It seems that despite its roller coaster persona, bitcoin is here to stay. Bitcoin is a form of digital or virtual currency, also known as a cryptocurrency, which is created and held electronically.
Bitcoin or digital currencies have an equivalent value in fiat currency government-issued money, such as dollars and eurosand can act as a substitute for fiat currency in order to carry out a transaction without the use of a third-party intermediary, such as a government or central bank, and typically without the fees associated with traditional fiat money transactions.
Instead of a paper dollar issued by a central bank, bitcoin is a digitized unit of value used etsy gift card bitcoin stock price electronic payments based on a complex mathematical system. Satoshi Nakomoto, the elusive founder of bitcoin, etsy gift card bitcoin stock price a bitcoin protocol, which will only allow for 21 million bitcoin to ever be in existence, not dissimilar from the now abandoned gold standard. Under the gold standard, countries agreed to etsy gift card bitcoin stock price paper money into a fixed amount of gold.
However, unlike paper money, bitcoins can be divided into parts, with the smallest divisible unit being millionth of a bitcoin. Traditionally, currency has been backed by precious metals such as gold or silver. Bitcoin, by contrast, is backed by mathematics. This poses the question — how exactly is bitcoin valued if there is no tangible currency and it is not backed by anything of intrinsic value?
Many bitcoin enthusiasts believe that the bitcoin value is derived from two sources: The more places people can use bitcoin, the more functional the cryptocurrency becomes, and thus the more bitcoin people want to have at hand.
Penny and Whole Foods started accepting bitcoin as a form of payment, either directly or through gift cards purchased with bitcoin. It is no secret that the price of bitcoin has been volatile. Yet, that has not seemed to slow the trading of bitcoin on various exchanges. One exchange, Coindesk, publishes a constant Bitcoin Price Index that considers the weighted average price of bitcoin at exchanges that meet certain objective requirements, including criteria such as minimum volume of trade.
Even the New York Stock Exchange can no longer ignore bitcoin. Hundreds, if not thousands, of merchants, including many here in the United States, now accept bitcoin as a form of payment. These services claim to eliminate the volatility risk by maintaining consistent exchange rates based on an objective value presented by various exchanges.
For example, Coinbase advertises: Commodity Futures Trading Commissionthe U. Department of the Treasury and the IRS consider bitcoin to be property and subject to capital gains taxes. FinCEN requires money transmitters to be registered and implement etsy gift card bitcoin stock price and anti-money laundering procedures. In addition to federal regulatory guidance and requirements, almost all states regulate money transmitters, and many of those state money transmitters regulatory requirements have been updated to include money transmitters that deal in cryptocurrency.
For example, the state of New York recently adapted their money transmitter statutes to provide for cryptocurrencies, allowing for the receipt of digital currencies by merchants but requiring regulatory compliance for businesses selling to consumers. The use of cryptocurrencies is increasing at a staggering pace.
These developments demonstrate that cryptocurrency use in the housing market could start to gain traction. As cryptocurrency use becomes mainstream, its use as a form of payment and storage as an asset will increase across industries and among companies.
In fact, it is already being used in our own profession as attorneys. The Nebraska opinion, based on the Nebraska Rules of Professional Conduct, acknowledged that the valuation of bitcoin, and its volatility, was an important consideration in allowing an attorney to etsy gift card bitcoin stock price payment. The conversion rate would be market-based, such as from an exchange or based upon the New York Stock Exchange Price Index, for example. In this way, the bitcoins would serve to credit the client's account and there would be no risk to the client of value fluctuation.
Bankruptcy courts will have to determine how such cryptocurrencies should be valued for bankruptcy purposes. To date, there is little guidance in bankruptcy case law as to how bitcoin and other cybercurrencies should be valued. In an unpublished decision, the U. The bigger issue for bankruptcy courts will be addressing the value of bitcoin over the course of a bankruptcy case, given the highly volatile nature of bitcoin value, which can fluctuate substantially in a short period of time etsy gift card bitcoin stock price over the course of one day.
This uncertainty etsy gift card bitcoin stock price to the future value of bitcoin could impact bankruptcy cases in a couple of ways. One area that may be impacted by the fluctuating value of bitcoin is the determination of whether a lender is adequately protected when bitcoin is collateral for the loan.
As noted above, bitcoin is beginning to be used in finance transactions. As collateral for a loan in bankruptcy, the value of the bitcoin etsy gift card bitcoin stock price the bankruptcy case will be important in determining whether the creditor is adequately protected. Even if the secured creditor is oversecured at the etsy gift card bitcoin stock price of filing, a sharp drop in the value of the bitcoin could result in the creditor becoming undersecured over the course of the case.
However, if bitcoin is the primary collateral for the loan, the bankruptcy court may be required to determine whether the lender is adequately protected based upon the value of such bitcoin. However, such protections may not be enough to protect the lender if the bitcoin value drops precipitously. Another concern in relying on bitcoin value is the danger that such bitcoin could be stolen. Bitcoin has shown itself to be vulnerable to cybertheft. Inone of the largest bitcoin exchanges, Mt.
Gox, was forced to suspend trading and file for bankruptcy in Japan as a result of the theft ofbitcoins. Unlike cash, there is no federal insurance to protect against the theft of bitcoin. To the extent that a debtor possesses a substantial amount of bitcoin, such bitcoin may be the primary way that creditors are paid through a bankruptcy case.
Accordingly, the value of the bitcoin at the time of exchange will greatly affect the return to creditors. To the extent that bitcoin values are rising, it may be in the best interest of creditors to delay the liquidation of bitcoin in hopes of a higher value. Some of the issues related to the value of bitcoin in payment of creditors arose in the Japanese bankruptcy case of Mt.
At the time of its bankruptcy filing inMt. Gox possessed approximatelybitcoins. Since the bankruptcy was filed, the value of bitcoin has skyrocketed such that the bitcoin currently in the possession of Mt. Accordingly, creditors of Mt. Gox have benefited as the value of bitcoin has risen sharply over the last three years. Interestingly, the trustee administering Mt. Gox shows the effect that the volatile value of bitcoin may have in a bankruptcy case.
However, creditors etsy gift card bitcoin stock price prefer that the liquidation be delayed if the value of bitcoin is on the rise. However, if bitcoin is being liquidated to make payments to creditors pursuant to a Chapter 11 plan, such plan could etsy gift card bitcoin stock price terms that allow for a delayed liquidation of bitcoin and distribution to creditors to account for future value increases.
However, such a plan that proposes for liquidation of bitcoin on a future date would have to be balanced against the risk that the value of bitcoin could drop. The uncertainty and volatility of bitcoin value will require bankruptcy courts and other parties in a bankruptcy case to etsy gift card bitcoin stock price up with creative solutions to ensure that the debtor and etsy gift card bitcoin stock price creditors are protected against a loss in value, while at the same time maximizing the benefit to creditors as the value of bitcoin continues to rise.
The opinions expressed are those of the author s and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
This article originally appeared on Law on March 13, Home Insights and Events Bitcoin: A New, Volatile Asset in Bankruptcy. Bitcoin Valuation Outside of Bankruptcy Traditionally, currency has been backed by precious metals such as gold or silver.
Regulation Hundreds, if not thousands, of merchants, including many here in the United States, now accept bitcoin as a form of payment. Why Does Bitcoin Matter for Bankruptcy The use of cryptocurrencies is increasing at a staggering pace. Valuing Bitcoin in Bankruptcy To date, there is little guidance in bankruptcy case law as to how bitcoin and other cybercurrencies should be valued. Bitcoin as Loan Collateral One area that may be impacted by the fluctuating value of bitcoin is the determination of whether a lender is adequately protected when bitcoin is collateral for the loan.
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