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Crypto and Insolvency Brochure

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Emergence and Trajectory In their infancy, cryptocurrencies were not commonly accepted as a form of payment, being most commonly used to make purchases through illicit sites on the dark web, such as the now defunct Silk Road. However, as cryptocurrencies and other cryptoassets have gained traction in mainstream society, an increasing number of institutions have begun to accept cryptocurrencies (in particular, Bitcoin) as a form of payment, including AXA Insurance (in Switzerland), Microsoft, Starbucks and Tesla (although the latter subsequently put Bitcoin transactions on hold). On March 9, 2022, President Biden signed an Executive Order on Ensuring Responsible Development of Digital Assets. According to an accompanying fact sheet, it is the "first ever, whole-of-government approach" to regulating cryptocurrency activities. Although the order does not prescribe a regulatory framework itself or require the issuance of new rules, it directs various parts of the federal government to issue reports and recommendations on potential regulatory or legislative actions concerning digital assets. In addition, several bills have been introduced in Congress that would regulate cryptoasset activity at the federal level. The U.K. government is also focused on updating its crypto legislation and is moving forward with various crypto initiatives. In January 2021, HM Treasury (HMT) launched a Consultation and Call for Evidence on the regulatory approach to cryptoassets and published its Response on April 4, 2022, (the Cryptoasset Consultation Response), which confirmed that issuing or facilitating the use of stablecoins used for payment would become regulated. In a separate consultation paper published on May 31, 2022 (the FMI SAR Consultation), HMT set out its proposals for a modified Financial Market Infrastructure Special Administration Regime (FMI SAR) as the primary legal framework to address the failure of systemic digital settlement asset (DSA) firms which are not banks. That consultation is ongoing. On July 20, 2022, the U.K. Government introduced in Parliament the Financial Services and Markets Bill (FSMB), which, among (many) other things, contains significant provisions to amend the regulation of cryptoassets. The Cryptoasset Consultation Response, FMI SAR Consultation and FSMB are discussed further on slide 25. Cryptoassets & Insolvency 4 In recent times, a number of blue-chip financial institutions have begun trading in cryptoassets or exploring ways to offer clients access to cryptoassets. In October 2021, a Bitcoin ETF launched on the New York Stock Exchange, signaling a significant milestone for the integration of such assets into the mainstream financial system. Perhaps most notably, certain countries have begun to positively support their use—in Costa Rica employment law allows workers to be paid a portion of their wages in the form of cryptocurrency, while in June 2021 El Salvador officially developed and launched a free government administered crypto wallet to encourage and enable widespread cryptocurrency use (i.e., the "Chivo Wallet").

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