New Scrutiny on Bitcoin

Bitcoin

[tweetable alt=””]Fresh news about Bitcoin is emerging almost daily[/tweetable], as the recent failure of the largest Bitcoin exchange and the apparent loss of millions of investor dollars spread new confusion. The fact that Bitcoins can disappear due to mysterious events in unregulated exchanges, combined with the fact that this alternative currency is actually accelerating in worldwide usage, has stimulated government interest both in the U.S. as well as abroad. Here’s a brief summary of what’s been happening with Bitcoin recently, the new scrutiny it is beginning to receive and its ongoing resilience:

Mt. Gox “went dark”
On February 25, 2014, Japan-based Mt. Gox, the largest of the Bitcoin exchanges, simply removed its online presence. Since bitcoins are not backed by any government-backed insurance, in the way that the FDIC insures American bank accounts, there may be no recourse for investors whose bitcoins have vanished. Bitcoin has been viewed at the federal level as a speculative investment, and up until now the only branch of the U.S. government which has regulated it is the Financial Crimes Enforcement Network, an anti-money-laundering unit under the Department of the Treasury. The European Banking Authority has warned consumers, “Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business.”

Bitcoin is still growing
Regardless of the recent $300 million loss through Mt. Gox, this alternative currency continues to gain a foothold globally. It offers the ability to transfer money from one part of the world to another without having to pass through any banking system, and this innovation is crucial enough to easily surmount the challenges brought by the failure of one single exchange. Despite the failure of Mt. Gox, the enthusiasm of Bitcoin visionaries has not been dampened. Mark Andreessen, a prominent venture capitalist who has invested about $50 million in Bitcoin, was quoted in the LA Times as saying, “Every important new technology has birthing pains. PC did, Web did, bitcoin does.”

New interest from regulators
The fact that Bitcoin transactions take place below the radar of regulators, and the clear indications that despite some setbacks Bitcoin appears to be thriving, has caught the interest of regulatory entities. Japan has confirmed in a news conference that it has launched an investigation of Bitcoin, while reports in the U.S. claim that both the Manhattan District Attorney’s Office as well as the FBI are now involved in an investigation. In the wake of a recent Bitcoin hack that caused the collapse of the underground market known as The Silk Road 2.0, law enforcement is struggling to understand the digital crime possibilities opened up by this crypto-currency. They are attempting to discern whether criminal activity was involved in the Mt. Gox failure, in which approximately 6% of the total supply of bitcoins were lost. The NY Times reports that the Manhattan prosecutor’s office is teaming up with the IRS in its investigation. Homeland Security and Governmental Affairs Committee Chairman Tom Carper has announced that his staff is looking into the currency, and the Commodity Futures Trading Commission has also declared that they are planning to investigate Bitcoin.

As the turbulent Bitcoin waves continue to roll out, this alternative currency is showing exceptional resilience, with Seattle and Austin planning to follow Vancouver BC in installing Bitcoin ATMs. While the price of bitcoins fell temporarily after the disappearance of Mt. Gox, new investors are already eagerly entering the fray. As Fred Wilson, a partner at Union Square Ventures, states in the Wall Street Journal, “The wonderful thing about a globally distributed financial network is that if one of the nodes goes down, it doesn’t take the system down.”

This article was written by: Casey Stubbs

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Casey Stubbs is the founder of Winners Edge Trading, which is one of the most widely read forex sites on the web. Winners Edge Trading has trained thousands of people to trade the Forex markets.

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