WSJ: Bitcoin Exchanges May Face Closure

Wednesday, 26 Jun 2013 10:54 AM

By Glenn J. Kalinoski

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Bitcoin is facing heat from states as The Wall Street Journal reported that regulators are telling virtual-currency exchanges and other companies that deal with the digital currency that they could be shut down if their practices violate money-transmission laws.

The Journal, citing people familiar with the matter, reported that banking regulators in Virginia, New York and California issued letters informing the firms they must obey state rules or prove they don't apply to them.

The people told the Journal that the warnings are not "cease and desist" orders, which would require companies to stop engaging in their business.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

The Journal reported that federal regulators are already "cracking down" on virtual currencies and that state regulators have gone beyond "scrutinizing virtual currencies" and now are acting to stop people and companies from using them for illegal activities.

The people, according to the Journal, said similar moves are expected from other states "in coming weeks and months," with Virginia, New York and California three of the 48 states requiring the companies to obtain money-transmission licenses to operate. South Carolina and Montana don't have such regulations.

Money-transmission rules vary, but most require detailed financial data, business strategy and information about the company's management. States also typically require companies to put up a bond that could run as high as several million dollars.

The Journal reported that unlike dollars or euros that are backed by a central bank, bitcoin users can create the units in a process called "mining."

There are just over 11 million bitcoins in circulation, valued at an estimated $1.2 billion, Reuters has reported. But bitcoin prices have been volatile – going from $13 in January to a peak of $266 in April to around $100 recently.

Users also can trade the currency on exchanges or swap it privately. It reported that the state actions are occurring three months after federal regulators issued guidelines placing virtual-currency exchanges under the same anti-money-laundering requirements as traditional money-transmission businesses such as Western Union Co.

Since then, "a handful" of bitcoin exchanges have registered with the Treasury Department's Financial Crimes Enforcement Network.

The Journal cited California as being important "to the bitcoin community" because many of the startup companies that are tied to the virtual currency are based there.

"Virtual currency firms inhabit an evolving and sometimes murky corner of the financial world," Benjamin Lawsky, superintendent of New York's Department of Financial Services, said in an interview, according to the Journal.

"The extent and nature of their operations morph constantly, so it's important for regulators to ask the hard questions and stay ahead of the curve in order to root out dangerous or illegal activity," he said.

In Virginia, a company called Tangible Cryptography suspended the purchase of the currency through its service called FastCash4Bitcoins after receiving a letter from state regulators who received a complaint that the company was operating as an unlicensed money transmitter, according to a notice on its website.

Tangible Cryptography said on its website that its activity is exempt from licensing requirements and that the commission's initial assessment contained factual errors, the Journal reported.

"While we respond to the commission's notice, the prudent action is for the company to suspend all new transactions," the company said.

Since the beginning of the year, Reuters reported that bitcoin wallet accounts have soared to 300,000 from 50,000, citing blockchain.info.

Meanwhile, digital-currency entrepreneur Cameron Winklevoss says government regulations will actually help the bitcoin, not hurt it.

"If and when it does get more regulated, which I think, personally, in the bitcoin world, we love regulation. I don't want to facilitate bad uses of money as much as anybody else. So I don't really have an issue with that," the co-founder of Winklevoss Capital Fund recently said, CNBC reported.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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