U.S. Developments

Legislative Updates

Facebook’s David Marcus Testifies Before Congress on Libra

David Marcus, the Facebook blockchain chief in charge of its planned Libra cryptocurrency and Calibra-branded digital wallet, testified for two days before Congress last week to answer questions about the social media giant’s plans for a cryptocurrency. U.S. Senator Mike Crapo, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, delivered remarks at the hearing entitled “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations.” In the hearing, Marcus described how Congress asked Facebook for more information about how the Libra system would work, how it would access and use consumer financial information, and the privacy implications for consumers. Marcus stated that the Libra Association, a nonprofit based in Switzerland, would be tasked with managing the Libra network, and added that Facebook would be one of many members of the association involved with the project. It is not yet clear whether Facebook will implement a moratorium on Libra’s development pending the government’s probe into the proposed cryptocurrency. Despite Marcus’s extended testimony before Congress, there have been calls from congressional members to have Facebook CEO Mark Zuckerberg testify on Capitol Hill to provide lawmakers with additional information about how Libra and Calibra will work and how they could be regulated.

Proposal to Keep Big Tech Companies out of Financial Services Is Circulated

News outlets are reporting that the Democratic majority that leads the House Financial Services Committee is circulating a proposal to prevent big technology companies from functioning as financial institutions or issuing digital currencies. According to Law360, the draft bill language sets forth a restriction on any large online platform with annual global revenue of at least $25 billion from becoming a U.S. financial institution through chartering, licensing or registration. The proposed bill goes further by also restricting large tech companies from being affiliated with financial institutions or issuing digital currencies. Companies would be fined up to $1 million per day for violation. It is expected that Republicans will oppose the draft bill although there have been bi-partisan calls for regulation of large technology companies and their financial services offerings, in the midst of much attention around Facebook’s proposed Libra project.

Enforcement Updates

U.S. Regulator May Be Investigating Crypto Exchange BitMEX

According to Bloomberg sources, the U.S. Commodity Futures Trading Commission (CFTC) is looking into whether BitMEX allowed U.S. residents to use its platform to trade. The United States is currently excluded from using BitMEX, which is registered in the Seychelles, and other similar crypto-based financial services, but users may have sought to circumvent the geoblock by using services such as VPNs.

Industry Updates

Treasury Secretary Mnuchin Declaims Cryptocurrencies as Potential National Security Threat

In a briefing at the White House, Treasury Secretary Steven Mnuchin indicated that he had “very serious concerns” about cryptocurrencies, including Libra—the cryptocurrency being developed by Facebook. Mnuchin stated that his concerns were based on the potential for the use of cryptocurrencies for money laundering and other illicit activities. Mnuchin also followed up President Trump’s recent comments regarding cryptocurrencies with a statement that the Trump administration was “not comfortable” with Facebook’s plans to develop its own cryptocurrency. Facebook testified about Libra last week at hearings before the Senate Committee on Banking, Housing, and Urban Affairs and the House Financial Services Committee.

International Developments

Man Charged with Allegedly Stealing $1.7 Million in Cryptocurrencies

Eliyahu Gigi, a 31-year-old alleged hacker, was formally charged in a Tel Aviv District Court with the suspected theft of $1.7 million dollars in cryptocurrencies. Gigi is alleged to have stolen bitcoin (BTC), ether (ETH), and dash (DASH) cryptocurrencies from foreign citizens in other European jurisdictions. According to various news reports, Gigi had allegedly been operating a criminal enterprise through various websites that allowed him to distribute malicious software that infected his victim’s computers and steal their cryptocurrencies. It is alleged that Gigi may have used cryptocurrency wallet software to swindle his victims by having a user’s username and password sent back to Gigi through the software.

Japan Pushing for International Network for Cryptocurrency Payments

Japan’s government is pushing for an international network for cryptocurrency payments, similar to the SWIFT network used by banks around the globe, in an effort to help manage cryptocurrency payments and fight money laundering. News reports last week speculated that the initiative, proposed by Japan’s Ministry of Finance and the country’s financial regulator, may have gained clearance from the G7’s Financial Action Task Force (FATF), who would monitor the development. The proposals for a regulated cryptocurrency come at the same time that Facebook’s proposed cryptocurrency, Libra, is capturing headlines across the globe. Japan was the first country in the world to recognize bitcoin as a legal form of payment in 2017 and has been a leader in its efforts to regulate and license cryptocurrency exchanges. Japan’s government has not yet confirmed the reports about the government-backed crypto version of an international payment system.

Japanese Cryptocurrency Exchange BITPoint Discovers over $2.3 Million in Cryptocurrency

According to reports, BITPoint found $2.3 million in cryptocurrency—part of a $32 million sum that was stolen two weeks ago, on overseas exchanges that were using a trading system provided by BITPoint Japan. The exchange was initially hacked on July 12 when hackers stole Bitcoin (BTC), Litecoin (LTC), Ether (ETH) and Ripple (XRP) from the exchange’s hot wallets and suspended all services following the hack. BITPoint has recently announced that the 50,000 or so users who lost funds in the recent hack will be reimbursed in cryptocurrency on a 1:1 basis once the platform has restarted its services. BITPoint president, Genki Oda, apologized for the incident and said that the exchange is still investigating the cause of the hack.