Cryptocurrency and Other Digital Assets for U.S. Investors (2021 ed.)

15 Pages Posted: 29 Mar 2021

Date Written: October 27, 2020


In 2008, an unknown author publishing under the name Satoshi Nakamoto released a white paper describing Bitcoin, a peer-to-peer version of electronic cash, and the corresponding software that facilitates online payments directly between counterparties without the need for a financial intermediary. In the decade that has followed, Bitcoin and countless other open-source, decentralised protocols inspired by Bitcoin (for example, Ethereum) have come to represent a $300 billion-plus market of alternative assets, commonly referred to as “digital assets”, which are typically traded over the internet using online exchange platforms.

The digital asset market extends beyond the assets themselves. Other participants, including online exchanges, payment processors and mining companies, compose the broader digital asset industry. And as this industry continues to grow, it has captured the attention of retail and institutional investors alike, including asset managers seeking to develop investment strategies and products involving these emerging assets and companies. Some strategies resemble early-stage growth strategies, featuring long-term investments either directly in certain digital assets or in start-up ventures developing complementary goods and services for the industry.

Other strategies include hedge fund strategies, such as long/short funds, which often use derivatives, or arbitrage strategies, which seek to capitalise on the price fragmentation across the hundreds of global online exchanges. Additionally, during periods of weak or middling performance in the cryptocurrency markets – for example, during the so-called “crypto winter” of 2018–19 – fund managers began experimenting with novel revenue-generation strategies, such as staking cryptocurrencies, adopting credit fund-type strategies (e.g., distressed debt), engaging in market-making and executing venture capital investments.

This chapter outlines the current U.S. regulatory and tax framework applicable to
cryptocurrency and other digital asset investment funds offered to U.S.
investors and how those regulatory and tax considerations affect fund-structuring decisions.

Keywords: bitcoin, digital assets, crypto, cryptocurrency, ethereum, asset management, investment management, investing, finance, private funds, funds, investment funds, law, policy, regulation

Suggested Citation

Kiviat, Trevor, Cryptocurrency and Other Digital Assets for U.S. Investors (2021 ed.) (October 27, 2020). Available at SSRN: or

Trevor Kiviat (Contact Author)

Davis Polk & Wardwell LLP ( email )

450 Lexington Ave.
New York, NY 10017
United States

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