Finding that Bitcoin is not “the equivalent of money,” a Florida court recently dismissed charges against Michell Abner Espinoza in connection with the sale of Bitcoin to an undercover detective.
According to the order granting the motion to dismiss, Mr. Espinoza was arrested in 2014 after selling Bitcoin on three separate occasions to an undercover officer. Mr. Espinoza was arrested during the fourth and final transaction. (The sting was the result of a joint effort involving both the Miami Beach Police Department and the United States Secret Service’s Miami Electronic Crimes Task Force.) In connection with the sales of Bitcoin, Mr. Espinoza was charged with one count of unlawfully engaging in the business of a money services business and two counts of money laundering.
On July 22, 2016, Judge Teresa Pooler of the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida issued an order granting defendant’s motion to dismiss each of the three charges.
With respect to the unlawful money services business charge (the money laundering charges were dismissed on separate grounds), the Court determined that Bitcoin is not a “payment instrument,” which is defined under the state statute to mean “a check, draft, warrant, money order, travelers check, electronic instrument, or other instrument, payment of money, or monetary value whether or not negotiable.” Fla. Stat. 560.103(29). The Court determined that Bitcoin is none of these things, and that because Mr. Espinoza had not engaged in the sale of a “payment instrument,” he had not engaged in the business of a “money services business.”
In support of its conclusion that Bitcoin is not “the equivalent of money,” Judge Pooler reasoned as follows:
Bitcoin may have some attributes in common with what we commonly refer to as money, but differ in many important aspects. While Bitcoin can be exchanged for items of value, they are not a commonly used means of exchange. They are accepted by some but not by all merchants or service providers. The value of Bitcoin fluctuates wildly and has been estimated to be eighteen times greater than the U.S. dollar. Their high volatility is explained by scholars as due to their insufficient liquidity, the uncertainty of future value, and the lack of a stabilization mechanism. With such volatility they have a limited ability to act as a store of value, another important attribute of money.
Bitcoin is a decentralized system. It does not have any central authority, such as a central reserve, and Bitcoins are not backed by anything. They are certainly not tangible wealth and cannot be hidden under a mattress like cash and gold bars.
This Court is not an expert in economics, however, it is very clear, even to someone with limited knowledge in the area, that Bitcoin has a long way to go before it is the equivalent of money.
Although determined on the basis of Florida’s specific statutory regime, the ruling adds to the growing complexity surrounding the treatment of virtual currency businesses by regulatory bodies. For example, the Court noted that in 2014, the I.R.S. issued guidance concluding that virtual currency would be treated as “property” – rather than currency – for U.S. federal tax purposes. I.R.S. Notice 2014-36 (March 25, 2014). Unmentioned by the Court, however, is FinCEN’s 2013 Guidance clarifying that under the federal regulations regulating money services businesses, “the definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies,” and that “[a]ccepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA.” FIN-2013-G001 (March 18, 2013) (The Guidance does not refer to Bitcoin in particular). As noted in previous posts on this blog, a growing number of individuals have been charged under the federal criminal statute prohibiting the operation of unlicensed money transmitting businesses in connection with the operation of virtual currency exchanges. In states such as New York and Connecticut, regulators have opted to curtail such uncertainty by adopting regulatory regimes that address virtual currency businesses specifically. As Judge Pool noted in the Order, that may be an approach that finds its way to Florida.