The US dollar price of bitcoin skyrocketed to a new record of $779.00 as of the start of this writing, after federal financial regulators and law enforcement expressed positive views regarding the virtual currency at a Senate Homeland Security and Governmental Affairs Committee hearing Monday.
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Bitcoin opened the week at $519 on the major bitcoin exchange, Mt. Gox, and slowly climbed to nearly $670 through the day as statements prepared to be read at the Senate committee hearing by representatives of the Financial Crimes Enforcement Networks (FinCEN), the Secret Service and the Department of Justice leaked out. By the start of the hearing at 3 PM Eastern time, the price had settled around $620.
Feds like bitcoin
The tone of the hearing panelists was generally positive, both about the potential good that bitcoin and other virtual currencies can play in the future economy, as well as their respective department’s capabilities to sniff out criminals who try to exploit the pseudo-anonymous aspects of the virtual cash.
Committee Chair, Senator Tom Carper, a Democrat from Delaware, heard opening statements and then directed his first question at Jennifer Shasky-Calvery, Director of Financial Crimes Enforcement at FinCEN. He asked whether the doom-and-gloom concerns policy makers had during the early days of the internet were analogous to where we stand today with bitcoin. Ms. Shasky (as she preferred to be named) said that, despite the “gaps” new technologies like bitcoin create in the financial system, his would likely prove an “apt analysis” as long as bitcoin and other virtual currencies are able to ‘fit within the pre-existing regulatory regime.”
Mythili Raman, Assistant Attorney General the of the US DOJ Criminal Division, concurred, adding that in the view of the DOJ, “virtual currencies are not inherently illegal.”
And with that, bitcoin’s price began its meteoric rise.
Regulators struggle with bitcoin
The opening statements of the panelists echoed Carper’s concerns about squashing a potential valuable technology to the US economy, while also highlighting some concerns about how the nascent technology can be used.
Edward Lowery, head of the Secret Service’s Criminal Investigative Division, pointed out that a variety of criminals heavily use digital currencies, including bitcoin. Ms. Shasky said that criminals like the “reasonable” anonymity bitcoin allows, as well as its ease of use and irreversible transactions. She also suggested that bitcoin’s developers may have intended to facilitate money laundering in creating the technology, and that it is so far effective at allowing users to avoid FinCEN regulations.
Ms. Raman concurred, adding that bitcoin’s “virtual anonymity” impeded the DOJ’s main tactic in tracking internet criminals: following the money.
Senator Carper asked the panel whether federal agencies’ ability to keep up with criminal early adopters of groundbreaking technologies in the past would apply to virtual currencies.
All three panelists pointed to the shutdown of e-Gold, Liberty Reserve and the recent shutdown of the bitcoin-supporting Silk Road website as evidence that the current regulations and existing criminal laws against drug trafficking and other crimes show they are already affective and are quickly catching up. However, Mr. Lowery added fuel to bitcoin’s price ignition by pointing out that major cyber criminals, mostly in Eastern Europe, seem to prefer more centralized online money services, like the now defunct Liberty Reserve, to the decentralized, P2P-style bitcoin.
However, while all three agencies will be aggressively trying to police virtual currency users and businesses, they acknowledged it will be no easy task. Mr. Lowery pointed to three key elements that make websites like Silk Road hard to counter: the anonymous nature of the “deep web,” the pseudo-anonymity of digital currencies, and what Mr. Lowery called “bulletproof hosting”: a term used for offshore hosting companies in countries with weak law enforcement agencies.
It is the ability of virtual currencies to be transferred into actual currencies that regulators see as the technology’s weakness. Both Mr. Lowery and Ms. Shasky emphasized that companies that want to trade bitcoin for cash or participate in the US banking system must register with FinCEN as a money transmission service, comply with anti-money laundering laws and keep strong records of their users so potential illegal activity can be reported. Mr. Lowery said that companies following this advice would be unlikely to find themselves targeted or investigated by regulators.
All agreed that bitcoin would become more mainstream, and in becoming so, the entire US law enforcement apparatus and agency equivalents abroad would become more unified in policing its use.
None of the panelists at the hearing would comment as to whether the federal government will ultimately view virtual currencies as commodities, securities or bona fide currencies. As far as responding to GAO concerns about how to guarantee the collection taxes off of bitcoin profits and income, all three departments will leave those determinations to the IRS.
Virtual currency oversight a “priority” for the Obama Administration
According to representatives on the panel, both the DOJ and FinCEN expect current law to be adequate to regulate bitcoin. Nevertheless, both the DOJ and FinCEN would like to see even greater regulation, if possible. This makes sense considering Ms. Shasky’s comment that the Obama Administration “has made oversight of virtual currencies a priority.”
FinCEN, in particular, seems to hold a somewhat arrogant and naive view of the US’ role in the global economy and Washington’s ability to impose regulations on businesses without negative side effects.
When Sen. Carper asked Ms. Shasky if steep regulations could push US innovators to relocate offshore, and if so if that would damage the economy, she said businesses who leave the country to avoid Washington’s regulatory burdens would find any gain from leaving “short lived.” She said that while the US and Germany are ahead of the rest of the world in regulating virtual currencies, the rest of the world will catch up, as will US regulators in general, allowing innovations and jobs to stay in the US.
Ms. Shasky arrogantly claimed that the ability to be a financial institution in the US “is a privilege.” While this like-it-or-leave it attitude may force many entrepreneurs into submission, many have already accepted that the future promise of bitcoin is greatest outside of the United States.
However, all of this matters why? To quote Ms. Shasky: “Virtual currencies will survive and become a significant player” in the future of the US economy.
Now that we all agree, does this open the door to the $1000 or $10,000 price for one bitcoin that many enthusiasts and entrepreneurs are calling for? Right now the price just cracked $900.
Update: Bitcoin seems to now be coming back to Earth, a bit. As of 8:31 ET it’s at $683.