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Business /09 Jan 2019
01.09.19

Crypto Litigation in Singapore and the Importance of Clarity

There are some who claim that regulation is the enemy of innovation, but this is a short-sighted perspective that isn’t always based on reality. In fact, the precise opposite is true in the crypto markets, where the consensus of operators is that regulation remains central to the long-term success of digital currency.

This has been borne out in Singapore recently, where the first litigation involving bitcoin began in earnest. The case in question could well establish a precedent on the fiduciary responsibilities of crypto exchange operators, particularly with regards to completed transactions and impact of technical malfunctions on investors.

In this post, we’ll explore the litigation in further detail while asking what changes we’re likely to see in the future.

B2C2 Ltd v. Quoine Pte Ltd and Regulation in the Marketplace

The case will unfold in the coming weeks, as Singapore’s International Commercial Court decides whether or not seven crypto transactions were wrongfully reversed by the Quoine platform in April 2017.

The plaintiff is the electronic market maker known as B2C2, who alleges that Quoine failed in its role as exchange operator by reversing trades that had already been completed. In contrast, Quoine argues that a technical glitch was responsible for this failure, which caused “abnormally priced orders” to be executed at 250-times higher than market value.

As a result, Quoine argues that it was well within its rights to reverse the trades, whereas the plaintiff is adamant that there’s no remit for an exchange operator to reverse transactions once they’ve been processed and completed.

Make no mistake; this case is complicated by the lack of global or national regulatory guidance, which highlights the importance of the eventual ruling and the challenges facing litigation lawyers in trying to present their arguments.

What’s Next for the Future of Crypto Regulation

The lack of market regulation will certainly make it difficult to execute a judgment, as there’s currently a need to rely on contract law and interpret the precise contractual terms under which an exchange operates.

This brings a new set of issues, as the contract between these two parties is established by the terms and conditions issued by the exchange and agreed by the plaintiff.

There are conflicting terms within this particular agreement, as while all orders are considered as irreversible once completed, the Quoine exchange reserves the right to cancel abnormal transactions that are “based on an aberrant value.”

From a wider perspective, terms and conditions also vary from one exchange to another, meaning that there’s no single standard that can protect investors in the crypto market.

The importance of regulation here is also highlighted by the traditional financial exchange model, which stipulates that erroneous trades may be canceled in limited circumstances, which are clearly defined and require the agreement of both parties prior to the reversal.

Ultimately, the ongoing case will have a key bearing on future regulation within the crypto market, as it highlights the pressing need for clear and concise legislation that’s set by an independent body. With a decision expected by the end of the year, this could represent the first steps toward a universal regulatory standard that protects investors in an exceptionally lucrative market.

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