US Judge: Digital Currencies Are Actually Commodities

Digital Currencies Are Actually Commodities Rules US Judge

22 February 2016

http://www.blockcy.com/digital-currencies-commodities-judge

 

Digital currencies like bitcoin are actually commodities, ruled U.S. Bankruptcy Judge Dennis Montali in the case of HashFast Technologies LLC v Lowe.

The case concerns the transfer of approximately 3,000 bitcoin, valued at the time approximately $300,000, to Dr Lowe by the now bankrupt Hashfast mining manufacturers in 2013 in return for marketing and promotional services. The question to be determined by Judge Montali was whether bitcoin and by implication likewise digital currencies are to be classified as currency, and thus valued at $300,000 as at the time of transfer, or commodity and so valued at the current rate of approximately $1.3 million dollars.
Mr Kosalas, Attorney for Liquidating Trustee, argued that the court should follow the ruling of Commodity Futures Trading Commission (CFTC) and IRS and find that bitcoin is a commodity because it is not recognized as legal tender in any jurisdiction so persuading Judge Montali, who, in passing judgment commented that bitcoin was not a currency as it was not widely accepted.
This is the first judicial ruling that classifies bitcoin as a commodity, in stark contrast to earlier judgments stating that bitcoin is a currency. Trendon Shavers, convicted of running a bitcoin ponzi scheme, tried to rely on the IRS ruling to argue that bitcoin was a commodity, therefore, the legal definition of “investment of money” does not apply. However, Judge Mazzant, dismissing the argument, stated:

“It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and… used to pay for individual living expenses.”

Ross Ulbritch, convicted of running an online drug selling operation and Robert Faiella, convicted of transmitting money without a license tried to make the same argument, but the presiding judge stated:

“Bitcoin clearly qualifies as money… Bitcoin can be easily purchased in exchange for ordinary currency, acts as a denominator of value, and is used to conduct financial transactions.”

Mr Kosalas distinguished the findings in previous judicial decisions by arguing that they were in a criminal law context where the definition of currency is as wide as possible to include any instrument that could be used to exchange value, such as gold.
The contradictory rulings, however, are likely to cause confusion and treating bitcoin as a commodity when it is used as a currency to make payments can have negative effects on trade, an argument that Dr Lowe’s attorney indirectly advanced by stating that if the value of bitcoin had fallen, the trustee would have argued the opposite.
However, all of the judicial decisions so far have been at a first instance level with no precedent setting power and unbinding on other judges. The confusion therefore is likely to continue until a higher court settles the question of whether bitcoin and other digital currencies should be treated as currency when used as currency, or should be treated as commodity, regardless of how it is used.