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In October 2013, the Federal Bureau of Investigation (FBI) arrested Ross William Ulbricht, the alleged founder of the online black market site Silk Road, on charges of alleged murder for hire and drug trafficking violations. According to a federal complaint, Silk Road facilitated drug trafficking, secret deals, forgeries, computer hacking and allegedly even hit men, using Bitcoins. This led to an instant drop in the price of bitcoins which later recovered. Some believe a lot of the market is shorting bitcoins expecting a huge price drop when the government plans to sell the seized bitcoins. This is adding up to the troubles of a rather erratic bitcoin market.

Silk Road and many other financial frauds questioned the decentralized nature of the bitcoins. Many argued that some sort of financial regulation must be formed to ensure the right use of bitcoins. But, the large number of investors who moved from safer investments, such as the famous Facebook litigants, the Winkelvoss twins would refuse any sort of bitcoin regulation.

Following this, recently the state of New York has planned to create regulations guiding bitcoin firms to hold a bitcoin trading license called the BitLicense. Furthermore, New York’s Superintendent of Financial Services, Benjamin Lawsky said that such regulations would hinder fraudulent activities and would make the use of bitcoins safer for everyone. According to MarketWatch, he quoted, ““Ultimately, it’s our expectation that the information we’ve gathered in this fact-finding effort will allow us to put forward, during the course of 2014, a proposed regulatory framework for virtual currency firms operating in New York.”

Furthermore, some regulators argue that the rise of bitcoins is similar to the rise of the internet back in the 90s. They speculate a similar market bubble and a scope for fraudulent activities. But, the Winkelvoss twins who plan on opening an exchange traded bitcoin fund state that such a regulation would adversely affect their fund. A government regulation would defy the sole purpose of decentralized financial instruments.

Although this regulation is still in its planning stages, it has already started creating waves in the investor market. If such a regulation were to be released in New York, the financial hub of the world, soon it would be followed in emerging markets where there is a lot of demand for bitcoins. This would ultimately flee short term investors and bitcoin loyalists out of the erratic bitcoin market. This on the other side can also be beneficial to Bitcoins. A more regulated market means a more systematic way of doing things. This would attract institutional investors and would pave a way to Wall Street acceptance as a strong financial instrument.

The main argument for Bitcoin regulation seems to be based on the flimsy notion that it will facilitate crime and the term “money laundering” is thrown around pretty loosely. Both of these are quite nebulous. Ask any criminal in the world if they would prefer cash or a digital transaction that is forever logged in an accounting register and see how plainly stupid this notion is. That is not to say that bad actors won’t find ways to use the Bitcoin protocol to their advantage but as was mentioned in the virtual currency senate hearing the FINCEN and other financial crime investigators already have the tools they need to root out criminals and prosecute them.

There is no question that cash will remain the preferred value transfer for criminal enterprise so New York lawmakers should really come out and say what they truly want is “their cut” of the action. Plain and simple New York State wants its piece of the action as does every government in the form of taxation or special privilege “licensing fees” .  If we had to bet on it, NYS will attempt a tax/license scheme for Bitcoin business and if that fails they will move forward to outlaw it touting “terrorism” or some other such nonsense. We will have to wait and see. 

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AuthorTeam Bitcoin
CategoriesBitcoin News