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To View the Full Digital Assets and Blockchain Newsletter July 2021 QE on the Block Quinn Emanuel Digital Assets and Blockchain Newsletter atlanta | austin | boston | brussels | chicago | hamburg | hong kong | houston | london | los angeles | mannheim | miami | munich | neuilly-la defense new york | paris | perth | salt lake city | san francisco | seattle | shanghai | silicon valley | stuttgart | sydney | tokyo | washington, d.c. | zurich Just Minted: News Sweep June-July 2021 • The Chinese government took further action to • American interest in cryptocurrency is rising, crack down on cryptocurrencies. In late May, the according to a report by Miq Digital, an People’s Bank of China (PBOC) issued guidance independent marketing intelligence company. (1) forbidding banks and online payment The report found that approximately 6% of the processors from accepting virtual currencies as a U.S. population now uses or owns cryptocurrency, means of payment or settlement and (2) barring with as many as 25% of U.S. investors holding institutions from exchanging virtual currencies cryptocurrencies. for yuan. In early June, the Chinese government • The SEC recently filed a lawsuit against the moved to block prominent cryptocurrency- promoters of BitConnect, an unsuccessful related accounts on Weibo, a platform similar cryptocurrency that used a “lending program” to Twitter. And on June 21, the PBOC told the that some called a Ponzi scheme. The suit alleges country’s leading financial institutions (including that the promoters were obligated to register the Industrial and Commercial Bank of China, as broker-dealers and to register the coin as a the Agricultural Bank of China, and Alipay) to security, but failed to do so. cease all support for cryptocurrency transactions. • In an officialstatement , the Central Bank of • A video of one Chinese mining operation being Portugal (Banco de Portugal), announced that shut down recently went viral, adding credibility it had recognized the cryptocurrency exchanges to China’s pledged crackdown on cryptocurrency “Criptoloja” and “Mind The Coin” as “virtual generally, and cryptocurrency mining specifically. asset service providers.” This is the first time • The United States General Services exchanges have been licensed to operate in Administration (“GSA”) auctioned eleven lots of Portugal. seized cryptocurrency in June. The lots totaled • Two Tennessee taxpayers have sued the IRS, 8.93 bitcoins and 150.2 Litecoins—marking the arguing that stakers, who generate tokens on a first time Litecoin was available in a GSA auction. (continued on page 2) INSIDE Just Minted: News Sweep Unstable Ground: The Uncertain State of Stable Coins June-July 2021 Regulation under Howey Unstable Ground: The Stablecoins are cryptocurrencies that test provides that various instruments are Uncertain State of Stable aim to maintain a stable value relative to securities subject to the Securities Act’s Coins Regulation under an underlying benchmark such as fiat, regulatory system and SEC oversight if: Howey cryptocurrency, a commodity, or a basket “a person [1] invests his money [2] in a of assets like real estate. Cryptocurrencies common enterprise and [3] is led to expect and digital assets, including stablecoins, profits [4] solely from the efforts of the are an area of intense regulatory focus, promoter or a third party.”1 In 2020, two much of which has addressed whether important federal district court decisions, digital assets satisfy the test in the United Sec. & Exch. Comm’n v. Telegram Grp. Inc., States Supreme Court’s decision in SEC and Sec. & Exch. Comm’n v. Kik Interactive v. W.J. Howey Co. The so-calledHowey Inc., generated detailed opinions applying 1 328 U.S. 293, 298-99 (1946). (continued on page 3) Attorney Advertising proof-of-stake network, should not have to pay • One June 23, the Southern District of New York taxes on those tokens until they are sold. approved Block.one’s $27.5 million settlement • Colonial Pipeline, after a recent ransomware attack, in the class action lawsuit filed by the Crypto paid a ransom in bitcoin to hackers holding its Assets Opportunity Fund. The suitalleged systems hostage. However, the U.S. Department both that Block.one’s token, EOS, should have of Justice was able to recover a significant portion been registered as a security and that Block.one of these funds. The DOJ says this recovery is just misrepresented the nature of its token. Block. one example of the department’s ability to trace one continues to deny any wrongdoing, stating digital assets used by criminals. that “accepting this settlement allows us to focus more time and energy on running our business • On June 4, Texas Governor Greg Abbott signed and delivering new products.” into law House Bill 4474, a measure that amends Texas’s Business and Commerce Code to include • In South Korea, a class action lawsuit was filed against a definition of virtual currency, establishes V Global, a Korean cryptocurrency exchange. requirements to demonstrate ownership of these The suit alleges that V Global operated as a Ponzi assets, and provides a process for resolution of scheme and defrauded tens of thousands of people adverse claims on virtual currency ownership. out of over $3 billion. Four V Global executives were arrested for criminal activity arising out of • A major change to the Ethereum fee market, the same purported scheme, and South Korean Ethereum Improvement Proposal 1559 (“EIP- police continue to investigate. 1559”) is scheduled for activation by mid-July. The proposal seeks to stabilize transaction fees • The Basel Committee for Banking Supervision, by, among other things, switching the current which coordinates international regulation of mechanism for determining fees, which is similar banks and other financial institutions,proposed to an auction and which can cause costs to new, tougher rules on banks that hold bitcoin and “skyrocket at a moment’s notice depending on other digital assets. If the proposed regulations the ups and downs of the crypto markets,” to a are enacted, banks holding these assets would as a “fixed price sale,” where fees remain relatively be required to hold additional capital reserves static. to protect against declines in the value of their digital assets. • Volatility in cryptocurrency prices continued across tokens of various types. TITAN, a • El Salvador will become the first country to cryptocurrency token with high profile investors, recognize bitcoin as legal tender, President Nayib sharply declined in price, dropping from $60 to Bukele announced on June 5. Bukele hopes $.00000003 at its lowest point. Bitcoin prices that adopting bitcoin at the national level will tumbled below $30,000 for the first time since help create a more inclusive financial system for January, bringing the year-to-date gain down Salvadorans, as, according to Bukele, 70% of to just 3%, before recovering slightly to above Salvadorans lack bank accounts. $33,0000. • On May 31, the Reserve Bank of India withdrew • Goldman Sachs has begun trading bitcoin futures a rule that prohibited Indian banks from with Galaxy Digital, a crypto investment firm, facilitating cryptocurrency exchanges. The RBI making Goldman Sachs the first major U.S. bank made this change in response to a March ruling to begin trading cryptocurrencies. from the Supreme Court of India, which held that the RBI could not prevent domestic financial • TSB Bank, a bank with over 500 branches across institutions from providing banking services to the United Kingdom, is reportedly preparing crypto exchanges. to block its customers from directing money to cryptocurrency trading sites. TSB Bank cited fraud • Cryptocurrency-related crimes appear to be on concerns and was particularly concerned about the rise. A new study, based on data from the Binance, one of the world’s largest cryptocurrency United States Federal Trade Commission, the exchanges. Britain’s Financial Conduct Authority U.K.’s National Fraud & Cyber Crime Reporting also recently released a statement that Binance’s Center, and the Australian Competition and U.K. division “is not permitted to undertake any Consumer Commission, found that in 2020 regulated activity in the U.K.” there were 35% more reports of cryptocurrency- related crimes in the United States than in the 2 QE on the Block 3 previous year. The study also found slightly advantage of China’s recent regulatory crackdown smaller increases in Australia and the UK. on bitcoin mining. • Crypto.com, a cryptocurrency trading platform, • Major League Baseball launched their debut NFT is now a sponsor of Formula 1 racing. The deal is commemorating Lou Gehrig’s famous ‘Luckiest reported to give Crypto.com numerous benefits, Man’ speech. The NFT features video excerpts including “brand presence around F1 events,” from Gehrig’s retirement speech after his ALS “and trackside slots for the rest of the F1 season. diagnosis and a three-dimensional bust of the F1 and Crypto.com also plan to develop non- Hall of Fame New York Yankee in an iron finish, fungible tokens (“NFTs”) aimed at “connecting a reference to his nickname “Iron Horse.” The fans to the sport in new and innovative ways.” auction for the NFT commenced on July 4, the • Investors lost billions as the ICP crypto token lost 82nd anniversary of the speech, and closed July 8. over 90% of its initial value in the first month • Germany’s Fund Location Act went into following its initial coin offering. A report effect on Thursday, July 1. The law allows released earlier this week by Arkham Intelligence, German spezialfonds (literally translated, a crypto analysis firm, posited that manipulation “special funds”), the most common institutional and malicious activity by insiders caused the crash. investment vehicle in Germany, to invest up to • Cryptocurrency litigation rulings issued in the hip 20 percent of their holdings in cryptocurrencies. hop world. On June 21, the United States Court of • At a recent virtual event, House Blockchain Appeals for the Eleventh Circuit dismissed a class Caucus co-chair Rep. Bill Foster (D-IL) called for action suit against Clifford “T.I.” Joseph Harris legislation that would allow illicit cryptocurrency Jr.
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