Can Arbitration Clauses Protect Crypto Exchanges From Regulatory Overreach?

Arbitrage is a long-standing business practice that has become increasingly popular in the cryptocurrency world. With Coinbase facing a potential negative verdict in two cases currently before the Supreme Court, the implications are broad. Can arbitration in crypto face different outcomes than in other industries?

Arbitration offers a unique opportunity for both companies and customers. It can protect exchanges from harmful government regulation, or address disputes between consumers and companies. Most importantly, arbitration clauses provide opportunities for dispute resolution that are not always available in traditional legal processes.

Coinbase Inc. v. Bielski and Suski v. Coinbase are the first completely crypto-focused cases to come before the Supreme Court. So what happens here could determine the fate of other crypto startups down the line.

The benefits of arbitration

Arbitration is an informal process that seeks to resolve disputes in a timely and efficient manner. It usually involves one or more arbitrators who are knowledgeable about the subject of the dispute. They allow both parties to present their cases before making a decision.

This can be beneficial for businesses because it can lead to faster resolution than traditional litigation. It also allows companies to create their own custom arbitration clauses, which can include provisions that favor them in the event of a dispute.

SCOTUS Ignores Arbitration Clause

Coinbase has two lawsuits in hand. Bielski involving a Coinbase user who lost $31,000 to a scammer posing as a PayPal representative. Sigh concerns a $1.2 million Dogecoin contest that allegedly confused and misled customers. Coinbase includes an arbitration clause in their user agreement. They have appealed both cases and asked to go to arbitration, according to their agreements. However, the lawsuits appear to be moving forward, despite Coinbase’s motions to appeal.

It is fairly standard to hold, or stop, a trial while the court considers going to arbitration. But when it comes to startups, some plaintiffs argue that it can take too long to stand trial. If the startup goes out of business, the plaintiff may not get paid, even if they win.

With Coinbase’s case before the Supreme Court, it is unclear whether the courts will suspend these arbitration clauses at all. The court has previously ruled that such agreements are not necessarily binding. But given the tension between the US government and crypto, it’s hard to say whether the court is acting in fairness.

Arbitration clauses in employment contracts

The pending Supreme Court ruling has implications for employees of crypto companies that have arbitration clauses included in their employment contracts. Although such agreements may provide certain protections, they are not necessarily binding on regulatory bodies. This means that the courts can still decide to allow a lawsuit to proceed even if an employee’s contract contains an arbitration clause.

Ultimately, it is up to the courts to decide whether such agreements should be enforced. This means that it is still possible for regulators to intervene and take legal action against crypto exchanges even if they have a valid arbitration clause in place.

While arbitration may be useful for some crypto companies, it is unlikely to provide complete protection against future lawsuits.