After a court ruling earlier this week opened the door for government agencies to regulate Bitcoins, both Congress and New York State’s top regulator are taking a deeper look into the virtual currency phenomenon.
The Senate Committee on Homeland Security requested earlier this week that regulatory and law enforcement agencies, including the Federal Reserve, SEC and Department of Justice, investigate the potential for threats related to virtual currencies, according to media reports. The committee is worried that virtual currencies could provide a path to evade taxes, defraud investors and launder money for criminal organizations, like the digital currency company Liberty Reserve is alleged to have done to the tune of $6 billion, reports say.
And the New York State Department of Financial Services has announced that it is considering new regulations for virtual currencies after it issued subpoenas for 22 firms related to Bitcoins, including BitInstant, Coinsetter, Dwolla, Google Ventures and others.
The state regulator pointed out in a memo earlier this week that under state law firms transmitting money need to have collateral to safeguard customer money and undergo regular safety and soundness examinations. But the memo warned that additional rules might be needed to be put in place for virtual currencies, which it said is already “a virtual Wild West for narcotraffickers and other criminals.”
Both the Senate committee and New York State regulator acknowledged that virtual currencies have perfectly legal and legitimate uses, and expressed the need to protect those uses. The memo from the New York State Department of Financial Services noted that requirements need to be enacted to help build consumer confidence, as the department reported hearing a number of consumer complaints regarding the speed with which their virtual currency transactions were processed. And greater transparency is required on the part of both virtual currency companies and the currency operators themselves to show that the currencies are sustainable long-term investments, as Bitcoin and other virtual currencies have gotten a good deal of interest from venture capital firms and investors.