Crypto Litigation—An Empirical View

In the early part of 2022, as cryptocurrencies crashed in value, lawsuits related to crypto assets soared. As the total value destroyed in the current crypto wipeout passes $2 trillion, one can only expect more disputes to arise. Despite its massive valuation and importance, no data existed as to the evolution of lawsuits concerning crypto-currency. In a recent piece entitled ‘Crypto Litigation: An Empirical View’ I offer the first empirical analysis of all crypto-related cases litigated in the United States, analyzing the number of cases, types of disputes, and causes of actions, among other criteria. I use a novel and carefully hand-coded dataset including all cases involving crypto-assets and its eco-system including cryptocurrencies, tokens, exchanges, and decentralized autonomous organizations (‘DAO’). In this piece, I show that crypto litigation to date has been dominated by securities litigation and associated tort claims. However, using recent examples, I predict that future cases will involve more consumer protection statutes and complex private law issues.

According to the data, the greatest number of court cases related to cryptocurrencies were filed in 2018. One explanation for this peak is that the first ‘crypto winter’—an extended period of low prices in cryptocurrencies—occurred in 2018.

Data show that New York and, by a distant second, California are the go-to jurisdictions for crypto litigation. However, the concentration of claims in these jurisdictions is a relatively recent development. Earlier cases were more dispersed across jurisdictions. For instance, in 2017 50% of all crypto-related cases were filed in New York and California courts. This percentage was close to 58% in 2018. By contrast, in 2020 more than 90% of all cases were filed in New York and California courts. In 2022 until October close to 70% of all cases were filed in New York and California. 

Class action cases amount to approximately 44% of total cryptocurrency cases. Most of the class action cases have arisen out of alleged violations of securities regulations and, increasingly, consumer protection statutes.

Data also show that class action lawsuits peaked in 2018. After adjusting for the percentage of total cases, the data show that class action lawsuits were the most frequent form of action early on.  Note that the wave of crypto-related litigation started in 2017. Even though the first cases date back to 2014 but the number of cases between 2014-2016 was handful. It was not until 2017 that crypto-related litigation began to gain momentum. Current rates suggest the number of class action suits may surpass the 2018 and 2020 peaks.

The data show that securities allegations and tort claims have accounted for more than half of the causes of action in crypto suits, as the chart below shows. Most commonly, these cases included allegations related to securities law violations arising from the sale of unregistered securities. These actions were often coupled with tort actions, such as negligent misrepresentation and fraud. Such cases arose largely due to the initial coin offering (ICO) boom of 2017 in the crypto market and cryptocurrencies’ then-undetermined status as securities. Examples of these cases include claims against Ripple and Tezos.

The chart below shows the percentages of causes of action to the total cases filed related to crypto. Though the data are incomplete for 2022, the data suggest that lawsuits under the securities laws are subsiding. By contrast, claims arising out of consumer protection laws and private law claims are on the rise. As stated above, consumer protection lawsuits include those arising out of statues aimed to protect consumers such as California Consumer Legal Remedies Act, California Unfair Competition Law, and Illinois Consumer Protective and Deceptive Trade Practices.

What is next for crypto? The data suggest that a significant portion of the lawsuits involving crypto prior to 2021 involved securities litigation. This is related to the general uncertainty regarding the status of crypto as ‘a security,’ which notably culminated in a series of high-profile lawsuits against Ripple. Tied to securities claims are tort claims based on misrepresentation. However, this is likely to change in the future.

Based on the empirical data presented, this Essay argues that the peak of securities litigation involving crypto has most likely passed. First, uncertainty over crypto asset’s status a security may be receding, given that SEC has provided more regulatory clarity. Second, much of the securities litigation arose from the 2018 ICO boom. Indeed, the data suggest that securities lawsuits are already giving way to cases arising from private law claims. I term this development the private law pivot. The private law pivot refers to an increase in actions based on private tort and contract law, as well as consumer protection statutes. This shift may be the product of the changes in the legal landscape, the cryptocurrency industry, and the evolution of available causes of action.

Farshad Ghodoosi is Assistant Professor of Business Law, California State University, Northridge, David Nazarian College of Business & Economics, Department of Business Law.