The Law of Blockchain Solutions and Digital Currencies
Weekly Focus
Weekly Focus
U.S. Developments
Federal and State Regulatory Developments
Bill in Hawaii State Senate Addresses Digital Assets Including Authorization for Banks to Serve as Qualified Custodians
SB 2594 before the Hawaii State Senate addresses a number of matters relating to digital assets. In particular, it would classify digital assets under the Hawaii Uniform Commercial Code, specify the manner of perfecting a security interest in digital assets, authorize banks to hold digital assets in their custody, and authorize courts to hear claims relating to digital assets. As for the banking portions, SB 2594 seeks to establish that banks can serve as “qualified custodians” as that term is defined under the rules of the Investment Advisers Act of 1940. It also discusses situations in which a bank may undertake transactions with digital assets placed in its custody. SB 2594 was introduced on January 17, 2020, and was referred on January 23, 2020 to the Hawaiian Senate’s Judiciary Committee and the Committee on Commerce, Consumer Protection, and Health.…
Continue Reading
U.S. Developments
U.S. Regulatory Developments
Bill Addressing Tax Treatment of Crypto Transactions Introduced to the House
On January 16, 2020, Congresswoman Suzan DelBene (WA) and Congressman David Schweikert (AZ) introduced the “Virtual Currency Tax Fairness Act” (H.R. 5635). This bill would amend the Internal Revenue Code of 1986 to address some transactions made with virtual currency. Drafters of the bill intend to create a “structure for taxing purchases made with virtual currency, further strengthening the legitimacy of virtual currency in the digital economy by creating parity in the tax code.”
Presently, when a person uses virtual currency in a transaction, any gain resulting from exchange rates must be reported as taxable income—regardless of the size or purpose of the transaction. This bill would provide a de minimis exemption for personal transactions made with virtual currency when the gains are less than or equal to $200.
Please click here to read Representative Schweikert’s Press Release.
Please click here to read Representative DelBene’s Press Release.…
Continue Reading
U.S. Developments
Members of Congress Respond to IRS Tax Guidance for Digital Assets
On December 20, eight members of the U.S. House of Representatives sent a letter to the Commissioner of the Internal Revenue Service (“IRS”) urging further clarity on positions expressed in the IRS’s October tax guidance for digital assets.
The letter described various ways in which the October guidance raised additional questions about the taxation of digital assets, specifically identifying the issue of airdropped or forked digital assets as an area of immediate concern. The authors expressed concern that ambiguity regarding airdrops and forks may result in unanticipated tax obligations for owners of digital assets who become owners of additional digital assets as a result of a fork or airdrop. According to the authors, this outcome would be inconsistent with the IRS’s previous interpretations regarding unsolicited prizes or samples.…
Continue Reading
U.S. Developments
Federal Reserve Governor Speaks on Stablecoins and Related Risks
On December 18, 2019, Governor Lael Brainard of the U.S. Federal Reserve delivered a speech entitled “Update on Digital Currencies, Stablecoins, and the Challenges Ahead.” In her prepared remarks, the governor discussed “global stablecoins” and their scalability potential. Comparing the rate of adoption for telephones, the internet, and payment processors (such as Venmo and other digital payment systems), the governor noted the “potential for ‘global stablecoins’ to scale rapidly,” especially when deployed by technology companies with “network advantages.”
Without the “requisite safeguards,” stablecoins could pose risks to consumers that regulators should carefully consider, according to the governor. Using Libra as an example, Brainard went on to discuss various “significant concerns,” such as anti-money laundering, counterterrorist financing, know-your-customer, financial stability, and other issues that she believes stablecoins raise.…
Continue Reading
U.S. Developments
FinCEN Director Discusses How FinCEN Uses BSA Data and the BSA Value Project
The Director of the Financial Crimes Enforcement Network (FinCEN), Kenneth A. Blanco, delivered prepared remarks at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference this week. Mr. Blanco spoke on five key topics: (1) how FinCEN uses Bank Secrecy Act (BSA) data, (2) the status of the BSA Value Project, (3) the importance of beneficial ownership information, (4) the federal banking agency working group efforts, and (5) the realignment of FinCEN’s organizational structure.…
Continue Reading
U.S. Legislation
U.S. House Bill Seeks Classification of “Managed Stablecoins” as “Securities”
Texas Representative Sylvia Garcia introduced legislation in the U.S. House of Representatives that would amend the definition of a “security” within the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940 (collectively, the “Securities Laws”) to include “managed stablecoins.”
The definition of security in the Securities Laws currently includes, among other things, stocks, bonds, and “investment contracts.” While the U.S. Securities and Exchange Commission’s (“SEC”) Division of Corporation Finance recently provided no-action relief to Paxos Trust Company in connection with its U.S. dollar-backed stablecoin, the Paxos Standard, the regulatory status of other stablecoin products under the Securities Laws remains unclear. For example, at this year’s SXSW conference, SEC Senior Advisor for Digital Assets Valerie Sczepanik noted that some stablecoins, in particular those with a central authority responsible for maintaining the digital asset’s stable value, may constitute securities. …
Continue Reading
U.S. Developments
The Fed Chairman Comments on Potential for a US-backed Digital Currency
Jerome Powell, Chairman of the Federal Reserve, wrote to Congress this week discussing the merits of implementing a central bank digital currency (CBDC) in the U.S. The letter responds to a number of questions posed by lawmakers regarding the value that a digital currency would provide and implementation challenges that would need to be overcome. Two Congressmen had expressed concern that the U.S. is being left behind in the wake of technological advances.
Chairman Powell indicates that the U.S. is not currently developing a CBDC, but the Fed is monitoring development elsewhere. Chairman Powell noted that some of the motivating factors for a digital currency in foreign countries do not necessarily exist in the U.S. Specifically, the demand for cash in the U.S. “remains robust” and there are fast and reliable digital payment services available that are not available in certain other countries.…
Continue Reading
U.S. Developments
Telegram Submits Answer to SEC Complaint Regarding TON Blockchain Network
On November 12, Telegram Group Inc. (Telegram) submitted its answer and affirmative defenses to a complaint filed against it by the U.S. Securities and Exchange Commission (SEC) in federal court. The SEC previously filed an emergency action against Telegram and received a temporary restraining order to prohibit the launch of the Telegram Open Network (TON) blockchain and the issuance of “Grams,” the company’s virtual currency.
In its answer to the SEC complaint, Telegram argues that its offering of investment contracts known as “Simple Agreements for Future Tokens” or “SAFTs” were compliant with the federal securities laws and offered pursuant to a valid exemption from the registration requirements under the Securities Act of 1933. The company also maintains that its actions regarding the SAFTs were consistent with the guidance offered by the SEC at the time and were conducted in good faith based upon the public comments made by SEC officials at the time. Specifically, Telegram cites various SEC statements and actions on the subject.…
Continue Reading
