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Regulators Take Closer Look at Bitcoin

The Senate committee on homeland security and the New York State Department of Financial Services are both examining new ways to regulate virtual currencies.

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.

[See Related: Court Rules Bitcoin Is Real Money]

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.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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Cara Latham
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Cara Latham,
User Rank: Apprentice
8/14/2013 | 9:53:02 PM
re: Regulators Take Closer Look at Bitcoin
I think that is a good point. Consumers don't like grey areas. Regulation would create legitimacy, which goes a long way in establishing trust and credibility with a user.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
8/14/2013 | 7:49:00 PM
re: Regulators Take Closer Look at Bitcoin
Bitcoin does not want to be regulated. But if it remains unregulated, it will likely never gain significant traction as users will likely stay away. It's a chicken or the egg scenario.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
8/14/2013 | 6:37:08 PM
re: Regulators Take Closer Look at Bitcoin
Bitcoin's got a long way to go to prove that it is reliable enough for people to use it regularly.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
8/14/2013 | 6:36:01 PM
re: Regulators Take Closer Look at Bitcoin
The Federal Reserve is the only organization that can establish the country's official currency. Bitcoin isn't the official currency of the U.S., but that doesn't mean that you can't use them here. Here's a interesting read on Bitcoin's undefined legal status: http://arstechnica.com/tech-po....
Nathan Golia
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Nathan Golia,
User Rank: Author
8/14/2013 | 4:19:27 PM
re: Regulators Take Closer Look at Bitcoin
Interesting that "the department reported hearing a number of consumer complaints
regarding the speed with which their virtual currency transactions were
processed." Similar to the pyramid scheme from the other day, it seems that bitcoin currently occupies a place in the regulatory world that's most convenient for whoever is using it. The guy running the scam said it wasn't real money, but some people clearly want there to be some pressure on those transacting with it to be timely.
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