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Blockchain Bites: F1 NFTs; AFP form crypto unit; Treasurys latest consultation on crypto; Celsius crypto may go to custody customers – Fin Tech


Michael Bacina, Steven Pettigrove, Jade McGlynn,
Luke Misthos and Jordan Markezic of the Piper Alderman Blockchain
Group bring you the latest legal, regulatory and project updates in
Blockchain and Digital Law.

Trademark filings point to F1 NFTs

In recent years, fans have paid close attention to international
trademark filings to have an early opportunity to look at what
their favourite brands are planning on offering. We’ve seen
that recently with international trademark filings for Marvel Studios movies that, at the time of
filing, had not been announced yet.

Now, Formula One (F1) has recently filed
trademarks for the 2023 Las Vegas Strip Circuit Grand Prix, which
cited NFTs and cryptocurrencies in a variety of potential products
being offered through trademark registrations.

The trademarks were registered with the United States Patent and
Trademark Office on 23 August 2022, and include the trademark and
logo for the Las Vegas Strip Circuit as well as a number of
specific nods to NFTs and blockchain-powered transactional
facilities.

The trademarks show that any potential new NFTs would represent
ownership of a wide variety of tangible items including vehicle
equipment, decorative items, clothing, bags and wallets. We’ve
seen a similar offering in the 2022 Australian Open, where NFTs were sold
that represented a tangible piece of the playing court.

The trademarks also point towards:

downloadable computer software for managing cryptocurrency
transactions using blockchain technology.

Another clause in the trademark described the facilities that
were capable of covering cryptocurrency and blockchain-based
payment systems:

Financial services including e-wallets and cryptocurrency;
electronic transfer of crypto assets; currency exchange services;
currency trading; virtual currency services; electronic funds
transfer provided via blockchain technology; financial transactions
via blockchain; cryptocurrency services, namely, providing a
digital currency or digital token for use via a global computer
network; provision of tokens; provision of non-fungible
tokens.

This might be an indication that F1, as well as vendors
participating in the Grand Prix, will be accepting cryptocurrency
payments. Las Vegas is set to host its first F1 race in just under
a year, and will become the third stop in the US for the F1
roadshow.

Australian Federal Police form crack crypto unit

The Australian Financial Review are reporting that the Australian Federal Police
have formed a crack crypto investigative unit to improve police
capabilities to deal with crypto-assets forming part of seized
assets and to investigate money laundering and other crimes which
have involved crypto-assets.

The AFP’s criminal asset confiscation taskforce was
established in February 2020, and since that time it has blown past
it’s goal of seizing AUD$600M of assets by the end of 2024,
reportedly having seized to date:

[AUD]$380 million in residential and commercial property,
[AUD]$200 million in cash and bank accounts, and [AUD]$35 million
in cars, boats, aircraft, artworks, luxury items and
cryptocurrencies.

Without their own segment we don’t know just how much in the
way of crypto-assets have been seized, but that alone demonstrates
what a small component of criminal asset seizures involve any
meaningful amounts of crypto-assets (well below 5% of seized
assets). Given their highly technical nature, it’s only
sensible that the AFP have a dedicated team which can be trained on
and understand crypto, and can use leading tools like Chainalysis
and Elliptic to track transactions and catch criminals foolish
enough to use an immutable record of transactions for their ill
gotten gains. This aligns with Chainalysis reports that only 0.15% of crypto
transactions by volume involve illicit actors in 2021. This is of
course around 4 times the level of illicit transactions
identified in the banking system
, a point which AUSTRAC has
raised as a warning sign, but a tiny fraction of the estimated
illicit transactions involving cash (which are estimated between
4-8%.

As cryptocurrencies increasingly become mainstream, driven in
part by the rapid growth in the NFT space as well as a potential
thawing of crypto-winter, better education amongst law-enforcement
is key to ensure that criminals are brought to justice, and long
tired tropes about crypto being used only by criminals is put to
rest.

Treasury consults on crypto tax legislation

In June this year, Australian Treasurer, Jim Chalmers released a media statement with Assistant
Treasurer, Stephen Jones, confirming that the Labour government
planned to introduce legislation clarifying the existing tax
treatment of digital currencies as a response, in part, to El Salvador’s decision to recognize Bitcoin as
legal tender
.

This week, the Treasury released an exposure draft of the legislation which seeks
to clarify that digital currencies (except for CBDCs) will not be
taxed as foreign currency under Australian law. The Treasury also
released explanatory material outlining the proposed
changes.

The Treasury has opened a short consultation period on the draft
legislation which will close on 30 September 2022 and coincides
with the deadline for responses to the Board of Taxation’s broader review of the
tax treatment of digital assets and transactions in Australia.

The Treasury’s proposed legislation would exclude digital
currencies which are legal tender but which are not issued by any
Government from the definition of foreign currency for tax
purposes. This means that tax payers will not be able to benefit
from any preferential tax elections for foreign currency in
relation to Bitcoin.

The explanatory material contains a number of
interesting observations:

  1. The amendments are intended to ensure that Bitcoin, which has
    been recognized as legal tender in El Salvador, continues to be
    treated as a digital currency (and not foreign currency) under tax
    legislation;

  2. It describes Bitcoin as decentralised and not issued by or
    controlled by any government and the only current example where
    there is a potential overlap between the definition of money and
    digital currency under legislation.

  3. The new definition of digital currency will exclude any digital
    currency which is issued by or under the authority of the
    Australian government or a foreign government agency (i.e. CBDCs
    including, presumably, the e-CNY, Nigeria’s e-Naira and
    Bahamas’ Sand Dollar). Accordingly, it appears that Government
    backed CBDCs will receive preferential tax treatment over
    stablecoins which will continue to be treated as digital currencies
    for taxation purposes.

  4. The proposed amendments include a power to make regulations to
    provide for further exclusions from the definition of foreign
    currency in future to enable other digital currency-like assets to
    be excluded through regulation.

  5. The proposed legislation is intended to take effect
    retrospectively for the purpose of preserving the existing tax
    treatment of digital currencies (excluding CBDCs) for the 2021-2022
    tax year.

While Treasury’s move to clarify the existing tax treatment
of digital currencies is welcome, the draft legislation raises a
number of interesting and unanswered policy questions as to the
differential tax status afforded to different types of currencies
and the impact of that status on the development of the digital
economy. These questions will hopefully be addressed more broadly
as part of the Board of Taxation review. Once implemented, these
changes will mean that traditional fiat backed currencies and CBDCs
will be treated as foreign currency for tax purposes, while
privately issued digital currencies (including stablecoins) will
not be even where they are adopted as legal tender in a foreign
country.

You can review the draft legislation and explanatory materials
here. Submissions must be filed by 30 September
2022.

Some Celsius crypto to go to custody customers?

Embattled cryptocurrency business, Celsius Network, presently
under bankruptcy protection in the US, is seeking court approval in New York in order to
allow a small group of custody customers to withdraw digital assets
which were held in separate custody to other assets. Earlier this
year Celsius froze withdrawals, swaps and transfers
of customer assets before filing for bankruptcy in July.

In a filing with the United States Bankruptcy Court
for the Southern District of New York, Celsius moved for orders
that customers’ digital assets held in the Celsius Custody
Program and Withhold Accounts be released to those customers.

Approximately USD50 million worth of crypto assets would be
included in the proposed release. The proposed release does not
include customers who held Celsius Earn and Borrow accounts.
According to Celsius’ lawyers, users did not maintain legal
ownership of cryptocurrencies deposited in earn or loan accounts,
such as the Earn and Borrow accounts.

To complicate matters further, Celsius submitted in the motion
that users who transferred assets exceeding a statutory minimum
from Earn or Borrow accounts to the Custody Program or a Withhold
Account within 90 days of Celsius filing for bankruptcy would also
not be eligible to withdraw their assets.

The treatment and protection afforded to client’s
cryptocurrency holdings is a key matter to be considered when a
crypto business is in difficulty. We anticipate further
developments in this area globally as a number of recent high
profile insolvencies move through the Courts in the United States
and elsewhere.

Closer to home, and relevant to this issue, when New
Zealand-based crypto exchange Cryptopia shut down in January 2019 and
subsequently entered into liquidation, one of the questions raised
was whether cryptocurrencies deposited by clients should be
classified as trust property within the meaning of New
Zealand’s Companies Act and thus have to be
distributed to account holders, or whether the cryptocurrencies
should be deemed to be Cryptopia’s assets and used to repay
creditors.

In that case, the court found that the cryptocurrencies were
being held on trust for the account holders and Cryptopia had no
right to use the assets to repay creditors in the liquidation.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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