Pub. 9 2018 Issue 4

Winter 2018 11 West Virginia Banker While these methods of perfection are likely the best practic- es at this time, the method of perfecting a security interest in cryptocurrency is by no means settled law. This is primarily because courts and lawyers continue to struggle with the fundamental question: What exactly is cryptocurrency? In the Hashfast Technologies, LLC v. Lowe case, the Bankrupt- cy Court for the Northern District of California was asked to determine whether cryptocurrency was “currency” or a “com- modity.” The difference in classification could have resulted in an approximately $1,000,000 swing in what the creditor would be forced to turn over if the liquidating trustee was successful in a preferential transfer action. Unfortunately for us (and probably fortunately for the creditor), the only finding the court made was the obvious and safe conclusion that “bitcoin are not United States dollars.” The court reserved decision on the ultimate valuation question, but the case was dismissed by agreement, rendering the issue moot. Some- times settlement really is the best outcome! The Hashfast Liquidating Trustee’s argument, that crypto- currency is a commodity, was based, in part, on a position expressed by the Commodity Futures Trading Commission (CFTC) that cryptocurrency is subject to regulation under the Commodities Exchange Act (CEA), like wheat, cotton, rice and corn. At least one court has since agreed with the Hashfast Liquidating Trustee and CFTC position. In March 2018, the U.S. District Court for the Eastern District of New York ruled in CFTC v. McDonnell that cryptocurrency can be regulated as a commodity under the CEA. Together, the Hashfast and McDonnell cases could lead to the conclusion that cryptocurrency has more in common with corn than it does with the U.S. dollar, even though cryptocurrency is accepted as the equivalent of currency throughout the world, making cryptocurrency a difficult asset to classify. Clearly, the story will continue to develop on cryptocurren- cies. Until the day when there is more certainty, lenders should not give up on a possible source of security, but should make sure that any loan agreements covering cryp- tocurrency are well-drafted and any security interests are properly created and perfected.  T H E F I N A N C I A L I N S T I T U T I O N E X P E R T S 248.548.8400 www.m-f-a.com Investment Portfolio Management · Asset Liability Management Merger Valuations · Mortgage Servicing Rights Valuation · Strategic Consulting Are you focused on Profitability? Cal l us to learn how our Portfol io Management and Asset Liabi l ity Management services can help you. About the author: Michael Proctor is an attorney with Bowles Rice whodivideshispracticebetweenrepresenting lenders inallaspects of their loan portfolios and commercial litigation. He is based in the firm’s Southpointe, Pennsylvania office and is admitted to practice inWest Virginia, Pennsylvania andOhio. He can be reached at (724) 514-8934 or by e-mail at mproctor@bowlesrice.com.