In the latest opinion to wrestle with the question of whether virtual currency should be considered money, Judge Alison Nathan in the U.S. District Court for the Southern District of New York found that for the purposes of a federal anti-money laundering statute, “bitcoins” qualify as money.
In United States v. Murgio, a group of defendants were charged with operating, and conspiring to operate, an unlicensed money transmitting business online. The defendants were alleged to have attempted to shield the true nature of their bitcoin exchange business by operating through several front companies in order to convince financial institutions that their website was merely an association of individuals with common interests.
The court defined a “bitcoin” as an anonymous, decentralized form of electronic currency that exists entirely on the internet and not in physical form and that is used to purchase goods and services from any person that is willing to accept it as a form of payment (although it does not have the status of legal tender).
Because a violation of the statute at issue, 18 U.S.C. § 1960(a), requires the operation of “unlicensed money transmitting,” and the statute only defines money as including “funds,” the court had to determine whether bitcoins should be considered “funds” under the statute. The court found that they should. For purposes of the statute, the court held, “funds” mean “pecuniary resources,” and bitcoins fall under that broad category because they are used as a medium of exchange and a means of payment. The court also relied on another federal court’s earlier holding that bitcoins qualify as money because they can be easily purchased in exchange for ordinary currency, act as a denominator of value, and are used to conduct financial transactions.
This decision is in contrast to the only federal bankruptcy judge’s ruling on the value of bitcoins. In In re Hashfast Technologies LLC, Judge Dennis Montali in the Bankruptcy Court for the Northern District of California refused to address whether bitcoins are currency or commodities for purposes of the fraudulent transfer provisions of the Bankruptcy Code. Instead, the court found it “sufficient to determine that…bitcoin are not United States dollars.” The court’s holding in Murgio also went against a Florida state court opinion that found that bitcoins differ from money in many important aspects. For example, they are not a commonly used means of exchange and are not accepted by all merchants or service providers. Further, the Florida court found, the value of bitcoins fluctuates widely and has been estimated to be eighteen times greater than the U.S. dollar.
Although Judge Montali in Hashfast Technologies found that bitcoins are not equivalent to dollars, no bankruptcy court has ruled one way or the other regarding the more general question addressed in Murgio—whether or not bitcoins should be viewed as money or funds. If bankruptcy courts around the country choose to adopt the opinion of Judge Nathan in Murgio and hold that bitcoins are money, the impact on bankruptcy jurisprudence would be significant. For example, if bitcoins are regularly viewed as money, they will need to be considered in the value of a debtor and its estate. More time and resources may need to be invested in calculating an accurate value for bitcoins, if such a value is even calculable. The impact of virtual currency on an ever-changing technology-focused world may make the debate over the value of bitcoins a likely candidate for consideration by more courts, including bankruptcy courts and courts of appeals, in the future.