ABA Business Law Section Updates Digital Asset Jurisdictional Guide

The American Bar Association ("ABA") Business Law Section outlined federal, state, and international jurisdictional issues concerning digital and digitized assets.

In a white paper, the ABA provided analysis of the regulatory framework governing blockchain technology and cryptocurrencies. The ABA noted that the digital asset market has matured significantly—surpassing a $2 trillion market cap in 2024. The Association highlighted the complex web of oversight involving the CFTC, SEC, FinCEN, and state regulators. The ABA stated that the guide should serve as a reference for legal practitioners navigating the interpretative obstacles and jurisdictional overlaps inherent in the current statutory schemes, incorporating developments through late 2024.

The ABA highlighted the following:

• CFTC Jurisdiction and Commodities. The ABA analyzed the CFTC's authority under the Commodity Exchange Act, noting that the definition of "commodity" broadly encompasses virtual currencies. The ABA discussed significant enforcement precedents, including the Ooki DAO case, which established that decentralized autonomous organizations can be held liable as unincorporated associations. The ABA also examined the CFTC's functional approach to "actual delivery" in retail commodity transactions and the distinction between derivatives regulation and spot market enforcement authority.
• SEC Enforcement and the Howey Test. The ABA detailed the SEC's application of federal securities laws to digital assets, primarily utilizing the Howey test to classify assets as investment contracts. The ABA summarized key litigation against major platforms, noting judicial distinctions regarding institutional versus programmatic sales. The ABA also reviewed the challenges intermediaries face regarding broker-dealer registration and the application of Regulation Best Interest.
• Investment Funds and Advisers. The ABA outlined the regulatory hurdles for digital asset funds under the Investment Company Act, focusing on valuation, liquidity, and custody challenges. The ABA tracked the regulatory evolution from bitcoin futures ETFs to the approval of spot bitcoin ETFs in 2024. Furthermore, the ABA highlighted the fiduciary obligations for investment advisers managing digital assets under the Investment Advisers Act, particularly regarding the custody rule and the physical possession of private keys.
• Jurisdictional Overlap and Legislation. The ABA addressed the friction between the SEC and CFTC regarding assets that possess characteristics of both securities and commodities, or assets that may transition from one classification to another. The ABA discussed the "morphing" theory and reviewed legislative proposals, such as the Digital Commodity Exchange Act, aimed at closing regulatory gaps in the spot market for non-security digital assets.
• Anti-Money Laundering and FinCEN. The ABA emphasized the role of FinCEN in regulating money services businesses. The ABA noted strict enforcement of Anti-Money Laundering standards and the "Travel Rule," highlighting a historic $3.4 billion penalty assessed against a firm in 2023 for Bank Secrecy Act violations.
• International and State Frameworks. The ABA surveyed global regulatory approaches, identifying the European Union's Markets in Crypto-Assets regulation as a comprehensive global standard. The ABA also summarized diverse approaches in the UK and Asia, including Singapore's licensing regime and China's trading ban. Domestically, the ABA reviewed state-level regulations, specifically New York’s "BitLicense" regime and the updated 50-state survey of money transmitter laws.