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New-Wave Legal Challenges for Bitcoin and Other Cryptocurrencies

By Robert J. Anello and Christina Lee

As the adoption of cryptocurrencies — or digital currencies that are encrypted for security — spreads throughout the business and financial sectors, so too do the concerns that lack of regulation render the new-age currency susceptible to fraud, manipulation, and to being used as a vehicle for money laundering. Nevertheless, recent efforts by U.S. enforcement agencies to apply and enforce financial regulations indicate that cryptocurrency-based transactions will be under greater scrutiny than ever before.

Now, those involved in global Initial Coin Offerings (ICOs), which function like traditional securities offerings, and similar transactions will need to consider whether the cryptocurrencies concerned are securities, as well as the extent to which U.S. securities laws apply to such transactions made outside the United States. In an ICO, virtual coins or tokens are distributed by a company to the public in exchange for another cryptocurrency or fiat currency. These coins or tokens come with particular rights, which could range from a right to access software, redeem the token for a currency or service, or receive future earnings from the company.

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