Cryptocurrency and Blockchain Resources Center
The increasing use of cryptocurrencies and other digital assets has given rise to complex legal issues relating to regulatory status (including requirements to register as broker-dealers, commodity pool operators, commodity trading advisors, investment advisers, investment companies, securities exchanges and money service businesses), compliance (including valuation, custody and reporting), corporate law (such as maintain shareholder records), securities transactions (including initial coin offerings and M&A transactions), fund formation, the launch of ETFs and derivatives, venture capital, taxation, anti-money laundering, litigation and regulatory enforcement.
Dechert offers sophisticated and knowledgeable legal counsel to clients navigating this rapidly evolving space. At the heart of Dechert’s cryptocurrency and blockchain practice is a deep understanding of the technologies that drive blockchain and related developments in distributive computing networks. In addition, Dechert is distinctive among leading law firms in this area by bridging the financial service regulation and new financial technology to find solutions for our clients.
Since the launch of bitcoin in 2009, cryptocurrencies and the encrypted, decentralized blockchain protocol that underpins them have grown from abstract theories to a transformational force that is disrupting the way many industries will operate for decades to come.
Decentralized ledger technology and smart contracts could ultimately reshape many industries, including financial services, intellectual property, logistics and supply chain, the internet of things, energy, health care, insurance and the sharing economy.
The landscape for financial products and services integrating blockchain technology is evolving rapidly. Whether launching funds to invest directly or indirectly in digital assets or creating new coins or tokens in connection with the launch of new distributive networks, clients operating in this area have specialized needs that Dechert is particularly well-placed to serve.
- Advising and assisting private cryptocurrency fund sponsors on all aspects of the fundraising lifecycle, including fund formation, regulatory compliance and market terms; preparing offering documents for new private cryptocurrency funds, including private placement memoranda, limited partnership agreements and subscription agreements; global regulatory advice; tax efficient investment structuring; and carried interest, management equity arrangements and other incentive structuring.
- Representing registrants with proposals for Securities and Exchange Commission (SEC)-registered cryptocurrency funds (both funds registered under the Investment Company Act and those registered only under the Securities Act) including proposals for obtaining exposure through both physical cryptocurrency holdings and through use of futures contracts.
- Preparing and negotiating registration statements and other filings.
- Extensive work with multiple divisions of SEC relating to novel regulatory issues raised by such funds.
- Advising clients regarding Investment Company Act and Investment Advisers Act issues raised by use of blockchain technology for conventional asset classes – e.g., custody.
- Advising on the latest regulatory developments from the SEC, Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) regarding cryptocurrencies, cryptocurrency derivatives and other digital assets.
- Working with companies considering initial coin offerings to navigate whether tokens are considered securities under relevant U.S. federal and state laws.
- Advising on Anti-Money Laundering/Know Your Customer issues and related compliance issues.
- Advising on money services businesses and money transmitters and their registration requirements.
- Working with venture capital firms on transactions involving blockchain-related companies.
- Advising intermediaries in the cryptocurrency economy – including brokers and exchanges – on their compliance obligations.
- Virtual Currency Custody Practices: What's Happening in New York - The Journal of Robotics, Artificial Intelligence & Law (Sept-Oct 2023)
- In Major Ruling Celebrated by Crypto Industry, Federal Court Holds That XRP Token is “Not Necessarily a Security” (July 24, 2023)
- NYDFS Issues Guidance on Virtual Currency Custody Practices (February 8, 2023)
- Overview of Crypto Asset Class Regulations in the EU and the US (January 26, 2023)
- Prudential Regulators Issue Joint Statement on Crypto-Asset Risks (January 26, 2023)
- SEC Staff Issues New Guidance Requiring Companies to Disclose Cryptocurrency Risks (December 28, 2022)
- English Court Breaks New Ground in Crypto Fraud Case (December 7, 2022)
- White House Releases Fact Sheet on Digital Asset Development (October 5, 2022)
- DOJ Expands Cryptocurrency Enforcement with Formation of Prosecutors Network (September 22, 2022)
- OFAC Sanctions Virtual Currency Mixer Tornado Cash (September 15, 2022)
- Federal Reserve Board of Governors Issues Guidelines for Federal Reserve Account Service Access and Additional Crypto-Related Guidance (September 13, 2022)
- Germany - New Regulation (KryptoFAV) Enables Issuance of Digital Fund Units on the Blockchain (September 2, 2022)
- SEC Brings First-Ever Insider Trading Action Involving Digital Assets in Parallel Civil Suit to SDNY’s Criminal Indictment (August 15, 2022)
- The UCC and Emerging Technologies: Proposed Amendments (August 11, 2022)
- FDIC Issues Cease and Desist Letter to Voyager Digital, LLC; Fact Sheet on Deposit Insurance and Cryptocurrency (August 5, 2022)
- Countdown to MiCA: The EU’s cryptoassets regulation (July 15, 2022)
- New York State Department of Financial Services Issues Guidance Addressing USD-Backed Stablecoins; Proposed Responsible Financial Innovation Act Addresses Similar Concerns (July 11, 2022)
- SEC Reported to Add Another Dimension to its Cryptocurrency Enforcement Push: Insider Trading (July 5, 2022)
- NFT fraud: the English court recognises NFTs as ‘property’ and makes proprietary interim remedies available to protect investors (June 29, 2022)
- “WRONG”: U.S. Court Affirms Sanctions Risks in Virtual Currency Transactions (June 1, 2022)
- Not So Stable: Stablecoin Volatility Causing Turmoil in Crypto Markets (May 25, 2022)
- SEC Tags Nvidia for Alleged Disclosure Insufficiencies in its Cryptocurrency Mining Business (May 19, 2022)
- Dechert Assists in the Development of Blockchain-based BerkShares Platform (April 13, 2022)
- Biden Executive Order on Ensuring Responsible Development of Digital Assets: A Critical Opportunity to Shape Blockchain & Cryptocurrency Policy (April 5, 2022)
- SEC Enforcement Action Against BlockFi Lending LLC Provides Clarity Regarding Digital Asset Lending but Leaves Questions Unanswered (March 29, 2022)
- Not Very Cryptic - DOL Expresses Skepticism Regarding 401(k) Investment in Cryptocurrency (March 11, 2022)
- Bitcoin fraud: the English Court grants extensive interim remedies to protect investors (March 10, 2022)
- U.S. Treasury Signals that Cryptocurrency Miners & Stakers Will Not Be Subject to Broker Information Reporting Tax Requirements (February 17, 2022)
- A U.S. Central Bank Digital Currency? The Federal Reserve Opens the Discussion (February 10, 2022)
- FATF Updates Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (December 22, 2021)
- President's Working Group on Financial Markets Issues Report on Stablecoins (November 23, 2021)
- “Hashing” It Out: Federal Jury Decides Some Cryptocurrency Products are not Securities (November 2021)
- Cryptocurrency Stakeholders Should Prepare for Increased Tax Enforcement (November 2021)
- The Currency Market – Prepare for an Uptick in Enforcement Activity (October 2021)
- OFAC Issues Sanctions Guidance on Virtual Currencies and Ransomware (October 2021)
- Banning Binance: the FCA Signals its Intent to Play a Bigger Role in Cryptocurrency Markets (July 19, 2021)
- Cryptoasset fraud: the English court makes pre-emptive remedies available to victims of international fraud (March 22, 2021)
- Russian Laws Advance Framework for the Use and Regulation of Digital Financial Assets and Currency (March 16, 2021)
- OCC Confirms Authority of National Banks to Use Independent Node Verification Networks and Stablecoins for Payment Activities (February 2, 2021)
- China to Legalize Digital RMB and Prohibit Competitors (November 12, 2020)
- DOJ Cyber-Digital Task Force Issues Report on Cryptocurrency Enforcement Framework (October 26, 2020)
- SEC Staff Issues No-Action Letter Regarding Digital Asset Securities Trading on ATS Platforms (October 21, 2020)
- OCC and SEC Staff Issue Statements on Stablecoin Reserves (October 12, 2020)
- OCC Allows National Banks to Custody Cryptocurrency (September 8, 2020)
- Developments on Digital Assets and Blockchain (August 13, 2020)
- CFTC Sets the Parameters for Which Virtual Currencies are Subject to Full CFTC Jurisdiction by Merit of How They are Bought and Delivered (August 10, 2020)
- English Court Rules Bitcoin is Property (February 20, 2020)
- China to Lead in Blockchain, Digital Currency (November 26, 2019)
- IRS Issues Guidance on Tax Treatment of Virtual Currency (November 4, 2019)
- AMLD5 in Germany: Implementation provides far-reaching licensing requirements for crypto-asset service providers (August 16, 2019)
- SEC and FINRA Staffs Jointly Address Broker-Dealer Custody of Digital Asset Securities (August 9, 2019)
- SEC Staff Announces Guidance and No-Action Relief Regarding Status of Digital Assets as Securities (April 18, 2019)
- SEC Staff Requests Comments on the Custody Rule: Non-DVP Trading and Digital Assets (March 21, 2019)
- Federal Court Reconsiders SEC Application for Preliminary Injunction, Enjoins Blockvest IPO (February 26, 2019)
- UK FCA Issues Consultation Paper on Draft Regulatory Guidance on Cryptoasset Categorisation (February 12, 2019)
- Pennsylvania Regulator Deems Virtual Currency Trading Platforms are not Money Transmitters (February 4, 2019)
- US Blockchain Enforcement and Litigation Update (January 31, 2019)
- CFTC Requests Information Regarding Virtual Currency Ether, Possibly in Connection with Evaluating Potential Derivatives Contracts (January 15, 2019)
- Bill Introduced to Exempt “digital tokens” from the Federal Securities Laws; Change Tax Treatment of Virtual Currencies (December 28, 2018)
- Crypto Never Sleeps: Vigilance Required in OFAC Sanctions Compliance Involving Virtual Currencies and Digital Assets (December 17, 2017)
- First Federal Court Decision Suggesting that ICO May Not be a Security (December 11, 2018)
- SEC Staff Releases Statement on Digital Asset Securities Issuance and Trading and Provides Guidance on Resolving Unregistered ICOs (December 5, 2018)
- UK's Cryptoassets Task Force Delivers Latest Report - Consultations Pending But No Bans Yet (November 20, 2018)
- EU Focus on Blockchain Regulation Gaining Momentum (November 19, 2018)
- SEC Launches FinHub to Connect with Public and Industry on FinTech Matters (October 26, 2018)
- California Defines “Blockchain” and Establishes Working Group to Evaluate its Use (October 19, 2018)
- Blockchain and Digital Currencies Supported by Congressman, SEC Commissioner (October 16, 2018)
- All Virtual Currencies Are Subject to CFTC Anti-Fraud Jurisdiction, Yet Another Federal Court Concludes (October 12, 2018)
- New UK Sheriff for "Wild West" Crypto-Assets? (October 10, 2018)
- NFA Publishes New Disclosure Requirements for Virtual Currency and Virtual Currency Derivatives Trading (August 21, 2018)
- SEC Again Rejects Winklevoss Proposal for Bitcoin Exchange-Traded Product (August 7, 2018)
- US Blockchain Enforcement and Litigation Update (June 27, 2018)
- Irish Revenue Commissioners Issue Guidance Manual on the Taxation of Cryptocurrencies (June 26, 2018)
- SEC Division of Corporation Finance Director Discusses Digital Assets, Opines That Ether and Bitcoin Are Not Securities (June 18, 2018)
- Chinese President Xi Jinping Endorses Blockchain in Recent Speech (June 14, 2018)
- SEC Softening Stance on Cryptocurrency? (May 31, 2018)
- NASAA Announces Results of “Operation Cryptosweep,” Praised by SEC Chairman (May 25, 2018)
- FCA Publishes Statement on Cryptocurrency Derivatives (May 23, 2018)
- Irish Government Releases Paper on Virtual Currencies and Blockchain Technology (April 5, 2018)
- FinCEN Warns That Virtual Currency Activities Are Subject to Anti-Money Laundering Obligations (April 3, 2018)
- The European Commission Action Plan for FinTech Includes Blockchain Priorities (March 29, 2018)
- House Financial Services Committee Holds Hearing to Discuss Cryptocurrencies, ICOs (March 28, 2018)
- SEC Issues Statement on Potentially Unlawful Online Platforms for Trading Digital Assets (March 27, 2018)
- Federal Court Ruling Recognizes CFTC Jurisdiction over Cryptocurrencies as Commodities (March 23, 2018)
- Wyoming Passes Law Creating New Asset Class for Cryptocurrencies (March 22, 2018)
- SEC Staff Seeks Industry Engagement on Questions Regarding Development of Funds Holding Cryptocurrency-Related Products (January 29, 2018)
- SEC Chairman Issues Major Statement on Cryptocurrency and ICOs (December 20, 2017)
- Bitcoin Futures Trading Commences; Implications for Funds and Registered CPOs and CTAs (December 18, 2017)
- U.S. v. Coinbase: Virtual Currency Holders Not Outside the IRS’s Reach (December 08, 2017)
- CFTC Staff Aligns with SEC Position on Initial Coin Offerings: Tokens May be Commodities (October 20, 2017)
- Global Update: Regulators Focus on Initial Coin Offerings (October 04, 2017)
- Asset Management Regulatory Roundup - September 2017, Issue 6 (September 20, 2017)
- Employers: Are You Ready for a Cyberwar? Attackers Using Ransomware are Saying Show Me Your Bitcoin! (May 22, 2017)
- Dechert Advises GCF on High-Profile Bitcoin Technology Funding (October 15, 2014)
Bankruptcy of a cryptocurrency trading entity and of an exchange would raise a variety of unsettled legal questions that Dechert is uniquely qualified to handle having both extensive Crypto currency expertise and a sophisticated bankruptcy department.
The key issues relate to the eligibility of exchanges to file for bankruptcy, whether cryptocurrency would be considered estate property, proper valuation methodologies, and nature of the crypto assets within existing legal regimes.
Dechert’s Financial Restructuring Group, and its Blockchain and Cryptocurrency practice have closely followed the development of these issues both inside and outside the United States.
- Eligibility of crypto exchanges as debtors under the Bankruptcy Code. At issue is whether a cryptocurrency exchange can qualify as a debtor under Section 109 of the Bankruptcy Code and be able to seek relief under Chapter 11 or Chapter 7. Section 109 excludes certain commodities brokers and banking institutions from eligibility.
- Cryptocurrency as property of the exchange’s bankruptcy estate. Whether, in the event of the bankruptcy of a crypto exchange, the users’ cryptocurrencies will be considered property of the crypto exchange’s bankruptcy estate. If so, customer currency may be used to satisfy senior debt, and customers may not recover their assets in full. The existence of custodial or noncustodial wallets, the applicable terms and conditions of such wallets, and the existence of a constructive trust, may affect the ownership of these assets in the event of bankruptcy.
- Nature and legal status of cryptocurrencies. The determination of the nature of cryptocurrencies, whether as a security, commodity, currency, or a hybrid, can have significant consequences in the context of avoidance actions (either by seeking the return of the cryptocurrencies themselves or their value), distribution of claims, recoupment rights, and the application of the automatic stay, among other issues. It remains to be seen whether bankruptcy courts will adopt, for example, the reasoning of the U.S. District Court for the District of Massachusetts, which stated that bitcoin can be considered as a commodity under the Commodity Exchange Act and whether courts will adopt rulings under the Securities Laws largely finding them to qualify as securities.
- Cryptocurrency as collateral. In those cases where cryptocurrencies are used as collateral, the determination as to their nature could also present important implications, mainly related to the proper perfection methods, their use as "cash collateral" and the "adequate protection" that secured creditors may be entitled to.
- Lack of uniform valuation methods and valuation date. There is uncertainty as to how - and as of what date - cryptocurrency would be valued in a bankruptcy case.
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Recent events have further demonstrated the increasing acceptance of cryptocurrency into the financial mainstream. Timothy Spangler, Partner