Bitcoin Prediction: Death by Tort Lawyer

The Bitcoin price correction most of us expected seems to be occurring 

BTC crashy

So what is next for Bitcoin?  I predict death by lawyer.  In modern America, no one loses this much value this fast without calling an attorney, because such losses can't possibly be due to one's own poor decision-making (e.g. buying an illiquid currency after a 5x runup in its price), it must be due to GETTING HOSED.  I am not a securities attorney, but my guess is that someone will argue Bitcoin was not a currency but a digital commodity and that commodity trading laws were not followed.  Or something like that.  The CFTC, which left MF Global customers hang out to dry, will launch a simultaneous investigation to gain pub for themselves and support the civil suit.  Because it will be a much higher priority for this Administration to kill an incipient competitive currency than to go after a major Obama bundler.

Anyway, the main entertainment value will be to see if there is actually someone who can be sued, given the dispersed nature of the Bitcoin network.  But expect people to try.  I would even bet we see the suit in days -- "entrepreneurial" tort houses probably have already drafted the paperwork and gotten some schlub to buy 1 bitcoin so he can be lead plaintiff (preferably in a hand-picked jurisdiction) in the class action and are just waiting for the bubble to burst to file.

  • August Hurtel

    Well, this would be a way to prove the system can survive. The thing is though, how many transactions are actually going on here? How many people really getting hosed? The price often tanks, but in no small part the price tanks because it is so hard to transact in bitcoin. There just isn't enough volume, so it isn't very liquid, and then some punks (possibly USG punks) go and ddos the main exchanges. I don't think the real run up in bitcoin is going to happen unless we see the government try to smash it and fail.

  • http://devilish-details.blogspot.com/ mesaeconoguy
  • http://profiles.google.com/maruadventurer john mcginnis

    The observation is worth note. Yes somebody will want to sue. But there are a few problems looking for a tort --

    * Sue who? As it is currently structured no one offers securities advise for or against BTC. It operates on an exchange just like any currency desk on the planet.

    * Those that are acting as brokers, operate on an exchange and take no position in the BTC market.

    * There are plenty of examples of stocks that have cratered as fast as BTC has done in the last 24hrs. eg Enron. -- http://jrfibonacci.files.wordpress.com/2011/11/enron-stock-chart-source-bloomberg.jpg

  • BGThree

    Who would such a plaintiff sue? The internet? The software code? There is no person or company to sue here. This is sort of the whole point of Bitcoin. I'm sure the full force of the US government could drive it further underground but can't kill it. Actually, the best way to kill it would be for the US government to keep buying it up slowly and then periodically dumping it all at once to absolutely crush everyone who bought on the parabolic upswings.

    It is absolutely the Wild West in that market though. Way too easy for people with modest amounts of capital to manipulate the hell out of it. Are hedge funds using margin to generate wild volatility they can trade in front of yet?

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    You sue the operators of the exchanges.

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    Yes, and the Enron executives were both sued in civil court and tried on criminal charges. A number of the Enron Execs went to prison.

    If someone sues a Bit Coin exchange operator on the grounds that they were running a commodity exchange rather than a currency exchange and the commodity trading laws weren't followed, anyone operating a Bit Coin exchange could find themselves facing federal criminal charges.

  • morganovich

    mt gox is in japan. good luck with that.

    though, honestly, they may deserve to me sued.

    a couple weeks ago, mt gox was approving over 10k new accounts a day. that number has now slowed to a crawl of under 1k. as they control somehting like 80% of the market, that's a helluva liquidity sluice to control.

    it would not surprise me to learn that they (or the insiders their using their own accounts) were selling into the surge and now have shut off liquidity inflows to trigger just this sort of drop, will buy their position back, open the sluices again, and let the currency rage once more.

    this is what happens when you put sheep (retail and tech folks) in the pen with wolves (actual professional traders). urp. lamb chops.

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    If they are offering accouts to US citizens inside the US, this is likely enough for both civil court jurisdiction AND US Federal criminal jurisdiction if the SEC decides it is a commodity exchange and operating contrary to US commodity trading rules. No idea if the Japenese gov would grant extradition though.

  • morganovich

    that's what i mean. no way you could win in a Japanese court and no way you can make mt gox come here.

    this is why they strong armed the swiss banks using local branches and nasty withholding until you prove your ID for us trades, not in courts, ditto all the mbs stuff.

    and how could anyone call this a commodity exchange? what's the commodity? commodities have things like a delivery date. there is nothing like that here. it's a currency. currency exchange is the wild west. it's barely regulated at all (and i used to be a currency trader, so i know).

    i am dubios that anyone would even bother to bring a suit, but if they do, i just do not see it going anywhere.