Ornella Hernandez

<div id="highlights-block_629f43a62afd0" class="highlights">
 <ul>
 <li>The agency’s main concern lies in the securitization of NFTs</li>
 <li>Only licensed institutions can operate collective investment schemes</li>
 </ul>
 
</div>



A Hong Kong Securities and Futures Commission statement <a href="https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=22PR34&amp;module=inline&amp;pgtype=article" target="_blank" rel="noreferrer noopener">published</a> on Monday defines which NFTs fall under its mandate, while advising investors to be mindful of regulated securities.



The statement warned of risks such as “illiquid secondary markets, volatility, opaque pricing, hacking and fraud,” and cautioned that if investors “cannot fully understand them and bear the potential losses, they should not invest in NFTs.”



The Securities and Futures Commission (SFC) is particularly concerned about assets that “push the boundary between a collectible and a financial asset” — those that are structured like a security or a collective investment scheme (CIS). 



A CIS is a type of investment arrangement to pool money around a certain asset or property. The Hong Kong Securities and Futures Ordinance (SFO) specifies that a CIS is managed in escrow, and its participants do not have day-to-day control over its management but are subject to receive profits, income or other returns. 



A recent <a href="https://tokeny.com/the-kmska-museum-tokenizes-a-million-euro-masterpiece-with-erc-3643-standard/" target="_blank" rel="noreferrer noopener">example</a> includes the Royal Museum of Fine Arts Antwerp&#8217;s fractionalization and security token offering on the Polygon blockchain of James Ensor’s 1924 painting &#8220;Carnaval de Binche.&#8221;



While such fractionalized NFTs (non-fungible tokens) fall under the SFC&#8217;s mandate, NFTs of a digital image, artwork, music or video that represent a unique copy of an underlying asset do not.



The financial regulator stated that any Hong Kong residents who wish to issue NFTs or to target local investors must obtain a license from the SFC, or be subject to certain authorization requirements under the SFO.



Recently, Hong Kong also <a href="https://cms.blockworks.co/hong-kong-restricts-trading-of-crypto-etfs-to-professional-investors-only/" target="_blank" rel="noreferrer noopener">limited the sale</a> of crypto spot ETFs to only professional investors, which it defined as those whose portfolio exceeds 8 million Hong Kong dollars (about $1.2 million). And the Hong Kong Monetary Authority deemed “payments-related stablecoins” as a risk to financial stability.



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Hong Kong Securities and Futures Commission Calls for Regulation of NFTs

Ben Strack

Executives at fund manager VanEck are bullish on security tokenization accelerating in 2023 and believe sovereign institutions could be a main driver of a projected bitcoin price increase in the second half of next year.



The projected momentum around the use of blockchain technology is set to guide the firm to focus on crypto-native products going forward, they added.&nbsp;&nbsp;&nbsp;



The New York-based investment group expects financial institutions to tokenize more than $25 billion in off-chain assets onto blockchains next year, Matthew Sigel, VanEck’s head of digital assets research, said in a webinar Wednesday.&nbsp;



Such companies are likely to employ blockchains to simplify custody and settlement while reducing costs for customers, he added.



VanEck’s prediction comes as a number of institutions have expressed interest in the tokenization space over the past year, often distinguishing the use case of blockchain technology from the broader, volatile crypto space.



The central bank of Singapore <a href="https://blockworks.co/news/singapore-central-bank-ready-to-try-defi-after-crypto-giants-leave-for-dubai" target="_blank" rel="noreferrer noopener">revealed in May</a> it had teamed up with JPMorgan Chase for a blockchain pilot exploring the potential of DeFi. Called Project Guardian, the initiative sought to tokenize bonds and deposits, with smart contracts powering trade executions.&nbsp;



Nicole Olson, a senior vice president of digital product development at State Street, <a href="https://blockworks.co/news/state-street-sees-significant-opportunity-in-tokenization" target="_blank" rel="noreferrer noopener">told Blockworks</a> in an August interview that using distributed ledger technology to tokenize funds and private assets to improve efficiency and accessibility is something the company is working on for 2023.



Executives at Fund group WisdomTree, which manages $76 billion in assets, <a href="https://blockworks.co/news/wisdomtree-triples-down-on-future-blockchain-focus" target="_blank" rel="noreferrer noopener">has repeated its focus</a> in recent months to bring fixed income, equities and commodities into the digital world through blockchain-enabled funds and tokenized exposures.



More recently, Larry Fink, CEO of BlackRock — the world’s largest asset manager — said at the <a href="https://www.youtube.com/watch?v=PSVpth7uqb4" target="_blank" rel="noreferrer noopener">New York Times DealBook Summit</a> last week that “the next generation for markets and next generation for securities will be tokenization of securities.”



<h3>Crypto products focus</h3>



Considering its bullish case for tokenization, VanEck CEO Jan van Eck said during the webinar that the firm would focus on crypto-native products and solutions, which he referred to as “actual blockchain projects.”



The company’s NFT collection, <a href="https://blockworks.co/news/vaneck-exec-use-cases-of-nfts-approaching-unlimited" target="_blank" rel="noreferrer noopener">which it unveiled in May</a>, is a signal of what is to come in 2023, he added, but did not share specifics.



Otherwise, van Eck said, the company is “pretty full up” on crypto-related products.&nbsp;&nbsp;



The firm has a suite of crypto indexes and offers various ETPs in Europe investing in single tokens or a basket of cryptoassets.&nbsp;



VanEck has 68 ETFs trading in the US with combined assets of roughly $52 billion, according to <a href="https://www.etf.com/channels/vaneck-etfs" target="_blank" rel="noreferrer noopener">ETF.com</a>. Three of those funds offer exposure to the crypto space.



The company launched its Digital Transformation ETF (DAPP), which has top holdings including Block, MicroStrategy, Coinbase and Riot Blockchain, in April 2021. VanEck later launched its Bitcoin Strategy ETF (XBTF) in November 2021, following the launch of similar bitcoin futures funds by ProShares and Valkyrie.&nbsp;&nbsp;



DAPP and XBTF are down 83% and 63% this year, respectively. Each fund has about $20 million in assets.&nbsp;



The VanEck Gold and Digital Assets Mining ETF (DAM), which came to market in March, has had an even tougher time gathering assets — currently holding less than $1 million. The fund is down about 81% in 2022.



Industry watchers have said they expect ETF issuers <a href="https://blockworks.co/news/more-delistings-of-blockchain-etfs-could-be-coming" target="_blank" rel="noreferrer noopener">to shut down various crypto-related ETFs</a> amid the persistent drawdown.&nbsp;



“We are relatively slow to close ETFs just because of low assets,” van Eck told Blockworks in a message. “But the underlying constituents of DAM have really shrunk in market cap, so we are reviewing.”



<h3>Price prediction and sovereign institution adoption</h3>



VanEck executives said they expect bitcoin could sink to a range between $10,000 and $12,000 in the coming months as a wave of miner bankruptcies could highlight the low point of this crypto winter.&nbsp;



Bitcoin’s price was roughly $16,800 at 5:00 pm ET Wednesday.&nbsp;



Sigel said that he projects bitcoin’s price to rise to $30,000 in the second half of 2023 as inflation eases and the next bitcoin halving — set to occur in early 2024 — approaches.&nbsp;



The executive added that institutional adoption will be critical if bitcoin is to 10x again. But, he added, many Wall Street players won’t be as willing to sign off on direct crypto investments following events such as the collapse of Terra’s algorithmic stablecoin, FTX and Three Arrows Capital.



“So what types of institutions?” he said. “For me it comes back to sovereigns who have different geopolitical motivations and realities during this Russia-Ukraine war and period of increased financial censorship than they ever did before. And so that’s the wild card.”



VanEck expects at least one nation to add bitcoin or other digital assets to its sovereign wealth fund. Sigel added that a country like Brazil could be a leader in the tokenization of sovereign debt, noting that Itaú Unibanco, the country’s largest private bank, revealed plans to launch a tokenization platform in July.



El Salvador <a href="https://blockworks.co/news/el-salvador-approves-bitcoin-as-legal-tender-in-supermajority" target="_blank" rel="noreferrer noopener">became the first country to adopt bitcoin as legal tender</a> last year. The Central African Republic <a href="https://blockworks.co/news/central-african-republic-looks-for-quick-wins-becomes-second-country-to-adopt-bitcoin" target="_blank" rel="noreferrer noopener">became the second country</a> to do so in April.&nbsp;



The population of the two countries combined is roughly 10 million, but more nations following in those footsteps could drive further confidence in the space, according to Sigel.



“Let’s see if that [population of countries with bitcoin as legal tender] hits 80 million and what happens to the price of bitcoin and how the rest of the world reacts,” he said.



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Institutions To Tokenize $25B in Off-chain Assets in 2023, VanEck Execs Predict

Casey Wagner

If the US economy is headed into a recession, risk assets such as crypto and tech equities should buckle up, analysts say.&nbsp;



The New York Federal Reserve’s <a href="https://www.newyorkfed.org/research/capital_markets/ycfaq#/interactive" target="_blank" rel="noreferrer noopener">recession probability model</a> is now predicting a 38% chance that the US will go into a recession in the next 12 months. 



“This understates the real probability which, based on +60 years of history, is now close to 100%,” Nicolas Colas, co-founder of DataTrek Research, said.&nbsp;



The New York Fed uses the difference between 3-month and 10-year Treasury yields to determine their figure. Historically, nearly every single time the New York Fed’s model has called for a chance of recession above 30%, a recession was either already underway or occurred within 12 months, Colas noted. 



“The economy is entering slowdown mode as final third quarter nonfarm productivity data was revised higher and labor costs were significantly revised lower,” Edward Moya, senior market analyst at Oanda, said. “Yield curve inversion deepens and nears a four-decade low which is clearly setting up this economy for a recession that won&#8217;t be a mild one.”



With risk appetite fading, bitcoin and ether continued to trend lower Wednesday, each losing about 1.6% and 3%, respectively. Bitcoin continued to hover below $17,000.&nbsp;



Equities struggled to stay in the green Wednesday as well with the S&amp;P 500 and Nasdaq composite indexes losing 0.2% and 0.5%, respectively.&nbsp;



“Bitcoin has massive resistance at the $17,500 level and that should hold leading up to next week’s FOMC decision,” Moya said. “Long-term crypto bets that are waiting to be placed will require either a bullish fundamental trigger or a capitulation moment that has bitcoin testing a key technical level.”&nbsp;



The Fed is set to release its latest decision next week, and investors will surely want to know how Chair Jerome Powell is thinking about rates in view of a potential economic slowdown. 



As of Wednesday, futures markets were pricing in about a 75% probability that the Fed will opt for a 50 basis point rate hike, which would be a mild decrease from its streak of 75 basis point increases, according to <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">data</a> from CME Group.



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Economists Predict Recession. Should Crypto Holders Worry?

The proliferation of blockchain-based games including Alien Worlds, Splinterlands or Axie Infinity shows no signs of slowing down. However, the larger video gaming industry is conflicted when it comes to supporting play-and-earn crypto mechanics and NFTs.&nbsp;&nbsp;



Almost all major game publishers now have blockchain development teams, but they are struggling to reconcile their traditional business approach with blockchain and its role in the future of games.&nbsp;



Some studios such as Ubisoft and its QuartzDigits platform allows players to buy and sell items for games such as Ghost Recon Breakpoint. And Fortnite developer Epic Games recently listed its first NFT title, Mythical Games’ Blankos Block Party, on its game store.



Microsoft even offered blockchain-as-a-service within Azure for almost a decade before offloading their existing customers to ConsenSys Quorum last year.&nbsp;



But others are taking the opposite approach. Video game distributor Steam banned all games that allowed NFT and crypto trades last year. Gabe Newell, president and co-founder of Steam’s parent company Valve, <a href="https://www.ign.com/articles/gabe-newell-nft-steam" target="_blank" rel="noreferrer noopener">cited</a> crypto’s volatility and the bad actors existing in the NFT space as its motivations.



The latest studio to oppose <a href="https://blockworks.co/news/the-investors-guide-to-gaming-nfts" target="_blank" rel="noreferrer noopener">GameFi</a> is Take-Two Interactive, parent company to Grand Theft Auto (GTA) creator Rockstar Games.



Rockstar recently updated the <a href="https://support.rockstargames.com/articles/11374598771091/Roleplay-RP-Servers" target="_blank" rel="noreferrer noopener">user guidelines</a> for its third-party or role-playing servers, effectively banning the buying and selling of crypto and NFTs.



The new measures affected unofficial Grand Theft Auto Online (GTAO) servers that may not have been supervised by Rockstar or approved to trade digital assets — for example, the Trenches server set up by a rapper named Lil Durk on GTA 5, which sold loot boxes, in-game properties and vehicles.



Following a cease-and-desist order from Rockstar, Trenches <a href="https://twitter.com/TrenchesRP/status/1594168052727226368?s=20&amp;t=vOyx9B0ttDK7r6G80q-FNw" target="_blank" rel="noreferrer noopener">tweeted</a> it “had no choice but to comply with their demands” and shut down.



Commenting on the case, a spokesperson from blockchain gaming platform Enjin told Blockworks that they are “disappointed that a cease and desist letter answered a transparent, good faith experiment with blockchain-based models.” Their hope is that “genuine dialogue” opens up with the goal of developing new user experiences.



In a similar move earlier this year, <a href="https://blockworks.co/news/web3-watch-yuga-labs-takes-voyagers-to-the-otherside-while-minecraft-bans-nfts" target="_blank" rel="noreferrer noopener">Minecraft developer Mojang banned NFT support</a> inside Minecraft client and server applications. Minecraft is not a blockchain based platform, but some server owners were creating unofficial Minecraft NFTs and some NFT metaverse projects, such as NFT Worlds and TheUplift World, which were built on top of Minecraft.



Gamers will always find a way around restrictions, however, and the metaverse company MyMetaverse was able to <a href="https://blockworks.co/news/web3-watch-nfts-return-to-minecraft-coinbase-provides-ens-usernames" target="_blank" rel="noreferrer noopener">re-implement playable NFTs not only on Minecraft</a> game servers, but also on modified versions of GTAO for the past few months. 



It used NFTs running on Efinity, a Polkadot parachain developed by gaming platform Enjin to give GTAO and Minecraft players a role-playing experience with gaming NFTs.



Microsoft had an early partnership with Enjin to enable NFTs for Minecraft, but aside from engaging players, Microsoft saw no direct benefit, according to Don Norbury, current chief technology officer at Neon, the publisher behind <a href="https://blockworks.co/news/blockchain-game-shrapnel-aims-for-aaa-status-in-web3" target="_blank" rel="noreferrer noopener">Shrapnel</a>. So the decision to shut it down can be chalked up to optics.



Now that Take-Two Interactive has also officially enforced its ban, the fate of servers like these is unknown. Norbury, who has worked at both Take-Two Interactive and Microsoft for a combined decade, told Blockworks the companies may just not yet know what to do with the technology.



“Take-Two/Rockstar/GTA clearly doesn’t hate NFTs or crypto — nor does Microsoft/Minecraft,” he said. The primary issue, he suggested, is that Rockstar and Microsoft don’t make any direct revenue from NFTs.



“It’s akin to launching a game in the Apple App Store and circumventing their requirements for platform transaction fees,” Norbury said, adding that a formalized partnership with MyMetaverse might solve the revenue problem, but that the “secondary issue for these companies is optics, strategy and regulation.”&nbsp;



He is referring to the fact that Take-Two Interactive, Rockstar and Microsoft are all “enormous” publicly traded companies that “must appease consumers and shareholders alike.”&nbsp;



“Suddenly incorporating NFTs into their product risks alienating a large portion of their users,” Norbury said, referring to the <a href="https://blockworks.co/news/ubisoft-nft-efforts-are-off-to-a-rocky-start" target="_blank" rel="noreferrer noopener">apprehension shown by some gamers</a>.



It comes down to “incompatible business strategies” and “internal dissonance.”



“[These companies] know blockchain is the future for games with interesting economies/trading/ownership, but they want to maintain their old approach to modeling project funding, design, economy, and marketing.” Norbury added.&nbsp;



Nevertheless, the money from venture capital being raised for blockchain games and metaverse projects isn’t slowing down. Over the October and November, the gaming market raised $534 million in funding, <a href="https://dappradar.com/blog/bga-game-report-october-november-2022" target="_blank" rel="noreferrer noopener">according</a> to DappRadar. 



In-game NFTs had a total trading volume of $55 million in the past two months, DappRadar said, with the Gods Unchained game generating 60% of the total trading volume for game assets. DappRadar calls the industry “resilient” despite the collapse of FTX and cites the impact on the NFT market.



Now it’s up to major game publishers to decide whether or not to go about adopting blockchain as a foundational technology and business model.

Major Game Studios Still Aren’t Sold on NFTs

Music NFTs are having a moment. From major record labels such as Warner Music Group to artists like Steve Aoki and 3LAU, the music industry is seeking opportunities to leverage Web3 to better monetize their work.



Warner Music Group, also called WMG, announced a multi-year partnership with the LGND.io startup on Tuesday to launch a music NFT marketplace on the Ethereum-compatible Polygon proof-of-stake sidechain.



Select WMG artists and creators will be chosen to drop songs as digital collectibles starting in January 2023, <a href="https://www.wmg.com/news/lgnd-io-partners-with-warner-music-group-polygon-on-new-music-and-collectibles-platform" target="_blank" rel="noreferrer noopener">according</a> to a statement from the company.&nbsp;



The platform, called LGND Music, will be a mobile and desktop application that will reportedly support music NFTs or their so-called “Virtual Vinyls” from other blockchains as well.&nbsp;



While iOS users will get to fully own their music tokens, their purchases on LGND’s iOS app will be subject to <a href="https://blockworks.co/news/apple-takes-bite-out-of-app-store-nfts-in-hunt-for-revenue" target="_blank" rel="noreferrer noopener">Apple’s 30% in-app purchase fee</a>.



Among the first artists featured on LGND Music are slated to include those represented by the WMG-owned electronic music label Spinnin’ Records.



<h3>Steve Aoki and 3LAU</h3>



The Web3 community loves its parties and DJs, and two of the most prolific electronic musicians — Steve Aoki and Justin “3LAU” Blau — fittingly announced that they will use their CryptoPunks NFTs as their alter egos to form a new group called Punx.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">We bring to you: PUNX 10 years of friendship has led to this moment. We are excited to introduce a conceptual music/art project partly inspired by our own <a href="https://twitter.com/cryptopunksnfts?ref_src=twsrc%5Etfw">@cryptopunksnfts</a>. the sound of <a href="https://twitter.com/itsthepunx?ref_src=twsrc%5Etfw">@itsthepunx</a> will be different from either of our current sounds, in fact… <a href="https://t.co/mNlogCLmCz">pic.twitter.com/mNlogCLmCz</a>&mdash; 3LAU (@3LAU) <a href="https://twitter.com/3LAU/status/1600179646456135682?ref_src=twsrc%5Etfw">December 6, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



New music from the duo, who have been friends for 10 years, according to Aoki, will be released in 2023.



“This isn’t an NFT,” tweeted the pair, but rather Punx is described as a “conceptual music/art project” with a different sound than fans are used to from the musicians.&nbsp;&nbsp;



Both Aoki and Blau changed their respective Twitter profile pictures to Punk #6748 and Punk #6708, respectively, signaling that these NFTs may be used as characters in music videos or other visual imagery.



Another example of a duo using their NFTs for musical projects is Eminem and Snoop Dogg, who <a href="https://twitter.com/SnoopDogg/status/1540189746877632514?s=20&amp;t=OJ0ecgoIZOSYaNxeosMrMA" target="_blank" rel="noreferrer noopener">turned</a> their Bored Apes into avatars for an MTV performance. Additionally, Bored Ape and Mutant Ape NFT characters have also been used to form a virtual band called Kingship under Universal Music Group’s 10:22PM label.



Blau owns the music NFT marketplace Royal that allows users to own a piece of a song or album&#8217;s streaming royalty rights. While historically it has only worked with huge acts like Nas, Diplo and Chainsmokers, Royal has now started to give smaller, emerging artists the chance to sell percentages of streams of their songs in the form of tokens.&nbsp;



Independent artist Jake Zimma released his first drop on Royal this week and sold out in two hours. He told Blockworks that this opportunity was a way to “not just grow financially but also a way to engage with fans and generate awareness of my music and brand.”&nbsp;&nbsp;



“While the ups and downs of crypto currencies may be unpredictable, trends within musicians&#8217; streaming behavior can easily be counted on,&#8221; Zimma said.



<blockquote class="wp-block-quote">&#8220;It&#8217;s an exciting new way for musicians and music fans to get involved with the crypto world, hopefully without as much chaos.&#8221;</blockquote>



“At the end of the day everyone loves music,” he added.&nbsp;



<h3>Windows’ Winamp MP3 player</h3>



Another company trying to ride the music NFT wave is Winamp — Windows’ desktop media player from the ‘90s.



Its latest update for desktop <a href="https://www.winamp.com/wp-content/uploads/press-release-2022.12.06-winamp-player-now-supports-audio-nfts.pdf" target="_blank" rel="noreferrer noopener">allows</a> its 83 million users to play audio files embedded in their NFTs, <a href="https://twitter.com/winamp/status/1600226376442793985?s=20&amp;t=XNWMZWx0QF8Ec-4EMMYzWg" target="_blank" rel="noreferrer noopener">tweeted</a> Winamp — but it requires a few steps. Those with NFT music libraries on MetaMask would need to link their wallets via Brave, Chrome or Firefox browsers to import the files into Winamp as an .m3u playlist.&nbsp;



Winamp supports ERC-721 and ERC-1155 audio and video files and is compatible with Ethereum and Polygon NFTs.



Winamp users’ responses on Twitter varied from “You lost me with NFTs” to “Lol. No” and “will try this new version.”



Winamp CEO Alexandre Saboundjian stated that Winamp is the “the very first standalone player reading audio NFTs.” His plans also include launching a cross-platform creator service that links artists and fans directly in early 2023.



<h3>Growth of music NFTs</h3>



Music NFT marketplace Sound.xyz reported that the number of mints of NFTs has doubled in each of the last two months. Dune Analytics data <a href="https://dune.com/nicoelzer/sound-xyz">showed</a> that over a third — around 12,000, of the platform’s 30,000 mints came in November. And so far in December, there have already been more than 7,400 new mints, signaling the likelihood that the total mints will pass last month’s record.



NFTs, whether music or art, enable creators to foster a community around their work built on ownership over their digital assets. Artists can earn royalties each time the NFT is sold, while collectors who also have a stake in ownership may gain exclusive access to shows, merch, meet and greets and more.



Traditionally, the labels who represent these artists distribute their music to streaming platforms such as Spotify and Apple Music. A percentage of revenue from users who subscribe to these platforms is then redistributed among the label, artists and producers in the form of royalties.&nbsp;



This model, however, is a “disaster,” according to Gino The Ghost, music producer and founder of music NFT project Blocktones.&nbsp;



“Labels are making more [money] than ever before while signed artists and the creatives behind those records make pennies (of a penny) on the dollar…Spotify has yet to even turn a profit. Nobody wins,” he <a href="https://twitter.com/GinoTheGhost/status/1539286360170844162" target="_blank" rel="noreferrer noopener">tweeted</a>.



Music NFTs provide a unique vehicle of distribution, he <a href="https://twitter.com/GinoTheGhost/status/1539286005253038080?s=20&amp;t=h1LEW-nSyjFkak3RemdAlw" target="_blank" rel="noreferrer noopener">added</a>, because it “allow artists to package their music in a non-conventional way. Set the supply, engage with your fans, and activate your community with future application.”



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Music NFTs Aren’t Listening to Market Conditions

When it comes to US crypto regulation, the two federal agencies at the forefront may need to collaborate to clear up a number of uncertainties, according to a former CFTC chair.



“The SEC and the CFTC could jointly create a self-regulatory organization,” former CFTC head Tim Massad said during a virtual appearance Wednesday.&nbsp;



Self-regulatory organizations set industry standards and regulations, most notably in the financial sector. While they still are subject to government oversight, they allow industry participants to keep an eye on each other and ensure best practices are followed.&nbsp;



Neither the SEC nor the CFTC has the power to solely tackle the regulation of digital assets, according Massad, now a research fellow at Harvard University’s School of Government. &nbsp;



The lines are currently blurred, Massad said — with the CFTC taking control over exchange-traded bitcoin and ether <a href="https://blockworks.co/news/cme-group-to-offer-options-on-ether-futures" target="_blank" rel="noreferrer noopener">futures markets</a> and the <a href="https://blockworks.co/news/qa-the-sec-classified-9-tokens-as-securities-now-what" target="_blank" rel="noreferrer noopener">SEC stepping in</a> when it deems a crypto token a security. Though the exact classification of tokens is a separate issue, Massad said the two agencies need to come together to oversee crypto’s cash market, predominantly housed by exchanges.&nbsp;



A new organization could “develop common standards that would apply to trading venues and other intermediaries, regardless of whether a particular token is a security, a commodity or something else,” he added.&nbsp;



If the SEC and CFTC moved to create a self-regulatory organization, it would not be the first of its kind. The <a href="https://www.sec.gov/rules/sro.shtml" target="_blank" rel="noreferrer noopener">New York Stock Exchange</a> and Fixed Income Clearing Corporation are two examples.&nbsp;



The crypto industry would be responsible for paying for any new collective, which would be responsible for enforcing the rules the SEC and CFTC create.&nbsp;



“It&#8217;s ironic, of course, that we&#8217;re also at this point where we have these large intermediaries, large trading venues that are essentially unregulated, or only very lightly regulated,” Massad said. “And I say it&#8217;s ironic because when you read the original bitcoin white paper and think about the purpose of bitcoin, it was to eliminate large trusted intermediaries, or at least eliminate the need to rely on large trusted intermediaries and create peer-to-peer systems for transferring value.”



Congress, meanwhile, continues to mull over the Digital Commodity Consumer Protection Act (DCCPA), which received vocal support from now-disgraced FTX founder Sam Bankman-Fried. The legislation would grant the CFTC more power in overseeing cryptocurrency markets.&nbsp;



Current CFTC Chair Rostin Behnam <a href="https://blockworks.co/news/sbf-cftc-crypto-bill" target="_blank" rel="noreferrer noopener">appeared before Congress</a> earlier this month, where he highlighted the importance of the bill — and suggested it could have softened the blow of the recent FTX collapse.



“Based on what we know thus far, a lot of the issues that have arisen and sort of come to light are significant conflicts of interest, significant allegations of commingling customer money and house money, lack of books and records, lack of corporate governance and risk controls, just to name a few,” Behnam said. “And these are, from our understanding in working with [bill sponsors] on the DCCPA, core elements of the DCCPA.”



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Ex-CFTC Chair: Crypto Regulation Could Be Joint SEC, CFTC Effort

A member of the House Committee on Financial Services is calling for the Government Accountability Office, known as Congress’ investigation arm, to look into the SEC and its “failure to protect the investing public” from FTX.&nbsp;



Rep. Ritchie Torres, D-N.Y., drafted the <a href="https://emmer.house.gov/_cache/files/0/c/0c7fc863-7916-4b19-bc44-52bef772287e/9B0B9D1CA9B3C215DDC762DF5B0F6864.3.16.22.emmer.sec.letter.pdf" target="_blank" rel="noreferrer noopener">letter</a>, dated Tuesday.&nbsp;



“Chair Gensler took the position that the SEC had clear authority to investigate crypto exchanges,” Torres told Blockworks via email.



<blockquote class="wp-block-quote">“When it comes to government failure, the public official singularly responsible for failing to expose the FTX fraud is SEC Chair Gary Gensler.”</blockquote>



Torres also referred to the SEC’s handling of FTX as “egregious mismanagement.” 



“If he had clear authority to do so, why did he fail to uncover the largest crypto Ponzi scheme in history?” Torres added. “It is on Congress to pass laws, but it is on the regulators to apply those laws to conduct investigations, and in the case of Gary Gensler, the regulators failed catastrophically. Chair Gensler has some explaining to do.”



Torres’ call for investigation comes months after he, along with Reps. Tom Emmer, R-Ind., Josh Gottheimer, D-N.J., Jake Auchincloss, D-N.J., Ted Budd, R-N.C., Warren Davidson, R-Ohio, Byron Donalds, R-Fl., and Darren Soto, D-Fl., drafted a <a href="https://emmer.house.gov/_cache/files/0/c/0c7fc863-7916-4b19-bc44-52bef772287e/9B0B9D1CA9B3C215DDC762DF5B0F6864.3.16.22.emmer.sec.letter.pdf" target="_blank" rel="noreferrer noopener">letter</a> to Gensler asking about the SEC’s jurisdiction over non-SEC regulated entities. 



“The SEC’s regulatory functions, while broad, are limited to the extent of its statutorily mandated jurisdiction,” the letter, published in March 2022, read. “It appears there has been a recent trend towards employing the Enforcement Division’s investigative functions to gather information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for initiating investigations.”&nbsp;



The letter does not mention any specific cryptocurrency companies representatives were concerned the SEC was investigating, FTX or otherwise.&nbsp;



Torres did receive campaign donations linked to FTX founder Sam-Bankman-Fried, according to Federal Election Commission filings, but the Congressman elected to donate his contribution, his office <a href="https://blockworks.co/news/ftx-donations-campaign-finance" target="_blank" rel="noreferrer noopener">told Blockworks</a> last month.



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Gensler ‘Singularly Responsible’ for Failing To Expose FTX Fraud, Rep. Says

One of the world’s largest asset managers is exploring the use cases for NFTs despite a turbulent crypto market environment, noting such tokens’ relevance beyond just digital art.



The company minted its first NFTs — issuing them to attendees of its first Innovation Forum held in September to offer clients a way to explore the digital assets ecosystem — and now seeks to move further into the space.



“We see NFTs in their literal sense and more generally than just for their application with artwork or collectibles,” <a href="https://www.linkedin.com/in/mikemuir/" target="_blank" rel="noreferrer noopener">Mike Muir</a>, Franklin Templeton’s head of digital assets technology, told Blockworks. “[An NFT] is an applicable construct for any unique asset for which only one exists.”



For example, Muir added, loans and property titles are unique assets that are not fungible.&nbsp;



Franklin Templeton allowed attendees of its Innovation Forum the ability to download the NFT through the firm’s Benji Investments app. It acted as “a badge” and was non-transferrable, the company said, and clients could use the token to access research from the Franklin Templeton digital assets team.



US clients across asset management and financial services have shown interest in interacting with digital assets such as NFTs, according to the company.



“Firsthand practical experiences like this create understanding and foster contemplation and thought as to what else may be possible,” Muir said. “In the long term, we are considering generalizing our issuance of NFTs for a variety of purposes and are devoted to uncovering new applications for these assets.”



Dmitriy Berenzon, a research partner at early-stage venture fund 1kx, said that exploring the issuance of on-chain assets is the right way to go for institutions. He added that Franklin Templeton is correctly using this tool to drive more engagement with their community.



<blockquote class="wp-block-quote">“It is not about permissioned blockchains that try to improve the efficiency of walled gardens, but rather about permissionless, crypto networks that drive human coordination at scale through the use of tokens,” Berenzon told Blockworks. </blockquote>



For other large financial services companies, NFTs can offer additional avenues for interacting with on-chain assets and liquidity, such as liquidity pools gated by know-your-customer (KYC) requirements, the 1kx research partner added.



“That said, they likely need more regulatory clarity prior to committing any significant amount of balance sheet,” Berenzon said.&nbsp;



<h3>An evolution for fund managers</h3>



Franklin Templeton, which had roughly $1.3 trillion in assets under management as of Oct. 31, has been moving deeper into the crypto space in recent months.



The company launched the <a href="https://www.franklintempleton.com/investments/options/money-market-funds/products/29386/SINGLCLASS/franklin-on-chain-u-s-government-money-fund/FOBXX" target="_blank" rel="noreferrer noopener">Franklin OnChain U.S. Government Money Fund</a> — a mutual fund using blockchain to process transactions and record share ownership — in April 2021.



The fund manager unveiled <a href="https://blockworks.co/news/franklin-templeton-preps-first-institutional-crypto-accounts" target="_blank" rel="noreferrer noopener">its first crypto-focused separately managed accounts</a> (SMAs) for investment professionals in September.



<a href="https://www.linkedin.com/in/roger-bayston-46256517a/" target="_blank" rel="noreferrer noopener">Roger Bayston</a>, the company’s segment lead, called digital assets “frontier risk alternatives” in <a href="https://blockworks.co/news/franklin-templeton-exec-digital-assets-are-frontier-risk-alternatives" target="_blank" rel="noreferrer noopener">an October interview with Blockworks</a>. He added that Franklin Templeton was looking into bringing additional digital asset investment strategies to market.



The fund giant’s move into NFTs comes after asset manager <a href="https://blockworks.co/news/vaneck-exec-use-cases-of-nfts-approaching-unlimited" target="_blank" rel="noreferrer noopener">VanEck launched an NFT collection</a> in May designed to ​​”build an active community of crypto-focused investors,” the firm said.



Though ProChain Capital President David Tawil said at the time VanEck’s launch was “a bit of a gimmicky way” to draw people into NFTs, he added that the effort could bridge gaps between the collectibles aspect of NFTs and their broader use cases.



VanEck’s NFT community started off with nearly 50,000 sign-ups, and the firm connected its members at in-person and virtual events, according to Matthew Bartlett, who leads VanEck’s NFT community and Web3 efforts.&nbsp;



Bartlett told Blockworks that the firm is encouraged to see another global asset manager using NFTs to foster client engagement and community building.&nbsp;



“We strongly believe that NFTs and related blockchain applications will become integral parts of the client engagement experience across a range of industries, from finance to social media to consumer technology,” he said.



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$1.3T Asset Manager Exploring Use Cases for NFTs

Sebastian Sinclair

The Central Bank of Nigeria is attempting to drum up the use of its central bank digital currency, or CBDC, by enforcing limits on the amount of cash citizens can withdraw from their local banks.



Nigeria’s central bank asked deposit banks and financial institutions to cap over-the-counter maximum cash withdrawals for individuals to $224 a week, in a <a href="https://www.cbn.gov.ng/Out/2022/CCD/RevisedCashWithdrawal.pdf" target="_blank" rel="noreferrer noopener">directive</a> issued on Tuesday, 



Corporate organizations&#8217; free withdrawals will also be limited to $1,154 per week, the bank said. Withdrawals above those limits will attract processing fees of 5% and 10% respectively. 



“Customers should be encouraged to use alternative channels…to conduct their banking transactions,” the bank said. Those include internet banking, mobile banking apps, debit cards and the country&#8217;s CBDC, the eNaira, among other means.



Central Bank Governor Godwin Emefiele conceded in October that his institution couldn’t account for the use of 85% of Nigeria’s cash in circulation, <a href="https://www.bloomberg.com/news/articles/2022-10-27/cash-clampdown-in-nigeria-seeks-to-curb-currency-hoarding-kidnappings" target="_blank" rel="noreferrer noopener">Bloomberg reported</a>. That, in effect, was jeopardizing monetary policy across the cash-hungry nation of Africa’s largest economy, he said at the time.



The West African nation has also struggled to deal with individuals hoarding cash as it attempts to counter illegal activity, including theft and kidnappings.



Under the directive, a $44 per day limit would apply to those individuals seeking to withdraw from ATMs while over-the-counter third-party checks exceeding $112 would not be accepted.



In rare circumstances, where individuals or organizations require cash for “legitimate” purposes, a limit of $11,226 and $22,452 will apply respectively.&nbsp;



Those will also be limited to one withdrawal per month and subject to rigorous identification and document requests including presenting a driver&#8217;s license and approval by the bank authorizing the withdrawal, among other things.



Nigeria became the first African nation to launch a retail central bank digital currency <a href="https://www.imf.org/en/News/Articles/2021/11/15/na111621-five-observations-on-nigerias-central-bank-digital-currency" target="_blank" rel="noreferrer noopener">in October 2021</a>, with a design aimed at complementing physical cash but not replacing it entirely.



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Nigeria Limits Cash Withdrawals in CBDC Push

Shalini Nagarajan

Nefarious actors have been increasingly turning to Telegram, according to Microsoft — as well as one of the tech gian’s own products — in attempts to infiltrate crypto companies.



The tech giant categorized the pervasiveness of such hacks, typically driven by malware, as a barrier to widespread adoption of cryptocurrencies. More concerning, still, in Microsoft’s estimation: Hackers are becoming quite adept at their brands of trickery.



“We are also seeing more complex attacks wherein the threat actor shows great knowledge and preparation, taking steps to gain their target’s trust before deploying payloads,” Microsoft wrote in a <a href="https://www.microsoft.com/en-us/security/blog/2022/12/06/dev-0139-launches-targeted-attacks-against-the-cryptocurrency-industry/" target="_blank" rel="noreferrer noopener">blog </a>Tuesday.



Microsoft detailed its own investigation of a would-be bad actor, “DEV-0139,” which the company said infiltrated Telegram chats between an unidentified crypto exchanges and their “VIP” clients, as well as the company’s other counterparties. The company said the hacker, or hacking collective, employed Excel files in bids to acquire valuable and private information.&nbsp;



While pretending to represent a separate crypto company — with apparently passable knowledge of the operations and communications of both firms — Microsoft said they invited the target to a different chat, where DEV-0139 attempted solicited feedback on the fee structure used by the crypto exchanges.



Upon gaining the trust of the target, the malicious actor sent an Excel file called “OKX Binance &amp; Huobi VIP fee comparison.xls” in an alleged bid to project credibility.



Opening the Excel file itself triggered a series of mishaps. A set of automatic actions contained in the file were used to obtain the user’s data, executed in invisible mode. This malicious “backdoor” allowed the bad actor to remotely access the infected system.&nbsp;



Microsoft also found another older file using the same technique, suggesting the incident wasn’t isolated — and that the actor may be executing similar campaigns with other targets.&nbsp;



It isn’t unusual for crypto scammers to use bots on Telegram to hoodwink users and lead them to malicious links. A 2021 report by digital threat detection firm <a href="https://q6cyber.com/blog/otp_bots_are_a_growing_threat/" target="_blank" rel="noreferrer noopener">Q6 Cyber</a> found that bot services, which can be purchased for around $300, can also be used to target investors.



2022 has already gone down as a year full of <a href="https://blockworks.co/news/the-nine-largest-crypto-hacks-in-2022" target="_blank" rel="noreferrer noopener">high-profile thefts</a> in the sector, including $600 million from FTX, $182 million from Beanstalk and $325 million from Wormhole. Interest in self-custody of assets has accordingly increased dramatically — boosted even more by user concerns of keeping crypto assets on centralized exchanges in light of FTX’s <a href="https://blockworks.co/news/1-binance-ftx-deal-is-off-unless-ftx-us-is-part-of-the-package-source" target="_blank" rel="noreferrer noopener">implosion</a>.



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Microsoft IDs Excel, Telegram Threat Targeting Crypto Startups

A group of US politicians — led by Sen. Elizabeth Warren, D-Mass. — have asked cryptocurrency bank Silvergate to release full records of its financial ties with FTX for a closer look into its potential role in the loss of billions of customer funds.&nbsp;



Silvergate CEO Alan Lane was asked in a <a href="https://www.warren.senate.gov/imo/media/doc/2022.12.05%20Letter%20to%20Silvergate%20Bank%20re%20FTX.pdf" target="_blank" rel="noreferrer noopener">letter on Tuesday</a> whether the bank was aware of FTX’s arrangement to wire money to Alameda Research, whether it flagged such transactions as suspicious and about its anti-money laundering compliance program.



“Your bank’s involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activity carried out by its clients,” Sens. Warren, John Kennedy and Roger Marshall wrote.&nbsp;



“The public is owed a full accounting of the financial activities that may have led to the loss of billions in customer assets, and any role that Silvergate may have played in these losses.”



Believed to be FTX’s primary banker, Silvergate is one of few regulated US banks that allow customers to move dollars onto crypto exchanges. FTX was a customer and prominent backer of the bank, with former CEO Sam Bankman-Fried once saying “it’s hard to overstate how much [Silvergate] revolutionized banking for blockchain companies.”



The collapsed crypto exchange and its subsidiaries had 20 Silvergate accounts, according to <a href="https://www.nbcnews.com/tech/crypto/elizabeth-warren-ftx-silvergate-bank-crypto-rcna60147" target="_blank" rel="noreferrer noopener">NBC News</a>. Blockworks has reached out for comment.



In their letter, the Senators also said they were concerned Bankman-Fried may have transferred&nbsp; $10 billion of customer funds to Alameda to fund “risky bets,” in violation of US securities laws.&nbsp;



Bankman-Fried has personally admitted to poor management practices, telling YouTuber Tiffany Fong that <a href="https://blockworks.co/news/sam-bankman-fried-ftx-cz-silent" target="_blank" rel="noreferrer noopener">FTX didn’t have its own bank account</a> when it started. Customers were directed to send money to Alameda’s account with Silvergate in exchange for holding assets on FTX, leading to accounting problems that eventually went out of hand.



“Silvergate provided banking services to both Alameda and FTX, raising questions about the bank’s role in facilitating the improper transfer of FTX customer funds to Alameda,” the senators said.



They also highlighted that two of Silvergate’s clients have declared bankruptcy in the span of one month — FTX and crypto lender BlockFi.&nbsp;



“Needless to say, Silvergate is now experiencing heightened stress, raising questions about its safety and soundness,” the letter said.



The bank has access to taxpayer-funded debt reserves through the Federal Reserve Bank of San Francisco and the Federal Home Loan Bank of San Francisco, so it’s only fair for the public to know whether the bank will be able to navigate even more crypto market volatility, they added.



Silvergate’s alleged failure to take adequate notice of the FTX-Alameda scheme suggests neglect in the implementation or maintenance of an effective anti-money laundering program required under the Bank Secrecy Act, the letter stated.



Silvergate has been asked to provide the senators with relevant records by Dec. 19.



<h3>Silvergate reassures customers with ‘ample liquidity’ message</h3>



On Tuesday, Silvergate <a href="https://blockworks.co/news/silvergate-has-ample-liquidity" target="_blank" rel="noreferrer noopener">issued a statement</a> describing its extensive due diligence process on FTX and Alameda.&nbsp;



“When Silvergate received payments directed to Alameda Research and credited it to the account of the same name, this was consistent with the instructions from the sender of the wire and industry practice,” Lane said.&nbsp;



The bank investigates unexpected or concerning activity and files a suspicious activity report in such cases, it said.



Lane said Silvergate’s customer deposits are safe — adding that the company has a resilient balance sheet with “ample liquidity.”



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Crypto Bank Silvergate Asked To Detail Records of Purported FTX Ties 

Troubled Southeast Asia crypto exchange Zipmex is reportedly expected to be acquired by a venture capital firm for about $100 million.



Pending regulatory approval and coming to an agreement on terms, V Ventures has offered to pay $30 million in cash and the remainder in unspecified digital assets, <a href="https://www.bloomberg.com/news/articles/2022-12-02/zipmex-crypto-exchange-to-get-100-million-buyout-from-v-ventures-fund?leadSource=uverify%20wall" target="_blank" rel="noreferrer noopener">Bloomberg reported</a> Wednesday, citing sources familiar with the matter.



The likely acquisition comes as there’s been an uptick in mergers and acquisitions interest, while companies in the region try to fend off declining spot cryptocurrency prices and dwindling big-money interest.&nbsp;



Several crypto firms throughout Asia have also reduced <a href="https://blockworks.co/news/bybit-to-slash-staff-citing-turbulent-markets">employee numbers</a>. Representatives for the exchange and V Ventures did not immediately return requests for comment on the terms of the deal.



A <a href="https://www.youtube.com/watch?v=fpLkoS2vu0Q" target="_blank" rel="noreferrer noopener">video</a> of a Dec. 2 Singapore court proceeding on the matter provided an overview of the offer, without mentioning the potential buyer or detailing specific terms.&nbsp;



The fund, a subsidiary of investment holding company Thoresen Thai Agencies, would retain a 90% stake in Zipmex, whose customers&#8217; funds remain locked on its platform after it filed for bankruptcy earlier this year. The Jump Capital-backed firm was forced to <a href="https://blockworks.co/news/jump-capital-backed-crypto-exchange-suspends-withdrawals" target="_blank" rel="noreferrer noopener">halt withdrawals</a> in July under the strain of a liquidity crunch that has gripped the industry.



In August, the crypto exchange tapped restructuring and financial consulting firm KordaMentha in a bid to oversee its bankruptcy process.&nbsp;



The firm sought <a href="https://www.bloomberg.com/news/articles/2022-07-25/zipmex-aims-to-raise-at-least-50-million-to-mend-balance-sheet?sref=IIP4JEyu" target="_blank" rel="noreferrer noopener">$50 million</a> in rescue funding from outside parties, attempting to patch a shortfall in purported unpaid loans from lenders Babel Finance and Celsius.



At peak, the firm had roughly 250 employees across Australia, Indonesia, Singapore and Thailand.



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Troubled Crypto Exchange Zipmex to be Acquired for $100M: Report

Republican representative Madison Cawthorn of North Carolina has been directed to pay more than $14,000 for his involvement in a crypto pump-and-dump scheme earlier this year.



The House Ethics Committee approved a <a href="https://ethics.house.gov/sites/ethics.house.gov/files/documents/Committee%20Report_50.pdf" target="_blank" rel="noreferrer noopener">Dec. 1 report</a> by its investigative subcommittee (ISC) on Tuesday, which found Cawthorn had violated House rules by having a financial interest in a supposed crypto token known as LGB Coin without first disclosing it.



According to the report, Cawthorn bought 180 billion LGB coins for $150,000 on Dec. 21, 2021 before offloading them on three occasions over an 18-day period. Cawthorn was seen promoting the token online and in person multiple times, including after its price had tanked 80% in April.



Cawthorn will now pay $14,237 to an “appropriate charitable organization” by Dec. 31, 2022 and must pay $1,000 in late filing fees to the US Department of the Treasury by Dec. 20.



“Representative Cawthorn did not disclose either his purchase or sales of his LGB coin until after the Committee established the ISC,” members of the subcommittee said in their report.



The ISC failed to reach a consensus on whether Cawthorn intended to personally profit from his promotional activities. The total sum of the fine likely stems from the ISC being unable to find whether Cawthorn knowingly or willfully engaged in the scheme.



LGB coin touted itself as an ERC-20 meme token “inspiring positivity and patriotism.” The token represented the Let’s Go Brandon movement which was a stand-in, among <a href="https://apnews.com/article/lets-go-brandon-what-does-it-mean-republicans-joe-biden-ab13db212067928455a3dba07756a160" target="_blank" rel="noreferrer noopener">right-wing circles</a>, and a reference to US President Joe Biden. Its true meaning was “F— Joe Biden.”



A <a href="https://www.classaction.org/media/ford-v-koutoulas-et-al.pdf" target="_blank" rel="noreferrer noopener">class action lawsuit</a> naming several promoters of the LGB token project, including hedge fund manager James Koutoulas, is currently working its way through the courts.



Cawthorn had also been investigated over his alleged “improper relationship” with a congressional staffer, though the ISC said in its report it had found no evidence to support that claim.



The 26-year-old, who became one of Congress’ youngest members, <a href="https://www.nytimes.com/2022/05/17/us/politics/madison-cawthorn-concedes-nc-primary-gop.html" target="_blank" rel="noreferrer noopener">lost the party primary contest</a> in May in the Republican-held rural 11th district of North Carolina by a tight margin of around 1,500 votes.



Considered a political <a href="https://www.nytimes.com/2022/05/17/us/politics/madison-cawthorn-concedes-nc-primary-gop.html" target="_blank" rel="noreferrer noopener">firebrand</a> by many critics and proponents, Cawthorn was once tipped as a rising figure within the far-right faction of the Republican party, riding on the back of Trumpism when he was elected in 2020.



The young politician <a href="https://www.nbcnews.com/politics/congress/cawthorn-responds-gop-backlash-orgy-comments-blaming-democrats-remarks-rcna22667" target="_blank" rel="noreferrer noopener">fell out of favor</a> with his colleagues when he insinuated that some Republican members of Congress had invited him to a cocaine-fueled orgy.



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Republican Congressman Hit With Ethics Penalty for Crypto Pump and Dump

FTX’s former global head of payments has resurfaced as an executive at payments technology company Nuvei weeks after the crash of his ex-employer.



<a href="https://www.linkedin.com/in/adamcolejacobs/" target="_blank" rel="noreferrer noopener">Adam Jacobs</a>, who began working at crypto exchange FTX in June 2021, began his role as a senior vice president of corporate development for the Montreal-based company this month, according to his LinkedIn page.&nbsp;



Nuvei is a public company that connects businesses to customers via 150 currencies and nearly 600 alternative payment methods. The company <a href="https://nuvei.com/company/press-releases/nuvei-to-acquire-simplex-a-payment-solution-provider-to-the-cryptocurrency-industry/" target="_blank" rel="noreferrer noopener">acquired</a> crypto payments company Simplex for $250 million last year.&nbsp;



Jacobs declined to comment about the move.&nbsp;



With crypto exchange FTX <a href="https://blockworks.co/news/whats-next-for-ftx-and-its-customers-after-bankruptcy-filing" target="_blank" rel="noreferrer noopener">filing for bankruptcy</a> last month and other large industry players dealing with ripple effects of the collapse, headhunters <a href="https://blockworks.co/news/ftx-employees-enter-tight-market" target="_blank" rel="noreferrer noopener">previously told Blockworks</a> that talented crypto employees are chasing a dwindling number of spots.



A number of former staffers from FTX have expressed an interest in remaining in the Web3 space, <a href="https://workincrypto.global/" target="_blank" rel="noreferrer noopener">WorkInCrypto.Global</a> founder Sam Wellalage said at the time.&nbsp;



While Jacobs was at FTX, the exchange partnered with Visa. The firm <a href="https://blockworks.co/news/ftx-seeks-to-roll-out-crypto-linked-visa-cards-globally" target="_blank" rel="noreferrer noopener">said in October</a> that it intended to launch Visa debit cards linked to users’ FTX accounts in 40 countries.&nbsp;



The payments giant <a href="https://blockworks.co/news/visa-monitoring-ftx-situation-after-nixing-deal-with-felled-exchange" target="_blank" rel="noreferrer noopener">terminated its agreements with FTX</a>, a Visa spokesperson told Blockworks after the exchange filed for bankruptcy.



Before joining FTX, Jacobs founded crypto payment provider Spend.com. The company <a href="https://blog.swipe.io/swipe-announces-acquisition-of-spend-com-aab264991d7b" target="_blank" rel="noreferrer noopener">was acquired</a> by cryptocurrency Visa card issuing platform Swipe — <a href="https://www.binance.com/en/support/announcement/binance-to-acquire-outstanding-shares-in-swipe-efa96d9a856f4620b2fa6e372edbe290" target="_blank" rel="noreferrer noopener">ultimately bought by Binance</a> — in March 2021.



Jacobs also was previously an adviser to an Ethereum co-founder from April 2017 to March 2021, his Linkedin profile indicates.



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Ex-FTX Exec Lands at Payments Tech Company Nuvei

Michael Bodley

Brevan Howard’s digital asset affiliate — which raised more than $1 billion earlier this year in the <a href="https://blockworks.co/news/brevan-howard-scores-largest-crypto-hedge-fund-launch-ever" target="_blank" rel="noreferrer noopener">largest crypto hedge fund launch</a> on record  — is parting ways with portfolio managers who haven’t been making the grade, according to two sources familiar with the matter. 



In December, that would be business as usual for TradFi multi-strategy fund operators. The likes of Brevan Howard proper —  as well as competitors Citadel, Millennium Management and Point72 Asset Management — traditionally fire their lowest-performing portfolio managers and hire fresh faces around year end. The methodology is also par for the course for investment banks such as <a href="https://blockworks.co/news/goldman-sachs-crypto-bargains" target="_blank" rel="noreferrer noopener">Goldman Sachs</a>.



But industry participants have been closely monitoring the waning days of Brevan Howard Digital’s first calendar year, digging for indicators of how the firm is weathering — or responding to — the onset of a <a href="https://blockworks.co/news/crypto-main-characters-drop-like-flies-as-bear-market-turns-one" target="_blank" rel="noreferrer noopener">bear market</a> that shows few signs of turning the tide anytime soon.



The identity of fired employees and their locations aren’t clear. The unit is on track to make about 10 additional hires in the first quarter, leaving its overall number of staffers roughly flat. A spokesperson declined to comment.



The former Brevan staffers ought to have little issue finding new jobs, according to Dan Eskow, founder of the <a href="https://blockworks.co/news/vet-recruiter-crypto-and-wall-street-dont-speak-the-same-language" target="_blank" rel="noreferrer noopener">crypto-focused recruiting firm</a> Up Top Search. 



Hiring for crypto-native asset managers has been on pause, Eskow told Blockworks — leaving a window of opportunity to snap up newly available talent when it comes to other TradFi players that have yet to start up their own digital asset trading teams.



Brevan’s Wall Street competitors would be “very keen to hire the [portfolio managers] and analysts coming out of [Brevan Howard Digital], since they were skilled enough to get picked up by Brevan, and have hands-on experience in the crypto markets,” Eskow said.&nbsp;



The division, which has remained an active participant in venture crypto deals, has kept its flagship trading strategies tightly under wraps. While Brevan’s exact performance couldn&#8217;t be learned, sources said the operation has booked an up-and-down year, in keeping with the bulk of its peers. Its traders had notched above-average performance earlier in 2022.



Brevan Howard Digital is not actively raising new capital at the moment, preferring instead to focus its investor relations efforts on existing limited-partners who have been parsing the market downturn. Its main vehicle is structured as an evergreen hedge fund and remains open to new subscriptions.



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Brevan Howard’s Crypto Unit Is Laying Off Underperformers

Bessie Liu

Many of Sam Bankman-Fried’s lies have unraveled over the past month. Through recent bankruptcy filings, many observers have noted that it is almost certain that the FTX collapse involved some manner of fraud, which could include blatantly stealing money from customers.



Both the US Securities and Exchange Commission and Department of Justice have been looking into the crimes allegedly committed by Bankman-Fried and his inner circle.



Bankman-Fried has hired former assistant United States attorney for the Eastern District of New York Mark S. Cohen as his new defense attorney after being ditched by Martin Flumenbaum for “incessant and disruptive tweeting.”



Jack Sharman, a white-collar defense lawyer and former special counsel to the US House Financial Services Committee for the Whitewater investigation involving former President Bill Clinton, told Blockworks that &#8220;a white-collar target’s desire to explain or blame is powerful, but public and repeated statements about potential criminal conduct never help and usually hurt. Client management, however, can be challenging in such circumstances.”



Cohen, who once defended convicted child sex trafficker Ghislaine Maxwell, may be up for the challenge, but what crimes could the now fallen crypto celebrity be guilty of? 



“The publicly-reported allegations about Mr. Bankman-Fried could be the basis for charges of securities fraud, mail-and-wire fraud, bank fraud, and conspiracy to commit those offenses,” Sharman said. &#8220;In addition, regulators such as the SEC and the CFTC could bring parallel civil enforcement actions.”



<h3>Mishandling customer funds&nbsp;</h3>



The misappropriation of funds refers to the intentional use of another person’s property or money without receiving authorization.



Although Bankman-Fried has been <a href="https://blockworks.co/news/bankman-fried-underestimated-collapse" target="_blank" rel="noreferrer noopener">actively denying</a> his involvement in the mismanagement of customer funds in his recent media tour, telling The New York Times that he, “wasn’t trying to commingle funds,” recent bankruptcy filings <a href="https://pacer-documents.s3.amazonaws.com/33/188450/042020648197.pdf" target="_blank" rel="noreferrer noopener">alleged</a> the company used “software to conceal the misuse of customer funds.”



If there really was no intent behind using customer funds, it doesn’t quite make sense to have installed software to conceal footprints.



If Bankman-Fried were to be found guilty of this felony offense, he would face a minimum of one year in prison and fines of up to $10,000 for each count.&nbsp;



<h3>Wire fraud</h3>



Wire fraud involves deception involving the use of some form of internet or telecommunications. This includes sending false information to obtain money or property and threats.&nbsp;



This type of fraud is considered a federal crime in the United States, and jurisdiction can be claimed by the federal government, even when illegal activity is committed internationally.



Considering <a href="https://pacer-documents.s3.amazonaws.com/33/188450/042020648197.pdf" target="_blank" rel="noreferrer noopener">inaccurate financial statements</a> had been given by many of Bankman-Fried’s companies that facilitated the acquisition of competitors, it is entirely possible that these purchases involved deception and were fraudulent.&nbsp;



Wire fraud is a more serious offense, and as such, it brings with it up to 20 years in prison and a fine up to $250,000 for each count — a pittance, considering the billions of dollars in lost customer savings.&nbsp;



<h2>Criminal securities fraud</h2>



Securities fraud or stock and investment fraud is participating in illegal or unethical activities using the securities or asset markets to make a profit at the expense of others.&nbsp;



This type of fraud includes Ponzi schemes, providing false information, and insider trading — perpetrators can include organizations or individuals.&nbsp;



As FTX was offering yield-bearing products, it is possible that it was violating laws related to the sale of securities products.



Federal securities fraud conviction could punish perpetrators for up to 25 years in prison.



Updated Dec. 7, 2022 at 9:11 am ET: Comments from defense attorney Jack Sharman have been added.



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What Sam Bankman-Fried’s New Attorney Is Getting Himself Into

A <a href="https://blockworks.co/news/oecd-releases-framework-to-unify-global-crypto-tax-reporting" target="_blank" rel="noreferrer noopener">crypto tax</a> startup is laying off staffers and planning to shutter at least one key hub — just in time for tax season.



Koinly recently cut 16 full-time employees, or 14% of the company, representatives said Tuesday. Former insiders pegged the figure significantly higher, counting laid-off contractors who played integral roles.



Leading up to the curiously-timed move: a recent Slack from CEO Robin Singh announcing a restructuring, including the pending closure of the London office.&nbsp;



The early-morning, wide-ranging culling — for the North America-based team — came as a surprise even to other Koinly executives, according to three sources familiar with the matter. One source described the maneuver as a “sudden and unilateral” undertaking by Singh.&nbsp;



Employees were told to ask their line manager for clarity as to how the Koinly “flattening” would affect them. But their managers, sources said, appeared just as surprised by the move as they were.



“A lot of people were left wondering as to how this affected them,” one source said.&nbsp;



In a statement, a spokesperson for Koinly said the closure of the London office was not related to the layoffs — attributing it, instead, to an internal poll that found that United Kingdom employees preferred working from home.



“Koinly is a remote-first company,” the spokesperson said.



Two of the sources pushed back against that characterization, saying staffers enjoyed being in the office.



Irrespective of the office closure, which the spokesperson said is scheduled for April 2023, the company’s direction has spurred much internal puzzlement. More specifically, current and former staffers said they don’t understand why this is happening now. The coming months, after all, should be some of the most lucrative of the year for a crypto tax specialist, considering the mammoth capital losses scores of traders are sure to book.&nbsp;



“No one actually knows why Koinly had a need to let people go,” a source said.&nbsp;



In a statement, Singh said crypto investors have a “lack of awareness” when it comes to “filing their crypto losses.” The “actual <a href="https://blockworks.co/news/crypto-main-characters-drop-like-flies-as-bear-market-turns-one" target="_blank" rel="noreferrer noopener">crypto downturn</a>,” according to Singh, has hurt the company by a smaller margin.



“We are seeing fewer people reporting crypto on their tax returns, mostly because there are a lot of losses this year,” Singh said. “However investors are generally unaware that filing losses on their tax returns benefits them in the long run, as losses can be used to offset gains in future years.”



Koinly representatives repeatedly deferred Blockworks’ multiple requests for comment ahead of a <a href="https://www.einnews.com/pr_news/605025390/cryptocurrency-startup-koinly-announces-layoffs-amid-crypto-freeze" target="_blank" rel="noreferrer noopener">press release</a> announcing the layoffs. Singh did not return a direct request for comment. 



Sources, who were granted anonymity to discuss sensitive business dealings, said the way the restructuring has been communicated is in line with how the company generally operates.&nbsp;



Former employees said they have yet to receive their final paycheck — adding they have no idea when that might happen.



“It is hard to know how many people have been let go over the past week/months as there has never been any communication either before or after,” one source said. “You only find out that someone has been fired when you go to message them and their [Slack] is no longer active or if someone else tells you.”



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Crypto Tax Startup Koinly Cuts Staffers Just in Time for Tax Season

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