Regulatory agencies see crypto assets as securities, currency, property or commodities depending on the agency. According to a recent article by Carol Goforth, professor at the University of Arkansas School of Law, they comprise the characteristics simultaneously.
Goforth’s seven-page article, “U.S. Law: Crypto is Money, Property, A Commodity, And A Security, All At The Same Time,” was published in April in the Journal of Financial Transformation. It was her third published work on crypto, and she had worked on it and the two other articles concurrently for about a year. With regard to the April article, she explained that each regulatory agency identifies crypto as the thing it regulates.
“Every agency wants it to be within their umbrella,” Goforth said. “When you talk with the CFTC [U.S. Commodity Futures Trading Commission] it’s always a commodity. When you talk to FinCEN [Financial Crimes Enforcement Network] that’s responsible for enforcing the Bank Secrecy Act, it’s always a currency. When you talk to the SEC [U.S. Securities and Exchange Commission], it’s almost always a security. And the IRS can get the most money from you if it’s property. So for them, it’s always property.”
Goforth has been studying crypto assets for more than two years. In the spring, she took a sabbatical to write the first law textbook on the regulation of crypto transactions. The book will be published by West Academic and is expected to be available in summer 2020, allowing students to purchase it and professors to teach from it in time for the fall 2020 semester. Goforth also is faculty adviser for the Arkansas Law Review Symposium on crypto regulation set for Friday (Oct. 25).
Goforth started studying crypto when she was asked to attend a meeting with entrepreneurs who were looking to establish a crypto business. As she was preparing for the meeting, she found there wasn’t a lot of reliable information on the topic. While the entrepreneurs didn’t develop the crypto business, her interest in crypto started to grow.
“I got interested in it from meeting the people who thought that they had a business idea and then finding out that there was so little for lawyers who might need to help clients in a vastly complicated and very rapidly changing technological space,” she said. “Even though that enterprise didn’t go anywhere, once I got hooked into the need for additional resources to be made available to lawyers to assist potential clients, I just kept up with my interest.”
When asked about the recent volatility in crypto, Goforth said she thinks it isn’t volatile for a lack of understanding but for the few owners of a large amount of cryptocurrency, who are commonly referred to as whales. One wallet change by a whale can significantly affect the price of cryptocurrency, such as Bitcoin.
“Because there are no institutional investors to speak of in the United States, the presence of whales, I mean a lot of them, may not be long-term investors,” she said. “They may be short-term speculators, and that, I think, increases the pressure for sudden market changes. They may also be intentionally manipulating the market.”
The latter has led the SEC to decline to approve exchange-traded funds for crypto. The agency has declined to approve more than 30 applications over the past nearly two years.
“It’s almost like a chicken and egg problem,” she said. “Until you get institutional investors with long-term investment strategy holding, I think you’re going to see volatility. And yet the volatility is the reason why the rules are not adopted that would facilitate institutional investors coming to the table.”
Also, every time a regulatory agency makes changes to their rules or news develops about cryptocurrency, it’s affected. The quick changes, how unsettled things are and the lack of long-term stable holders of crypto assets have contributed to the volatility. Goforth doesn’t expect investment firms will recommend to their clients to invest in crypto until there are more diversified portfolios, allowing for multiple interests in one basket. However, the SEC has declined to approve those requests.
One Bitcoin (BTC) on Oct. 7 was worth $8,211.87, up $340.30, or 4.32%, from the value at the start of the day, according to the Global Bitcoin Price Index. Since Sept. 19, the value of one Bitcoin has declined 25.2%, from $10,281. Another cryptocurrency, Ethereum (ETH), has fallen 18.8% to $179.51 on Oct. 7, from $221.19 on Sept. 19. Ethereum on Oct. 7 was up $8.32, or 4.86%, for the day.
The final draft of Goforth’s textbook was due to West by Oct. 18. While she’s uncertain how many pages the book will be, it’s 300,030 words. (For reference, this story is about 1,250 words, and about 240 stories of this length would comprise the number of words in her book.) The plan is to release the book as a softcover to reduce costs.
“It is the first book of general application that covers in a broad base the regulation from the securities standpoint, commodities, Bank Secrecy Act, state money transmitter, international regulation and an overview or introduction to some of the tax issues,” she said. “So it’s a very broad scope, and to the best of my knowledge, it is the first such publication available in the United States focused on U.S. law.”
In May, Goforth taught the first course on the regulation of crypto at the UA. Over the summer, she taught the international regulation of crypto at Downing College, which is a part of the University of Cambridge in Cambridge, England. In spring 2020, she will teach a course with excerpts from her textbook. She plans to teach a course from her textbook in the 2020-21 academic year.
While working on her law textbook this past spring, Goforth was notified the annual Arkansas Law Review Symposium would be on the regulation of crypto, and she’d agreed to be the faculty adviser for the symposium. The Evolving Regulation of Crypto will take place from 8:30 a.m. to 5:15 p.m. Friday (Oct. 25) in the E.J. Ball Courtroom at the law school. Registration is required. It is free to attend, and lunch is included.
Typically, between 170 and 200 people register for the annual symposium, said Darinda Sharp, director of communications for the law school. As of early October, between 35 and 40 people were registered. The Arkansas Law Review Symposium has taken place since at least the early 1980s, and it has become an annual event over the past decade. The 2019 event allows for up to seven hours of general continuing legal education credit.
Marjorie J. Peerce, partner and litigator of Ballard Spahr LLP in New York, will be the keynote speaker. The event will also include panel discussions, and Mary Lacity, director of the Blockchain Center of Excellence and professor of information systems in the UA’s Sam M. Walton College of Business, will provide an introduction to blockchain and cryptoassets.
One of the panels will offer a perspective from the regulators, including James McDonald, director of the Division of Enforcement for the CFTC; and Mark Vilardo, special counsel for the Office of Chief Counsel, Division of Corporation Finance for the SEC. Another panel on the expanding interest in crypto businesses will include Michael Oh, lecturer for the UA business college; Kathryn Gadberry, director of outreach for the business college; and Goforth.
Registration is available online at this link.