Last week, we blogged about the latest development in Bitcoin news: how a California bankruptcy court will define Bitcoin. That was the subject of a trustee’s clawback suit against Marc Lowe, a former employee of Hashfast Technologies Inc. And as we stated in our last post, this court’s ruling would set a precedent for financial recovery disputes involving Bitcoin. Currently the Bankruptcy Code does not account for cryptocurrencies like bitcoin – which the judge was also quick to point out. In a slew of recent cases, this is yet another example of technology moving faster than the law.
On Friday, bankruptcy Judge Dennis Montali, in the Northern District of California, found that the Bitcoin at issue should be classified as “intangible personal property” and not as currency, allowing the trustee to recover the present value of the BTC at $1.3 million. The Bankruptcy Code defines “intangible personal property” as something of value that cannot be touched or held, similar to a copyright or trademark.
Lowe unpersuasively argued that because Hashfast used Bitcoin as a currency medium of exchange, the court should do the same. However, Judge Montali wasn’t swayed, discounting Hashfast’s treatment of Bitcoin as cash, and stating instead that even if Bitcoin was treated as cash, it “doesn’t make [it] dollars.”
The judge ultimately agreed with the trustee’s citation of the CFTC’s and IRS’s characterizations of Bitcoin as a property or commodity. However, Judge Montali made it clear that his classification of Bitcoin as intangible personal property is intended to be limited to actions for fraudulent transfers under Bankruptcy Code §550(a).
We’ll be keeping an eye on upcoming cases and whether the rulings agree with Judge Montali’s classification of Bitcoin as property.
Further reading from BakerHostetler’s Private Wealth Team: