SINGAPORE - Singapore's first legal dispute involving the cryptocurrency bitcoin is headed for trial at the Singapore International Commercial Court (SICC).
At issue are trade proceeds, whose value has swelled from US$3.78 million (S$5 million) to potentially over US$30 million, thanks to bitcoin's meteoric surge past US$11,000 levels in recent days.
Electronic market maker B2C2 sued bitcoin exchange operator Quoine in May over trades that were allegedly wrongfully reversed, which resulted in the proceeds being deducted.
In a summary judgment hearing on Tuesday (Dec 5), B2C2 sought to recover 3,084.78582325 bitcoins from Quoine, alleging Quoine's breach of trust "deprived it of the opportunity to sell the proceeds on the date of their highest intermediate value".
But SICC International Judge Simon Thorley on Tuesday declined to grant summary judgment. The case was directed for trial, at which point it will be determined whether B2C2, if it prevails, is entitled to recover the bitcoins itself, or the value of the bitcoins taking into account any increase in value since the alleged breach, The Straits Times understands.
B2C2, which is represented by Mr Danny Ong of Rajah & Tann, said it had placed orders on Quoine's platform to sell ethereum - another cryptocurrency - for bitcoins at the price of 10 bitcoins for one ethereum.
The orders were filled in a series of trades on April 19, resulting in B2C2 paying 309.2518 ethereum for 3,092.517116 bitcoins. The bitcoins were credited into B2C2's account that day.
But the next day, the trades were reversed by Quoine, which is incorporated here, and the proceeds allegedly "misappropriated" from the account without authorisation.
Quoine told B2C2 that it was entitled to do so because the trades were "mostly trades with huge mark-up over fair global market price". It said the average market price that day was only about 0.03929075 bitcoin for one ethereum.
But the virtual currency market is presently unregulated in Singapore, and Quoine has not cited any statute or regulation that was violated, B2C2 said.
"No law exists to constrain the buying and selling of virtual currencies, or the prices at which they can be bought or sold," it noted.
Instead, it alleged Quoine had "acted fraudulently" because the agreement stated that an order, once filled, is "irreversible".
No dollar value for that amount of bitcoin was provided in the lawsuit but according to cryptocurrency exchange CoinDesk, that amount translated to US$3.78 million based on an exchange rate of US$1,226.94 for a bitcoin on April 19.
But increased interest from institutional investors has resulted in bitcoin spiking through US$11,000 on Nov 29 for the first time, and surging more than 1,000 per cent this year.
Depending on the outcome of the trial, B2C2 is seeking equitable compensation "based on the highest intermediate value of the proceeds in US dollars between the date of the breach and the date of the judgment".
Quoine, which is represented by Mr Paul Ong of Allen & Gledhill, claimed that B2C2 is "being opportunistic and seeking to profit from a technical glitch".
"It is the defendant's case that the plaintiff deliberately placed the orders at the abnormal rate in bad faith and for the purpose of manipulating the market," Quoine said.
"The circumstances which led to each of the orders being placed at more than 100 times higher than the actual market price of ethereum/bitcoin as at April 19 is a highly material question which cannot be determined without a trial," Quoine said.
The glitch severely disrupted Quoine's ability to retrieve actual market prices for bitcoin and ethereum. It said the glitch arose because it was reconfiguring passwords for its critical systems to fend off persistent attempts by hackers to break into its systems.
Quoine, a fintech firm that also offers other cryptocurrency-related services, was co-founded by Mr Mike Kayamori, who has held senior roles at Mitsubishi Corp and Softbank Group.