Bitcoin, the virtual currency that is pushing to break into the mainstream, has a myriad of issues to confront before it does, and chief among them is whether the cryptocurrency will be regulated, and if so, by whom?
Vivian A. Maese, partner and head of the Financial Technology practice team at Dechert LLP, talked with Traders about Bitcoin regulation and what it might look like.
Traders: The Federal Reserve, overseer of all things money, opted to pass on Bitcoin regulation when Chairwoman Janet Yellen said in February that the Fed couldn’t regulate Bitcoin. Was that a mistake?
Vivian A. Maese: Chairwoman Yellen said basically that Bitcoin is not U.S. currency, and according to the Fed’s own legal definitions, she’s right… it’s not legal tender.
Traders:But the regulatory question is an important one for Bitcoin if it’s ever going to be accepted by the mainstream, especially by Wall Street. So where does the Fed’s inaction leave the industry?
Maese:Unfortunately, there is not yet an emerging consensus on regulation for Bitcoin or other cryptocurrencies, and that’s part of the problem. Meanwhile, you still have visceral market participants who are just saying ‘Let it rip!’ and there are other entrepreneurs who are not asking permission to create something new.
Traders:Still, other agencies do have a stake in Bitcoin, such as the Securities and Exchange Commission (SEC) and the Consumer Financial Protection Bureau (CFPB), both of which have a mandate of consumer or investor protection. What about them?
Maese: Where there are things like the derivative products that have bitcoins at the core, those are regulated under traditional regulatory structures. For example, when the Winklevoss brothers created an ETF that will hold bitcoins, they had to file with the SEC. And when another group said it created a framework for trading bitcoin-based swaps, it sought clearance from the Commodity Futures Trading Commission.
Traders:And states like Texas and New York have expressed their intent to license Bitcoin, but there is no real idea on what that licensing will look like or whether the two states are like-minded in their approaches.Still, federal agency is stepping up at this time?
Maese: No, and I fear that in the absence of federal regulation, there will be a patchwork of laws made state-by-state. And those laws will not be consistent, and that inconsistency will not be helpful because Bitcoin was created in part to facilitate operations like interstate commerce.
Traders:Given the regulatory uncertainty, what’s the future for Bitcoin?
Maese: I think that there is so much money being invested in Bitcoin and so many users that needed changes will happen. It’ll be a rocky road, but I think it will work itself out eventually, and in the near-term, that will probably mean on a state-by-state, country-by-country basis.