Bitcoin - Calls for Regulation - Part Eight

by Dorsey & Whitney LLP

“Virtual currencies”, and bitcoin in particular, continued to attract a lot of attention. The sudden shutdowns of Mt. Gox (Japan), a large bitcoin exchange, and Flexcoin (Canada), a bitcoin bank, led to renewed and intensified calls for government authorities from around the world to start regulating virtual currencies. This eUpdate is the eighth part in a series of eUpdates on bitcoin-related topics. The first part of the series described what bitcoin is. The second part explained the legal status of bitcoin and how it is approached in different countries. The third part analyzed the effects of the Chinese demand on bitcoin, as well as how bitcoin is approached in China. The fourth part analyzed risks which virtual currency users may encounter. The fifth part discussed further steps taken by the Chinese government towards regulating virtual currencies and their impact on the bitcoin market. The sixth part discussed continuing concerns about bitcoin and updated on developments in the bitcoin market. The seventh part discussed Mt. Gox’s demise and its effect on the bitcoin market.

Calls for regulation

The recent shutdowns of Mt. Gox (Japan) and Flexcoin (Canada) have led to renewed and intensified calls for government authorities in Japan, China, Hong Kong, India, the United States and other countries to start regulating virtual currencies.

Japan is considering regulation of bitcoin and other virtual currencies.1 In the beginning of March 2014, the Japanese Cabinet declared that bitcoin should be classified as a commodity rather than a currency, taxes on gains from trading in bitcoin should be introduced, and banks and securities firms should be prevented from entering into bitcoin-related businesses.2 “We haven’t yet thoroughly grasped the situation, but some kind of regulation is needed from the perspective of consumer protection, and we will also discuss [bitcoin] from the perspective of imposing an asset tax,” said Takuya Hirai, head of an IT panel in the ruling Liberal Democratic Party.3

In China, an erroneous post published on a large Chinese social network Sina Weibo (but since retracted) indicated that the People’s Bank of China (PBOC) set a deadline of April 15, 2014 for all firms to halt bitcoin trades. This caused bitcoin prices to tank on March 21, 2014.4 The PBOC later clarified that it did not issue any new statement, and Sina Weibo referred to the PBOC’s notice issued on December 5, 2013.5

The Hong Kong Financial Services & the Treasury Bureau (FSTB) joined regulatory authorities from around the world in issuing cautionary notices to the public against transacting in virtual currencies. The FSTB warned the public about trading in bitcoin as it may involve risks related to consumers’ protection, money laundering and illegal activities.6 The FSTB reiterated that virtual commodities are not regarded as legal tender in Hong Kong, and their prices are susceptible to significant fluctuation due to speculation. The FSTB added that virtual commodities pose considerable risks to consumers, and as they are not backed by any physical items, issuers or the real economy, their value is volatile and can cause significant monetary losses to consumers. It also said that the anonymous nature of virtual commodities poses potential risks with regard to money laundering or even terrorist financing. Consumers and businesses dealing in virtual commodities are also exposed to cyber-crime risks. The FSTB underlined that Hong Kong does not regulate virtual commodities specifically in terms of their safety or soundness, but the existing Hong Kong laws provide sanctions against money laundering, terrorist financing, fraud and cyber-crime. The FSTB further said that it will closely monitor developments in the world of virtual commodities, the evolving regulatory consensus at the international platforms, as well as regulatory and enforcement actions in other jurisdictions to consider further actions in protecting the public.

The Reserve Bank of India followed up with a public advisory warning that virtual currencies are risky and not part of the traditional banking system.7

The Monetary Authority of Singapore (MAS) recently announced that it will regulate virtual currency intermediaries in Singapore to address potential money laundering and terrorist financing risks. The MAS will introduce regulations to require virtual currency-related businesses, including bitcoin exchanges and other intermediaries, to verify identities of their customers and report suspicious transactions.8 Singapore’s decision to impose anti-money laundering regulation on bitcoin-related businesses marks a reversal from its previous stance, announced just a few weeks ago, coinciding with the installation of the first bitcoin ATMs in Singapore.

In the United States, Mt. Gox’s shutdown also shifted focus of bitcoin regulatory efforts from exclusively anti-money laundering to consumer protection. The New York State Department of Financial Services, headed by Ben Lawsky, announced that it will accept proposals to establish regulated exchanges in the state of New York. Ben Lawsky mentioned “the urgent need for stronger oversight […] including robust standards for consumer protection, cyber security, and anti-money laundering compliance” in his solicitation for applications and proposals.9 With respect to anti-money laundering regulation, the U.S. Department of the Treasury may have concluded, however, that bitcoin is unworthy of extra regulation for the time being. In a speech given on March 18, 2014, David Cohen, the U.S. Treasury Undersecretary for Terrorism and Financial Intelligence, said: “Terrorists generally need ‘real’ currency, not virtual currency, to pay their expenses.”10

In addition, on March 25, 2014, the U.S. Internal Revenue Service issued a notice11 providing information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currencies. According to the notice, virtual currency is treated as property for U.S. federal tax purposes, and general rules for property transactions apply. Payments made using virtual currency are subject to information reporting requirements to the same extent as any other payment made in property. The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer. When a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is to be included in the taxpayer’s gross income.

Bitcoin family growth

While bitcoin has been witnessing tremendous price volatility, operators and users are looking for newer and other alternatives that they perceive as safer.12 Notwithstanding the growing regulatory concerns about bitcoin and other virtual currencies, the world now has a larger number of virtual currencies than the total of 180 recognized currencies in different parts of the world. Within an earshot of the 200-member mark, a total of 193 virtual currencies are currently being traded across the internet, although none of them carries an official stamp from any government or banking regulator. For comparison, at the end of December 2013, there were 67 virtual currencies in total in the market, while their number was in single digits about four years ago, when virtual currencies could not strike a chord among users amid the global financial crisis. According to some market estimates, the current aggregate valuation of all virtual currencies is approximately US$10 billion, representing a drop by US$3 billion as compared to the beginning of 2014.

Apart from bitcoin, other virtual currencies such as ripple, litecoin, auroracoin, peercoin and dogecoin have been steadily picking up in volume as well as market value. Most recently introduced virtual currencies include teacoin, aliencoin, magic internet money and heisenberg.13 Steady growth of the “bitcoin family” indicates continuing support by enthusiasts who see the benefits of and the future in virtual currencies regardless of regulatory warnings.

5   For details on the PBOC’s notice issued on December 5, 2013, see the third part in our series of eUpdates. 


Written by:

Dorsey & Whitney LLP

Dorsey & Whitney LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.