The legal landscape for all participants in the cryptocurrency space continues to evolve. Ready or not, financial systems have been thrust into the new frontier of cryptocurrencies, and both the public and private sectors are left to navigate uncharted legal and financial waters with little regulatory or statutory guidance. One need look no further than the recent comments by Securities and Exchange Commission (SEC) Chairman Gary Gensler to know that regulators are laser-focused on crypto. The chairman commented at the Aspen Forum: “Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West.” The chairman has also openly stated that other than Bitcoin, which he believes to be a commodity, most crypto financial products have the properties to be deemed securities for regulatory purposes.
If current trends continue, we will see significant litigation to determine which cryptocurrencies are securities requiring registration, what actions can be deemed providing unlicensed and unregistered investment advice regarding cryptocurrencies, and what activity, if any, requires an entity to register as an investment company or exchange. A corollary to these questions will be whether the activities that led to customer purchases and sales in crypto involved fraudulent misrepresentations and omissions. Questions concerning ownership of digital account assets also have risen exponentially.