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US Begins Regulating BitCoin, Will Apply "Money Laundering" Rules To Virtual Transactions
Last November, in an act of sheer monetary desperation, the ECB issued an exhaustive, and quite ridiculous, pamphlet titled "Virtual Currency Schemes" in which it mocked and warned about the "ponziness" of such electronic currencies as BitCoin. Why a central bank would stoop so "low" to even acknowledge what no "self-respecting" (sic) PhD-clad economist would even discuss, drunk and slurring, at cocktail parties, remains a mystery to this day. However, that it did so over fears the official artificial currency of the insolvent continent, the EUR, may be becoming even more "ponzi" than the BitCoins the ECB was warning about, was clear to everyone involved who saw right through the cheap propaganda attempt. Feel free to ask any Cypriot if they would now rather have their money in locked up Euros, or in "ponzi" yet freely transferable, unregulated BitCoins.
For the answer, we present the chart showing the price of BitCoin in EUR terms since the issuance of the ECB's paper:
Therein, sadly, lies the rub.
As central banks have been able to manipulate the price of precious metals for decades, using a countless plethora of blatant and not so blatant trading techniques, whether involving "banging the close", abusing the London AM fix, rehypothecating and leasing out claims on gold to short and re-short the underlying, creating paper gold exposure out of thin air with which to suppress deliverable prices, or simply engaging in any other heretofore unknown illegal activity, the parabolic surge in gold and silver has, at least for the time being - and especially since the infamous, and demoralizing May 1, 2011 silver smackdown - lost its mojo.
But while precious metals have been subject to price manipulation by the legacy establishment, even if ultimately the actual physical currency equivalent asset, its "value" naively expressed in some paper currency, may be in the possession of the beholder, to date no price suppression or regulation schemes of virtual currencies existed.
It was thus only a matter of time before the same establishment was forced to make sure that money leaving the traditional M0/M1/M2/M3 would not go into alternative electronic currency venues, but would instead be used to accelerate the velocity of the money used by the legacy, and quite terminal, monetary system.
After all, what if not pushing savers to spend, spend, spend and thus boost the money in circulation, was the fundamental purpose of the recent collapse in faith in savings held with European banks?
So, as we had long expected, the time when the global Keynesian status quo refocused its attention from paper gold and silver prices, to such "virtual" currencies as BitCoin has finally arrived.
The WSJ reports that, "the U.S. is applying money-laundering rules to "virtual currencies," amid growing concern that new forms of cash bought on the Internet are being used to fund illicit activities. The move means that firms that issue or exchange the increasingly popular online cash will now be regulated in a similar manner as traditional money-order providers such as Western Union Co. They would have new bookkeeping requirements and mandatory reporting for transactions of more than $10,000. Moreover, firms that receive legal tender in exchange for online currencies or anyone conducting a transaction on someone else's behalf would be subject to new scrutiny, said proponents of Internet currencies.
And just like that, there goes a major part of the allure of all those virtual currencies such as BitCoin that consumers had turned to, and away from such rapidly devaluing units of exchange as the dollar and euro. Because if there was one medium of exchange that was untouched, unregulated, and unmediated by the US government and other authoritarian, despotic regimes around the insolvent "developed world", it was precisely transactions involving BitCoin.
That is no longer the case, as the bloodhound of the Federal Reserve has now turned its attention toward BitCoin, and will not stop until it crashes both its value to end-users, and its utility, in yet another attempt to force the USD, and other fiat, upon global consumers as the only forms of allowed legal tender.
The rising popularity of virtual currencies, while no more than a drop in the bucket of global liquidity, is being fueled by Internet merchants, as well as users' concerns about privacy, jitters about traditional currencies in Europe and the age-old need to move money for illicit purposes.
The arm of the Treasury Department that fights money laundering said Monday that the standard federal banking rules aimed at suspicious dollar transfers also apply to firms that issue or exchange money that isn't linked to any government and exists only online.
Naturally, the actual object of US monetary persecution, is BitCoin:
"We are beyond the stage where this was just funny money and a fun online thing. This is used as a currency," said Nicolas Christin, associate director of Carnegie Mellon University's Information Networking Institute.
Bitcoins can be used in a host of legitimate transactions—for example, website Reddit allows users to upgrade services using bitcoins and blog service Wordpress.com's store accepts them as a form of payment. Pizzaforcoins.com also lets bitcoin savers pay for deliveries through Domino's and other pizzerias.
The problem with virtual currencies is that defining what is permitted in a narrow regulatory sense, is impossible, which is why any definition will be as broad as possible: after all what better way to spook users than to make virtually any transaction borderline illegal:
Creating clear-cut rules for virtual currencies is difficult. A FinCen official said that anti-money-laundering rules would apply depending on the "factors and circumstances" of each business. The rules don't apply to individuals who simply use virtual currencies to purchase real or virtual goods.
The new guidance "clarifies definitions and expectations to ensure that businesses…are aware of their regulatory responsibilities," said Jennifer Shasky Calvery, FinCen director.
The FBI report last year said Bitcoin attracts cybercriminals who want to move or steal funds. "Bitcoin might also logically attract money launderers and other criminals who avoid traditional financial systems by using the Internet to conduct global monetary transfers," the report said. An FBI spokeswoman declined to comment when asked about the agency's concerns regarding virtual currencies.
We were not the only ones to expect imminent intervention from Big Brother:
Some firms say they anticipated the rules. Charlie Sherm, chief executive of bitcoin payment processor BitInstant, said his company is already compliant.
Mr. Christin of Carnegie Mellon said that he believes Bitcoin's dominant use right now is speculation.
"When you have a commodity or currency whose value has grown as rapidly as Bitcoin it makes sense to hold on to it as a speculative instrument," he said. It also is commonly used for online black markets or gambling sites. "Whether used for money laundering…there is no smoking gun."
As to the question of timing - why now - the answer is simple. Europe. After all, it was only yesterday that we wrote that "In Spain, The Bitcoin Run Has Started." It is self-explanatory that if such an exodus away from legacy currencies and into BitCoin was left unchecked, more and more people would follow suit, which is why it had to be intercepted as early as possible.
The jump in the bitcoin exchange rate this week also coincides with concerns euros could be taken from retail bank accounts in Cyprus to fund a bailout. Internet blogs say speculators are looking toward currency alternatives.
Well, if internet blogs say... Of course, internet blogs also say that if and when the fascination with virtual currencies fizzles, all those who are disgusted with the abuse of fiat will not cease from seeking USD, EUR, JPY, GBP and CHF alternatives, but will merely go back to the safety of having hard assets as a currency, namely silver and gold, instead of electronic ones and zeroes, which the US government, in all its Orwellian benevolence may one day, for lack of a better word, hack right out of existence.
On the other hand, the regime's desperation is reaching such a level that a Executive Order 6102-type confiscation of all hard asset currencies may not be far behind.
Because forewarned, is forearmed.
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" What happens if your hard drive or storage device fails with your bitcoin on it?"
Information goes into the cloud.
But while precious metals have been subject to price manipulation by the legacy establishment, even if ultimately the actual physical currency equivalent asset, its "value" naively expressed in some paper currency, may be in the possession of the beholder, to date no price suppression or regulation schemes of virtual currencies existed.
Biggest load of nonsense I read recently (not ever, but close).
Forking the bitcoin code caused a flash-crash to near-zero just ONE week ago.
Controlling ANY exchange and then REMOVING it, taking all the BTC with it, INSTANTLY causes crisis of confidence AND loss of funds for the honest BTC holders, and that fucks with BTC valuations far more than over-selling naked short silver contracts on COMEX. Far far, more. There's a reason BTC went up to 30 or so then down to 5, then up to where it is now with ZERO just a few days AGO FROM NOW.
So you are talking about monopoly money?
I wouldn't buy anything I couldn't lay my hands on.
Do you lay hands on your Electricity? How about your Internet? Do you think that there are Paper Dollars that are allocated speciifically to you in a Bank account?
What about Insurance? Do you buy Insurance? That is just a promise to pay in case of a catastrophic loss. But Promises can be broken. Do you buy Insurance for your Car?
How about your paycheck? That is just a promise to pay just like those empty US Dollars that you take in return for your efforts. Do you have confidence in that paycheck when you take it? Do you have confidence in that currency as you take it? You must trust that you can trade it to others for Goods and services, right?
It is just a promise and you have to place a Trust that the promise will be honored.
Even taking possession of Precious Metals means that you must have a confidence that you will be able to barter them at a later time.
Most US Dollars are just ledger entries on a Bank's computer. Electronic Digits. The vast majority of US Dollars are just Electronic Digits. There has not ever been a piece of Paper issued to back up that electronic money. Do you trust those Electronic Digits as you spend that Currency? Do you even give it a passing thought?
Oh you must trust the Government. That is the difference. The Government produces the Electronic Dollars and BitCoin is not run or managed by a Government.
Do you think that the Government is deserving of any trust? Well I DO NOT.
A BitCoin is Electronic Money without any Paper. Thus there is no Physical Paper Trail. It was a brilliant stroke by its creators. They just pulled off creating a Central Bank SANS CURRENCY MANIPULATION.
That is what a BitCoin is. It is NO DIFFERENT than any other Currency.
It is a pretty Politically Embarassing action if you ask me. It just demonstrates that Central Bankers are...er...USELESS and OBSOLETE? That is the clever brilliance behind it.
It is just demonstrative of what money has been transformed into. Information, Trust, and Confidence. That is what Money has become. Take away any of those foundations and the system becomes unstable and topples.
That is what the BitCoin issue is about.
BTC fell to near zero?
Check again propagandist.
http://bitcoincharts.com/charts/mtgoxUSD#rg60ztgSzm1g10zm2g25zv
Revision - removing the zero-mark doesn't remove the stories that reported it at the time. Bitcoin flash-crashed and we all saw it.
Same as LAST Time charts were revised to remove the price smashes that DID HAPPEN and DID SHOW when EXCHANGES were compromised. It's happened. It will not be forgotten. NASDAQ hit "undo" on the 2010 May 6 trades too. WE DID NOT FORGET.
Bitcoin? Just one itsy bitzy thing trying to trade as money; no different than any snake oil.
Gold, silver, land, agriculture. Why do anything else? Really. Can't see the point of anything else in this early 21st Century Fiat Freakdom, much loved by the fucktard politicos and their kill anything fans.
All those voters who love to kill foreigners so their fucktard fave politico can scam them with their own money, and pay the central bank zioinist cartel. Jerks.
Forgot guns and ammo...
Encryption or not, .gov owns BITCOIN's ass whenever it wants it. For me that is the real test of BITCOIN: can it operate despite governments worldwide?
The answer is no. The developer of BITCOIN is a cracker jack engineer, but he knows little of politics and economics.
BitCoin is though out by people that, in my opinion, are lot smarter than the people running the fiat scheme.
It is only numbers, but the issue is limited, it's completly decentralized, anonymous, real-time and secure. Un-taxable. Un-regulatable. It's beautiful and part of the net now and will never go away short of shutting down the Internet. But it's not a tradition. At least not yet, but I wouldn't be suprised if people start pricing in milli-BTC in the future.
I own no BitCoins.
Agree with you in concept. However, Govt's control the internet and they will bring it down. It is already a threat just from forum's like this. The info is getting out. the youth are not plugged into network news and are seeking alternative media, alternative currencies. It's game over and info control will be the final curtain.
TD, this may be the most important ZH article yet.
If government outlaws sound money and promotes Ponzi fiat, we will not have sound government.
Not that we are a big fan of virtual money that can be turned off at will by government cybersecurity.
(Like Joe Kennedy and John Morgan, we still like Authentic Congressionally authorized Constitutional Legal Tender IRA eligible Secret Service protected American Eagles from the US Mint guaranteed for purity and weight.)
Today, 22 March 2013, is an amazing day that will go down in infamy, as Martin Armstrong noted:
http://richcash8tradeblog.blogspot.com/
We also note that opening Call/Put %'s today hit levels that usually mark market bottoms:
All securities C/Ps = 69%
Equity C/Ps = 88%
ETFs/Indices C/Ps = 31%.
Since VXX gave a spinning top bottom doji on huge volume today, we think the oversold fun may be only just beginning.
VXX > 91.52 a possible target by 7 July 2013.
(For perspective, VXX was 1855.36 in March 2009)...
not trying to be a smartass but surely this was predictable? i thought the anonymity was the whole point, although until very recently i hardly ever heard and knew nothing about bitcoin. but there's not much point in anonymity ex post if there's control ex ante.
Be sensible.
Define money.
Bitcoin was doomed.
end of story.
ha ha
- Nelson
I don't own any bitcoins mainly due to I don't really understand how it all works on a macro level.
Does not seem that different to fiat to me in that it is not backed by anything and it's all virtual.
The only thing I can see it has going for it is it's not centralized and the governments around the global have not control of it (at the moment).
Agree, it is electronic fiat...
They can't even regulate the shadow banking industry. How the fuck do they think they are going to regulate bitcoins?
The matrix is the matrix is the matrix.
what the matrix deems is dangerous BECOMES dangerous in law and by practice.
Putinism is this oligarchy rule applied by thuggery, they don't even bother to have it codified in legalese.
In the west its by due process and its garbed in the packaging of WH or of Congress. Move on, its in your better interest.
The ECB is in the same mindset as are most nation state democracies.
Power makes its own rules in the context of its own traditions.
The only way to challenge the matrix is by exposing the scam and then by creating casus belli to test their will in repeated fashion; aka with the blood of the innocent.
Expecting the matrix to mend its ways is pure illusion. Power has to be wrenched with determined hands, like those of our martyrs who keep bashing away at the fortress with their own blood and guts exposed.
Matrix in the original meaning, non pseudo-gnostic newspeak is the chaotic basic substance matter of alchemists
Or in short, it's when the flo of money stops dead in it's tracks.
You've made the rules ... now try and enforce them, bitchez.
I take it you're talking about the same money laundering rules that were applied to HSBC? In that case, really large purchases would be exempted!
off topic : no new articles on zerohedge for quite a while now. what's going on?
edit : ok, a new one just popped up.
But forearmed is half an octopus.
As an impartial observer, I look forward to the day the federal government crushes the bitcoin trolls.
(1808-1887) Political theorist, activist, abolitionistH
DO YOU THINK FOR ONE SECOND THE WARFARE WELFARE DNC/RNC CABAL WOULD LET FREE MARKETS FLOURISH.. LOOK WHO THINKS HE HAS THE ABILITY TO COMPROMISE.....
https://www.youtube.com/watch?v=HcdLO3jKkPo
Fucking pigs. Maybe if the families of a few top officials die they'll back off.
Because the socialists know better than you how to spend your money. You're not capable of making such decisions. Besides, FIAT should never have a competitor. PM'S are next.
Desperation... http://shutupnsing.wordpress.com/2013/03/22/why-are-they-so-desperate/
I don't see how they will be able to enforce this unless they come right out and say that accepting bitcoins is illegal by anyone. The money laundering angle doesn't make sense since there are already deposit and withdrawl restrictions on Bitcoin which are within the money laundering guidelines (with possible exceptions for "Trusted" users that are allowed higher deposit and withdrawl amounts)
I must admit I don't really know alot about Bitcoin yet so could someone please explain what affect this new ruling will have on it?
Shit, now I can remember why I was having a difficult time grasping and accepting the "virtual" currency concept - it was the real and virtual fucking thieves!
FU Big Brother
Wow Tyler nice post but there are a lot of things wrong. Legal Tender is debt money. Bitcoin involves no debt and could never be legal tender. Legal tender is for the discharge of debt.
The US gov't did not spceifically say anything about bitcoin. Many of the items in the FinCen doc are plain wrong legally speaking.
All gov't can be solved by not valuing any transaction in anything but in Bitcoin value. Forget the artifical pegging to the exchange rate of BTC vs gov't currency.
Tyler - please get rid of the video Ad that pops up on every page of the site. thanks.
1. zh has costs, i mean serious bandwidth and server costs. lately zh has been getting higher google page rank than the MSM. it lands ABOVE bbc, cnn and reuters in google searches. kudos tyler.
2. you can use adblock.
Dumb Question -
How would the government enforce any regulation against peer-to-peer bitcoin transactions? Without decrypting (if they have broken the encryption yet) every encrypted Internet transmission, how could the government even know a BTC transaction has taken place, let alone know the details to enforce some kind of regulation.
Essentially my question is - is this a complete bluff on the part of the Fed, a partial bluff, or do they have the technology to do everything their statement implies?
Thanks in advance.