New York Estate Planning & Elder Law Blog
The Commodity Futures Trading Commission (“CFTC”) recently issued an advisory warning about the dangers of digital coins and tokens for speculative investors. Attracted by high exposure and the promise of quick returns, cryptocurrency has proven to be a volatile, yet lucrative market asset for many investors interested in funding a retirement fast. Much like hedge funds and futures contracts, digital cryptocurrency and securities backed by the dynamic value of this asset, carry a certain amount of risk that some investors are willing to assume for higher payoffs. Investment advisers estimate risks associated with cryptocurrency trading and the retention of digital tokens and securitized assets as part of a retirement portfolio, estate or trust:
- fluctuations in market liquidity;
- changes in validation or mining fees;
- modifications of digital ledgers;
- introduction of digital coin or token payment alternatives;
- valuation changes to digital tokens or coins as result of broader acceptance of cryptocurrency assets as exchange value or storage value;
- changes in demand for the underlying network associated with generation of cryptocurrency assets; and
- hacking theft.
Notice of fraud risk outlined in the most recent CFTC investor advisory warning is consistent with federal Securities and Exchange Commission (“SEC”) guidelines for cryptocurrency backed securities trading.
The Current Legal Environment
If much has already been said about the uncertainty surrounding cryptocurrency exchange, the enactment of universal regulatory provisions for oversight of those transactions is an in-process development. With international oversight nowhere complete, central bank regulators have been left to independent interpretation of exchange rules. Governance of foreign virtual currency spot exchanges is regulated largely by state money transfer laws in cryptocurrency participating market countries.
In the United States, federal law does presently not provide for direct oversight of cryptocurrency exchange, securities backed by the underlying value of Bitcoin and other digital currencies, and related currency spot markets. Exception is the monitoring of unregistered initial coin offerings by the SEC.
The multi-regulatory approach to cryptocurrency exchange investment argue some, leaves investors open to added risk. The Internal Revenue Service (“IRS”) treatment of cryptocurrencies has recently changed, eliminating tax-exempt status as “property” now subject to capital gains tax. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) monitors cryptocurrency transfers for purposes of controlling money laundering activities.
Declaration of cryptocurrency derivatives and leveraged assets as “commodities” in accordance with the Commodity Exchange Act (“CEA”) by the CFTC, has established the regulatory policy framework for oversight of those exchanges. The intent of the legislation is to enforce registration, and actions related to anti-fraud provisions of the CEA.
Ask an Estate Law Attorney
Retirement investors considering cryptocurrency as a priority asset for transfer to an estate or trust should seek professional legal advice about the convertibility of digital assets. A licensed attorney experienced in matters of estate law and probate litigation can provide advice about targeted retirement investments intended for transfer to an estate or trust. Ettinger Law Firm is a licensed New York attorney practice specializing in estate planning and probate litigation. Contact Ettinger Law Firm to schedule a consultation about retirement investment account transfer to an estate.
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