In another important cryptocurrency case, the German Court of Appeal has refuted an over-extension of power by a government regulatory agency. The case concerned the legal classification of the bitcoin cryptocurrency, where BaFin (Germany’s Financial Services Authority) was chastened for exceeding its constitutional competence.
Crypto libertarians will no doubt rejoice at a court ruling where the legal arm of the nation restrains executive authorities from overstepping their boundaries. Not only are these kinds of case becoming exceedingly rare, but the wording of this ruling was very strong and clear. BaFin had sought to establish bitcoin as a unit of account, putting cryptocurrencies under its ambit as per the German Banking Act. However, the court concluded that –
“By extending the concept of the unit of account to Bitcoin, BaFin essentially..violates the principle of legal certainty stipulated in Article 103 (2) of the German Constitution. It is not the task of federal authorities to intervene in laws in a legislative manner”.
This is indeed not the purpose of government bodies, who are to act like cogs in a machine and enforce the law, not to reinterpret it to suit their needs. BaFin may be forced to re-evaluate its classification of bitcoin as a unit of account. The court further analyzed the nature of bitcoin, and decided that it had no intrinsic value, but only what value the network participants attributed to it –
“Bitcoin has no representable or comparable value of its own. It is not a currency nor a means of payment which is accepted by law. Bitcoin is merely a means of payment accepted by certain economic participants. The value of Bitcoin, therefore, depends mainly on how the users of the network assign value to it. ”
Regulatory status of bitcoin in the USA
The regulatory status of cryptocurrencies varies by region. In the USA, the courts seem content to accept whatever proposition the regulatory authorities place in front of them. Cryptocurrencies can be deemed a currency (FinCEN), commodity (CFTC), security (SEC), or property (IRS), each governed by different agencies. The SEC has taken the incentive and is prosecuting fraudulent ICO owners, while the German court ruled that this would be unconstitutional in Germany. In terms of bitcoin, SEC chair Jay Clayton has publicly indicated that bitcoin is not a security, but most other small-cap coins could be.
Lawmakers have not yet passed any definitive laws on cryptocurrency, meaning that the government agencies are arguably exceeding their positions. Legally, there is no definition of cryptocurrencies as a commodity, security, property, or currency, yet people are still going to jail based on subjective interpretation by government agencies. Most independent court cases seem to have decided that cryptocurrencies are commodities, including rulings from Federal judges. However, case law is very thin at present, with differing opinions. It’s fair to say that the regulatory status of cryptocurrencies is still uncertain, and not just in the USA.