Banks Expand Digital Asset Offerings; Crypto Market Actors Critique SEC Proposal; New OFAC Crypto Sanctions; Agencies Issue Warnings; DeFi Hacked | BakerHostetler | #government | #hacking | #cyberattack


Banks Expand Digital Asset Offerings, BIS Report Addresses CBDCs

By Keith R. Murphy

This week Anchorage Digital, a digital asset platform and infrastructure provider that is also the first federally chartered cryptocurrency bank, announced that it has added custody support for 11 new digital assets. According to a press release, the newly supported assets include NFTs for Bored Ape Yacht Club and Mutant Ape Yacht Club, as well as tokens for Provenance and SuperRare. The company also announced in a separate release that it has joined the Nasdaq Crypto Index (NCI) as a Core Custodian, which reportedly will allow approved asset managers to select Anchorage to provide investment-grade infrastructure to support any NCI tracking product.

According to reports, the Portuguese central bank Banco de Portugal recently granted a license to Bison Bank to operate as a virtual asset service provider. In related news, a spokesperson for one of Germany’s largest banks has reportedly confirmed that the bank applied for a license to offer cryptocurrency exchange and custody services earlier this year. The bank is reportedly Germany’s second largest listed bank and is partly owned by the German government. And in Australia, the country’s first bitcoin exchange-traded fund (ETF) is expected to be listed on the Cboe equities trading platform next week, according to a report.

A newly released report from the Financial Stability Institute of the Bank for International Settlements explores whether central bank digital currencies (CBDCs) can be used to help accomplish financial inclusion. Among other things, the report notes that low-income populations and people in remote areas still struggle with barriers to digital payments, which could be ameliorated through the use of CBDCs in situations where the private sector is not sufficiently motivated to innovate or where there is an existing oligopoly.

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Cryptocurrency Market Actors Publish Critiques of Recent SEC Proposal

By Joanna F. Wasick

Two prominent members of the crypto space recently issued comments critiquing proposed rule amendments by the U.S. Securities and Exchange Commission (SEC) that would expand the definitions of “exchange” and alternative trading systems under the Securities Exchange Act of 1934. Last week, Coin Center, an independent nonprofit research and advocacy center focused on cryptocurrency policy, stated that the SEC’s language raised substantial First Amendment issues and would “impose an unconstitutional prior restraint on the protected speech activities of countless software developers and technologists.” Earlier this week, the largest U.S. crypto exchange published its own comment letter stating that the SEC’s proposal (which, the exchange stresses, makes no express mention of digital assets) goes well beyond the SEC’s statutory authority. The letter also asserts that the proposed rule would bring decentralized exchanges (DEXes) and DAO (decentralized autonomous organization) participants under regulatory control without any consideration of how the new rule would impact these market participants. The letter closes by stating that if the SEC seeks to regulate certain broker-dealer activity, it should do so directly “rather than through statutorily unsupportable expansions of the definition of ‘exchange,’” and that if the SEC seeks to regulate digital asset securities or DEXes, it should re-propose rules that specifically analyze the rules’ impact on these markets.

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OFAC Sanctions North Korean Crypto Hackers and Russian Crypto Miner

By Christina O. Gotsis

Last week, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions against Lazarus Group—a North Korean state hacking group that has targeted crypto entities since at least 2017—for its suspected association with the second-largest crypto theft of all time. OFAC made related updates to the Specially Designated Nationals List that include the addition of an Ethereum public key associated with the hack. The designation comes two weeks after the Ronin Network announced that it had been hacked for $540 million in cryptocurrencies. According to reports, the attacker has laundered a portion of the stolen funds, but at least $433 million of the stolen cryptocurrencies remains in the attacker’s original wallet.

This week OFAC also announced sanctions against a Russia-based cryptocurrency mining company, BitRiver, and several subsidiaries and associated persons, for allegedly facilitating the Russian government’s circumvention of U.S. sanctions leveled in response to the invasion of Ukraine. According to a press release, this is the first time the U.S. Department of the Treasury (Treasury) has designated a virtual currency mining company. Brian Nelson, under secretary at the Office of Terrorism and Financial Intelligence, commented, “Treasury can and will target those who evade, attempt to evade, or aid the evasion of U.S. sanctions against Russia, as they are helping support Putin’s brutal war of choice.”

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Law Enforcement in US, Australia Issue Warnings as DeFi Hacks Continue

By Alexandra Karambelas

A joint cybersecurity advisory issued this week by the Federal Bureau of Investigation, the Cybersecurity and Infrastructure Security Agency (CISA) and Treasury highlighted the cybersecurity threat posed by North Korean state-sponsored actors. According to the advisory, law enforcement has seen an increase in attacks against blockchain-related organizations, including cryptocurrency exchanges and decentralized finance (DeFi) protocols. “These actors will likely continue exploiting vulnerabilities of cryptocurrency technology firms, gaming companies, and exchanges to generate and launder funds to support the North Korean regime,” the advisory said. The advisory warned users to be on guard against social engineering tactics employed by these malicious cyber actors.

According to reports, this week Assistant Director of Investigations for the United States Secret Service David Smith said that the agency has seized more than $102 million in cryptocurrency since 2015. Smith reportedly attributed the agency’s success in tracing stolen cryptocurrency to the transparent nature of the blockchain. “One of the guiding principles of the blockchain is that it is a public ledger that’s shared and everyone with a little bit of computing power has access to it, including law enforcement,” said Smith.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) released a guide on digital financial crime this week. The guide is aimed at businesses and includes advice on recognizing potential scams involving digital currencies and money laundering red flags, as well as an outline of emerging financial risks in DeFi protocols.

In the latest in a series of high-profile DeFi hacks, $182 million was stolen from Beanstalk Farms, an Ethereum-based stablecoin protocol, earlier this week. According to reports, the attacker laundered the stolen funds through an Ethereum mixer. This hack comes less than a month after $625 million was stolen from the Ronin blockchain in an attack that U.S. officials have reportedly linked to North Korean state actors.

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