Blockchain and Digital Assets News and Trends – January 2025
This periodic bulletin is designed to help companies identify important legal developments governing the use and acceptance of blockchain technology, smart contracts, and digital assets.
While the use cases for blockchain technology are vast, this bulletin focuses on uses of blockchain and smart contracts in the financial services sector. With respect to digital assets, we have organized our approach to this topic by discussing them in terms of traditional asset type or function (although the types and functions may overlap) – that is, digital assets as:
- Securities
- Virtual currencies
- Commodities
- Deposits, accounts, intangibles
- Negotiable instruments
- Electronic chattel paper
- Digitized assets
In addition to reporting on the law and regulation governing blockchain, smart contracts, and digital assets, this bulletin will discuss the legal developments supporting the infrastructure and ecosystems that enable the use and acceptance of these new technologies.
INSIGHTS
Digital asset broker tax reporting rules for DeFi participants finalized
By Tom Geraghty
On December 27, 2024, the US Department of the Treasury and the Internal Revenue Service (IRS) announced the release of a second set of final regulations implementing a new reporting regime for digital asset “brokers,” which focuses primarily on decentralized finance (DeFi) transactions that utilize automatically executing software (the DeFi Regulations). (For information on the first set of final regulations, see our earlier alert). The DeFi Regulations expand upon final regulations published on July 9, 2024 applicable to custodial digital asset trading platforms (the Custodial Regulations), which we discussed in an earlier alert. The DeFi Regulations require DeFi service providers that interface with users (so-called “front-end trading services”) to collect certain information from users, and report digital asset transactions to the IRS on new IRS Form 1099-DA. Importantly, while reporting obligations for brokers subject to the Custodial Regulations begin for sales occurring on or after January 1, 2025, reporting obligations for DeFi service providers will begin for sales of digital assets occurring on or after January 1, 2027. Read more.
Notice 2025-7 provides relief to taxpayers on identifying digital asset units to be sold
By Tom Geraghty
On December 31, 2024, the IRS issued Notice 2025-7, in which it announced a measure of relief for individual taxpayers worried about having to “adequately identify” which digital asset unit they are selling to their custodial broker for an account held with that broker. Under the final digital asset broker regulations (discussed here) (Regulations), as of January 1, 2025, taxpayers are required to adequately identify to their custodial broker which digital asset unit they are selling in their account. In the absence of an adequate identification, the units in that account are deemed sold on a first in, first out (FIFO) basis. However, the Regulations also provide that brokers are not required to receive or track this identifying information until January 1, 2026. This disconnect could cause problems for a taxpayer trying to make an adequate identification during 2025, but whose broker is not yet prepared (or required) to receive that information. Read more.
STATUTORY AND AGENCY DEVELOPMENTS
FEDERAL DEVELOPMENTS
White House
President Donald Trump launches Solana-based “meme coin” on the Friday before inauguration. On January 17, official social media accounts for then-President-elect Donald Trump announced that he was launching a “meme coin” on the Solana blockchain called $TRUMP. Less than 48 hours later, official social media accounts for First Lady Melania Trump announced a second meme coin $MELANIA. According to public reporting, the market capitalization of the $TRUMP meme coin exceeded $10 billion as of January 20.
CFTC
CFTC names Caroline Pham Acting Chair. On January 20, the Commodity Futures Trading Commission (CFTC) announced that Commissioner Caroline Pham had been elected to serve as Acting Chair. As reported in our October 2023 and September 2024 issues, Acting Chair Pham has previously advocated for “the first-ever US pilot program for digital asset markets,” and published dissenting statements against CFTC enforcement actions involving Uniswap.
CFPB
CFPB proposes rule on cryptocurrency and video game transactions. On January 10, the Consumer Finance Protection Bureau (CFPB) announced it seeks public comment on a proposed interpretive rule outlining how the Electronic Fund Transfer Act (EFTA) and Regulation E, which provides consumers with protections against errors and fraud, and the right to dispute erroneous or fraudulent transactions, applies to new types of digital payment mechanisms, such as those currently offered through large technology companies and video gaming platforms, as well as stablecoins and other digital currencies. The proposed interpretive rule provides a framework for determining when EFTA’s protections apply to emerging digital payment mechanisms. The CFPB also seeks comments from gamers on their experiences with video game currencies. The comment period ends March 31.
STATE DEVELOPMENTS
Digital assets
UCC Article 12 on controllable electronic records. Illinois and Arizona are joining the 22 states and the District of Columbia in adopting the 2022 Amendments to the Uniform Commercial Code (UCC), including Article 12 governing property rights of intangible digital assets as Controllable Electronic Records (CERs). For more information on CERs under UCC Article 12, see our prior articles from May 2023, July 2023, April 2024, and June 2024.
- Illinois: SB 3696 was signed by Governor JB Pritzker on August 9, 2024, and takes effect January 1, 2025.
- Pennsylvania: SB 1084 became effective on August 30, 2024, but does not include a definition of “electronic money,” such as digital currency.
ENFORCEMENT ACTIONS AND LITIGATION
FEDERAL
Securities
SEC charges Digital Currency Group and former Genesis Global Capital CEO for misleading investors. On January 17, the Securities and Exchange Commission (SEC) announced that it had brought and settled charges against Digital Currency Group Inc. (DCG), and Soichoro “Michael” Moro, the former CEO of DCG’s now-defunct crypto lending subsidiary, Genesis Global Capital LLC. As reported in our January 2023 issue, Genesis went bankrupt shortly after one of its largest borrowers Three Arrows Capital defaulted on a nearly $1 billion loan. According to the SEC’s orders against DGC and Moro, Moro downplayed the impact of the default on Twitter while overstating the financial support DCG provided to sustain Genesis’ operations. DCG executives allegedly retweeted Moro’s statements. Without admitting liability, DCG and Moro agreed to pay $38 million and $500,000 respectively.
SEC charges Nova Labs with registration violations. On January 17, the last working day of the outgoing presidential administration, the SEC announced it had filed a civil enforcement action against Nova Labs, Inc. in the US District Court for the Southern District of New York. Nova Labs is the company behind the Solana-based decentralized mobile network provider Helium. According to the complaint, Nova Labs offered unregistered securities in the form of “Hotspots,” which are used as decentralized nodes to broadcast the Helium mobile network. Hotspot operators earn crypto currencies called HNT, MOBILE, or IOT. In addition, the SEC alleges that Nova Labs misrepresented that well-known companies were using Nova Labs’ Helium network.
SEC settles with Jump Crypto subsidiary for misleading market about the stability of Terra stablecoin. On December 20, the SEC announced it had brought and settled charges against Tai Mo Shan Limited, a wholly owned subsidiary of Jump Crypto Holdings LLC. According to the SEC’s order, Tai Mo Shan acted as an underwriter of the LUNA cryptocurrency which the SEC has previously alleged was sold as an unregistered security offered by Terraform Labs. Further, Tai Mo Shan allegedly purchased large quantities of Terraform’s algorithmic stablecoin, UST, through an agreement with Terraform to artificially support UST’s “peg” to the value of a US dollar. Under the order, Tai Mo Shan agreed to pay $123 million in financial remedies, including more than $73 million in disgorgement and $36 million in civil penalties.
SDNY grants interlocutory appeal on issue of digital assets as securities. On January 7, the US District Court for the Southern District of New York granted the motion of Coinbase, Inc. to certify for interlocutory appeal the SDNY’s prior order denying in part and granting in part Coinbase’s motion for judgment on the pleadings. Coinbase may now appeal to the US Court of Appeals for the Second Circuit the SDNY’s prior order, which held that the SEC had plausibly pled that digital assets traded on Coinbase’s platform could constitute “investment contracts” under the Howey test, supporting the SEC’s allegations that Coinbase facilitated trading of unregistered securities. Coinbase has consistently maintained that its operations are compliant with existing laws, and that the assets traded on its platform do not meet the definition of securities under federal law. The Second Circuit may either accept or reject the appeal.
SEC ordered to explain denial of petition for rulemaking on digital assets. In Coinbase v. Securities and Exchange Commission, the Third Circuit ordered the SEC on January 13, 2025, “to provide a more complete explanation” as to why it was denying Coinbase’s petition for rulemaking, clarifying how and when the federal securities laws apply to digital assets like cryptocurrencies and tokens. The court found that the SEC’s single-paragraph order denying Coinbase’s petition was “conclusory and insufficiently reasoned, and thus arbitrary and capricious.” However, the court declined to compel the SEC to make the rules Coinbase requested, stating that it was "unpersuaded by Coinbase's claim that notice-and-comment rulemaking is the only way an agency can explain the legal basis for its actions."
SEC issues Wells Notice to NFT blockchain gaming platform. On December 16, CyberKongz, an NFT blockchain gaming platform, announced in an X post that it received a Wells Notice from the SEC asserting that “you can’t have a token (ERC-20) in tandem with a blockchain game without registering it as a security.” The Wells Notice also alleged that CyberKongz conducted a “sale” of Genesis Kongz NFTs in April 2021. CyberKongz denies the allegations, stating that there was no “primary sale,” but instead a “contract migration” of the NFTs. CyberKongz has 30 days to file a response.
Commodities
Crypto exchange settles for $5 million penalty. On January 13, the CFTC announced that the US District Court for the Southern District of New York entered into a consent order with Gemini Trust Company, LLC, in which Gemini agreed to pay a $5 million penalty to resolve allegations that it made materially false or misleading statements or omissions to the CFTC regarding a proposed bitcoin futures contract.
Virtual currency
Early crypto investor sentenced for falsely reporting gains. On December 12, the Department of Justice (DOJ) announced the sentencing of Frank Richard Ahlgren III to two years in prison for filing tax returns that falsely underreported, or did not report the substantial capital gains he earned from selling $3.7 million in bitcoin. Ahlgren lied to his accountant by submitting a false summary of his bitcoin gains and losses, and he took sophisticated steps to attempt to conceal his transactions on the bitcoin blockchain by moving his bitcoins through multiple wallets, meeting an individual in person to exchange bitcoins for cash, and using mixers.
Wolf Capital CEO pleads guilty to $9 million Ponzi scheme. On January 10, the DOJ announced that Travis Ford, CEO of Wolf Capital Crypto Trading LLC, had pleaded guilty to a Ponzi scheme through which he raised $9.4 million from approximately 2,800 investors. According to the press release, Ford solicited his investors through his website and social media promising annual returns of approximately 547 percent. In reality, Ford spent investor funds on himself and paying out earlier investors.
Money laundering
BitMEX fined $100M for Bank Secrecy Act violations. On January 15, the US Attorney’s Office for the Southern District of New York announced that a US federal judge in New York ordered offshore crypto exchange BitMEX to pay a $100 million fine. According to recently unsealed charging documents, HDR Global Trading Limited (doing business as BitMEX) violated the Bank Secrecy Act (BSA) by failing to implement anti-money laundering (AML) and know-your-customer (KYC) programs for more than five years, despite soliciting orders from US customers. According to the judge’s order, BitMEX had claimed that it had withdrawn from the US in 2015 to avoid US regulations, but went on to service US customers as its “largest source” of business. BitMEX thus became a destination for individuals seeking to launder money and evade sanctions. The order follows a prior consent order in a civil enforcement action brought by CFTC and FinCEN.
Blender.io and Sinbad.io operators indicted on money laundering charges. On January 10, the Department of Justice announced that a grand jury had indicted Roman Vitalyevich Ostapenko, Alexander Evgenievich Oleynik, and Anton Vyachlavovich Tarasov on charges for conspiracy to commit money laundering for their role in operating two cryptocurrency mixing services called Blender.io and Sinbad.io. According to the indictment, the mixing services served state-sponsored hacking groups and cybercriminals. As reported in our December 2023 issue, the Department of the Treasury’s Office of Foreign Asset Control (OFAC) sanctioned both mixing services in 2023 for their role in laundering funds for North Korea. Ostapenko and Oleynik were arrested December 2024, while Tarasov remains at-large.
STATE
Jurisdiction
California Court of Appeal rejects suit against Curve founder Michael Egorov. On January 15, in a published opinion, the California Court of Appeal held that California courts lacked personal jurisdiction to resolve a case three crypto-focused investment firms brought against Michael Egorov, the founder of decentralized exchange Curve. DLA Piper represented Egorov at the trial court and in the appeal. The plaintiffs, ParaFi Opportunities LP, Framework Ventures, L.P, and 1kx LP, alleged that, in 2020, Egorov had solicited a combined investment of less than $1 million from the three firms, and “defrauded” them when he cancelled a fundraising round under the conditions of the investment documents. Casting doubt on these allegations, the Court of Appeal adopted factual findings that there was no evidence Egorov solicited California-based investments. The Court further noted that the plaintiffs only brought suit in California after pursuing related claims for more than a year in Swiss court, where the plaintiffs had contractually agreed to resolve disputes under an agreement the plaintiffs themselves had drafted. The plaintiffs’ investment would be worth more than $150 million today.
Securities
Texas court strikes down SEC rule interpreting “dealer.” On November 21, the US District Court for the Northern District of Texas Fort Worth Division, in the case of Crypto Freedom Alliance of Texas, et al. v. Securities and Exchange Commission, et al., granted the plaintiffs’ motion for summary judgment, concluding that the SEC “engaged in unlawful agency action taken in excess of their authority” with respect to the SEC’s adoption of a new rule which amended the definition of a securities “dealer” under existing law (Rule). According to the court, “The Rule as it currently stands de facto removes the distinction between 'trader' and 'dealer' as they have commonly been defined for nearly 100 years. The Court refuses to allow such a broad expansion of the Exchange Act by way of this Rule." The court’s order also vacated the Rule. For more information on the Rule, see our prior alert, New SEC rule may sweep DeFi participants into the definition of “dealer.”
Virtual currency
NYDFS issues consumer alert on the risks of “meme coins.” On January 15, the New York Department of Financial Services (NYDFS) published a consumer alert on “sentiment-based virtual currencies,” more commonly known as “meme coins.” The alert warns the platforms used to create meme coins “are not licensed” by NYDFS, and are therefore “not subject to the rigorous virtual currency standards in place to protect consumers” in New York. According to the alert, meme coins “present exceptional risk of fraud and loss of funds,” often the result of “pump-and-dump schemes” or “rugpulls.” The alert came out two days before President Trump had launched his own meme coin on the Solana blockchain, as discussed above.
SPOTLIGHT ON INTERNATIONAL DEVELOPMENTS
EU crypto-assets regulatory framework: Application of the landmark Markets in Crypto-Assets Regulation
Initially presented by the European Commission as part of the Digital Finance Package (along with other legislative proposals such as the DLT Pilot Regime, or DORA), The May 31, 2023 Regulation (EU) 2023/1114 on markets in crypto assets (the Markets in Crypto-Assets Regulation or MiCA) sets out a comprehensive and harmonized framework for the regulation of crypto-asset markets across the European Union (EU). By regulating the offer of crypto-assets and the provision of crypto-asset services in the EU, MiCA lays the foundation for a new harmonized regulatory framework for crypto-assets in the EU.
MiCA fully applies since December 30, 2024. In this alert we analyze the key elements of the regime, assessing its impact for the market and highlight the opportunities they will bring. Read more.
Czech Act on digitalization of the financial market
On December 6, 2024, the Chamber of Deputies of the Czech Republic approved the Act on Digitalisation of the Financial Market (ZDFT), which represents an important step in adapting the Czech legal framework to European regulations in the area of digital financial markets. The Act responds to the challenges associated with the application of Regulation (EU) 2022/2554 of the European Parliament, the Council on the Digital Operational Resilience of the Financial Sector (DORA), Regulation (EU) 2023/1114 of the European Parliament, and of the Council on Markets in Crypto Assets (MiCA). The aim of the ZDFT is to create a solid foundation for the application of these regulations in the Czech context, and thus ensure the stability and security of digital financial transactions.
Here, we present the main features of the new law, its practical implications, and the specifics of Czech regulation in the area of digital finance and crypto assets – including the role of the Czech National Bank (CNB) as a key regulator in this rapidly developing sector. Read more.
Implementation of MiCA in Portugal
Since December 30, 2024, the Market in Crypto-Assets Regulation (MiCA) has been active in the EU. As such, any entity that wishes to issue a token, or provide services with crypto assets – such as transfer, custody, trade, or consulting – and is regulated under MiCA, must seek a license with a national competent authority in a selected EU Member State.
Despite the deadline set out in the regulation, some Member States have yet to take measures to implement MiCA and make it enforceable in their jurisdictions. Although most EU States have legal regimes applicable to crypto based on AML directives, and so no legal vacuum occurs, the lack of national implementing rules may generate distortions in the market, by limiting the access of companies and businesses to an EU financial license (that can be passported to other EU Member States).
In Portugal, no measure for implementing MiCA has been enacted, and no transitory period (available according to the regulation itself) has been adopted. The uncertainty of the situation made the Bank of Portugal – the country’s central bank, and the local authority responsible for registering virtual asset service providers in the current legal regime – to issue a statement on January 3, 2025 to address the current situation. Read more.
DLA PIPER NEWS
- The Financial Times recognizes DLA Piper as one of the Most Innovative Law Firms in North America.
- The Legal 500 ranks DLA Piper Tier 1 in FinTech: Crypto. DLA Piper was also ranked in Tier 2 for FinTech, and Margo Tank was ranked as a “Leading Individual.”
- Chambers FinTech Legal ranks DLA Piper in four categories including Band 2 for Blockchain and Digital Assets, and Band 3 for Payments and Lending, with Margo Tank individually recognized in Band 3 in Blockchain & Digital Assets and Band 2 in Payments and Lending.
- DLA Piper’s Commodities, Digital Assets, and Carbon Compliance and Enforcement team draws on decades of collective experience in the commodities and securities industry to help companies navigate new and complex commodities enforcement matters, including those related to agriculture, metals, energy, digital assets, and carbon/sustainable commodities, among others.
RECENT AND UPCOMING EVENTS
DLA Piper attorneys presented at the following:
- On October 15, DLA Piper presented an engaging discussion on the findings from our new global financial services report, Financial futures: Disruption in global financial services. The report identifies and analyzes disruptors in the industry such as AI use; environmental, social, and governance (ESG) requirements; digitization of financial services; privacy and cyber risks; and key issues that matter to senior leaders of financial institutions and fintechs. The report findings are based on nearly 800 surveyed decision makers in the global financial services sector. Key insights include the following:
- More than 70 percent of respondents across the global sector believe that digitalization will have a transformative effect on financial services over the next two years, and more than 86 percent believe the same about AI
- More than 80 percent of financial services organizations believe that it is “the new normal” for ESG concerns to be a core driver of the industry, and
- Half of respondents state that the greatest impact on their businesses over the past two years has been managing risks related to cybersecurity and financial crime, and more than half (57 percent) expect this issue to affect them in the immediate future.
The discussion included a keynote from Ambassador Marc Grossman on “Geopolitics, the Global Economy, and Driving Change.” Ambassador Grossman served as US Ambassador to Turkey, Assistant Secretary of State for European Affairs, and Under Secretary of State for Political Affairs. He was most recently the US Special Representative for Afghanistan and Pakistan and is currently a Vice Chairman of The Cohen Group, a business strategic advisory firm headed by former US Secretary of Defense William Cohen, and a Vice Chair of the German Marshall Fund board of trustees.
- On July 24, Joseph Piesco spoke on a webinar panel entitled, “Digital Accessibility Lawsuits in 2024.”
- In June, Michael Fluhr and Christina Sharma co-chaired a webinar panel entitled, “Cryptoassets: Emerging legal trends in common law and civil law jurisdictions.” The panel discussed how courts in the UK, Europe, and the US have been determining crypto asset disputes and what that means for creators, developers and owners. Panelists were Edwald Netten, Dan Jewell, Andrea Pantaleo, Matthew Miller, and Deborah Meshulam.
PUBLICATIONS
- In the newly published book, Banking [on] Blockchain: A Legal and Regulatory Primer, published by the American Bar Association, David Stier, Emily Honsa Hicks, and Eric Hall co-authored a chapter on anti-money laundering (AML)/know your customer (KYC) requirements and the Bank Secrecy Act (BSA), as well as provided general editorial assistance on other chapters. The book, a comprehensive guide to the legal and regulatory landscape surrounding the use of blockchain technology, decentralization, and digital assets within the financial services while offering guidance on how financial institutions may navigate the complex regulatory environment.
- Cryptocurrency and Digital Asset Regulation, published by the American Bar Association and co-edited by Deborah Meshulam and Michael Fluhr, includes chapters by Meshulam, Fluhr, and Margo Tank.
Read more
SEC enforcement actions highlight anti-money laundering reporting focus for financial gatekeepers
CFTC issues advisory on use of AI in regulated markets
Fifth Circuit vacates stay of Corporate Transparency Act injunction, again putting deadlines on hold
Contacts
Learn more about our Blockchain and Digital Assets practice by contacting any of our editors:
James Williams