With bitcoins and other crypto-currencies gaining popularity and greater acceptance across the globe, the world’s leading economy is considering regulating it. Commodity Futures Trading Commission (CFTC) Acting Chairman Mark Wetjen has told journalists that the regulator is looking into how it can increase oversight of bitcoin and other electronic currencies.
Bitcoin has been prominently in the news owing to its characteristics of providing anonymous, instant money transfers at low costs through a decentralized network. Those same characteristics have also lent it considerable notoriety, as bitcoin has been used by money launderers and those seeking to abet illegal activities, including murder for hire. In January this year, the CEO of BitInstant, a bitcoin exchange, and board member of the Bitcoin Foundation, was formally charged with money laundering and enabling illegal drug transactions through bitcoin.
More recently, another problem related to crypto-currencies has emerged as a point of focus – the complete lack of regulation in the environment they are used and exchanged in. China has barred financial institutions from dealing in bitcoin and India has warned investors against dealing in bitcoin. While these countries – and others – have washed their hands of having to deal with a system few understand, the lack of regulation has given rise to serious issues. And this free market economy seems to taking an exacting toll from the average Joe who uses bitcoin either as an investment or as a means of exchange.
Bitcoin thefts, exchange shutdowns, and several other issues have recently harassed many bitcoin users. The bankruptcy of Tokyo-based Mt. Gox, once the most popular and largest bitcoin exchange by market volume, has left investors with large holes in their pockets. Bitcoin holders who had accounts at Mt. Gox have seemingly been robbed of all their bitcoins since the exchange reported a theft of $400 million worth of bitcoins. Similarly, Flexcoin, a bitcoin bank, has had to shut shop after losing $600,000 in a hacking incident. Many are therefore viewing the lack of regulation of the currency and the absence of government oversight in this nascent market as a key factor exacerbating the problems it faces.
Irrespective of the dangers and threats related to the usage of crypto-currencies, users of bitcoin and other crypto-currencies seem to be holding up quite well. After reaching a high of above $1,200, bitcoin prices almost halved in the days following the closure of the Mt. Gox exchange; however, bitcoin is getting a lot of support near the $600 level, and volatility in the digital currency has also reduced considerably.
Meanwhile, established businesses across the globe have started accepting bitcoins in return for products and services. Overstock.com (OSTK), one of the largest online retailers (it recorded $1.3 billion in revenues in 2013), has reportedly started accepting the crypto-currency in exchange for goods. Lord and Taylor, a 188-year old retailing company, has started doing the same.
Regulating bitcoins would bring a lot more stability to the digital currency market. Government oversight and regulation may also help the bitcoin community grow in a sustainable manner, and help rebuild investor confidence in what can potentially prove to be a game-changing technology.