Reed Smith Client Alerts

State and federal agencies are staking their claims to be the lead regulators and enforcers of cryptocurrencies and the markets that they operate within. This is not surprising, given that, according to reports, one in ten Americans invested in cryptocurrency this year. Any relatively new, and poorly understood, financial product in which a significant number of consumers are investing their money ‒ potentially in large amounts ‒ is going to draw the attention of regulators and enforcement agencies. State attorneys general (AGs), who have long specialized in consumer protection ‒ including when it comes to investment products ‒ and who have established a significant national footprint over the past decade, are no exception. Now some state AGs are asking how they should investigate potential consumer harms associated with cryptocurrencies.

To that end, last week, the National Association of Attorneys General held a conference in Burlington, Vermont, entitled “The Surveillance Economy: How Attorneys General Protect Privacy, Safety, and Equality in the Information Age.” The event was attended by the AGs from Connecticut, Washington, D.C., Guam, Massachusetts, New Hampshire, New York, and Vermont. While this conference focused on several important issues, including data privacy and artificial intelligence, an entire panel was dedicated to emerging issues in the cryptocurrency space, including cryptocurrency’s role in ransomware attacks.

The panel featured Hester Peirce, Commissioner of the Securities and Exchange Commission (SEC); Brian Quintenz, former Commissioner of the Commodity Futures Trading Commission (CFTC) (now an advisory partner at a cryptocurrency venture fund); and Bob Seeman, noted Bitcoin critic; and it was moderated by Vermont AG T.J. Donovan, who was well-versed and highly interested in the issue. Panelists discussed what cryptocurrency is and debated how to define it for the purposes of regulation (e.g., a security, a commodity, property, etc.) This definition is critical for how cryptocurrencies are issued, exchanged, taxed, and regulated. Panelists also debated whether cryptocurrencies and the blockchain technology that facilitates them are like “the early days of the internet” or “the world’s biggest Ponzi scheme” and a new age “tulipmania.” This sparked discussion over whether regulation of these products should be effectuated through enforcement or traditional rulemaking.