Could you make bitcoin illegal in the United States? Sen. Joe Manchin, D-W.Va., wants to, his office said in a statement Wednesday. The statement accompanied a letter from the senator to six banking regulators calling for them to “take appropriate action to limit the abilities of this highly unstable currency.”
That could mean a lot of things. Manchin asked federal banking regulators to ban the digital currency, but if they decline to do so (and they’ve given no signs of moving in that direction at the moment), his wish could require an act of Congress. It’s not yet clear that Washington’s apparent embrace of the decentralized, computer-based currency this fall will weaken in light of the news that a well-known exchange collapsed this week, with users’ money believed to be missing. Sen. Tom Carper, D-Del., who chairs the Senate Homeland Security and Governmental Affairs Committee, said in a Tuesday statement that the news from the Japan-based Mt. Gox exchange was “unacceptable” and pledged to work with relevant government agencies to make sure nothing like that happened in the United States.
As regulators and lawmakers continue to consider how bitcoin fits into the country’s economic ecosystem, there aren’t any signs of momentum for legislation to clamp down on the virtual currency, which was introduced by a mysterious programmer or programmers under the name of Satoshi Nakamoto in 2009 and is “mined” by computers that solve complex equations. But if Manchin were able to rally the support of his colleagues for his ban, he could pursue a few different courses of action.
Lawmakers could criminalize the cryptocurrency, like marijuana, and make it illegal to possess or sell bitcoin. The downside to that strategy might be the cost of enforcement. “It would seem to me that enforcing or having bitcoin be illegal would be an unwieldy process,” said Barrie VanBrackle, a partner at Manatt, Phelps & Phillips who practices in the payments transaction business.
The government could also ban businesses from accepting bitcoin in exchange for goods and services. Right now, the National Basketball Association’s Sacramento Kings and online discount retailer Overstock.com are among the high-profile businesses that say they will accept the digital currency. Lawmakers or regulators could block banks’ ability to transact in bitcoin, as well.
“I don’t think it would very effective,” Judith Rinearson, a partner at Bryan Cave who has worked with bitcoin companies, said of bans and criminalization. “I think it would just drive it underground anyway, which would not be in anyone’s interest.”
Regulators or lawmakers could try a deterrent approach instead of an outright ban by, say, telling businesses that if they used bitcoin, they would be subject to a mandatory and automatic audit. Failure to regulate bitcoin might also deter some wary users from picking up the digital currency, if they knew they wouldn’t have recourse if a U.S.-based exchange failed, for example.For now, state regulators have been largely mum on their next steps, except New York, whose superintendent of financial services said was considering a specially tailored license for bitcoin firms within its borders. So have federal regulators. The Treasury Department’s Financial Crimes Enforcement Network, which has been the most vocal, issuing guidance on the virtual currency, had no comment on the Mt. Gox issues on Wednesday. Manchin wants them to come out forcefully against bitcoin; there’s just no sign of that — yet.