OLG Frankfurt: No Liability for Cryptocurrency Exchange Losses Between Friends
If one friend invests another friend's money, with the latter's consent, in various cryptocurrencies, and exchange losses occur during conversions between these currencies (e.g., Ethereum/Bitcoin), the defendant friend is not liable for lost profits. This was the ruling by the Higher Regional Court of Frankfurt am Main (OLG), which dismissed the action for the transfer of Ethereum shares. This decision amended the predominantly favorable judgment previously issued by the Regional Court.
Case Overview: A Cryptocurrency Investment Agreement
The plaintiff and defendant, who were close friends at the time, had an agreement: the defendant would assist the plaintiff in investing in cryptocurrencies. The defendant possessed both experience in cryptocurrency investments and the necessary technical know-how.
For this service, the plaintiff paid the defendant just under €85,000. The defendant subsequently acquired both Ethereum shares and Bitcoin shares for the plaintiff. By October 2017, the defendant had also exchanged some of the initially acquired Bitcoin for Ethereum via the Kraken.com platform, resulting in 309.01954785 Ethereum shares from the plaintiff’s funds in the defendant's Kraken account.
The Disputed Exchange and Plaintiff's Claim
In November, the defendant exchanged some of the Ethereum back into Bitcoin, speculating on an increase in value. However, this anticipated increase in value did not materialize.
During the subsequent "switch back" of these Bitcoins into Ethereum, the defendant, due to the Ethereum price increase in the interim, could no longer recover the full amount of Ethereum shares. Consequently, the plaintiff claimed lost profits from the defendant for the transfer of Ethereum units, specifically the difference of 116.5191785 units. While the district court had largely granted this claim, the defendant's appeal before the OLG was successful.
Admissibility of the Claim for Transfer of Crypto Units
The OLG clarified that the application for "transfer" of the Ethereum shares was admissible and, in particular, sufficiently determined. Since crypto tokens such as Ethereum and Bitcoin are virtual, i.e., incorporeal objects, no transfer can be claimed under property law provisions. These are solely digital representations of value, not issued by any central bank or public body. Consequently, asserting a claim for transfer is the only remaining option.
OLG's Reasoning: No Liability for Lost Profits in High-Risk Crypto Investments
Ultimately, the plaintiff was not entitled to damages in the form of lost profits resulting from the defendant's conversion of Ethereum into Bitcoin. The OLG confirmed that the defendant conducted a third-party business for the plaintiff as a "friendly service."
Absence of Contrary Will
The OLG emphasized that the conversion from one cryptocurrency (Ethereum) to another (Bitcoin) was not contrary to the plaintiff’s actual or, alternatively, presumed will. The plaintiff did not claim to have expressly or implicitly stated any intention against such conversions. Furthermore, there were no indications of a presumed contrary will that the defendant could have recognized.
Plaintiff's Awareness and Consent
The parties had agreed that the defendant should invest for the plaintiff in the "high-risk area of cryptocurrencies." It was never agreed that something specific should happen with the money. Instead, the plaintiff had given the defendant a "free hand" and had constant insight into and access to the accounts.
During a joint barbecue, the parties even discussed splitting the accounts into different currencies. The initial investment in both Ethereum and Bitcoin was made with the plaintiff's knowledge and consent. Therefore, it was not evident why a subsequent exchange by the defendant should have contradicted the plaintiff's presumed will, especially since the exchange appeared promising to the defendant based on undisputed submissions.
The Nature of High-Risk Cryptocurrency Trading
Moreover, the transfer of the purchased Bitcoins to the Kraken account was specifically to enable exchanges between individual cryptocurrencies, which would not have been possible on the simpler LitBit account. The plaintiff's explicit aim was to generate high-risk investments and profits through the "trading" activities performed by the defendant.
This objective was ultimately successful. According to the market value of the acquired and still existing Ethereum shares at the time of the Court of Appeal's decision, the plaintiff had almost quadrupled his invested capital through the defendant's activities.
Conclusion
The OLG Frankfurt ruling clarifies that liability for lost profits in high-risk cryptocurrency investments between friends is unlikely when the investor acts within the friend's general consent and perceived will. This case highlights the importance of clear agreements and the recognition of inherent risks in the volatile cryptocurrency market, even in informal arrangements.