Justice Without Law: Legal Status of Cryptocurrency in a Bankruptcy Case

Abstract

Cryptocurrency is a brand new civil law object and its legal framework is in a formative stage. As of early December 2018, no federal law regulating activities with crypto-currencies is enacted in Russia. Nevertheless, cryptocurrency issues have already appeared in court cases, in particular in connection with defense of creditors’ rights. An emblematic case in this respect is the recent personal bankruptcy trial of Ilia Tsarkov, which was held at the Moscow Arbitrazh Court. The bankruptcy trustee requested to include the bitcoins in possession of the debtor in the bankruptcy estate. The debtor objected to this, his key argument being that legal relations concerning cryptocurrencies (or bitcoins) were not regulated by Russian legislation and even the concept itself was not mentioned in any statute; thus bitcoins could not be legally treated as property. However, the second-instance court agreed with the trustee’s arguments and annulled the first-instance court ruling. The main argument was that, if principles of the Russian civil law were applied properly, then bitcoins should be treated as “other property”. In addition, the use of the first-instance court’s arguments opens the door for infringement of property rights of creditors. The first-instance court’s ruling is an obvious illustration of dominant textualism in Russian judiciary. The appellate court’s decision, on the other hand, demonstrates that said textualism could be overcome by judiciary actions at least in some circumstances such as defense of creditors’ rights. The treatment of cryptocurrency as “other property” by the court is in general agreement with the conception of the Ministry of Finance’s draft law “On digital financial assets”.