The crypto market has weathered uncertainty, shocks, insolvencies, losses, frauds, indecisive law-makers and lack of clarity from regulators, but the majority of the panellists at law firm Brown Rudnick’s inaugural Global Blockchain Conference remained optimistic about the future of the market.

The event, supported by Grant Thornton, the Global Blockchain Business Council (GBBC) and Novum Insights, was held in London last week, and GRIP was invited to attend. The day was full of lively discussions on the outlook, trends, challenges and opportunities for the blockchain and crypto-asset industry. 

As Neil Foster, global chair of technology sector at Brown Rudnick, said: “What is the most obvious similarity between Mark Twain and the crypto market? Well, clearly, rumours of any death of both were both greatly exaggerated.”

Robust investment

In the keynote speech, Toby Lewis of Novum Insights acknowledged “a sense of crisis in the sector due to the collapse of prominent cryptocurrency exchange FTX and its market maker Alameda Research. Yet the cryptocurrency markets themselves have had a bumper start to 2023, with bitcoin up 78.3% and ethereum up 58.3% as of April 10.”

Furthermore, uncertain times can “bring opportunity”. Novus research showed there was a robust attitude to investment and that “consolidation through mergers and acquisitions” will ultimately establish “a maturation of the blockchain and crypto industries.”

The panel on crypto fraud and asset tracing, moderated by Jane Colston of Brown Rudnick, discussed whether the courts are doing enough to make the industry a safe place. In 2022, the High Court ordered a number of crypto exchanges to reveal the personal data of some of their users after a fraud was uncovered. Legal remedies available include:

• Granting freezing injunctions to prevent fraudsters from accessing stolen crypto assets.
• Ordering crypto exchanges to release personal date of users who have been involved in fraud.
• Search orders to look for cold wallet storage to preserve assets.

The panel also advised that social media searching can be very effective in tracking down fraudsters – posts often (unwittingly) evidence location and identity.

Crystal ball gazing

Throughout the day, panel members were asked to make predictions for the future. One of the most gripping came from Amanda Wick of the Association for Women in Crypto. When asked to consider the possible picture five years from now, she predicted, “the fall of the US dollar”! She said if 30 countries partner over digital assets and US regulators the SEC and CFTC are still fighting over who regulates digital currency, then the US fiat currency will fall out of favour. However, Andrea Tinianow of GBBC was more positive and expected to see a US dollar stablecoin.

One of the big UK v US debates compared US bankruptcy under Chapter 11 with UK bankruptcy proceedings. These are legal processes that allow businesses to reorganise their finances and continue operating. Chapter 11 was generally considered to be a better option for crypto firms as it allows businesses to continue operating while they are in bankruptcy.

This is important for firms that need to maintain their liquidity. Additionally, Chapter 11 allows businesses to negotiate with their creditors to modify debt agreements and can provide businesses with a fresh start to rebuild their reputations. However, Chapter 11 can take longer to complete than its UK counterpart as it is more complex. The most recent Chapter 11 crypto bankruptcy cases are:

• Genesis Global Trading: filed for Chapter 11 bankruptcy January 19, 2023.
• Voyager Digital Holdings: filed for Chapter 11 bankruptcy July 6, 2022.
• Celsius Network: filed for Chapter 11 bankruptcy July 13, 2022.

The companies’ bankruptcy filings were a result of a number of factors including the collapse of TerraUSD stablecoin and the broader sell-off in the crypto market. The outcomes of these bankruptcy cases are still pending.

The Tulip case

The compliance panel told the audience that the case to look out for is the legal battle between Tulip Trading Ltd, a Seychelles company owned by Dr Craig Wright – who claims to have invented the bitcoin digital currency – and 16 bitcoin software developers based around the world.

Tulip is seeking to compel the developers to write software patches to enable the recovery of assets of more than £1bn ($1.2bn) in bitcoin stolen in a 2020 hack on Wright’s computer. In February 2023, the Court of Appeal of England and Wales unanimously found that there was a “serious issue to be tried” as to whether the developers owed a legal duty to Tulip.

The case is now set for a full hearing in the High Court, which is expected to take place in 2024. The outcome of the case could have significant implications for the cryptocurrency industry. If it could be established that the software developers owe a duty of care to users of their products, it could open the door to other claims from investors who have lost money as a result of hacks or other issues. It could also have wider implications within the industry, such as the regulation of cryptocurrencies and the liability of exchanges and other services.