Venture capital pours $2.4 billion into crypto startups

Crypto startup funding surged to $2.4 billion in the first quarter of 2024, marking a second consecutive quarter of growth, according to data from PitchBook. Expectations of lower interest rates and the launch of the first US bitcoin spot ETF fueled this 40.3% increase from the previous quarter. Despite the global venture capital investments hitting a near five-year low, the crypto sector saw substantial investor interest spread across 518 deals.

Why does it matter?

The rise in funding comes after a significant downturn from the peak of over $10 billion in early 2022, driven by economic uncertainties and the collapse of major market players. However, the approval of spot bitcoin ETFs by US regulators, with offerings from financial giants like BlackRock and Fidelity, has bolstered the credibility of digital assets, pushing bitcoin to an all-time high of $73,803 in March. This renewed confidence is expected to continue driving venture capital into the sector, as PitchBook analyst Robert Le noted.

Infrastructure-focused crypto and blockchain startups attracted the most funding during this period, with the largest deal being decentralised cloud platform Together AI’s $106 million early-stage round led by Salesforce Ventures, valuing the company at $1.1 billion. According to Le, early-stage deals are becoming increasingly competitive and often receive higher valuations than their late-stage counterparts. While exits remain low, mergers, particularly among exchanges, custodians, and infrastructure providers, are anticipated to increase as the market evolves.

Elon Musk deepfake crypto scam raises concerns in Hong Kong

The Hong Kong Securities and Futures Commission (SFC) recently warned about a scam involving deepfake videos of Elon Musk promoting a cryptocurrency trading platform called ‘Quantum AI.’ The scam, which promises unrealistic returns, highlights the growing use of AI for fraudulent activities, particularly in Asia. The SFC has requested the Hong Kong Police to block access to the associated websites and social media pages, many of which are now inaccessible.

Deepfake-related fraud incidents have surged in the Asia-Pacific region, with a 1,530 percent increase last year, notably affecting Vietnam and Japan. Penny Chai, Sumsub’s vice president for business development in APAC, noted that the high volume of digital financial transactions in emerging Asian markets creates a fertile ground for such scams. Videos promoting Quantum AI, often featuring altered footage of Musk, have been debunked and traced back to old appearances of Musk at events like the 2019 World AI Conference.

Why does it matter?

The use of deepfakes in fraud has become more prevalent, with Hong Kong identified as a major target. The rate of identity fraud in Hong Kong was 3.3% last year, with significant financial losses reported. In one case, a Japanese bank manager was tricked into transferring $35 million due to a deepfake audio mimicking his director’s voice. The SFC has been vigilant in flagging suspicious virtual asset trading platforms, issuing numerous warnings this year alone, particularly after the significant JPEX cryptocurrency exchange fraud.

Additionally, the SFC warned about other risky crypto-related products, such as the LENA Network, which involves cryptocurrency staking, borrowing, and lending. The regulator emphasised that these arrangements might be unauthorised collective investment schemes and carry high risks.

United States Senate passes resolution urging SEC to repeal rule on cryptocurrency firm deals

The United States Senate has passed a joint resolution calling on the Securities and Exchange Commission (SEC) to repeal a rule that affects financial institutions engaged in business with cryptocurrency firms. The resolution, known as H.J.Res. 109, seeks to nullify the SEC’s Staff Accounting Bulletin No. 121, which mandates that banks include customers’ digital assets on their balance sheets. Critics argue that this rule stifles innovation in the cryptocurrency sector.

The resolution passed the Senate on a vote of 60 to 38. This marks the first instance of standalone cryptocurrency legislation this session of Congress and represents an unusual bipartisan move, with a split of 51-49 in favor of Democrats. The resolution could have broader implications for the regulation of digital assets, particularly regarding the Financial Innovation and Technology for the 21st Century Act.

Before the resolution was passed in the House of Representatives, President Joe Biden stated his intention to veto the bill. He cited the need to protect investors in the cryptocurrency market and secure the overall financial system as his rationale. If the President does veto the legislation, it will return to Congress and require a two-thirds majority vote to pass again.

The Blockchain Association, a leading industry group, argues against the threat of a presidential veto, highlighting a growing awareness among the public, especially young people, regarding the significance of cryptocurrencies. They emphasize the importance of elected officials acknowledging and understanding the implications of cryptocurrencies.

Google requests non-jury trial in response to US antitrust lawsuit

Google has requested a non-jury trial in response to the US Justice Department’s lawsuit accusing the tech giant of anticompetitive practices in the online advertising market. The Justice Department, which filed the lawsuit in January 2023, claims Google has abused its dominance in digital advertising and should be forced to divest its ad manager suite.

Tech giant argues that the Justice Department’s request for a jury trial deviates from historical precedent, emphasising the complex technical nature of the case, which it believes would be challenging for a jury to understand. The Justice Department has not yet commented on Google’s filing.

Google’s online advertising network, including the ad manager, accounted for 12% of its revenue in 2021 and is integral to its overall sales, including its search engine and cloud services. Google contends that the Justice Department’s case exceeds the boundaries of antitrust law, asserting that these laws do not regulate the alleged conduct.

North Korea’s alleged $147.5 million crypto laundering revealed by UN

According to confidential findings by UN sanctions monitors, North Korea utilised the virtual currency platform Tornado Cash to launder $147.5 million in March, following its theft from a cryptocurrency exchange last year. The monitors revealed to a UN Security Council sanctions committee that they had been investigating 97 suspected cyberattacks by North Korea on cryptocurrency companies between 2017 and 2024, totalling approximately $3.6 billion.

As can be seen in these confidential findings, one notable incident involved the theft of $147.5 million from the HTX cryptocurrency exchange late last year, which was then laundered in March. The monitors cited information from crypto analytics firm PeckShield and blockchain research firm Elliptic. In 2024 alone, they investigated 11 cryptocurrency thefts valued at $54.7 million, suggesting possible involvement by North Korean IT workers hired by small crypto-related companies.

North Korea, officially known as the Democratic People’s Republic of Korea (DPRK), has faced UN sanctions since 2006, aimed at curbing funding for its ballistic missile and nuclear programs. The US has previously sanctioned Tornado Cash over alleged support for North Korea, with two co-founders charged with facilitating money laundering. Virtual currency ‘mixer’ platforms like Tornado Cash blend cryptocurrencies to obscure their source and ownership.

Additionally, the monitors highlighted ongoing concerns about illicit arms trade between North Korea and Russia, with suspected shipments between North Korea’s Rajin port and Russian ports. There were also reports of North Korean cargo ships offloading coal in Chinese waters, potentially evading sanctions. Both China and Russia declined to comment on the monitors’ findings.

Philippines approved stablecoin pilot program in regulatory sandbox framework

The Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, has granted approval to digital currency exchange Coins.ph to conduct a pilot program for a stablecoin called PHPC. This Philippine Peso-backed stablecoin will operate under the BSP’s Regulatory Sandbox Framework.

Coins.ph will back the stablecoin with its own cash and cash equivalents held in Philippine bank accounts, ensuring a one-to-one peg with the Philippine Peso. The pilot program aims to assess the benefits of the PHPC and its impact on the existing financial ecosystem. Coins.ph plans to make the PHPC stablecoin available on its platform by early June. The company’s CEO, Wei Zhou, previously served as CFO at Binance. Coins.ph received approval to publicly test the stablecoin in April and hopes to obtain full approval if certain metrics are met, allowing the PHPC to operate outside of the pilot phase.

Coins.ph’s approval to conduct the pilot program demonstrates the BSP’s openness to exploring digital and cryptocurrencies. Operating within the Regulatory Sandbox Framework allows the central bank to observe the real-world applications while ensuring consumer protection and financial system stability.

The Philippine government recently blocked Binance from operating in the country, indicating regulatory concerns and a cautious approach towards digital currency exchanges. Additionally, the Philippines plans to issue a wholesale central bank digital currency (CBDC) within two years.

EU designates Booking as a gatekeeper under DMA

The European Commission announced on Monday that it has classified Booking as a ‘gatekeeper’ under the Digital Markets Act (DMA), signifying its strong market influence. At the same time, the Commission has initiated a market investigation into the regulatory status of social media network X to delve deeper into its market dominance. Despite this, according to the EU, online advertising services such as X Ads and TikTok Ads have not been designated as gatekeepers.

In March, the European Commission identified Elon Musk’s X, TikTok’s parent company ByteDance, and Booking.com as potential candidates for gatekeeper status, subjecting them to stringent tech regulations. While Booking has been officially designated as a gatekeeper, a market investigation has been initiated to address X’s opposition to such a classification. ByteDance was previously labelled as a gatekeeper in July last year, but TikTok has contested this designation at the EU’s second-highest court.

Why does it matter?

The Digital Markets Act (DMA) represents a significant step towards regulating the market dominance of large tech companies. It imposes stricter obligations on these firms, compelling them to moderate content, ensure fair competition, and facilitate consumer choice by making it easier to switch between services. As the EU continues to navigate the complexities of digital market regulation, the classification of gatekeepers and subsequent investigations serve as crucial measures to promote fair competition and protect consumers’ interests in the digital sphere.

Microsoft to invest €4 billion in French cloud and AI infrastructure

Microsoft Corp. is set to embark on a €4 billion ($4.3 billion) venture to construct cloud and AI infrastructure in France, marking its latest major commitment to AI technology. The American tech giant aims to train a million individuals and bolster 2,500 startups in this European country by 2027, as stated in an official announcement. Earlier this year, Microsoft unveiled a strategic partnership and a €15 million investment into Mistral AI, a Paris-based startup competing in the AI domain alongside OpenAI.

France has emerged as a focal point for AI development, drawing substantial national funds and support from local magnates for initiatives like Mistral and Kyutai, a newly formed AI research nonprofit. Microsoft’s announcement aligns with President Emmanuel Macron’s ‘Choose France’ summit, which seeks to entice foreign enterprises and position France as a financial epicentre within the EU. Concurrently, another American tech titan, Amazon.com Inc., has pledged €1.2 billion towards infrastructure and computing, with 56 projects slated for announcement during the event, according to the Elysee.

Microsoft is investing significantly in its Azure cloud platform and associated AI tools. Following a €3.2 billion investment in Germany in February, the company injected $1.5 billion into the Abu Dhabi-based AI firm G42 in April. However, Microsoft’s endeavours in the cloud and AI sectors have attracted intensified antitrust scrutiny, particularly concerning its investments exceeding $10 billion in OpenAI.

Rwanda to start the central bank digital currency (CBDC) pilot

The Central bank of Rwanda call the public consultation on the future Central Bank Digital Currency (CBDC) pilot. The Central Bank call for the inputs of all stakeholders via online questionnaire available on their official website. 

The launch of the Rwanda’s CBDC might get fast trajectory after the government commitment to improve financial system in the country. In particular in relation to e-commerce, online payments systems, and related features. 

Global tendencies towards implementation of the Central Bank Digital Currency is highlighted in the latest BIS report on the CBDC implementation, released earlier this year. The BIS innovation center follow closely developments around CBDC implementation and the coordination work needed, 

Canada fines Binance $4.38 million for money laundering violations

Canadian cryptocurrency exchange Binance has been fined nearly CAD 6 million ($4.38 million) by Canada’s anti-money laundering agency, FINTRAC, for violating money laundering and terrorist financing laws. According to FINTRAC, despite several deadlines, Binance failed to register as a foreign money services business with the intelligence body. Additionally, the exchange did not report receiving virtual currency worth 10,000 or more on 5,902 separate occasions between 1 June 2021 and 19 July 2023.

The legal measure against Binance comes after a recent sentencing of the former CEO Changpeng Zhao to four months in prison for violating US money laundering laws. Binance agreed to pay a massive penalty of $4.32 billion, with Zhao also paying a $50 million criminal fine and an additional $50 million to the US Commodity Futures Trading Commission.

Binance’s decision to cease operations in Canada last year does not absolve them of the responsibility to comply with the country’s laws during their active period.

Why does it matter?

The ongoing scrutiny and legal action against Binance underscore the increasing global regulatory pressure on the cryptocurrency industry. Governments and financial institutions worldwide are prioritising the implementation of robust anti-money laundering measures to prevent illicit financial activities, including money laundering and terrorist financing within the cryptocurrency sector.

While cryptocurrencies offer benefits such as decentralisation, anonymity, and ease of cross-border transactions, they also pose challenges in terms of regulation and monitoring. The fines and legal consequences faced by Binance serve as a warning to other exchanges and entities operating in the crypto space to uphold stringent compliance standards.