Bitcoin Financing: UCC, Regulatory and Hedging Concerns

An encore presentation

Recording of a 90-minute CLE webinar


Conducted on Wednesday, August 8, 2018

Recorded event now available

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Program Materials

This CLE webinar will analyze legal challenges to financing bitcoin, for both bank and non-bank lenders. The panel will also discuss the underlying blockchain architecture for transferring bitcoin and other cryptocurrencies, and the issues to address when perfecting a UCC security interest in those currencies.

Description

As bitcoin and other cryptocurrencies continue to become an investment asset, so does the demand for financing from holders seeking to monetize unrealized gains without incurring tax liability and to magnify investment returns. But, finance counsel should understand the regulatory and logistical barriers to making loans secured by cryptocurrency.

The CFTC has determined that bitcoin is a commodity. When the borrower is a retail customer, it is difficult for non-bank lenders to comply with the Commodity Exchange Act (CEA), as illustrated by recent CFTC proceedings against BFXNA Inc., an operator of an online cryptocurrency platform. Loans by banks to retail customers secured by bitcoin should be structured so they fall under the “identified banking product” exception.

There are UCC perfection issues as well. Bitcoin uses cryptographic digital signatures to verify that transactions are valid and to transfer ownership. Theoretically, a lender should obtain its own private key or signature distinct from the borrower’s, but this presents issues as to whether a secured transaction or outright transfer has occurred.

The CBOE recently began trading bitcoin futures, so lenders can now hedge against downward movement in bitcoin prices. No such ability currently exists for other cryptocurrencies, and the price of hedging bitcoin could be very high given its extreme volatility.

Listen as our authoritative panel examines the issues to resolve and understand in financing bitcoin and other cryptocurrencies. The discussion will include CEA compliance, perfection under the UCC and how to hedge against price movement.

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Outline

  1. Reasons for financing bitcoin—tax advantages, buying on margin
  2. Bitcoin as a commodity—regulation by the CFTC
  3. Providing Financing to Retail Borrowers
  4. Use of Proceeds—purchasing Bitcoin v. purchasing other assets
  5. Obtaining a UCC security interest on the blockchain
  6. Hedging against price movement—bitcoin and other currencies

Benefits

The panel will review these and other key issues:

  • How does the categorization of bitcoin as a commodity impact its financeability?
  • What are some of the issues with perfecting a UCC security interest within a blockchain?
  • How might lenders hedge against price fluctuations for bitcoin and other cryptocurrencies?
  • How should a lender document a loan secured by bitcoin?

This is an encore presentation.

Faculty

Frankle, Matthew
Matthew Frankle

Shareholder
Greenberg Traurig

Mr. Frankle focuses his practice on secured lending transactions with an emphasis on loans secured by equity collateral...  |  Read More

Grishman, Alexander
Alexander T. Grishman

Partner
Haynes and Boone

Mr. Grishman focuses his practice on commercial and corporate finance transactions, including the representation of...  |  Read More

Helman, Andrew
Andrew C. Helman

Partner
Murray Plumb & Murray

Mr. Helman is a business, work-out, and restructuring attorney and works with all types of businesses, including those...  |  Read More

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