Bitcoin is not money: South Korean court

A South Korean court judged that Bitcoin, the world’s leading virtual currency, is not money and therefore the cryptocurrency is not subject to domestic laws that limit borrowing costs.

The Seoul Central District Court ruled in favor of a local virtual asset fintech company that sought interest payments from a Bitcoin borrower through a civil suit, according to legal sources on Wednesday.

The plaintiff signed a deal to lend 30 Bitcoins to the defendant for six months from October 2020 and take an interest of 1.5 Bitcoins, or 5% of the principal, every month in the first three months, and 0.75 Bitcoin per month, or 2.5% of a monthly interest rate, after that. But the defendant failed to pay the interest and the fintech firm lowered the borrowing cost to 0.2466 Bitcoin a month. The defendant could not make the payment.

It argued the plaintiff violated laws that cap interest rates on all loans at 24% per annum as the annual interest rates were calculated at 60% for the first three months and 30% for the next three months. The defendant said interest payments that exceeded the legal maximum rate must be regarded as a repayment of the principal.

BITCOIN, PROPERTY SIMILAR TO INVESTMENT SECURITIES

The court, however, did not accept the defendant’s claim, ruling that Bitcoin is not money.

“The interest Limitation Act and the Act on Registration of Credit Business and Protection of Finance Users limit the highest interest rate on money loans, but those acts do not apply to this case as the subject of the contract is Bitcoin, not money,” said the court in a ruling on Sept. 30.

The court ordered the defendant to pay 0.2466 Bitcoin every month to the plaintiff until the principal is repaid.

If the defendant cannot make the Bitcoin payment, it must pay 26.5 million won ($18,840.1) per Bitcoin, a converted value based on the market price at the end of the hearing in July 2021, the court said, indicating it judged Bitcoin as property similar to investment securities.

The court order comes as South Korea has already taken measures to classify and regulate cryptocurrencies.

Last month, another Seoul court issued an arrest warrant to Do Kwon, co-founder of Terraform Labs, a cryptocurrency ecosystem that imploded earlier this year, on the basis that the company’s Terra and Luna coins are a type of investment security.

Write to Hyun-Ah Oh at 5hyun@hankyung.com
Jongwoo Cheon edited this article.