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The Magic of Mt. Gox

November 27, 2017

Authors

Bryce Suzuki and Justin Sabin

The Magic of Mt. Gox

November 27, 2017

by: Bryce Suzuki and Justin Sabin

How Bitcoin Is Confounding Insolvency Law

Arthur C. Clarke famously observed: “Any sufficiently advanced technology is indistinguishable from magic.” Our regulatory, legislative, and judicial systems illustrate this principle whenever new technology exceeds the limits of our existing legal framework and collective legal imagination.  Cryptocurrency, such as bitcoin, has proven particularly “magical” in the existing framework of bankruptcy law, which has not yet determined quite what bitcoin is—a currency, an intangible asset, a commodity contract, or something else entirely.

The answer to that question matters, because capturing the value of highly-volatile cryptocurrency often determines winners and losers in bankruptcy cases where cryptocurrency is a significant asset. The recently-publicized revelation that the bankruptcy trustee of failed bitcoin exchange Mt. Gox is holding more than $1.9 billion worth of previously lost or stolen bitcoins highlights the issue.

The Mt. Gox Case:  Timing is Everything

In 2013, Mt. Gox[1] was the world’s

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Bitcoin after Brexit: Safe Haven or Harbinger of Future Distress?

July 21, 2016

Authors

Bryce Suzuki and Justin Sabin

Bitcoin after Brexit: Safe Haven or Harbinger of Future Distress?

July 21, 2016

by: Bryce Suzuki and Justin Sabin

What a difference a week can make! On June 17, 2016, bitcoin was trading at more than $750. Five days later, as polls showed the Brexit vote leaning heavily to “remain,” bitcoin dropped as low as $585. After the vote to leave the European Union became final, the British Pound, the Euro, the Chinese Yuan, and global stocks dropped precipitously. Bitcoin, on the other hand, spiked to more than $676. Could this mean bitcoin is being perceived as a new safe-haven asset?

A Brief Background on Bitcoin Generally

Bitcoin often is described as a “digital currency.” On a more technical level, bitcoin is a digital asset within a peer-to-peer computer network payment system created in 2008 by an anonymous cryptographer going by the pseudonym Satoshi Nakamoto. Because the computer network uses open-source, peer-to-peer software, no truly central authority administers and oversees transactions, and no government controls or backs the digital

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CFTC Asserts Jurisdiction over Bitcoin Trading Platform

October 1, 2015

Authors

Bryan Cave

CFTC Asserts Jurisdiction over Bitcoin Trading Platform

October 1, 2015

by: Bryan Cave

On September 17, 2015, the CFTC entered into a settlement with Coinflip, Inc. d/b/a Derivabit and Francisco Riordan. As part of the settlement with Coinflip, the CFTC entered an Order which included findings and the imposition of remedial sanctions. The CFTC found that Coinflip operated an “options trading platform that connected buyers and sellers of standardized Bitcoin options and futures contracts.” By doing so, the company had violated the Commodities Exchange Act by operating a facility for trading options or processing swaps without being registered with the CFTC as a Swap Execution Facility or a designated contract market.

Background

Coinflip advertised Derivabit as a “risk management platform . . . that connects buyers and sellers of standardized Bitcoin options and futures contracts.” Coinflip listed put and call options contracts as eligible for trading on the Derivabit platform. These contracts listed Bitcoin as the asset underlying the option and

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“Is it safe?” Banking in 2014

May 1, 2014

Authors

Bryan Cave

“Is it safe?” Banking in 2014

May 1, 2014

by: Bryan Cave

Szell:  Is it safe? Babe:  I don’t know what you mean. I can’t tell you something’s safe or not, unless I know specifically what you’re talking about. Szell:  Is it safe? Babe: Yes, it’s safe, it’s very safe, it’s so safe you wouldn’t believe it. Szell:  Is it safe? Babe:  No. It’s not safe, it’s… very dangerous, be careful.

In the 1976 movie Marathon Man, Babe (Dustin Hoffman) is held down while Nazi war criminal Szell (Laurence Olivier) drills Babe’s teeth without anesthetic, trying to learn if it is safe to sell a cache of diamonds stolen from concentration camp victims.  Babe has no idea what Szell was asking about so has no information to disclose, even under torture.

After a decade of painful regulatory examinations without anesthetic, bankers are now asking the same question from the perspective of the tortured.  Is it safe to do business again?  As in

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Should Your Bank Do Business with Bitcoin?

February 10, 2014

Authors

Bryan Cave

Should Your Bank Do Business with Bitcoin?

February 10, 2014

by: Bryan Cave

If you hear the word “Bitcoin” and roll your eyes, a glimpse into the Bitcoin economy may inspire a new respect. In Spring 2013, the Bitcoin economy topped the $1 billion mark for a time, which is more than the economy of some small countries. This is not a pyramid scheme — this is potentially a whole new way of making payments.

What is Bitcoin?

If you are not a technology guru, Bitcoin can be a difficult concept to wrap your arms around. Bitcoin is a crypto-currency designed to create a new kind of money. Bitcoin uses cryptography, or a combination of mathematical theory and computer science, to control bitcoin transactions rather than centralized authorities. Bitcoin can be traded within the Bitcoin network, or used to purchase items through online bitcoin retailers, small businesses, and even to purchase drinks in bars.

The decentralized nature of the Bitcoin network makes it

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