The Oxford English Dictionary defines “cryptocurrency” as “any of varied digital cost methods working independently of a central authority and using cryptographic methods to regulate and confirm transactions.” This definition captures the objectives of cryptocurrency’s advocates: to offer an accepted digital forex for the acquisition and sale of products and companies that assures freedom from authorities oversight of transactions. Had been such a system ever to grow to be widespread, the impact on the regulation and stabilization of nationwide economies could be devastating, since banking businesses such because the Federal Reserve rely closely on financial coverage—management of the liquidity of a nation’s forex and the rates of interest at which it’s supplied—to scale back inflation and improve employment.
In observe, nevertheless, cryptocurrency has to date largely failed to attain its objective of widespread client use, for the nice majority of products and companies proceed to be bought and offered in {dollars} or different regulated nationwide currencies. Cryptocurrency has, although, to a outstanding extent achieved its objective of being comparatively free of significant authorities regulation, and as a end result it has typically grow to be a automobile for fraud and criminality. An examination by the Worldwide Consortium of Investigative Journalists, The New York Instances, and different information organizations discovered that “no less than $28 billion tied to illicit exercise has flowed into crypto exchanges over the past two years.”* Marietje Schaake, the worldwide coverage director at Stanford College’s Cyber Coverage Middle, just lately wrote, “Maybe essentially the most avid customers of cryptocurrencies have been a group that explicitly values their opaque nature: criminals.” Previous instances, each civil and prison, introduced in my courtroom and elsewhere have a tendency to verify this remark.
Though the concept for a digital forex goes again no less than to the early Eighties, it was Bitcoin, launched in 2009, that first made use of a “blockchain,” a digital ledger that data and validates cryptocurrency transactions with out regulation or supervision by a authorities, financial institution, or related establishment. Anybody can entry a blockchain to report their cryptocurrency transactions, typically on a pseudonymous foundation. Personal people or corporations, recognized in crypto jargon as “miners,” then validate the recorded transactions in varied difficult and energy-intensive methods, in return for which they obtain rewards, normally within the type of cryptocurrency.
Bitcoin was difficult to make use of and thus didn’t initially have many purchasers. What ultimately introduced it extra consideration was its fast improve in worth starting in 2011. As demand for Bitcoin periodically elevated, largely owing to hype, the worth of a Bitcoin “token” typically elevated disproportionately due to the restricted variety of them obtainable. However there was no corresponding improve within the variety of companies that allowed their items to be bought with cryptocurrency. Nor did Bitcoin (or another type of cryptocurrency) pay dividends, since there was no services or products being offered to 3rd events. The one manner a cryptocurrency investor may make cash was by promoting his tokens when their worth rose. And such promoting, untethered to any underlying financial actuality, may trigger the worth of Bitcoin to fall quickly, because it did most dramatically in 2022, resulting in billions of {dollars} in losses.
Briefly, what was actually being supplied was a type of playing masquerading because the monetary “wave of the longer term.” The end result was a collection of gyrations by which the worth of Bitcoin and different cryptocurrencies quickly rose and fell, typically with devastating outcomes. One all the time heard about some savvy investor who made a mint buying and selling cryptocurrency, however much more frequent have been the beguiled buyers who held on to their cryptocurrency for too lengthy and misplaced their shirts.
This was dangerous sufficient, however the unregulated nature of the cryptocurrency markets made these markets simple targets for crooks. Maybe the earliest prison use of cryptocurrency was for cash laundering, and this continues right now. A drug vendor, for instance, can promote his illicit merchandise for cryptocurrency or use the proceeds from his gross sales in typical forex to buy cryptocurrency, in both case safe within the information that the market is basically unregulated and the transactions simply hid beneath phony names and secret accounts. And he can then promote his cryptocurrency and wind up with income not simply traced to the underlying narcotics gross sales.
Utilizing this mannequin, Ross Ulbricht, an American so-called entrepreneur, developed a black-market web site known as Silk Street that facilitated types of cash laundering by drug sellers all through the world. He was arrested in 2013, and in 2015 he was convicted earlier than one in all my fellow judges, Katherine Forrest, who, as a result of his prison enterprise was so large, sentenced him to life imprisonment. Final January, nevertheless, President Donald Trump gave Ulbricht a full pardon.
The Silk Street black market served as my introduction to how cryptocurrency facilitates cash laundering. In 2014 I presided over a prison case involving two males who knowingly aided in depth cash laundering on Silk Street. Though each defendants pleaded responsible, I had some sympathy for one in all them, Charlie Shrem, who was solely about twenty-four on the time of his prison actions, so I sentenced him to a comparatively lenient two years in jail.
Shrem said at his sentencing that he nonetheless believed in the way forward for Bitcoin. And certainly, after he accomplished his time period in jail, he grew to become a main advocate for cryptocurrency. Unexpectedly, nevertheless, I noticed Shrem a few years later when he was sued by Cameron and Tyler Winklevoss, buyers who alleged that he had defrauded them of thousands and thousands of {dollars} in a Bitcoin deal. That case was ultimately settled, however not earlier than Shrem appeared in my courtroom sporting a very costly swimsuit, shirt, and tie. So I suppose not everybody who invests in cryptocurrency loses his shirt!
In the meantime, because the cryptocurrency market continued to rise and fall, typically with lightning pace, new types of cryptocurrency have been rapidly developed, and right now there are greater than 10,000 sorts of tokens obtainable. These embody so-called altcoins, a time period that theoretically covers any cryptocurrency aside from Bitcoin (and, in some folks’s view, Ethereum) however is normally used to check with bigger, extra established rivals equivalent to Solana. But the worth of even these altcoins continues to fluctuate quickly.
One other, maybe extra comical type of cryptocurrency token is a so-called meme coin: a crypto asset named after some public determine or fad. I suppose I needs to be flattered that about a yr in the past, two males got here out with a new meme coin named $Rakoff, full with a cartoon likeness of me, which they marketed aggressively till I obtained wind of it and demanded that they take away my identify. However you’ll be able to nonetheless buy it beneath its new identify, $Juris.
Or, if you happen to choose, you should buy the meme coin that Donald Trump launched shortly earlier than his second inauguration, often known as $TRUMP. After an preliminary surge, the worth of $TRUMP fell dramatically, however it has since rebounded, and President Trump’s sons at the moment are vigorously selling varied types of cryptocurrency by means of their firm World Liberty Monetary. It was just lately introduced that a United Arab Emirates–backed monetary agency has invested $2 billion in one of many firm’s cryptocurrencies.
Like different cryptocurrency investments, meme cash have proved extremely unstable, and buyers in a lot of them have misplaced billions of {dollars}. However due to the comparatively small provide of tokens, meme cash have supplied particularly good autos for the fraud that was once known as a “pump and dump” scheme however is now known as, in crypto jargon, a “rug pull.” In these schemes, the promoters of meme cash not solely extravagantly hype their newest providing but additionally secretly promote it backwards and forwards amongst themselves, inflicting the worth to rise artificially, after which they rapidly promote their holdings earlier than the worth inevitably crashes. As a result of these promoters typically personal majority shares in their very own cash, they ceaselessly stand to take advantage of in a sell-off. The frequency of this type of fraud, the topic of many years of enforcement actions involving shares and bonds, has not stopped the newly appointed leaders of the Securities and Alternate Fee from advising their employees that, opposite to some earlier SEC pronouncements, transactions in meme cash normally don’t represent transactions involving securities and due to this fact should not topic to the SEC’s antifraud provisions.
Nonetheless one other type of cryptocurrency token is a so-called stablecoin, which is purportedly designed to take care of a secure worth by being tied in a single respect or one other to “safer” investments, thus countering the volatility that has made cryptocurrency investments a lot of a gamble. However many of those stablecoins have proved to be fraudulent.
An excellent instance is a case that got here earlier than me lower than two years in the past, SEC v. Terraform Labs
PTE Ltd. Terraform, a firm cofounded by the South Korean businessman Do Kwon, supplied varied sorts of cryptocurrency tokens to buyers beneath names like TerraUSD and LUNA. In accordance with Kwon, TerraUSD was a distinctive type of stablecoin. In contrast to different stablecoins, whose worth is pegged to the worth of the greenback, Treasuries, or different property, TerraUSD was supposedly stabilized by a refined however secret algorithm linking its worth to that of one other of Terraform’s cash, LUNA. This algorithm purportedly prevented the buying and selling worth of TerraUSD from ever falling under one greenback for greater than a jiffy. The algorithm promised that purchasers of LUNA may make a lot of cash if the demand for TerraUSD elevated, however that they’d by no means lose the cash they invested in TerraUSD.
Even in Cryptoland this proposal was initially greeted with some skepticism, however when one morning the worth of TerraUSD, which had fallen to about ninety cents, instantly rebounded to just about one greenback, buyers started to imagine the hype, and the worth of LUNA skyrocketed to nicely over 100 {dollars}. This nice improve was additional enhanced by Terraform’s subsequent announcement that it was partnering with a South Korean cellular cost utility known as Chai (roughly much like Venmo), which had been based by Terraform’s cofounder Daniel Shin, to permit its customers to course of and settle their client transactions by means of cryptocurrency exchanges on the Terraform blockchain. However in Could 2022 the stablecoin’s worth collapsed, falling to as little as eleven cents, and buyers misplaced greater than $40 billion.
Within the civil lawsuit assigned to me, the SEC alleged that Terraform’s representations have been all a pack of lies and that the one cause the Terraform token worth had swiftly rebounded after falling to ninety cents was that Kwon had organized for an affiliate to make a large secret funding in these tokens. Equally, Chai by no means really used the Terraform blockchain to course of its prospects’ transactions; it merely allowed Terraform to faux this was occurring by permitting it to create faux blockchain data that mimicked the precise funds, in typical forex, being processed by means of Chai.
The SEC’s case went to trial in my courtroom, and the jury unanimously discovered Terraform liable on all of the counts of fraud. The SEC then settled the case with Terraform, however for a fraction of the $40 billion loss, prompted maybe by the truth that the corporate had by then gone into chapter 11.
It needs to be talked about that after the case was assigned to me however earlier than it went to trial, Terraform moved to dismiss the grievance on the grounds that investments in its tokens weren’t investments in securities topic to SEC jurisdiction. A “safety” is, briefly, an funding that guarantees future income (or safety in opposition to losses) based mostly on the work of others. I finally held that almost all transactions in Terraform tokens have been in reality disguised securities investments, however not each courtroom addressing cryptocurrency preparations has agreed with this, and the problem stays unresolved to today. Kwon, nevertheless, was indicted beneath a extra common federal fraud statute often known as “wire fraud,” and he was ultimately extradited, pleaded responsible, and is at present awaiting sentencing earlier than one other of my colleagues.
In related style, Sam Bankman-Fried was convicted in 2023 of defrauding buyers of billions of {dollars} by means of his cryptocurrency alternate, FTX, and was later sentenced to 25 years in jail. Changpeng Zhao, the CEO of the world’s largest cryptocurrency alternate, Binance, pleaded responsible in late 2023 to cash laundering violations. In October he was pardoned by President Trump. And in November one other choose of my courtroom, Denise Cote, sentenced the developer of a cryptocurrency-based cellular utility to 5 years in jail for facilitating greater than $200 million in cash laundering.
In issues of on a regular basis civil enforcement, nevertheless, one more reason why cryptocurrency stays so unregulated is the uncertainty over which federal company has the authority to control it. Is it simply one other type of forex and due to this fact topic to the oversight of banking regulators just like the Workplace of the Comptroller of the Foreign money (OCC)? Or is it a automobile for client purchases and trades and thus topic to the oversight of the Federal Commerce Fee or the Client Monetary Safety Bureau? Or is it merely a commodity and due to this fact topic to the oversight of the Commodity Futures Buying and selling Fee (CFTC)? Or are transactions in cryptocurrencies ceaselessly simply disguised securities transactions topic to regulation by the SEC? Or lastly, as sure advocates argue, are cryptocurrency transactions someway sufficiently distinctive that they aren’t topic to the jurisdiction of any of those businesses, and therefore not topic to governmental regulation in any respect?
Within the view of many consultants, the latter proposition is absurd and easily confuses using a novel expertise with the character of the underlying transactions. Beneath the Biden administration, the SEC took the lead in looking for to fight fraud within the cryptocurrency markets. However the Trump administration appears intent on ordering the assorted businesses to restrict or reduce even the regulatory makes an attempt that have been beforehand made. Earlier this yr the SEC dismissed lawsuits and ended investigations concentrating on quite a few cryptocurrency ventures. In February the SEC dismissed a main case in opposition to Coinbase, and in Could it did the identical in a case in opposition to Binance. Certainly, each the SEC and DOJ have touted reassessments of their method to crypto regulation. And equally, federal banking regulators, just like the OCC, have just lately scaled again or eradicated fully the modest supervision they’d beforehand exercised over this market. In the meantime, President Trump, who as soon as known as cryptocurrency a “rip-off,” has now warmly embraced its supposed virtues.
In the summertime Congress handed and President Trump signed the so-called GENIUS Act, which was designed to offer extra stability to stablecoins by requiring the issuers of such tokens to redeem or repurchase them on demand for a mounted quantity in “safer” investments—in different phrases, a variation on the promise that Terraform falsely made has now grow to be a legally binding obligation. However there’s a catch: neither the SEC nor the CFTC has the ability to implement this regulation, and plenty of issuers can apply to a new physique, the Stablecoin Certification Evaluate Committee, to be topic solely to enforcement beneath the legal guidelines of a given state (so long as the state’s regulatory regime is “considerably related” to the federal authorities’s and the SCRC approves). Nonetheless, state-level enforcement is usually far more lax than federal enforcement. Even worse, international issuers (that are quite common in cryptocurrency) can apply to the committee to be largely exempted from the act’s provisions.
You will need to keep in mind that cryptocurrency fraud is a world drawback. Silk Street, which catered to drug sellers all through the world, was an early instance. One other was the worldwide cryptocurrency alternate linked to Bitcoin often known as Mt. Gox. In February 2014 Mt. Gox declared chapter, confessing that it had someway misplaced 850,000 Bitcoin—7 % of all of the Bitcoin then in existence. Extra typically, cryptocurrency has grow to be a frequent goal of laptop hackers worldwide, leading to reported losses of billions of {dollars} by these whose accounts have been hacked. Additionally on a worldwide foundation, perpetrators of ransomware schemes typically demand that the ransom be paid in cryptocurrency in order to additional conceal their identities.
What’s to be accomplished? China has banned altogether using cryptocurrency exchanges by its nationals (although this can be tough to implement). Within the US, the main focus has more and more been on proposed laws to deliver some semblance of order to this gyrating and unstable market. Along with the GENIUS Act, Congress is at present contemplating the so-called CLARITY Act, which might switch to the CFTC unique regulation of “mature” cryptocurrencies, outlined as crypto property whose blockchains should not managed by the issuers.
However it’s laborious to flee the conclusion that these and different cryptocurrency payments pending in Congress are little greater than window dressing whose major impact is to switch regulation of cryptocurrency from the hitherto most aggressive company, the SEC, to traditionally extra lenient authorities. In any occasion, it appears possible that for the rapid future, cryptocurrency will proceed to serve no optimistic objective in our nation aside from to offer a platform for fraud and crime. The sturdy actions taken by the federal authorities in prior many years to make our securities, commodities, and forex markets among the many most open and trustworthy on the planet have contributed considerably to attracting funding, strengthening the greenback, and deterring all kinds of economic misconduct. It could be a horrible loss to see this large achievement undercut by the seeming racket known as cryptocurrency.
—November 20, 2025
