A court in South Korea has ruled that a legal limit on interest rates does not apply to Bitcoin or other cryptocurrencies because they are not considered to be “money,” local media reported on Wednesday.
The Seoul Central District Court ruled last month in favor of Bitcoin managing firm A in a first trial, where A filed a civil suit against firm B claiming Bitcoin that B owes. The actual names of the companies involved in the case were not revealed.
In October 2020, the plaintiff company and firm B signed an agreement where A lent B 30 Bitcoins (currently worth US$604,320) to be returned in six months with monthly interest payments.
A filed the lawsuit after the company in debt did not render the borrowed cryptocurrencies after the agreed settlement date. A and B had agreed on a monthly interest of 5%, which converts into an annual interest rate of 60%.
However, B claimed that A violated the Interest Limitation Act and the Act on Registration of Credit Business and Protection of Finance Users, which restrict the loan interest to an annual rate of 24%.
The judiciary decided that the current law does not apply in the agreement between A and B — “[The two acts] limit the highest rate of interest on money loans, but in this case the subject of the agreement is Bitcoin, not money.”
The court ordered company B to either return the Bitcoin or the amount of money converted based on the Bitcoin market price at the end of the hearing.
The court decision follows increasing movement among South Korean authorities to classify and regulate cryptocurrencies.
In the ongoing investigation of the collapse of South Korea-born Terra-LUNA crypto project, local prosecutors issued an arrest warrant last month on Terra founder and chief Do Kwon on the basis that Luna cryptocurrency is an investment security.
This claim, which is one of the first occasions where a local authority labeled crypto a security, makes Do Kwon and his company, Terraform Labs, in violation of the capital markets law, being an unregistered service of financial contracts.
Following the arrest warrant, Lee Bok-hyun, governor of South Korea’s Financial Supervisory Service (FSS), said at a press conference that certain cryptocurrencies can be viewed as securities.
Meanwhile, the country is preparing a new regulatory framework for cryptocurrency named the “Digital Asset Basic Act,” which aims to define and institutionalize cryptocurrencies into two categories: security and non-security tokens.