Global FinTech Series

The UK

Determining the rights and liabilities of participants in the digital asset ecosystem is critical to its future development and regulation.  This has been the focus of several cases in the English Courts in 2024.  These include important decisions on the property nature of digital assets, proprietary remedies against exchanges and fiduciary duties of DeFi participants.  We expect further clarity from similar disputes that reach the Courts in 2025, together with the presumed passage of the Property (Digital Assets etc) Bill (“the Digital Assets Bill”) into law.

Legal treatment of crypto exchanges

Exchanges play a central role in the digital asset ecosystem.  The creation or extension of regulation to exchanges, occurring worldwide as part of the growing maturity of the digital asset economy and likely to continue in 2025, depends on the legal treatment of exchanges.  Victims of fraud have attempted to use proprietary claims and injunctions to recover their assets from exchanges but the English Courts are still exploring how this should be approached.  In Piroozzadeh v Persons Unknown [2023] EWHC 1024, Binance, a crypto exchange, successfully argued that an injunction against it should be discharged on the basis that it functioned in a similar way to a bank: digital assets deposited with it were not segregated and the depositor retained only a contractual claim against it rather than any proprietary rights in crypto assets. This throws doubt on the possibility of any proprietary or restitutionary liability against exchanges.  Proprietary remedies may still be relevant in other situations and practical redress might be obtained through other remedies, such as freezing injunctions served on exchanges so as to fix them with knowledge of the fraud and require them to freeze the fraudster’s account.  The decision is also revealing as to how exchanges operate, particularly given that it was the exchange itself setting out its position, and may inform the regulatory approach to exchanges going forward.

Push payment fraud in the digital assets economy

‘Push payment fraud’ – where a victim is induced by a fraudster to transfer funds – has led to litigation involving the traditional economy and has also spread to the digital assets economy.  In D’Aloia v Persons Unknown [2024] EWHC 2342 (Ch), the High Court considered whether crypto exchanges could be liable for the return of fraudulently misappropriated cryptocurrency. While the court found in favour of the exchange, on the basis that the cryptocurrency could not be traced to it, the decision merits careful attention by crypto exchanges. The judge found that the exchange had sufficient knowledge to found liability for allowing the fraudster to withdraw funds from its account. If the claimant had been able to provide more evidence on the movement of the cryptocurrency through different accounts to allow it to be traced, the crypto exchange might have been held liable.

Of wider interest to all financial institutions dealing with cryptocurrencies will be the judge’s finding that the cryptocurrency constituted property, following a detailed analysis of the authorities and academic arguments.  This is the first judgment following a contested trial to deal with this issue, together with proprietary remedies. 

Relevant to the decision was the introduction of the Digital Assets Bill the previous day.   The Bill gives explicit statutory recognition of digital assets as a ‘third form’ of property.  Passage of this Bill, expected in 2025, will not only give certainty as to the property nature of digital assets but also allow the English common law to develop in a way that suits the unique characteristics of digital assets, without being hampered by false analogies with existing categories of property including intangible assets.

Interestingly, in D’Aloia, the judge also found that Tether, the cryptocurrency taken from the claimant, was persistent. In other words, coins that were sent from the first account were the same coins that arrived in the second account. The Law Commission has previously suggested that the transfer of digital currencies might be more likely to take place by the destruction of the coins in the first account and the creation of new coins in the second account.  Persistence of digital currencies will affect tracing and proprietary remedies.

Duties of care in public blockchains and DeFi

As financial institutions, sponsors, developers and others participate in public blockchains, perhaps by providing infrastructure to support consensus or custody mechanisms, arguments arise as to whether they owe a duty of care to other participants. The same applies to participants in DeFi pools, perhaps by sponsoring a new pool or setting parameters for liquidity or collateralisation.  These arguments were highlighted by the high-profile Tulip Trading litigation.  This reached the Court of Appeal in a jurisdiction challenge (see Tulip Trading Ltd v van der Laan [20223] EWCA Civ 83). The claimant argued – among other things – that software developers and miners of Bitcoin owe a duty of care to Bitcoin holders, essentially because the decentralisation of Bitcoin is a ‘myth’.  The expected trial in 2024 did not take place after the case was resolved.  But it has highlighted to market participants that they may owe duties of care.  Many are already taking advice on operational measures to limit their potential exposure and 2025 could see further litigation in this area as well as other areas of uncertainty, such as the partnership status, especially cross-border, of crypto organisations including DAOs and DeFi pools.

Looking ahead: The Digital Assets Bill and beyond

In 2024, the English Courts continued to delineate the scope of digital asset legal concepts and liability, especially via a series of decisions on fraudulent transfer of digital assets.  We expect this to continue in 2025.  Assuming the Digital Assets Bill becomes law, this will provide a boost to the digital asset economy and further scope for continued development of the law.

The US

In the United States, there is no doubt that 2025 holds great promise for crypto. As such, there will be downstream effects on crypto litigation—namely that much of the major enforcement litigation will likely resolve in the favor of digital asset providers and exchanges. It is inarguable that there will be—and has been—a significant change in terms of crypto’s regulatory outlook in the United States. However, that does not necessarily mean that every court will agree on how to approach crypto. Accordingly, a number of cases remain to be resolved on novel issues of law in this space, ranging from consumer law to intellectual property disputes.

Crypto Litigation in 2024

2024 was a banner year for crypto industry litigation victories, following from the successes of 2023’s SEC v. Ripple Labs and Grayscale Investments v. SEC. Ancillary to this prior litigation was the SEC’s January approval of spot Bitcoin ETFs following the D.C. Circuit’s decision in Grayscale Investments v. SEC. Similarly, this year saw the conclusion of the SEC v. Ripple Labs in the Southern District of New York only for an appeal to begin in October. Between these two major cases, there were only a handful of major litigation developments until the end of the year. Flyfish Club settled an SEC enforcement action over its NFT restaurant memberships, and an exchange appealed the SEC’s denial of rulemaking for digital assets.

Interestingly, most of the major developments in crypto litigation for 2024 came shortly before and after the election. Before the election, Crypto.com sued the SEC seeking clarity on regulation. A few weeks after the election of Donald Trump, a quick succession of rulings and rulemaking then came: first, the SEC’s “Dealer Rule” was vacated in the Northern District of Texas, then the CFPB’s final rule on market participants under the Consumer Financial Protection Act omitted crypto, and finally, the Fifth Circuit held that immutable smart contracts were not “property” under OFAC’s current sanctions regime. 

It appears that the 2024 election was, in part, a referendum on crypto, and litigation has begun to reflect that. 

2025’s Regulatory Outlook: 

Given the outcome of the 2024 election and the impact of the Supreme Court’s decision in Loper Bright being seen in crypto cases such as Van Loon v. Treasury Department, regulation with respect to crypto is likely to see a major change. Determining a regulatory framework between the SEC and the CFTC is likely to be a major point of discussion, and the CFPB is likely to further explore how to approach digital assets after it excluded them from its recent rulemaking. OFAC also faces an interesting dilemma: will it adjust its rules to encompass immutable smart contracts for sanction purposes following the blow the agency was dealt in Van Loon v. Treasury Department?

With SEC Chair Gary Gensler resigning on January 20, 2025 and Paul Atkins taking his place, the SEC’s regulatory outlook for crypto is significantly more positive than it was a year ago. The SEC has a number of enforcement actions outstanding against actors in the crypto industry, particularly the majority of the major American exchanges. These actions may fizzle out—or may lead to more regulatory clarity brought through the judiciary. The CFTC is also well-positioned to serve as a potential crypto regulator. With respect to other regulatory areas for crypto, it is unclear what actions may be taken—the CFPB’s most recent rule deferred including crypto, but the agency may nevertheless revisit application of its rules to crypto in 2025. Nevertheless, the regulatory outlook for crypto in 2025 is sunny. 

Crypto Cases to Watch in 2025:

There are a number of cases to keep eyes on in 2025—all with far-reaching implications across different areas of the law. The “Exchange Cases” involve suits either by or against major crypto exchanges on the issue of broker-dealer and Securities Exchange Act issues, such as SEC v. Binance. There are also a few larger consumer law cases on appeal which deal with the application of Securities Act Section 12(a) with respect to crypto, and another sanctions-based case in Coin Center v. Secretary, U.S. Department of Treasury.

We expect there to be major developments in SEC v. Binance, beginning first with Binance’s motion to dismiss. This motion deals with allegations of digital assets as securities, and Binance contending that they are not. Although this case is only at the motion to dismiss stage, a decision on the securities issue comes at a crucial moment—just as the SEC is experiencing a massive change. The same is true of Risley v. Universal Navigation, Inc., which will see the Second Circuit adding to its jurisprudence on Section 12(a) of the Securities Act—and what activities qualify as selling under the test set forth in the Supreme Court’s Pinter v. Dahl. Finally, there is an open question as to whether the Eleventh Circuit will follow the Fifth Circuit’s lead on the “property” issue under OFAC’s sanctions regime. 

These cases will be covered as decisions are rendered on our FinTech Digital Asset Disputes Updater.

Looking ahead

As the SEC experiences what is likely to be a sea change for its crypto enforcement priorities, the conversation will turn toward the need for legislation or a cooperative regulatory framework for digital assets. 

Singapore

In tandem with Singapore’s position as a leading crypto hub, the Singapore Courts have issued a number of key decisions in recent years relating to cryptocurrency, most notably recognising the legal status of cryptocurrency as property which can be held on trust in the decision in ByBit Fintech Ltd v Ho Kai Xin and others [2023] 5 SLR 1748. The decision in ByBit coheres with recent Hong Kong decisions that have also found cryptocurrencies to be property capable of being held on trust (Chan Wing Yan and Another v. JP-EX Crypto Asset Platform Ltd and Others [2024] HKDC 1628 and Re Gatecoin Limited [2023] HKCFI 914).

The Singapore Courts have also shown flexibility and pragmatism in applying Singapore’s insolvency laws to contentious restructurings involving cryptocurrency businesses, for example, allowing substantive consolidation of group assets and liabilities to facilitate the global restructuring of the Babel Finance Group and approving the creation of an administrative convenience class of creditors to ease the process of obtaining creditor approval in the restructuring of cryptocurrency platform Zipmex, where the bulk of the debt was controlled by a small number of creditors. Further analysis on these cases and more can be found in our earlier update here: Cryptocurrency: A perspective from Singapore.  

In 2024, the Singapore courts delivered two significant decisions on crypto, giving guidance on determining the location of a cryptoasset and valuation of cryptoassets in disputes. We summarise both decisions, and share our takeaways and outlook for such disputes as we head into 2025. 

1. How should the location of cryptoassets be determined in the context of litigation? 

In Cheong Jun Yoong v Three Arrows Capital Ltd and others [2024] SGHC 21 (Cheong Jun Yoong v 3AC), the Singapore High Court pronounced the principles for determining the location of a cryptoasset and held, in short, that the location of a cryptoasset is “best determined by looking at where it is controlled”.

In that case, the claimant had commenced proceedings against the defendants (Three Arrows Capital Ltd and its liquidators) in Singapore seeking a determination over the ownership of certain cryptocurrency assets. The case arose from the defendants’ application to set aside the court’s order allowing the claimant to serve the lawsuit on the defendants out of Singapore. 

The claimant applied to serve originating process out of jurisdiction on the basis that the Singapore Court was the appropriate court to hear the action. To establish this, the claimant was required to show that a good arguable case that the claim had sufficient nexus to Singapore. 

To do so, the claimant argued that the claim involved proprietary rights over movable property situated in Singapore as the presumptive owner of cryptoassets ought to be whoever controlled the wallet linked to the cryptoasset and that the situs of a cryptoasset would be where its owner was resident. Therefore, the cryptoassets in question were situated in Singapore since the private key was controlled by a company resident in Singapore (of which he was the sole shareholder). 

On the other hand, the defendants argued that the cryptoassets should not be considered located in Singapore as there was significant uncertainty regarding how the location of digital assets is determined. The defendants pointed to seemingly inconsistent authorities to demonstrate this point: 

1. In Tulip Trading Ltd (a Seychelles company) v Van Der Laan and others [2022] 2 All ER (Comm) 624 (which the claimant relied on), the English High Court accepted that  the digital assets were located in the jurisdiction the claimant was resident in.
2. However, in Lavinia Deborah Osbourne v Persons Unknown and another [2022] EWHC 1021 (Comm), the English High Court decided that cryptoassets are to be treated as located at the place where the owner is domiciled.
3. Separately, in Bybit Fintech Ltd v Ho Kai Xin and others [2023] 5 SLR 1748, the Singapore High Court decided that USDT were choses in action. On this basis, the defendants argued that the location of cryptoassets may be treated as the country where the right to redeem it could be enforced, consistent with the general position for choses in action.

The Court agreed with the claimant that the location of a cryptoasset was “best determined by looking at where it is controlled”, and cited the fact that cryptoasssets had no physical presence and existed as a record in a network of computers. Control over a cryptoasset lay with the person who controlled its private key.

In turn, how should the location of that person be determined? On this, the Court held that the person’s residence (rather than domicile) was the more appropriate test, as residence would a better indicator of where control is being exercised and where a person can normally be sued.

2. How should cryptoassets be valued by the Courts?

In Fantom Foundation Ltd v Multichain Foundation Ltd and another [2024] SGHC 173 (“Fantom”), the Singapore High Court considered the principles governing the valuation of cryptocurrency in assessing damages to be awarded to a successful claimant.

The claimant in that case developed and operated the “Fantom Opera Chain”, an open-source smart contract platform for cryptocurrencies and decentralised applications. The native coin for the “Fantom Opera Chain” was Fantom or “FTM”. The first defendant operated a multichain bridge platform which served as a bridge facilitating interoperability and trades between discrete blockchain networks. The claimant entered into three agreements with the first defendant relating to the integration of the Claimant’s blockchain to the first defendant’s platform.

Due to a security breach occurring on 7 July 2023, over USD 127 million worth of assets were moved out of the first defendant’s multichain bridge platform. These included various cryptoassets deposited by the claimant, including 4.175 million FTM. Subsequently, the claimant obtained default judgment ordering among other things, for the defendants to deliver 4.175 million FTM to the claimant, or in the alternative, the value of said FTM.

The Court observed that the nature and extreme price volatility of cryptocurrency created two significant challenges in the assessment of damages. First, how should the market value of cryptocurrency be ascertained at any given point of time? Second, how should the date of assessment of damages, or the reference point for computing losses, be determined.

While the Court did not have to decide on these issues (as the claimants elected to value their losses conservatively by reference to spot value at the date of the breach), the Court provided helpful guidance on both issues:

On the first issue of assessing the market value of cryptocurrency - Spot Value vs Volume-Weighted Average?

• The Court observed that the assessment of the market value of any cryptocurrency will not be forensically precise “as there is no inherently objective value of cryptocurrency”. In this regard, the Court noted that different online exchanges priced each type of cryptocurrency differently and the value of a cryptocurrency “lies not so much in its physical state or economic value, but in the faith that the market collectively places in it (ie, perceived value)”.
• Surprisingly in this case, the claimant’s proposed valuation was lower than the valuation put forward by its own expert. The claimant had based its valuation on the spot value (i.e. the value at a specific point of time) of FTM while its expert had used the volume-weighted average price (i.e. the weighted average price across a day). The Court thus accepted the claimant’s proposed valuation, simply as that was the lower of the two figures put forth.
• Nevertheless, the Court noted that both options could seemingly be viable and that further arguments may arise in the future especially where there are significant price shifts over the course of a day, as was common with cryptocurrencies.

As to the second issue: which point in time should valuation occur?

• The Court started with the position in traditional breach of contract situations involving conventional assets, where the general compensatory principle is to allow a party to be put in as good a position as if the contract had been performed. Generally, this meant assessing the quantum of loss as at the date of the breach, although the court can depart from this general position if it would cause injustice.
• Given the price volatility of cryptocurrency, the Court observed that assessing the quantum of loss at the date of the breach may be “manifestly unfair” or “fail to reflect the actual loss which the claimant suffered, or…which the claimant would…have suffered if it had mitigated its losses”. In exceptional circumstances, there is also the question of whether such quantum should be assessed by reference to the defendant’s gains rather than the claimant’s loss (although this would face its own set of challenges given the difficulty of tracing the movement of assets on the blockchain).
• Although the Court did not ultimately have to decide on this issue as the claimant elected to assess its loss based on the date of the breach, the Court helpfully summarised approaches taken by other jurisdictions in addressing this conundrum:

1. The Delaware Superior Court in Diamond Fortress Technologies Inc v EverID Inc 274 A.3d 287 used the “highest market price of the security within a reasonable time of the plaintiff’s discovery of the breach”. The duration of this “reasonable time” is determined by how long it would have taken the claimant to replace the securities on the open market, with a period of two or three months generally accepted as reasonable. This approach finds its provenance from securities jurisprudence in Delaware and New York. However, not all jurisdictions in the United States adopt this rule in all cases.
2. The United Kingdom has not considered this issue in the context of cryptocurrency. However, it was similarly expressed in Stanford International Bank Ltd (in liquidation) v HSBC Bank plc [2023] AC 761 that “where there is an available market in which an adequate substitute can be obtained for goods or services of which the defendant's breach of duty deprived the claimant, damages are to be assessed as if the claimant entered the market and obtained such a substitute at the earliest reasonable opportunity whether or not the claimant in fact did so.” 

Key Takeaways 

The cases above again serve to demonstrate the Singapore Courts’ sound and reasoned approach in tackling novel legal issues arising from crypto-related litigation and the unique nature of this asset class in a commercial and fair manner. 

At the same time, the law pertaining to this asset class remains in the process of development, with many issues yet to be determined. Taking the determination of the location of cryptoassets for example, it remains to be seen how the principles espoused in Cheong Jun Yoong v 3AC will be applied in a case where parties’ substantive rights may be affected, such as the determination of the governing law of a proprietary claim involving cryptocurrency which has been transferred across multiple jurisdictions.

Similarly, the questions and approaches towards valuation raised in Fantom provide significant material for future claimants to potentially leverage on in arguing for the methodology which best suits their interests. It remains to be seen how the courts will draw the line in more complex and contentious cases where parties take diametrically opposing views on valuation and potential claimants would do well to keep a close eye out for such cases.  

Heading into 2025, we expect to see more cases making their way through the Singapore courts as stakeholders seek to build on the growing source of jurisprudence in this area, even as we witness the present recovery in investor sentiment worldwide. This will hopefully provide greater certainty and confidence for stakeholders in this space moving forward. 

Australia

Cryptocurrency litigation gathered steam in the Australian Courts in 2024.  In the absence of express legislation relating to digital assets, Australia’s financial services regulator the Australian Securities and Investments Commission (ASIC) was the most active in Australia’s courts with its continued push to enforce adherence by cryptocurrency businesses to traditional financial services legislation.  This has come with mixed results but has finally elevated the jurisprudence relating to cryptocurrency litigation into the public eye.  The determination of cryptocurrency as property is a significant landmark for cryptocurrency litigation and that decision will continue to impact judicial decision making into 2025 and beyond.  Appointments of receivers to crypto-assets and privately litigated disputes also featured in the crypto litigation of 2024 and are likely to continue to have a presence in the Courts into 2025. 

This update provides a high-level summary of recent key cryptocurrency cases shaping the Australian legal landscape in 2024 that are likely to influence the trajectory of cryptocurrency litigation into 2025.

In the matter of Blockchain Tech Pty Ltd [2024] VSC 690: Chen & Anor v Zhao & Ors

Aligning with international opinion, the Supreme Court of Victoria has recently and definitively determined that Bitcoin is property under Australian law.  Specifically, when asked to opine on the legal status of cryptocurrency the Court found that cryptocurrencies satisfy the standard criteria of a species of property having: (a) identifiable subject matter; (b) an ability to be identifiable by 3rd parties; (c) a degree of permanence; and (d) the capability of transfer.  However, it cannot be the subject of a bailment as a chose in action that is unable to be possessed. 

ASIC v NGS Crypto Pty Ltd (No 3) [2024] FCA 822

Australia’s financial services regulator, ASIC, initiated proceedings alleging that NGS Crypto and related entities (NGS) were, amongst other things, involved in unlicensed conduct regarding their cryptocurrency mining business. ASIC successfully sought asset preservation orders against NGS and the appointment of receivers to manage those assets, which included digital assets.

In making the orders, the Federal Court of Australia considered whether cryptocurrency could be "property" under the Corporations Act 2001 (Cth) (Act) and was satisfied, at least on an interlocutory level, that the definition in the legislation was sufficiently broad (including any legal or equitable or interest) to encompass cryptocurrency.

ASIC v Web3 Ventures Pty Ltd [2024] FCA 64; ASIC v Finder Wallet Pty Ltd [2024] FCA 228; ASIC v Bit Trade Pty Ltd [2024] FCA 953 (the “ASIC Trilogy”)

The ASIC Trilogy arose following ASIC’s attempts to enforce against cryptocurrency businesses that it believed had failed to comply with existing financial regulations and licence requirements under the Act.  In summary:

• Web3 Ventures Pty Ltd, trading as Block Earner, marketed a product that allowed users to lend cryptocurrency to Block Earner in exchange for a fixed interest rate.  The Court found, amongst other things, that Block Earner was carrying on an unlicensed financial services business in violation of the Act.     
• Finder Wallet’s Finder Earn product, which allowed customers to convert Australian dollars into a cryptocurrency and allocate it to Finder Wallet in exchange for a return, was found not to be a debenture under the Act and therefore ASIC failed to establish that an unlicensed financial services business was being conducted.
• Bit Trade was found to have contravened the Act by failing to make a target market determination for a financial product when issuing a product that constituted a credit facility, which allowed customers to receive a margin in the form of digital assets or fiat to make spot purchases and sales on the Kraken exchange.

Moving into 2025 the appeals in both ASIC v Web3 Ventures Pty Ltd [2024] FCA 64 and ASIC v Finder Wallet Pty Ltd [2024] FCA 228 will give rise to the first Court of Appeal judgments in Australia which will only build on the legal principles developing out of the Australian courts.

Conclusion

Although slow in developing, Australia’s cryptocurrency legal landscape is now providing critical precedents and principles for the treatment of digital assets as property in Australia, the necessity for compliance with longstanding financial services legislation and the application of traditional legal principles to innovative financial products.  Looking forward to 2025 we can only envisage that further disputes will come before the Australian Courts, both privately litigated and as part of ASIC’s enforcement processes.