Non-Fungible Insights: Blockchain Decrypted

On February 16, 2024, the Cabinet of Japan approved a bill to amend, among three other laws, the Limited Partnership Act for Investment (the Act). The proposed amendment provides for crypto assets to be added to the list of assets that investment limited partnerships (LPs) can acquire or hold.

Last month, various federal government agencies released eight highly anticipated reports on different aspects of digital asset regulation, setting forth the agencies’ respective legislative, regulatory, and policy recommendations and priorities. 

Governments and regulators have struggled to keep pace as new digital asset classes and other blockchain applications have risen to prominence. This regulatory uncertainty has caused confusion in the markets and impeded greater adoption of distributed ledger technologies in the United States.

DAOs (Decentralized Autonomous Organizations) can offer procompetitive benefits, such as increased efficiencies and lower costs, to members of these organizations, as well as to consumers. In the rush to market, however, it is important not to overlook antitrust risks.

A pair of suits from designers Nike and Hermes are raising new questions regarding how Non-Fungible Tokens (NFTs) intersect with trademark protections. On January 14, 2022, luxury designer Hermes filed suit against artist Mason Rothschild, creator of the popular “MetaBirkins” NFTs.

The Securities and Exchange Commission announced on March 15, 2019, that the staff of its Strategic Hub for Innovation and Financial Technology, known as FinHub, will hold a forum focusing on distributed ledger technology (DLT) and digital assets.

In this post, we will discuss how an adviser can comply with the Custody Rule in connection with investing/trading in crypto assets on behalf of clients.

Rule 206(4)-7 under the Investment Advisers Act (IAA)—the so-called Compliance Program Rule—requires an investment adviser registered under the IAA to (among other things) adopt written compliance policies and procedures reasonably designed to prevent violations of the IAA by the adviser and its supervised persons.

In our January 17 blog, the Crypto Law Corner explained that SEC-registered investment advisers must apply the so-called “Howey test,” on a case–by-case basis, to determine whether a particular crypto asset is a security, and suggested that applying the Howey test can prove daunting to SEC-registered investment advisers in the event they are required to determine whether particular crypto assets are “securities.”  

There is a very broad range of crypto assets, including: “digital,” “crypto” and “virtual” currencies; “virtual” coins or tokens; and “traditional” equity or debt securities that have been “digitized” or “tokenized.” Drawing distinctions between different types of crypto assets is important because the regulatory treatment of a particular crypto asset depends in large part on whether or not it is a security.  

Winston & Strawn’s Non-Fungible Insights: Blockchain Decrypted tracks and provides user-friendly explanations of legal and regulatory developments concerning crypto assets.