Can crypto be security?
In Tulip Trading v Bitcoin Association for BSV,[1] the High Court considered whether to order security in the form of digital assets such as Bitcoin.
Background
The Court was asked to determine various consequential issues following a decision that the defendants were entitled to security for costs for the claimant’s applications on jurisdiction. The claimant had no available cash and no bank account. However, it proposed to provide security by transferring the required amount, plus a 10% “buffer” or margin, to be held by its solicitors.
Decision
Rejecting the claimant’s submissions, the Court refused to order security in the form of the digital assets offered, namely Bitcoin Satoshi Vision or Bitcoin Core.
This would have exposed the defendants to a risk which they would not otherwise be exposed to with usual forms of security, such as payment into the Court or a first-class guarantee. The risk was that the security could become effectively valueless due to a fall in the value of Bitcoin. Furthermore, proposals by the claimant that it could include a “top-up” mechanism in the event of a fall did not fully mitigate this risk.
Comment
The Court considered Bitcoin in this instance. However, there is still some uncertainty as to whether other digital assets, such as stablecoins, might be capable of forming the basis of security for costs.
1 [2022] EWHC 141 (Ch).
By Brian Perrot
brian.perrott@hfw.com
