RegTech Intelligence 
2013 was a huge year in the development of alternate and decentralised ‘crypto-currencies’. Some countries have so far taken relaxed stances on them, despite obvious money-laundering and tax evasion risks. Meanwhile, others have taken the opposite approach and seen fit to ban crypto-currencies outright. Either way, we are now beginning to see a clearer picture of the future opportunities and threats in their use as instruments.
Beginning with the US, late last year FinCen cleared US users of any legal obligations, instead attempting to put tighter controls on the exchanges that the users use to buy and sell the currency. FinCen signed off on the exchanges’ feasibility as credible trade fora, writing:
“Bitcoin exchanges where Bitcoin are traded for traditional currencies to disclose large transactions and suspicious activity, comply with money laundering regulations, and collect information about their customers as traditional financial institutions are required to do.”
Additionally, China saw huge growth in the use of Bitcoin among investors. The period between July and October saw a large number of domestically well-known companies begin to accept Bitcoin as a form of payment, including Baidu and Alibaba – the Chinese variations of Google and Amazon, respectively. As growth in the Chinese market burgeoned, the global price of an individual coin rose to over $1000, demonstrating that there was at least significant traditional money to be gained by investing.
The virtual currency’s viability in the Chinese market has proved to be ephemeral, however. The government, spurred by fears of price volatility and Bitcoin’s large user base, pulled the plug and effectively banned all transactions using the Yuan on any kind of exchange. In short, the Chinese government has effectively proclaimed that Bitcoin cannot be used as legal tender in the country. This precipitated a countrywide trend which culminated in the majority of large Chinese companies discontinuing the use of Bitcoin entirely – companies that had previously embraced Bitcoin as a viable new payment method.
Despite these setbacks though, Bitcoin has proven resilient. At time of writing, the price has rebounded back to pre-crash highs of over $1000 per coin. In fact, Latin America appears to have picked up the slack left behind in the wake of the Chinese Bitcoin regulation.
What’s next?
2014 is looking likely to be a watershed for Bitcoin in the global market. The United States in particular has been active in addressing the virtual currency’s meteoric rise. Bitcoin lobbyists have flocked to Washington, D.C. to persuade the IRS and other regulators of the virtual currency’s value (intrinsic and potential) as well as its feasibility in the marketplace. Lobbyists have also liaised with the IRS to work out a best practice for taxing investments in Bitcoin, hoping to establish a sound policy moving forward.
In addition to the IRS, the Homeland Security and Governmental Affairs Committee, the SEC, and the Department of Justice have proposed additional research and pending regulation of the currency. Whether or not Bitocin will be overregulated in the US is still anybody’s guess, but all signs point towards an eventual legitimisation of the concept at least.
The first hearing between the Senate Homeland Security and Governmental Affairs Committee and the Senate Banking Committee (November 2013) concluded that:
- Digital assets have legitimate and beneficial uses that can foster innovation in a variety of ways, including micro-payments, enhanced security for retailers, and increased speed and cost efficiency in domestic and international payment systems;
- Existing federal laws, as well as law-enforcement, are capable of addressing the concerns relating to emerging digital assets, although developments are constantly being monitored in the areas of money laundering and other illicit uses;
- Various regulatory agencies have successfully applied the existing regulatory structure to prosecute large-scale money laundering operations that involved digital assets;
- Digital asset businesses and other industry participants that are willing to comply with applicable laws and regulations should be encouraged through a cooperative regulatory atmosphere. This sentiment was generally shared by the US Senators and panelists, in part to avoid discouraging Bitcoin entrepreneurship and driving it to countries with less stringent regulations.
The US’ approach stands in stark contrast to several countries’ regarding regulating the fledgling technology. Some jurisdictions are refusing to even acknowledge Bitcoin, with countries like Thailand banning the currency from its markets due to regulatory complications and the Reserve Bank of India issuing a stark warning regarding the financial, operational, legal and security risks of the currency.
In addition to Bitcoin, new types of digital currency have emerged across the world (most derived from the initial Bitcoin protocol and source code), and the advent of virtual currency has heralded one certainty: crypto-currency is not going away anytime soon. Even in economies where Bitcoin has been tightly restricted, like China, widespread internet use has prompted an increase in its value and recognition. Given this fact, increased global awareness and acceptance of digital currency will undoubtedly be reflected in countries with significant internet presence and money to invest.
The timeline below charts the recent milestones regarding Bitcoin in the Chinese market:
(Bitcoin price history according to CoinDesk)
Timeline taken from http://sg.news.yahoo.com/timeline-history-bitcoin-china-2013-073032803.html