Bitcoin Buzz, Again?

Whether you believe in bitcoin or think it is a giant sham, there has recently been increased coverage and interest in the 15-year-old technology. But what is the cause of this reenergized coverage? Rallying prices reaching new record highs of nearly $74,000 are certainly contributing and these prices are affected by two key events.

The first event was the Securities and Exchange Commission’s approval of 11 bitcoin exchange-traded funds (ETFs) in January 2024 which allowed investors to join the crypto hype in a more palatable format. These ETFs operate through traditional exchanges which have established regulation. Legally, this marks a shift from regulators who previously denied over 20 applications for these types of funds in the past five years. However, in SEC Chair Gary Gensler’s statement at time of approval he indicated that approval of these ETFs holding bitcoin, a non-security commodity, “should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities.” While regulations will likely continue to adapt as bitcoin gains in popularity, this approval allows for easier access for investors to capitalize on bitcoin without holding bitcoin themselves.

The other major event set to take place is the upcoming bitcoin halving. In simple terms, the “mining” process in bitcoin is where independent computing power on a decentralized network are rewarded for successfully verifying transactions on the blockchain (what is essentially a digital ledger). When the bitcoin protocol was first created and launched in 2009, the reward for this process was 50 bitcoin per block with a hard cap of 21 million bitcoin available to be mined (of which nearly 94% have been mined). The protocol was established to cut the reward amount in half every 210,000 blocks, or roughly every four years.

Continue reading »

Crypto and Blockchain: Are They Worth Getting Into?

With any new technology, fortunes can be made or lost depending on where you fall in the adoption curve.  The internet, the dot-com bubble, smartphones, apps, and social media are perfect examples of technological advances that have shaped the world and left many kicking themselves for not investing in the idea when they first heard about it. Now many ask if the Bitcoin, crypto, and blockchain buzzwords they hear are the next opportunity to get in early and gain wealth. Blockchain and Bitcoin have been around for over 14 years, yet only an estimated 13-16% of Americans have owned crypto. Does this leave an opportunity to still “get in early”? Possibly, as there can be expanded use of technology beyond “currency.”

However, many still don’t fully understand the technology and it is important to be cautious when entering unfamiliar waters. As with other technologies that excelled, there are plenty that never took off or went bust like Laserdisc or Zune. The other concern is when technology becomes obsolete like VHS, DVD, and Blu-ray. This is not to say you must be an expert in space before becoming involved. I am not a mechanic, pilot, or doctor, but I still actively drive a car, fly, and take medicine without fully understanding the technology.  As with anything, it is important to exercise due diligence before putting money into anything new and understand potential risks. We trust in many things because of either government regulation or incentives for private business to ensure it works properly.

In brief, the blockchain underlying most crypto is a digital ledger kept by numerous decentralized computers which solve formulas to validate the authenticity of transactions and add them to “blocks” on the chain. This ledger is secure due to the large number of independent sources validating each transaction and maintaining the chain which may be reviewed at any time by anyone. This concept of decentralization is what helped drive its popularity following the great recession of 2008 and why some feel it can be trusted due to it not being under the control of one entity or government.

Crypto regulation has been slow to be adopted and this has led to, although warranted, perceived risks. There are numerous types of crypto and as with the dot-com bubble, there are some that are busts or shams. Continue reading »

Blockchain: Beyond Cryptocurrency

As with any new technology, the innovation adoption curve describes the categories of groups involved in the technology at different times. For adopters of  blockchain, the curve looks like this:

• Innovators: The first 2% of adopters;
• Early Adopters: The second 13.5% of adopters;
• Early Majority: The third 34% of adopters;
• Late Majority: The fourth 34% of adopters; and
• Laggards: The last 16% of adopters.

Over the last two years, research has found between 13-16% of Americans have at one time owned cryptocurrency. This falls squarely into the Early Adopters Category and is approaching Early Majority. While many are still skeptical of cryptocurrency, the underlying technology is likely here to stay due to the multitude of uses beyond cryptocurrency.

The history of crypto and blockchain began when a white paper was released in 2008 by the pseudonym Satoshi Nakamoto which laid out the concept of bitcoin and the underlying blockchain which made it functional. While the code and formulas that run blockchain are far too complex for this article, the concept boils down to this:  Blockchain is a digital ledger kept by numerous decentralized computers which solve formulas to validate the authenticity of transactions and add them to “blocks” on the chain. This ledger is secure due to the large number of independent sources validating each transaction and maintaining the chain which may be reviewed at any time by anyone. Continue reading »

Crypto’s Demise Is Overstated

Crypto in St. Louis and the Midwest U.S.

Though not a national leader the St. Louis region has historically shown a comparatively healthy and viable level in crypto activity (currencies, blockchain development, digital strategies, development, and sales of digital products). In 2022, Missouri was the 17^th ranking state for most crypto aspects. St. Louis was 31^st among US. cities in terms of crypto owners per capita.

Crypto’s Present Damaged State

For the approximately 14 years of the existence of the crypto currencies and digital assets, that industry has globally been particularly mysterious and volatile. And, to summarize that history, suffice it to say that the recent bankruptcies in November 2022 of the FTX cryptocurrency exchange and BlockFi, preceded and followed by such volatility and smaller bankruptcies, have caused many to predict the imminent demise of crypto industries.

However, that volatility existed even before the string of bankruptcies occurring in late 2022. And notwithstanding that volatility, many experts believed that the cryptocurrencies and related industries, all of which are dependent on new technologies (mainly blockchain), were an unadulterated boon to the business world, constituting a particularly efficient system of trade and investment unfettered by regulation.

With crypto being relatively unregulated and using new and not-yet-understood methods of trading and transactions (e.g., blockchain and “smart” contracts), the then existing methods of regulation (e.g., anti-fraud, banking, insurance, commodities and securities law) were (probably mistakenly) not seen as applicable. Continue reading »

Securities Law in Crypto: It’s Everywhere! It’s Everywhere!

Suppose you have become a believer in crypto, crypto currencies, blockchain technology and crypto concepts such as non-fungible tokens (“NFTs”). You believe that crypto-based assets (existing now and probably soon to be invented) present opportunities for profitable new businesses. But what do these opportunities look like under the Securities and Exchange Commission (“SEC”) laws?

Opportunity #1: Sell some of your NFTs and manage them for the new owners.

You decide to sell some of your assets to friends and others who are not as knowledgeable in crypto and offer to manage those NFTs for your purchasers.

But your reading of crypto literature has turned up concerning mentions by the SEC that cryptocurrency and crypto-assets are “securities,” like stocks and bonds, and are – or will be – regulated by the securities laws. And some state securities commissions are also making similarly uncertain statements.

Your further research shows that the statutes and the courts define a “security” to be any interest, contract, or transaction involving:

• An investment of money or valuable property,
• In a common enterprise,
• With the expectation that profits will be derived from the efforts of the promoter/seller of the interest or a third party(s).

I.e., the Howey test, named after the Supreme Court case of SEC v. Howey.

The dominant factor in this definition is that of profits expected to be generated by the efforts of persons other than the purchaser/holder of the interest. You realize that your offer to manage the NFTs calls for your efforts to generate profits and may call the Howey definition into play. (We will perhaps discuss the equally uncertain concept of “common enterprise” in a later discussion.)

Opportunity #2: Manage a pool of NFTs. Continue reading »

Do You Own Cryptocurrency? Update Your Estate Plan!

Cryptocurrency is a hot topic for business owners and individuals alike. But have you considered the importance of updating your estate plan to include your cryptocurrency? If not, read If You Own Cryptocurrency, It’s Time to Update Your Estate Plan! where I discuss the importance of updating your estate plan if you own any cryptocurrency or other digital assets.

Cryptocurrency and other digital assets were not considered in many older estate plans. And with the increase in the number of business owners and individuals acquiring cryptocurrency and other digital assets, estate planning is crucial. Your estate plan documents need to include language that covers your digital assets, just as it covers your more traditional assets. Continue reading »