The latest bitcoin news item that has caught the attention of enthusiasts and observers alike is the ruling given by a U.S. district judge that bitcoins are intangible properties. The ruling was given when a bankruptcy case was being heard in a California court. The case was filed by the bankruptcy trustee for HashFast Technologies LLC, a bitcoin mining company that declared bankruptcy in year 2014. The ruling has prompted thoughts as to whether bitcoins should be considered as digital currency or as intangible property.
The Bankruptcy Case – Background
According to this bitcoin news, the bankruptcy trustee was suing the former promoter of the company, Mark Lowe, to return a sum of 3,000 bitcoins that was allegedly “fraudulently transferred” to Lowe’s account before the firm collapsed. However, according to the ruling of the judge, the bankruptcy trustee can recover the property or its equivalent value. Whereas the trustee argued that the bitcoin should be considered as commodity based on the advice provided by the IRS and the ruling of CFTC last year, Lowe’s argument was based on the contention that bitcoin transactions are equal to those of other fiat currencies. As per the ruling, the trustee may recover the transfers for the benefit of the credits on the basis of the statute 11 U. S. C. 550 (a).
In the context of this bitcoin news, it is interesting to note that if the bitcoins is treated as a currency, the amount that Lowe has to return would be the value of the bitcoins on the day of transfer, which would be $360,000. In case the bitcoins are considered as “property,” Lowe has to transfer back an appreciated value of $1.3 million. Judge Dennis Montali ruled that bitcoins cannot be considered as equivalent to dollars in the current context and equated them to “intangible personal property.” Experts in the field, however, opined that though this bitcoin news item is unlikely to cause any major changes as far as the bitcoin industry is concerned, but it most certainly will make a larger impact on how civil legal cases involving bitcoins would be treated in the future.
The Case Ruling and Its Implications
According to the bitcoin news item, Lowe’s argument was that that bankruptcy trustee was expecting an unfair return only because the fiat value of the digital currency had risen since the money transfer was made. Lowe also argued that the trustee would have taken a contrary position in case the currency had gone down in value. Lowe further based his arguments on different cases when judges ruled that bitcoin is a type of digital currency, interpretations of the Securities and Exchange Commission (SEC) and the many instances when the Financial Crimes Enforcement Network (FinCen) viewed bitcoins as virtual currency.
In other bitcoin news reports, it is noted that in rare cases return of appreciated assets were ordered by the courts when the bankruptcy estate lost as a result of the transfer. The focus was not on what the transferee gained when the transaction took place. The case ultimately boils down to whether bitcoins are going to be treated as US currency or not. If the Bankruptcy Court decides that it is non-US currency, the bitcoin will be treated like any other commodity. The “currency versus commodity” angle of the case was not entirely solved and the only answer that remained, according to the judge, was whether Lowe would return just the 3,000 bitcoins that were transferred to him or its dollar equivalent.
Another related bitcoin news item that was published last year ultimately implied the increased costs of operating with bitcoins. According to CFTC’s ruling last year that the bitcoins should be considered on par with other commodities such as corn or oil. This further necessitated that companies planning to offer a platform for trading in digital currency derivatives will have to compulsorily register themselves as a facility for swap execution. This will eventually require that all bitcoin transactions be done in the open rather than anonymously as being done now. Public transactions help to avoid fall of bitcoin exchanges such as that of Mt. Gox. However, the operating costs for the virtual currency will end up being higher, it is purported.