ibrahim, Deputy Director General of Dubai Economy, the token will be considered legal tender “for various government and non-government services, from their daily coffee and children’s school fee to utility charges and money transfers.”
Dubai embracing Blockchain technology
The flexibility and convenience of cryptocurrencies makes the solution a win-win for Dubai. The government is strongly pro-Blockchain and sees it as the next major wave of paradigm changing technologies, and wants to be forward-thinking in adoption. According to Ibrahim:
“The fast-paced environment and incredible willingness to adopt innovative technology has made Dubai the perfect place for us to do business. This project is a great example of the ambition we have met here, together we are essentially creating a whole new economic ecosystem. It will harness Blockchain technology to make financial transactions cheaper, faster and more secure while demonstrating the huge advantages of embracing this technology for governments, business and customers alike.”
Blockchain technology, as a system for a number of various services, has been widely embraced in the country. Dubai is seeking to become a fintech hub for the eastern world and has even recently signed deals to allow for property sales entirely in Bitcoin.
The new cryptocurrency will move the country’s adoption paradigm forward.
The First SEC Compliant ICO Trading Venue Is… Overstock.com! 10/1/17
The latest and most exciting offering from Overstock.com is here, and it’s not discount mattresses or costume jewelry. Improbably, the e-commerce giant is now the forerunner in crypto financial technology. They announced in a Sep. 27 press release that they have the first Initial Coin Offering (ICO) exchange to be in compliance with the U.S. Securities and Exchange Commission (SEC). RenGen LLC, the Argon Group and tZERO (aka t0.com, Inc.), a subsidiary of Overstock.com, Inc. (OSTK ) have announced a joint venture to launch an Alternative Trading System (ATS) that will facilitate the Initial Coin Offering tokens in sync with the guidelines of the SEC and FINRA.
ICOs are a buzz world right now for two reasons; 1) the huge sums of money of raised via ICOs (more than $2 billion), which has exceeded the venture-capital funding in 2017 so far; 2) controversy surrounding the regulatory stances of such entities as the Securities and Exchange Commission (SEC), Financial Conduct Authority (FCA) and the People’s Bank of China towards ICOs.
“The landmark Joint Venture aims to redefine the way the ICO market looks at security tokens, and enhance liquidity to accelerate market development. Lack of liquidity has been a significant impediment to security token market development,” said Overstock’s press release.
An ICO can be considered the crypto version of the IPO. Just as IPOs raise money through shares issued, an ICO is a mechanism through which tokens (or coins) are sold to raise funds for a project. However, instead of fiat currency, Bitcoin (BTC) or Ethereum (ETH) are used to buy these tokens on a blockchain platform. These virtual tokens are then listed on a virtual currency exchange where they can be bought or sold.
“With ICO blockchain offerings surpassing traditional early stage VC funding and U.S. regulators seeking legitimate venues to support security token offerings, with this JV tZERO continues to maintain its leading edge in blockchain financial technology,” said Patrick M. Byrne, CEO of Overstock.
Back in December 2016, T10 announced the successful implementation and production level use of its distributed ledger technology-based platform in the issuance of a registered security. The shares, issued by Overstock.com were the first in history able to trade on an alternative trading system (ATS) utilizing distributed ledger technology. The trades executed through the t0 (t-zero) platform, settle on trade date, or T+0, instead of the usual three-day settlement period, T+3. (Related reading, see; Are There SEC Guidelines on ICOs?)
Patrick M. Byrne has proved that his enthusiasm for Bitcoin and its underlying technology wasn’t a fad. Back in 2014, when no major revenue generators were accepting bitcoin as payment, he decided that Overstock.com, with $1.4 billion in annual revenue at the time, would accept bitcoins as payment for merchandise. While some speculated that the move was merely a publicity stunt, Byrne’s keynote address at the Bitcoin2014 conference in Amsterdam revealed that Bitcoin resonated deeply with his philosophical outlook. Subsequently, per Overstock’s official site, “Byrne created Medici, a subsidiary within Overstock.com building blockchain-based financial technology solutions. In 2015, Byrne used Medici’s t0.com securities trading platform to become the first person in history to purchase a digital bond entirely on the bitcoin blockchain.”
The Argon Group is an investment bank with a focus on the emerging cryptocurrency and token-based capital markets. RenGen LLC is an investment, technology and financial services firm focusing on innovative blockchain technologies. Meanwhile, t0.com, Inc. (“tZERO”) is a majority-owned subsidiary of Overstock.com, focusing on the development and commercialization of financial technology (FinTech) based blockchain technologies. “Now, by combining our expertise with Argon’s advisory services and RenGen’s electronic trading, deep liquidity and market making capabilities, we are in a position to launch the only U.S. SEC compliant token trading venue,” concluded Dr. Byrne.
The issuance of tokens as securities will add great certainty for investors as well as issuers while adding credibility to this medium (ICOs) of raising money while resolving issues such as liquidity, pricing, uniformity and legality.
Bitcoin marches towards all-time high as SEC gives potential second shot to Winklevoss ETF 09/26/17
Bitcoin has risen around 2 percent in the past day, pushing towards its all-time high on renewed hope that U.S. regulators could approve a key trading product for the cryptocurrency.
The price of Bitcoin against the dollar stood at around $1281.17 during mid-morning trade in London, according to CoinDesk data, up from $1251.46 a day ago.
Optimism in the market has come from an announcement in the U.S. that the Securities and Exchange Commission (SEC) is reviewing its decision to reject a bitcoin exchange-traded fund (ETF) proposed by Cameron and Tyler Winklevoss.
Last month, the SEC denied an application by the Winklevoss twins to list the ETF, which would have made it the first product of its kind in the U.S. for bitcoin. The proposal involves listing the ETF on the Bats BZX exchange, one of the largest U.S. equities market operator.
Bats filed a notice of petition to review the SEC decision which has now been accepted. It means the SEC will look into its initial decision to reject the ETF.
“The Commission hereby establishes that any party to the action or other person may file a written statement in support of or in opposition to the Disapproval Order on or before May 15, 2017,” the SEC said in a statement posted on its website on Tuesday.
Traders are hoping that this at least opens the doors to the ETF getting a second shot at being approved.
“The news of the review has definitely excited speculators, although it’s unclear if this will alter the SEC’s decision. So the gains in the last 24 hours may be temporary,” Thomas Glucksmann, head of marketing at regulated cryptocurrency trading platform Gatecoin, told CNBC via email.
In the last 24 hours from the time of publication, nearly two-thirds of trades were to buy bitcoin while the rest were to sell, showing the current bullishness around the asset.
Bitcoin has been on a steady rise for the past month, up around 23 percent. It is also closing in on its all-time high of $1,325.81 hit in March. The price movement has been supported by a number of factorsincluding Japan beginning to accept bitcoin as legal currency as well as the Russian government making comments about looking to recognize cryptocurrencies as legal financial instruments in 2018.
But bitcoin has also had its recent problems. There is a debate among the community over the future of the underlying technology and how that plays out in the future. For a full rundown of this issue, click here. There were also problems this month with customers on some bitcoin exchanges struggling to withdraw fiat currency from their accounts.
A Bitcoin Investment Fund Was Just Approved In Canada 09/28/17
A cryptocurrency investment fund that allows people to make profits from Bitcoin’s rising value without having to actually buy bitcoin has been approved by regulators in Canada, after a similar fund in the US tried and failed to gain approval from the federal securities regulator in March of this year.
The fund, called the Canadian Bitcoin Trust, was launched in July by Vancouver-based company First Block Capital. On Wednesday, the British Columbia Securities Commission granted First Block Capital registration as a fund manager in the provinces of BC and Ontario, with BCSC as its principal regulator. (Securities law is handled at the provincial level in Canada.) According to a BCSC press release, regulators have imposed registration conditions on First Block Capital that allow it to operate in the current regulatory environment, although the statement does not expand on what those conditions are.
What does this mean? For finance-types in Canada, it means that you can buy a stake in a pool of bitcoin managed by First Block Capital. As the bitcoin appreciates in value, the value of your stake will go up in turn. The target audience for this scheme is people who want to invest in Bitcoin like a commodity—say, steel or oil—and sit back while it (ideally) becomes more valuable. That way, they don’t have to worry about the nitty gritty, including private keys and exchanges, or even how Bitcoin works, frankly. The point is the profit.
Read More: Bitcoin Is for the People, Not Wall Street
The BCSC said that it is open to helping more cryptocurrency investment funds meet regulatory compliance standards.
“We strongly encourage other companies in British Columbia, whether they are potential new registrants or existing investment fund managers, to contact the BCSC’s Tech Team if they are considering pursuing cryptocurrency investments in their funds,” said Zach Masum, head of the BC regulator’s technology team, in a statement. “The Tech Team can help ensure compliance with securities regulation, which can help save time and potential costs later on.”
Regulatory approval for the fund arguably puts Canada ahead of the US when it comes to investing in Bitcoin. The US Securities and Exchange Commission (SEC), the federal regulator, has not yet approved any similar funds. One such fund, proposed by the Winklevoss brothers, looked like it had a shot and the Bitcoin community rallied around it, only to have their hopes dashed when the SEC denied its application in March. Since then, the SEC has re-opened its ruling in that case but hasn’t made a final decision.
There are other investment funds in the US that offer exposure to cryptocurrencies, but not many specialize. One that does, called Grayscale, trades as “pink sheet” stock in the US, and the value of its shares is separate from the value of the bitcoin it holds. Thus, even though the value of the bitcoin they hold means that shares should sell for $250, in June shares were going for over $500 due to hyped-up demand. It’s risky.
Bitcoin investment funds that allow people to buy a stake in a pool of bitcoin that appreciates in value if the currency’s value increases—basically, holding bitcoin without having to actually own bitcoin—represent different things, depending on your perspective. On one hand, special attention and approval from the government is great press. Ideally, that would encourage more people to buy bitcoin and use it. On the other hand, more people blindly investing in Bitcoin as its price continues to skyrocket without any major real-world uses for the currency is exactly what Bitcoin doesn’t need right now.
Either way, for hosers, there’s a new way to buy bitcoin—without actually buying bitcoin.
Regulations Round-Up: Bitcoin Bad in Ukraine and Indonesia, ICOs Reviewed in Thailand 09/29/17
In recent days, several governments have issued statements pertaining to bitcoin regulations. The Indonesian and Ukrainian central banks have clarified that bitcoin will not be recognized as a means of payment, whilst Thailand’s Securities and Exchange Commission (SEC Thailand) has made preliminary statements regarding initial coin offerings (ICOs).
The Central Banks of Indonesia and Ukraine Will Not Recognize Bitcoin as a Means of Payment 09/30/17
Speaking at a recent Ukrainian Financial Forum event, the deputy chairman of the National Bank of Ukraine, Oleh Churiy, has revealed key insights into the government’s determinations regarding impending Ukrainian bitcoin regulations. Churiy stated that Ukrainian officials have concluded that bitcoin is not a currency due to the absence of a government issuer and that bitcoin will not be legally recognized as a form of payment. “We can say that it is definitely not a currency as it has no central issuer. We also cannot recognize cryptocurrency as means of payment”.
At the start of the month, Ukrainian lawmakers met to conduct preliminary discussions regarding the legality of bitcoin and other cryptocurrencies within the country, agreeing to finalize their determinations within “3 weeks”. The preliminary discussions suggested that Ukraine may move to develop a permissive regulatory apparatus pertaining to cryptocurrency and blockchain technology, with the Chairman of the National Securities and Stock Market Commission stating that “blockchains, bitcoins, tokens and other technology solutions have already become an integral part of the financial market”. Less than a week later, Reuters reported that Ukraine’s Justice Ministry had conducted the country’s first trials of blockchain technology being conducted by the state, with the ministry planning on utilizing blockchain technology in conducting auctions of seized assets as part of an initiative designed to “modernize state institutions and eliminate corruption.”
Indonesia’s central bank, the Bank of Indonesia, has reaffirmed that bitcoin transactions are not legally recognized according to its “Service Provider of Payment System” (PSJP) legislation. Indonesia media outlets have reported that Executive Director of Payment System Policy Department, Eny V Panggabean, stated that Bank of Indonesia “forbid[s] Bitcoin to be transacted in PJSP,” at a recent Indonesia Banking Expo seminar.
CNN Indonesia reports that Oscar Dermawan, the CEO of Bitcoin Indonesia, has criticized the central bank’s position, implying that the government has failed to fully recognize the technological phenomenon and innovative potential that bitcoin encompasses. Dermawan described bitcoin as “a remarkable technological achievement”, stating that “the workings of [bitcoin] are even commented on by Bill Gates as … a technological tour de force.” When asked to discuss the development of Indonesia’s domestic bitcoin economy, Dermawan said that “transactions in Indonesia are still very low.”
SEC Thailand Has Issued a Preliminary Statement Regarding ICO Regulations
The Securities and Exchanges Commission of Thailand has warned that ICOs issuing tokens that “resemble financial returns, rights and obligations in similar ways to securities under the Securities and Exchange Act” will fall under the regulatory jurisdiction of the SEC Thailand. The SEC states that “in cases where an ICO constitutes [the] offering of securities, the issuer will need to comply with applicable regulatory requirements under the SEC Thailand’s purview.”
The SEC Thailand is seeking to adopt a balanced policy with regard to ICOs, expressing a desire to “strike the balance between supporting digital innovation and protecting investors from potential ICO scams.” The SEC highlights concerns that “in some cases ICO may be deliberately used as a tool for fraud or scam”, before stating that the “SEC Thailand encourages access to funding for businesses, including high potential tech startups, and realizes the potential of ICO in answering startups’ funding needs.”
Ultimately, Thailand’s SEC “realizes that ICO may not yet fit neatly with SEC Thailand’s current regulatory framework…. and welcomes comments and suggestions from the private sector.”
Blockchain and Cryptocurrency: The Emerging Regulatory Framework 09/30/17
This summer, US and international regulators have brought enforcement actions, issued guidance and explanatory documents, and sharpened previously-taken positions regarding regulation of cryptocurrency and crypto-tokens under the anti-money laundering, derivatives, securities, and tax laws.These actions provide a better sense of the way in which US regulators will approach the blockchain and digital asset space going forward, but also leave many unanswered questions.
These recent actions indicate increased regulatory risk for certain types of activities. Companies that have made or are contemplating making initial coin offerings or cryptocurrency investments should assess these activities in light of these new regulatory pronouncements. But overall, this latest round of regulatory actions may provide greater regulatory certainty and a better understanding of regulatory priorities, which in turn can provide innovators and early adopters a clearer legal framework within which to operate.
On July 26, 2017, the Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury assessed a civil monetary penalty of $110,003,314 against Canton Business Corporation, more widely known as the cryptocurrency exchange BTC-e, and a $12,000,000 penalty against Alexander Vinnik, a Russian national who allegedly controlled, directed, and supervised BTC-e’s operations, finances, and accounts. On the same day, a 21-count criminal indictment against BTC-e and Mr. Vinnik was unsealed, and Mr. Vinnik was arrested in Greece. BTC-e is one of the largest virtual currency exchanges by volume in the world, but US regulators concluded—and prosecutors charged—that it was not operating in compliance with US Bank Secrecy Act (BSA) regulations.
FinCEN’s actions highlight the previously unspoken principle that a foreign entity operating as a money services business (MSB) with activities in the United States will be subject to regulation under the BSA. The BTC-e action is the first supervisory action against a foreign entity operating as an MSB with activities in the United States. According to FinCEN, BTC-e lacked basic controls to prevent the use of its services for illicit purposes and, as a result, purportedly maintained a customer base of criminals who concealed and laundered proceeds from crimes such as ransomware, fraud, identity theft, tax refund fraud schemes, public corruption, and drug trafficking, none of which BTC-e reported to FinCEN and law enforcement. FinCEN asserted jurisdiction on the grounds that BTC-e processed substantial transactions (approximately $296 million) involving US customers.
FinCEN found that BTC-e failed to comply with US laws in a number of ways: BTC-e failed to register as a money services business (MSB), failed to maintain an effective anti-money laundering (AML) program, failed to file suspicious activity reports (SARs), and failed to keep transaction records. The case demonstrates the continued importance of FinCEN’s BSA regulatory framework to companies in the technology sector that facilitate transactions in virtual currency. FinCEN’s 2013 regulatory guidance on administering, exchanging, and using virtual currency and subsequent statements make clear that FinCEN will enforce AML requirements against MSBs/money transmitters (MTs), with particular scrutiny on exchanges of virtual currency and systems providing services for such exchanges.
FinCEN’s recent actions make clear that the agency will seek to ensure that any cryptocurrency exchange doing substantial business with US customers needs to register with FinCEN and comply with the BSA. Companies that facilitate transactions in virtual currency should review FinCEN’s guidance and obtain compliance advice and counsel when necessary.
Commodities and Derivatives Regulation
The Commodity Futures Trading Commission (CFTC) has been relatively quiet since opening several investigations of cryptocurrency exchanges and settling a high-profile enforcement action against cryptocurrency exchange BitFinex over a year ago. However, the CFTC made waves in July when it granted LedgerX LLC (LedgerX) permission to register as a Swap Execution Facility (SEF) and as a Derivatives Clearing Organization (DCO) for bitcoin based swaps. Effectively, this makes LedgerX the first bitcoin options exchange and clearinghouse to become approved by US regulators.
In August, the Chicago Board Options Exchange (CBOE) ventured into the digital asset space, announcingan agreement with Gemini Trust Company, LLC (Gemini) under which the CBOE will have an exclusive global license to use Gemini’s bitcoin market data for bitcoin derivatives and indices. CBOE will have a multi-year exclusive global license permitting it to use Gemini’s market data, including Gemini daily bitcoin auction values, in the creation of bitcoin derivatives products for listing and trading. Assuming regulatory approval by the CFTC, the CBOE plans to make bitcoin futures available for trading in late 2017 or early 2018. Both companies plan to explore other bitcoin derivatives opportunities.
The recent announcements by the CFTC and the CBOE appear to be driven by the exponential growth in market demand for investments in digital assets and particularly in digital currencies. The substantial growth of the trading volume of the bitcoin and other cryptocurrency markets will intensify regulators’ attention on these markets and protection of traders and investors, and will incentivize market-makers like the CBOE to develop options for investors.
These actions by the CFTC and the CBOE show an increased willingness by the commodities trading community to embrace cryptocurrency as a new asset class. The CFTC’s actions, in particular, may also signal that its regulatory oversight process will be the primary vehicle for setting policy and a regulatory framework for cryptocurrency and blockchain activities.
Securities and Initial Coin Offerings
The SEC took initial steps to clarify the regulatory environment surrounding ICOs, focusing first on what are generally referred to as “equity” tokens, leaving open questions about what are typically referred to as “utility” tokens.
In late July, in an Investigative Report on the Distributed Autonomous Organization (DAO), the Securities and Exchange Commission (SEC) announced its position that “offers and sales of digital assets by ‘virtual’ organizations are subject to the requirements of the federal securities laws.” Although not a surprise, the SEC’s statement affirms that companies seeking to involve US investors in an initial coin offering (ICO) must register offerings with the SEC or qualify for an exemption.
The SEC focused its recent study on the token offering by the DAO in April-May 2016. The DAO was built on top of the Ethereum blockchain by the German unincorporated organization Slock.it, and the success of its token offering ushered in the current wave of ICO activity. Questions about the application of US securities laws surrounded the DAO offering since its initial announcement. The SEC’s report found that the DAO “may have violated federal securities laws,” but it decided against pursuing an enforcement action, choosing instead to use the DAO as guidance for future ICOs.
The DAO tokens are commonly considered to be “equity” tokens, as opposed to “utility” tokens, so the DAO Investigative Report leaves open questions concerning how US securities laws will apply to “utility” tokens. Aside from the securities registration issues, the DAO suffered a breach—or more accurately, an exploitation of a flaw in its code—involving the loss of $50 million in Ether, but the SEC report did not make any findings with respect to that breach.
On the same day as the DAO Investigative Report, the SEC released an Investor Bulletin that provided recommendations for companies looking to issue tokens through an ICO, including the following:
- The SEC will interpret certain ICOs, such as the DAO offering, as the offer and sale of securities.
- If the tokens issued as part of the ICO can be considered securities, then the virtual coins or tokens must be registered with the SEC, or the sale must be made pursuant to an exemption from registration.
- Companies planning ICOs should carefully review the criteria for exemptions from registration, including the provisions relating to accredited investors and other restrictions involving net worth or income requirements, and should satisfy the criteria for those exemptions for US investors should the token be considered a security.
- The SEC will likely scrutinize representations that particular ICO offerings are exempt from registration.
- Sales of tokens as part of crowdfunding should adhere to the requirements of the SEC’s crowdfunding regulations (called Regulation Crowdfunding) and other relevant securities laws.
- If the virtual token or coin is a security, “investment professionals and their firms who offer, transact in, or advise on investments” must be licensed or registered in accordance with federal and state securities laws.
- The SEC will scrutinize what it considers to be “jargon-laden pitches, hard sells, and promises of outsized returns.”
The SEC also made recommendations as to what investors should look for in a white paper or other offering document: (1) a clear business plan, (2) description of rights that accompany the token or coin, (3) options for liquidating an investment, (4) publicly available information regarding the blockchain and code, and (5) an independent cybersecurity audit.
The SEC released a third document on August 28, titled “Investor Alert: Public Companies Making ICO-Related Claims,” warning investors about potential “pump-and-dump” ICO scams in which an insider or offeror circulates fake information meant to increase the coin’s value, and then sells the coin at the inflated value. The SEC recently suspended the trading of First Bitcoin Capital Corp., CIAO Group, Strategic Global, and Sunshine Capital in connection with allegedly suspicious news releases and claims made by the companies.
Taken together, the SEC’s DAO Investigation Report, Investor Bulletin on ICOs, and Investor Alert on ICOs represent the SEC’s opening foray into regulating the growing use of ICOs by a range of different companies.
Foreign regulators also took steps this summer. On the one hand, regulators in Canada, Hong Kong, and Singapore issued statements similar in substance to the SEC’s guidance. For example, the Canadian Securities Administrators (CSA) released a six page staff notice similar to the SEC’s report, stating that ICOs are likely to be regulated as securities. (Note that Canada has also created regulatory sandboxes whereby new digital currency companies can test their products on a limited scale before facing all applicable regulations). The Hong Kong Securities and Futures Commission issued a similar statement, noting that “depending on the facts and circumstances of an ICO, digital tokens that are offered or sold may be ‘securities’ as defined in the Securities and Futures Ordinance (SFO), and subject to the securities laws of Hong Kong.” Singapore regulators offered a clarifying statement to the effect that “the offer or issue of digital tokens in Singapore will be regulated by [The Monetary Authority of Singapore] if the digital tokens constitute products regulated under the Securities and Futures Act.”
By contrast, Chinese and South Korean regulators were less measured. On September 4, the Chinese government halted “all types of currency issuance financing activities,” prohibited traditional financial institutions from working with digital currency offerings, and demanded that ICO funding be returned to investors. South Korea’s Financial Supervisory Commission also announced bold limitations on digital currencies, including penalties for ICOs that raise funds in the form of stock issuances, increased regulations for domestic coin trading, heightened oversight of remittances made through digital currencies, and additional scrutiny of alleged data breaches of coin operators.
Overall, the SEC’s initial focus seems to be on equity tokens and fraud; still pending is SEC guidance or views regarding utility tokens. While the SEC’s approach is more measured than that of regulators in China and South Korea, the SEC documents leave open as many issues as they resolve. Nevertheless, the report and investor guidance are useful for both investors and entrepreneurs, and it is expected that the SEC will continue to issue guidance—and to conduct investigations—in the area of ICOs.
The taxation of virtual currencies became a hot topic this past year. In 2014, the Internal Revenue Service (IRS) issued a Notice indicating that virtual currency is treated as property (not currency) for tax purposes, but gave little additional guidance. In the fall of 2016, the Treasury Inspector General for Tax Administration (TIGTA) issued a report critical of the IRS’s lack of additional efforts on virtual currency since then, such as developing an overall virtual currency strategy and taking other actions to help taxpayers understand the virtual currency rules and ensure taxpayer compliance.
Following the TIGTA report, rather than issue guidance to help taxpayer understanding and compliance, the IRS began a sweeping enforcement action against virtual currency users. In November 2016, the IRS filed an open-ended summons on Coinbase, one of the world’s largest digital asset exchange companies, seeking essentially all information about its customers’ activities and accounts. While the IRS has since narrowed the scope of its sweeping fishing expedition, its enforcement-sided approach to the industry remains troubling.
The IRS’s enforcement actions have brought increased focus on the lack of clear guidance on the policy side, including from Congress. Recently, members of Congress, including the chairs of the tax writing committees and the chairs of the Congressional Blockchain Caucus have criticized the IRS’s enforcement-sided approach and failure to issue additional guidance on the policy side. On September 7, representatives Jared Polis (D-CO) and David Schweikert (R-AZ) introduced the Cryptocurrency Tax Fairness Act that would create a tax exemption for cryptocurrency transactions under $600. We expect Congress and the IRS will increase their policy efforts regarding the taxation of virtual currency going forward.
As a note, Steptoe held its first Blockchain and Tax Workshop on September 12 in Washington, DC, discussing how IRS rules may apply to cryptocurrency transactions, crypto-token investments, and ICOs, among other issues. Steptoe is planning a follow-up workshop in New York City later this year.
Taken together, these regulatory actions and guidance documents indicate a new level of regulatory focus on blockchain and cryptocurrency. While many questions remain, these new regulatory actions and guidance documents indicate:
- A renewed seriousness of purpose around US Bank Secrecy Act compliance for companies servicing US customers, particularly as it pertains to cryptocurrency exchanges or private placement platforms, regardless of where those exchanges or platforms are based;
- An emerging regulatory acceptance of cryptocurrency and crypto-tokens as a new asset class recognized under US commodities and derivatives law;
- An emerging structure for securities law compliance for initial coin offerings; and
- An evolving approach to cryptocurrency taxation that has implications for commerce, as well as for holders of large amounts of cryptocurrency.
Individuals and companies handling or contemplating the handling, purchase, sale, exchange, or brokering of cryptocurrency transactions, involvement in initial coin offerings or other types of token issuances, or creation of cryptocurrency and cryptotoken investment vehicles, and companies contemplating other types of blockchain-based transactions would be well-served by a consultation with experienced blockchain and digital currency attorneys.
South Korea Tightens Bitcoin Regulations, Will ‘Punish’ ICOs 09/24/17
outh Korean regulators are reportedly strengthening the regulation and monitoring of digital currencies including bitcoin.
South Korea’s digital currency task force – a group comprising of the country’s central bank, financial regulators and digital currency companies – have discussed increased regulatory oversight into trading and business practices as a means to further consumer protection efforts.
According to Business Korea, the task force held a joint meeting on Sunday where authorities planned to introduce these increased regulations for trading among the country’s domestic exchanges. The meeting, which was attended by the National Tax Service (NTS) and the Korea Fair Trade Commission (KFTC) also saw plans drawn toward strengthening user authentication procedures at exchanges as well as ‘suspicious transaction reporting’ systems at banks for transactions related to digital currencies.
Financial Services Commission (FSC) chairman Kim Yong-beom, who chaired the task force meeting, reportedly stated:
At this point, digital currencies cannot be considered money and currency, nor financial products.
Bitcoin in India: Ban Unlikely, Regulation Possible, Govt. Report in July 07/20/17
An intergovernmental committee to study a regulatory and legislative framework for the future of digital currencies like bitcoin in India will submit its findings in a report by the end of July.
Back in March, India’s Ministry of Finance announced the formation of an intergovernmental committee to propose a framework for virtual currencies in India.
The committee included participants from India’s central bank, the Reserve Bank of India and India’s largest bank, the State Bank of India, underlining their influence in charting the outcome of talks toward legalizing digital currencies in the country.
The virtual currency committee’s tasks were specifically laid out as:
- Taking stock of the present status of Virtual Currencies both in India and globally;
- Examining the existing global regulatory and legal structures governing Virtual Currencies
- Suggest measures for dealing with such Virtual Currencies including issues relating to consumer protection, money laundering, etc; and
- Examine any other matter related to Virtual Currencies which may be relevant.
In about a month’s time, the Indian government will reveal findings of its months-long study into virtual currencies after discussions within government ministries and the Indian bitcoin industry, as well as listening to the Indian public’s comments on the future of digital currencies in the country.
In conversation with CCN, Sathivk Vishwanath, CEO of India’s best-funded bitcoin exchange Unocoin, underlined the Indian government’s “encouraging” shift in tact with its acknowledgement of digital currencies. As recently as February, India’s central bank published a notice warning the public to be wary of digital currencies, reminding them that investments or association with any companies in the industry would be done at their own risk. The remarkable growth in awareness and adoption of cryptocurrencies ever since has pushed the government into looking into the digital currency ecosystem.
For the first time, the government began engaging in discussions with India’s young but growing digital currency industry.
Unocoin CEO Vishwanath told CCN:
The government committee reached out to Unocoin and they’ve heard our views. They’ve also asked the public’s opinion, of which 80% of comments have been supportive of cryptocurrencies while 10% remain neutral.
Furthermore, a report in Indian publication MoneyControl cites a government official as stating that while the likelihood of legalizing bitcoin is ‘very bleak’, banning bitcoin would prove entirely difficult, ‘simply because one doesn’t know who is trading or operating it’.
There is no point in banning cryptocurrencies. For now, the government isn’t planning on legalizing or regulating it.
Vishwanath confirmed the committee’s “encouraging” approach in reaching out to the exchange. He also revealed that the committee has paid attention to notable developments in Japan and Russia. In April, Japanese legislation recognized bitcoin and digital currencies as a recognized legal method of payment. Russian authorities, after repeated attempts to ban and even criminalize bitcoin adopters, have now publicly started to acknowledge the possibility of recognizing and regulating bitcoin in the country.
MoneyControl cited an unnamed ‘senior government official’ from the committee as stating:
We have had five meetings and have consulted all ministries, public, stakeholders (bitcoin exchanges). We will submit the report by July-end.
While the introduction of regulation isn’t a certainty, he government keep tabs on digital currencies activity at exchanges, the report adds, a notion confirmed by Vishwanath.
“SEBI (Securities and Exchange Board of India) can be asked to regulate virtual currencies as transactions are currently done through unregulated exchanges. RBI may step in if the government plans to regulate them or accept them as currency,” the official added.