In light of recent volatility in crypto markets and news of several crypto entities filing for bankruptcy,[1] market participants are increasingly scrutinizing the credit of crypto intermediaries and considering whether there will be an influx of additional filings.  In thinking through credit risk, one critical preliminary set of questions that market participants should ask is which bankruptcy regime is likely…

Originally Published: July 13, 2022 Updated: July 14, 2022 One of the key unresolved questions surrounding crypto-custodian bankruptcy proceedings under the U.S. Bankruptcy Code is whether or not digital assets that are held by a crypto exchange on behalf of platform users could be viewed as the exchange’s corporate assets in the proceeding, which in turn could be used to satisfy…

Introduction On June 7, U.S. Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) (together, the “Senators”) introduced the Responsible Financial Innovation Act, a bipartisan bill that seeks to create a comprehensive regulatory framework for digital assets.  The Senators have stated that the purpose of the proposed legislation is to balance innovation with customer protection. Coverage of the bill has been…

On June 1, the United States Attorney for the Southern District of New York (“SDNY”) and the New York Field Office of the Federal Bureau of Investigation (“FBI”) unsealed an indictment charging Nathaniel Chastain, a products manager at OpenSea,[1] with one count of wire fraud and one count of money laundering for his alleged insider trading of Non-Fungible Tokens (“NFTs”).[2]…

Recent turmoil in the cryptocurrency market has brought issues related to crypto-asset custody to the forefront of the crypto currency discourse;[1] in an enormous $1 trillion crypto-asset crash between approximately May 6, 2022 and May 16, 2022, some coins lost up to 99% of their original value.[2]  Many crypto-asset investors are now wondering how their assets may be treated if…

Concerns over the environmental impact of proof-of-work mining have recently led to increased focus by legislative bodies in Europe and the United States.  The use of proof-of-work consensus mechanisms, by which “miners” solve complex cryptographic puzzles in order to validate transactions and mine new blockchain tokens, is central to the operation of certain blockchain networks such as Bitcoin.  However, the…

The cryptocurrency industry last week experienced a turbulence long predicted by industry observers.  The third largest stablecoin, TerraUSD (“UST”), lost its one-to-one peg to the U.S. dollar about 10 days ago, trading well below 10 cents per UST by 11:00 AM EST on May 16.  The sister token (“Luna”)—meant to stabilize UST—lost all of its value as well and fell…

Digital asset interest accounts, often known as “crypto interest accounts” or “crypto savings accounts,” constitute a rapidly growing segment of the market for digital assets products despite significant regulatory uncertainty.  Investors in digital asset interest accounts lend their digital assets to a borrower company in exchange for the company’s promise to provide a variable monthly interest payment.  These accounts typically…

On April 28, 2022, the New York State Department of Financial Services (“NYDFS”) issued its Guidance on Use of Blockchain Analytics (the “Blockchain Guidance”) to virtual currency business entities licensed or chartered in New York (“VC Entities”).  The guidance largely focuses on compliance with state and federal anti-money laundering (“AML”) requirements and with sanctions imposed by the U.S. Department of…

On April 28, 2022, a bipartisan group of legislators in the House of Representatives re-introduced and updated a bill regarding proposed regulatory oversight by the CFTC of crypto exchanges on which digital commodities are traded (the “Bill”).  The Bill was introduced by Republican Representatives Glenn Thompson of Pennsylvania and Tom Emmer of Minnesota and by Democratic Representatives Darren Soto of…