In November 2021, a federal jury in the District of Connecticut ruled on the following issue: whether or not cryptocurrencies constitute "securities" under securities law. The plaintiffs in Audet v. Fraser had filed five claims under state and federal securities laws against the director of a virtual currency developer in connection with the company's solicitation of cryptocurrency products. According to the jury, none of the products constituted an investment contract and, therefore, that the four cryptocurrency products did not constitute securities (Hashlet, Paycoin, Hashpoints or Hashstakers). In June 3, 2022, the court granted a new trial to consider whether one of the items, Paycoin, qualifies as an investment contract. The classification of cryptocurrencies then remains a focal point for both civil litigation and the SEC.
The relentless evolution of the digital asset space also requires additional effort from the legislature, through rulings and pronouncements such as the aforementioned Audet case. The characteristics regarding a digital asset may affect Howey's analysis, which until now had been the cornerstone for decisions on the subject. Moreover, since the latter focuses on the reasonable expectation of buyers, how a digital asset is presented to buyers-not what happens after purchase-is central to the analysis.
Likewise, it is well known that regulatory changes have been called for from many quarters in order to keep up with emerging technological developments, including digital assets. In 2019, the Uniform Law Commission (ULC) and the American Law Institute (ALI) appointed a joint committee to consider such amendments to the UCC, mainly responding to market concerns about the lack of definitive commercial law rules for transactions involving digital assets, especially rules relating to (a) the negotiability of digital assets and (b) secured lending against digital assets and other forms of electronic assets such as electronic money, including central bank digital currencies (“CBDCs”).
Such amendments are meant to apply to “electronic assets that may be created using technologies that have yet to be developed, or even imagined.” These amendments have been approved in July 2022 and are now being offered to states for enactment. Digital asset-friendly states are likely to move quickly; several have already adopted the amendments, which do not address long-standing issues relating to whether digital assets are securities or commodities, how they should be taxed, and how anti-money laundering laws should apply to them.