News
Blockchain Weekly Blog – July 2024 | BakerHostetler
Institutional firms enter cryptocurrency market; cryptocurrency firms collaborate on new products
From Christopher Lamb
According to recent reports, a major global bank is setting up a spot trading desk to buy and sell bitcoin and ether. The new desk, based in London, is expected to be operational soon and will be part of the bank’s FX trading unit. The spot trading desk is expected to make the bank one of the first global banks to enter the cryptocurrency spot trading space.
In other recent reports, one of Europe’s largest telecommunications providers has unveiled plans to enter the Bitcoin mining arena. With a global presence reaching over 50 countries, the company has reportedly said it will address the energy consumption issue of Bitcoin mining with a pilot program aimed at optimizing energy use. In other mining news, a major Bitcoin mining company’s pilot project to utilize recycled heat from Bitcoin mining is reportedly heating an entire city in Finland. The pilot project uses heat from the mining processing hardware to heat water and then distributes the water through an underground network of pipes to heat homes.
According to other reports, BitGo and Finery Markets have partnered to launch an off-exchange cryptocurrency trading and settlement solution that caters to prime brokers, OTC desks, and exchanges. BitGo will provide remote qualified custody in the event of bankruptcy through BitGo Trust Company Inc. and will utilize Go Network, while Finery Markets connects digital asset players to a vast network of partners and its proprietary matching engine. The model, according to reports, removes the burden on liquidity providers and prime brokers to handle settlement themselves.
In another notable development, Nu Holdings (Nubank) has partnered with Lightspark to bring Bitcoin Lightning Network to Nubank’s platform and customers. According to a press release, Lightspark is “working with the Nu team to explore synergies, begin integration, mapping, and potential product creation” and hopes to bring “one of the world’s largest digital financial services platforms” to the Bitcoin Lightning Network.
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FinCEN Opioid Advisory Identifies Red Flags Involving Cryptocurrency Payments
From Isabelle Corbett Sterling
The U.S. Financial Crimes Enforcement Network (FinCEN) recently published FIN-2024-A002, a notice identifying virtual currency payments as one of the “financial typologies associated with Mexico-based financial crimes.” [transnational criminal organizations (TCOs)] and their illicit sourcing of fentanyl precursor chemicals and manufacturing equipment.” Among other comments on the opioid epidemic, the notice states that Mexico-based TCOs are increasingly purchasing chemicals and equipment from China-based suppliers using a variety of virtual currencies sent to individuals affiliated with Chinese suppliers or to secondary money transmitters with hosted wallets. In a list of “transactional red flags” in the notice, FinCEN identifies the following two red flags involving virtual currency payments:
- A customer sends payments in virtual or low-value currency for no apparent legitimate purpose to beneficiaries involved in the chemical and pharmaceutical manufacturing industry in the PRC, Hong Kong or another jurisdiction.
- A customer sends virtual currency payments to a linked address, via blockchain analytics, to beneficiaries associated with the PRC-based pharmaceutical and chemical manufacturing industries or to individuals or entities listed in Department of Justice indictments and OFAC designations.
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Cryptocurrency enforcement continues from the Department of Justice, state regulators and the UK FCA
The Conference of State Bank Supervisors recently issued a press release announcing a settlement between twenty-five25 state financial regulators, on the one hand, and Abra Trading LLC and related entities (collectively, Abra) and its CEO and largest shareholder, on the other. According to the press release, the state financial regulators filed a lawsuit against the companies and the CEO for operating a cryptocurrency company without obtaining the required licenses. Under the settlement, Abra would have agreed to (i) stop accepting allocations of virtual assets from US Abra Trade Account customers in the companies’ products and services; (ii) stop making, buying, selling, or trading cryptocurrencies available to US Abra Trade customers; and (iii) refund the remaining virtual assets on its platform to US Abra Trade customers in the states that entered into the settlement. According to the release, when the remaining virtual assets are returned under the terms of the settlement, up to $82 million will be returned to customers.
According to a recent press release from the U.S. Department of Justice, “for the first time, a jury in a federal criminal trial has determined that a cryptocurrency is a security and that manipulating the prices of cryptocurrencies is securities fraud.” In connection with the case, two men were charged with defrauding investors by using a trading bot to manipulate the price of their company’s cryptocurrency. Along with other conspirators, the men allegedly manipulated the price of HYDRO by using a bot to execute fictitious trades and fictitious trades, which induced retail traders to purchase HYDRO. As a result of the resulting artificially inflated prices, 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) has led to the arrest of two individuals suspected of operating an illegal cryptocurrency exchange. Unregistered cryptocurrency transactions on the exchange are believed to exceed £1 billion, and the FCA’s investigation is ongoing following the search and seizure of the suspects’ assets. As noted in the press release, cryptocurrency exchange providers are required to register with the FCA and must comply with UK anti-money laundering regulations in order to operate legally.
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Annual Report on Illicit Activities in the Cryptocurrency Market Released
From Lauren Basso
Earlier this month, a global blockchain risk management and analytics firm released its sixth annual State of Cryptocurrency Crime Report. According to the publishers, the report aims to “provide analysts and investigators with the actionable information they need to ensure they can continue to identify emerging financial crime risks” and work to root out bad actors.
The report provides an in-depth analysis of how the cryptocurrency market has been used to launder money and finance terrorism, and offers a breakdown of some “key trends” among criminals and threat actors. In 2024, for example, there has been a rise in “pig slaughter” schemes, a type of long-term scam in which a victim, often targeted via social media, is gradually tricked into making financial contributions, only to have their assets stolen. According to the report, victims of such schemes can use blockchain analytics tracking tools to help identify scammers and recover stolen funds.
The report can be downloaded via the link below.
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