The fall of Mt. Gox, one of the best-known bitcoin exchanges, has produced intense speculation over the future of the virtual currency. One senator has an idea for what should be next for the decentralized currency: Shut it down in the United States—or at least subject it to strict regulation.
"This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy," Sen. Joe Manchin said in a letter to banking regulators Wednesday. "I urge regulators to take appropriate action to limit the abilities of this highly unstable currency."
Bitcoin isn't totally without oversight, though, and it's expected to face more regulation soon.
The Treasury Department's Financial Crimes Enforcement Network issued guidance last year to clarify when bitcoin users need to register as money transmitters. FinCEN followed up with further guidance in January for so-called miners of the currency as well as investors. State regulators are also weighing how to treat firms within their borders who want to transact in virtual currencies. Benjamin Lawsky, the superintendent of the New York Department of Financial Services, has floated the idea of requiring these companies to obtain a specialized "BitLicense." Activities like money laundering remain illegal, no matter what currency they're conducted in.
Manchin's letter comes on the heels of the closure of Japan-based Mt. Gox, which went offline this week. People who used the exchange were left uncertain about whether they'd ever see their currency again. Its closure has led to speculation over whether this is a death blow or mere hiccup for the virtual currency created by a person or people under the pseudonym Satoshi Nakamoto, which was introduced in 2009 and has been growing in popularity ever since. Bitcoin supporters say it will easily overcome this misstep. Others predict that the fresh uncertainty surrounding the safety of the virtual currency will lead to its demise. And regulators say they're still weighing what the exchange's problems mean for their path forward.
"We are certainly aware of the reports concerning Mt. Gox but have no further comment at this time," Steve Hudak, a spokesman for FinCEN, said Wednesday.
Sen. Tom Carper—who chairs the Homeland Security and Governmental Affairs Committee, which held a hearing in November about virtual currencies—called the Mt. Gox news "disturbing" in a statement Tuesday. The Delaware Democrat said his staff was "working closely" with "relevant federal agencies" to determine how to prevent a similar issue in the United States. A committee aide said Wednesday that it was too soon to draw formal conclusions or recommendations from what happened at Mt. Gox.
Manchin, a West Virginia Democrat who serves on the Senate Banking Committee, has long been skeptical of the digital currency. In 2011, he and Sen. Chuck Schumer, D-N.Y., wrote to regulators to express their concerns about the illicit drug trade on the now-defunct Web portal Silk Road, which was enabled, they said, by bitcoins.
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Bitcoin advocates argue that because transactions carried out in bitcoin are published to a public ledger, they are, in fact, highly traceable. As proof of that, Patrick Murck, general counsel for the Bitcoin Foundation, pointed in an interview with National Journal last month to the high-profile arrest of Charlie Shrem, a former member of the foundation, for allegedly conspiring to commit money laundering with bitcoins.
On Wednesday, Manchin said he was concerned about the virtual currency's volatile prices and potential to be used for illicit activity. Manchin's letter was addressed to the heads of the Federal Reserve, Treasury Department, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Commodity Futures Trading Commission, and Securities and Exchange Commission.
This article appears in the February 27, 2014 edition of NJ Daily.