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Speculating on Bitcoin

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Bitcoin, the burgeoning virtual currency, lately has been the subject of much speculation--in every sense of the word. Lots of people have been speculating about what it is and whether it has a future. Some people have been speculating on its future by purchasing the currency in hopes that its price will rise and they can cash in. The regulators have been speculating too--speculating about whether and how they can regulate the currency.

Last week, Commissioner Bart Chilton of the Commodity Futures Trading Commission suggested that the CFTC might take a crack at Bitcoin. He told interviewers on CNBC that if they wanted "to be a shill for the financial industry and support a shadow currency that [people use to purchase] drugs and money with, have a party. My job is a regulator. I'm going to look after it." A Financial Times article suggests that Mr. Chilton is not the only one at the CFTC thinking about the issue. A Bitcoin futures exchange is up and running, so the CFTC's interest is not entirely unexpected. The exchange enables people to hedge their exposure to changes in the Bitcoin exchange rate and facilitates purchases of other types of futures contracts using Bitcoins. Mr. Chilton's comments, however, suggest another focus--a deep discomfort with the way Bitcoin changes hands and its use for illicit purchases, concerns that do not fall within the CFTC's jurisdiction.

In March, the Financial Crimes Enforcement Network (FinCEN) , which is charged with implementing anti-money laundering laws, issued a less colorful message to the Bitcoin world in the form of a guidance document explaining the "Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies. According to FinCEN's director, the guidance does not affect "[t]hose who use virtual currencies exclusively for common personal transactions like receiving payments for services or buying goods online." In the guidance, FinCEN claims regulatory authority over, and requires registration of, people and entities who either create and sell Bitcoin in exchange for real currency (FinCEN's term, not mine) or accept and transmit it. Despite assurances to the contrary, this group could include users of Bitcoin, because the application of FinCEN rules turns heavily on facts and circumstances. For example, would a friendly Bitcoin enthusiast who bought you a cup of coffee with cash and accepted Bitcoins from you in return be swept in? Probably not, unless he makes a regular habit of doing so, but the lines are not clear.

After Commissioner Chilton's remarks and FinCEN's guidance, we are still left to speculate about how regulation will affect Bitcoin's future, but it is an area worth watching.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.