According to Benjamin M. Lawsky, New York State’s top banking regulator, the days of using Bitcoin as a currency free from government overreach and regulation will soon be coming to an end. In a hearing last week he stated that the private currency that allows users to anonymously conduct transactions without the prying eyes of the all-seeing government will soon have regulations put in place to “protect” its users from fraud and other dangers.
This doesn’t come as a surprise to many in the financial world however, since last March the Treasury Department’s Financial Crimes Enforcement Network issued guidance saying that any firm who exchanges Bitcoins or any other private currency for U.S. dollars would be considered a money transmitting business and regulated as such, basically putting the brakes on being able to exchange your Bitcoin for cash without anybody knowing. Under the Banking Secrecy Act, people aren’t allowed to conduct transactions through anonymous accounts and the guidance places these firms under that control. The guidance also went further and said that anybody who does the opposite and exchanges cash for Bitcoin would be considered the same, unless of course they were doing it for their own personal use.
Even though the new regulations mean that those who get people into or out of the Bitcoin marketplace are subjected to the laws within the BSA, the firms that only use Bitcoin for transactions do not and were exempted. This means that the firms and people who use Bitcoin like cash are exempted.
The reasoning behind wanting to increase regulation on virtual currencies comes from law enforcement. They used the example of wanting to send a million dollars overseas for an illegal drug transaction, stating how difficult it would be because of the bulk of the money and how it’s regulated however with a virtual currency like Bitcoin users are able to send it with ease and is much harder to track. They fear that drug dealers and others involved with illegal activity will start switching to the virtual currencies to fly under the radar.
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They’re further concerned that exchanges in other countries may not have the same reporting requirements that are in place here, making it relatively easy for someone to fly under the government’s watchful eye which attracts the criminal element. Because of this it’s speculated that the new regulations may include having firms that cross a threshold of how much virtual currency they deal with report their holdings to the government.
Another reason for regulation that was given is consumer protections. Virtual currencies can fluctuate rapidly and cost people a ton of money in doing so. Last year Bitcoin saw a 400% increase in one month only to have that increase drop in half the next. With such wild fluctuations regulators believe it could lead merchants to overcharge or underpay since the currency’s value is less stable and there’s limited information available for those who want to determine it.
The government may adopt some sort of reporting requirements to increase the transparency of it. Something like the S.E.C. or the Commodity Futures Trading Commission may be adopted to centralize trading and avoid manipulation.
According to these hearings it looks like Bitcoin won’t be that awesome anonymous currency everybody loves anymore. Then again, did you really think the government would allow any type of currency to exist without trying to get its grubby little mitts into it?
(Read More: Bitcoin Continues To Surge While Economy Deflates)