July ABI Journal Article Examines Bitcoin and Bankruptcy
Alexandria, Va. —As bitcoins have continued to attract investors, retailers and the attention of the financial press, an article in the July edition of the ABI Journal explores how bitcoins, along with their debtors and creditors, would be treated in bankruptcy. “There is currently a lack of clarity regarding the treatment of bitcoin under the Code,” writes Casey Doherty of Vinson & Elkins LLP (Houston) in his article “Bitcoin and Bankruptcy: Understanding the Newest Potential Commodity.” Bitcoin was born as a digital currency in 2009, and transactions using it can be performed without the need for a central bank. It is now accepted by many major retailers such as Overstock.com, Zynga and Wordpress, according to Doherty. However, “[t]he price is susceptible to massive swings, unlike conventional currency,” he writes. “Although bitcoin has been met with heavy skepticism (even Warren Buffett has called it a ‘Mirage’), its value has drastically risen since its inception and remains a much-discussed factor in the world economy.” Doherty observed that the price of bitcoins fluctuated from $0.70 on March 18, 2011, to a high of $1,216 on Nov. 30, 2014, to a price of $586 as of May 27, 2014. “Bitcoin-holders face confusion over how to perfect their interest: as a commodity, as a security or as simple cash?” Doherty writes. Given the fluid state of the issue, he writes that this confusion will likely remain for the near future. “Contributing to creditor vulnerability is the murkiness over how the bitcoins are classified under the Uniform Commercial Code or under any U.S. law,” according to Doherty. Under the Bankruptcy Code, if bitcoin were to be classified as money/currency, according to Doherty, then contracts in which individuals exchanged it for dollars or other currencies, which comprise a great number of bitcoin exchanges, might be classified as “swaps” under §§ 362 and 546 of the Bankruptcy Code. However, Doherty points out that bitcoin’s drastic price swings indicate that it is viewed and treated as a commodity by many of its holders and sellers, regardless of the intentions of its founders to create a new global currency. “Also, due to bitcoin’s finite and largely unregulated existence, its supply can be easily affected large-scale by outside events, such as the Mt. Gox bankruptcy, in which 6 percent of the world’s bitcoins disappeared, possibly to a thief,” Doherty writes. The governments of Japan, China and Finland have officially classified it as a commodity, while the U.S. has not yet made such a classification, according to the article. “As something that is produced in finite quantities (but is not actually tangible) and that is speculative (but also used in commercial transactions), practitioners should stay apprised of developments of bitcoin’s status in bankruptcy law as courts decide whether it is a currency, commodity – or something else altogether,” Doherty writes. To obtain a copy of “Bitcoin and Bankruptcy: Understanding the Newest Potential Commodity,” published in the July issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at [email protected] ### ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.
Thursday, July 17, 2014