Sorry bitcoiners, the US court system doesn’t think your digital currency is real money.
At least, Miami-Dade circuit court judge Teresa Mary Pooler doesn’t. Yesterday (July 25), Pooler handed down a verdict in the first money-laundering case in the US to involve bitcoin, a virtual currency not controlled by any country or central bank.
The case centers on Michell Espinoza, who was caught selling $1,500 in bitcoin to undercover detectives at the end of 2013. The cops told Espinoza they wanted to use the bitcoin to purchase stolen credit-card numbers and, when he complied, charged him with money-laundering. In her ruling this week, Pooler dismissed the charges, saying bitcoin is not “tangible wealth” and “cannot be hidden under a mattress like cash and gold bars.”
The verdict underscores confusion around bitcoin’s status within the US legal system. While the cryptocurrency has a ways to go before it’s seen as a mainstream financial instrument, JPMorgan, Goldman Sachs, the Depository Trust & Clearing Corporation and even regulators are increasingly interested in using bitcoin and its underlying technology, blockchain, to revamp financial services. Already, government agencies that include the Internal Revenue Service, FinCen, and the New York Department of Financial Services have started regulatory efforts. But without legal clarity surrounding bitcoin, it will be exceedingly difficult to crack down on illicit activity.
“This is the first ruling that I know of that bitcoin is not considered currency,” says Rene Palomino, Espinoza’s lawyer.
The IRS has in the past ruled that bitcoin is a commodity, similar to personal property, and Pooler’s verdict seems to agree with that idea—in her decision, she writes that she was “unwilling to punish a man for selling his property to another.” Pooler also says bitcoin has some, but not all, of the properties of money: While some merchants accept bitcoin, it still isn’t commonly used as a method of exchange, and isn’t a stable store of value because of its volatility and uncertain future.
“The Florida Legislature may choose to adopt statutes regulating virtual currency in the future,” Pooler wrote. “At this time, however, attempting to fit the sale of Bitcoin into a statutory scheme regulating money services business is like fitting a square peg in a round hole.”