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With cryptocurrency comes risks, rewards | Legal Affairs

The rise of cryptocurrency has led to many exciting investment and financial opportunities across the world. However, as with any new technology, this has left many people with many questions:

What is cryptocurrency? Cryptocurrency is a digital or virtual asset that is secured by cryptography. This makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are created and maintained using blockchain technology – a distributed ledger enforced by a network of computers.

Who is using cryptocurrency? People in first world countries, or countries with stable economies, tend to use cryptocurrency as investments. However, the majority of people using cryptocurrencies reside in countries with emerging or unstable economies. These users rely on cryptocurrency as an alternative to fiat currencies to preserve their finances when the local fiat currency is unstable or to circumvent restrictions when their country has rules about how much money can leave the country.

Is cryptocurrency legal? Yes, in the United States, cryptocurrency is legal. However, the U.S. government is still adopting rules and regulations for cryptocurrency markets. Currently, regulatory agencies are trying to define and regulate cryptocurrency within existing frameworks, which has led to inconsistencies and confusions. For example, the Commodity Futures Trading Commission considers cryptocurrency a commodity, while the IRS considers cryptocurrency as property. Similarly, the Securities and Exchange Commission sometimes considers cryptocurrency a currency, but sometimes considers it a security. To remove the regulatory confusion around cryptocurrency, on March 9, President Joe Biden signed an executive order calling upon these federal agencies to take a unified approach to develop policy recommendations to formally regulate cryptocurrency.

What are the risks of cryptocurrency? Beyond the fact that cryptocurrency is a volatile investment, which inherently comes with financial risks, people who want to invest in cryptocurrency should be wary of fraud. Tech-savvy criminals have defrauded many would-be cryptocurrency investors of billions or dollars over the past several years with fake cryptocurrency offerings and Ponzi schemes disguised as too good to be true investment opportunities. The best way to avoid these scams is to research cryptocurrencies before investing in them; recognize that if something sounds too good to be true, it probably is; and trade on regulated centralized trading platforms, such as Coinbase.

Is cryptocurrency taxable? Yes, cryptocurrency is considered digital property. Generally, the IRS treats it like stocks, bonds and other capital assets. Like these assets, the money you gain from cryptocurrency is taxed differently depending on how it was obtained and how long it was held.

Cryptocurrency is an exciting new technology and investment opportunity. While this newness comes with risks and uncertainty, people should not be dissuaded from learning about and using cryptocurrency. Cryptocurrency will only continue to grow.


Attorney Ian Friedman is founding partner of Friedman & Nemecek, L.L.C. in Cleveland and Mara Hirz is an attorney with the firm.

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Indian founder of cryptocurrency company indicted for $2.4 bn fraud


The founder of cryptocurrency investment platform BitConnect, an Indian national, has been indicted on charges of orchestrating a global Ponzi scheme worth USD 2.4 billion, federal prosecutors said.


According to court documents, Satish Kumbhani (36) of Hemal in Gujarat misled investors about BitConnect’s “Lending Program.” BitConnect reached a peak market capitalisation of USD 3.4 billion, the Department of Justice said.





“This indictment alleges a massive cryptocurrency scheme that defrauded investors of more than USD 2 billion,” U.S. Attorney Randy Grossman for the Southern District of California said on Friday.


Kumbhani is charged with conspiracy to commit wire fraud and price manipulation, operation of an unlicensed money transmitting business and conspiracy to commit international money laundering. If convicted of all counts, he faces a maximum total penalty of 70 years in prison.


Under the “Lending Program”, Kumbhani, who is at large, and his co-conspirators touted BitConnect’s purported proprietary technology, “BitConnect Trading Bot” and “Volatility Software”, as being able to generate substantial profits. They guaranteed returns by using investors’ money to trade on the volatility of cryptocurrency exchange markets.


As alleged in the indictment, BitConnect operated as a Ponzi scheme by paying earlier BitConnect investors with money from later investors. In total, Kumbhani and his co-conspirators obtained approximately USD 2.4 billion from investors.


The indictment, which was returned by a federal grand jury in San Diego, alleges that after operating for approximately one year, Kumbhani abruptly shut down the “Lending Program”. He then directed his network of promoters to fraudulently manipulate and prop up the price of BitConnect’s digital currency, BitConnect Coin (BCC), to create the false appearance of legitimate market demand for it.


Kumbhani and his co-conspirators also concealed the location and control of the fraud proceeds obtained from investors by commingling, cycling, and exchanging the funds through BitConnect’s cluster of cryptocurrency wallets and various internationally based cryptocurrency exchanges, the Department of Justice alleged.


Kumbhani further evaded US regulations governing the financial industry, including those enforced by the Financial Crimes Enforcement Network (FinCEN). For example, although BitConnect operated a money transmitting business through its digital currency exchange, BitConnect never registered with FinCEN, as required under the Bank Secrecy Act.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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Cryptocurrency is like a Ponzi scheme, warns RBI Deputy Governor T Rabi Sankar

A top RBI official has reiterated concerns over cryptocurrency trading, likening the virtual coins to Ponzi schemes.

A top Reserve Bank of India (RBI) official reiterated concerns over cryptocurrency trading, likening the virtual coins to Ponzi schemes. Seeking a ban on cryptocurrencies in India, Reserve Bank of India Deputy Governor T Rabi Sankar said the digital coins threaten “financial sovereignty” and “undermine financial integrity” of a country given that there are no underlying cash flows.

“We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may even be worse,” Sankar said in a speech at a banking conference on Monday.

So far, India has no regulation on crypto trading. The Supreme Court in March 2020 struck down a ban by the RBI and since then crypto investments have exploded in the country. An October report from Chainalysis, a crypto-analysis firm, found the Indian market grew 641% from July 2020 through June 2021.  

The timing of the sternly-worded speech can’t be overlooked. It follows the government’s announcement earlier this month of levying a capital gains tax on crypto trading, thereby officially acknowledging the virtual coins as assets. Soon after, RBI Governor Shaktikanta Das, a long-time opponent of cryptocurrencies, voiced his concerns over India’s financial stability from such volatile trades and said the digital coins have no underlying asset, “not even a tulip.”     

India has seen the second-highest adoption rate for cryptocurrency investments with millions jumping on the bandwagon. That has added to the RBI’s concerns over money laundering, terrorist funding and erosion of household savings.  

Cryptocurrency trading can “wreck the currency system, the monetary authority, the banking system, and in general, government’s ability to control the economy,” RBI’s Sankar said.




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