Lately, cryptocurrency has been in the news as its shares have shot upward. Large banks such as Goldman Sachs, JP Morgan, and Deutsche Bank have announced they will accept Bitcoin. As cryptocurrency becomes more mainstream, legal issues are bound to arise. This post will examine some of the issues to look out for and some of the areas Goosmann’s transactions and IP teams are prepared to deal with clients’ crypto assets in terms of mergers and acquisitions, investments in start-ups, high net worth individuals’ (“HNWI”) money management, and estate planning. All of these areas of the law intersect with the need to protect data and to take into account clients’, individuals and corporate and start-up business clients’, cybersecurity.
Bitcoin uses blockchain technology to protect financial data. It is a currency and method for transacting business our transactions team is seeing more frequently used by start-ups in the green tech and fintech fields as well as by larger wealth advising firms who work with HNWI clients and investors.
Our team has nearly two decades of fintech and cybersecurity experience and is on the cutting edge of cryptocurrency transactions. Goosmann is capable of drafting investment agreements in, and acquisitions of, cryptocurrency and is capable of completing deals that use blockchain technology. We advise start-ups in this space as well as wealth management firms.
Our team is fully capable of advising on the reporting issues required in dealing with cybersecurity and transactions. Relevant laws include the Uniform Prudent Investor Act, the Uniform Prudent Management of Institutional Funds Act, the Federal Computer Fraud and Abuse Act, and the Revised Uniform Fiduciary Access to Digital Assets Act.
We have a deep bench of attorneys that understands the complexities of cryptocurrency, cybersecurity, and data privacy in transactions.
Lastly, as investors expand their portfolios to include Bitcoin and other cryptocurrencies, they will need to note the IRS’ treatment of cryptocurrency for tax and property purposes as well as the estate planning ramifications of owning such digital assets.
While we are not tax advisors, we do advise clients that the IRS treats cryptocurrency as property, and, thus, cryptocurrency can have gains and losses for capital gains purposes, just as real estate can.
Secondly, we advise clients who do their estate planning with us to make sure the trust funding process accounts for digital assets such as Bitcoin or other cryptocurrencies. Funding a trust with Bitcoin may be as simple as noting the password and storage device for access to the cryptocurrency accounts. However, should a password or storage device access be noted in a trust, we would comply with all data privacy and terms of use laws governing such technical transactions.
Nebraska law regarding cryptocurrency is in flux. State Senator Mike Flood has introduced two bills, in January of this year, on cryptocurrency. One bill would allow banks to “custody” cryptocurrency but for the cryptocurrency not to be treated as an asset or a liability. The bank would serve as a depository. To serve as a custodian, banks would need to provide the Nebraska Director of Banking and Finance with 60 days’ notice. The Transactions of Digital Assets Act would delineate transactions requirements for smart contracts, passwords, and private keys. The U.S. federal Office of the Comptroller of Currency has already issued a notice allowing banks to serve as custodial depositories of cryptocurrency.
Cybersecurity and data privacy laws, federal and state, and anti-money laundering statutes would apply.
Senator Mike Flood aims to make Nebraska a financial technology hub with these bills, according to the Norfolk Daily News. Goosmann will stay abreast of the most recent Nebraska legislative developments.
Goosmann is knowledgeable and prepared to assist with any transactions or cybersecurity/data privacy issues for start-ups, HNWIs, wealth managers, or corporations, and we are on the forefront of this area of the law as it continues to rapidly develop in this changing world.
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