14 Feb 2018

Despite recent price corrections (and murmurs of bubbles bursting), the past year’s growth in value of the largely unregulated global market in cryptocurrencies continues to dominate headlines.

The rapidity of capital movement and pricing volatility has caught the eye of regulators and the private sector alike, the former debating how to regulate trade in purely digital assets with little to no inherent worth, the latter keen to monetise the sudden onset of crypto-mania.

However, thefts from cryptocurrency exchanges are regularly in the news and the anonymity of bitcoin and its ilk has notoriously been exploited by more traditional criminals to disguise their ill-gotten gains. While the money laundering risk remains ever-present, regulators must also grapple with issues such as:

  • protecting the hordes of unsophisticated investors who have caught digital tulip fever;
  • stemming the flow of companies using “initial coin offerings” (or “ICOs”) to circumvent securities regulations designed to protect investors;
  • whether cryptocurrencies should be classified as currencies or if they more closely resemble regulated securities; and
  • how to regulate something which by its very nature is decentralised, universally accessible and largely anonymous.

As a highly volatile and widely publicised asset class which has shown remarkable growth, the market is full of speculators comprising of both the well-informed and the naïve, the honest and the unscrupulous. “Influencers” can trigger “pump-and-dump” cycles with a single tweet, and the market will continue to be very profitable for some. If it does prove to be a bubble, many will lose money when it bursts: an occurrence which may well precede the legislative and regulatory change which would assist the courts in dealing with the fallout.

However, as with previous bubbles, quality offerings should withstand the most violent of market fluctuations (Amazon and Google stand as a testament to this after the dotcom bubble).  It is also clear that blockchain, the technology behind cryptocurrencies, has enormous untapped commercial potential in many industries. Companies looking to embark on blockchain projects should bear in mind, though, that data protection and intellectual property considerations are perhaps more pressing in largely uncharted technological territory. Similarly, those exploring the feasibility of launching an ICO to raise funds from a global pool of contributors should give careful consideration to the choice of jurisdiction. The Monetary Authority of Singapore in particular has consistently taken a cautious yet business-friendly approach to these new developments. As a result, Singapore has emerged as a popular choice of jurisdiction for launching ICOs due to its proportionate regulation and highly prescriptive measures to combat money laundering risks.

We would be happy to discuss any of the above issues with you in greater detail. Please do get in touch.

Co-authored by William Haig of Taylor Vinters LLP, Yingyu Wang, Director, and Xing Loong Lim, Senior Paralegal, both of Taylor Vinters Via LLC.