Bitcoin and the Regulation of Digital Currency

Bitcoin and the Regulation of Digital Currency

Despite strong debate over the regulation of digital currency, Bitcoin users and governments agree consumer protection is important. In the UK, the FCA is yet to produce a full regulatory framework for Bitcoin, but profits and losses are taxable.

The FCA is working with Bitcoin startups in the UK to develop a ‘regulatory sandbox’. This would act as a voluntary framework of best practice standards to protect consumers and stabilise prices.

Calls for further regulation are generally focused around three main issues: volatility; anonymity and exploitation; and inclusion.

Bitcoin is a volatile currency. Most major currencies average between 0.5 and one per cent. According to the Bitcoin Volatility Index, Bitcoin was almost five per cent in March 2017. While proponents believe regulation would help steady the price, critics claim the volatility will be comparable to major currencies by 2019. They argue that while prices may have gone up, volatility is decreasing. As disclosing your identity to use Bitcoin is not necessary, fears of criminal exploitation and money laundering have led to strong calls for increased regulation.

Indeed, the EU published draft legislation on 9 March, that would allow financial intelligence units to collect and store identifying data on digital currency users.

Privacy rights activists oppose this action, arguing money laundering and criminal activity are discouraged by the open, transparent nature of the block-chain.

Proponents of regulation argue the reason banks and other major financial institutions have thus far rejected the inclusion of Bitcoin is due to a lack of regulation.

Critics claim the banks will never accept crypto-currency, as the peer-to-peer nature of the network only makes banks more obsolete.

The future of Bitcoin will certainly include some form of loose regulation. However, if financial authorities push too hard, they could see Bitcoin trading fall further into the dark web and into the hands of criminal enterprise, simultaneously losing the incredible potential this technology holds.

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