EU banks watchdog advises lenders to shun bitcoins
Banks in the European Union should refrain from offering customer accounts in virtual currencies like bitcoins until regulatory safeguards are in place, the bloc's banking watchdog said on Friday.
The EU's executive European Commission responded by saying it was imperative to look quickly at possible regulation.
Bitcoin, the best known of the 200 or so computer-generated currencies, started circulating in 2009, and acceptance has been growing as more merchants allow customers to pay for goods and services in the currency.
Virtual currencies, which unlike conventional money are not backed by a central bank or government, have come under particular scrutiny since Tokyo-based exchange Mt. Gox went bankrupt in February after losing an estimated $650 million worth of customer bitcoins.
The European Banking Authority (EBA) in a study published on Friday proposed a new regulatory framework along with advice to banks to steer clear of virtual currencies until rules are in place.
"This immediate response will 'shield' regulated financial services from virtual currency schemes and will mitigate those risks that arise from the interaction between virtual currency schemes and regulated financial services," the EBA said.
So far there has been no coordinated, global approach to regulating virtual currencies, making the EBA plans the first comprehensive blueprint. No country has yet given virtual currencies legal tender status.
The advice to banks would still allow financial firms to maintain a current or checking account relationship with businesses active in virtual currencies, it added.
Among the new rules it wants to see in place is a requirement for the currency exchanges to hold capital so that if they go bust, as in the case of Mt. Gox, there are resources to cushion customers.
The EBA study identifies more than 70 risks to users, market participants and to the financial system, such as money-laundering and other financial crimes, from the spread of virtual currencies in an unregulated market.
Bitcoin Domain-Name Prices Defy Drop in Virtual Currency’s Value
Bitcoin’s 46 percent decline in the value since its December peak hasn’t damped a surge in prices for Internet domain names related to the virtual currency.
Entrepreneur Niko Younts said he sold the BitcoinWallet.com name in January for $250,000 -- 23 times what he paid a month earlier. Investors buying bitcoin-related Web addresses in hopes of a fast resale are fueling a domain-name boom. Some 3,290 names ending with .com or .net and containing “bitcoin” have been registered since May 12, according to Verisign, which operates a registry for those top-level domains.
Prices for addresses referencing digital currencies such as bitcoin have tripled since last year, Rob Lagsam, sales director at domain-name seller BinaryCoin.com, said in an e-mail. While some sold for $5 a few years ago, brokerage Domain Guardians Pty Ltd. is now trying to sell BTC.com, based on an abbreviation for bitcoin, for more than $1 million.
“Premium, generic, category-defining domains are like prime real estate,” Mike Robertson, co-founder of Brisbane, Australia-based Domain Guardians, said in an interview. “Owning a name like BTC.com would be like owning a shop front” on New York’s Fifth Avenue, London’s Oxford Street or the Los Angeles area’s Rodeo Drive.
Should Domain Guardians get its price of more than $1 million, that still would be far short of the record for a domain name. The highest price paid was $13 million for Sex.com in 2010, according to DNJournal.com, which tracks the industry.
Another potential high-price domain name, Bitcoins.com, is set to be auctioned off by Heritage Auctions, with an opening bid set at $185,000. Heritage estimated that the name may sell for more than $750,000.
Some 30,000 domain names with “bitcoin” or another digital currency, “litecoin,” in them have been registered since 2010 through GoDaddy Inc., the largest registrar of the titles, said Mike McLaughlin, a senior vice president at the Scottsdale, Arizona-based company.
The registrations peaked at more than 5,000 in December, when bitcoin’s price passed $1,100, he said in an interview. With bitcoin prices lower and many of the best names snapped up, registrations have slowed to a few hundred a month, McLaughlin said.
Bitcoins traded at about $617 at 5:50 p.m. New York time yesterday on the CoinDesk Bitcoin Price Index, which represents an average of prices across major online exchanges. The CoinDesk peak was $1,147.25 on Dec. 4.
WTF Headline Of The Day: Blythe Masters' Ex-Husband Launches Offshored Bitcoin Hedge
Blythe Masters is perhaps the most maligned human being on earth by silver investors due to suspicions of JP Morgan’s manipulation in the silver market. Well she’s back in the news, but it has nothing to do with silver. Rather, the news relates to the fact that her ex-husband and commodities traders, Daniel Masters, has just launched a Bitcoin hedge fund from the island of Jersey, a British Crown dependency.
We learn from Newsweek that:
Daniel Masters, a 50-year-old veteran commodities trader, started working for some of the largest companies in the world right out of university, trading in London, New York and Zug, Switzerland, for JPMorgan Chase and Phibro before moving on to the New York Mercantile Exchange, a short walk from Wall Street. By all appearances, it was your standard Wall Street career.
Then, in 2008, he moved to a tiny island off the coast of France called Jersey, which this week opened its doors to the island’s first fully regulated Bitcoin hedge fund—run by none other than Masters himself—as part of a push to create a nascent Silicon Valley in the heart of the English Channel, replete with government-funded entrepreneurial hubs and startup accelerators.
No sooner did word of the offshore Bitcoin fund get out than Reddit spluttered to life, devoting two pages, here and here, to debating whether the virtual currency’s baby steps into the institutional investing realm is really good news or bad news for Bitcoin, whose meteoric rise has thus far been mostly successful in eschewing traditional finance.
Masters, co-principal of Global Advisors Jersey Ltd.—which trades up to $2 billion of energy and equities—is the latest of a handful of fund managers trotting out new Bitcoin investment funds in recent months, as investors clamor for innovative ways to skim the froth off the digital currency’s impressive, if often unpredictable, price pops and drops and, occasionally, collapses.
He believes Bitcoin’s prices will stabilize as the currency and technology mature—similar to what has happened over the past decade with oil—but in the meantime, he estimates the value of Bitcoin could rise to $2,000 or more. “Right now, Bitcoin has about 1,000 percent annualized volatility,” he says. “Compare that to oil at 15 to 20 percent and stocks at 10 to 15 percent.” In other words, the potential upside, in the eyes of an experienced trader, are too appealing to resist.
Speaking from CoinSummit in London, Simon Hamblin, CEO of Netagio, a year-old U.K. company that specializes in secure Bitcoin storage and is a custodian for the Bitcoin fund being launched by Masters, says any fund must take numerous precautions to guard against the loss of Bitcoins. “We keep our Bitcoin in cold storage, in different forms both physical and media, and always keep it offline, heavily encrypted and in multiple locations,” he told Newsweek.
This week, Netagio, based in the Isle of Man—a Crown dependency, like Jersey—announced the debut of a London-based Bitcoin exchange that will allow individuals to trade Bitcoin against the British pound and gold. Netagio spun off this spring from Jersey’s GoldMoney Network Ltd., which stores $1.4 billion of metals in five undisclosed locations for clients across Europe.
New York's proposed Bitcoin rules include consumer protections
Companies trading in Bitcoin and other virtual currencies would be required to hold enough of the currencies to cover their debts to customers and would have to verify the identities of account holders as a protection against money laundering, under new regulations proposed by the New York State Department of Financial Services [DFS].
The proposed rules, announced Thursday, would also require virtual currency traders to develop customer complaint procedures, to adopt cybersecurity policies and to submit to examinations by the DFS in exchange for a so-called BitLicense to trade in virtual currencies.
DFS has conducted an 11-month inquiry into Bitcoin regulation, with the department’s interest starting just months after trading problems surfaced at Mt. Gox, a large Japanese Bitcoin-trading service. Law enforcement officials have also raised concerns that the anonymity of Bitcoin owners could open the door to easier money-laundering schemes.
“We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity—without stifling beneficial innovation,” DFS Superintendent Benjamin Lawsky said in a statement. “Setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets.”
New York would be the first state to issue virtual currency regulations. DFS plans to publish the proposed regulations next Wednesday. Their publication will start a 45-day public comment period. DFS will also publish the proposed rules on Reddit, the content-sharing site with a large community of virtual currency users.
New York would require BitLicenses for businesses that receive or transmit virtual currency on behalf of consumers, or store or control virtual currency for customers. DFS would also require a license for businesses that convert virtual currencies to other currency, or that buy or sell virtual currency as a business model.
The licenses will not be required for merchants or consumers that receive virtual currencies as payment for goods or services, DFS said.
Under the proposed rules, DFS would require virtual currency licensees to provide detailed receipts to customers, and would require them to monitor transactions for money laundering and report suspected activity to the department.
Bitcoins Can’t Shake Bubble Image in Poll After 45% Drop
Bitcoins, which lost 45 percent of their value after skyrocketing to more than $1,100 last year, are poised to tumble further, according to the latest Bloomberg Global Poll of financial professionals.
Fifty-five percent of those surveyed said the virtual currency trades at unsustainable, bubble-like prices, according to the quarterly poll of 562 investors, analysts and traders who are Bloomberg subscribers. Another 14 percent said it’s on the verge of a bubble. Only 6 percent of respondents said a bubble isn’t forming. The remaining 25 percent were unsure.
The results show skepticism of the virtual currency even as technology entrepreneurs, venture capitalists and hedge funds plow money and effort into building it into a global payment system. Bitcoin prices have swung between more than $900 to as low as $341 this year as enthusiasts try to address the digital currency’s weaknesses, persuade consumers to embrace it and overcome governments’ concerns that it could be misused by criminals.
Bitcoins emerged from a 2008 paper written by a programmer or group of programmers under the name Satoshi Nakamoto, becoming the most popular virtual currency. It relies on a public ledger and cryptography to record transactions and protect ownership.
Bloomberg’s poll, conducted July 15-16 by Selzer & Co., a Des Moines, Iowa-based firm, has a margin of error of plus or minus 4.1 percentage points.
And it goes on and on and on
In the end we shall be nothing but slaves (imagine that you will not be able to have money that the "government" can not lay their hands on when they think that they want it)
like former USSR?...no need to imagine...I lived it
This will be worse : imagine that there s no way to know where your money is and that the "governments", banksters and similar will always have access to what is yours at their will - all they will have to do is to "transfer" it to their "wallet" and you will never be able to know who took it
Oh, they will make some laws that will be there to "prevent" that. But they will be there to prevent us from taking from them, not them from taking from us. So, Orwell, here we come
How To Stop Bitcoin Banking; Give It A BitLicense In New York
New York State has decided to issue a regulatory structure for Bitcoin, meaning that businesses in that State can be sure of what they can and cannot do. This is excellent news of course, the regulatory uncertainty is most certainly holding back development of all cryptocurrencies. However, there is one tiny problem with the regulations as they’ve proposed them. They actually make running a Bitcoin bank illegal. Which, if you’re trying to encourage people to develop new banks is probably something of a bad idea.
There’s much to like about the initiative. I’m particularly taken by the way in which Ben Lawsky, of the NYDFS, took to the Reddit Bitcoin forum to ask the Redditors what they thought of the regulations proposed. That’s real engagement with the user base going on.
The aim is to develop “BitLicenses” which detail what a company may do with Bitcoin, what it must do, capital adequacy ratios and so on. All useful stuff during the development of part of the financial system. However, as the excellent Matt Levine points out there is a problem with part of the suggestions:
What this means is that if you’re in the business of bitcoinery — “receiving Virtual Currency for transmission or transmitting the same; securing, storing, holding, or maintaining custody or control of Virtual Currency on behalf of others; buying and selling Virtual Currency as a customer business; performing retail conversion service … or controlling, administering, or issuing a Virtual Currency” — and you owe bitcoins to customers, then you need to have 100 percent of those bitcoins sitting in your bitcoin vault. And you can’t borrow against them. And you need to have some extra cash in dollars, just in case (in case what?). And you need to have however much capital Ben Lawsky decides you should have.
That is, to be a Bitcoin bank you cannot actually be a bank.
To explain: we can have many different definitions of a bank, the financial world one, the regulatory one (Goldman Sachs was not before 2008 even though everyone knew, other than the regulators, that it was, sorta , a bank) but the one I want to use here uses the economist’s one. As Brad Delong has been saying for years now, banks borrow short and lend long. That’s just what banks do: if you borrow short and lend long you’re a bank, if you don’t, you’re not. If you’re not borrowing short and lending long you may be doing many things but you’re not doing banking.
Another name for this is maturity transformation, yet another is fractional reserve banking. They’re not all exactly the same things but they do all come as a package. And what the proposed NY BitLicense rules out is the possibility of doing that fractional reserve banking. It allows only 100% reserve banking. And that in turn rules out maturity transformation: which means that you’re not borrowing short and lending long. You are, therefore, by this definition of banking, not allowed to be a Bitcoin bank.
As Levine goes on to point out you can, if you are already a bank (in the regulatory sense) extend your banking activities to Bitcoin and sidestep those regulations. But only if you are already a bank. Thus you cannot set up a Bitcoin bank with just a BitLicense, you need to go to all of the expense of a full NY State banking license. Which probably isn’t the way to encourage entrepreneurial start ups in the cryptocurrency world really.
New York unveils first-ever regulations on Bitcoin
Superintendent of the New York Department of Financial Services Ben Lawsky revealed a draft proposal on Thursday of regulations governing virtual currencies like Bitcoin, making New York the first state in the country to grapple directly and openly with the issue. If passed, they would be the first regulations on virtual currencies anywhere in North America to carry the full weight of the law.
The rules say that anyone conducting “virtual currency business activity” needs to have a BitLicense. That sort of activity includes things like buying and selling virtual currency as a customer business, storing virtual currency on behalf of others, or issuing a virtual currency. Merchants and customers who use virtual currencies exclusively for the transactions of goods and services, however, are exempt.
If you want to start a virtual currency exchange or operate an online wallet service in the state of New York, you’re going to need a BitLicense, but if you just want to buy or sell a pizza with virtual money, it’s still possible to do so without first getting government approval.
Applying for a BitLicense involves disclosing personal and financial information for top company officials, undergoing a background check, paying a fee, and providing details about the structure and business goals of the company. If the regulators see any shady behavior, licenses can be either suspended or revoked entirely following a hearing.
The proposal also introduces capital requirements, which are rules that nearly all financial institutions are required to follow requiring them to have a certain amount of cash (or other assets) on hand to ensure that a market downturn or bad business decision doesn’t suddenly sink the whole company and its customers’ investments with it. The minimum amount of capital each virtual currency financial firm will be required to carry will be determined by regulators on a case-by-case basis.
In addition, all firms applying for BitLicenses will be required to comply with a set of policies— including the preservation of all financial records for at least a decade, the submission of quarterly financial statements, the verification of customers’ real-world identities, and the logging all user transactions—which are designed to combat fraud and money laundering, as well as rules designed to ensure against data breaches and protect customers’ privacy.
Interesting, the rules appear to technically prohibit virtual currency firms from taking the revenue they earn from virtual currencies and then investing that money back into virtual currencies. Earnings can only be sunk into “high-quality, investment-grade permissible investments … denominated in United States dollars.” This is a category that includes investment vehicles like money market funds, state or municipal bonds, and government securities. Notably absent from this list: virtual currencies like Bitcoin.
One of the most appealing aspects of virtual currencies like Bitcoin for many early adopters was that they could be traded in relatively anonymity. However, as regulators around the globe have worked to incorporate virtual currencies into the traditional financial system, there’s been a push for companies operating in the virtual currency space to collect the same type of information about their clients as is required for those operating with government-backed money.
Even in New York, under these regulations that people will still be able to transfer bitcoins back and forth without revealing their real names,. But if they want to utilize the services of an online wallet service, a degree of anonymity will have to sacrificed
The regulations cover ‟any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology,” but exclude digital units used solely for online gaming. In other words, the rules cover Dogecoin but not “World of Warcraft“ gold pieces.
‟In developing this regulatory framework, we have sought to strike an appropriate balance that helps protect consumers and root out illegal activity – without stifling beneficial innovation,” Lawsky said in a Thursday morning post on Reddit’s r/bitcoin forum. ‟These regulations include provisions to help safeguard customer assets, protect against cyber hacking, and prevent the abuse of virtual currencies for illegal activity, such as money laundering.”
Lawsky has become a fixture on Reddit, hosting a well-regarded AMA on the social news site in February of this year.
‟We recognize that not everyone in the virtual currency community will be pleased about the prospect of a new regulatory framework,” he added. ‟Ultimately, though, we believe that setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets. (We think the situation at Mt. Gox, for example, made that very clear.) Moreover, given that states have specific regulatory responsibilities in this area, we also have a legal obligation to move forward on this framework.”
Marco Santori, chair of the Regulatory Affairs Committee at the Bitcoin Foundation, told the Daily Dot that he appreciated the sincere effort Lawsky’s office is making to accommodate virtual currencies.
‟First and foremost, New York is giving us an opportunity as an industry that the federal government never really gave us,” he explained. ‟They want to engage in a dialog, that’s not something that FinCen or the IRS [federal agencies that have also issued guidelines on virtual currencies] never did—they just put out their opinions without first getting feedback. New York, on the other hand, seems very serious about about becoming a hub for virtual currencies.”
However, Santori did have some reservations about the actual substance of the regulations.
He argued that these rules impose heavier regulations on businesses that work in the world of virtual currencies than are placed on firms dealing in traditional ones. Santori said the new rules would, for example, sweep in the producers of software allowing people to manage their own bitcoins, while not holding other people’s money—which is typically considered the line separating regular businesses from the type of money transmitters subjected to harsher governmental scrutiny. ‟It would be like holding Microsoft responsible for the content of a manifesto I wrote in Microsoft Word.”
The draft regulations will be formally published in the New York State Register on July 23, after which there will be a 45-day window when the public can comment. Regulators will then review the comments, make any changes they deem necessary, and then finalize them. Santori said that the Bitcoin Foundation will be actively engaging in that commenting period and beleives New York officials will be receptive to indsutry concerns.
New York isn’t the only state that’s working to incorporate virtual currencies into its formalized regulatory structure. Late last month, California Governor Jerry Brown signed a bill legalizing the use of virtual currencies in the Golden State by striking down an older bill prohibiting the use of any currency in the state other than the U.S. dollar.
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