March 2018
Cryptocurrencies, like Bitcoin and Ethereum1, had a breakout year in 2017. The price of Bitcoin rose from approximately $1,000 per Bitcoin on January 1, 2017, to $13,000 per Bitcoin on December 31, 2017, with a high of approximately $20,000 per Bitcoin. Ethereum increased from approximately $10 per Ether to $755 during the same time period. Both Ether and Bitcoin are used by investors to buy into Initial Coin Offering (“ICO”) opportunities, which are similar to Initial Public Offerings (“IPOs”) and were an extremely popular way of raising capital in exchange for “crypto tokens” in 2017. These ICOs, however, have spurred recent class action lawsuits.

Given the wide fluctuations in the price of cryptocurrencies—and recent precipitous drop—and the fact that many people paid for tokens of blockchain based start-ups, we have only likely begun to see the beginning of class action lawsuits filed relating to blockchain-related companies or companies that participated in ICOs. Because anyone with an idea for a project can gain financial backing without going through the formalities of an IPO, there are obvious chances for the public to be scammed, leading to potential lawsuits.

We believe it is highly likely other issuers of tokens will face class action lawsuits. Any company planning to conduct a token offering using an ICO should proceed with caution. Similarly, anyone looking to invest in a token offering should make sure the offering is conducted in compliance with applicable state and federal laws.
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