Governments aim to regulate virtual currencies: Expert
-Regulators are concerned about potential fraud, money laundering, tax evasion and cybersecurity risks: cryptocurrency expert

The governments of major economies are trying to introduce more regulations for Bitcoin and other cryptocurrencies in a new virtual currency market that is becoming more complex, and which is widely open to financial risks and manipulation.

After months of deliberation, and with the banning of initial virtual coin offerings last week, Chinese authorities are now planning to shut down domestic exchanges of cryptocurrencies and introduce more regulations into the virtual currency market.

"Regulators have been particularly concerned about the potential for fraud, money laundering, tax evasion and cybersecurity risks in the cryptocurrency markets," Robert Crea, an investment management attorney and a regulatory expert on cryptocurrencies at the global law firm K&L Gates, told Anadolu Agency.

"The securities law implications of certain digital-token offerings are also of particular concern," he added.

Governments, however, are latecomers to the cryptocurrency markets. Today, some 6 million people around the world are estimated to be using Bitcoin while more than 100,000 vendors are anticipated to be using it as a legal form of exchange.

"Governments are playing catch-up because distributed ledger technology and the cryptocurrency marketplace has grown in breadth, depth and sophistication with few regulatory frameworks provided by governments," Crea said.

Government regulators have begun to see the financial and security risks in transactions of Bitcoin and other cryptocurrencies. Apart from cybercriminal activities, securities and exchange markets of major economies needed more scrutiny in the virtual currency market.

However, more regulatory frameworks are not the only concerns for governments.

After cyber attackers unleashed a global virus in May, they demanded ransom in the digital currency to unlock individuals' personal files that were affected by the malware called WannaCry. The attackers are estimated to have gained around $140,000 worth of Bitcoin.

Although cryptocurrencies have been associated with cybercrime and the black market, Bitcoin transactions are traceable and transparent.

Bitcoin was introduced in 2009 as a digital payment system, but it evolved in time. Dubbed as "a decentralized digital system", its transactions were among individuals without an intermediary and lacked a single centralized regulator and administrator.

In time, this virtual currency began to be used for exchange with other currencies, products and services.

With the threat of WannaCry, demand for Bitcoin increased, and its value reached $2,000 on May 20. Less than four months later, Bitcoin climbed above the $5,000 mark for the first time on Sept. 2.

However, with more government regulations looming, its value fell below $4,000 on Wednesday.

"In the last seven weeks, multiple financial regulators, including those in the U.S., China, Hong Kong, Singapore, Canada, and others, have indicated that certain offerings implicate their nations’ securities laws," Crea said.

"China has taken the most draconian approach by asserting a sweeping ban against initial coin offerings. The Chinese approach may, in part, be motivated by concerns that Chinese nationals have been using cryptocurrencies to circumvent the nation’s strict currency control policies," he explained.

In contrast, regulators in the U.S. and Canada may be adopting a more moderate approach.

In the U.S., stock exchange regulator Securities and Exchange Commission's (SEC) Chairman Jay Clayton pointed to a different approach.

"We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected," he said on July 25 in a statement.

Clayton noted that the SEC is still studying the effects of innovative technologies. He encouraged market participants to engage with the regulator.

Crea said he believes that the world is at the beginning of a phase of intervention in what has largely been an unregulated market.

He added that enforcement actions and private litigation are possible, but so also are new regulatory frameworks.


"Over the longer term, I believe distributed ledger represents a significant technology that will revolutionize many businesses," Crea said.

"Before we get there, I suspect cryptocurrency market participants and regulators will work together to establish regulatory frameworks to mitigate the risk of investor harm while fostering a transparent and innovative blockchain-based marketplace," he added.

By Ovunc Kutlu in New York

Anadolu Agency


14 Sep,2017