Virtual currencies, commonly known as cryptocurrency, have gone from relative obscurity to extreme popularity among investors in a short period of time. Bitcoin and other cryptocurrencies, which are powered by blockchain technology, have a collective value in the billions. As cashless payment systems have become more prevalent, however, regulation has struggled to catch up, leaving markets vulnerable to manipulation and fraud. A recent ABA report shows just how far we have to go.
In mid-March, the ABA Business Law Section published a 353-page report surveying current domestic and international laws on cryptocurrency, as well as issues that have arisen involving digital assets. The report includes state-by-state comparison of applicable laws and statutes, as well as suggestions on how to make laws more consistent across jurisdictions. The 34 co-authors of the report are not the only ones concerned about the lack of regulation; former Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad just released his own report, warning that cryptocurrencies provide no protections against illicit activity, such as money laundering and defrauding investors.
There are a number of advantages to cryptocurrency that make it appealing for investors. Blockchain is a cloud-based technology that stores public ledgers not in one centralized location, but copied to thousands of computers, improving accessibility and preventing data loss. The coins themselves, also known as tokens, are virtual assets that can be freely traded outside of existing markets. The number of coins is limited, similar to a share of stock. Bitcoin, in its prime, delivered an unbelievably high rate of return for investors, although its valuation dropped significantly after a short time.
Cryptocurrency Unlike Other Assets
The nature of cryptocurrency has made it difficult to categorize, and thus made it difficult to regulate. While the initial investment in a digital asset mimics a securities investment, it begins to resemble a derivative the longer it is held. Both the Securities and Exchange Commission (SEC) and the CFTC have weighed in on cryptocurrency issues, sometimes in contradictory ways that have caused confusion. Whether a token is considered a security, a commodity, or some combination of the two may depend on the structure of the initial coin offering (ICO) and what investors expect to get in return for their purchase.
The lack of regulation has caused difficulties for agencies, who must deal with issues one at a time as they present themselves. Federal and state agencies must attempt to apply existing laws to this entirely new form of currency, with mixed results. Other countries have also taken vastly different approaches to managing cryptocurrency: Japan’s Financial Services Agency (FSA) recently enacted legislation to register and monitor cryptocurrency exchanges, while China introduced a ban on ICOs in 2017.
Securities Litigation Lawyers at Shepherd, Finkelman, Miller & Shah, LLP Provide Comprehensive Representation in Cryptocurrency Cases
As laws regarding cryptocurrency continue to evolve, it is vital to have legal representation that evolves with it. The securities litigation lawyers at Shepherd, Finkelman, Miller & Shah, LLP have a thorough understanding of new and existing securities regulations and years of experience working with federal agencies to achieve the best possible outcome for clients. We represent clients nationwide in all types of investment-related disputes and regulatory proceedings. Call us today at 877-891-9880 or contact us online to discuss your case with an experienced securities litigation lawyer.