> If they take this to court, the court will award the original USD price. They bought an asset worth $x. They are owed $x.

That's not true at all, outside of very specific asset-classes.

A better analogy: let's say we make a trade where I pay you in land, and you don't give me what I'm owed in that trade. I would expect my land back, not its dollar-value.

We do things this way, in the case of land, precisely because my land might turn out to e.g. have gold under it that might make it worth 100x more. If you conned me out of the land, and then found the gold, guess what? That's rightfully my gold.

Refunds aren't legally equivalent to suing for damages. If someone doesn't give you a refund for breaking a contract where you transferred an asset to them, your legal fallback isn't suing for damages; it's suing to get a court-order to execute a seizure in order to reclaim your property, or the things it has in turn been traded for by the contract-breaker. (You know, like repo companies do when you buy stuff on a credit card and then let it go to collections!)

Can you explain how you chose land as the equivalent asset class? That doesn't even seem close to the ETH situation.

For federal tax purposes, virtual currency is treated as property: https://www.irs.gov/pub/irs-drop/n-14-21.pdf

You seem to be misinterpreting what the IRS means by "property". It is equivalent to "asset", not to "land". It can mean land, but can also mean a stock, bond, capital good, etc. that you own. See [1] for example usage.

[1] https://www.irs.gov/taxtopics/tc703

Typically courts will void the contract if there's a material misrepresentation or fraud in a contract:

https://thebusinessprofessor.com/knowledge-base/voidable-con...

In cases of fraud, the deceived party may also bring a tort, which is awarded in USD. But as for the actual contract, the court would rule that it never occurred, and so in the eyes of the law ownership of the ETH never changed hands.

It gets a little complicated with cryptocurrencies in that they effectively setup a separate ownership structure enforced by cryptography and independent of the laws of any one nation. So the court may rule that the Ethereum never changed hands and so still belongs to the original owner - but the blockchain says otherwise, and good luck convincing 51% of miners (many of whom are not U.S. citizens) that they should mine a transaction just to resolve this one case.

Courts know how to deal with cases where change of ownership (or another tort) is not reversible. It's as simple as if I promised you to pay you $100 for the dinner in your restaurant, ate the dinner and then never paid because I had no money. Obviously I was perpetuating fraud - I knew I have no money and still ate. But I can't return you the ownership of the food I ate. So the court would just assign just compensation (via various mechanisms) for fraud in that case, and maybe something on top to punish me for what I did. The only problem would be collecting it may prove impossible in this case.

Exactly, what if ETH dropped to 1$? I am sure they would want their USD back.

I would be interested to see the case law that backs your claim.

As an example, if I give a broker stock and then ask for it back, they have to give me the stock back, not the cash value at the time I handed it to them.

Also, I'd like to see what law you have in mind when you say ETH is not a currency. Is there some special legal recognition for "real" currencies? If so, what law specifically distinguishes them?

In fact, if I was an investor I'd tell them to pay me back in USD, not some coin.

Agreed. Like I said IF you consider ETH a currency. If you don't then that's an argument against all cryptocurrencies in general.

Correct, and the USG does not. IRS guidance calls all cryptocurrencies property.

I'm not a fan of cryptocurrencies myself but I am trying to argue the spirit of the transaction which considered ETH as a currency.

Legally I am with you 100% that the investors are out of luck. That's the price of "investing" in a highly speculative vaporware "currency".