It is hard to peruse media outlets without hearing about bitcoin and other types of cryptocurrency. But what is Bitcoin? Is it just another form of currency, or is it a commodity? It depends on who you ask, and bankruptcy courts are beginning to weigh in on the subject.
Bitcoin was created in 2009 as a new form of currency by an unknown person using the alias Satoshi Nakamoto. While Bitcoin is treated as currency by large e-commerce and industry giants such as Microsoft, Dell, DISH, Expedia, and Overstock, its value fluctuates in a manner that may make it more similar to a commodity. This identity crisis may prove problematic for bankruptcy practitioners trying to value a debtor’s assets.
On an issue of first impression, the bankruptcy court in the Northern District of California in In re Hashfast Technologies LLC ruled that, for purposes of valuation under the fraudulent transfer provisions of the U.S. Bankruptcy Code, Bitcoin is not the equivalent of currency. See, Transcript of Record, Kasolas v. Lowe, Bankr. N.D. Cal. 15-03011 (Dkt. 48). The ruling arose in the context of an attempt by a bankruptcy trustee to set aside the 2013 transfer from the estate of 3,000 Bitcoin worth approximately $360,000 at the time of the transfer. Since the transfer, however, the 3,000 Bitcoin had appreciated in value to $1.2 million. The trustee argued that Bitcoin can be recovered by the estate at its present day appreciated value, while the defendant argued that Bitcoin are the equivalent of U.S. dollars, and thus the 3,000 Bitcoin that were transferred retained their lower U.S. dollar value.
During the hearing to address this issue, the judge likened the fluctuating value of Bitcoin to the price fluctuation of other tangible assets such as tickets to sporting events, and ultimately concluded that Bitcoin were clearly property and not the equivalent of U.S. dollars.
While the status of Bitcoin may not be settled, it does appear that, at least in bankruptcy, courts are likely to treat Bitcoin more like a commodity than a currency. It should also be noted that in September 2015 the Commodity Futures Trading Commission determined that Bitcoin is a commodity subject to regulation under the Commodity Exchange Act and the relevant Commodity Futures Trading Commission regulations.