U.S. Judge determines bitcoin is a currency

[The 4ner]

2. Bitcoin being defined as "currency" by a Federal Judge is actually bad as it opens Bitcoin up to a whole host of US laws designed to prevent people from creating their own currency. Can you say "Liberty Dollar".

This!

My thought exactly. If Bitcoin is considered money then that will automatically ruin its "decentralized" nature.

[Hamguy]

http://www.law360.com/articles/462977

Internet-traded bitcoins are a form of currency . . . a Texas federal judge ruled Tuesday

Bitcoin is a form of currency because it can be used to purchase goods or services and exchanged for more traditional forms of money, U.S. Magistrate Judge Amos L. Mazzant wrote in a decision Tuesday

It's nice to see the U.S. courts acknowledge reality once in awhile.

Honestly they don't care about bitcoins. by acknowledging this. they have a reason to tax bitcoin.

[wiggi]

2. Bitcoin being defined as "currency" by a Federal Judge is actually bad as it opens Bitcoin up to a whole host of US laws designed to prevent people from creating their own currency. Can you say "Liberty Dollar".

THIS should be the concern. Bitcoin being a currency means now the entire banking infra can enforce laws and policies on bitcoin. Welcome to fees, regulation, and loss of freedom.

You can't expect authorities to say "ok it's not money so we don't get power and fees"
but in this case it's correct, Bitcoin is used to buy things (->money, like gold coins in the past)
and pirateat40 sold... basically junk bonds (->securities)

[Serge]

the sky is falling!! heh.   please refer to FinCEN guidelines regarding Bitcoin/crytocurrencies which was issued few month ago, nothing has changed since then

this case is totally irrelevant to official status of bitcoin regardless of Shaver's defense strategy and claims, if he used toothpicks instead of bitcoins, Judge would rule investment securities either way.

[JerimiahJohnson]

2. Bitcoin being defined as "currency" by a Federal Judge is actually bad as it opens Bitcoin up to a whole host of US laws designed to prevent people from creating their own currency. Can you say "Liberty Dollar".

This!

My thought exactly. If Bitcoin is considered money then that will automatically ruin its "decentralized" nature.

That is absolutely untrue and impossible. Bitcoin works on a p2p network there is no possible way to decentralize it. Why do you think torrents still exist?

If you exchange bitcoins for fiat currencies it is income regardless, and you will have to pay taxes on it with or without these type of rulings.

[DannyHamilton]

- snip -
If you exchange bitcoins for fiat currencies it is income regardless, and you will have to pay taxes on it with or without these type of rulings.

And, depending on your jurisdiction, if you receive bitcoins for products or services (and never touch fiat) it is income regardless, and you will have to pay taxes on it with or without these type of rulings.

[Nagle]

If he used toothpicks instead of bitcoins, Judge would rule investment securities either way.

Right. The judge's opinion is simply that "Bitcoin investments met the requirements of an investment contract and thus constituted “securities” under federal securities laws." This is based on a Supreme Court decision: "An investment contract is any contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." That's Bitcoin. Deal with it.

This has some implications. One is that anyone operating a "Bitcoin exchange" in the US will have to meet the SEC requirements for being a broker/dealer. 

[CompNsci]

Black's defines money as anything used as money, and currency as the subset of money that has been authorized by law.  The is different from conventional usage which holds the two terms to be synonyms, only weakly defined.

This could set a precedent in one federal district. That could also be appealed and may end being interpreted differently in different federal districts.

It will be important for a direct case challenging regulation to be brought when the feds finally decide to actually take one of the exchanges to court.

[smoothie]

Currency vs. Legal Tender are world's apart. Let's keep this in mind.

[El Extranjero]

If he used toothpicks instead of bitcoins, Judge would rule investment securities either way.

Right. The judge's opinion is simply that "Bitcoin investments met the requirements of an investment contract and thus constituted “securities” under federal securities laws." This is based on a Supreme Court decision: "An investment contract is any contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." That's Bitcoin. Deal with it.

This has some implications. One is that anyone operating a "Bitcoin exchange" in the US will have to meet the SEC requirements for being a broker/dealer.  

Would this apply to those that exchange Bitcoin<->USD and vice versa out in the open (Satoshi Square)? I'm thinkin of starting an open exchange where I live but don't want to get in trouble for it.

[kjj]

Black's defines money as anything used as money, and currency as the subset of money that has been authorized by law.  The is different from conventional usage which holds the two terms to be synonyms, only weakly defined.

This could set a precedent in one federal district. That could also be appealed and may end being interpreted differently in different federal districts.

It will be important for a direct case challenging regulation to be brought when the feds finally decide to actually take one of the exchanges to court.

I think it is pretty clear in this context that the judge is right.  It is hard to imagine any judge applying the Howey test getting hung up on a narrow definition of money.

It is important to keep in mind that the judge is merely confirming what everyone already knows, namely that bitcoin is used as money.  In this case, he's deciding whether or not an "investment of money" was offered.  The law in question is about regulating "investment of money", not about money itself.

I wouldn't read a whole lot into this.  The judge isn't saying that bitcoin itself is a security subject to regulation under the Securities Act, just that contracts which would otherwise be covered by that act aren't excluded just because the money used isn't the dollar.

[Nagle]

I think it is pretty clear in this context that the judge is right.  It is hard to imagine any judge applying the Howey test getting hung up on a narrow definition of money.

It is important to keep in mind that the judge is merely confirming what everyone already knows, namely that bitcoin is used as money.  In this case, he's deciding whether or not an "investment of money" was offered.  The law in question is about regulating "investment of money", not about money itself.

I wouldn't read a whole lot into this.  The judge isn't saying that bitcoin itself is a security subject to regulation under the Securities Act, just that contracts which would otherwise be covered by that act aren't excluded just because the money used isn't the dollar.

Right. An investment contract need not involve money. You can have a contract that trades one commodity for another. The Hovey case was like that - lease land to a grower, get a fraction of the produce back. There are oil leases where you lease land in exchange for a fraction of the oil produced.

[CurbsideProphet]

I would imagine this throws a wrench in the Bitcoin ETF as they were trying to define Bitcoin as a commodity.

[The Bitcoin Co-op]

Now my question is: is gold considered "currency" for USA?

Create a gold based Ponzi scheme and I guess we'll find out.
 

We probably should.    Then we should create an oil Ponzi scheme, and broccoli Ponzi scheme, and keep going until everyone realizes that you can Ponzi scheme anything. Ponzi schemes have plagued the dollar for years, on scales vastly greater than what Bitcoin had, and nobody said that reflects poorly on the dollar. Looking at it that way, a BTC Ponzi scheme should make Bitcoin seem more legitimate! I doubt the media would spin it that way, of course.

[BCB]

Bitcoin can be both a currency and a commodity.

Regulators have yet to figure that out.

Or that have figured it out and they have NO idea what to do with it.

They can't allow it cause it will over take the current fiat currency and end their ability to take advantage of seiniorage.

They can't ban it cause it will just continue to thrive underground.

I don't think they know what to do.

Any anyone smart enough in the current legacy fiat financial system knows they will be about as useful newspaper publishers are today in another 10 year.

Jeff Bezos is buying The Washington Post
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/06/jeff-bezos-is-buying-the-washington-post-heres-what-you-need-to-know-about-the-sale/

I can see the headline now.

"Charlie Schrem to Buy HSBC"

[Serge]

If he used toothpicks instead of bitcoins, Judge would rule investment securities either way.

Right. The judge's opinion is simply that "Bitcoin investments met the requirements of an investment contract and thus constituted “securities” under federal securities laws." This is based on a Supreme Court decision: "An investment contract is any contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." That's Bitcoin. Deal with it.

This has some implications. One is that anyone operating a "Bitcoin exchange" in the US will have to meet the SEC requirements for being a broker/dealer.  

Would this apply to those that exchange Bitcoin<->USD and vice versa out in the open (Satoshi Square)? I'm thinkin of starting an open exchange where I live but don't want to get in trouble for it.

well, if you make a business out of it instead of an occasional swap here and there you probably would want to cover your bases with your State and FinCEN

Nagle, these implications were understood well in advance to this 'precedent', well before FinCEN/GAO guidelines released earlier this year. I remember saying it here on this forum back in 2011, if a business is in handling and processing 3rd party USD here in States, first-most thing such business needs is to become licensed for money transmitting and money business service and fully AML compliant in every state it's going to operate. I just don't see how current case relates to or affects any of this.

[BCB]

If he used toothpicks instead of bitcoins, Judge would rule investment securities either way.

Right. The judge's opinion is simply that "Bitcoin investments met the requirements of an investment contract and thus constituted “securities” under federal securities laws." This is based on a Supreme Court decision: "An investment contract is any contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." That's Bitcoin. Deal with it.

This has some implications. One is that anyone operating a "Bitcoin exchange" in the US will have to meet the SEC requirements for being a broker/dealer.  

Would this apply to those that exchange Bitcoin<->USD and vice versa out in the open (Satoshi Square)? I'm thinkin of starting an open exchange where I live but don't want to get in trouble for it.

well, if you make a business out of it instead of an occasional swap here and there you probably would want to cover your bases with your State and FinCEN

Nagle, these implications were understood well in advance to this 'precedent', well before FinCEN/GAO guidelines released earlier this year. I remember saying it here on this forum back in 2011, if a business is in handling and processing 3rd party USD here in States, first-most thing such business needs is to become licensed for money transmitting and money business service and fully AML compliant in every state it's going to operate. I just don't see how current case relates to or affects any of this.

it's called Precedent

http://en.wikipedia.org/wiki/Precedent

[DeathAndTaxes]

Would this apply to those that exchange Bitcoin<->USD and vice versa out in the open (Satoshi Square)? I'm thinkin of starting an open exchange where I live but don't want to get in trouble for it.

The MSB regulations do provide an exemption for infrequent and not for profit activity.  Of course infrequent isn't defined and FinCEN says they look at the entire entirety of the facts (which is a legalese way of saying we aren't going to give you a cutoff so you can exploit the letter of the law).  IIRC someone found a cite on a MSB related case (not Bitcoin but MSB in general) where the "infrequent" exemption was tested and the entity had done 6 tx in the prior 12 months and was ruled that it wasn't an MSB.

Note none of this is legal advice but generally speaking you know if you are a business.  If you are operating for profit FinCEN doesn't really care if you don't have a business card, and are just using your personal checking account.  On the other hand if you really are just making the occasional tx well I would hope that FinCEN has bigger fish to try then to try and harass you.

[Serge]

If he used toothpicks instead of bitcoins, Judge would rule investment securities either way.

Right. The judge's opinion is simply that "Bitcoin investments met the requirements of an investment contract and thus constituted “securities” under federal securities laws." This is based on a Supreme Court decision: "An investment contract is any contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." That's Bitcoin. Deal with it.

This has some implications. One is that anyone operating a "Bitcoin exchange" in the US will have to meet the SEC requirements for being a broker/dealer.  

Would this apply to those that exchange Bitcoin<->USD and vice versa out in the open (Satoshi Square)? I'm thinkin of starting an open exchange where I live but don't want to get in trouble for it.

well, if you make a business out of it instead of an occasional swap here and there you probably would want to cover your bases with your State and FinCEN

Nagle, these implications were understood well in advance to this 'precedent', well before FinCEN/GAO guidelines released earlier this year. I remember saying it here on this forum back in 2011, if a business is in handling and processing 3rd party USD here in States, first-most thing such business needs is to become licensed for money transmitting and money business service and fully AML compliant in every state it's going to operate. I just don't see how current case relates to or affects any of this.

it's called Precedent

http://en.wikipedia.org/wiki/Precedent

the precedent with this particular case is that if you operate bitcoin securities business here in states you fall under SEC jurisdiction, that is all, no other precedent had been ruled and established with it.

[DeathAndTaxes]

If he used toothpicks instead of bitcoins, Judge would rule investment securities either way.

Right. The judge's opinion is simply that "Bitcoin investments met the requirements of an investment contract and thus constituted “securities” under federal securities laws." This is based on a Supreme Court decision: "An investment contract is any contract, transaction, or scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party." That's Bitcoin. Deal with it.

This has some implications. One is that anyone operating a "Bitcoin exchange" in the US will have to meet the SEC requirements for being a broker/dealer. 

Would this apply to those that exchange Bitcoin<->USD and vice versa out in the open (Satoshi Square)? I'm thinkin of starting an open exchange where I live but don't want to get in trouble for it.

well, if you make a business out of it instead of an occasional swap here and there you probably would want to cover your bases with your State and FinCEN

Nagle, these implications were understood well in advance to this 'precedent', well before FinCEN/GAO guidelines released earlier this year. I remember saying it here on this forum back in 2011, if a business is in handling and processing 3rd party USD here in States, first-most thing such business needs is to become licensed for money transmitting and money business service and fully AML compliant in every state it's going to operate. I just don't see how current case relates to or affects any of this.

Well sadly FinCEN guidance doesn't just stop at third party funds they include second party as well (but only for Bitcoin) so that was not entirely expected.

Example:  you send money to BCB by WU.
you ----> WU -----> BCB 
Obviously a Money Transmitter.

Example: you exchange USD for Euros with a currency exchanger at the airport.
USD:  You ----> Broker
EUR:  Broker ---> You
Not a Money Transmiter.  It is a MSB (dealer in foreign currency) but the rules at the state level are negligible compared to a money transmitter

Example: you exchange USD for BTC with a BTC dealer/broker (coinbase)
USD:  You ----> Coinbase
BTC:  Coinbase ----> You

Between the three scenarios, the later two have far more in common then the first one.  The last two only involve two parties (a business and its customer) while the "classic" MT example Western Union involves three parties (sender, MoneyTransmitter, receiver).  However FinCEN ruled that an exchanger of virtual currency is a money transmitter while an exchanger of real currency (under MSB regs of BSA) is NOT a MT but a different class of MSB.

This is the result of FinCEN trying to force a round peg into a square hole.