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Weekly Update #38

Weekly Update #38

MARK COLLINS & DEMETRIOS TSEAS

Regulatory News:

U.S. Justice Dept charges three individuals for $1.89B cryptocurrency fraud scheme: On Jan 29, the U.S. Justice Department announced charges against two individuals and the guilty plea of a third individual for orchestrating a $1.89 billion cryptocurrency scheme, for allegedly co-founding HyperFund, also known as HyperTech, HyperCapital, HyperVerse, and HyperNation.  The defendants are being charged for promising investors substantial returns paid from cryptocurrency mining operations, which did not in fact exist.

German authorities seize bitcoins worth $2B in a biggest to-date seizure in Germany: On Jan 30, the German Police announced it has seized 50,000 bitcoins, with a value of approximately $2 billion in the Eastern state of Saxony.  The Saxon State Criminal Police Office said that this may by the biggest to-date seizure of its kind in Germany.  Police said they were investigating two men, suspected of running a piracy website until the end of 2013. An investigation is still underway and no charges have yet been filed. 

South Africa’s FSCA to start issuing first batch of crypto licenses: South Africa’s Financial Sector Conduct Authority (FSCA) will reportedly start issuing licenses to crypto asset service providers (CASPs) within the coming weeks. With the licensing regime, consumers should only interact with crypto firms that are licensed, and the lack of a license should be considered a ‘red flag.’

Argentina drops crypto regularization clause from new economic reform: On Jan 27, the Argentine tech-focused outlet iProUP reported that the clause about asset regularization suggesting a single-time tax on various types of previously undeclared assets, has been cut out of the Law of Bases and Starting Points for the Freedom of Argentines — an omnibus bill aiming to kickstart President Javier Milei’s policy agenda.  This part of the bill proposed a simple tax of 5% on all assets, declared by the end of March 2024, 10% from April until the end of June 2024 and 15% from July until the end of September.  Reportedly, the decision to eliminate the asset regularization from the bill was based on the fact that “it delayed the treatment” of the initiative in parliament.

EU’s ESMA consults on reverse solicitation and classification of crypto assets as financial instruments under MiCA: On 29 January 2024, the European Securities and Markets Authority (“ESMA”), the EU’s financial markets regulator and supervisor, published two Consultations Papers on guidelines under Markets in Crypto Assets Regulation (MiCA), one on reverse solicitation[1] and one on the classification of crypto-assets as financial instruments.  The consultation closes on 29 of April 2024. ESMA will consider the feedback it receives to the consultation in Q2 2024 and expects to publish a final report in Q4 2024.

Department of energy to survey BTC mining firms: The U.S. Department of Energy (DOE) has launched a mandatory survey to assess the energy consumption of the country’s cryptocurrency mining industry, citing the surge in Bitcoin prices as a driving factor. The Energy Information Administration (EIA) will collect data from commercial miners, focusing on changes in mining activity, energy sources, and concentrated mining regions, with the survey approved until July 2024. EIA

El Salvador’s pro-Bitcoin president wins reelection: Nayib Bukele won the election in a landslide winning nearly 85% of the vote and will serve for another 5-year term. Bukele Twitter

BTC-e founder faces 25 years in prison for role in money laundering: An indictment unsealed on Tuesday charges Aliaksandr Klimenka, a Belarusian and Cypriot national, with money laundering conspiracy and operating an unlicensed money services business. Klimenka allegedly controlled the BTC-e digital currency exchange, facilitating significant cybercrime and online money laundering activities, and faces a maximum penalty of 25 years in prison if convicted. DOJ

Crypto News:

Germany’s DZ Bank to pilot crypto trading this year: Germany’ second largest bank, DZ Bank will reportedly  pilot crypto trading this year, following the release of a cryptocurrency custody platform earlier in November 2023.

Visa enables crypto withdrawals on debit cards in 145 countries: On Jan 30, VISA reportedly strategically partnered with Web3 infrastructure provider Transak to introduce cryptocurrency withdrawals and payments through the Visa Direct platform.  The partnership allows users from 145 countries to directly convert 40+ cryptocurrencies to fiat, without relying on centralized exchanges.  This new integration allows users to withdraw cryptocurrencies like Bitcoin directly from a wallet like MetaMask to a Visa debit card. Available immediately, the integration enables one to exchange crypto to fiat and pay at 130 million merchant locations where Visa is accepted.

Super Bowl expected to be without crypto ads: Cryptocurrency exchanges are expected to be notably absent from ad spots during Super Bowl LVIII on Feb. 11, with companies focusing on “fun, humor, and entertainment” rather than financial technology, according to a CNN report. Following the collapse of FTX, eToro, Crypto.com, and Coinbase, the shift away from AI and crypto firms in Super Bowl ads reflects a departure from the trend seen in Super Bowl LVI in 2022. CNN

OPNX to shutter operations: OPNX, the crypto bankruptcy claims platform and exchange launched by the co-founders of the failed hedge fund Three Arrows Capital (3AC), is set to shut down by February 14, urging users to settle positions and withdraw funds by February 7. The closure follows the collapse of the $10 billion hedge fund in June 2022, with the founders, Su Zhu and Kyle Davies, facing additional challenges as Teneo seeks to recover $1.3 billion from them for allegedly taking on excessive leverage with investor funds. Yahoo Finance

Valkrie BTC ETF adds Bitgo as a custodian: Valkyrie has chosen BitGo as a custodian for its spot Bitcoin ETF, according to an SEC filing. While Valkyrie still plans to use Coinbase as a custodian, it aims to diversify its digital asset custodians by incorporating BitGo. SEC 8-K

Hacks and Exploits:

Abracadabra: Abracadabra.money suffered a $6.5 million hack on Ethereum due to a rounding issue in the CauldronV4 code, allowing attackers to manipulate debt calculations and drain MIM liquidity from cauldrons. The Abracadabra team has promised to buy back MIM from the market and burn it to restore the stablecoin’s peg, and despite a quick mitigation of the issue, MIM is currently trading around $0.97. Rekt