Federal Judge Declares Bitcoin a Currency 425
tlhIngan writes "An East Texas federal judge has concluded that Bitcoin is a currency that can be regulated under American Law. The conclusion came during the trial of Trendon Shavers, who is accused of running the Bitcoin Savings and Trust (BTCST) as a Ponzi scheme. Shavers had argued that since the transactions were all done in Bitcoins, no money changed hands and thus the SEC has no jurisdiction. The judge found that since Bitcoins may be used to purchase goods and services, and more importantly, can be converted to conventional currencies, it is a form of currency (PDF) and investors wishing to invest in the BTCST provided an investment of money, and thus the SEC may regulate such business."
Re:Obligitory Reagan quote... (Score:5, Insightful)
Of course, much better to live and die by the sword... err... Caveat emptor principles?
While there are areas where regulations are silly, this (atleast on the face of it) doesn't seem to be one of those. The accused was running a ponzi scheme. The fact that the currency could be exchanged for real cash puts it in the SEC's realm.
Not quite the right conclusion... (Score:5, Insightful)
Bitcoin is a currency that can be regulated under American Law
Well, yes. When has the government ever ruled that it lacks the power to regulate something?
The motivation behind Bitcoin wasn't to create a currency that government would choose not to regulate; it was to create one that government could not regulate.
Re:Is everything currency, then? (Score:2, Insightful)
The government gets to make more subtle judgements than you claim to recognize. Usually we discover this as we grow up. Sometimes not, however.
Re:Is everything currency, then? (Score:0, Insightful)
While the grandparent post does contain an insult (and a rather childish one at that), it is not an ad hominem, because the insult is an aside to the argument, not the argument itself.
"Ad hominem" is not Latin for "hey, that's mean!"
Re:Sex (Score:5, Insightful)
Yup, it fits. Sex is now under regulation of the SEC.
I'm sorry, but no. Any person receiving bitcoins can sell them for dollars. That does not hold true for sex.
Re:Obligitory Reagan quote... (Score:3, Insightful)
Which incidentally is the proper method of operation. Government exists to maintain homeostasis of the population. Safety nets prevent complete failures and taxes limit hoarding of success. That's why we only tax a businesses profits, to encourage them to spend more of their revenues and push cash into the economy. No business is overtaxed, because a business that pays any taxes at all is doing it wrong. If your business is going to owe money on April 15th then you need to lower your profits to the ideal 0-point.
In business, all money earned should be spent by the end of the year. If you need long term cash to buy an asset, then get a loan and repay it next year with money that would otherwise be profits. It's like everyone forgot how fast-money capitalism works, Jesus I miss the 80's.
How to fail in court (Score:5, Insightful)
From the tippy-top of the bitcoin.org [bitcoin.org] website:
Bitcoin is an innovative payment network and a new kind of money.
Now, IANAL, but I suspect walking into court with an argument that bitcoin isn't a new kind of money when its creators clearly and demonstrably assert that it is a new kind of money is likely to fail pretty hard.
And yes, I'm well aware of the of the distinction between money and currency. Gold bugs, sufferers [ronpaul.com] of Fed derangement syndrome and others spend a lot of time proselytizing about this stuff. The thing is that the SEC and the courts don't, which is why no one has ever succeeded in evading financial laws by attacking the legitimacy of fiat money.
At least not without an army.
Re:SEC has lost (Score:5, Insightful)
Re:Not legal tender. Therefore, not a currency. (Score:2, Insightful)
Euros are not legal tender in the USA; but they are currency. If I have Euros and want to buy something in the USA, the merchant will usually refuse them.
Gold and silver are listed on the currency exchanges even though they are not issued by a government. They are both commodities *and* currencies.
BTC is arguably more of a currency than gold or silver. Unlike metal, it's useful only as a medium of exchange.
Re:Is everything currency, then? (Score:5, Insightful)
You barter with the intrinsic value of the items. If you need boots and can offer a hat or dinners for them, you do that because you need boots to walk in, and the guy with the boots needs to eat or needs to cover his head.
Currency is a representation of value as an abstract. It's useful because it lets us set prices without having to negotiate barter, or more importantly, to have to produce and carry around things that we believe we could barter.
However, because currency does not have an intrinsic value by itself, it can be manipulated and used in certain ways that are not naturally regulated. In that sense, currency needs some sort of regulation. I don't know how much, and I think it should be as little as required, but I can accept that it may need a lot.
Bitcoin may be backed by some sort of store of abstract value, but it has no intrinsic value on its own. There is nothing you can do with a Bitcoin other than use it to buy something else. In that sense, it is a currency and is nothing like barter.
Re:Is everything currency, then? (Score:2, Insightful)
"I can barter my services for goods or other services. Trade one item for another. So, effectively, then this ruling would seem to imply everything is currency, and thus subject to SEC regulation in the States."
United States Constitution, Article 1, Section 10:
"No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; ..."
While the Federal government has the Constitutional power to coin money, it does not have the power to declare anything it wants to be money. Everything has value. That doesn't mean everything can be regulated as money.
People have argued that Article 1, Section 10 applies only to States. And that may be true, but it doesn't matter. If a State may not accept (or force anyone to accept) anything but gold and silver as payment, then gold and silver are in practice the only Constitutional form of money.
A logical corollary to that, then, is that paper dollars are not a Constitutional form of money.
Re:Currency? (Score:5, Insightful)
Shesh.. Not even close on this..
In this case the judge is saying that even though the investors used BitCoin, the activities of the investment where essentially the same as investing dollars so the argument that BitCoin isn't a currency didn't apply. If it walks like a duck, quacks like a duck, acts like a duck and looks like a duck, it's a DUCK.
So.. Even if you make somebody trade in some kind of voucher to invest in your scheme, if you live in the US and are operating in a way that looks the same as something the SEC regulates, you are subject to the regulations.
So the judge is NOT saying BitCoin is a currency, but that the guy was operating an investment scheme that was illegal and is not shielded from the SEC because he used BitCoins.
fantasy (Score:4, Insightful)
Was there really anyone who believed that bitcoin was somehow going to exist outside of the ability of any government to regulate it?
That belief reminds me of the "sovereign citizens" who believe that some obscure 19th century district judge's decision puts them outside of the federal and state government's ability to prosecute them for any crimes.
Re:Is everything currency, then? (Score:4, Insightful)
The value of gold and silver isn't because of any intrinsic values they have besides rarity. (Yes, I know there are industrial uses of them, but that's not the driving force behind their price.) Good currency similarly also has a limited supply.
Re:Is everything currency, then? (Score:5, Insightful)
*facepalm*
Given Article 1 Section 10 starts with "No state" and follows with a list of prohibited items... there isn't much of an argument.
You are also ignoring Article 1 Section 8 which says (regarding the powers of congress):
So no, gold and silver aren't the only constitutional forms of currency, congress alone has the authority to print (fiat) money as they see fit. If states wish to create their own, then it must have an actual recognized value (ie precious metal) rather than be fiat currency.
Re:Is everything currency, then? (Score:2, Insightful)
However, because currency does not have an intrinsic value by itself, it can be manipulated and used in certain ways that are not naturally regulated. In that sense, currency needs some sort of regulation. I don't know how much, and I think it should be as little as required, but I can accept that it may need a lot.
Oh, so woefully backwards. Nutria who said "Unless the currency is backed by something tangible and rare" also has it quite backwards.
Money naturally evolved as a good, just like any other. It has the same price mechanism as any other good, that is - whatever somebody is willing to pay for it. Money is just a good which a lot of people happen to want because a lot of other people also want it. So you get gold, silver, salt, etc., naturally used as money. You know if you take a bit of gold for your hat, you can give that bit of gold to someone else for a dinner. That is literally all there is to it..... until the government steps in, of course.
All government serves to do is usurp the currency. They notice that everybody uses gold coins as currency. So they start making diluted gold coins and trying to pass them off as worth as much as the original. People aren't stupid so they stop accepting government-minted coins, or treat them at their lower value, as appropriate - same as anyone would do with privately-minted coins of a lower quality. However, the government has the advantage of being able to make the laws. So they make it illegal to mint coins, and also make it illegal not to treat any government coin as having the value it says it does. This is an early form of inflation. What ends up happening is that 'bad money drives out the good' - people hoard the high-quality coins and just use the lower-quality ones, which makes sense... but anyway, all this serves to do is to funnel money in a gradual fashion towards those people closest to the government - the ones who get to use the lower-value as if it has higher-value, first.
What makes this all a lot easier and less obvious is if you can just use pieces of paper to represent the gold coins, and then just print more pieces of paper. Then it's really not that obvious what's going on. Note there's nothing inherently wrong with using pieces of paper instead of gold. That can happen without inflation. The theft of the wealth of the country occurs when paper is printed that has no backing & is then forced to be taken as having value.
Of *course* at *that* point you need to regulate the "currency", because it's only propped up artificially by the force of the government anyway.
The more I learn about this stuff the sadder I get.
Re:Not quite the right conclusion... (Score:5, Insightful)
What pisses me off, of course, is not this ruling, as I said, its a local/state problem at best, and already taken care of by the majority of states, but that it was held up as the first time in 40 years that the commerce clause had struck ANYTHING down.
I mean seriously, this clause has been extended to apply to a farmer who would rather grow his own feed (apparently "not participating in the market" is a market activity and still subject to regulation) than buy it.... using it at all to strike down anything at this point is the height of ridiculousness.
This case is Wickard v. Filburn, 317 U.S. 111 (1942) for those who are interested. Old farmer Filburn was charged with growing too much wheat. He argued that the federal government had no jurisdiction to regulate wheat he grew on his own farm for his own consumption. The Supreme Court held that by growing and eating his own wheat, he was failing to buy wheat in interstate commerce like a good little subject. The next time the Supreme Court struck down a federal statute under the Commerce Clause was United States v. Lopez, 514 U.S. 549 (1995), where the Court struck down the Federal Gun-Free School Zones Act. This was a big victory for Justice Rhenquist, who was on a quest to reign in the Commerce Clause. However, his successor, Justice Roberts, although considered a pariah and arch-conservative by the Left, has shown less will to do so. Notably, in his Obamacare decision, he gave a nod to the commerce clause, but then blasted a big old hole in the Constitution by saying basically that Congress could do anything they wanted to as long as they pretended it was a tax.
Re:Obligitory Reagan quote... (Score:0, Insightful)
Under an all-republican congress with a veto-proof majority. The last thing you'd ever call a Clinton is a fool.
Re:Obligitory Reagan quote... (Score:5, Insightful)
The ideal zero point neglects that it takes capital to run a business. "Profit" is nothing more than the people who helped fund a business (the stockholders) getting a return on their investment, a return without which they'd not have bought stock and made the business possible.
Re:Is everything currency, then? (Score:5, Insightful)
A one to one exchange of goods/services with intrinsic value is called bartering. Currency is anything used as a token to simplify trading where more than one exchange would be required to get the goods what you want. Something durable and hard to obtain such as gold is ideal for those tokens. Problem with that scheme is the economy now has an artificial growth boundary defined by the supply of gold. Of course when politicians start firing missiles at each other people will be drawn to the "safe haven" of gold, but the fact is currently "the market" sees US treasury bonds as "safer than gold".
I don't think ... (Score:5, Insightful)
Making Bitcoin subject to SEC regulations is a whole other issue, with additional requirements. The SEC regulates (most*) securities and imposes requirements such as registration and transaction reporting. This is far beyond the sort of regulation applied to money. When was the last time you had to report the serial numbers on all the currency you held?
So, which is it? A currency, subject to income reporting rules? Or a security, under the SEC's authority? IANAL, so I'd really like some enlightened input on what is being decided here.
*Derivatives and commodity contracts are subject to CFTC regulation.
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Re: Currency? (Score:3, Insightful)
You are not reading the same court opinion that we are.
The court (correctly) ruled that because BTC can be freely exchanged to other currencies, it is currency. (Well, duh.)
The judge also ruled that because the "investment" that was offered involved money, it is a securities note - hence the SEC has jurisdiction.
Future Bernie Madoffs should take notice: BitCoins are not a "get out of jail, free" card.
Re:Obligitory Reagan quote... (Score:4, Insightful)
Peace, Tolerance, Humility.
Re:Obligitory Reagan quote... (Score:2, Insightful)
Ironically the Fed looks like a giant Ponzi scheme from here. Arguably Bitcoin is less of a ponzi than USD.