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TurnKey Token Gets to Fly: SEC Issues First No-Action Letter for Token Sale



On April 3, the US Securities and Exchange Commission (SEC) provided important guidance for token issuers. The SEC Division of Corporation Finance issued a No-Action Letter dated April 3 regarding TurnKey Jet, Inc. (the “TurnKey No-Action Letter”) in which the SEC staff confirmed that it would take no action against Turnkey Jet, Inc. (TKJ) for selling tokens without registration. This guidance is most relevant to token issuers who are focused on commercial utility and record-keeping benefits in a centrally controlled network and are willing to minimize or eliminate the profit elements of the token. The TurnKey No-Action Letter, taken together with the Framework for “Investment Contract” Analysis of Digital Assets (“Framework”) issued by the SEC’s Strategic Hub for Innovation and Financial Technology on the same date, offers guidance for structuring the elements of a private, permissioned, centralized blockchain token and network.[1] 

The SEC staff emphasized the following elements of tokens sold by TKJ (TKJ Tokens) and the associated network in the TurnKey No-Action Letter:

  • No proceeds from token sales are used to develop the network or related software;
  • The network is “fully developed” and operational before tokens are sold;[2]
  • When sold, the tokens are usable for their stated commercial functionality;
  • Tokens cannot be transferred outside of the network;
  • Tokens are sold by the issuer at a stable price throughout network operation;
  • Each token represents an obligation to supply commercial services valued in a stable amount (i.e., the tokens are stablecoins);
  • The issuer only repurchases tokens at a discount to their face value;[3] and
  • Marketing of the tokens emphasizes their functionality, and not potential for increases in market value.

TKJ’s no-action request contains a lengthy description of the proposed network and tokens. These facts may prove significant to the SEC’s evaluation of any subsequently issued tokens seeking to rely upon the TurnKey No-Action Letter. Some features of the TKJ network and token elements that may prove significant to structuring TKJ Tokens and associated networks include:

  • A network that is a permissioned blockchain, where permission is conditioned upon agreement to contractual terms and conditions;
  • Fees for participation in the network are permissible;
  • Distinctions among network users are possible, and may even be required to the extent individual consumers participate;
  • TKJ Tokens allow the continuing active participation of the token issuer without causing the tokens to be securities, addressing a major focus of the Framework;
  • The network operator satisfies applicable know-your-customer/anti-money laundering and sanctions requirements for network participants (in this case, in concert with stricter security and identity requirements for users of on-demand private aviation); and
  • Token marketing materials emphasize the tokens’ consumptive use, and users represent that their purchases are for commercial use.

Of course, some of these may prove less significant than other elements not emphasized above.

Other interesting elements of the TKJ Tokens could prove significant to future responses from the SEC staff. First, the nominal asset underlying the TKJ Tokens is the US dollar, rather than a commodity or company product or service. The Framework seems to contemplate a greater variety of asset pegs, but pegs of commodities, foreign currencies, or in-kind delivery may raise greater concerns of speculative or investment opportunity and may implicate other statutory regimes.[4] Second, TKJ commits to continuous and open-ended sales, which appears to factor heavily in its argument that TKJ tokens would have future price stability. Third, the US dollars underlying the TKJ tokens will be maintained in escrow with banks on a one-to-one ratio, and escrow balances will be subject to independent audit. The escrow arrangement contractually limits TKJ’s discretion over the use of the escrowed funds, but seemingly subjects network participants to risk of contractual breach by TKJ, and the escrowed amounts to the risk of claims by TKJ’s creditors.[5] Finally, TKJ committed to offer no rebate, reward, bonus, or similar program. This commitment creates greater restrictions than are sometimes observed for prepaid and stored value programs.

As a product of the SEC, the TurnKey No-Action Letter does not address potential issues associated with other applicable regulatory frameworks. For example, the creation and maintenance of a centralized, permissioned blockchain operating in whole or substantial part within the United States may trigger US anti-money laundering (AML) regulations administered by the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) applicable to Money Services Businesses (MSBs). Notably, administrators and exchangers of convertible virtual currency could be viewed as a type of MSB known as a money transmitter.[6] Additionally, use of fiat currency to purchase a digital token of this type may be subject to rules about acting as a provider or seller of prepaid access, a different type of MSB. However, the regulations contain a number of potential exemptions or limitations, which centralized, permissioned blockchain creators may be able to avail themselves of in certain scenarios. Such activity may also trigger money transmitter laws at the state-level, depending on the particular facts and circumstances.

The TurnKey No-Action Letter appears to provide a path for issuing stablecoins with potential widespread applicability as an alternative to stored value and prepaid programs without registration as securities. TKJ Tokens may provide their issuers with the following benefits, among others:

  • Prepayments for products or services that provide positive cashflow (i.e., “float”);
  • Avoidance of wire, credit card, and other intermediary fees;
  • Avoidance of foreign exchange translation costs;
  • Interest income on escrowed balances supporting token redemption obligations;
  • GAAP income as fulfillment obligations are written-off for non-redemption;
  • Records management efficiencies from blockchain recordkeeping;
  • Transaction settlement and auditing efficiencies from blockchain recordation speed, immutability, and multiplicity;
  • Processing of transactions outside of normal banking hours; and
  • Smart contract implementation that may lead to reduced personnel costs and fewer commercial disputes.

On the other hand, the path represented by the TurnKey No-Action Letter may not be attractive to other types of start-up businesses and protocol developers, in particular, those intending to create protocols or networks with decentralized management and governance decision-making. In sum, the TurnKey No-Action Letter brings welcome clarity to one type of token offering—i.e., a token issued in conjunction with a developed private, permissioned, centralized blockchain network—but the Framework and guidance from other regulatory agencies is needed to understand the broader landscape of token offerings.

[1] The TurnKey No-action letter and Framework are expressions of staff views and are not binding upon the SEC. Further, the TurnKey No-action Letter is not formally applicable to any issuer other than TKJ. Nevertheless, no-action letters and staff bulletins reflect substantial deliberation by the SEC staff and in practice are often highly influential on the SEC. We therefore believe that the TurnKey No-Action Letter and Framework provide important guidance to future token issuers.

[2] While the operational element would seem to be satisfied by a network that has reached the minimum viable product stage, it is not clear whether full development is intended to represent some later stage of development.

[3] It appears that redemptions (i.e., “burns”) of tokens in exchange for the underlying value can be made at par, at least to commercial users.

[4] See additional insight from Steptoe on the Framework here.

[5] It is possible that further measures of security could affect the determination of TKJ’s counsel that the tokens are not notes under the Reves test. Reves v. Ernst & Young, 494 U.S. 56 (1990). However, the SEC staff’s response in the TurnKey No-Action Letter makes no mention of this issue.

[6] These regulations generally apply to the creation and issuance of tokens constituting convertible virtual currency, but may also be triggered by engaging in other activities that could be viewed as the administration or exchange of such tokens or currency.



First Mover: The FOMO Takes Over as PayPal Play Sparks Bitcoin Rally to $13K



Bitcoin (BTC) was higher, following through on the upside after Wednesday’s 7.4% jump to a new 2020 high. It was the biggest single-day increase in almost three months. 

The surge past $12,000, with prices now around $13,000, came after the consumer payments giant PayPal announced it would allow its 346 million customers to hold bitcoin and other cryptocurrencies, and to use the digital assets to shop at the 26 million merchants on its network. 

“Traders are now eyeing for BTC to test the $14,000 long-term resistance from 2019, which we believe should be breached in the coming months ahead,” Lennard Neo, head of research for the cryptocurrency-focused structured-products firm Stack Funds, wrote early Thursday in a report

In traditional markets, European indexes slid and U.S. stock futures pointed to a lower open as lawmakers in Washington failed to agree on a new economic stimulus package as data showed a rising number of coronavirus cases. 

Market Moves

The official confirmation Wednesday that PayPal was pushing into cryptocurrencies (reported months ago by CoinDesk’s Ian Allison) ignited a fresh rally in prices for bitcoin, already seen as one of the world’s top-performing asset classes this year. 

And it might be the fear of missing out, or FOMO, that now pushes bitcoin prices even higher.

“Big moves can trigger periods of pure FOMO,” Matt Blom, head of sales and trading for the publicly traded cryptocurrency financial firm Diginex, wrote Thursday. “Sophisticated traders are definitely aware of the opportunity.” 

The FOMO instinct might be especially strong as the coronavirus-infected economy relegates Wall Street stock and bond traders to hoping for trillion-dollar stimulus packages just to keep asset prices from falling.

“Markets are pretty aggressively priced,” said George Pearkes, global macro strategist at Bespoke Investment Group, told Bloomberg News

Bitcoin appears to get uplift from new stimulus announcements, since many cryptocurrency investors see it as a hedge against inflation. But digital assets also get the benefit of the doubt as a new technology that might revolutionize the financial industry, or as a form of payment that might find adoption from Argentina to Nigeria

“This coalescing of fintech and bitcoin is yet another bullish development for investors,” Zac Prince, CEO of the crypto lender BlockFi, told CoinDesk in an email.


Bitcoin is vastly outperforming gold and bitcoin based on year-to-date returns.

With just a couple months left in 2020, the largest cryptocurrency is on track to outperform — by far — pretty much every other major traditional asset class, from stocks to bonds to gold. It would be the second year in a row that’s happened. 

Bitcoin prices, which doubled in 2019, are now up 80% so far this year. That compares with 6.3% for the Standard & Poor’s 500 Index of large U.S. stocks and a 27% increase for gold. 

PayPal’s announcement, and bitcoin’s ensuing rally, garnered ink from mainstream financial publications like Bloomberg Newsthe Financial Times and MarketWatch.

“It’s the sheer scale of PayPal’s reach that is attracting the headlines,” Jason Deane, an analyst for the foreign-exchange and cryptocurrency analysis firm Quantum Economics, wrote in a report. “This could well go down in history as a watershed moment, the point at which bitcoin goes properly mainstream.” 

Such speculation might just be hype, sheer folly, a bubble mentality. Or it might be inevitable. Or all of the above. 

– Bradley Keoun

Bitcoin Watch


Bitcoin daily price chart.
Source: TradingView

Bitcoin’s price rally looks overdone, as per technical indicators. However, these metrics often trap investors on the wrong side of the market and are unreliable.

The cryptocurrency jumped to 15-month highs above $13,200 on Wednesday after online payments giant PayPal added support for bitcoin and other cryptocurrencies. At press time, bitcoin is trading near $13,000, representing a 20% gain for the month.

The 14-day relative strength index (RSI) is now hovering above 70, indicating overbought conditions. The RSIs on the 4-hour and hourly charts also show the price rally is overdone.

But other measures show that the latest price level might have staying power.

Data extracted from the Bitcoin blockchain show a surge in inflows to cryptocurrency exchanges, typically a sign that sellers are queuing up to sell. According to the blockchain intelligence firm Chainalysis received a total of 106,519 BTC on Wednesday, the highest daily inflow since Oct. 2.

Even so, prices are holding up, signaling there’s also a strong bid from interested buyers. It’s not unprecedented: A similar spike in inflows was observed Sept. 4, but the cryptocurrency rallied to 15-month highs. 

All things considered, the price rally is likely to continue.

– Omkar Godbole

Read More: Above $13K: Bitcoin Unfazed by Profit Takers After Rise to 2020 High

Token Watch

Zcash (ZEC): Partnership between tokenizer Tokensoft and custodian Anchorage leads to wrapped zcash (WZEC) that can be used on Ethereum blockchain and deployed in DeFi protocols.

Ethereum Classic (ETC): Multiple 51% attacks against the network has led to the latest fix called MESS but critics say its not enough.

Litecoin (LTC): Paypal’s decision to support litecoin on its platform may sit at odds with the community, but its helped boost its value over the last 24-hours.

What’s Hot

Digital-asset brokerage Voyager Digital agrees to buy French crypto exchange LGO, will issue 1M shares (currently around 50 cents each) for the acquisition and undertake token merger (CoinDesk)   

DeFi yield-farming platform Harvest Finance doubles total collateral value locked to $704M in one week, unseating decentralized derivatives exchange Synthetix (CoinDesk)

Popular cryptocurrency options exchange Deribit will require all users to be ID verified before end of year (CoinDesk)

Crypto exchange Kraken officially restarts trading operations for Japanese customers (CoinDesk

U.S. commodities-market regulator issues advisory to brokers on how to look after users’ digital currencies in segregated accounts, part of “holistic framework” (CoinDesk)

Nigerian bitcoin peer-to-peer trade volume grows amid rising tensions over alleged police corruption, as locals look for easy ways to send remittances and shelter savings from inflationary domestic currency (CoinDesk):


Nigeria’s bitcoin peer-to-peer trade volume.
Source: By Shuai Hao, CoinDesk Research


The latest on the economy and traditional finance

More than 5,000 job cuts at Hong Kong airline Cathay has left local real estate market reeling (Bloomberg)

U.S. stimulus package unlikely to pass before Nov. 3 election, Goldman Sachs says (CNBC

Mere prospect that the Federal Reserve might intervene in bond markets is keeping U.S. Treasury yields close to historic lows (Bloomberg)

More than half of all small- and medium-size businesses in Europe are fearful for their survival in next 12 months (Reuters)

Alibaba to buy more than a fifth of fintech giant Ant Group’s potentially $35B IPO (Bloomberg)

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Ethereum Gains 6% Intraday, Sets Sights For 2020 Higher High



Bitcoin shocked the finance world yesterday rocketing more than $1,000 to over $13,000 per BTC at the high. Today, Ethereum is following suit, with 6% already on the books and a chance to soar much higher is here.

Here’s what to watch for in ETH and the signs to watch for if the Bitcoin soak up all the limelight, and has followed the top cryptocurrency’s showstopping pump yesterday with a rally of its own.

Related Reading | Crushing Bitcoin Dominance Could Decimate Altcoins Through Q1 2021

Following a breakout from an inverse head and shoulders bottoming pattern, Ethereum has already risen 6% intraday from low to high, all while Bitcoin has pulled backethereum ethusd

Ethereum breaks out from bottoming formation, targets retest of 2020 highs | Source: ETHUSD on

Another 2020 Higher High Could Be Next For Top Ranked Ethereum’s outperformance of Bitcoin on the USD pair can also be reflected in the duo’s ratio. On the ETHBTC trading pair, Ethereum has also gained over 5% on the day against the leading crypto asset by market cap.

Related Reading | Crypto PayPal News Sends Asset To New All-Time High, But It’s Not Bitcoin

Bitcoin set a new 2020 high yesterday but has still come up short of setting a higher high over the 2019 peak. Ethereum, however, has done so, and another higher high in 2020 would point to a continued uptrend into the next year.

ethereum ethbtc

Top-ranked altcoin begins to overtake Bitcoin on ratio | Source: ETHBTC on

Both top crypto assets benefitted enormously from yesterday’s reveal that PayPal would soon support them, alongside Litecoin and Bitcoin Cash. With both Bitcoin and Ethereum looking this bullish, and other altcoins following, a new crypto bull market could finally be brewing.

Featured image from Deposit Photos, Charts from TradingView


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Franklin Templeton Join Series A For Institutional Bitcoin Custody Provider Curv



Curv, an institutional crypto asset custody provider, today announced that global investment firm Franklin Templeton and fintech-focused venture capital firm Illuminante Financial Management have joined its Series A funding round — which already included CommerzVentures, Coinbase, Digital Currency Group, Team8 and Digital Garage.

“Curv is driving traditional institutional and crypto native demand for digital assets through multi-party computation (MPC) security technology, a critical requirement to safely transfer, store and manage any digital asset on any blockchain or DLT,” according to a press release shared with Bitcoin Magazine. “Their solution is used by dozens of institutions across the globe, including Franklin Templeton, which plans to leverage Curv’s infrastructure to expand into the burgeoning digital asset market.”

  • Curv uses a cloud-based wallet to manage digital assets, including bitcoin, on behalf of institutions. It also insures up to $50 million of digital assets for clients
  • The release credited a recent announcement from the U.S. Office of the Comptroller of the Currency allowing nationally-chartered banks to custody cryptocurrency for clients and similar announcements from other regulatory bodies with encouraging traditional financial institutions to collaborate with Curv on managing crypto assets
  • “The addition of Franklin Templeton is a barometer of the traditional industry’s shift into digital assets and a broader desire to bring public blockchain-based offerings to market,” Curv CEO Itay Malinger said, per the release.


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