A few weeks ago when Elon Musk announced that he purchased roughly $1.5 billion in Bitcoin, the cryptocurrency market exploded propelling BTC to over $60K per coin. Cryptocurrency has been around for several years now, but its popularity is only recently becoming mainstream. As new investors enter the crypto market, it is important to follow legal trends that could have a huge impact on the purchase, sale, and exchange of any of the over 8,000 crypto coins. Here are a few ongoing legal updates that should be of concern to any crypto investor:
United States
On December 22, 2020 the U.S. Securities and Exchange Commission filed suit against Ripple Labs Inc. and two of its executives alleging violation of federal securities law. The dispute arose after Ripple developed a digital token (the XRP) and attempted to use this coin as a a digital asset for banks to transfer money. Under U.S. federal law, all securities that are sold or offered must be registered with the SEC (with a few exceptions). The SEC alleged that XRP coins were developed to fund Ripple's operations, and had more of an appearance like a security or stock than a coin. The SEC also alleged that it was developed to enrich its executives. The Ripple case will test a few issues that are not fully settled in U.S. law:
1) Is a token a security or currency? If a coin is considered a security, the SEC will likely implement broader regulation.
2) Who regulates cryptocurrency? Under the Obama administration the FCC attempted to regulate the internet comparing it to a communications device like the telephone. The SEC will likely remain the primary regulator of U.S. cryptocurrency, but since Congress has yet to definitively engage, this area remains open.
3) What is U.S. future strategy on cryptocurrency? The Ripple case will certain guide lawmakers discussion.
A good discussion of the Ripple case can be found here: SEC v. Ripple
While Congress has yet to pass any significant regulation in the crypto arena, several states have passed legislation. Most are specifically designed under the Uniform Commercial Code authorizing and regulating security interests in digital assets. Bottom line, the deluge of U.S. federal legislation has yet to begin, but it is likely to begin very soon. How crypto is treated by Congress and the SEC could have a dramatic impact on your portfolio. If the U.S. follows the examples of other countries, below are some examples of what might happen.
Russia
In July of last year, Russia signed into law the, "Digital Financial Assets" (DFA) law. This was Russia's first large scale regulatory regime on digital financial assets and the law entered into force on 1 January 2021. The biggest takeaways for Russian crypto users are: 1) Russians are not allowed to accept digital currency for payment of goods or services (consideration); and 2) Advertisement of digital currency as payment is not allowed. DFA is very broad, but still leaves open many questions about the the future of cryptocurrency in Russia and how this law will be enforced. See: DFA Law
Pakistan
In November of 2020, the Pakistani state bank made an official statement about cryptocurrency. Because of value of coins like Bitcoin (BTC) and Ethereum (ETH) to hedge against price inflation and currency depreciation, the bank indicated that the future of such assets could be leveraged to assist the country. The bank cautioned about the use of such coins for promoting illegal activity, but the optimistic tone was in stark contrast to earlier reports of Pakistan's hostility towards cryptocurrency.
Thailand
The Thai Securities and Exchange Commission (SEC) held public hearings last year over concern about the qualifications of investors in the crypto market. Concerns expressed focused on the lack of experience of crypto investors and the naivete of new investors as to the risk of such investments. Thailand has experienced a huge boom in crypto investing, so this concern raised by the SEC could lead to restrictions impacting the ability of Thai citizens to invest in cryptocurrency. It also likely signals upcoming legislation impacting Thailand.
Nigeria
This month (February 2021), the Central Bank of Nigeria placed a ban on cryptocurrency trading and placed significant limitations on the usage of its banking platforms for payments and transactions in crypto. This was all done to protect the nation's economy. While Nigeria may not have the clout of larger countries, this action could portend to be a harbinger upon which other countries may follow.
This legal update will be published regularly. Check this blog regularly for new information that may impact your legal rights pertaining to cryptocurrency.
If you have any questions or would like to see an update regarding a specific legal issue involving cryptocurrency, please leave your comments below.
DISCLAIMER: This blog and any information contained therein does not constitute legal advice. Should you have a legal issue requiring representation, you should seek advice from a licensed attorney who specializes in finance regulation for your locality, state or country.
