Financing of Bitcoin and Other Crypto Assets: Structuring, Regulatory, Valuation, and Hedging Issues

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Thursday, October 27, 2022

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Course Materials

This CLE webinar will analyze legal challenges to financing bitcoin and other crypto assets for bank and non-bank lenders. The panel will discuss the underlying blockchain architecture for transferring cryptocurrencies and regulatory, custodial, and UCC perfection issues concerning financing these assets.

Description

Loans involving bitcoin and other crypto assets continue to grow in variety and scope. However, such loans give rise to legal, regulatory, and practical considerations that do not arise in the typical lending transaction.

Of particular note, the UCC requirements to perfect a security interest in a digital asset may be at odds with the expectations of market participants. Counsel must closely consider the relevant UCC provisions as well as whether there may be structures, such as a financial asset election under Article 8 of the UCC, that may increase legal certainty. In addition, the legal landscape is shifting, as the Uniform Law Commission and American Law Institute recently promulgated amendments to the UCC that, if adopted by the states, would (among other things) dramatically change the perfection requirements applicable to certain digital assets.

Practitioners may also want to consider custodial arrangements for digital assets and the risks they present, as well as what kind of control agreements may be optimal.

Given the unique aspects of digital assets, counsel should examine closely the terms of the loan, including repayment schedules, the currency of repayment, and restrictions applicable to the borrower. Counsel may also consider structuring the transaction as a repo arrangement whereby the borrower sells the crypto assets to the lender with an agreement to repurchase the assets at a specified time and price. Considering the volatility in the price of many crypto assets, provisions relating to LTV maintenance are of particular concern.

The CFTC has determined that Bitcoin is a commodity. As a result, lenders may wish to consider U.S. commodities laws. Crypto lending arrangements may also give rise to securities law issues, either because enforcement involves the transfer of crypto assets that are securities or because the crypto loan itself is a security.

Listen as our authoritative panel examines legal and structuring issues to consider in financing bitcoin and other digital assets.

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Outline

  1. Reasons for financing digital assets
  2. Structuring considerations
    1. Key terms
    2. Custodial considerations
    3. Practical considerations
  3. Perfecting a security interest in digital assets
    1. Current UCC framework
    2. Recent UCC amendments
  4. Regulatory considerations

Benefits

The panel will review these and other key issues:

  • How should a lender document a loan secured by cryptocurrency?
  • What are some of the issues with perfecting a UCC security interest within a blockchain?
  • How does the categorization of Bitcoin as a commodity affect the regulatory implications of financing such an asset?
  • What are the securities law concerns associated with the financing of digital assets?

Faculty

Hammer, Brandon
Brandon M. Hammer
Counsel
Cleary Gottlieb Steen & Hamilton

Mr. Hammer’s practice focuses on financial institutions and transactions.

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Ott, Michael
Michael Ott
Of Counsel
Ice Miller

Mr. Ott is an attorney in Ice Miller’s Bankruptcy and Financial Restructuring Practice, where he counsels banks,...  |  Read More

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