U.S. Developments


VanEck/SolidX Bitcoin ETF Proposal Withdrawn.

Facing an October 18 deadline for the Securities and Exchange Commission (“SEC”) to approve or disapprove, Cboe BZX Exchange withdrew the proposed rule change to list and trade SolidX Bitcoin Shares issued by VanEck SolidX Bitcoin Trust on September 13, 2019. The decision had already been delayed on March 29, 2019, and August 12, 2019. This same exchange-traded fund (“ETF”) proposal was also withdrawn in January 2019 after the government shutdown threatened to force a rejection of the proposal. Cboe BZX Exchange gave no explanation for the withdrawal of the proposed rule change in the September 17, 2019, filing. According to Gabor Gurbacs, the VanEck director of digital asset strategies, the company is still working to bring a Bitcoin ETF to market in the United States.

The withdrawal filing can be found here. Previous Virtual Currency Report coverage of the VanEck SolidX Bitcoin Trust can be found here, here, and here.

SEC Director William Hinman Resists Bright-Line Rules.

On September 16, William Hinman, Director of the Division of Corporate Finance at the Securities and Exchange Commission (“SEC”), spoke with Professor Aaron Wright at the Cardozo Law School. Sources report that he avoided supporting any bright-line tests with respect to digital assets, pointing to the fact that the United States is a common law country (as opposed to a civil law jurisdiction). He said this emphasis on precedent makes bright-line rulemaking difficult.  Director Hinman also noted his concern that by setting out a bright-line rule, the SEC would encourage entrepreneurs to walk right up to the line and see how close they could get before crossing.

Director Hinman commented that in most circumstances; Ether and Bitcoin, for example, are probably not securities because there is no central party. However, with initial coin offerings, as there is a central distributing party, there is a stronger argument that the offered coins are securities.  Director Hinman also suggested that when considering whether a digital asset is a security, the SEC seeks to determine whether the consumer is buying the token to use the service or to speculate.  He pointed to Pocketful of Quarters as an example where token purchasers were clearly buying the tokens to play online games (and thus why the SEC granted Pocketful of Quarters no-action relief). With respect to initial coin offerings, Director Hinman also noted that setting a bright-line rule may be difficult because of the multitude of variables at play.

For companies looking to offer tokens, Director Hinman suggested that token offerings occur after a company builds its infrastructure through traditional fundraising. Creating the network first and then offering a token for use on that network will help ease SEC scrutiny in the future.

Jay Clayton Suggests Digital Assets are Not Ready for Major Securities Exchanges.

On September 19, SEC Chairman Jay Clayton spoke at the Delivering Alpha conference in New York, explaining that digital assets will not be traded on major securities exchanges until they are better regulated. Specifically, Chairman Clayton discussed the lack of “rigor” around “price discovery” in digital assets as compared to Nasdaq or the New York Stock Exchange. These remarks echo Chairman Clayton’s comment from earlier this month that there is “work left to be done” regarding approval of a Bitcoin exchange-traded fund, asking how the market can be sure the prices of digital assets “on largely unregulated exchanges” are not subject to “significant manipulation.”

CFPB Considers Tech Sprints to Boost Regulatory Innovation

The Consumer Financial Protection Bureau (“CFPB”) is requesting comments and information on ways it can use Tech Sprints to develop viable solutions to challenging regulatory compliance issues. Tech Sprints are also known as brainstorming competitions where experts, regulators, and financial institutions can develop ideas on how processes can be improved and simplified.

The CFPB is seeking ways in which regulatory compliance issues may benefit, how new technologies can be leveraged for compliance purposes, and why potential participants might be dissuaded from participating. The CFPB requests that inquiries and submissions be received electronically, via email or by mail no later than November 8, 2019. Submission details may be found here.

If you are interested in participating and would like to review a submission or generally discuss ideas, please contact Sam Boro (SBoro@perkinscoie.com) or Nick Lundgren (NLundgren@perkinscoie.com).


Dorothy DeWitt Appointed to CFTC Division of Market Oversight.

The Commodity Futures Trading Commission (“CFTC”) announced on September 17, 2019, that Chairman Heath Tarbert appointed Dorothy DeWitt as the director of the Division of Market Oversight.  DeWitt joins the CFTC from Coinbase, where she was a Vice President and General Counsel for Business Lines and Markets. She also worked for Citadel Securities and S&P Global, and as an attorney at Davis Polk & Wardwell. In this role, DeWitt will oversee the exchanges that offer Bitcoin derivative products. DeWitt is Chairman Tarbert’s second hire out of Coinbase; the first was Andrew Ridenour as Senior Counsel to the Chairman.

This shift in leadership comes on the heels of former CFTC Chair Christopher Giancarlo (who touted a “do no harm” approach to regulating blockchain applications) joining the advisory board of the Chamber of Digital Commerce.

Binance.US Opens Registration.

On September 18, Binance launched its U.S. counterpart, Binance.US.  While U.S.-based traders were originally barred from Binance in June 2019, the new U.S. arm of the exchange is open to stateside investors.  However, the residents of the following states cannot register at launch: Alabama, Alaska, Connecticut, Florida, Georgia, Hawaii, Idaho, Louisiana, New York, North Carolina, Texas, Vermont, and Washington.  While Binance has not publicly provided an explanation for its choice of states, it may be because Binance has not yet obtained the requisite money transmitter licenses to operate in these states.  In the Medium post announcing the launch, Binance.US CEO Catherine Coley simply wrote that the rollout would move “gradually across America.”

Wells Fargo Announces Distributed Ledger-Based Internal Settlement Service.

On September 17, Wells Fargo & Company announced a pilot program to test a new internal settlement service that will run on the company’s own distributed ledger platform.  Wells Fargo Digital Cash will run on a platform built on R3’s Corda Enterprise.  According to the announcement, Wells Fargo has successfully shown proof of concept with moving value between the United States and Canada.  The goal of the program is to allow near real-time money movement around the globe.  Lisa Frazier, head Wells Fargo’s Innovation Group, noted in the announcement that “we see a growing demand to further reduce friction regarding traditional borders, and today’s technology puts us in a strong position to do that.”  Wells Fargo claims the system will allow Wells Fargo locations to “exchange funds in expanded operating hours without limitations from traditional posting infrastructure or differences in infrastructure across the network.”  Additionally, there will be no need for third parties for final settlement.  The program will start in 2020 with transfers of U.S. dollars, but will expand in the future.

International Developments


European Countries Prepared to Block Libra

Both France and Germany have recently expressed that they cannot accept the development and deployment of Libra in Europe.  The French Finance Minister, Bruno Le Maire, told attendees of a virtual currency conference in Paris that “in these conditions, we cannot authorize the development of Libra on European soil.”  He also added that “[t]he monetary sovereignty of countries is at stake from a possible privatization of money.”  In a similar vein, German Finance Minister Olaf Scholz said during a panel discussion on September 17, 2019, that “[w]e cannot accept a parallel currency … You have to reject that clearly.”  Despite government pushback, the Libra Association still plans to launch its network and associated virtual currency in 2020.

CF Benchmarks Recognized as Benchmark Administrator in Europe.

The U.K.’s Financial Conduct Authority authorized CF Benchmarks, a provider of digital asset indices and owner of the CME CF Bitcoin Reference Rate, as a Benchmark Administrator on September 13, 2019.  This means that European financial institutions can use the company’s indices in financial products starting January 1, 2020.  This is an important step in providing legitimized digital asset indices for financial products, such as exchange-traded funds.  CF Benchmark’s CEO, Sui Chung, said in a company announcement: “The industry can now gain access to regulated, high integrity benchmarks, which will spur innovation, furthering the adoption of digital assets in Europe and beyond.”

The Benchmark Regulations, introduced in 2015 by the European Securities and Markets Authority, were a response to benchmark manipulation in Europe, including the LIBOR scandal uncovered in 2012.

The announcement from CF Benchmarks can be found here.

Germany Passes National Policy to Explore Blockchain.

Chancellor Angela Merkel’s cabinet approved the publication (in German) on September 18, 2019, of the German government’s priorities in the blockchain space.  The German government will launch a blockchain-based pilot project to study the benefits and use cases of distributed ledger technology, including document registration and identification.  The policy document also discusses the use case for digital identification and verification of autonomous gadgets through smart contracts and distributed ledgers.  The government will encourage the use of open-source software to help propel use by the German public.  The German Ministry of Finance announced in March 2019 its recommendation that Germany recognize blockchain-based securities as legitimate financial instruments, and this latest national policy restates that as the German government’s position.


Arab Bank (Switzerland) to Offer Digital Asset Services.

On September 19, Arab Bank (Switzerland) Ltd. announced that it will launch “a new range of digital asset services, including custody and brokerage of Bitcoin and Ethereum.”  The bank will utilize a custody platform from Taurus Group, a Swiss company that specializes in digital assets.  Arab Bank (Switzerland)’s CEO, Serge Robin, noted in the announcement that the bank “firmly believe[s] that blockchain will disrupt the financial industry as we know it and we intend to be amongst the first banks to offer digital asset services to our clients in a secure and regulated environment.”  Arab Bank (Switzerland) was founded in 1962 as an offshoot of Arab Bank plc, the first private sector financial institution in the Arab world.  This new offering puts Arab Bank (Switzerland) in the company of other Swiss banks that offer similar digital asset services, such as Julius Baer.

North Korea Reportedly Building A Digital Asset.

According to VICE News, North Korea is building its own digital currency to evade international sanctions.  Alejandro Cao de Benos, who oversees North Korea’s digital asset conferences, told VICE News that the coin would operate like Bitcoin, although its development is still “in the very early stages.”  This is similar to Venezuela’s plans to sidestep the U.S. dollar with its own “petro” digital token.  Plans for a state-sponsored digital token follow North Korea’s previous expressed interest in digital assets, including the conference held in Pyongyang in early 2019 and its interest in hosting another conference in early 2020.  However, North Korea has been accused of stealing digital assets to fund its weapons programs.