On 1 February 2022 I had the pleasure of speaking at a webinar hosted by FTI Consulting the topic of which was: “Investing in Crypto and NFTs: Avoiding fraud and protecting your legal and reputational interests”: https://fticommunications.com/en/fti-consulting-webinar-investing-in-cryptocurrency-and-non-fungible-tokens-nfts/
Given my personal enthusiasm and professional experience of crypto, I found the discussion extremely interesting and informative. I personally benefitted from the perspectives shared by my fellow panellists Joe McGill of TRM Labs, who spoke on cyber security, Kate Brader of FTI Consulting, who spoke on reputational considerations for the crypto industry and our host Daniel Hamilton’s geopolitical insight.
Key insights
For me, the most interesting points made in the discussion were:
- The cryptosphere is growing at an enormous rate and it presents exciting new commercial prospects;
- The influx of new market entrants is driving a higher incidence of fraudulent activity;
- In order to protect themselves consumers should be mindful of social engineering scams and also enable two-factor security on all of their devices;
- Anyone involving themselves in the cryptosphere should be prepared to answer questions that detractors have – from environmental considerations, to concerns about criminal money in the ecosystem; and
- The important social and commercial benefits that cryptocurrency could bring in the future, if governments get the regulation of this area right.
Promising prospects
The cryptosphere is at a fascinating stage in its development. It seems as though every week more household name financial institutions investment in crypto-related companies, more payment companies broaden their services to facilitate the purchase and sale of crypto and NFTs, and more brands conduct their own foray into the cryptosphere – for example, at the time of writing, major fashion brands are preparing for a metaverse fashion week that will be held in Decentraland. I see all of this growth as grounds to be hugely optimistic for the future of crypto.
Cryptosphere is still poorly understood
As someone who is constantly researching new trends in the cryptosphere, and actively collecting interesting NFTs, I am often baffled by news reporting which seems to focus almost solely on Bitcoin price volatility. I think overly narrow reporting is one of the key reasons for a lack of understanding of this space by many demographics, including both those who choose not to enter the cryptosphere, and many who do.
True reason for increase in new market entrants being defrauded
There can be no doubt that a significant proportion of the negative stories arising from the crypto world derive from the entry of market actors who have not done their homework and are chasing what they believe to be a “get rich quick” scheme. These people who are looking for unrealistic gains are unlikely to question offerings that are too good to be true, and are therefore susceptible to fraud – which, in turn, encourages sophisticated fraudsters to increase their activity.
The future of regulation
I have little doubt that any future regulation of the cryptosphere by the British government will be focussed on enhancing consumer protection, and that is something that, if it is done proportionately, we should all welcome. I know from the bitter experience of clients who come to me to resolve crypto disputes, which often involve an element of fraud, that this is necessary.
However, it is worth sounding a note of caution – yes there are bad actors in every arena of commercial activity but we know from hefty fines handed out to international institutions over the years that this behaviour pre-dates the evolution of crypto by many years, so it would be a mistake for us to focus on the negative traits of the cryptosphere to the exclusion of the positive.
Rosenblatt can help
The regulatory regime which applies to crypto assets is complex and dynamic. A thorough understanding is needed to minimise the risk businesses face in this space.
Rosenblatt’s tech team advises on all aspects of crypto assets and regulatory law. We can help successfully navigate companies through obtaining the necessary registrations/authorisations from the FCA for their operations. We can also work with you to provide the required AML and other policies needed to support your application to the FCA.
The Rosenblatt dispute resolution team helps corporates, entrepreneurs, and individuals, across multiple jurisdictions and sectors to achieve their best outcome. We provide pre-emptive advice, advise on negotiations, taking injunctive action and undertaking investigations. We act in litigation, arbitration and tribunals, advise on alternative dispute resolution and in regulatory or white-collar criminal proceedings.
We also have a wealth of experience in capital markets, acting for issuers, brokers, nomads, and other corporate advisers, across diverse sectors and we collaborate closely with institutions, large and small companies (both public and private), start-ups, scale-ups and individual entrepreneurs.
Contact us
If you are interested in the issues outlined above, please get in touch with me at tom.spiller@rosenblatt-law.co.uk or my colleague partner Laura Clatworthy who heads our Tech Team. Rosenblatt has a wealth of experience advising businesses and individuals on the legal and regulatory aspects of cryptocurrencies. If you would like to participate in future discussions hosted by Rosenblatt in this exciting developing area please let us know.
Author
Tom Spiller, Senior Associate (tom.spiller@rosenblatt-law.co.uk)
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