Virtual Currency Exchanges, Blockchain and Privacy Rights Under the U.S. Constitution

By Mauro M. Wolfe and Carolina Goncalves

Virtual currency exchanges and blockchain technology continue to raise novel questions for U.S. courts, including in the application or limitations of privacy rights to blockchain users under criminal prosecution. In the latest development, a federal appeals court has ruled that defendants do not have the type of privacy protections over crypto transactions that require law enforcement to first secure a search warrant. In short, a regular grand jury subpoena was sufficient to obtain the crypto data, resulting in a solid victory for prosecutors.

In United States v. Gratkowski, 964 F.3d 307 (5th Cir. 2020), the Fifth Circuit Court of Appeals held that there is no privacy interest in both Bitcoin blockchain data and Bitcoin transaction history to justify the requirement that law enforcement secure a search warrant first.

In Gratkowski, the Fifth Circuit analyzed whether the Fourth Amendment protected a criminal defendant’s privacy interests in data located on a virtual currency exchange and the virtual currency exchange’s blockchain. The background is that defendant Gratkowski became the subject of a federal investigation after using Bitcoin to pay for online child pornography. Federal agents were able to identify Gratkowski after analyzing the publicly viewable Bitcoin blockchain to identify a cluster of Bitcoin addresses controlled by the website. The agents then used that information to serve a routine grand jury subpoena on Coinbase for all information on the Coinbase customers whose accounts had sent Bitcoin to any of the addresses in the website’s cluster. The agents identified Gratkowski as one of these customers and thereafter, based on the information from the grand jury subpoena, obtained a search warrant for evidence in his home, where they obtained additional incriminating evidence.

Gratkowski filed a motion to suppress the evidence obtained through the search warrant, arguing that the original subpoena to Coinbase and the blockchain analysis violated his constitutional rights against unreasonable searches under the Fourth Amendment. In effect, the defendant argued that law enforcement needed a search warrant for his records located at Coinbase. The trial court denied the motion, and Gratkowski appealed the decision to the Fifth Circuit.

On appeal, Gratkowski argued that he had a reasonable expectation of privacy in his information held in the Bitcoin blockchain and Coinbase records by comparing it to cell-site location information (“CSLI”), which the U.S. Supreme Court has held to implicate constitutional privacy concerns such that a search warrant is required. The appellate court disagreed with Gratkowski and held that he lacked a privacy interest in both the Bitcoin blockchain data and his Bitcoin transaction history on Coinbase because that information is more analogous to bank records, which are not subject to privacy protections.

In reaching its conclusion, the court applied the third-party doctrine, which provides that a person generally does not have a legitimate expectation of privacy in information he voluntarily turns over to third parties. Specifically, the appellate court found that “Coinbase is a financial institution, a virtual currency exchange, that provides Bitcoin users with a method for transferring Bitcoin. The main difference between Coinbase and traditional banks… is that Coinbase deals with virtual currency while traditional banks deal with physical currency. But both are subject to the Bank Secrecy Act as regulated financial institutions.” The court further focused on “the nature of the information and the voluntariness of the exposure” in concluding that it “weigh[ed] heavily against finding a privacy interest in Coinbase records.” Unlike CSLI, information on the Bitcoin blockchain and held by Coinbase is limited to transaction amounts and identifying information about sender and beneficiary, and each Bitcoin transaction is recorded in a publicly available blockchain accessible to every Bitcoin user. Additionally, transacting Bitcoin through Coinbase or other virtual currency exchange requires the user to perform an “affirmative act” in transacting through a third-party intermediary. Therefore, Gratkowski did not have a reasonable expectation of privacy in either the Bitcoin blockchain data or his Coinbase transaction history requiring law enforcement to obtain a search warrant.

Other U.S. courts have relied on the Gratkowski court’s conclusion that account information and records obtained by the federal government from virtual currency exchanges are not subject to constitutional privacy protections.[1]

We will continue monitoring Gratkowski and its progeny and whether these issues ultimately come before the U.S. Supreme Court.

Disclaimer: The content provided is for informational purposes only and does not constitute financial, investment, or legal advice. While our law firm has substantial experience in cryptocurrency law and regulation, we do not offer investment advice or opinions on cryptocurrency as an investment. Consult a financial advisor before investing.


[1] See, e.g., Harper v. Werfel, 118 F.4th 100 (1st Cir. 2024); United States v. Patel, No. 23-CR-166 (DLF), 2024 WL 1932871 (D.D.C. May 1, 2024); Harper v. Rettig, 675 F. Supp. 3d 190 (D.N.H. 2023), aff’d sub nom. Harper v. Werfel, 118 F.4th 100 (1st Cir. 2024); United States v. Harris, No. 1:21-CR-74-6, 2023 WL 3475406 (S.D. Ohio May 15, 2023).

Paul Atkins’ Nomination as SEC Chair Helps to Push Bitcoin Above $100k (for now), But Why…?

Almost immediately after President-Elect Trump posted his announcement of Paul Atkins to replace Gary Gensler as the SEC Chair, the crypto sector, including Bitcoin, rallied, alongside the equity market rally led by the tech sector. Cheers from crypto sector leadership followed. Sure, Chairman Gensler has been no friend of Crypto, begrudgingly approving the trading of Bitcoin-based ETFs and more significantly engaging in rule-making through enforcement. It makes sense then that the expected exit of Chairman Gensler would be applauded, but why Paul Atkins?

SEC Chair nominee Atkins served as an SEC Commissioner with Chairmen Harvey Pitt, Bill Donaldson and Chris Cox, from 2002-2008 and since, has served as the founder and CEO of Patomak Global Partners, consulting for the securities and crypto industries on all manner of topics.

Last February, while in the private sector, SEC Chair nominee Atkins agreed to be interviewed on an outwardly Libertarian podcast. He broadly declared that while the SEC should prosecute illegal activity, like FTX, the agency should also otherwise accommodate innovation to encourage the flow of capital.  He stressed that regulators should be “attuned” to opportunities for innovation and “accommodate…reasonably…things that are out there to advance cost savings and innovation.” Specifically, “[t]he SEC should be there with its ear to the ground to figure out which way things are moving and should accommodate activity that’s not criminal and enable markets to flourish because…if it challenges incumbents…and it helps to bring down costs for investors and for people who are trying to raise capital…that’s the reason why we have financial markets and to have capital find its way…to businesses.”[1] This was hardly the regulation through prosecution which was a hallmark of the administration under Chairman Gensler.

While stressing innovation, SEC Chair nominee Atkins was certainly no fan of  FTX, SBF or their  fraud. But at its core, it was not a problem with crypto: “It happened to happen in the crypto space, but when you peel back the layers it’s the same thing that happened elsewhere, someone without proper controls without proper governance of the corporation uses other peoples’ money to do things without accountability.” Like Madoff decades before, SEC Chair nominee Atkins noted that “[SBF] was not accountable to anyone, there was no board.”  

But innovation aside, there is still the fundamental question of whether crypto qualifies as a security and appropriate for SEC regulation. While the SEC under Chairman Gensler and defense counsel fought vigorously over whether crypto did or did not meet the Howey test,[2] a case decided over 60 years before Satoshi Nakamoto first implemented the blockchain, SEC Chair nominee Atkins presented a different view:  he noted that the Howey case is “quite old, it’s arguable whether or not it’s still current…I could see the Supreme Court reexamining that for its coherence to the current environment and whether or not it needs to be tweaked.” In the meantime, while the regulatory issues are being resolved, SEC Chair nominee Atkins signaled that the cryptocurrency industry needed certainty in regulation akin to the SEC’s current safe harbor rules for securities offerings: “Safe harbors have done a good job in giving certainty to industry and of course in this particular industry [cryptocurrency] we need certainty, of course there’s a dearth of that now.”[3] 

As someone who is committed to promoting innovation and workable regulation, while prosecuting real bad actors, it is no wonder the markets and commentators have applauded the nomination of Paul Atkins so loudly.

Disclaimer: The content provided is for informational purposes only and does not constitute financial, investment, or legal advice. While our law firm has substantial experience in cryptocurrency law and regulation, we do not offer investment advice or opinions on cryptocurrency as an investment. Consult a financial advisor before investing.


[1] See Keep Your Government Hands Off My Crypto | Guest: Paul Atkins | Ep 215 – YouTube

[2] Sec. and Exch. Comm’n v. W.J. Howey Co., 328 U.S. 293 (1946).

[3] See The Capital ’19: Fireside Chat with Paul Atkins, Former Commissioner, U.S. SEC – YouTube

Trump’s Crypto Strategy: A White House Role and the Vision of a Bitcoin Reserve

By Stefanie Wyaco, Matthew A. Catania, and Gregory Bailey.

President-elect Donald Trump’s election victory sparked a renewed interest in integrating cryptocurrency into the U.S. government’s economic strategy. During his campaign, Trump proposed the idea of building a national Bitcoin stockpile and creating a dedicated White House role for cryptocurrency. This role could take several forms, including a single advisor or a larger advisory council, and might even extend to managing a Bitcoin reserve. 

A New White House Role

A White House crypto advisor or council would play a pivotal role in shaping the nation’s cryptocurrency policies. This figure would likely collaborate with Congress to draft and pass legislation, with the goal of creating a regulatory framework for cryptocurrency in the U.S. Potentially operating under the National Economic Council, the advisor or council would work in close coordination with regulatory agencies, signaling the administration’s commitment to fostering innovation while addressing current regulatory inefficiencies.

The potential creation of a Bitcoin or crypto reserve would add a new layer of complexity.  Managing such a reserve would require deep coordination among the Federal Reserve, Treasury, CFTC, and SEC.  While the CFTC and SEC have put forth crypto-related advisory notices and orders appearing to regulate certain activity, the industry still lacks clear consistent guidance despite the SEC taking enforcement actions—all of which is likely to change under the Trump Administration. Whereas the Federal Reserve oversees the country’s monetary policy, supervises and regulates financial institutions, conducts payment and settlement safety and efficiency, and promotes consumer protection.  Much like the Federal Reserve, a Bitcoin reserve would serve as a strategic asset, with monetary authorities regulating its use for purposes like consumer protection, financial stability, and enforcing debt policies.

One of the central questions surrounding the creation of a Bitcoin reserve is how to handle exchanges, which play a crucial role in the trading and liquidity of cryptocurrencies. Two types of exchanges are often discussed: centralized and decentralized. Centralized exchanges, operated by a single entity, offer a degree of consumer protection, such as Know Your Customer (KYC) requirements through identity verification and Anti-Money Laundering (AML) requirements through transaction monitoring, suspicious activity reporting, proof of funds requests, and restrictions in certain jurisdictions.  These measures help centralized exchanges comply with applicable consumer protection laws and financial reporting obligations, and attract institutional investors, while offering a broad range of supported cryptocurrencies.

Decentralized exchanges, on the other hand, operate on blockchain technology and allow for peer-to-peer trading, and often require purchasing native tokens for the transaction fees. Decentralized exchanges also offer more privacy, including anonymity and minimal data collection due to the lack of KYC requirements, which aligns with Bitcoin’s original purpose.  The blockchain technology is supported by secure cryptography encryption, which creates a unique publicly available signature for each transaction such that the subsequent blocks are linked to previous transactions and cannot be modified without modifying the entire chain. This is an efficient method to automate decentralized transactions with smart contracts, reduces middlemen transaction fees, and offers near-instant settlement of funds.

Deciding how the government plans to interact with these types of exchanges and potentially integrate a Bitcoin reserve, whether via an exchange or not, will be pivotal for the crypto space moving forward.  A government Bitcoin reserve could serve as a potential stabilizer and exchange, regardless of Bitcoin’s classification status, whether as an asset, commodity, or currency. However, national reserves may trigger global competition for additional reserves that can cause higher demands with less supply. Therefore, a formal role overseeing a reserve, policy implications, and regulations would be a logical step. 

What a National Bitcoin Reserve Would Look Like 

U.S. Senator Cynthia Lummis of Wyoming has already proposed a plan for building a national Bitcoin reserve, and she intends to revisit it in January 2025. Senator Lummis’ plan envisions the accumulation of one million Bitcoins over the next 20 years, with the goal of positioning the cryptocurrency as a hedge against inflation and as a complement to the U.S. dollar. Senator Lummis’ proposal would convert a portion of the Federal Reserve’s gold certificates into Bitcoin assets.

Proponents of a reserve argue it will reduce the national debt, free up U.S. dollars for other uses, and position Bitcoin as a long-term financial asset. Already, some investors and organizations are moving toward a similar strategy. Tether, for example, a leading stablecoin issuer, has amassed a large reserve of U.S. Treasury bills, indirectly backing Bitcoin and supporting its use as a stable asset.  Tether tokens, USDT, are stablecoin assets tied to real-world currencies on a one-to-one basis. Stablecoins are blockchain based currencies that are tied to fiat currencies. Stablecoins are intended to reduce volatility for traders and businesses, especially crypto exchanges, wallets, and payment processors. Tether, or the like, could indirectly support a Bitcoin reserve by providing stable dollar-backed liquidity and foster Bitcoin-backed lending. 

Challenges Ahead: Congressional Approval and Public Skepticism

While the momentum for a national Bitcoin reserve is growing, the path to implementation will face significant hurdles, particularly when it comes to securing Congressional approval. Lawmakers will need to address concerns around inflation, economic volatility, and the broader implications of such a reserve on the U.S. financial system. Public skepticism about cryptocurrency, combined with regulatory uncertainty, and active litigation may slow progress, despite the seemingly crypto-friendly administration.

Nevertheless, the increasing institutional and governmental interest in cryptocurrencies world-wide suggests that the conversation around Bitcoin as a strategic asset will only intensify. How the new administration navigates these discussions, and whether Congress shares the same enthusiasm, will shape the future the global crypto market and the United States’ role in it.

Disclaimer: The content provided is for informational purposes only and does not constitute financial, investment, or legal advice. While our law firm has substantial experience in cryptocurrency law and regulation, we do not offer investment advice or opinions on cryptocurrency as an investment. Consult a financial advisor before investing.

The Growth of RWA Tokenization

By Joseph E. Silvia and Carolina Goncalves

The tokenization of real-world assets (RWAs) is a growing industry that, as of September 2024, was valued at approximately $118.6 billion. RWA tokenization is projected to become a trillion-dollar global industry by 2030, thanks to the development of infrastructure to facilitate the ownership, exchange and transfer of RWA tokens by some of the largest global financial institutions.

What is asset tokenization?

Asset tokenization is the transformation of physical assets, like real estate, art, bonds, money market funds (MMFs) and stocks, into digital tokens that can be bought, held or traded on a blockchain. The tokens represent ownership or a fractional share in an asset, which facilitates its exchange or transfer. Unlike cryptocurrency, tokenized assets have underlying value that is not necessarily driven by market demand, utility and speculation.

Asset tokenization, together with smart contracts, automate processes and increase transparency and security in the ownership and trade of assets. Smart contracts on the blockchain manage asset ownership and transaction details, such as divisibility and transfer restrictions. Additionally, asset tokenization and smart contracts may improve liquidity, transparency, availability, accuracy, programmability and reduce fraud through blockchain technology.

How does RWA tokenization work?

By way of example, the tokenization of a piece of artwork introduces the ability to invest in the artwork and own a fractional share, rather than purchasing the entire asset. If the artwork is priced at $10,000, for example, asset tokenization allows an investor to purchase the asset in fractions (e.g., 1000 fractional assets of $10 each).

Once the owner’s rights over the artwork are verified, the artwork would be transferred to a blockchain-based platform that supports tokenization, and the asset’s value would be assessed and finalized. The artwork would then be divided into tokens that can be purchased and traded by investors pursuant to the applicable smart contracts.

The future of RWA tokenization

RWA tokenization similarly applies to financial products like MMFs. Major financial institutions like Visa, JPMorgan and Deutsche Bank are implementing platforms for the tokenization of different RWAs, including MMFs. For example, in October 2023, JPMorgan announced its Tokenized Collateral Network (TCN), which is a live product that allows investors to tokenize their MMF shares and collateralize them.

Deutsche Bank announced in May 2024 that it joined the Monetary Authority of Singapore’s Project Guardian, a collaborative initiative involving global policymakers from different countries like the UK and Switzerland, to test a blockchain platform to service tokenized and digital funds.

On October 3, 2024, Visa launched a Visa Tokenized Asset Platform (VTAP). VTAP, which is currently in sandbox mode, allows for the issuance and management of various fiat-backed digital assets like stablecoins, deposits and central bank digital currencies (CBDCs), and will cater to banks by offering a comprehensive infrastructure for securely minting, transferring and settling digital assets across public and permissioned blockchains.

Of course, there are potential challenges like regulatory uncertainty and smart contract vulnerabilities. That said, the increasing prevalence of RWA tokenization among investors and financial institutions in the U.S. and abroad will likely push for more certainty and stability in the industry, further driving its growth.


Disclaimer: The content provided is for informational purposes only and does not constitute financial, investment, or legal advice. While our law firm has substantial experience in cryptocurrency law and regulation, we do not offer investment advice or opinions on cryptocurrency as an investment. Consult a financial advisor before investing

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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