epresentatives of companies that trade in Bitcoin are stepping up their efforts to promote the virtual currency in Washington, in an attempt to counter regulatory suspicion that they say will drive financial innovation away from the US.Leaders of the Bitcoin Foundation, a trade group, are having meetings with US administration officials and on Capitol Hill this week, as the powerful Homeland Security Committee runs an investigation into potential threats from virtual currencies.
Bitcoin is a digital-only currency where transactions are processed through a network of volunteer computers spread across the world, outside the traditional banking system.
The total value of the currency in circulation has risen to $1.25bn, but its growth has led to heightened interest by federal and state authorities. The attention is being driven, in part, by suspicions that Bitcoin is being used for illegal activity such as money laundering, drug trafficking and tax evasion.Foundation leaders are expecting to meet representatives from the Treasury and Department for Homeland Security, as well as staff from several Senate offices. The aim is to promote the potential social and economic benefits of decentralised currency, including cheaper and more secure payments processing, and to complain about a complex federal and state-by-state regulatory structure that they say is hampering the set-up of Bitcoin trading businesses.
Many early Bitcoin trading businesses, which help users switch their virtual currency for dollars, are struggling to turn themselves into regulated money services businesses.
“If the US can’t solve these problems, all these frustrated entrepreneurs will relocate and take their jobs and capital to places like the UK or Germany,” said Patrick Murck, general counsel of the Bitcoin Foundation.
The Senate Homeland Security Committee recently launched an inquiry into “threats and risks related to virtual currency” while earlier in August, Benjamin Lawsky, New York State’s chief financial regulator, subpoenaed 22 digital currency companies on grounds of potential illicit activity – referring to Bitcoin as “a virtual Wild West for narcotraffickers and other criminals”.
Suspicion of Bitcoin on Capitol Hill goes back to a 2011 denunciation by New York senator Chuck Schumer of the currency as an “online form of money laundering”.
In recent weeks, Bitcoin companies have acted to boost their presence with a new group called the Data Asset Transfer Authority (Data), which has been formed to serve as the self-regulatory body of the US virtual currency industry and is being advised by Promontory Financial Group, a consulting firm comprised of former top US financial regulators. It has also begun meeting the regulatory and law enforcement community in Washington, including officials at the Department of Treasury and the Financial Crimes Enforcement Network.
The federal seizure this year of Liberty Reserve – the Costa Rica-based digital currency provider – and money laundering charges against its founders have complicated matters, said Constance Choi, a spokeswoman for Data. There is concern that a “guilt-by-association” mentality will cause regulators to react to virtual currencies in an ad hoc manner, she said.“It’s really a PR problem for us. Everybody here is talking about Liberty Reserve, which didn’t even involve Bitcoin.