Federal Judge Declares Bitcoin a Currency

tlhIngan writes "An East Texas federal judge has concluded that Bitcoin is a currency that can be regulated under American Law. The conclusion came during the trial of Trendon Shavers, who is accused of running the Bitcoin Savings and Trust (BTCST) as a Ponzi scheme. Shavers had argued that since the transactions were all done in Bitcoins, no money changed hands and thus the SEC has no jurisdiction. The judge found that since Bitcoins may be used to purchase goods and services, and more importantly, can be converted to conventional currencies, it is a form of currency (PDF) and investors wishing to invest in the BTCST provided an investment of money, and thus the SEC may regulate such business."

Comments

Re:Obligitory Reagan quote...

[Kwyj1b0]

Of course, much better to live and die by the sword... err... Caveat emptor principles?

While there are areas where regulations are silly, this (atleast on the face of it) doesn't seem to be one of those. The accused was running a ponzi scheme. The fact that the currency could be exchanged for real cash puts it in the SEC's realm.

Not quite the right conclusion...

[Entropius]

Bitcoin is a currency that can be regulated under American Law

Well, yes. When has the government ever ruled that it lacks the power to regulate something?

The motivation behind Bitcoin wasn't to create a currency that government would choose not to regulate; it was to create one that government could not regulate.

Re:Not quite the right conclusion...

[Zordak]

What pisses me off, of course, is not this ruling, as I said, its a local/state problem at best, and already taken care of by the majority of states, but that it was held up as the first time in 40 years that the commerce clause had struck ANYTHING down.

I mean seriously, this clause has been extended to apply to a farmer who would rather grow his own feed (apparently "not participating in the market" is a market activity and still subject to regulation) than buy it.... using it at all to strike down anything at this point is the height of ridiculousness.

This case is Wickard v. Filburn, 317 U.S. 111 (1942) for those who are interested. Old farmer Filburn was charged with growing too much wheat. He argued that the federal government had no jurisdiction to regulate wheat he grew on his own farm for his own consumption. The Supreme Court held that by growing and eating his own wheat, he was failing to buy wheat in interstate commerce like a good little subject. The next time the Supreme Court struck down a federal statute under the Commerce Clause was United States v. Lopez, 514 U.S. 549 (1995), where the Court struck down the Federal Gun-Free School Zones Act. This was a big victory for Justice Rhenquist, who was on a quest to reign in the Commerce Clause. However, his successor, Justice Roberts, although considered a pariah and arch-conservative by the Left, has shown less will to do so. Notably, in his Obamacare decision, he gave a nod to the commerce clause, but then blasted a big old hole in the Constitution by saying basically that Congress could do anything they wanted to as long as they pretended it was a tax.

Re:Sex

[arth1]

Yup, it fits. Sex is now under regulation of the SEC.

I'm sorry, but no. Any person receiving bitcoins can sell them for dollars. That does not hold true for sex.

How to fail in court

[Tailhook]

From the tippy-top of the bitcoin.org website:

Bitcoin is an innovative payment network and a new kind of money.

Now, IANAL, but I suspect walking into court with an argument that bitcoin isn't a new kind of money when its creators clearly and demonstrably assert that it is a new kind of money is likely to fail pretty hard.

And yes, I'm well aware of the of the distinction between money and currency. Gold bugs, sufferers of Fed derangement syndrome and others spend a lot of time proselytizing about this stuff. The thing is that the SEC and the courts don't, which is why no one has ever succeeded in evading financial laws by attacking the legitimacy of fiat money.

At least not without an army.

Re:SEC has lost

[fastest fascist]

I don't know where you get your information from. Shavers took deposits in bitcoins, promising to pay out again in bitcoins, with 7% or so weekly interest. The payouts went out for quite some time, presumably funded by new deposits, and then Shavers simply did a runner with the bitcoins he had accumulated. So it was very much a classic Ponzi scam.

Re:Is everything currency, then?

[tnk1]

You barter with the intrinsic value of the items. If you need boots and can offer a hat or dinners for them, you do that because you need boots to walk in, and the guy with the boots needs to eat or needs to cover his head.

Currency is a representation of value as an abstract. It's useful because it lets us set prices without having to negotiate barter, or more importantly, to have to produce and carry around things that we believe we could barter.

However, because currency does not have an intrinsic value by itself, it can be manipulated and used in certain ways that are not naturally regulated. In that sense, currency needs some sort of regulation. I don't know how much, and I think it should be as little as required, but I can accept that it may need a lot.

Bitcoin may be backed by some sort of store of abstract value, but it has no intrinsic value on its own. There is nothing you can do with a Bitcoin other than use it to buy something else. In that sense, it is a currency and is nothing like barter.

Re:Currency?

[bobbied]

Shesh.. Not even close on this..

In this case the judge is saying that even though the investors used BitCoin, the activities of the investment where essentially the same as investing dollars so the argument that BitCoin isn't a currency didn't apply. If it walks like a duck, quacks like a duck, acts like a duck and looks like a duck, it's a DUCK.

So.. Even if you make somebody trade in some kind of voucher to invest in your scheme, if you live in the US and are operating in a way that looks the same as something the SEC regulates, you are subject to the regulations.

So the judge is NOT saying BitCoin is a currency, but that the guy was operating an investment scheme that was illegal and is not shielded from the SEC because he used BitCoins.

Re:Is everything currency, then?

[DaHat]

*facepalm*

People have argued that Article 1, Section 10 applies only to States

Given Article 1 Section 10 starts with "No state" and follows with a list of prohibited items... there isn't much of an argument.

You are also ignoring Article 1 Section 8 which says (regarding the powers of congress):

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

So no, gold and silver aren't the only constitutional forms of currency, congress alone has the authority to print (fiat) money as they see fit. If states wish to create their own, then it must have an actual recognized value (ie precious metal) rather than be fiat currency.

Re:Obligitory Reagan quote...

[Entropius]

The ideal zero point neglects that it takes capital to run a business. "Profit" is nothing more than the people who helped fund a business (the stockholders) getting a return on their investment, a return without which they'd not have bought stock and made the business possible.

Re:Is everything currency, then?

[TapeCutter]

The fact that gold and can be traded for goods and services has nothing to do with it's intrinsic value, it's intrinsic value is virtually zero to everyone outside the electronics industry. Intrinsic value is a measure of usefulness, eg: Compared to gold, trees are abundant, they provide wood, food, and suck up CO2, thus they have a much higher intrinsic value than gold.

A one to one exchange of goods/services with intrinsic value is called bartering. Currency is anything used as a token to simplify trading where more than one exchange would be required to get the goods what you want. Something durable and hard to obtain such as gold is ideal for those tokens. Problem with that scheme is the economy now has an artificial growth boundary defined by the supply of gold. Of course when politicians start firing missiles at each other people will be drawn to the "safe haven" of gold, but the fact is currently "the market" sees US treasury bonds as "safer than gold".

I don't think ...

[PPH]

... people get the difference between money and being subject to SEC regulations. Money is a medium of trade and exchange, of which Bitcoin is a kind. Fine. You get paid in Bitcoin, you'd better report it to the IRS.

Making Bitcoin subject to SEC regulations is a whole other issue, with additional requirements. The SEC regulates (most*) securities and imposes requirements such as registration and transaction reporting. This is far beyond the sort of regulation applied to money. When was the last time you had to report the serial numbers on all the currency you held?

So, which is it? A currency, subject to income reporting rules? Or a security, under the SEC's authority? IANAL, so I'd really like some enlightened input on what is being decided here.

*Derivatives and commodity contracts are subject to CFTC regulation.

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