Bitcoin, Bankers, and Barriers to Legislation

ABSTRACT: Its appeal is undeniable. Users can transfer funds internationally, anonymously, and efficiently.  Its value has continued to grow faster than anyone ever expected.  But the pressure to regulate Bitcoin is coming to a head, as regulators and financial institutions grow increasingly concerned of the potential for criminal activity and financial instability.  2018 may ring in the first substantial efforts in the U.S. for oversight of this controversial cryptocurrency.

Its exact origins are somewhat of a mystery, but it is believed that Satoshi Nakamoto, perhaps a pseudonym for more than one creator, first developed the concept of the bitcoin in 2007. In October of 2008, “Nakamoto” published his first paper describing the peer-to-peer, online-based cash system.  The first Bitcoin transaction occurred in early 2009, and since then, the cryptocurrency market has exploded, and now major retailers, including Overstock.com, Microsoft, Dish Network, Etsy, Expedia, and even Subway have begun accepting Bitcoin for transactions in some capacity. And its value has catapulted, now exceeding $11,000 USD.

But what’s on the other side of the coin?  First, Bitcoin users can make anonymous transfers, which lends itself well to criminal, underground activity.  Likewise, a virtually unregulated market leaves Bitcoin transactions subject to a high risk of fraud, with no recourse for jilted consumers.  While some individual U.S. states have introduced legislation attempting to regulate cryptocurrency, the federal government has not, leaving the environment unstable.

Furthermore, the exponential increase in its value and lack of regulation leaves many experts wondering if this Bitcoin craze is just a bubble, only to be followed by a crash.

While cryptocurrency faces skepticism, the blockchain technology used to effectuate Bitcoin transfers has earned much praise as an alternative for future banking systems, particularly in expediting international payments.   And in light of this year’s highly publicized data breaches, financial institutions may be well advised to explore the use of blockchain technology to prevent public dissemination of sensitive information, as it is touted for its resilient data protection capabilities.

Financial institutions in particular have been wary about the growing popularity of the Bitcoin.  Jamie Dimon, CEO of JPMorgan Chase Bank, issued a statement questioning its legitimacy.  “It’s just not a real thing, eventually it will be closed,” said Dimon, who further threatened to “fire in a second” any JPMorgan trader who attempted to trade Bitcoin.  The Bank’s CFO, Marianne Lake, shortly thereafter qualified Dimon’s statements, avowing that JPMorgan remains  “ very open minded to the potential use cases in future for digital currencies that are properly controlled and regulated.”  This sentiment reflects that held by many institutions – most are open to the idea of a new type of currency, but are reluctant to engage until the currency is widely regulated.

Regulating the Bitcoin presents several challenges.  For one thing, while Bitcoin transcends borders, there is no uniformity among nations, or even states in the U.S., about how it should be treated or regulated.  Furthermore, there is inconsistency among legislators and the judiciary about whether Bitcoin is a currency or a commodity, thus making legislation difficult to draft.  Even so, the SEC has recently expressed its intent to begin regulating the sale of Bitcoin and other cryptocurrency.

Fad or not, the Bitcoin is sure to be a continued hot topic internationally among regulators and financial institution in the coming months.