By Julian Hattem - 02/26/14 08:45 PM EST
Sen. Joe Manchin (D-W.Va.) on Wednesday called for financial regulators to ban the virtual currency bitcoin.
A day after the apparent collapse of Mt. Gox, a Japan-based website that allowed users to trade bitcoin for U.S. dollars and other currencies, Manchin, in a letter to Federal Reserve Chairwoman Janet Yellen and other officials, said the administration should join other countries in banning it as a currency.
Manchin said he was worried about criminal use of the currency to launder money and traffic drugs, and warned it could pose a threat to the U.S. economy — especially if other countries get ahead of the U.S. in banning or regulating it.
“The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary [sic] of its use,” he told the heads of the Treasury Department, Federal Reserve, Securities and Exchange Commission, Commodity Future Trading Commission, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp.
“Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.”
China and Thailand have both essentially banned the currency. Russia has indicated that the money is tied to illicit activities, and someone’s use of bitcoins would be suspicious. South Korea says it will not recognize bitcoin as a legitimate currency.
Manchin noted the European Union has issued warnings to bitcoin users that their governments could consider options for regulating or banning its use entirely.
“While it is disappointing that the world leader and epicenter of the banking industry will only follow suit instead of making policy, it is high time that the United States heed our allies’ warnings,” Manchin wrote. “I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.”
The apparent folding of Mt. Gox caused hundreds of millions of dollars to go missing, and has raised questions about the virtual currency’s future.
Backers of the online-only money say the collapse is just a short-term hiccup. They even argue it may ultimately help regulators by pointing out the perils of poorly run bitcoin businesses.
“This is certainly not the end of bitcoin. Perhaps the end of one chapter, but certainly not the end,” Jinyoung Englund, a spokeswoman with the trade group Bitcoin Foundation, said in an email to The Hill.
“As our industry matures, we are seeing a second wave of capable, responsible entrepreneurs and investors who are building reliable services for this ecosystem.”
Yet the failure of Mt. Gox is not the only black eye for bitcoin in recent weeks. Charlie Shrem, an early bitcoin pioneer and former vice chairman of the Bitcoin Foundation, was arrested last month on charges of conspiring to launder money.
Critics have also pointed to Silk Road, an online marketplace where drugs and other illicit goods were traded for bitcoin, as reason to restrict the currency. The Silk Road was shut down by the FBI in October.
Manchin argued the Mt. Gox collapse was no unique event. He argued that rapid fluctuations of bitcoin prices is a near-weekly occurrence. Troubles at the site have sent the exchange rate plummeting to the lowest level since December.
The federal government has, so far, taken a relatively hands-off approach to bitcoins. Aside from registering as a money transmitter with the Treasury Department, there are few rules for bitcoin exchangers.
But the new notoriety of bitcoin is bringing it more attention in Washington.
Sen. Tom Carper (D-Del.), the head of the Homeland Security and Governmental Affairs Committee, said on Tuesday that collapse of Mt. Gox was a “reminder of the damage potentially ill equipped and unregulated financial actors can wreak on unsuspecting consumers.”
His committee is working on a formal analysis of bitcoin and other virtual currencies, set for release in coming weeks.
An aide with the Homeland Security Committee told The Hill that Carper wants to make sure federal and state officials collaborate to provide “clear and consistent rules in a timely manner that are responsive to the needs of consumers,” especially in light of the Mt. Gox collapse.
“It is still too early to draw any formal conclusions or recommendations from this event but the committee will continue its oversight and determine appropriate next steps, if any, once it completes its report this spring,” the aide said in an email.
Updated at 8:45 p.m.