Recent turmoil in the cryptocurrency market has brought issues related to crypto-asset custody to the forefront of the crypto currency discourse;[1] in an enormous $1 trillion crypto-asset crash between approximately May 6, 2022 and May 16, 2022, some coins lost up to 99% of their original value.[2] Many crypto-asset investors are now wondering how their assets may be treated if…
Concerns over the environmental impact of proof-of-work mining have recently led to increased focus by legislative bodies in Europe and the United States. The use of proof-of-work consensus mechanisms, by which “miners” solve complex cryptographic puzzles in order to validate transactions and mine new blockchain tokens, is central to the operation of certain blockchain networks such as Bitcoin. However, the…
The cryptocurrency industry last week experienced a turbulence long predicted by industry observers. The third largest stablecoin, TerraUSD (“UST”), lost its one-to-one peg to the U.S. dollar about 10 days ago, trading well below 10 cents per UST by 11:00 AM EST on May 16. The sister token (“Luna”)—meant to stabilize UST—lost all of its value as well and fell…
Digital asset interest accounts, often known as “crypto interest accounts” or “crypto savings accounts,” constitute a rapidly growing segment of the market for digital assets products despite significant regulatory uncertainty. Investors in digital asset interest accounts lend their digital assets to a borrower company in exchange for the company’s promise to provide a variable monthly interest payment. These accounts typically…
On April 28, 2022, the New York State Department of Financial Services (“NYDFS”) issued its Guidance on Use of Blockchain Analytics (the “Blockchain Guidance”) to virtual currency business entities licensed or chartered in New York (“VC Entities”). The guidance largely focuses on compliance with state and federal anti-money laundering (“AML”) requirements and with sanctions imposed by the U.S. Department of…
On April 28, 2022, a bipartisan group of legislators in the House of Representatives re-introduced and updated a bill regarding proposed regulatory oversight by the CFTC of crypto exchanges on which digital commodities are traded (the “Bill”). The Bill was introduced by Republican Representatives Glenn Thompson of Pennsylvania and Tom Emmer of Minnesota and by Democratic Representatives Darren Soto of…
The Consumer Financial Protection Bureau announced on Monday it is planning to use a dormant statutory authority, section 1024(a)(1)(C) of the Consumer Financial Protection Act (CFPA), to conduct examinations of nonbank covered persons where the Bureau “has reasonable cause to determine, by order, after notice to the covered person to respond, … that such covered person is engaging, or has…
On April 4, 2022, Securities and Exchange Commission (“SEC”) Chair Gary Gensler spoke on the crypto markets at his alma mater, the University of Pennsylvania, for the Penn Law Capital Markets Association Annual Conference. While the speech did not break much new ground, it served as a reminder of the SEC’s priorities in the crypto space. During his speech, Gensler…
On March 16, 2022, the Consumer Financial Protection Bureau (“CFPB”) announced that it would combat perceived discrimination in the consumer financial marketplace by expanding its authority to target unfair, deceptive or abusive acts or practices (“UDAAPs”). Specifically, the CFPB directed examiners to scrutinize whether potentially discriminatory conduct may be unfair. The CFPB simultaneously published an updated exam manual for UDAAPs…
On March 17, 2022, Sen. Elizabeth Warren (D-MA) and other Democrats introduced the Digital Asset Sanctions Compliance Enhancement Act of 2022. Also that day, the U.S. Senate Committee on Banking, Housing and Urban Affairs (“Senate Banking Committee”) hosted a hearing entitled “Understanding the Role of Digital Assets in Illicit Finance.” I. Digital Asset Sanctions Compliance Enhancement Act of 2022 Sens.…