Reflections on Bitcoin – 12: A Pause

Posted by John Patrick on

Bitcoins in a Jar

Bitcoin is taking a pause as it slips below $500. Some would say it is in trouble, but once again, I say that bitcoin is following the pattern of the web of the mid-1990s.  There are fits and starts, many skeptics, incomplete architecture, and looming threats. CoinDesk, a global news source for Bitcoin happenings, presented it’s State of Bitcoin Q2 2014 on July 10 at the CoinSummit in London. With regard to regulatory threats looming, the CoinDesk report highlights that 88% of the 72 countries that have taken some form of regulatory action were not hostile or in any way contentious.

There were two regulatory items in the news in recent days that spooked bitcoin investors. First was that the Consumer Financial Protection Bureau (CFPB) released a warning to consumers about the potential dangers of cryptocurrencies including Bitcoin, Litecoin, and Dogecoin. The CFPB is an amalgamation of staff that had been at the Federal Reserve, the Federal Trade Commission, and other federal regulatory bodies. They launched a website to collect cryptocurrency-related inquiries and complaints. I don’t consider this development to be a problem. The fact that the CFPB “warned” consumers about bitcoin may have scared people, but warning is what the CFPB is supposed to do — its their job. I would not expect them to come out and say bitcoin is great.

The larger concern came from the New York Department of Financial Services (NYDFS) with their release of a draft proposal for a BitLicense for virtual currency operators. BitLicense represents a sweeping regulatory proposal that could clearly stop bitcoin innovation in its tracks. The Internet has been confronted with similar threats in the past, in both the U.S. and in Europe. Back in 1995, a few of us formed the Global Internet Project, and we traveled around the world meeting with governments to help them resist the temptation to regulate the Internet. We prevailed. I think the same thing will happen with BitLicense. I recommend reading Thoughts on the New York BitLicense Proposal by Jeremy Allaire. He will not be alone in aggressively presenting to regulators about how bitcoin is a good thing.

As written here before, and as you will read in Jeremy’s post, I believe some level of regulation for bitcoin would be a good thing. I get flamed every time I say that, but I am quite sure that it is necessary, and Jeremy articulates the point quite well. The second-quarter bitcoin report from CoinDesk says that the regulatory environment is stabilizing and trending toward the positive. Bolivia made Bitcoin illegal in May, Chinese regulation has slowed, and California legalized Bitcoin in June. Although New York is just one of fifty states in one country, it is highly influential in the world of finance and not to be underestimated. However, I am optimistic that smart people like Jeremy Allaire, Marc Andreessen, and others will be effective in getting the right balance of regulation while preserving innovation.

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