By: Charles Park
The popularity of cryptocurrencies in the last decade have been well-noted in the media, most notably due to the meteoric rise of Bitcoin in recent years. Cryptocurrencies serve as a decentralized currency typically created through a process of “digital mining” using specialized computer hardware, and transactions are recorded via a digital ledger known as blockchains. While cryptocurrencies like Bitcoin have been increasingly accepted by retailers and businesses as valid methods of payment, the recent news that Tesla had invested $1.5 billion dollars into acquiring Bitcoin and planning on accepting Bitcoin as payment for their electric vehicles signaled that other household name companies may closely follow suit. Hedge funds, banks, and private companies have also invested heavily into cryptocurrencies as a part of their portfolios, a widespread trend in the financial and corporate industries. As the use of cryptocurrencies as valid payments for tender of goods and services become normalized in businesses, courts are likely to face the difficult task of understanding cryptocurrencies and applying it into their judgements in bankruptcy, litigation, and transactional matters.
As the center of corporate activity and bankruptcy filings in the United States, Delaware courts are likely to be at the forefront in increasingly complex cases involving cryptocurrencies. In Tetragon Financial Group Ltd. v. Ripple Labs Inc., Vice Chancellor Morgan T. Zurn was tasked with providing relief to the plaintiffs who, in light of the SEC’s actions against the defendants for illegally issuing securities in the form of cryptocurrency, sought redemption of their preferred stock in the form of the defendant’s cryptocurrency, XRP. While it can appear to have been an “ordinary” dispute between a company and their shareholders, the crypto nature of the XRP currency added unique complications to the dispute, especially as the court analyzed the rapidly evolving SEC regulations regarding cryptocurrencies.
In another Chancery Court matter, Vice Chancellor Slights III presided over Greenhouse v. Polychain Fund I LP, where he oversaw the partner dispute within a cryptocurrency investment company, and issues in transparency of the company’s books and valuation of its assets in cryptocurrency. Staying the action for arbiter review, Vice Chancellor Slights III relied on prior cases with partner disputes and arbitration clause enforcement. Here, it seems that even with the cryptocurrency factor, courts may be able to resolve disputes and offer guidance by relying on the tried and true toolsets applied in past matters.
The highly volatile and “wild west” nature of the cryptocurrency market also provides for a predictable increase in bankruptcy filings by crypto-investment and brokerage companies. Cred Inc., (“Cred”) a cryptocurrency investment firm, filed for court protections under Chapter 11 bankruptcy following the theft of over 11.5 million worth of Bitcoins to a fraudulent imposter claiming to be another cryptocurrency company, and 4.3 million Bitcoins allegedly stolen from Cred by its own CFO, James Alexander. Describing the pre-petition stage of Cred’s filings as “shenanigans,” Judge John T. Dorsey of the Bankruptcy Court recognized the mismanagement of the company and its financial holdings in cryptocurrencies (mainly Bitcoin) but found sufficient evidence of a turnaround in management to avoid placing the company under trustee control. The decentralized character of cryptocurrencies like Bitcoin also add unique frustrations to the administration of bankruptcies, as customers and creditors whose cryptocurrencies were mismanaged or defrauded are retail investors from many different countries. For example, Cred’s bankruptcy filing immediately faced service issues, as approximately 6,500 customers from over 140 countries were required to be served notice of the filing. The mismanagement and theft of the digital currencies also seems to be a reoccurring theme in past bankruptcies and failures of cryptocurrency investment and brokerage firms, most notably seen in the downfall of Mt. Gox in 2014, losing approximately 850,000 of their customer’s Bitcoins via “syphoning” of Bitcoins by hackers.
As cryptocurrencies gain legitimacy from adoption by companies like Tesla, Mastercard, and BNY Mellon, bitcoins and other digital currencies will likely become an increasingly influential factor as assets of litigating and insolvent companies in Chancery and Bankruptcy matters.
 Coinbase, https://www.coinbase.com/price/bitcoin;https://www.coinbase.com/price/bitcoin (last visited Feb. 21, 2022) Bitcoin prices in December 2013: $754; December 2017: $970; December 2020: $32,000. February 2021: $44,692.
 Jake Frankenfield, Cryptocurrency, Investopedia, (Jan. 11, 2022) https://www.investopedia.com/terms/c/cryptocurrency.asp.
 Steve Kovach, Tesla buys $1.5 billion in bitcoin, plans to accept it as payment, CNBC, (Feb. 8, 2021, 1:43 PM) https://www.cnbc.com/2021/02/08/tesla-buys-1point5-billion-in-bitcoin.html.
 Ephrat Livni and Jason Karaian, Will other companies follow Tesla’s lead and load up on Bitcoin?, The New York Times, (Feb. 21, 2021) https://www.nytimes.com/2021/02/09/business/will-other-companies-follow-teslas-lead-and-load-up-on-bitcoin.html.
2020 Crypto Hedge Fund Report, https://www.pwc.com/gx/en/financial-services/pdf/pwc-elwood-annual-crypto-hedge-fund-report-may-2020.pdf;PricewaterhouseCoopers, https://www.pwc.com/gx/en/financial-services/pdf/pwc-elwood-annual-crypto-hedge-fund-report-may-2020.pdf (last visited Feb. 21, 2022) Billy Bambrough, Why America’s Biggest Bank is Suddenly Very Bullish on Bitcoin, Forbes, (Oct. 26, 2020, 5:43 AM) https://www.forbes.com/sites/billybambrough/2020/10/26/why-americas-biggest-bank-is-suddenly-very-bullish-on-bitcoin/?sh=df09cb76f679.
 Dan Seal, Ripple Investor Sues to Cash Out in Light of SEC Action, Law360, (Jan. 5, 2021, 6:54 PM) https://www.law360.com/articles/1341722/ripple-investor-sues-to-cash-out-in-light-of-sec-action.
 Jeff Montgomery, Chancery Stays Cryptocurrency Suit for Arbiter Review, Law360, (Jun. 1, 2018, 8:21 PM) https://www.law360.com/articles/1049446/chancery-stays-cryptocurrency-suit-for-arbiter-review.
 In re Cred Inc., et al. No. 20-12836 (Bankr. D. Del. Filed Nov. 7, 2020).
 Vince Sullivan, Cred Inc. Subsidiary’s Ch. 11 Case Survives Dismissal Bid, Law360, (Feb. 3, 2021, 7:48 PM) https://www.law360.com/articles/1351866/cred-inc-subsidiary-s-ch-11-case-survives-dismissal-bid.
 Rick Archer, Ch. 11 Examiner Will Look At Cred Inc. ‘Shenanigans’, Law360, (Dec. 18, 2020, 10:04 PM) https://www.law360.com/articles/1339358/ch-11-examiner-will-look-at-cred-inc-shenanigans-.
 Vince Sullivan, Crypto Firm Cred Inc. Opens Ch. 11 with Creditor Notice Issue, Law360, (Nov. 10, 2020, 10:25 PM) https://www.law360.com/articles/1327623/crypto-firm-cred-inc-opens-ch-11-with-creditor-notice-issue.
 Adrianne Jeffries, Inside the Bizarre Upside-Down Bankruptcy of Mt. Gox, The Verge, (Mar. 22, 2018, 10:30 AM) https://www.theverge.com/2018/3/22/17151430/bankruptcy-mt-gox-liabilities-bitcoin; The 850,000 Bitcoins lost by Mt.Gox would approximate to $39,950,000,000 using today’s valuation of Bitcoin at around $47,000 per coin.
 Isabelle Lee, Bitcoin surges 7% to a record high amid new adoption from Mastercard and BNY Mellon, Markets Insider, (Feb. 11, 2021, 12:39 PM) https://markets.businessinsider.com/currencies/news/bitcoin-price-surges-to-record-high-cryptocurrency-mastercard-2021-2-1030073794.