New York regulator subpoenas 22 Bitcoin companies

TradingPub Admin | August 12, 2013

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If you want some free trading education on a type of investment that has become highly-visible in the last few years, you may want to know about the subpoenas that were recently sent to 22 different firms involved with the digital currency known as Bitcoin.

On August 12, The New York State Department of Financial Services announced an investigation into the currency. DFS noted that the firms that are involved with Bitcoin may be taking part in money transmission as defined by New York law. Such activity falls under the supervision of the government agency.

New York state inquiry
As a result, DFS is making an effort to determine what regulatory framework should be provided to firms that are engaged in transactions related to the currency.

A person familiar with the matter told Bloomberg that the subpoenas were sent to the Bitcoin service providers during the week ending on August 9. Companies such as Winklevoss Capital Management received these requests for information.

Benefit to industry
At least one of the companies that was sent a subpoena believes that the Bitcoin industry will benefit from the inquiry, according to The Wall Street Journal. Jaron Lukasiewicz, chief executive of Coinsetter, wrote in an email that that the round of subpoenas represents "an opportunity for companies in our space to open up a much needed dialogue with regulators." 

"They'll quickly find that most companies are working to legitimize Bitcoin and want to build bridges that help regulators understand and support these financial innovations," he told the media outlet.

Need for regulation
Benjamin Lawsky, superintendent of DFS, emphasized the need for a regulatory framework to be created for Bitcoin.

"If virtual currencies remain a virtual Wild West for narcotraffickers and other criminals, that would not only threaten our country's national security, but also the very existence of the virtual currency industry as a legitimate business enterprise," he said in a statement.

In the document, Lawsky noted that there are already regulations in place that affect firms that take part in the transmission of money. They need to comply with laws created to prevent money laundering, and they have to post a certain amount of capital to hedge the risk related to the funds held in customer accounts. Also, they must take part in regular reviews related to their solvency and public safety.

Lawsky noted that the government agency might build on top of these existing constraints, stating that "DFS is also considering whether it should issue new regulatory guidelines specific to virtual currencies - rather than simply apply existing money transmission regulations."

"As such, we could also move forward with new guidelines that are tailored to the unique characteristics of virtual currencies," Lawsky added.

The government official noted his concerns that the digital currency can potentially be harnessed to enable illegal activities, according to Bloomberg. He also indicated in the statement that he is concerned with the speed at which Bitcoin transactions are processed.

In addition, it is possible that Bitcoin has managed to attract a wealth of market participants who are interested in investing in the digital currency, but do not completely understand it, The Wall Street Journal reported. As a result, they may not fully grasp the risks that are associated with investing in Bitcoin.

New York is not the only state that has been putting substantial effort into investigating service providers that are related to the digital currency, according to the news source. This activity comes as many of these firms have already registered with federal government agencies.

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