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Cryptocurrencies Meet Class Actions: Investors Target Cryptocurrency Exchanges

By on August 16, 2022 0

The most recent in a series of class actions proposed before the UK’s Competition Appeal Tribunal is a £9.9 billion claim brought against four cryptocurrency exchanges. It is the first crypto class action in the UK and the first cartel class action brought without relying on a prior binding regulatory finding of misconduct. The withdrawal request was filed by Lord David Currie (former chairman of the Competition and Markets Authority) on behalf of approximately 240,000 investors in a cryptocurrency called Bitcoin Satoshi Vision (BSV).

The claim relates to an alleged collusion between the four cryptocurrency exchanges, allegedly publicly announced via a series of tweets, to withdraw BSV within 24 hours of each other in 2019, preventing BSV trading and reducing competition between BSV and other digital assets. Two of the four exchanges (Binance and Kraken) are further accused of compounding investors’ losses by forcibly converting BSV into other currencies in investors’ crypto wallets.

This case highlights the debate around the need for governance of listing and delisting decisions made by cryptocurrency exchanges. It is arguably in the interests of investors and exchanges that there are clear guidelines specifying the factors that will be considered by cryptocurrency exchanges when deciding whether to list or delist a cryptocurrency. from the list, and that these rules are closely followed. Such guidelines would continue the trend of increased regulation surrounding both exchanges and cryptocurrencies themselves.

In the same vein, on the issue of governance, following the recent case of D’Aloia vs. (1) Unknowns (2) Binance Holdings Limited and others [2022] EWHC 1723 (Ch), cryptocurrency investors may have a “good defensible case” that cryptocurrency exchanges that operate/control their misappropriated assets hold those assets as a constructive fiduciary. Cryptocurrency exchanges risk incurring liability for breach of trust if investors’ assets are not properly ring-fenced, which is an important development for such exchanges.

The prevailing trend of claims underscores the growing importance for cryptocurrency exchanges to have in place (and follow) proper procedures to regulate actions and decision-making.