Can Law Firms Keep Up With Crypto?

Even people with fleeting knowledge of cryptocurrencies know what a volatile world is. Since the beginning of the month, the value of bitcoin has declined by more than 20% after a global drop in the market.

However, despite the latest setback, bitcoin is still worth four times as much as on March 23, 2020, when the UK entered its first national pandemic blockade.

A fast-growing industry with many questions about regulation may seem like an ideal setting for law firms looking for lucrative workflows. But the reality is that cultural mismatches, concerns about the regulatory status of some clients, and the inability to cling to many promising cryptographic lawyers have left many companies catching up. International has spoken to a wide range of UK lawyers operating in this space, and many have described how the demand often exceeds what the legal industry can offer.

‘Anarchist jeans

A sign that some major law firms may be taking cryptocurrencies more seriously came earlier this year when the UK-based hybrid law firm Gunnercooke announced it would accept payment for its legal services in cryptocurrency assets.

James Burnie, a financial services and fintech regulatory partner at Gunnercooke, said the option to pay for the company’s cryptocurrency assets is not just a gimmick, it’s about proving that the company is in tune with the community it works with.

“If I wore a suit at meetings with my clients, they would think I needed psychiatric help,” Burnie said. “This is not a customer base that likes big bright buildings. Crypto types just aren’t like that.”

There is a cultural mismatch between law firms and cryptographic clients, according to one partner, which is in part rooted in the fact that law firms still hesitate to hire certain clients. Some players in the crypto industry are seen as referred to as “anarchist cowboys.”

Rich Folsom, Deloitte’s technology partner, said law firms would not approach players who fall into this category, as they are especially difficult to advise.

“Some cryptocurrency companies think they should be able to operate the same everywhere, without having to pay attention to the law in a specific jurisdiction. They are groups of people with a high appetite for risk, and there are certain misconceptions about how legal risk applies,” he said. “They don’t really feel the need for good legal advice.”

Folsom added that in some cases, there are potential customers who have raised funds on cryptographic assets, have no history of misconduct, but are unsure of how to create a product.

“It simply came to our notice then [traditional London] law firms ”.

The unique way in which some potential fintech clients are structured further complicates matters.

Decentralized Autonomous Organizations (DAOs), for example, are not uncommon in fintech. These DAOs usually consist of a group of software developers, and each member buys chips to buy participation in the organization, explained Bird & Bird partner Gavin Punia, a specialist in financial services regulation.

“The problem is determining who the customer is for legal purposes. They would be seen as a company in general, which poses a lot of risk to them since they are all jointly and severally liable,” he said.

According to Rich Folsom, DAOs present a challenge to companies that do not currently have legal personality in the UK, which means they cannot become clients.

“Since it’s a requirement for a legal-client relationship for the client to have legal personality,” Folsom said, “an individual would have to seek the hypothetical advice of a law firm on what the agreements would be. It’s not very clear.”

The willingness of certain digital asset market clients to adopt anonymity is evident in a landmark case in 2019, in which a UK judge handed down a ruling that included the line: “I consider a cryptocurrency asset like Bitcoin to be owned.” The first two defendants are referred to in the sentence as “unknown persons who demanded bitcoins on October 10 and 11, 2019” and “unknown persons who own / control specified bitcoin”, respectively.

Losing cryptographic talent

But it is not just uncertainty about certain clients that is holding back law firms. John Salmon, an information technology partner at Hogan Lovells, said some companies are also struggling with the retention of lawyers capable of managing the work.

“The general counsel of one of my clients recently said that many US law firms specializing in cryptocurrencies were struggling to keep their lawyers. Many of them want to enter the house as there is a very hot market for crypto and some very interesting opportunities,” he said.

“More broadly, there is a shortage of talent in both Asia and the United States for lawyers with experience in both technology and financial services. Law firms are struggling to cling to people who understand these two aspects.”

The problem seems to go beyond the law. Salmon also said there are reports from engineers and business experts who have left Silicon Valley giants like Facebook and Google to go into cryptography.

That’s not to say, however, that law firms aren’t finding much work in this expanding field. Bird & Bird, Fieldfisher, CMS and Hogan Lovells have been identified by several partners as companies with experience in crypto, blockchain and NFT.

In April this year, Hogan Lovells advised the Rubey Platform in its partnership with the Royal Museum of Fine Arts in Antwerp to become the first European museum to offer the market Art Security Tokens, which were registered in the Ethereum / Polygon blockchain.

Meanwhile, CMS said it has more than 190 cryptocurrency clients, including Binance,, Kraken, Dapper Labs, Mutant Apes and Wirex, and has also worked on more than 50 NFT issues in the past 18 months.

More demand than supply?

The problem, according to a London-based partner, is not finding a job, but finding enough lawyers with the kind of versatility to take it on.

“We are certainly hiring in this area, but when we talk to recruiters, they will say there are commitments. You can’t get strong people all areas because there are simply not many people, ”said the partner.

Some larger companies have opted to hire lawyers with a cryptographic approach. Paul Ferguson, for example, united Addleshaw Goddard as a partner earlier this month on Ontier, a UK-based company that describes itself as “innovative and law-changing in the Bitcoin, blockchain and cryptocurrency space”.

Ferguson spent 14 years with Ontier and was head of litigation.

“There are a lot of people who call themselves crypto lawyers, but a lot of them just don’t have the experience,” he said. “The Magic Circle is not going through it the way you would expect. Twelve months ago, perhaps, there was still some stigma, so most companies will struggle to keep up.”

Other partners have said that companies have known the world of cryptography for a few years.

For example, a partner at a technology-focused firm said that in previous years, when it was more common for ransomware hackers to request payment in bitcoins, they knew in person from several law firms that kept a record of digital assets, just in case. .

John Salmon said Hogan Lovells made a strategic decision about five and a half years ago to take on startup work, before other companies did the same.

“If we waited until our older clients sought advice,” he said, “we would be late and not have the necessary experience.”

Advantage of the first engine?

As more companies try to catch up in the practice area, companies that have seen the potential of cryptographic assets and blockchain technology from the beginning say they have an advantage, as their lawyers have followed the progress of changing regulations and have not had to do it. start from scratch.

Jonathan Emmanuel, a London-based partner in Bird & Bird’s trading group, said it was crucial for lawyers to understand both technology and regulations.

“The customers of this space are technical people and they appreciate that we can understand the language they speak,” he said. “Another thing they appreciate is clear advice on regulation. If you’re a content creator, you probably don’t have time to keep up with the complexity of the regulatory landscape. Many of these companies are moving fast and disrupting. “

And the potential benefits are huge. PArtists working in the field are passionate about the potential of digital assets and blockchain technology to make the world a better place.

London-based DLA Piper partner Bryony Widdup said a focus on bitcoin’s environmental disadvantages has distorted the conversation about the crypto’s ESG potential.

“In Nigeria, we can already see the great impact of digital assets and payment systems. They have theirs [Central Bank Digital Currency] which is used among the business population, although its incorporation needs to be further encouraged to achieve the stated financial inclusion goals, ”he said.

Widdup also said law firms have a big role to play in the future of cryptographic assets, adding, “A lot of the people who do fintech have acquired their skills in private practice.”

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