After ralying over 80% in the last month, Bitcoin prices are tumbling (down 25% from record highs to 2-week lows) as cryptocurrencies face uncertainty on three fronts.
As iBankCoin reports, investors are spooked over recent cyberattacks, uncertainty surrounding a Bitcoin platform upgrade, and proposed legislation which adds cryptocurencies a list of reportable assets under existing anti-money laundering laws.
As CNBC reports, major bitcoin exchanges were hit with multiple cyberattacks this week. Bitfinex, the largest U.S. dollar based bitcoin exchange, announced it was under ‘distributed denial-of-service’ attacks (DDOS) which slowed the service down. The attacks come at a time when consumer interest in bitcoins have also led to heavier than normal traffic on the exchanges, compounding the attacks.
On August 1st, the bitcoin platform will be undergoing a protocol upgrade labeled BIP148, meant to solve the block size debate – an argument over the size of bitcoin’s ‘blocks’ (a record of transactions on the public ledger – the ‘blockchain’). The planned improvements are supposed to help ‘scale’ bitcoin for future growth, lower fees, and speed up transaction times – however the upgrade is not without risks, and the Bitcoin community is divided.
#Bitcoin scaling negotiations / compromises are over.— Hisham Fahmy (@fahmyeu) June 14, 2017
Either we support BIP148 and save Bitcoin from destruction or 8 years gone to waste. ????
Whether we like it or not, at this point not supporting BIP148 is the dangerous path. With most risks being to miners & services, not users.— Neo M. Atrix (@RedPillTrading) June 4, 2017
Inclusion in Anti-Money Laundering Bill
Last but not least, Senators Chuck Grassley (R-IA), Dianne Feinstein (D-CA), John Cornyn (R-TX) and Sheldon Whitehouse (D-RI) have co-sponsored bill S.1241 (Combating Money Laundering, Terrorist Financing and Counterfeiting Act), which adds language to existing anti-money laundering provisions to include digital wallets, prepaid access devices, and other ‘digital currency exchangers’ if they contain over $10,000 of cryptocurrency.
Also included in the bill are cell phones, flash drives, and computers containing information on holdings which will need to be declared and reported upon entry into the U.S.
In other words, the notion of using digital currency to transact anonymously will become much less attractive if this bill is signed into law.
Demand for cryptocurrencies has skyrocketed over the last few months, beginning with Japan recognizing bitcoin as legal currency in April. Other countries including South Korea and Malaysia are reportedly set to follow suit.
Where to from here?
While Bitcoin grapples with technological hurdles and legislation which would reduce the appeal of digital wallets, it’s anyone’s guess where cryptocurrencies are headed in the near term – though some say much lower if it continues to break below key support levels.
That said, if more firms follow Goldman Sachs’ lead and start covering Bitcoin – and perhaps even become involved in the exchanges, digital currencies stand to gain general acceptance as a store of value. If so, it will be interesting to see what happens to digital fiat currencies if we enter into another period of financial shock and awe (Euro edition?).