Crypto assets and the crypto-asset ecosystem have introduced novel legal challenges, many of which have reached the United States judicial system. In this Essay, I offer the first empirical analysis of all crypto-related cases litigated in the United States, analyzing the number of cases, types of disputes, and causes of actions, among other criteria. The novel and carefully hand-coded dataset includes all cases involving crypto assets and the related ecosystem including cryptocurrencies, tokens, exchanges, and decentralized autonomous organizations (DAO). Using this dataset, I show that crypto litigation to date has been dominated by securities litigation and associated tort claims. However, using recent examples, I predict that future cases will involve more nuanced and complex private law analyses of crypto assets. In sum, I argue that the United States is at a turning point in crypto litigation, which I call the “private law pivot.” The private law pivot presents novel queries to the courts stemming from contract law and business formation issues.
In the early part of 2022, as cryptocurrencies crashed in value, lawsuits related to crypto assets soared. It is estimated that as of May 2022, more than 200 individual and class action lawsuits have been filed—up 50% since the start of 2020.11.Sam Skolnik, Crypto Lawsuit Deluge Has Big Firms Scrambling to Keep Up, Bloomberg Law (May 17, 2022), https://news.bloomberglaw.com/business-and-practice/crypto-lawsuit-explosion-has-big-law-scrambling-to-keep-up (https://perma.cc/8P8Z-NC6S). As the total value destroyed in the current crypto wipeout passes $2 trillion, one can only expect more disputes to arise.22.MacKenzie Sigalos, Why the $2 Trillion Crypto Market Crash Won’t Kill the Economy, CNBC (June 19, 2022), https://www.cnbc.com/2022/06/18/why-the-2-trillion-crypto-market-crash-wont-kill-the-economy.html (https://perma.cc/HV6K-SXN7). By way of comparison, in 2008 alone, during the height of the financial crisis, close to 560 cases, including 91 federal securities class actions, were filed.33.The Financial Crisis 10 Years Later: Lessons Learned, Paul, Weiss LLP (Sept. 15, 2018), https://www.paulweiss.com/practices/litigation/financial-institutions/publications/the-financial-crisis-10-years-later-lessons-learned?id=27324 (https://perma.cc/UQK8-NCQT). The financial crisis left a lasting impact on the economy, and its aftershocks continue to be felt in the judiciary thirteen years later, with the U.S. Supreme Court recently ruling on a related securities class action.44.See, e.g., Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, 141 S. Ct. 1951 (2021).
Crypto’s ongoing meltdown, or, as an enthusiast would call it, “crypto winter,” will most likely lead to a similar cascade of lawsuits. To provide a glimpse of the magnitude of the crash, over the course of just three months, a token named Luna collapsed, eradicating more than $80 billion of value. Two crypto brokers and exchanges, Celsius and Voyager, and a crypto hedge fund named Three Arrows Capital have declared bankruptcy—a series of failures that has been compared to the downfall of the Lehman Brothers.55.MacKenzie Sigalos, From $25 Billion to $167 Million: How a Major Crypto Lender Collapsed and Dragged Many Investors Down with It, CNBC (July 18, 2022), https://www.cnbc.com/2022/07/17/how-the-fall-of-celsius-dragged-down-crypto-investors.html (https://perma.cc/UQK8-NCQT).
Most recently, FTX, one of the world’s largest cryptocurrency exchanges, collapsed in a matter of days. The stunning series of events closely resembled a classic bank run—with some novel twists. A document was leaked that suggested a hedge fund closely related to FTX leveraged FTX’s tokens, FTT, as collateral for its speculative investments. This revelation resulted in the decision of Binance, FTX’s major competitor, to sell all of its FTT tokens. Binance’s move precipitated massive withdrawal requests that FTX was unable to fulfill.66.Kalley Huang, Why Did FTX Collapse? Here’s What We Know., N.Y. Times (Nov. 18, 2022), https://www.nytimes.com/2022/11/10/technology/ftx-binance-crypto-explained.html (https://perma.cc/7KKK-8MXU). This story is still developing, but the fallout from FTX has already led to a bankruptcy proceeding in Delaware and a class-action lawsuit against celebrity promoters—including Larry David, Tom Brady, Giselle Bündchen, Shaquille O’Neal, and Stephen Curry—in the hope of recovering (some of) the $32 billion of wealth wiped out as a resulted of FTX’s collapse.77.David Yaffe-Bellany, FTX Assets Still Missing as Firm Begins Bankruptcy Process, N.Y. Times (Nov. 22, 2022), https://www.nytimes.com/2022/11/22/business/ftx-bankruptcy-sam-bankman-fried.html…
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