A recent decision by a South Korean court states that Bitcoin is not considered money, and therefore, the usual interest rate rules do not apply to transactions involving cryptocurrencies. According to Hanguk Kyungjae, the ruling was issued by the Civil Division of the Seoul High Court in a case involving two undisclosed firms.
The court determined that setting interest rates for Bitcoin loans is not feasible since cryptocurrency does not qualify as money and is not governed by the lending business laws of the country. The court heard that Company A, described as a fintech company specializing in crypto assets, entered into an agreement with Company B, under which Company B borrowed 30 BTC for a period of three months.
Company B agreed to pay Company A a total of 1.5 BTC, which is equivalent to 5% of the total, for the first two months, and 0.75 BTC, equivalent to 2.5%, for the final month. However, problems arose when Company B failed to repay the borrowed Bitcoin as agreed upon. In response, Company A extended the loan period until April 2021 and modified the interest rate to 0.246 BTC per month, which is equivalent to an annual interest rate of 10%. Despite these adjustments, Company B still failed to meet its repayment obligations according to the contract, prompting Company A to file a civil lawsuit.
The Significance of the South Korean Court’s Decision on Bitcoin’s Non-Monetary Status
Company B alleged that Company A had violated the Interest Limitation Act and the Loan Business Act by imposing interest rates that exceeded the legal maximum. However, a lower court rejected Company B’s claim and stated that the contract involved crypto assets, not money. Therefore, the court concluded that the interest restriction law and loan business laws were not applicable in this case.
Disputing the lower court’s decision, the firm appealed the case to the High Court. However, the High Court affirmed the original ruling and concluded that Company B must fulfill its obligation to deliver the Bitcoin based on the contractual interest rate. The judge overseeing the case stated that the statutory interest rate on debt in commercial law can only be enforced when there is a violation of the law.
However, the judge clarified that the 10% annual interest rate agreed upon by the two companies did not violate the law since the contract involved BTC instead of fiat currency. According to South Korean law, parties have the option to contest legal rulings twice, so Company B still has the possibility to challenge the verdict at the Supreme Court, the highest judicial body in the country. In a separate development, the trial of a Terraform Labs founder recently commenced, and prosecutors have claimed that the crypto asset LUNC should be classified as a security. If the prosecution is successful, it could set a legal precedent that may categorize other coins as securities as well.