Michael Bacina, Barbara Vrettos and Shannon Hatheier from the Piper Alderman Blockchain Group keep you informed about the latest legal, regulatory and project updates in the field of blockchain and digital law.
The Australian press ponders Bitcoin as a gold substitute …
With Bitcoin’s price soaring over Christmas and New Years, this week started with two more conservative media outlets in Australia considering whether Bitcoin is a stable asset. The Financial Review (Paywall), usually critical of the digital currency, pondered the reasons for the rise in Bitcoin’s price, while the right-wing legal notice The Australia reproduced an article in the Times comparing Bitcoin to gold as a safe haven. The FinReview cited three reasons for Bitcoin’s rise:
Fear of missing out (FOMO) Companies like Microstrategy, which are investing hundreds of millions in Bitcoin, Square, which are buying USD 50 million, and Paypal, which are offering Bitcoin purchases in their app (for US users), and GrayScale Trust, which are buying more Bitcoin than they are mining will (resulting in continued buying pressure) have institutional support on Bitcoin that has never been seen before.
Demand for inflation hedges The global M1 money supply has increased significantly over the past year. The attractive fixed offer of bitcoin of 21 million bitcoin, programmed into the source code for the bitcoin blockchain in a way that cannot be changed (unless more than 50% of bitcoin miners agree and have confidence in the Destroy the system), offers an extremely practical inflation hedge in Bitcoin, in which no intermediary offers a complex product and the counterparty risk is almost zero.
Increased legitimacy Citing the recent letter from the U.S. auditor on stablecoin banking, FinReview acknowledges the increasing normalization of digital currencies, and Bitcoin is the leading currency in the field
While the future clearly lies in the blockchain, a warming of the financial and business news media in Australia towards digital currencies is to be welcomed and welcomed.
US SEC wants to make waves in lawsuit against Ripple
Just before the end of 2020, the SEC filed a lawsuit against Ripple Labs and its two top executives alleging they had illegally sold more than 14.6 billion units of the digital asset “XRP”. The lawsuit targets conduct dating back to 2013 in which, according to the SEC, Ripple sold over $ 1.38 billion in XRP to fund Ripple Labs’ operations. The SEC claims that this sale had to be registered as a sale of securities.
The discussion about whether XRP can be considered a security due to its close relationship with Ripple Labs is not a new issue. The association with Ripple Labs implies greater centralization than Bitcoin or Ethereum, for example, where the SEC previously stated that the lack of a third party “whose efforts are a crucial factor for the company” means that these tokens are likely not to be considered Securities under US law.
Ripple Labs appears poised to vigorously defend the lawsuit, and leading US lawyers are discussing the outcome. Traditional securities lawyers believe that Ripple is likely to lose, and many blockchain lawyers stress the uncertainty surrounding the historical tests under US law. The outcome of the case, whether through settlement or full hearing, will cause more than just ripples in the blockchain pond.
Regulators rattled over the increase in fraud
Over the past week, both UK and New Zealand regulators issued statements warning of the risks of fraud in digital currencies (and examining the volatility of these assets). Both statements emphasize consumer protection, warn against unsolicited offers to invest in digital assets, and encourage consumers to better understand the nature of digital assets.
The FCA provides an extra layer of protection against fraudulent companies with a UK digital asset company registry so consumers can verify that a company they deal with is at least registered with the FCA. As of today there is a short permanent list and a very long temporary list. As in the UK, New Zealand has a registry of financial services providers that provides access to a dispute settlement process. However, many digital asset providers are not financial services providers and are therefore not listed on this register.
Regulators continue to develop jurisdiction registers for digital asset providers to help protect consumers. However, the limitlessness of many digital currency exchanges that are exclusively operated online continues to make it difficult for the supervisory authorities to track the operators.
There is no equivalent to the FCA register in Australia, but because digital currency exchanges registered with AUSTRAC can provide a registration number that can be verified with AUSTRAC. Fraud is spreading across all industries and sectors, not just the digital currency. Ultimately, the best person to defeat a scammer is the end user by carefully researching, and paying heed to buying or engaging in digital assets.
The custodian bank for digital assets in Singapore has given the all-clear
Singapore-based digital asset safekeeping company Propine recently announced its successful completion of the Monetary Authority of Singapore’s regulatory sandbox with a Capital Markets Services (CMS) License in hand. The CMS license is required in Singapore to conduct business activities required by the Singapore Securities and Futures Act.
Propine say they are the:
First fully regulated independent provider of digital asset custody services [to be] Granted the CMS license and the world’s only custodian bank for digital assets with ISO 27001 certification
The announcement follows the increasing competition among custodians to secure private keys and get approval to deliver their custody solutions. As the digital asset custody market grows, it is expected that traditional custodians will try to enter the market as well. Those already competing for a piece of the pie include DBS Bank in Singapore and UK-based Zodia, both of which are expected to introduce digital asset custody in 2021.
In Australia, the Australian financial services licensing system does not currently provide or provide approval specific to digital currency custodians, and the regulatory custody guide does not mention digital assets. Without clear pathways for Australian digital asset custodians, overseas services will secure the jobs and profits of this fast growing market. We hope that this will change in the near future to help the Australian financial sector manage revolutionary change.