US Federal Court Rules Cryptocurrency Covered Under Securities Laws: Will Canada Follow Suit?

The US District Court for the Eastern District of New York in United States v. Zaslavskiy (Zaslavskiy) rules that cryptocurrency may be covered by US securities laws as they meet the test generally used to determine whether an instrument is an “investment contract” pursuant to US securities laws.

Key Takeaways

  • Regulators’ commitment to crackdown on cryptocurrency-related activities reaching the courts. Commencing as early as 2017, various regulators around the globe have published their positions on cryptocurrency and the classification of various types of cryptocurrencies. The Zaslavskiy decision demonstrates that US courts agree with SEC guidance that cryptocurrencies are, indeed, investments.
  • Courts will use existing case law to determine whether cryptocurrency can be subject to securities laws. The Court in Zaslavskiy applied an existing legal test to cryptocurrency to determine whether it was an instrument that was an “investment contract” and therefore subject to US securities laws. This case provides helpful judicial guidance that may be used by courts in other circumstances and sheds light for all market participants regarding the status of crypotcurrencies as securities instruments.
  • Time will tell whether Canadian courts take a similar approach. Canadian regulators have provided similar guidance as the SEC on treating cryptocurrencies as investments. It is only a matter of time before Canadian courts are forced to take a position on whether various types of cryptocurrencies are covered by Canadian securities laws.

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