A judge in Florida ruled in a money-laundering case this week that bitcoin is not a currency — but experts aren’t so sure.
Miami-Dade Circuit Judge Teresa Mary Pooler dismissed charges Monday against a Florida man charged with illegally transmitting and laundering $1,500 in bitcoin.
He couldn’t launder or illegally transmit any money, Pooler said, because bitcoin doesn’t qualify as a currency. The reason, she elaborated, is that it does not have tangible, real-world value.
Instead, bitcoin is property, the ruling said.
The electronic currency was created in 2009 and has grown exponentially in popularity since then. The digital currency first found popularity on the dark web (most notably the Silk Road marketplace) as a way to exchange goods without the introduction of national currencies.
Bitcoin eventually found some popularity for legitimate online transactions and its value surged at a few points in 2015. Now hovering around $655 per bitcoin, there is now around $10.2 billion worth of the cryptocurrency in existence, according to bitcoin monitoring firm Kaiko.
As the currency has become more widely used, courts and citizens have been confronting difficult legal questions around just what a bitcoin is.
Some experts don’t agree with the Florida judge’s reasoning behind labeling the cryptocurrency as property.
“The decision said bitcoin is not an object with tangible value. That’s clearly wrong,” said David Yermack, chair of the finance department at the New York University Stern School of Business, where he teaches the course “Bitcoin and Cryptocurrencies.”
“The larger question of whether it’s a currency is a very abstract and philosophical one.”
“They definitely are a tangible asset with value. The larger question of whether it’s a currency is a very abstract and philosophical one,” Yermack said.
To qualify as a currency, bitcoin would have to meet a few specific standards generally only met by state-issued money. Pooler outlined the qualifications Bitcoin doesn’t meet in her decision: That it is not commonly enough used and not accepted by all merchants, that its value fluctuates and that it does not have a central reserve backing it up.
“They are certainly not tangible wealth and cannot be hidden under a mattress like cash and gold bars,” the judge wrote.
But any state judge tasked with deciding the future of bitcoin faces an uphill battle, said Michael Meredith, a Seattle-based complex litigation attorney who co-authored the paper “Rethinking Virtual Currency Regulation in the Bitcoin Age.”
Without cohesive guidelines at the federal level, deciding cases like these is difficult for state judges, Meredith said. Most state-level judges likely don’t encounter cases involving bitcoin or electronic payments too often, if ever.
Pooler even acknowledged that hurdle in her decision:
“The court is not an expert in economics,” she wrote. “However, it is very clear, even to someone with limited knowledge in the area, the bitcoin has a long way to go before it is the equivalent of money.”
Still, this decision puts Florida in line with Kansas and Texas, the only other states where officials have made some sort of ruling on bitcoin. In both states, regulators said bitcoin would not be counted as currency when it comes to the states’ money transmitter laws.
Generally, the IRS treats bitcoin like property, the SEC treats bitcoin like an investment and the U.S. Commodity Futures Trading Commission treats it like a commodity.
“It’s good news for bitcoin businesses, because they can rely on states having similar rulings,” Meredith said.
Bitcoin advocates in Florida cheered the decision, too, according to the Miami Herald. Although it might seem counterintuitive for bitcoin’s staunchest supporters to want to keep the payment system from becoming an official currency, bitcoin would face a slew of new regulations if it were to be declared a currency.
The decision that Bitcoin isn’t a currency won’t be legally binding outside of Florida, Yermack pointed out, making its direct implications small. But in a country where the official rulings surrounding Bitcoin are few — unlike Brazil and Germany, which fully recognized Bitcoin, and other countries that have outright banned it — any ruling provides some insight for future decisions.
The Florida man who started this whole case drew the attention of authorities when he sold bitcoin to undercover detectives who said they would use the funds to buy stolen credit cards.
Luckily for him, Florida thinks he only traded property — like laundering “money” through valuable works of art or rare bottles of wine, Yermack explained.
That’s enough to get his charges dismissed — and enough to maintain the bitcoin status quo for now.
At least until, as Pooler suggested in her ruling, Florida gives a “much needed update” to its laws around money laundering.