Bitcoin and Bankruptcy: Implications for Canadian Insolvency Law

I. Introduction

In 2009, a modest investment of US$1.00 could have purchased 1,309.03 bitcoins. In 2017, that same investment would have been worth over US$25 million. How is it that a technological fiction with no inherent value can be worth so much? That mystery has sent shockwaves throughout the global economy, especially over the past year.

Cryptocurrencies have gained considerable momentum in Canada and may ultimately mature into a mainstream asset class. Accordingly, policymakers ought to consider the implications of Bitcoin and other cryptocurrencies on the Canadian insolvency regime. There is no Canadian jurisprudence or guiding principles dealing directly with cryptocurrencies. However, this paper examines recent American case law, and highlights some of the key issues relevant to insolvency law in Canada.

This paper is structured as follows: Part II provides an overview of Bitcoin; Part III deals with the legal characterization of Bitcoin; Part IV examines two leading cases from the United States of America (the “U.S.”); Part V discusses the key issues that Bitcoin raises for Canadian insolvency law; Part VI considers policy recommendations; and Part VII concludes.