Crypto and Arbitration: The Perfect Pair

By Jared Bond

While Cryptocurrency was once seen as the forefront of unique new investment opportunities, early 2022, known as the “Crypto Winter” saw a steep decline in cryptocurrency prices.[1]  The fall of cryptocurrency led to an increase in crypto arbitration, with some cases just starting to reach the court system.[2]  Due to the international nature of cryptocurrency and the unique challenges disputes present, many crypto businesses include arbitration clauses in their contracts.[3]  While not yet clear how many of these issues will ultimately be resolved, there are clear benefits for crypto companies using arbitration as their chosen dispute resolution process, and certain issues that must be addressed.  Lawyers must remain aware of these issues when approaching crypto arbitration. 

Arbitration is uniquely suited to the needs of sophisticated cross-border crypto disputes due to its procedural flexibility, neutrality, confidentiality, freedom to select which parties will handle the dispute, and ability to be enforced across national boundaries.[4]  However, arbitration cannot account for countries who have made it a public policy to ban crypto and so enforcing arbitration in those countries will be highly difficult.[5]  Beyond public policy issues, the cross-jurisdictional nature of crypto disputes can lead to conflicts of law between countries[6] and due to the opaque organization of many crypto companies, it can also be hard to identify who the proper parties are.[7]  Another potential issue is due to the volatile nature of crypto prices and crypto holders’ desire to sell instantly at times, there must be interim measures available before arbitration can be enforced and some agreements do allow for emergency arbitrators to prevent dissipation of the currency.[8]  Similarly, there is a need in crypto disputes for a speedy resolution due to how much valuations change.[9]  Without many publicly listed crypto companies with public financials to view it can be hard to determine the proper valuations for damages.[10]

However, arbitration does pose solutions to these challenges.  There is still wide international enforceability of arbitration through the New York Convention.[11]  The greatest benefit of arbitration to crypto disputes however is flexibility.  There is currently not a unified system of regulation of cryptocurrency, with each nation’s lawmakers racing to provide more comprehensive laws.[12]  Although this leaves a lot of uncertainty for investors, it gives room for lawyers to draft the arbitration process.  Smart drafting of arbitration agreements can give more certainty to forum and jurisdictional challenges by pre-selecting the proper law and location.[13]  The uncertainty as to value and high level of sophistication required to resolve crypto disputes can also best be suited in arbitration where the contract can create procedures for selecting an arbiter with the proper knowledge to handle the dispute.[14]  Arbitration also allows for a neutral third party to decide the case and high levels of confidentiality, mitigating concerns of one side being unduly favored or sensitive commercial information being divulged.[15]  The arbitration process is also further removed from regulators and policy objectives of governments, and even of courts, which might give some solace to investors who are weary of the still laggardly laws and policies of nations that are often anti-crypto.[16]  Ultimately, by providing jurisdictional clarity, a neutral forum, confidentiality, enforceability, sophistication, and high levels of flexibility, arbitration is an ideal forum to resolve international crypto disputes.  

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[1] Jeffrey A. Rosenthal et al., Five International Arbitration Trends and Topics For 2023, Cleary Gottlieb (Jan. 30, 2023), https://www.clearygottlieb.com/news-and-insights/publication-listing/five-international-arbitration-trends-and-topics-for-2023 [https://perma.cc/U823-BFYE]. 

[2] Id.

[3] Edward Taylor et al., Crypto Arbitration: A Survival Guide, Kluwer Arbitration Guide (Sept. 29, 2022), https://arbitrationblog.kluwerarbitration.com/2022/09/29/crypto-arbitration-a-survival-guide/#:~:text=Practically%2C%20the%20features%20that%20make,public%20policy%20point%20described%20below%2C [https://perma.cc/2YE6-V5U8]. 

[4] Id.

[5] Id.

[6] Part 1: Key Issues in International Arbitration of Cryptocurrency Disputes, Withersworldwide (Jan. 4, 2022), https://www.withersworldwide.com/en-gb/insight/read/key-issues-in-international-arbitration-of-cryptocurrency-disputes [https://perma.cc/4YPB-XTXA].

[7] Taylor et al., supra note 3.

[8] Withersworldwide, supra note 6.

[9] Id.

[10] Taylor et al., supra note 3.

[11] Edward Taylor & Helen Wang, Crypto Winter Disputes: Navigating the Intersection of Crypto, Arbitration and Insolvency, Int’l Bar Ass’n (Oct. 21, 2022), https://www.ibanet.org/crypto-winter-disputes [https://perma.cc/TW3A-KXGF].

[12] Susannah Hammond & Todd Ehret, Crypto Regulations by Country, Thomson Reuters, https://www.thomsonreuters.com/en-us/posts/wp-content/uploads/sites/20/2022/04/Cryptos-Report-Compendium-2022.pdf [https://perma.cc/5PXY-2ZVB ] (last visited Feb. 4, 2024).

[13] Sam Brown, Arbitration of Crypto Asset and Smart Contract Disputes: Arbitration Unchained?, Clifford Chance (July 19, 2023), https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2023/07/arbitration-of-cryptoasset.pdf [https://perma.cc/XD6K-7MHA].

[14] Id.

[15] Andrew Pimlott, Resolving Crypto Disputes Through International Arbitration, Ankura (Nov. 10, 2022), https://angle.ankura.com/post/102i0xw/resolving-crypto-disputes-through-international-arbitration [https://perma.cc/6N4S-C8AD].

[16] Cryptocurrencies and Arbitration—A Match Made in Heaven?, Norton Rose Fulbright, https://www.nortonrosefulbright.com/en-us/knowledge/publications/cae35319/cryptocurrencies-and-arbitration-a-match-made-in-heaven [https://perma.cc/H26E-WGUQ] (last visited Feb. 4, 2024).