CFTC targets bitcoin cyber-currency for regulation

7 May 2013

The US Commodity Futures Trading Commission (CFTC) has said it may need to regulate the cyber-currency.

The worries about bitcoin’s stateless status, which is part of the attraction for many users of the cyber-currency, seems to be growing after Bart Chilton, one of the five commissioners at the US CFTC told the ‘FT’ the currency “is for sure something we need to explore”. The regulator is understood to be “seriously” examining the issue of whether the currency should fall under its remit.

As Chilton explained: “It’s not monopoly money we’re talking about here - real people can have real risk in these instruments, and we need to ensure that we protect markets and consumers, even in what at first blush appear to be ‘out there’ transactions.”

The CFTC traditionally regulates derivatives contracts and has not previously got involved in cash markets unless exchanges, such as TradeHill, list foreign exchange (FX) or other derivatives based upon them. The US regulator couldn’t interfere with ordinary goods being purchased or sold online with the digital currency, therefore, but may get involved with corporations trading with it on the financial markets or treasurers seeking to hedge with bitcoin instead of gold.

“In essence, we’re talking about a type of shadow currency, and there is more than a colourable argument to be made that derivative products relating to bitcoin falls squarely in our jurisdiction,” Chilton told the ‘FT’.

US Treasury Increasing AML Controls
In March of this year, a branch of the US Treasury department said that all firms that exchange or transfer the virtual bitcoin currency will be considered “money services businesses”, as it sought to bring the currency further under control. This means that users must now provide information to the US government and introduce anti-money laundering (AML) and know your customer (KYC) retail investor policies, as TradeHill has done with miiCard, or alternatively move offshore.

Since the earlier UIS Treasury ruling, at least three companies in North America have reported having their business accounts closed by their banks. Bitfloor, a New York-based bitcoin exchange, said it was shutting down entirely, and it has not yet been able to return funds to customers, while Roger Ver, founder of Bitcoinstore.com and an investor in start-ups for the cyber-currency, has warned of others heading off to Panama to set up. Bitcoin is a world currency after all, and seeking to contain it in national boundaries takes away its raison d’etre and is likely to be resisted.

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