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Author Topic: Are Bitcoins Securities Under U.S. Law?  (Read 5812 times)
is4tomj
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February 06, 2012, 03:39:47 PM
 #1

Hi, below is a link to a blog post on whether bitcoins are considered securities in the U.S.  As part of the analysis, this post also determines if bitcoin is considered money or currency under U.S. law.

http://blog.bitcointitan.com/post/16995504313/are-bitcoins-securities-under-u-s-law

I am happy to have discussions either on this forum or on my blog.

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February 06, 2012, 05:41:01 PM
 #2

I read your blog post and it seems what you have argued makes sense.  It seems like by the letter of the law (U.S. law) bitcoin is not a currency.  You also argued that bitcoin is not an investment contract.

To me it seems like if bitcoin is not a currency, and if it's not security (investment contract), then is bitcoin then a commodity?  Seems like you didn't mention anything about commodities, probably for some unmentioned reason.  In The Good Wife the lawyers also argued that bitcoin was a commodity.

I think bitcoin is like gold.  There is no "issuer".  Work needs to be done to "mine" for bitcoins.  Work needs to be done to "mine" for gold.  There is a limited supply of bitcoins and gold.

The value of gold goes up and down.  The value of bitcoins go up and down.  Some people choose to use gold, bitcoins, or both as an investment.

Surely, gold is not a security, nor is it a currency that is issued by a country.  Since bitcoin is so much like gold I have to conclude that bitcoin is a commodity.



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February 06, 2012, 05:51:37 PM
 #3

It's a reification http://www.thefreedictionary.com/reification so like the term God, we can make it whatever we want it to be. You can be Bitcoin Agnostic if you want, but if we all speak the language of Bitcoin then it's real enough. Bitcoin is really more of a religion that pays back whatever you put into it.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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February 06, 2012, 06:20:16 PM
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It's a reification http://www.thefreedictionary.com/reification so like the term God, we can make it whatever we want it to be. You can be Bitcoin Agnostic if you want, but if we all speak the language of Bitcoin then it's real enough. Bitcoin is really more of a religion that pays back whatever you put into it.

I think I read somewhere on this forum that bitcoin is an intrinsic property of the Internet.  As an analogy, Bitcoin is an elemental property of the Internet that was born similarly when elements where born out of the Big Bang.  It had to come into existence.  Sounds like sci-fi, but for real.

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is4tomj
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February 06, 2012, 06:42:25 PM
 #5

I read your blog post and it seems what you have argued makes sense.  It seems like by the letter of the law (U.S. law) bitcoin is not a currency.  You also argued that bitcoin is not an investment contract.

To me it seems like if bitcoin is not a currency, and if it's not security (investment contract), then is bitcoin then a commodity?  

You bring up a great point, I only argued what bitcoin is not.  I will focus my next post on what bitcoin is.  I do not know the legal definition of "commodity" off the top of my head, but I will find out and let you know.

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February 07, 2012, 01:44:02 PM
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With European authorities, I asking them to confirm that bitcoins can be treated as "digital gold", i.e just like gold for tax purposes.
My experience tells me to never ask an administration an open question. Grin

The argument I am making is that bitcoins cannot be treated as a security nor as a currency since there is no issuer.

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February 07, 2012, 03:13:39 PM
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With European authorities, I asking them to confirm that bitcoins can be treated as "digital gold",

Watching. And, in the absence of a classification, I've been thinking of reporting them as (digital) "goods" on my taxes.


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matonis
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February 07, 2012, 03:50:55 PM
 #8

I read your blog post and it seems what you have argued makes sense.  It seems like by the letter of the law (U.S. law) bitcoin is not a currency.  You also argued that bitcoin is not an investment contract.

To me it seems like if bitcoin is not a currency, and if it's not security (investment contract), then is bitcoin then a commodity?  

You bring up a great point, I only argued what bitcoin is not.  I will focus my next post on what bitcoin is.  I do not know the legal definition of "commodity" off the top of my head, but I will find out and let you know.

You have also stated in your last paragraph that bitcoin can most certainly be regulated:
"The U.S. may also regulate other bitcoin organizations, e.g. banks and exchanges, through the Bank Secrecy Act and Anti-Money Laundering act and other securities laws.  Even though bitcoins are not securities, trading bitcoins, or other bitcoin instruments, are still regulated by the U.S."

This is just not true. Maybe for a fund like www.ultimafund.com because that enters into SEC, but a fixed-rate exchange not holding any customer funds is decidedly not subject to any U.S. regulation. Because, if so, that would be like regulating the sale of air guitars or a QR code or self-created RPOWs that contain an embedded image of my dog urinating.

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I also cover the bitcoin economy for Forbes, American Banker, PaymentsSource, and CoinDesk.
lonelyminer (Peter Šurda)
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February 07, 2012, 04:52:55 PM
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To me it seems like if bitcoin is not a currency, and if it's not security (investment contract), then is bitcoin then a commodity?
A lawyer argues here: http://www.ferner-alsdorf.de/2011/06/bitcoins-wahrung-oder-ware/wettbewerbsrecht/strafrecht/rechtsanwalt/verkehrsrecht/ that Bitcoin is a commodity according to German law.
matonis
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February 07, 2012, 05:10:46 PM
 #10

To me it seems like if bitcoin is not a currency, and if it's not security (investment contract), then is bitcoin then a commodity?
A lawyer argues here: http://www.ferner-alsdorf.de/2011/06/bitcoins-wahrung-oder-ware/wettbewerbsrecht/strafrecht/rechtsanwalt/verkehrsrecht/ that Bitcoin is a commodity according to German law.

Thanks for that reference. I went and read the English version. Isn't everything a commodity, really?
I will believe bitcoin is a currency when the State accepts it for payment of my speeding tickets.

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February 07, 2012, 05:13:53 PM
 #11

To me it seems like if bitcoin is not a currency, and if it's not security (investment contract), then is bitcoin then a commodity?
A lawyer argues here: http://www.ferner-alsdorf.de/2011/06/bitcoins-wahrung-oder-ware/wettbewerbsrecht/strafrecht/rechtsanwalt/verkehrsrecht/ that Bitcoin is a commodity according to German law.
I think of commodities as things that can be put into buckets, currencies that can be put into pockets, and contracts that can be put into file folders. If you were to memorize a private key and then destroy it, it becomes only a thought which can only be expressed. Therefor Bitcoin is speech.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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February 07, 2012, 05:25:10 PM
 #12

To me it seems like if bitcoin is not a currency, and if it's not security (investment contract), then is bitcoin then a commodity?
A lawyer argues here: http://www.ferner-alsdorf.de/2011/06/bitcoins-wahrung-oder-ware/wettbewerbsrecht/strafrecht/rechtsanwalt/verkehrsrecht/ that Bitcoin is a commodity according to German law.
I think of commodities as things that can be put into buckets, currencies that can be put into pockets, and contracts that can be put into file folders. If you were to memorize a private key and then destroy it, it becomes only a thought which can only be expressed. Therefor Bitcoin is speech.

In theory, a small scale account ledger can be created between 3 people which could be memorized.  There could only be three "thought coins" and the 3 people in the system could memorize who owns which coins.

Bitcoin just scales this thought experiment up massively, but it it just requires computers to memorize who owns how many bitcoins.

Edit: How would one argue the bitcoin account ledger is different from a bank account ledger?  Is the bank account ledger also speech?  I am thinking probably not.

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February 07, 2012, 08:18:24 PM
 #13

You have also stated in your last paragraph that bitcoin can most certainly be regulated:
"The U.S. may also regulate other bitcoin organizations, e.g. banks and exchanges, through the Bank Secrecy Act and Anti-Money Laundering act and other securities laws.  Even though bitcoins are not securities, trading bitcoins, or other bitcoin instruments, are still regulated by the U.S."

This is just not true. Maybe for a fund like www.ultimafund.com because that enters into SEC, but a fixed-rate exchange not holding any customer funds is decidedly not subject to any U.S. regulation. Because, if so, that would be like regulating the sale of air guitars or a QR code or self-created RPOWs that contain an embedded image of my dog urinating.

Thank you for your comment, but I am confused by the thesis, "This is just not true," and the following sentence.  From that second sentence it is apparent that you agree that there is some regulation that the U.S. may impose on bitcoin-related organizations.

I do agree that regulation is limited relative to the regulation that would apply if bitcoin was a security, e.g., "Can the U.S. Regulate Bitcoin Brokers? (parts 1 and 2)" (http://blog.bitcointitan.com/post/16271054719/can-the-us-regulate-bitcoin-brokers). Clearly, however, there is regulation.  Thus, my thesis, "The U.S. may also regulate other bitcoin organizations" is correct.  Determining what the limits to regulation are will be the subject of many more papers.

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February 08, 2012, 05:18:12 PM
 #14

I love how people argue about how to classify fictional abstractions. It's no wonder that credit default swaps and othe junk bonds are taken seriously. I nominate Bernake as Pope of the Church of American Capitalism. At least then we'll have more crazy holidays like Mardi Gras. =p

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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February 08, 2012, 06:11:48 PM
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You have also stated in your last paragraph that bitcoin can most certainly be regulated:
"The U.S. may also regulate other bitcoin organizations, e.g. banks and exchanges, through the Bank Secrecy Act and Anti-Money Laundering act and other securities laws.  Even though bitcoins are not securities, trading bitcoins, or other bitcoin instruments, are still regulated by the U.S."

This is just not true. Maybe for a fund like www.ultimafund.com because that enters into SEC, but a fixed-rate exchange not holding any customer funds is decidedly not subject to any U.S. regulation. Because, if so, that would be like regulating the sale of air guitars or a QR code or self-created RPOWs that contain an embedded image of my dog urinating.

Thank you for your comment, but I am confused by the thesis, "This is just not true," and the following sentence.  From that second sentence it is apparent that you agree that there is some regulation that the U.S. may impose on bitcoin-related organizations.

I do agree that regulation is limited relative to the regulation that would apply if bitcoin was a security, e.g., "Can the U.S. Regulate Bitcoin Brokers? (parts 1 and 2)" (http://blog.bitcointitan.com/post/16271054719/can-the-us-regulate-bitcoin-brokers). Clearly, however, there is regulation.  Thus, my thesis, "The U.S. may also regulate other bitcoin organizations" is correct.  Determining what the limits to regulation are will be the subject of many more papers.

The U.S. may regulate any entity that they see fit to regulate (look how laws were tweaked to get e-gold). I am talking about the current state of affairs, not what will happen in the future.  No one knows and that's why it is best to select a jurisdiction with some reasonableness and predictability.

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February 09, 2012, 03:51:51 AM
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For those subject to US taxes CA attorney Bill Rounds has written a 34 page guide on BitCoins and Taxes with about 60 legal footnotes that is an objective analysis of how to treat bitcoins for US tax purposes. Bottom line is bitcoins do not fit nicely and neatly in any current legal box.

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February 09, 2012, 11:11:25 PM
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For those subject to US taxes CA attorney Bill Rounds has written a 34 page guide on BitCoins and Taxes with about 60 legal footnotes that is an objective analysis of how to treat bitcoins for US tax purposes. Bottom line is bitcoins do not fit nicely and neatly in any current legal box.
Thanks for the tip, will download.
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February 15, 2012, 12:29:15 PM
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For those subject to US taxes CA attorney Bill Rounds has written a 34 page guide on BitCoins and Taxes with about 60 legal footnotes that is an objective analysis of how to treat bitcoins for US tax purposes. Bottom line is bitcoins do not fit nicely and neatly in any current legal box.
So I bought it and read it. My assessment is that he goes more into breadth than depth. Unlike the other documents I read, he argues that it is unclear how to classify Bitcoin for tax purposes. Which might be a reasonable point, because classification for regulatory vs. tax purposes might well be different. Instead, he lists all the approaches he considers plausible (and one that he considers implausible), describes what their consequences are and gives assorted tips on implementing them. It's more a practical guide than a theoretical discourse. Both of these points (breadth instead of depth, practical instead of theoretical) are valid so it can't be said it's a disadvantage. He covers some areas which I didn't think about before at all or insufficiently, for example gifts or deductibility of losses.

Altogether it's well researched. I only have minor auxiliary objections: it's US-centric, the order with Bitcoins didn't work correctly (and they did not respond to my complaints), and the formatting of the amazon kindle edition is crap. It provides a solid base for people interested in Bitcoin and therefore I recommend it.
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February 20, 2012, 03:45:21 PM
 #19

To me it seems like if bitcoin is not a currency, and if it's not security (investment contract), then is bitcoin then a commodity?  Seems like you didn't mention anything about commodities, probably for some unmentioned reason.  In The Good Wife the lawyers also argued that bitcoin was a commodity.

Bitcoin is a commodity under U.S. law. I have posted the legal analysis and included a discussion on U.S. regulations of commodities on my blog.

http://blog.bitcointitan.com/post/17789738826/what-u-s-regulations-apply-to-bitcoins-as-commodities

http://BitcoinTitan.com - Visualizations of the Bitcoin Markets and Exchanges
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February 20, 2012, 04:56:12 PM
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To me it seems like if bitcoin is not a currency, and if it's not security (investment contract), then is bitcoin then a commodity?  Seems like you didn't mention anything about commodities, probably for some unmentioned reason.  In The Good Wife the lawyers also argued that bitcoin was a commodity.

Bitcoin is a commodity under U.S. law. I have posted the legal analysis and included a discussion on U.S. regulations of commodities on my blog.

http://blog.bitcointitan.com/post/17789738826/what-u-s-regulations-apply-to-bitcoins-as-commodities


Please cite an opinion which states this holding. In the alternative cite a statutory source which resolves the ambiguity by mentioning Bitcoin by name.
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