US Government Begins BitCoin Crackdown

Tyler Durden's picture


As we first noted here (regulation) and here (supervision), the US government has been gradually encroaching on the independence and freedom of the virtual currency. This week, as The Washington Post reports, the government escalated. The feds took action against Mt. Gox, the world’s leading Bitcoin exchange. Many people use Dwolla, a PayPal-like payment network, to send dollars to their Mt. Gox accounts. They then use those dollars to buy Bitcoins. On Tuesday, Dwolla announced that it had frozen Mt. Gox’s account at the request of federal investigators.

It’s the first federal action against the currency. CNet has confirmed that the asset seizure was initiated by Homeland Security Investigations (which among other things is responsible for enforcing the laws associated with money laundering and drug smuggling).

As this crackdown begins, many argue that "you can’t put the genie back into the bottle," as far as shutting down the 'network' of open source transactions; but as one Bitcoin enthusiast added (sadly), "I hate to say it, but the Bitcoin community needs to start lobbying, it needs to start educating policymakers, lobbyists and influencers about the pros of Bitcoin and the impossibility or the difficulty in getting rid of all the bad uses."

Considering the great antipathy the central planners have toward such legacy money as gold and silver, is it any surprise that they would move aggressively and rapidly to halt the emergence of yet another alternative to fiat, especially one which the ECB made it very clear will not be tolerated in an insolvent world. Because all is fair in preserving the FIATH...

Via The Washington Post:



Sen. Chuck Schumer (D-N.Y.) described Bitcoin as an “online form of money laundering” and called for the authorities to shutter the Bitcoin-based drug market Silk Road. Yet until recently, the feds have taken a relatively hands-off posture.




That hands-off stance may have started to change this week when the feds took action against Mt. Gox, the world’s leading Bitcoin exchange. Many people use Dwolla, a PayPal-like payment network, to send dollars to their Mt. Gox accounts. They then use those dollars to buy Bitcoins. On Tuesday, Dwolla announced that it had frozen Mt. Gox’s account at the request of federal investigators. It’s the first federal action against the currency.

CNet has confirmed that the asset seizure was initiated by Homeland Security Investigations, a division of Immigration and Customs Enforcement. Among other things, that agency has the power to enforce laws against money laundering and drug smuggling.


Jerry Brito, a scholar at the libertarian Mercatus Center at George Mason University, urges federal regulators to tread lightly. “Bitcoin has the potential to be a boon to the economy and a boon to merchants,” he argues.




Moreover, he says, “You can’t put the genie back into the bottle.” In his view, the federal government would have as much difficulty shutting down the Bitcoin network as major content companies have had shutting down peer-to-peer file sharing. A major crackdown would merely drive the network underground, where it would continue to be used for illicit transactions but would be off-limit to ordinary consumers.



“I hate to say it, but the Bitcoin community needs to start lobbying,” he says. “It needs to start educating policymakers, lobbyists and influencers about the pros of Bitcoin and the impossibility or the difficulty in getting rid of all the bad uses.”

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Wed, 05/15/2013 - 14:04 | 3565592 vmromk
vmromk's picture

Uh oh.....

Perhaps all those momo's buying BitCoin instead of something you can hold in your hand will get Cypus'd.


Wed, 05/15/2013 - 14:07 | 3565611 Pladizow
Pladizow's picture

The us gov will have as much success with this as the music industry had with shuting down napster!

Wed, 05/15/2013 - 14:08 | 3565615 James_Cole
James_Cole's picture

A major crackdown would merely drive the network underground

Possibly the whole point??

Wed, 05/15/2013 - 14:13 | 3565635 Pure Evil
Pure Evil's picture



"On Tuesday, Dwolla announced that it had frozen Mt. Gox’s account at the request of federal investigators."


And, with that breath of fresh air, I think Mt. Gox just got Corzined.

Wed, 05/15/2013 - 14:16 | 3565647 Stackers
Stackers's picture

"Bitcoin community needs to start lobbying,” he says.


and exactly how does an open source decenteralized collective group of individuals "lobby" congress ?

Wed, 05/15/2013 - 14:19 | 3565656 Cognitive Dissonance
Cognitive Dissonance's picture

E-mail? Tweets? Malware?

Come me here. Can I get a clue? :)

Wed, 05/15/2013 - 14:21 | 3565669 Rubicon
Rubicon's picture

I think he means the FED

Wed, 05/15/2013 - 14:26 | 3565688 redpill
redpill's picture


Well we talked in circles on this one for a long time on ZH.  There's a contingent of folks (me included) that thought this government boot was coming and would massively limit BTCs.  There's another contingent that think their efforts will fail and BTC will thrive.  I guess we don't have to talk anymore, we can watch and see what happens.  Sad part is most folks around here like the idea of a decentralized anonymous currency.  We were just worried that the feds would never put up with it.  And it looks like they won't.

Wed, 05/15/2013 - 14:37 | 3565715 James_Cole
James_Cole's picture

We were just worried that the feds would never put up with it.  And it looks like they won't.


This goes without saying, feds are actively (+ successfully) fighting freedom of the press and freedom of dissent through political activity (tea party). 

Freedom of currency is the ultimate middle finger to the empire, they weren't going to just lay down and let it happen. That said, if enough people get behind it there'll be a real fight. 

Here's a slogan: buy bitcoin, crash .gov!


Wed, 05/15/2013 - 14:50 | 3565782 McMolotov
McMolotov's picture

Folks, they're in the process of closing all the exits. That's what this is all about. This country is going to hell, and if the events of the past few months don't scream that to you, you must be deaf. And don't think for a minute they won't find a way to go after PMs, too. They will. You might keep your metal, but they'll make it a nightmare to transact with it.

In their vain attempt to save the dollar, they'll end up driving the entire economy underground and making us all criminals. I suppose in some ways that could give us a "free market," but I seriously doubt it'll be much fun for anybody.

More and more, it seems the government is flailing about in desperation, something which is always dangerous.

Wed, 05/15/2013 - 15:00 | 3565867 Citxmech
Citxmech's picture

As long as real property can be deeded for "one dollar and other valuable consideration," transactions in gold will do just fine - regardless of what the govt says.

Wed, 05/15/2013 - 15:08 | 3565912 12ToothAssassin
12ToothAssassin's picture

Online money laundering is inexcusable... because it cuts into HSBC's operation?

Wed, 05/15/2013 - 15:29 | 3566033 SilverIsKing
SilverIsKing's picture

If this doesn't work, they'll next make BitCoin illegal and send out webcrawlers to check each and every PC on the internet and if you're found to be hiding BitCoin's under your virtual matress, you'll get awoken at 3am by some armed men in UAVs.

I don't have an issue with the concept but the Feds will stop at nothing to stop BitCoin and they will ultimately win that battle.

That's why I coined the term, ShitCoinTM, pun intended.

Wed, 05/15/2013 - 15:53 | 3566151 macholatte
macholatte's picture


"Virtual Currency" the new standard of cool.


Introducing Amazon Coins: A New Virtual Currency for Kindle Fire


Wed, 05/15/2013 - 16:38 | 3566361 francis_sawyer
francis_sawyer's picture



Wed, 05/15/2013 - 22:08 | 3567603 SamAdams
SamAdams's picture

Astonished the money creators would send an Israeli citizen as congressional bully!. Must protect master's money creation monopoly. Surprised Blumenthal and Feinstein are not proclaiming their support. 

Thu, 05/16/2013 - 04:38 | 3568107 gold-is-not-dead
gold-is-not-dead's picture

it's silly, and somehow it's poetic justice, US citizens will be the only left out of the new paradigm....

Wed, 05/15/2013 - 17:58 | 3566629 thisandthat
thisandthat's picture

They don't need to, they just need to look at the transaction logs - remember one of the major sales point for bitcoin was that transactions are absolutely traceable - yep, talk about suicide by design...

Thu, 05/16/2013 - 16:13 | 3570596 MeelionDollerBogus
MeelionDollerBogus's picture

it’s not a log, it’s a hash code. It can’t be reversed to actual transaction items but it can’t be faked using alternate transactions unless a large network decides they all agree on a series of transactions – a divergent time-line – which leads to 0, 1 or 2 valid bitcoin peer networks (my intuition would say zero if the competing network is large enough).

Fri, 05/17/2013 - 23:50 | 3575201 thisandthat
Wed, 05/15/2013 - 15:03 | 3565882 Joe Davola
Joe Davola's picture

I don't see how people think it's truly anonymous if one has to go online to access it?  USofA isn't building those anonymous looking buildings with large data pipes for no reason.

Wed, 05/15/2013 - 15:09 | 3565908 McMolotov
McMolotov's picture

Haven't you heard? USofA is building those anonymous looking buildings with large data pipes "for the children."

Wed, 05/15/2013 - 15:11 | 3565931 12ToothAssassin
12ToothAssassin's picture

Correction: For your safety and protection of the childrens.

Wed, 05/15/2013 - 15:53 | 3566153 LeisureSmith
LeisureSmith's picture

Operation Protect the children:

Mission accomplished.

Wed, 05/15/2013 - 18:01 | 3566639 thisandthat
thisandthat's picture

That's what steroids do to you

Thu, 05/16/2013 - 16:15 | 3570606 MeelionDollerBogus
MeelionDollerBogus's picture

dunno, steroids or evil. They don’t actually work precisely the same.

Wed, 05/15/2013 - 20:56 | 3566640 thisandthat
thisandthat's picture


Wed, 05/15/2013 - 15:38 | 3566065 akak
akak's picture

Those are not data pipes, according to the late senator Ted Stevens :


It's a Series of Tubes!

Wed, 05/15/2013 - 15:47 | 3566116 Urban Redneck
Urban Redneck's picture

That was probably the "truthiest" disclosure of a classified truth by a US government official in the last quarter century. Not only was it funny, but the intellectual snobs who laughed at his statement (for the most part) didn't understand that it was far more functionally correct than their own perceived technical understanding of the internet functionality.

Wed, 05/15/2013 - 18:09 | 3566676 thisandthat
thisandthat's picture

Don't know if you know it, but researchers just created hollow optical fiber to transmit data at near light speed - the internet will literally be a series of tubes.

Wed, 05/15/2013 - 18:43 | 3566877 Urban Redneck
Urban Redneck's picture

The microwave link between NYC & Chicago is faster than the fiber optic tubes, so it's not about speed. The internet in general isn't about You-Tube & Amazon as much as it's about the MIC and 1984.  Back in 1984- the methodology, costs, and capture rate of incremental signal intercepts was a bitch, now the average American taxpayer fully underwrites an entire lifetime of their own Orwellian data nightmare with a year's tax bill.

Wed, 05/15/2013 - 21:33 | 3567505 thisandthat
thisandthat's picture

Like I said, hollow optical fiber can do near (vacuum) speed of light data transmission (light travels through air, not glass); fiber is also more flexible (literally and figuratively) and not as prone to eavesdropping/interference/attenuation as (mostly line of sight) MW links.

Thu, 05/16/2013 - 00:48 | 3567947 Urban Redneck
Urban Redneck's picture

I didn't realize they'd reached a practical price for any distance, since 170 miles at .5Tbps is the current champ in the field, but that's only 1/4 the distance of NY-CHI run much less the 2000 miles needed to join the two halves of skynet.  As to interception and interferance, it's easier and cheaper for them to eavesdrop on, and it's easier for someone else to interfere with (since all they need is a fire axe).

Thu, 05/16/2013 - 02:37 | 3568036 thisandthat
thisandthat's picture

MW exists for longer than the internet, yet, for a reason, it's fiber it's built on.

And funny because, unlike fiber, mw eavesdropping is not only trivial, it's also untraceable and even has an history behind it, and you'd still need to dig up the cables, which generally are also bundled together (and hopefully not from the bottom of the ocean...), whereas with a mw link all you'd need is a single shot and the whole link goes down... but since when is this a pissing contest between technologies?

Thu, 05/16/2013 - 15:49 | 3570516 MeelionDollerBogus
MeelionDollerBogus's picture

sorry, but with microwave that’s easily disrupted by atmospheric conditions and line of sight conditions. Bottom line is fibre-optics bend and if your line of reasoning was right then ALL internet would be microwave towers.

Wed, 05/15/2013 - 21:28 | 3567498 Clycntct
Clycntct's picture

Ya but howd he do picking flights.

Thu, 05/16/2013 - 00:41 | 3567956 Urban Redneck
Urban Redneck's picture

Tech fights tend to leave something to be desired, throw in the words "bitcoin" or "mac" and some people's blood starts to boil and they loose sight of objectivity, but I think (internet) "tubes" are a bit esoteric.

Wed, 05/15/2013 - 15:51 | 3566141 Hobbleknee
Hobbleknee's picture

It even says right on the official BC site that it's not anonymous.

Wed, 05/15/2013 - 19:22 | 3567077 overbet
overbet's picture

very simple to be anon online. buy a laptop with cash. buy btc with cash locally. walk to local starbucks, leave your smartphone at home and dont be on security camera. might be inconvenient but thats how its done.

Wed, 05/15/2013 - 15:24 | 3565995 lakecity55
lakecity55's picture

The way things are going, there is gonna be a hell of a lot of dead people in this country, and not too long, either.

This shit starts snowballing downhill. With Bath House an unstable, mentally ill freak surrounded by incompetent revolutionaries, things r gonna head south.

Find a cave, pull the brush back over the entrance.

Wed, 05/15/2013 - 19:19 | 3567065 ersatzteil
ersatzteil's picture

That's the Qu'ran's answer, too! Hide in a cave to get away from Gog and Magog's influence on society as they prepare the way for the False Messiah, or Anti-Christ.

"The Cave" Surah is worth the read and scores you cultural points at your local hookah bar.

Wed, 05/15/2013 - 16:30 | 3566325 Banjo
Banjo's picture

Another reason why not to have all your eggs in one basket. You just don't know what they are going to do.

Honestly the talk of lobbying for BitCoin is laughable. Ummm yeah we have this alternate currency thing that will make the USD redundant...


We are only going to see this fully play out when

- Things start getting priced in BitCoins or Silver or Gold NOT in currency. Which is why in the PM community often the talk is not nominal dollars but ounces and many theories on purchasing power of those ounces in times past and possibly in the future.


If there is a collapse it will be bad for all of us.



Wed, 05/15/2013 - 19:49 | 3567175 GOSPLAN HERO
GOSPLAN HERO's picture

At least we'll have true price discovery in a black market.



Wed, 05/15/2013 - 19:50 | 3567190 jimmytorpedo
jimmytorpedo's picture

Stand clear of thrashing dinosaurs my grandpappy used to aways say.

Wed, 05/15/2013 - 21:50 | 3567554 YHC-FTSE
YHC-FTSE's picture

I don't do schadenfreude,  so I am not happy about folks losing out with BTC. 

Here's a quick lesson on how the world really works: If BTC was owned by GOLDMAN fucking SACHS, we wouldn't be having a discussion. We blame the government, and rightly so, but it's the banks that pull the strings. 

The dollar hegemony is the illusion of value in nothing, and the ability to supply it to the world for real assets and power. Whole populations covet it, worship it, kill for it, and work for it. Would you give up that fiat monopoly? Anything that represents competition is either going to be bought or destroyed. Sometimes both. That's the way multinationals do their business and that model has a finite life cycle. 


I don't "trade" PMs. I have repeatedly posted that I couldn't care less about price fluctuations and the cheaper it is the happier I am to buy more - it is my long term, hail mary, store of my earnings. I am not trying to "talk prices up". I really believe there is a massive crash in the markets around the corner, especially now that the msm are selling the fantasy of a healthy economy. The banks are going to collapse and we can all look forward to taking haircuts if we're lucky, and if we're not, then we can look forward to living in a war torn 3rd world country without the charm or the freedom. I know some are sick and tired of the doomers and preppers, but you can console yourselves that at least you are reading an honest opinion even if I turn out to be wrong three years in a row on this matter.  :)

Wed, 05/15/2013 - 14:33 | 3565717 sitenine
sitenine's picture

+1 redpill, thus the lack of "I told you so"s. Why lament the obvious?

Wed, 05/15/2013 - 15:47 | 3566120 Bendromeda Strain
Bendromeda Strain's picture

Can I do just one "Where's Beeks?? Turn those machines back on!!"

Wed, 05/15/2013 - 17:13 | 3566470 chumbawamba
chumbawamba's picture

Yep.  Look, as a nerd, particularly one who enjoys engaging himself in the development and analysis of systems, I love bitcoin.  It is a beautiful system.  Nearly perfect and in total harmony with natural law as far as I can tell.  It is a tour de force of systems engineering; a masterpiece.

But, the biggest problem (aside from government intervention, which is also an unfortunate risk of precious metals ownership) is one that no one has yet been able to answer: what happens when the internet gets turned off?  Or the power?

I am Chumbawamba.

Wed, 05/15/2013 - 20:07 | 3567126 GoinFawr
GoinFawr's picture


Wed, 05/15/2013 - 20:53 | 3567386 dark pools of soros
dark pools of soros's picture

So the entire world turns off the Internet? If the country you are in shuts off access you may want to leave anyway. And you will easily use your bitcoins in your new country of residence.

Bitcoin has many fronts, and as overbet described above, you can use it purely anon.

But linking a bank account to an exchange or say coin base is fine too since you can then easily buy them at low fees and avoid credit card and PayPal high transaction fees on more and more items online and point of sale

The price of bitcoin will probably swoon for the next 6 months as old money and large miners cash out for gains but as it switches into the hands of more people with smaller piles the price will climb to new highs again...

I recently bought some more bitcoins at 95 and the bought silver coins when they were at 118. Have all the traders left this web site?

Do NOT follow this link or you will be banned from the site!