Litigation on cryptocurrencies and digital assets in commercial contracts

Executive Summary:

• Cryptocurrencies have burst onto the global scene as an alternative means of exchange and a new form of digital asset. In Mexico, although cryptocurrencies are not recognized as legal tender, their use in the commercial and financial sphere has proliferated, generating both opportunities and challenges.
• One of the significant challenges we must address regarding the increasingly frequent use of cryptocurrencies is found in litigation arising from commercial contracts involving cryptoassets, which reflect the tension between a regulatory framework that has not yet fully adapted to this technological innovation and the needs of modern commerce.

The regulatory framework that addresses, albeit partially, cryptocurrencies in Mexico is the Law to Regulate Financial Technology Institutions (Fintech Law). This law was enacted in 2018 with the aim of regulating the operations of Financial Technology Institutions (ITF) and their interaction with virtual assets, including cryptocurrencies. Based on article 30 of the Fintech Law, a virtual asset is ““a representation of value recorded electronically and used by the public as a means of payment for all types of legal acts”. However, the law clearly states that such assets are not considered legal tender in the country.

In this regard, the Bank of Mexico (Banxico) has been categorical in prohibiting financial institutions from offering cryptocurrencies as products or services to the general public, limiting their use to internal operations, with prior authorization and under strict risk control measures. This restrictive stance reflects a concern about the risk that these assets represent, especially in terms of money laundering and terrorist financing, due to the anonymity they offer and the difficulty of tracing their origin.

One of the critical points in litigation over cryptocurrencies in commercial contracts is their nature as a means of payment. As already mentioned above, in legal terms, a cryptocurrency is not considered currency; according to the Bank of Mexico Law, only the Mexican peso has the status of legal tender, and no other currency can have that status within the country. However, cryptocurrencies can be used in contracts under the figure of barter, provided for in article 2327 of the Federal Civil Code, which regulates the obligation to exchange one thing for another –Taking into consideration that cryptocurrencies only represent value-.

The problem arises in practice: although the parties can enter into a swap contract using cryptocurrencies, the tax and operational complications of executing the contract are obvious. For example, the Tax Administration Service (SAT) does not yet include cryptocurrencies among the forms of payment recognized for tax purposes, which makes it difficult for the parties involved in these transactions to comply with their tax obligations.

Another recurring issue in litigation is the fluctuation in the value of cryptocurrencies, which can lead to large discrepancies in the fulfillment of contractual obligations. Article 1796 of the Federal Civil Code establishes that the price of an obligation must be “certain and determined,” which becomes problematic in the context of cryptocurrencies, where their value can vary considerably in a matter of hours or even minutes. Courts have faced the difficulty of interpreting contracts when prices are determined in cryptocurrencies, especially when adjustment clauses or mechanisms to stabilize value fluctuations are not included.

In recent litigation, there has been a trend to require that contracts using cryptocurrencies include safeguards, such as provisions allowing for the recalculation of the value of the obligation in legal tender or renegotiation clauses in the event of extreme fluctuations in value.

However, a deeper and central issue in cryptocurrency litigation is the legal nature of cryptocurrencies. Since they are not backed by the state and do not have consumer protection mechanisms, cryptocurrencies are more like intangible goods, which places them in a special category of digital assets that require a different interpretation within the traditional legal framework.

The absence of institutional support and the impossibility of cancelling transactions carried out in blockchain –the underlying technology of cryptocurrencies– increases the risk of litigation, as parties cannot easily reverse failed or fraudulent transactions.

Additionally, and despite the advances in the regulation of cryptocurrencies in Mexico, challenges remain for the enforceability of this type of assets. The existing regulatory framework covers only the ITF and some exchange houses that offer cryptocurrency buying and selling services, but leaves out other non-financial entities that also participate in the ecosystem, which leaves anyone who finds themselves involved in a risky situation totally defenseless.

Cryptocurrency litigation often raises questions about which law should apply (given the cross-border nature of many transactions) and how to ensure enforcement of judgments involving cryptocurrencies, especially when they can be transferred to foreign jurisdictions in a matter of seconds. In addition, The Bank of Mexico Circular XNUMX/XNUMX, published in the Federal Official Gazette, has recommended maintaining a “healthy distance” between cryptocurrencies and the formal financial system, which reveals a clear reluctance of the Mexican authorities to fully integrate them into daily operations and which should undoubtedly be a parameter and a crucial focus of attention, since this could lead to or cause unnecessary limitations among merchants.

Cryptocurrency litigation in commercial contracts in Mexico represents an emerging and constantly evolving area of ​​law. The volatility of these assets, combined with their unregulated nature and lack of recognition as legal tender, has created unique challenges for the Mexican legal system. The development of a comprehensive regulatory framework and the creation of solid jurisprudential precedents will be key to mitigating future disputes and providing certainty to parties who decide to use cryptocurrencies in their commercial transactions.

As cryptocurrencies become a more integral part of digital commerce, disputes over their use will also continue to increase, particularly around the validity of contracts, the fluctuation of their value, and the lack of institutional backing. This will require the continued development of a more detailed regulatory framework that addresses existing gaps, especially in areas such as taxation, consumer protection, and the rights of parties in contracts involving cryptocurrencies.