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Abstract

Cryptocurrencies have gained respectability with enactment of the federal GENIUS Act, which lays a regulatory foundation for the safest type of cryptocurrency, stablecoins, while leaving significant uncertainty with respect to unbacked crypto assets like Bitcoin and other cryptomoney and crypto investments that do not come within the GENUIS Act’s scope. The vulnerability of cryptocurrencies to wild fluctuations in value and to outright collapse are legion. The GENIUS Act may tame some actors who choose to operate within its framework, but many questions remain.

Legal remedies available to victims of cryptocurrency mishaps, from exchange collapses to issuer fraud, depend heavily on the type of failure and responsible party. Current law provides meaningful recourse for some cryptocurrency harms, particularly those involving identifiable defendants and traditional misconduct. Exchange-related failures present the strongest recovery prospects because exchanges operate as centralized entities with contractual relationships to customers. Fraudulent misrepresentation, breach of trust, conversion, and unjust enrichment doctrines adapt well to digital asset contexts when applied to rug pulls, custodial failures, and material misrepresentations about reserves or security measures.

Significant gaps in the legal safety net remain, however. The economic loss rule frequently blocks tort recovery where disclaimer-heavy contracts exist, while truly decentralized system failures often lack identifiable defendants. Harms resulting from pure market volatility, user errors, and regulatory uncertainty typically yield no legal recourse.

The most important reform is to recognize that terms of service imposing no real duties on service providers afford no rational basis for application of the economic loss rule, opening up the possibility for a variety of tort-based recovery

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