In a landmark ruling, a South Korean court has determined that Bitcoin (BTC) is not classified as money, and thus, the interest rate rules do not apply to business transactions in the nation involving cryptocurrencies. The judgment was made by the Seoul High Court’s Civil Division in a case involving two firms, both of which were not named due to legal reasons.
The companies referred to as Company A and Company B, had entered into a contract in October 2020. Company A, a fintech firm that operates with crypto assets, loaned 30 BTC to Company B for a period of three months.
As per the agreement, Company B was to pay an interest of 1.5 BTC (5% of the total) for the first two months and 0.75 BTC (2.5% of the total) for the final month. However, when Company B failed to repay the Bitcoin as agreed, Company A extended the loan period to April 2021 and changed the interest rate to 10% annually, which was to be paid in Bitcoin.
Company B challenged this new arrangement, arguing that Company A had violated the Interest Limitation Act and the Loan Business Act by setting new interest rates that exceeded the legal maximum. However, both a lower court and the High Court dismissed this argument. The courts held that the contract involved crypto assets, not money, so the interest restriction law and loan business laws did not apply. As such, the High Court determined that Company B should deliver the Bitcoin as per the contractual interest rate.
The presiding judge stated that the statutory interest rate on debt under commercial law could only be applied when the law is violated. The 10% annual interest rate agreed upon by the two companies could not be viewed as a violation of the law, given that the contract was in BTC rather than in fiat currency.
According to South Korean law, parties could contest legal verdicts twice, meaning that Company B could still choose to challenge the verdict at the Supreme Court, the country’s highest court. This ruling sets an important precedent for future cases involving cryptocurrencies in South Korea, as it clearly establishes that Bitcoin and similar assets are not considered money under the law and are not subject to the country’s lending business laws.
