Digital Assets Defined: Writing Digital Assets Into The Bankruptcy Code

As discussed in previous installments of this White Paper series, the Lummis-Gillibrand Responsible Financial Innovation Act (the "Bill")¹ proposes a comprehensive statutory and regulatory framework in an effort to bring stability to the digital asset market. One area of proposed change relates to how digital assets and digital asset exchanges would be treated in bankruptcy. If enacted, the Bill would significantly alter the status quo from a bankruptcy perspective.

OVERVIEW OF DIGITAL ASSETS IN BANKRUPTCY

There is little reported jurisprudence in the United States specifically relating to insolvency proceedings involving digital assets (e.g., cryptocurrencies). In fact, how these assets are treated in bankruptcy in certain aspects is currently developing, as several significant players in the cryptocurrency arena have commenced bankruptcy and insolvency proceedings in the United States and abroad (e.g., Voyager Digital Holdings, Celsius Network, Three Arrows