Bitcoins and Securities Law

Some publicity has been given to a recent Texas judgment that held that Bitcoins were a form of money, and thus a scheme by which investors hoped to increase their holdings of bitcoins was subject to securities regulations.

Is there any doubt that a similar holding would be made in Canada?

It was not necessary to find that bitcoins were a form of money in order for the investment to be a security. I recall from law school days securities that promised gains from chinchillas, for example.

The holding that bitcoins were money was needed in that particular case because the definition of ‘investment contract’ in the US federal securities law required an investment of money (in a common enterprise with an expectation of profit – the common enterprise does not need to involve money as its object). The Ontario Securities Act defines ‘security’ to include ‘any investment contract’ but does not say what an investment contract is. Case law explains it.

Presumably any investment of anything of value would qualify under our law. Whatever the investors in the Texas scheme put in, it had value to them. Having a two-step process (first, get bitcoins; second, transfer bitcoins to the provider of the investment opportunity) does not keep the investment from being one of value, and in the eyes of the Texas court, from being one involving money – since bitcoins are exchangeable for several world currencies.

The case is not a useful precedent for finding that bitcoins are subject to banking or currency regulation laws. Perhaps they are, or perhaps legislative change would be needed to make them so.

Has there been any serious legal or policy attention, or market attention, directed at bitcoins in Canada?

P.S. Probably the Texas court was not favourably impressed by the fact that the defendant, Bitcoin Savings and Trust, had previously operated as First Pirate Savings & Trust. Somehow that corporate history seems likely to get one’s case off on the wrong foot, especially an investor protection case.


  1. Nice article!

    There are some other Bitcoin U.S. Government actions that you may be interested in. I co-authored an article about it. William B. Fleming and Joseph Evans, Bitcoiners in the Courtroom, Part I: Government Oversight, Ford. Corp. L. Forum (Aug. 20, 2013).