Ashlyn Robinson Offers Insight on Securing Loans with Cryptocurrency in Article for LegalTechNews
March 25, 2019 – TAMPA, FL – In an article published on March 21, 2019 for LegalTechNews, Ashlyn Robinson unpacks the recent shift to digitalized assets and the important factors lenders should consider when dealing with collateral in the form of cryptocurrency.
As cryptocurrency becomes more of a commodity, it presents a challenge when attempting to classify it in any of the existing categories under Article 9 of the Uniform Commercial Code regulating secured transactions. While various courts have handed down different definitions of cryptocurrency, it must be classified based on how the borrower is using the collateral.
“The way in which a borrower is using the cryptocurrency will influence whether it is categorized as a currency, a commodity or a security, which in turn will determine which Article 9 classification we use,” Robinson said.
The three ways collateral can be classified are as follows:
- General intangible – If the cryptocurrency is considered a general intangible, perfecting a security interest in the collateral occurs by filing a UCC-1 financing statement.
- Money – Perfection of security interests classified as money occur through possession of the collateral itself.
- Investment Property – If being used as a security, cryptocurrency can be classified as investment property, at which point the lender would need to look to Article 8 for guidance on perfecting interest.
Though it is possible to use cryptocurrency as collateral, “Cryptocurrencies are volatile as there are currently no regulations and few court opinions guiding the classification, sale, purchase, and investing of cryptocurrencies,” Ashlyn explained. “If you are a lender seeking to use cryptocurrencies as collateral, be vigilant and think hard about whether you want your loan secured by a digital token that cannot be seen or touched and can be easily hidden.”
This article also published in the April 1 print edition of Daily Business Review, which subscribers can access here on page A8