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Mercado Bitcoin confirmed it received a request from Brazil’s securities and exchange commission that local news outlet Estadão said yesterday was related to its fixed-income token offering. 

While a spokesperson for the the Brazilian crypto exchange confirmed the communication, it did not say how it plans to proceed.

“We do not carry out a public offering of securities outside the scope of the authorizations we have as an authorized crowdfunding and investment manager platform,” the company said in a Portuguese-language statement, adding that it supports regulation of digital asset service providers.

Mercado Bitcoin, which offers more than 200 types of digital assets to its more than 3.8 million customers, recorded overall transactions of more than 40 billion reais in 2021 (about $7.44 billion at today’s exchange rate). Among them are a variety of fixed-income tokens available via the ERC-20 token standard. These require a minimum investment of 100 Brazilian reais ($18.60) and advertise up to double-digit yields depending on the asset. 

The regulator wants to know how much Mercado Bitcoin has raised in these token offerings since January 2020 and if it will keep providing them, Estadão reported. It also wants to see a list of investors who acquired the assets and how much they invested.

“In relation to the so-called non-security tokens (tokens that do not represent securities), we take due care not to infringe on the scope of action of authorized entities, including consulting the regulator in advance about the structure used for such tokens, at the beginning of our operations in 2020,” Mercado Bitcoin said.

The CVM does not comment on specific cases, a spokesperson told The Block. However, the regulator did confirm that it asks for more information when necessary if it identifies transactions involving potential securities. 

The CVM said that “whenever necessary and, in particular, when it identifies possible transactions with potential characteristics of securities, carries out interactions with the participants in order to request information for the due work of analysis of facts and appropriate measures.”

New securities guidelines coming for crypto companies

The CVM is also working on a set of guidelines for crypto companies to better orient themselves around securities rules, which these companies still must follow despite the country’s lack of digital asset regulations.

“The CVM is preparing an advisory opinion that will have general directives on the subject,” the regulator told The Block earlier this month. It underscored that the forthcoming directive should be treated as a source of guidelines, rather than crypto-specific regulations. 

“It is not, at least for the time being, a regulation, given that there is currently no legal provision,” the CVM said in the statement. “The document will be characterized as providing recommendations and guidance to the market.”

Cointelegraph Brasil, which first reported that the CVM was preparing the guidelines, wrote that they would be coming last week. The regulator however said it has not yet defined a date. 

A crypto regulation bill in Brazil’s Congress has reached key milestones this year, but it has been stalled in the lower house since the Senate approved the proposal in April. The bill likely will not make any progress before the country’s presidential elections on Oct. 2. 

Brazil’s securities regulator arguably has been open to crypto. It has permitted crypto exchange-traded funds and even launched a regulatory sandbox for fintech companies. But at the same time, it has cracked down on crypto companies in certain instances.

Earlier this month, the CVM blocked crypto exchange Bybit from acting as a securities broker. It also told Binance in 2020 that it could not offer derivatives products in the country.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Former U.S. Treasury Secretary Lawrence Summers sees regulations as a potential tailwind for the growth of the digital asset industry.

“Regulation often is resisted by industry, but it often eventually becomes a substantial enabler for industry,” Summers told an audience at Circle’s Converge22 conference in San Francisco. He added that crypto firms seeking lighter regulation in the U.S. should be careful what they wish for.

But Summers, who has advised fintech firms including crypto investment firm Digital Currency Group (DCG), said that he hopes regulators don’t quash digital assets. “We are better off recognizing a more variable ecology and is regulated in different ways,” he said.

The former Treasury secretary said that there need to be rules in place for stablecoins to be properly backed, which U.S. legislators and regulators are already trying to put in place. But he said that does not necessarily mean that issuers of stablecoins need to be banks.

Circle, the crypto firm behind stablecoin USDC, said in 2021 that it would plot out a path to become a “a full-reserve national commercial bank.”

As for the broader economic picture, Summers believes the U.S. economy will enter into a recession in the near term, as a result of the Federal Reserve needing to quickly raise interest rates to combat decades-high inflation levels.

“The Fed was failing the course nine months ago,” he said. The coming recession will not look like the financial crisis of 2008, but unemployment could reach 6%,” Summers said. “The economy a year from now will be a good deal weaker than it is now.”

Summers agreed with current conventional wisdom that a strengthened dollar, resulting from more increased purchases of U.S. debt due to higher interest rates and the safety of Treasury bonds, could weaken other economies and roil currency markets.

“Europe is a museum, Japan is a nursing home, China is a jail, and bitcoin is an experiment,” he said.

Recent central bank rate hikes, as well as overall economic concerns, have hit digital assets hard, testing their capacity as hedges against inflation, and leading to “crypto winter.” Summers said he hoped the industry gleans lessons from its current down cycle.

“The system needs to be robust to bad outcomes or else bad outcomes become a self-fulfilling prophecy,” he said

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The committee representing customers and creditors in the Celsius bankruptcy case plans to oppose a request from equity holders to form their own committee.

Growth equity firm WestCap and Quebec’s pension fund Caisse de dépôt et placement du Québec (CDPQ) filed a motion last week requesting the court appoint their own fiduciary to protect the bankruptcy process from being “inappropriately and inequitably skewed in favor of the customers to the detriment of the Equity Holders.” The result would effectively create another committee representing equity holders seeking to recoup money from the bankruptcy. 

In a town hall today, counsel for the Unsecured Creditor Committee (UCC) said they plan to oppose that motion. A lawyer for the group said they expect Celsius and other creditor groups to take a similar view, and they’re currently working to find common ground with those parties.

The UCC still intends to work with other constituencies like equity holders, according to UCC counsel Gregory Pesce, but another committee could incur further costs for the estate, which the UCC has sought to avoid in order to deliver more value to creditors. 

“We just don’t think that there’s a need to have an official committee of preferred equity holders that’s paid for out of the pockets of the account holders in this case,” said Pesce.

A hearing on the motion is scheduled for Oct. 6 at 10 a.m. EDT. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

A daily transaction cap for non-euro stablecoins has been reinserted into the European Union’s draft rules for cryptocurrencies. The cap will limit transactions using stablecoins denominated in other currencies, like the U.S. dollar, to €200 million transacted per day,  multiple sources confirmed to The Block. 

The French delegation to the EU Council succeeded in reviving the provision, according to several sources tracking the legislative effort. The move comes one week after the technical negotiations on the Markets in Crypto-Assets (MiCA) rules, comprehensive policy for digital assets in the EU, came to a close. Digital asset industry advocates had cheered the removal of limitations on stablecoins backed by currencies other than the euro, though those appear to have made a comeback. 

The newly reinstated provision puts a cap on how much foreign currency-backed tokens are allowed to be transacted within one day, according to Dimitris Psarrakis, head of EU affairs of XReg Consulting. 

“This effectively means e-money tokens will have problems settling transactions of EU-based crypto-asset service providers, negatively affecting the market in the EU,” Psarrakis told The Block.

According to Psarrakis, the French delegation rallied support from Germany, Italy and the Netherlands to reinstate the limitations on non-euro stablecoins on Wednesday. Other industry sources tracking the legislation, who asked not to be named because they did not have permission to speak to press, confirmed the provision’s return, and that French officials had pushed for it. 

The period in between the vote on the legislation in the European institutions to formally adopt it is known as a “silent agreement” in EU terminology, where policymakers are expected to stay quiet if they do not have objections.

“This was a noisy silent agreement,” Psarrakis said.

The European Parliament’s Committee on Economic and Monetary Affairs is scheduled to vote on the legislation in October or November.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Sens. Marsha Blackburn (R-Tenn.) and Cynthia Lummis (R-Wyo.), have drafted a new bill that would create parameters for the voluntary sharing of cybersecurity information between cryptocurrency companies and the federal government. 

The pair’s bill would amend the Cybersecurity Information Sharing Act of 2015 to include cryptocurrency companies, and grant them more legal flexibility to share information between themselves and with federal authorities. 

The new legislation, called the “Cryptocurrency Cybersecurity Information Sharing Act,” offers parameters on the voluntary sharing of cybersecurity information between cryptocurrency companies, and with the federal government. The act is designed to provide an updated set of regulatory guidelines that addresses the misuse of cryptocurrency to hide illegal practices, according to a statement Blackburn provided to TechCrunch, which first reported the legislation. Included in the act are voluntary reporting guidelines for cyberthreats to companies dealing with digital assets.

The bill covers businesses engaged in validating transactions on distributed ledgers, developing digital assets or protocols for digital assets, and associations of entities managing digital assets. The legislation also includes providers of general liability or property insurance that offer products to cover losses related to ransomware, data breaches, business interruption, or network damage. Those businesses would be permitted to share data among one another and other countries for the purposes of identifying and reporting potential cyberthreat indicators.

Blackburn sits on the Senate Commerce Committee, which holds jurisdiction over cybersecurity and tech issues. She also introduced the “Say No to the Silk Road Act,” a bill that called on the Secretary of Commerce to produce a series of reports on China’s use of the digital yuan.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The Securities and Exchange Commission is taking aim at a crypto token for alleged market manipulation, as well as its distribution via bounty and airdrop. 

The SEC announced its case against Hydrogen and market maker Moonwalkers Trading as well as the CEOs of the two firms. The SEC alleges Hydrogen distributed its Hydro token through bounty programs and airdrops in 2018, while also selling to users directly through its trading platform in an effort to fund the Hydrogen project. 

Upon discovering that mass sales of Hydro would depress prices on its platforms, CEO Michael Kane hired Moonwalkers to wash trade the token, creating a veneer of market activity that stabilized its price and increased user interest, the SEC alleged. 

According to the SEC, Hydrogen’s actions constitute both market manipulation and, despite Hydrogen’s avoidance of an initial coin offering in favor of airdrops and bug bounties, an unregistered securities offering. 

“Companies cannot avoid the federal securities laws by structuring the unregistered offers and sales of their securities as bounties, compensation, or other such methods,” Carolyn Welshhans, of the SEC’s enforcement division, said in a statement.

While the SEC has been actively pursuing initial coin offerings since 2017, many in the crypto industry considered airdrops to be an exemption from securities laws. The SEC typically refers to crypto tokens as securities based on the Howey test, which includes the requirement that there be an investment of money. 

While the Hydro case includes the accusation of market manipulation, over which the SEC has longstanding and clear authority, the SEC’s complaint takes pains to suggest that non-sale distributions of tokens can still be considered securities offerings. At one point, the complaint cites an unnamed Hydrogen investor and board who told the SEC that Kane led investors to believe Hydro would have value.

The complaint cites a letter from the investor to Kane as saying: “[a]s everyone has acknowledged that these digital assets [Hydro] may accrete in value over time, your contention that this [the airdrop] was merely a software delivery is tenuous.”

There has been confusion over the SEC’s stance on airdrops going back for years. Crypto think tank Coin Center warned against airdrops as an SEC defense back in September 2017, just months after the DAO report opened the door on ICO pursuits.

In February 2020, SEC Commissioner Hester Peirce lamented: “We have even hinted that a token airdrop in which tokens are given out freely might constitute an offering of securities. How is a person supposed to get a network up and running when she cannot even give away the tokens necessary to use the network?”

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

QQL Mint Pass, a new project co-created by Fidenza creator Tyler Hobbs, earned around $17 million upon its launch on Sept. 28, 2022.

QQL is a generative art algorithm that Hobbs and co-creator Dandelion Wist will publicly release. Owning a QQL Mint Pass token allows the holder to mint official art from that algorithm. The project has 999 total NFTs, with 99 of those reserved by the creators for “special purposes,” according to the QQL site. 

Interestingly, code in QQL Mint Pass blacklists the wallet address for X2Y2, negating any attempted transaction with the marketplace. The move appears to be a response to last month’s debate over whether NFT platforms should enforce artist royalties, in which some protocols such as X2Y2 as well as SudoAMM, opted not to. 

Wist is a “long-time, all-purpose crypto enthusiast,” according to a video about the QQL project. Hobbs is known for creating the algorithm for the computer-generated NFT project Fidenza, which at its height sold for up to 1,000 ETH ($3.5 million at the time) on secondary markets, The Block previously reported. 

Hobbs and Wist did not respond to The Block’s request for comment.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Terraform Labs believes South Korean prosecutors are acting unfairly following the collapse of the stablecoin terraUSD (UST) and the digital asset luna, the company told the Wall Street Journal on Wednesday. 

“We believe that this case has become highly politicized, and that the actions of the Korean prosecutors demonstrate unfairness and a failure to uphold basic rights guaranteed under Korean law,” the company, which oversees the development of the Terra blockchain protocol, told the financial news outlet in a statement. 

A South Korean court reportedly issued an arrest warrant for Terraform Labs Do Kwon and two colleagues earlier this month, following the highly-publicized collapse of its algorithmic stablecoin UST and its associated token Luna in May. Terra lost its dollar peg and the value of luna plunged, contributing to losses totaling about $40 billion. 

Terraform Labs founder Do Kwon recently said on Twitter that he was “making zero effort to hide” following reports that Interpol had issued a red notice for his arrest. Singapore police issued a statement saying Kwon was not in its jurisdiction, Reuters reported on Sept. 17.

Terraform Labs argued the view that Luna was not legally classified as a security, and therefore South Korea’s law regarding capital markets would not apply, the Wall Street Journal wrote. 

“We believe, as do most in industry, that Luna Classic is not, and has never been, a security, despite any changes in interpretation that Korean financial officials may have recently adopted,” a Terraform Labs’ spokesman told the Wall Street Journal, referring to efforts to revive the cryptocurrency. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Most bitcoin mining stocks tracked by The Block trended upwards on Monday.

The cryptocurrency rose to around $19,500 by market close, according to data from TradingView.

The bitcoin network difficulty rose by 2.14% on Tuesday evening following four consecutive jumps.

TeraWulf was up by 20.54%, followed by Marathon Digital (+10.94%), Hut 8 (+9.25% on Nasdaq) and Digihost Technology (+9.20%).

Here’s how crypto mining companies performed on Wednesday, Sept. 28:

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto payments company and USDC issuer Circle is launching a cross-chain transfer protocol to support USDC interoperability.

The product was announced during the company’s inaugural crypto conference in San Francisco on Wednesday. It is expected to go live on Ethereum and Avalanche mainnet later this year.

The new product is permissionless and allows for USDC to be sent natively across ecosystems, in an effort to improve liquidity and reduce fragmentation of bridged assets.

“Users today have limitations when transferring USDC across blockchain ecosystems,” the company said. “Existing solutions typically require locking up USDC on one chain and creating a synthetic ‘bridged’ version of USDC on another – creating fragmented liquidity and a complicated user experience.”

The company also announced that it intends to make USDC available on five additional blockchain ecosystems in the next few months: Arbitrum, Cosmos, NEAR, Optimism and Polkadot.

“The multi-chain expansion is intended to increase USDC’s native availability from eight ecosystems to thirteen, and enables blockchain developers building on USDC and their users to experience greater liquidity and interoperability within the crypto economy,” said Joao Reginatto, VP of Product at Circle. “Extending multi-chain support for USDC opens the door for institutions, exchanges, developers and more to innovate and have easier access to a trusted and stable digital dollar.”

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.