US Regulators to Consider Bitcoin Supervision

Senior officials at a top US derivatives regulator are considering whether to place Bitcoin under its supervision after the virtual currency collapsed in value last month.

According to a report by the Financial Times, Bart Chilton, one of five commissioners at the Commodity Futures Trading Commissions, has ordered a study to explore whether consumers needed more protection from any mishaps with Bitcoin, whose value collapsed last month.

Senior officials at a top US derivatives regulator are considering whether to place Bitcoin under its supervision after the virtual currency collapsed in value last month.

According to a report by the Financial Times, Bart Chilton, one of five commissioners at the Commodity Futures Trading Commissions, has ordered a study to explore whether consumers needed more protection from any mishaps with Bitcoin, whose value collapsed last month.

Bitcoin, a decentralised digital currency, has gained prominence since its inception in 2009, when people started to question the safety of holding their cash in banks. Its value surged in March, when investors took fright at the next turn of the eurozone debt crisis.

However, the cyber-currency is also extremely volatile, losing more than $160 in value on April 10 just hours after hitting a record high of $260. Three months ago, a single unit of Bitcoin was worth $20.

“It’s not monopoly money we’re talking about here – real people can have real risk in these instruments, and we need to ensure that we protect markets and consumers, even in what at first blush appear to be ‘out there’ transactions,” said Chilton.

Intensified regulatory scrutiny could however pose challenges for proponents of Bitcoin, who have praised the currency for its independence from traditional authorities. Like a commodity, for example, Bitcoin is not controlled by a government or central bank.

Related: Bitcoins: The Politics of A Virtual Currency

In March, the U.S. Treasury Department said that Bitcoin transactions would be subject to the same money laundering rules that govern “money services businesses” such as Western Union.

Since the ruling, at least three companies in North America have reported having their business accounts closed by their banks. Bitfloor, a New York-based Bitcoin exchange, said it was shutting down entirely, and it has not yet been able to return funds to customers.

Related Infographic: How Does Silk Road Affect the Value of Bitcoin?

Questions have also been raised over the CFTC’s legal authority to oversee Bitcoin activity, since its jurisdiction generally does not extend to cash markets unless there are derivative contracts based on them. For example, the CFTC monitors physical oil transactions insofar as they influence crude futures traded on the New York Mercantile Exchange.

“In essence, we’re talking about a type of shadow currency, and there is more than a colourable argument to be made that derivative products relating to Bitcoin falls squarely in our jurisdiction,” Chilton explained.

“Here’s what I know for sure: we could regulate it if we wanted. That is very clear,” he added.