California Bankruptcy Court to Decide Whether Bitcoin is Currency

News and Analysis

On the background of the continuing legal debate concerning the status of bitcoin as commodity, currency, or property, a bankruptcy court of California is expected to rule whether bitcoin should be deemed a currency on February 19.

The ruling is expected to conclude a lawsuit of HashFast mining company’s trustee Michael Kasolas against Marc Lowe, who, according to the filing, owes 3,000 bitcoins that the company had paid him for service promotion. HashFast is currently considered bankrupt.

According to the trustee’s claim, the defendant had some preferences due to the higher service remuneration he obtained for rendition of his services, which made other service providers waiting for theirs. The filing dated January 22 requires the following:

“(1) determining that for purposes of section 550(a) of the Bankruptcy Code the 3,000 bitcoin transferred to Defendant constitute a commodity, not currency, and (2) directing that if the subject transfers are avoided the estate is entitled to either the bitcoin or the value of the bitcoin as of the transfer date or time of recover, whichever is greater.”

This provision means that the trustee expects the court to oblige the defendant to reimburse the USD worth of the bitcoins in question at the current exchange rate, rather than at the one he had received it in the first place. Supporting the claim are orders by federal entities, the IRS and the CFTC. The latter ruled that bitcoin alongside with other digital currencies should be considered as commodities regulated as per CEA (the Commodities Exchange Act).

“Even if the court determines that bitcoin are currency, and not a commodity, the court should still award either the bitcoin or their value at the transfer date or time of recovery, whichever is greater,” the filing also reads.

Lowe, in his turn, argued that HashFast certainly considered bitcoin a currency in the course of its operation. In addition, he claims that the trustee’s filing shall be dismissed as it is essentially fraudulent.

“The bitcoin Dr. Lowe received from HashFast should be treated as currency, not a commodity. That was how HashFast intended bitcoin to be treated at the time it sent the bitcoin to Dr. Lowe, and that is how federal agencies, merchants, courts, the Debtor, and the Trustee himself have treated bitcoin. The Court should not grant the Trustee the undeserved windfall he is seeking,” the filing reads.

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