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Regulation

Congresswoman Takes Aim at Facebook’s Libra

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Libra Faces Opposition from Sylvia Garcia

In another blow to Facebook’s Libra currency, Representative Sylvia Garcia (D-TX) published a statement in which she rejected the potential for a status change on the Libra coin project. The rejection follows the submission of an updated Whitepaper by Libra developers. The news showcases the distrust many lawmakers still have towards major social media networks that desire to enter the crypto sector.

In an April 16 announcement, Garcia explained that her intention is to continue to make sure that the SEC regulates all potential securities, no matter their type. In the statement, Garcia explains that according to the Howey Test, Libra still falls under current securities regulations. Specifically, she pointed out that the new whitepaper didn’t change the fact that Libra derives value from a basket of currencies that are subject to change based on the actions of the Libra Association.

The statement comes as another blow to Libra developers who have had a rough go at the project ever since it entered the spotlight back in June 2019. At that time, Facebook was already under intense scrutiny for multiple privacy violations and meddling allegations surrounding the last presidential election. Consequently, the push-back for the project has been intense.

Libra Halted

For example, regulators’ concerns boiled over into action last year when Maxine Waters (D-CA), Chairwoman of the Financial Services Committee put the brakes on the project. Waters halted the project to allow regulators to get a better understanding of the concept and its effects on the financial markets. Notably, Facebook CEO Mark Zuckerberg testified before congress to help explain his firm’s strategy. Not surprisingly, not many lawmakers were swayed by his performance.

Sylvia Garcia via Twitter - Libra

Sylvia Garcia via Twitter – Libra

Sylvia Garcia

If the name Sylvia Garcia sounds slightly familiar to you, there are a couple of reasons why. For one, She and Veronica Escobar became the first Latina congresswomen from Texas in 2018. Additionally, Garcia is active in the crypto regulatory sector. Last year, the representative sponsored the “Managed Stablecoins are Securities Act of 2019”. Importantly, Representative Garcia currently sits on the House Committee on Financial Services.

Libra – A Cloudy Future

Despite the fact that the Libra Project has nearly unlimited funds, the concept faces an uphill battle. Despite all the hurdles, it appears as if Facebook has no intention of dropping the concept in the near future. In fact, it looks as if the project is taking on a more flexible approach. In this way, you may see more Whitepaper alterations to suit regulatory requirements as developers try to appease regulators.

What if Libra Launches

If, or when, the Libra project goes active, it will represent a huge milestone for the entire crypto sector. The currency would place crypto wallets and coins directly in the hands of billions of users. Analysts predict the event could be the catalyst for a crypto revolution. Despite the high hopes, there are still many in the crypto community expressing concern over the project due to the potential for a lack of decentralization and complete destruction of privacy.

It’s a Waiting Game

You have to imagine that Facebook plays the long game on this project. They understand that the political landscape changes frequently, and you could even see them weighing in heavily on future elections to ensure a better response moving forward. For now, it doesn’t look like Libra managed to warm any hearts at the Financial Services Committee as of yet.

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David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com

Regulation

Nigerian SEC Provides Clarification on Token Offerings and Digital Asset Classification

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nigerian

Investors continue to flock towards assets such as cryptocurrencies and digital securities as, not only a new form of currency but a hedge against global economic uncertainty.  As a result, regulatory bodies around the world have had to adapt or clarify approaches towards these alternative asset classes.  The latest to do so is the Nigerian Securities and Exchange Commission.

Before jumping into what a few of these approaches are, the Nigerian SEC took the time to allay fears of an unnecessarily strict approach.

“Digital assets offerings provide alternative investment opportunities for the investing public; it is therefore essential to ensure that these offerings operate in a manner that is consistent with investor protection, the interest of the public, market integrity and transparency. The general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices that ultimately make for a fair and efficient market.”

Default Classification

In this recent address to the public, the Nigerian SEC was explicit in its approach towards digital assets, stating,

“The position of the Commission is that virtual crypto assets are securities, unless proven otherwise.”

By taking this stance, it removes the guesswork surrounding the treatment of digital assets.  Essentially, it does not matter if an asset fails to fit the definition of a security.  In order to be deemed something else, this needs to be proven to the Nigerian SEC on a case-by-case basis.  Only then, with the approval of the regulatory body, can an asset be reclassified.

Where the Onus Lies

In addition to establishing its position that all digital assets are to be treated as securities by default, the Nigerian SEC elaborated on where the onus lay for those looking to change the classification of an asset.

“…the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets.”

Essentially, the Nigerian SEC will not be taking it upon itself to classify every asset.  It is the responsibility of a tokens issuer to prove the most appropriate classification.

All Token Offerings Regulated

While the first two points of clarification maintain a focus on investors, a third was made to provide clarity to companies hosting capital generation events.

These events, which include ICOs, DSOs, and IEOs, are all subject to regulation by the Nigerian SEC.  There are no forms or variations that ‘skirt’ around existing regulations.  As all digital assets are deemed securities by default, this classification spills over into events meant to facilitate their sale/distribution.  It is stated,

“…all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors, shall be subject to the regulation of the Commission”

In the ICO boom of 2017, companies around the world took part in these popular means of raising capital.  While many were scams, there were still many well-intentioned companies that simply were not well informed.  As a result, many hosted ICOs, under the impression that securities laws would not apply when this was simply not the case.

This stance by the Nigerian SEC was made in an effort to avoid this confusion moving forward.  While ICOs may not be as popular as they once were, token offerings still regularly occur in the form of DSOs and IEOs.

SEC Nigeria

The Nigerian SEC in its current form was founded in 1979.  Much like similar regulatory bodies, it is tasked with ensuring fair and transparent capital markets through the creation and enforcement of regulations.

Chairman, Olufemi Lijadu, along with a 9 person board, currently oversees operations.

In Other News

At the beginning of today’s look at the actions of the Nigerian SEC, we alluded to similar occurrences in a variety of nations.  Some of these occurrences involved real change, while others simply clarification.  The following are a few examples of these.

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Regulation

FLiK and CoinSpark Orchestrators Charged by SEC for Fraudulent ICOs

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FLiK CoinSpark

On September 11, the SEC announced charges against FliK and CoinSpark, as well as five individuals associated with the two companies.  The charges stem from two fraudulent ICOs (FliK and CoinSpark) held in 2017.

With 2020 being a disaster in many ways, it is easy to develop a short term memory of past years.  Unfortunately for the bad actors that took part in past fraudulent ICOs, the Securities and Exchange Commission (SEC) remembers.

SEC Charges

The charges surrounding these two ICOs are various.  Not only did the events represent the illegal sale and distribution of securities, but they were rife with other fraudulent activity.

  • Illegal sale and distribution of unregistered securities
  • Misrepresentation
  • Appropriating and misusing investor funds
  • Market manipulation

As a result of these charges, all parties have opted for a settlement with the SEC – each of which consists of restrictions on future market participation, along with fines that range from $25,000 – $75,000 USD.

Naming Names

The aforementioned charges are particularly noteworthy, due to the names attached to these projects.  Of the 5 individuals charged, two are well-known celebrities.

Clifford ‘T.I.’ Harris – T.I. is a rapper/actor that not only promoted, and sold FLiK tokens, but also misrepresented himself as a co-owner of the project.

Ryan Felton – Primarily a film producer, Ryan Felton was the main orchestrator behind both illegal securities offerings. The SEC took the time to comment specifically on his actions, stating, “The federal securities laws provide the same protections to investors in digital asset securities as they do to investors in more traditional forms of securities…as alleged in the SEC’s complaint, Felton victimized investors through material misrepresentations, misappropriation of their funds, and manipulative trading.”

Off the Hook?

If there is one individual that may yet rest easy, and be happy with the conclusion of this saga, it would be Kevin Hart.

When the SEC first began investigating the actions of those affiliated with FLIK, Kevin Hart was among those named.  Fortunately for the superstar actor/comedian, recent developments indicate that there have been difficulties proving his involvement.

For the time being, there was no mention of Kevin Hart in the SEC’s most recent communication.

Securities and Exchange Commission (SEC)

Founded in 1934, the SEC is a United States regulatory body.  Its purpose is to foster fair and transparent markets, through the creation and enforcement of regulations pertaining to assets deemed securities.

Chairman, Jay Clayton, currently oversees operations at the SEC.

In Other News

When looking at some of the other high-profile cases to be settled with the SEC, news of FLiK and CoinSpark seems relatively minor.  Despite this, when looking at the big picture it becomes clear that no ICOs are safe from enforcement actions by the SEC.  These smaller cases discussed today are simply the latest in a long line of similar instances.

By not letting anyone ‘off the hook’, the SEC is sending a clear message moving forward that the blockchain industry needs to remain mindful of existing securities regulations, and that companies will be held accountable for their actions.

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Digital Securities

Zug, Switzerland ‘Crypto Valley’ Becomes Latest Region to Accept BTC & ETH as Tax Payments

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taxes

Over the past few years, various regions around the world have made it known that their intent is to become a hub for blockchain.  While a few have managed to cultivate a reputation associated with the technology, it is arguably Zug, Switzerland, that is leading the way.  As a result, the moniker ‘crypto valley’ is often used when referring to the region.

Zug continues to bolster this reputation; it has announced that commencing in 2021 the region will begin accepting Bitcoin and Ether as payment for taxes.  To use this service, all taxpayers need to do is request a personalized QR code from the Zug Department of Finance for payment.

“As the home of the Crypto Valley, it is important to us to further promote and simplify the use of crypto currencies in everyday life…By enabling the payment of taxes with Bitcoin or Ether, we are taking a big step in this direction.” – Finance Director Heinz Tännler

Using Crypto for Taxes

Along with the decision to accept BTC and ETH as payment for taxes, comes various stipulations.  They are as follows,

  • Service commences in 2021
  • Only Bitcoin (BTC) and Ethereum (ETH) will be accepted
  • Payments must be paid in full
  • Eligible for tax balances up to CHF 100,000

As the region gears up for this change in 2021, there will be a short pilot program taking place in the coming weeks.

Facilitator

Despite being known as crypto valley, Zug (like most regions) would not necessarily have the technological wherewithal to develop a solution for collecting cryptocurrencies as tax payments.  As such, a partnership was struck with the popular broker, Bitcoin Suisse.

In this partnership, a multi-step process is needed to make crypto tax payments possible.

  1. Bitcoin Suisse collects cryptocurrency tax payments from citizens
  2. Bitcoin Suisse immediately converts the cryptocurrency to FIAT (Swiss Francs)
  3. FIAT transferred to the Zug’s Cantonal Tax Office

Naturally, as these are blockchain based transactions, proof of payment and account settlements will presumably be quick and transparent.

A question asked by many is, “how will the government escape the volatility associated with cryptocurrencies when accepting them as payment?”  By structuring the payment system in this manner, the Zug Department of Finance is able to avoid this volatility, as funds are immediately converted to FIAT.

“We do not take any risk with this new payment method, as we always receive the amount in Swiss Francs, even if payment is made in Bitcoin or Ether” – Finance Director Heinz Tännler

Past Examples

While Zug accepting cryptocurrencies as a means of payment for taxes is positive news, the region is by no means the first to announce such a step.  In fact, it is now the third region in Switzerland to make the decision, with the most recent being the municipality of Zermatt.  Notably, it was also Bitcoin Suisse that made the decision possible in each instance.

Outside of Switzerland, there have also been various examples in Canada.  As a country that has continually led the way in the growth of blockchain, this is no surprise.  From the creation of Ethereum to the launch of the first Bitcoin funds, Canada has remained at the forefront of the industry.  These instances in Canada have taken place in Richmond Hill and Innisfil.

Many Forms

The point of all these examples is a simple one – acceptance and adoption of cryptocurrencies is occurring.  Although acceptance for tax payments is a great sign, adoption of cryptocurrencies is evident in a variety of ways.

  • Taxes
  • Auctioning off (viewed as assets of value) – Seized BTC regularly auctioned off by government bodies. In doing so, BTC is given credibility as an asset viewed as valuable by the government itself.
  • Regulations – Regulatory bodies have recognized the staying power of digital assets, and have begun to amend and clarify regulations to better suite a future in which they play a role.
  • Institutional offeringsBitcoin Funds, Futures markets, etc.

Zug, Switzerland

Playing home to many blockchain oriented companies, Zug is a region in Switzerland, commonly referred to as ‘crypto valley’.  It has earned this moniker due to crypto friendly laws and regulations. The region is a relatively small one, hosting a population of roughly 127,000.

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