In a recent turn of events, a South Korean court has disregarded the definition of Bitcoin as money. The court said that Bitcoin is not money and hence need to be guided by a certain set of guidelines.
According to local media reports, the Seoul High Court’s Civil Division passed out a judgement that “Bitcoin is not money,” and that “interest rate rules don’t apply” to business deals involving cryptoassets. The ruling was made by the court in a case involving two firms, both of which were unnamed for legal reasons.
According to the court, it is “impossible to set interest rates when lending Bitcoin.” The court explained that “cryptocurrency is not money,” and is thus not “subject to” national “lending business laws.” Notably, the two firms signed a contract involving Bitcoin in October 2020.
The first firm, referred to as Company A, was described as a “fintech company” that works with crypto assets and the second firm, Company B, penned a deal with A that saw it borrow Bitcoin 30 for three months. According to the court hearings, Company B appears to have agreed to pay Company A Bitcoin 1.5, a sum equivalent to 5% of the total, for the first two months, and Bitcoin 0.75, a sum equivalent to 2.5% for the final month but issues arose when Company B “failed to repay the Bitcoin properly.”
At this point, sources reveal that Company A “extended the loan period to April 2021,” and “changed the interest rate to BTC 0.246 per month, a sum equivalent to an annual interest rate of 10%. Reportedly, when Company B failed to repay its creditor in accordance with the terms of the contract, Company A filed a civil lawsuit.
In its complaint, Company B claimed that Company A had “violated the Interest Limitation Act and the Loan Business Act” by setting new interest rates that were “in excess of the legal maximum.” However, a lower court refused to accept Company B’s argument, stating:
The object of this contract is cryptoassets, not money. As such, interest restriction law and the loan business laws do not apply here.
The firm challenged this and took the case to the High Court for an appeal. However, the High Court upheld the original verdict, determining that Company B should “deliver the Bitcoin the contractual interest rate.” The presiding judge said:
The statutory interest rate on debt under commercial law can only be applied when the law is violated.
Further, the judge stated that the 10% annual interest rate agreed upon by the two companies “could not be seen as a violation of the law,” due to the fact that the contract made use of Bitcoin, rather than fiat. Under South Korean law, parties are able to contest legal verdicts twice, meaning Company B could still choose to challenge the verdict at the Supreme Court which is the highest court of law.
Notably, the definition of crypto assets in South Korea has been in a grey area. While earlier this month, the prosecutors alleged that the cryptoasset LUNC is a security, previously authorities had a different stance. As some anticipate as the case would proceed more crypto assets could come under the definition of security.
Previously, the Special Financial Transactions Act, which was introduced in 2021 by the South Korean government, gave legal status to the concept of digital assets. According to the law, digital assets like Bitcoin and Ethereum will no longer be referred to as “cryptocurrencies” but rather as “Digital Assets.”
Additionally, the regulator stated that token issuers and brokers, like crypto exchanges, will be required to assess which cryptocurrencies are securities on a case-by-case basis. However, a contrary stance came in February when Financial Services Commission (FSC), stated that the digital assets that do not have an issuer, like Bitcoin (BTC) and Ethereum (ETH), will not be considered as a security.
Notably, same is the case with the United States where the two primary regulators are in feud regarding the classification of digital assets. While the securities regulator claim its jurisdiction on crypto industry, the commodities regulator have defined the sector under its authority. As the countries proceed with individual crypto regulation, there will be a lot more clarity on the topic and a standard global definition for the larger benefit.