Baker & Hostetler LLP

07/01/2024 | Press release | Distributed by Public on 07/01/2024 09:32

Weekly Blockchain Blog – July 1, 2024

07/01/2024|5 minute read
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In this issue:

Institutional Firms Enter Crypto Market; Crypto Firms Partner on New Products

By Christopher Lamb

According to recent reports, a major global bank is establishing a spot trading desk for buying and selling bitcoin and ether. The new desk, based in London, will reportedly begin soon and be a part of the bank's FX trading unit. The spot trading desk will reportedly make the bank one of the first global banks to enter spot cryptocurrency trading.

According to other recent reports, one of Europe's largest telecom providers has unveiled plans to enter the Bitcoin mining arena. With a global presence reaching over 50 countries, the company has reportedly stated that it will tackle the energy consumption problem of Bitcoin mining with a pilot program aimed at optimizing energy use. In more mining news, a major Bitcoin mining company's pilot project to use recycled heat from Bitcoin mining is reportedly warming an entire town in Finland. The pilot reportedly uses heat from mining processing hardware to heat water and then distributes the water through an underground network of pipes to heat houses.

According to other reports, BitGo and Finery Markets have partnered to launch a crypto trading and off-exchange settlement solution that caters to prime brokers, OTC desks and exchanges. BitGo will reportedly secure assets in bankruptcy remote, qualified custody via BitGo Trust Company Inc. and use Go Network, while Finery Markets connects digital asset players to a vast network of partners and its proprietary matching engine. According to reports, the model eliminates the burden placed on liquidity providers and prime brokers to manage settlements on their own.

In another notable event, Nu Holdings (Nubank) has partnered with Lightspark to bring the Bitcoin Lightning Network to Nubank's platform and customers. According to a press release, Lightspark is "working with the Nu team on exploring synergies, starting the integration, mapping, and building potential products" and hopes to bring "one of the world's largest digital financial services platforms" to the Bitcoin Lightning Network.

For more information, please refer to the following links:

FinCEN Advisory on Opioids Identifies Red Flags Involving Crypto Payments

By Isabelle Corbett Sterling

The U.S. Financial Crimes Enforcement Network (FinCEN) recently issued FIN-2024-A002, an advisory that identifies virtual currency payments as one of the "financial typologies associated with Mexico-based [transnational criminal organizations (TCOs)] and their illicit procurement of fentanyl precursor chemicals and manufacturing equipment." Among other commentary on the opioid epidemic, the advisory says that Mexico-based TCOs are increasingly purchasing the chemicals and equipment from China-based suppliers using a variety of virtual currencies sent to persons affiliated with Chinese suppliers or secondary money transmitters with hosted wallets. In a list of "Transactional Red Flags" in the advisory, FinCEN identifies the following two red flags involving virtual currency payments:

  • A customer sends low-dollar or virtual currency payments for no apparent legitimate purpose to beneficiaries involved in the chemical manufacturing and pharmaceutical industries in the PRC, Hong Kong or another jurisdiction.
  • A customer sends virtual currency payments to an address that is linked through blockchain analytics to beneficiaries associated with the PRC-based chemical manufacturing and pharmaceutical industries or to individuals or entities listed in DOJ indictments and OFAC designations.

For more information, please refer to the following link:

Crypto Enforcement Actions Continue by DOJ, State Regulators and UK FCA

By Keith R. Murphy

The Conference of State Bank Supervisors recently issued a press release announcing a settlement among twenty-five25 state financial regulators on one side, and Abra Trading LLC and related entities (collectively, Abra) and the CEO and largest equity owner, on the other. According to the press release, the state financial regulators brought action against the companies and the CEO for operating a cryptocurrency company without obtaining the required licenses. Under the settlement, Abra reportedly agreed to (i) cease accepting virtual asset allocations from U.S. Abra Trade Account customers into the companies' products and services; (ii) cease making, buying, selling or trading cryptocurrencies available to U.S. Abra Trade customers, and (iii) refund remaining virtual assets on its platform for U.S. Abra Trade customers in the settling states. According to the release, by the time the remaining virtual assets get returned under the settlement terms, up to $82 million will be returned to customers.

According to a recent press release by the U.S. Department of Justice, "for the first time, a jury in a federal criminal trial found that a cryptocurrency was a security and that manipulating cryptocurrency prices was securities fraud." In connection with the case, two men were alleged to have defrauded investors by using a trading bot to manipulate their company's cryptocurrency price. Along with other co-conspirators, the men reportedly manipulated the price of HYDRO by using a bot to execute wash trades and spoof trades, which induced retail traders to purchase HYDRO. As a result of artificially inflated prices that resulted, the scheme netted approximately $2 million in profits. The two men were sentenced to multiple years in prison.

According to a recent press release, an operation by the UK's Financial Conduct Authority (FCA) resulted in the arrest of two individuals suspected of operating an illegal cryptoasset exchange. Transactions of unregistered crypoassets on the exchange are alleged to be in excess of 1 billion pounds, and the FCA's investigation remains ongoing following the search and seizure of the suspects' property. As noted in the press release, cryptoasset exchange providers are required to register with the FCA and must comply with the UK's money laundering regulations in order to operate legally.

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Annual Report Released on Illicit Activities in Crypto Market

By Lauren Bass

Earlier this month a global blockchain analytics and risk management firm released its sixth annual report on the state of crime in the cryptoasset market. According to the publishers, the report aims to "equip analysts and investigators with the practical insights needed to ensure they can continue to detect new financial crime risks" and work to root out bad actors.

The report provides in-depth analysis on how the cryptoasset market has been used to launder money and finance terrorism and offers a breakdown of certain "key trends" among criminal and threat actors. In 2024, for example, there was an uptick in "pig butchering" schemes - a type of long-term scam in which a victim, often targeted through social media, is gradually lured into making financial contributions, only to have their assets stolen. According to the report, victims of such a scheme can employ blockchain analytics tracing tools to help identify fraudsters and reclaim stolen funds.

The report is available for download via the link below.

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