Taiwanese cryptocurrency exchange under investigation for money laundering

According to a report published on March 31 by Nikkei, a Tokyo-based financial news outlet, the Japanese authorities are gearing up to categorize digital assets as financial products, while in the process broadening the scope of insider trading restrictions. While the publication didn’t cite a particular source, it reported that the Japanese Financial Services Agency (FSA) is expected to file a draft amendment related to the existing Financial Instruments and Exchange Act in 2026.Photo by M.S. Meeuwesen on UnsplashFrom payment to investment productCurrently, Japan’s Payment Services Act categorizes crypto assets as a means of settlement. That categorization looks at these assets from the perspective of a payment tool rather than considering them as investment products. The move is understood to be part of a broader effort to copper-fasten crypto sector oversight. Earlier this month, the Japanese cabinet approved a proposal that seeks to amend the Payment Services Act.  At the time, it had been suggested that the amendment would look to exclude crypto assets from being classified as securities, while also bringing about a reduction in the capital gains tax rate as it is applied to digital assets. It’s likely that crypto assets will find themselves in a distinct category, apart from securities like stocks and bonds. Crypto adoptionActivity related to crypto assets has been growing in Japan. 7.34 million active accounts were found to be responsible for crypto transactions in Japan in January. That amounts to a tripling in such crypto transaction activity over the course of five years. Japan enjoyed greater adoption at a very early stage in the global development of crypto. However, following the Mt. Gox crypto exchange collapse in 2014, which at the time accounted for the loss of 7% of Bitcoin’s supply, regulators responded by clamping down on the sector.  That situation led to greater investor protection for Japanese investors but it presented as a difficulty for Japan-based exchanges to compete globally with other exchange businesses overseas. A conservative stance taken by the FSA has also held back crypto exchange-traded fund (ETF) approval and adoption. Bitcoin ETFs were approved in the United States over a year ago. Earlier this month, Astar Network founder Sota Watanabe outlined that the current ruling party in Japan plans to remove crypto assets from a securities classification, alongside other changes which could potentially lead to the approval of crypto ETFs. The Liberal Democratic Party has also put forward crypto tax reforms that, if implemented, would see a 20% tax rate brought into effect where capital gains on digital assets are concerned.The finer detail with regard to the nature of insider trading restrictions as they will be applied to crypto assets has yet to be revealed. Nikkei speculated that such restrictions would likely be similar to those applied to conventional financial products. Last week, the Asia Web3 Alliance Japan, a crypto advocacy group, put forward a proposal to the U.S. Securities and Exchange Commission (SEC) that, if implemented, would see collaboration between the U.S. regulator and Japan’s FSA, its central bank and the Ministry of Economy, Trade and Industry. The objective of the proposal is to bring about cross-border regulatory clarity related to the further development of the Web3 ecosystem in both Japan and the U.S.

A settlement agreement between failed crypto lender BlockFi and bankrupt Singaporean crypto hedge fund Three Arrows Capital (3AC) has received approval from a U.S. judge. However, the specifics of the settlement remain sealed, citing concerns raised by yet another failed crypto platform, FTX. Dispute resolvedDuring a hearing on Feb. 6, New Jersey Bankruptcy Court Judge Michael Kaplan resolved the dispute, which saw BlockFi claiming $129 million owed by 3AC, while the Singapore-based firm contended that BlockFi owed it $280 million. Judge Kaplan's decision to keep the settlement agreement sealed stemmed from a perspective that unsealing it would be counterintuitive. BlockFi had filed a motion to seal the settlement terms last month. The U.S. Trustee objected to the seal, asserting that the debtors hadn't provided sufficient justification for sealing the agreement.Photo by mk. s on UnsplashSensitive settlement termsBlockFi justified the need for confidentiality, citing the sensitive commercial nature of the terms, which could potentially impact ongoing litigation involving FTX. The approval of the settlement now paves the way for BlockFi to proceed with distributions from the lending estate to its 100,000 creditors, with the firm owing up to $10 billion. Central to the dispute were preferential payments, transactions made just before bankruptcy that could have given the recipient more than they would have received through court proceedings. The resolution of counterclaims between BlockFi and 3AC follows mediation ordered by Judge Kaplan in October, likely culminating from a two-day hearing starting on Jan. 5 aimed at resolving the matter conclusively. This settlement follows another agreement between 3AC and Genesis, settling $1 billion in claims by 3AC. The company filed for bankruptcy in July 2022, attributing the extreme fluctuations in cryptocurrency markets as the reason for its collapse. Projected 46% 3AC creditor recoveryAccording to a December report to creditors by Teneo, it's estimated that 3AC creditors will receive approximately 45.74% of their claims from the bankrupt estate. As of Dec. 18, 2023, 3AC's assets were valued at $1.16 billion, while recognized claims for distribution stood at $2.7 billion. In an ongoing effort to secure 3AC's assets, a British Virgin Islands (BVI) court froze $1 billion in assets belonging to 3AC's founders, amid the liquidation process. This move is part of a broader strategy to seek recoveries from the founders and Kelly Chen, wife of one of the co-founders. 154 claims totaling $3.4 billion were filed against the 3AC estate, with $200 million not admitted for distribution and $322 million rejected or expected to be rejected. Additionally, claims worth $76 million are currently under dispute. BlockFi, along with eight affiliates, filed for Chapter 11 bankruptcy in November 2022. The firm cited significant exposure, including obligations owed to BlockFi by FTX-linked hedge fund Alameda Research, assets on the FTX platform and an undrawn credit line from FTX. 3AC’s collapse in June 2022, followed by FTX's downfall, led to BlockFi's bankruptcy filing in late November 2022. In a separate development, OPNX, a crypto bankruptcy claims platform launched by 3AC co-founders Su Zhu and Kyle Davies, announced its cessation of operations, with plans to shut down by Feb. 14.  

Bybit Extends Service Offering to Include LendingDubai-headquartered crypto spot and derivatives trading platform Bybit announced on Tuesday that it has expanded the range of services it offers to now also encompass crypto lending.Photo by Traxer on UnsplashHourly interestIn the announcement which has been published to the platform’s website, the company set out the nature of the Bybit Lending product. “With Bybit Lending, users can deposit their unused cryptocurrencies into Asset Pools, which will be lent out to borrowers,” the service update outlines.Expanding on the features that the new service offering brings with it, the crypto platform outlines that customers will have the ability to accrue interest on an hourly basis. That interest will be calculated at a variable rate, with a variance in the rate depending upon the level of borrowing activity. “In extreme cases where there are no borrowers at all, the interest rate could drop to 0%,” the company clarified.Low risk claimsBybit points out that “loaned assets are kept safe by Bybit’s strict risk management system, enabling you to earn returns with peace of mind.” While this is comforting to hear, it remains to be seen to what extent crypto market participants will take this statement at face value.2022 proved itself to be a graveyard for most of the leading crypto lending firms, and with that, such failures also proved to be a graveyard for the hard earned funds of retail market participants in their hundreds of thousands. Many are dubious about the integrity and sustainability of the crypto lending model, at least at a retail level.Withdrawal restrictionsBybit added that the product facilitates flexible redemptions. However, in an accompanying note, it added that the withdrawal of funds is dependent upon “ the funds in the Asset Pool [not being] fully lent out and you have not exceeded your Daily Withdrawal Limit.”It’s important to note that as many of the failed crypto lenders were getting further and further into difficulty in 2022, they added more arduous withdrawal limits and withdrawal conditions as a mechanism to stem the bleeding that was the outward flow of deposits against a backdrop of a deficit in customer funds held by these platforms.In further marketing of the product on Twitter, the company is claiming that customers can benefit from interest rates of up to 16.46%. While one could take the view that limited promotion of exceptionally high interest rates is harmless, the lesson learned from recent crypto lender failures is that such platforms were offering excessive and unsustainable interest rates as a mechanism to reel in retail deposits, only to later proceed to mismanage those funds.Competing offeringsBybit is not alone in offering this service. While a plethora of lending services exited the market via bankruptcy, exchanges such as OKX and KuCoin have their own variations on lending. OKX extends a loan facility to platform users proportionate to digital assets the user has deposited on the platform. Seychelles-based KuCoin offers a lending service across a broad spectrum of crypto assets.The intent of US based platforms Coinbase and Kraken in this regard has been retarded due to the actions of US regulators. Kraken fell foul of the Securities and Exchange Commission (SEC) relative to its staking service and paid a $30 million fine as a consequence. Meanwhile, Coinbase shelved plans to launch lending-based services in September 2021 having been warded off the idea by the SEC.