California bankruptcy lawyer says Bitcoin is property, not currency

A U.S. district judge has ruled that Bitcoin is a form of intangible property for purposes of a California bankruptcy case.

As CoinDesk reported earlier this month, the U.S. Bankruptcy Court for the Northern District of California accepted a lawsuit filed by the bankruptcy trustee of HashFast, a bitcoin mining company that declared bankruptcy in 2014.

The trustee sued Mark Lowe, a former promoter of HashFast, and demanded the return of 3,000 bitcoins that were fraudulently transferred to Lowe before the company collapsed.

In recent weeks, both sides have argued over whether Bitcoin should be considered a currency or a commodity.

At this point, the stock was worth about $1 million. If Bitcoin were considered a currency, Lowe would only have to return 3,000 Bitcoins worth at the time, which would be equivalent to $360,000. If Bitcoin were considered a commodity, then due to the appreciation of the 3,000 Bitcoins – it would be worth about $13 million today.

During a hearing on Feb. 19, U.S. Bankruptcy Attorney Dennis Montali, on behalf of the trustee, declared that Bitcoin is an “intangible personal property” rather than a currency.

Lowe's attorney, Brian Klein of Baker Marquart LLP, was eager to ask the court to focus on how Lowe viewed Bitcoin when he promoted the HashFast product - in that case, Bitcoin was viewed as U.S. dollars.

However, Montali disagreed with this notion, stating that Bitcoin is different from the U.S. dollar, saying:

“But that doesn’t make [Bitcoin] the same as the dollar, that’s my view. I understand the actions of all parties, but that doesn’t make Bitcoin the dollar.”

The judges said they would issue an order based on the decision, but it was not available at press time.

Limiting impact

As industry experts indicate, the question of how to treat Bitcoin in civil legal cases will be added to the relevant case law, although it may have complex consequences.

For example, while U.S. agencies like the Commodity Futures Trading Commission (CFTC) and the Internal Revenue Service (IRS) have ruled that Bitcoin should be considered a commodity, other federal agencies may have different rules as they seek to define the technology under directives.

And the U.S. Securities and Exchange Commission (SEC) has had support from blockchain advocacy group Coin Center in considering how bitcoin could be used to meet its definition of a security, which others may not have.

Other U.S. regulators may have reached similar conclusions, suggesting that U.S. law may not yet have a firm definition of bitcoin.