On this historic day (parity with an ounce of gold will be the next one), I would like to echo this group’s original purpose, that being the “Promotion of a Clear Regulatory Environment for Cryptocurrencies”. Edan Yago is a thought leader in this area. I recommend his highly visceral and though provoking talk below;
An interesting day to say the least, the market saw new all time highs relative to the USD, and Senator Tom Carper (D-Del.), Chairman of the Senate Homeland Security and Governmental Affairs Committee, released the following statement on the launch of the Silk Road 2.0 (quoted below):
Chairman Carper statement on the unveiling of the so-called “Silk Road 2.0” website Wednesday, November 6, 2013
Today, Senator Tom Carper (D-Del.), Chairman of the Senate Homeland Security and Governmental Affairs Committee, released the following statement on the launch of the Silk Road 2.0:
“This new website – launched barely a month after Federal agents shut down the original Silk Road — underscores the inescapable reality that technology is dynamic and ever-evolving and that government policy needs to adapt accordingly. Rather than play ‘whack-a-mole’ with the latest website, currency, or other method criminals are using in an effort to evade the law, we need to develop thoughtful, nimble and sensible federal policies that protect the public without stifling innovation and economic growth. Our committee intends to have that conversation – among others – at our hearing this month on virtual currency.”
Chairman Carper and Dr. Coburn’s committee on Homeland Security and Governmental Affairs began a formal inquiry into virtual currencies in April 2013. In August 2013 Chairman Carper and Dr. Coburn wrote to the Departments of Treasury, Homeland Security, and Justice, as well as the Securities and Exchange Commission, Commodities Futures Trading Commission, and the Federal Reserve.
On the heels of the world’s 5th largest website announcing that it would begin accepting Bitcoin, comes an interesting analysis of the motivations for Bitcoin’s creation, accompanied by a well informed historical account. The discussion on HN is also invaluable. As is mentioned there, it seems likely that privacy enhancement techniques like CoinJoin will be implemented in the near future.
Shares of the fund will provide exposure to the “digital commodity”. The Winklevi are said to hold a substantial number of Bitcoins, so it is likely they will provide liquidity for the fund. The S-1 can be found here.
Ryan Prillaman of Bloomberg BNA has an interesting piece today examining the tax ramifications of Austin Craig and Beccy Bingham’s plan to find out; “Can a newly married couple survive when every living necessity can only be purchased with “cryptocurrency”?”. It’s called “Life on Bitcoin”, and you can help answer this burning question by supporting the funding of their documentary here.
Excellent interview with Constance Choi, General Counsel of Payward, Inc.
Find the full text of the warrant here. It is important to note that U.S. based Mt. Gox customers are still able to make wire transfers to the exchange. Dwolla provided a more convenient means of depositing funds into the exchange.
We will await official comment from Mt. Gox before endeavoring to analyze further.
On the same day that the price of Bitcoin reached new all-time highs, FinCEN released new guidance on “the applicability of the regulations implementing the Bank Secrecy Act (“BSA”) to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies”. Although this guidance has other implications, I think the most interesting line is:
“A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs”
Patrick Murck of the Bitcoin Foundation has an excellent analysis here.
Quote from Stephen Gornick over on Bitcointalk.org:
Back in 1994 when Amazon was just getting started the bricks-and -mortar merchants were asked how they would respond to Amazon.
They were asked “What’s your Internet strategy?”
And their collective response was along the lines of … “Our what?”
The question now is … “What’s your Bitcoin strategy?”
Other threads on this WordPress announcement:
Quoted from the Nov. 12 American Banker story:
There have been some new twists in the strange case of an alleged attempt to blackmail Mitt Romney for $1 million in bitcoins, raising additional legal questions about the digital currency.
Two months ago I explained how an anonymous ransom letter threatening the release of then-presidential candidate Romney’s tax returns could have profound legal implications with respect to extortion, money laundering, and market manipulation. Appearance of the cryptocurrency Bitcoin in the ransom letter served to add intrigue and complexity to an already juicy story.
This weekend it was revealed that the Secret Service served a search warrant on the Franklin, Tenn., home of one Michael Mancil Brown on Sept. 14, seizing numerous hard-drives and other property in the process. Interestingly, it has been alleged that this is the same Michael Brown who was known to be in possession of 371,000 bitcoins (about $3.7 million today) as early as May of last year. The fate of Brown’s crypto-fortune has been the subject of much speculation and the money may or may not be in the possession of the federal government.
This incident may be the first time in which the U.S. Government has utilized Bitcoin addresses on a search warrant. On page five of the warrant it is revealed that Brown is being investigated for aiding and abetting crime, conspiracy, fraud, and racketeering. The Fourth Amendment to the U.S. Constitution states that “no warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” Again, the seizure was of evidence relating to violations of 18 U.S.C. §§ 2 (aiding and abetting); 371 (conspiracy); 1030(a)(7)(B)&(b), 1341, and 1343 (fraud); and 1951 and 1952 (racketeering). Although this is an ongoing investigation and charges have yet to be been filed, it is beneficial to consider how Bitcoin may be implicated in the language of several of the aforementioned statutes.
For instance, the use of 18 U.S.C. §§ 371(conspiracy) is interesting because from the documents revealed, it is not apparent that Brown worked closely with anyone else. Conspiracy typically requires 1) an express or implied agreement and 2) an overt act. Is it possible that the entire Bitcoin network can now be implicated as co-conspirators? Miners on the Bitcoin network would all be continually agreeing that the two Bitcoin addresses mentioned in the ransom notes were available to receive coins at in furtherance of the alleged conspiracy, fraud, etc. They will have also overtly acted in deciding to dedicate computing power to mining. (This is an admittedly absurd result of a plain application of the law to the facts.)
The invocation of 18 U.S.C. §§ 1951 (racketeering) is also noteworthy in stating that it applies to “whoever…obstructs, delays, or affects commerce or the movement of any article or commodity in commerce.” The definition of commerce in that section is not very helpful, but Black’s Law Dictionary (ninth edition) defines it as “The exchange of goods and services, esp. on a large scale involving transportation between cities, states, and nations.” If Bitcoin affects commerce, then it is probably subject the Commerce Clause (Article I, Section 8, Clause 3, U.S. Constitution).
These facts also support the market manipulation scenario I described in my last post. Michael Brown may or may not have a large number of bitcoins at his disposal, but clearly anyone holding a large number of bitcoins would have a powerful incentive to create demand in the Bitcoin market in order to drive up the price. The Securities Exchange Act of 1934 prohibits market manipulation in securities markets. Bitcoin is not generally thought of as a security, and is not traded on formal markets. Whether or not entities like the SEC will pursue market manipulators remains to be seen.
Michal Brown has set up a website for the “Michael Brown Legal Defense Fund and Family Expense Fund” where he is accepting donations. As Bitcoin grows in popularity, spectators are left holding their breath, awaiting answers for both Michael Brown and the legal status of Bitcoin.
Matthew Elias is the Director and Founder of the Cryptocurrency Legal Advocacy Group, a nonprofit at the University of Mississippi School of Law that seeks to promote a clear regulatory environment for peer-to-peer currencies.