Bitcoin as a “Commodity” and the Resulting Impact on Bankruptcy Proceedings

On August 23, 2018, Nobuaki Kobayashi, the bankruptcy and rehabilitation trustee for the estate of troubled Japanese cryptocurrency exchange MtGox Co., Ltd., opened an online “rehabilitation” claims submission process. Under this process, creditors of MtGox and users of that exchange whose Bitcoin MtGox misplaced could seek to recover their losses. The trustee subsequently made the claims process available to corporate creditors, then to transferees (claims purchasers). This followed the Tokyo District Court’s June 22, 2018, order suspending MtGox’s bankruptcy proceeding and commencing civil rehabilitation proceedings. With the June 22 shift to a civil rehabilitation proceeding, the MtGox trustee gained the ability to make distributions in Bitcoin and BCH (“Bitcoin Cash”), in lieu of paying the claims’ value in fiat currency at the time of MtGox’s bankruptcy filing—a huge victory for creditors if the trustee confirms (and the Tokyo District Court approves) such a plan. Despite the volatility of Bitcoin, the value of Bitcoin had continued to increase since MtGox filed for bankruptcy. Thus, the MtGox trustee elected to treat Bitcoin as a commodity.