EU Rules Bitcoin is a Currency, US Says Bitcoin is a Commodity; Which Side is Correct? What About Gold and BitGold?
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European Court of Justice Rules Bitcoin is a Currency
Last week, the European Court of Justice ruled Bitcoin is a Currency and Exchanges are VAT-exempt.
The European Court of Justice (ECJ) has ruled that bitcoin exchange transactions should be exempt from VAT. The ECJ ruling stated that bitcoin transactions "are exempt from VAT under the provision concerning transactions relating to currency, bank notes and coins used as legal tender."US Says Bitcoin is a Commodity
The case involved a request regarding the tax status on exchange commissions and margins which came from a Swede called David Hedqvist who was looking to set up a one-man bitcoin exchange. He had approached Swedish tax authorities for an advanced decision on whether or not the exchange of bitcoin into Swedish Krona and vice versa should be considered as a VAT taxable or VAT exempt activity.
The tax authorities said Bitcoin trading should be subject to VAT, but Hedqvist thought the answer should be no, and he took it to court and eventually it reached the appeal court in Sweden. Since all VAT law flows from Europe, the appeal court passed the case on to the ECJ to decide.
There have been some limited decisions in the US involving criminal cases where bitcoin was viewed as money, for the purposes of money laundering offence. Meanwhile, the US Commodity Futures Trading Commission (CFTC) last month deemed bitcoin to be a commodity and closed down trading platform Coinflip in the process.
Commenting on the ruling, Sarah Buxton, a tax lawyer at the global law firm Bryan Cave LLP said: "The European Court of Justice, Europe's highest court, has ruled that exchanges of Bitcoin into fiat currency should be exempt from VAT under Article 135(1)(e) of the VAT Directive concerning transactions relating to currency, bank notes and coins used as legal tender.
Jens Bader, chief commercial officer of Secure Trading said the ruling had far reaching implications for Bitcoin and other cryptocurrencies, as all EU states will now have to comply with the VAT ruling.
Bader said: "Many with a vested interest in cryptocurrencies will be overjoyed by the ruling. It is easy to see why an un-regulated currency not subject to sovereign states taxes is an enticing prospect. However, it is a shame to see the ECJ cave in on this issue, and for Bitcoin not to be held to universal VAT standards.
"The question of whether or not Bitcoin should be subject to VAT is a simple one – if it is considered a currency it shouldn't be subject to VAT and if it is considered a product it should be. In my mind, Bitcoin is not a currency. It is an exchangeable product – but a product none-the-less – and for that reason I am surprised by the ECJ's ruling.
"The distinction lies in the fact that Bitcoin exchanges, and cryptocurrency exchanges like it, are not regulated and licensed financial services. While we call it a 'currency', in fact Bitcoin is a tradable commodity, like gold and silver.
In the US, the Commodity Futures Trading Commission (CFTC), ruled on September 17 that Bitcoin Is a Commodity.
Virtual money is officially a commodity, just like crude oil or wheat.CFTC Targets Bitcoin Options Site
So says the Commodity Futures Trading Commission (CFTC), which on Thursday announced it had filed and settled charges against a Bitcoin exchange for facilitating the trading of option contracts on its platform.
"In this order, the CFTC for the first time finds that Bitcoin and other virtual currencies are properly defined as commodities," according to the press release.
By this action, the CFTC asserts its authority to provide oversight of the trading of cryptocurrency futures and options, which will now be subject to the agency's regulations. In the event of wrongdoing, such as futures manipulation, the CFTC will be able to bring charges against bad actors.
On the day of the ruling the CFTC Targeted Coinflip with a cease and desist letter due to its trading of options on the commodity known as bitcoin.
On Thursday, the CFTC announced that it had issued an order against and settled charges with Coinflip, operating under the name Derivabit. The company allowed Bitcoin users to engage in options and futures trading. Most of the site was disabled in July 2014, with all customer money refunded, before the CFTC contacted the site. It was fully closed in January 2015.Bitcoin Money Laundering
"For these contracts, Coinflip listed Bitcoin as the asset underlying the option and denominated the strike and delivery prices in US Dollars," the CFTC wrote in its order.
When it suits the bureaucrat's purpose, rulings can also go the other way.
Please consider the March 30, New York Times report Inquiry of Silk Road Website Spurred Agents’ Own Illegal Acts, Officials Say.
On Monday, the government charged that in the shadows of an undercover investigation of Silk Road, a notorious black-market site, two federal agents sought to enrich themselves by exploiting the very secrecy that made the site so difficult for law enforcement officials to penetrate.Is Bitcoin Money or a Commodity?
The agents, Carl Mark Force IV, who worked for the Drug Enforcement Administration, and Shaun W. Bridges, who worked for the Secret Service, had resigned amid growing scrutiny, and on Monday they were charged with money laundering and wire fraud. Mr. Force was also charged with theft of government property and conflict of interest.
A criminal complaint unsealed on Monday in federal court in San Francisco outlined the allegations against the two former agents.
While investigating Silk Road, Mr. Force “stole and converted to his own personal use a sizable amount of Bitcoins,” the digital currency that was used by buyers and sellers on the website and which he obtained in his undercover capacity, the complaint said.
“Rather than turning those Bitcoin over to the government, Force deposited them into his own personal accounts,” it added.
If theft of bitcoin constitutes "money laundering", does that make bitcoin money, a currency, or a commodity?
More simply, is bitcoin money or a commodity?
The answer is yes to both. Money laundering charges have nothing to do with it.
What is Money?
To understand why bitcoin is both money and a commodity, we must first answer the question: What is Money?
To that, let's turn to Murray Rothbard's classic: What Has Government Done to Our Money?
Here are seven pertinent Rothbard quotes with thanks to Wikiquote. Pay particular attention to number 2.
- The cumulative development of a medium of exchange on the free market — is the only way money can become established. … government is powerless to create money for the economy; it can only be developed by the processes of the free market.
- Money is a commodity … not a useless token only good for exchanging; … It differs from other commodities in being demanded mainly as a medium of exchange.
- It doesn't matter what the supply of money is.
- Inflation may be defined as any increase in the economy's supply of money not consisting of an increase in the stock of the money metal.
- Money … is the nerve center of the economic system. If, therefore, the state is able to gain unquestioned control over the unit of all accounts, the state will then be in a position to dominate the entire economic system, and the whole society.
- Inflation, being a fraudulent invasion of property, could not take place on the free market.
- Freedom can run a monetary system as superbly as it runs the rest of the economy. Contrary to many writers, there is nothing special about money that requires extensive governmental dictation.
Money is a Commodity
For those who have not done so, I highly recommend downloading and reading the Rothbard's eBook What Has Government Done to Our Money?
The key point is number two: "Money is a commodity. It differs from other commodities in being demanded mainly as a medium of exchange."
Bitcoin is clearly a commodity whose primary purpose is a medium of exchange.
Bitcoin depends on a blockchain ledger to validate all transactions. Bitcoin Wiki has a nice description of the BlockChain Technology.
What About Gold and BitGold?
BitGold has nothing to do with Bitcoin. The names just happen to be similar. Bitcoin is a digital currency, backed by nothing, whereas BitGold is 100% backed with audited, real physical gold.
BitGold does not depend on blockchain. Instead, BitGold users can tie their account to a debit card and purchase nearly anything, anywhere, as long as the merchant accepts a debit card.
Given that gold can once again easily be used to purchase nearly anything, it is difficult if not impossible to say that gold is no longer a "medium of exchange".
And if BitGold is money, there is no longer any basis for the often heard phrase "gold is not money".
Some believe gold ceased to be money following President Nixon's Closing of the Gold Window (See Nixon Shock).
The only possible debate about whether or not gold is money pertains to the phrase "demanded mainly as a medium of exchange".
BitGold, GoldMoney
For those who are fed up with currencies backed by nothing, as well as those who want to avoid huge markups on gold coins and gold bullion purchased in small quantities elsewhere, I highly recommend opening up BitGold or GoldMoney accounts.
Disclosure
As I have noted before, I have a relationship with both GoldMoney and BitGold.
Storage fees at GoldMoney are the lowest in the industry. I get a tiny percent of the tiny storage fees collected. There is no difference to the account holder.
At BitGold, I get a small signup fee, and again that comes out of BitGold's pocket, not the account holder.
I do not enter relationships to collect fees. I turn down such offers all the time.
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Mike "Mish" Shedlock
EU Rules Bitcoin is a Currency, US Says Bitcoin is a Commodity; Which Side is Correct? What About Gold and BitGold?
Posted by Michael Shedlock at 1:46 PM
