Seoul and Baobab Partners Face Controversy Over Unpaid Prize Winnings for SWF2023 Hackathon

Despite interest expressed by a Japanese lawmaker earlier this month for Japan to establish a strategic Bitcoin reserve, the country’s prime minister has declined to offer support for the idea.Photo by Su San Lee on UnsplashInsufficient informationJapanese crypto media outlet CoinPost reported on Dec. 26 that the country’s prime minister, Shigeru Ishiba, refrained from endorsing the notion of a Japanese strategic Bitcoin reserve on the basis that he and his government lack sufficient information on the subject. With that, Ishiba feels that it’s “difficult for the government to express its views” on the matter. The Japanese prime minister was prompted to offer his views on the subject having been queried by Japanese Member of Parliament (MP), Satoshi Hamada. During a question and answer session earlier this month, Hamada cited the United States and Brazil as examples of states that are currently considering the addition of Bitcoin as a reserve asset.  The Japanese lawmaker suggested that policymakers in those countries were leaning towards the consideration of Bitcoin as a hedge against economic risks, and that on that basis, he believed that the Japanese government should give the use of Bitcoin as a national reserve asset consideration. Hamada stated: “I think Japan should follow the example of the United States and consider turning some of its foreign exchange reserves into crypto assets such as Bitcoin.” Ishiba has responded by stating that his government lacks sufficient information relative to this “movement of introducing Bitcoin reserves that the United States and other countries are proceeding with.” Additionally, the Japanese government maintains that stability and liquidity are of paramount importance when it comes to the country’s foreign exchange reserves. With those factors in mind, it believes that Bitcoin is incompatible due to its price volatility. Unsustainable debt levels Some proponents of Bitcoin suggest that it offers a way forward for countries that have developed an unsustainable level of debt. In an X post published on Dec. 27, Thomas Jeegers, chief financial officer (CFO) at Swiss Bitcoin-only app enterprise Relai, set out a case for Bitcoin on that basis. Jeegers outlined that the United States has a debt of $36 trillion, accounting for 120% of gross domestic product (GDP).  He describes the Japanese scenario as being considerably worse, where the country’s debt accounts for 200% of GDP. Jeegers forecasts that the trajectory is unsustainable, with debt having grown “far beyond manageable levels.” The Relai CFO warns that the financial world is at breaking point and “it’s not a matter of 'if' but 'when' the system buckles under its own weight.” Earlier this month, investment manager VanEck published a report claiming that a strategic Bitcoin reserve could facilitate the U.S. in reducing its national debt by up to 36% by 2050. Like Japan, Russia has also decided against a strategic Bitcoin reserve. Although Finance Minister Anton Siluanov pointed towards Bitcoin’s unit price volatility being an issue, he is open to reassessing the matter in the future.

Korea’s Legislative Research Body Suggests Expanding Blind Trust System to Include CryptoThe National Assembly Research Service (NARS) of South Korea last Friday issued a report emphasizing the need to broaden the scope of the country’s blind trust system for public officials. Currently, this system primarily covers traditional stocks, but the report highlights the necessity of extending its coverage to include cryptocurrencies.Photo by O-seop Sim on PexelsPublic Service Ethics ActUnder the existing Public Service Ethics Act, public officials holding a rank of 4 or higher within the finance department of the Ministry of Economy and Finance and the Financial Services Commission are mandated to either divest themselves of stocks linked to their official duties and responsibilities or transfer them into a blind trust if the total value of these stocks exceeds KRW 30 million (about $23,000).Blind trustA blind trust is a mechanism through which a public official transfers their stock holdings to a trustee. Subsequently, the trustee handles these entrusted stocks by exchanging them for other assets and overseeing their management, administration, and disposition. Importantly, the original owner of the stock, who is the public official, is barred from participating in these aspects of the trust and is also kept uninformed about the trust property’s status or details.Debate over expansionThe current policy confines the blind trust framework exclusively to stocks. Nevertheless, there is an ongoing debate advocating for the inclusion of other assets, such as virtual assets and real estate, within its scope. The rationale behind this argument is that these types of assets can also potentially give rise to conflicts of interest. However, counterarguments have been raised, expressing concerns that extending the blind trust to these assets could excessively limit the property rights of public officials. Consequently, as of now, this broader application has not been implemented.Comparison with the USThe Korean blind trust system was inspired by the United States’ Ethics in Government Act of 1978, which does not limit the types of assets that can be included in a blind trust. In the US, a blind trust can encompass not only stocks but also bonds, mutual funds, virtual assets, and real estate. In light of this, the report recommends the expansion of the blind trust system to encompass virtual assets and real estate. This step is proposed to prevent conflicts of interest among public officials pertaining to a wider array of asset types.Enhancing trustee discretionMeanwhile, NARS also argued for broadening the trustee’s discretion in trust management to render the system more reasonable. This stems from the concern that the existing uniform property sale approach could lead public servants to incur losses. NARS has proposed potential solutions, such as extending the time limit for property sales or mandating the sale of only a portion of the assets, as viable options to address this issue.

Backpack Exchange, a crypto exchange that joined the Japan Virtual Currency Exchange Association (JVCEA) last December, has recently acquired FTX EU, the European arm of the failed crypto exchange business FTX. According to a press release, the business comes with a European MiFID II license, with the acquisition having been approved by the Cypriot regulator, the Cyprus Securities and Exchange Commission (CySEC). Furthermore, a Delaware bankruptcy court in the United States, which is dealing with the FTX bankruptcy, has also rubber-stamped the acquisition. Backpack Exchange was co-founded by CEO Armani Ferrante, alongside other former FTX executives. According to the firm’s LinkedIn page, it has established its headquarters in Japan. The company also has links to Dubai, having acquired a Virtual Asset Service Provider (VASP) license for its Backpack Wallet product from  Dubai’s Virtual Assets Regulatory Authority (VARA) in 2023.Photo by Christian Lue on UnsplashRebuilding trust As a consequence of having acquired FTX’s European arm, Backpack Exchange will now assume responsibility for the distribution of court-approved FTX bankruptcy claims to FTX EU users. In the company’s press release, Ferrante spoke of the importance of the distribution process in rebuilding trust. He stated: "Customer restitution is a crucial step to rebuild trust and confidence in the industry, and Backpack is committed to returning FTX EU customers’ funds as fast and as safely as possible." In response to a query from FTX creditor activist Sunil Kavuri on X, Ferrante outlined that FTX EU users “will only be able to claim their euro claims funds directly from Backpack EU.” Ferrante clarified that FTX EU customers who had pending crypto withdrawals at the time of the bankruptcy will have their crypto claims dealt with via the FTX bankruptcy estate. In a Series A financing round early last year, Backpack was valued at $120 million. Through FTX EU, it now acquires a MiFID II license, further facilitating the global expansion of the company. With FTX EU now forming Backpack’s EU arm, the company will offer crypto-derivative products, including perpetual futures. This product offering is scheduled to go live in Q1 2025. Bankruptcy process controversy The bankruptcy of FTX EU has been controversial, starting off with the European entity being illegally filed into a U.S. bankruptcy process. In early 2024, the FTX Debtors suggested that the entity was worthless. It later wanted to buy out the entity itself, outbidding a third-party bidder. A short time afterwards, the FTX Debtors reached a settlement with the former FTX EU team. It’s understood that Backpack has acquired FTX EU for $32 million.  The FTX Debtors’ attempt to buy the business itself has cast a cloud over the bankruptcy process. When it first emerged that the business had been sold, there was some speculation as to if this would mean a rebooted FTX within the European market, but Backpack’s acquisition confirms that this was not to be the outcome.  Japan could have offered another opportunity to reboot the business, but instead, FTX Japan was acquired by bitFlyer and absorbed into its existing business. With regard to the main FTX business entity, the FTX Debtors told the bankruptcy court that there was no interest in the business from buyers.