The cryptocurrency sector appeared to be celebrating under the impression that the federal government may have relaxed its regulatory stance as a consequence of Donald Trump’s support of the industry. Nonetheless, the issues pertaining to the lawsuits involving these digital assets are far from resolved. With what appears to be a crypto-supportive White House, the industry still endures a constant barrage of private litigation and state-sponsored enforcement actions, which ensures that the jurisdiction remains fragmented and fraught with difficulties.
Trump’s Push: Is This the Beginning of the Pro-Crypto Era?
We all remember the phase when the bitcoin price wooed the world. Ever since Trump returned to the White House, the cryptocurrency industry seemed to have induced ‘Trump-a-mania,’ since the former president claimed the United States will be the “crypto capital of the world.” With plans to issue an executive order to establish a strategic reserve for Bitcoin, ‘Donald Crypto’ devoted himself to the cause. His administration has stopped “regulation by enforcement,” where virtual currencies would be considered securities among other financial instruments. Ross Ulbricht, the ‘Silk Road’ founder, which had Bitcoin as its underlying currency, got pardoned, and so did other low-level drug offenders.
SEC’s Retreat: A Change in Federal Policy Activity
This is the first time we are seeing these movements from Trump’s administration, along with changes in the SEC’s attitude. The Commission has been easing off on a number of high-profile crypto investigations and lawsuits involving prominent crypto companies, such as Coinbase Global Inc., Binance Holdings Ltd., and Ripple Labs Inc. Even though this seems like a win for the industry, legal analysts warn stakeholders not to celebrate just yet.
Private Lawsuits Persist: The Plaintiff’s Bar Remains Active
Despite the SEC seeming to retreat, lawsuits filed privately against crypto companies seem to continue. These cases, stemming from the central crypto investment need for placating the vindictive investor, add to the mix of forces keeping crypto entities in check. Moreover, no matter the shift in the federal regulatory gaze, lawsuits towards proponents of digital assets that are considered of poor standing, like memecoins, are still progressing.
State Attorneys General: Stepping Up Enforcement
To make matters worse, state attorneys general are also actively pursuing crypto-related cases. As with many of their appointees, these state lawyers, particularly from an opposition party to the sitting president, tend to ramp up regulatory and enforcement activity during the president’s term. In other words, if there is a decline in federal activity, there will be an increase in state-level activity focused towards the crypto sector.
The Howey Test: An Outdated Yet Relevant Benchmark
The legal classification of “security” continues to be one of the unresolved issues regarding the regulation of crypto assets. Sean Masson, partner at Scott+Scott Attorneys at Law LLP, points out that the definition is still bound by the Howey test, originating from the US Supreme Court in 1946. This implies that no matter what regulatory environment is believed to exist, the crypto assets that are deemed to meet the Howey test are still able to be classified as securities and hence are subject to securities laws.
Endless Possibilities for Legal Liability: Other Than Federal Securities Law
Even so, Masson conveys that if the pathway of federal law accountability through securities for crypto diminishes, other options still exist. These legal frameworks include state securities laws, consumer protection statutes, and more general fraud laws, which can all be leveraged to mount a case against crypto companies and individuals.
Keeping the Consumers Protected: How It Can Be Used As a Legal Tool.
Los Angeles attorney Memecoin and other coin-related lawyer Burwick Law’s Max Burwick discusses Rottenberg’s Consumer Protection Laws. From his point of view, the absence of rules and regulations actually empowers “an active plaintiff’s bar [which] can stand as a check on bad actors and can positively impact the market.”
Caution: How To Get Through The Legal Maze
Legal memos and lawyers are advising crypto companies to exercise restraint and stay within the box. Rob Cohen from Davis Polk indicates that one side has certainly put in the, “makeshift logic on enforcing rules from a bygone era,” but the other side enforces, while from the SEC’s side there will always be attempts at securities fraud enforcement.
Compliance that is Backstopped: Forward Strategizing
“Crypto companies need to ‘backstop compliance efforts by showing offerings do not constitute securities and there are clear goals for capital formation regarding the crypto assets offered,’” tells us Saul Ewing LLP partner Al Chakravarty. This distinct strategy is expected to reduce the companies’ legal worries while strengthening their credibility in the market.
Multifaceted Accounts on a Legal Analysis for Crypto
The overall industry of cryptocurrencies seems to have a rigid and ambiguous legal framework. Even though there is a chance that crypto-related policies at the federal level could become less stringent, lawsuits and legal actions at the state level will remain prominent in defining the industry’s directions. Because of the reality of conflicting state and federal laws, these companies cannot afford to ignore compliance, which determines their long-term prospects.
