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Court officially declares Bitcoin a real currency

Published time: August 08, 2013 15:54
Edited time: August 09, 2013 15:17
Image from flickr.com user@zcopley

Image from flickr.com user@zcopley

A federal judge has for the first time ruled that Bitcoin is a legitimate currency, opening up the possibility for the digital crypto-cash to soon be regulated by governmental overseers.

United States Magistrate Judge Amos Mazzant for the Eastern District of Texas ruled Tuesday that the US Securities and Exchange Commission can proceed with a lawsuit against the operator of a Bitcoin-based hedge fund because, despite existing only on the digital realm, “Bitcoin is a currency or form of money.”

Trendon Shavers of Bitcoin Savings & Trust (BTCST) was accused last year of scamming customers out of roughly $4.5 million worth of the cryptocurrency through his online hedge-fund. Shavers promised investors a weekly return of 7 percent, according to the federal complaint, but shut-down his site after collecting upwards of 700,000 bitcoins. When the SEC charged Shavers last month with operating a Ponzi scheme, he fought back by saying Bitcoin is not actual currency and can’t be regulated.

The SEC asserts that Shavers made a number of misrepresentations to investors regarding the nature of the investments and that he defrauded investors. However, the question currently before the Court is whether the BTCST investments in this case are securities as defined by Federal Securities Laws,” Judge Mazzant wrote this week. “Shavers argues that the BTCST investments are not securities because Bitcoin is not money, and is not part of anything regulated by the United States. Shavers also contends that his transactions were all Bitcoin transactions and that no money ever exchanged hands. The SEC argues that the BTCST investments are both investment contracts and notes, and, thus, are securities.”

Despite Shavers’ argument, Mazzant weighed in this week with an opinion that’s not only quite the contrary, but could have widespread repercussions in the world of Bitcoin.

It is clear that Bitcoin can be used as money,” Mazzant wrote. “It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the US dollar, Euro, Yen and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.”

Bitcoin investments "meet the definition of investment contract, and as such, are securities,” the judge added.

Now with the magistrate’s blessing, the SEC can continue with its case against Shavers and his site. With that same ruling, though, the government is for now getting the go ahead for what could lead to the rampant regulation of Bitcoin.

The ruling, while certainly a victory for the Commission, is also likely to have farther-reaching ramifications as federal regulators increasingly encounter investment fraud based on non-traditional investment vehicles,” securities and business law attorney Jordan Maglich wrote in a Forbes op-ed this week.

The case is notable in several aspects. First, it is the first known enforcement action predicated on a Bitcoin-based investment scheme, and comes at a time when US and foreign governments are devoting increasing scrutiny to the unregulated nature of the Bitcoin currency structure. In addition to these issues, the case may also have deeper ramifications going forward. Indeed, the case comes as federal regulators are increasingly tasked with policing non-traditional investments that share few characteristics with traditional investment vehicles such as stocks and notes,” Maglich wrote.

Even if this week’s ruling is a landmark decision with regards to Bitcoin, it certainly isn’t the first time as of late Uncle Sam intervened in the digital marketplace. In May, the US Department of Homeland Security seized a payment processing account Tuesday belonging to the largest international Bitcoin trader, claiming the monetary exchange service falsified financial documents.


Comments (18)

 

Abinico Warez 27.10.2013 22:07

Le Ruscino, you are either a loon, or a bitcoin shill. To say bitcoin is less fake than USD or other fiat currencies is just plain stupid and/or delusional. Learn from the past; bitcoin is the tulip craze of the 1600's coming back and proving greed is still alive and healthy. And try buying some real tangible assets with bitcoin, like gold or land. Good luck.

 

Arturo Torres Sánchez 11.08.2013 17:16

BIG-ONE5 10.08.2013 06:24

I wouldn't put my money in Bite coin. Yes they Bite you, when you lose 1,000.00 and they refuse to pay the loss. In other words is NOT a Government guaranteed tender.

  

You clearly don't understand how Bitcoin really works.
First of all, who's “they”? Bitcoin is NOT a bank. Since Bitcoin is decentralized, nobody owns it. So, all the money you got is yours, and the responsibility for not losing them is also yours. So don't blame an imaginary institution for your loss.
Second, Bitcoin has value because of the encryption algorithms it uses. Math is also valuable.

 

BIG-ONE5 10.08.2013 06:24

Why bother. I wouldn't put my money in Bite coin. Yes they Bite you, when you lose 1,000.00 and they refuse to pay the loss. In other words is NOT a Government guaranteed tender. You could use beans. there are countries that use rocks. As long as they have a value they are currencies. Securities , notes, they there because a value given . But will the world change it's currency to it? Doubt it. It will have a value against Euro,Dollar,Pound,Ru ble. Depending where you use it, will change in value or volume. Money orders are the same.

View all comments (18)
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