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Senate Considers Regulation of Virtual Currencies

By Jessica Antoniades of Shustak Reynolds & Partners, P.C. posted on Wednesday, November 20, 2013.

The virtual currency Bitcoin was the subject of a hearing held this week by the U.S. Senate Committee on Homeland Security and Governmental Affairs. The hearing focused on potential implications of the rise of virtual currencies, also known as digital currencies, in today’s market. Appearing at the hearing to testify regarding the benefits, risks and potential regulation of virtual currencies were representatives of the Department of Justice, the Secret Service, the Department of the Treasury, and the Bitcoin Foundation, among others.

Despite widespread expectation that the hearing would focus on risks and dangers of virtual currencies, the Senate Committee heard generally positive testimony. Jennifer Calvery, director of the Financial Crimes Enforcement Network, praised the “innovation virtual currencies provide” and noted “their capacity to empower customers, encourage the development of innovative financial products, and expand access to financial services.” Mythili Raman testified that “the Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce.”

The darker side of virtual currencies includes their association with illegal transactions, such as money laundering, gambling, drug trafficking and other black market sales. Last month, the FBI shut down the online black market Silk Road, which used Bitcoins to provide buyers and sellers of contraband a certain degree of anonymity in conducting illegal transactions. Although virtual currencies have been associated with criminal activities, they are not per se illegal, and, as noted at the Senate Committee hearing, there are plenty of legitimate uses for virtual currencies. In addition to its exchange value, Bitcoin is accepted as currency by WordPress, Reddit, and hundreds of other merchants.

Bitcoin’s exchange value spiked to over $900 in the wake of the Senate hearing’s favorable tone. For comparison, a Bitcoin traded for mere pennies in 2010. BTC China, the largest Bitcoin exchange, recently raised $5 million of investment capital, further bolstering consumer confidence in the currency and boosting its exchange value. However, investors should exercise caution before investing in a virtual currency such as Bitcoin. The digital and decentralized nature of the currency makes its extremely volatile, as well as vulnerable to online theft andfraud. The current lack of regulatory framework governing virtual currencies provides little, if any, recourse for victims of virtual currency fraud.

The full hearing is available at

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