Two days after Mt. Gox, once the world’s largest Bitcoin exchange, effectively collapsed due to the alleged theft of more than $360 million worth of Bitcoins from its system, a U.S. senator has requested that the federal government “ban” Bitcoin entirely.
Sen. Joe Manchin (D-WV) sent a letter Wednesday to federal financial regulators, warning that Bitcoin may be used purchase illegal goods or services, and is “highly unstable” thanks to a complete lack of regulation. Manchin has asked the regulators to “act quickly” before “this dangerous currency” harms “hard-working Americans.”
“This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy,” writes Manchin. “For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.”
The letter – which is entitled “Manchin Demands Federal Regulators Ban Bitcoin” – was sent to Treasury Secretary Jack Lew, Federal Reserve Chairwoman Janet Yellen, and other financial regulators. Manchin calls on the letter’s recipients to follow in the footsteps of China, South Korea, and the European Union, which have sought to regulate or delegitimize Bitcoin within their respective borders.
Manchin cites “anonymous” purchases of illegal drugs through the now-shuttered Silk Road marketplace and the implosion of Mt. Gox as prime examples for why the U.S. should heavily regulate Bitcoin. He also says the cryptocurrency is dangerous for “average American consumers” because it only stands to benefit “speculators, such as so-called ‘Bitcoin miners,’” due to the fact that Bitcoin’s exchange rate will inevitably rise as fewer and fewer Bitcoins come into existence. The Bitcoin algorithm dictates that only about 21 million Bitcoins will ever be created. There are currently about 12.45 million Bitcoins in existence today.
“As of December 2013, the Consumer Price Index (CPI) shows 1.3 percent inflation, while a recent media report indicated Bitcoin CPI has 98 percent deflation,” writes Manchin, who serves on the Senate banking committee. “In other words, spending Bitcoin now will cost you many orders of wealth in the future. This flaw makes Bitcoin’s value to the U.S. economy suspect, if not outright detrimental.”
In response to questions from Forbes’ Andy Greenberg, a spokesperson for Manchin’s office said that the senator does not seek to ban or regulate all cryptocurrencies, such as Litecoin or Dogecoin. Update: Turns out, Manchin’s office told The Daily Dot’s Kevin Collier the exact opposite, saying that the senator has a problem with any cryptocurrency that shares Bitcoin’s “anonymous, unregulated nature”. In other words, virtually zero cryptocurrencies are safe from a potential Manchin-backed regulatory proposal. Maybe. Probably.
Either way, Manchin is also looking into whether to push for an outright ban, or if lesser regulation can adequately protect American consumers and investors.
See the full letter below:
Dear Secretary Lew, Chairwoman Yellen, Commissioner Curry, Acting Chairman Wetjen, Chairman Gruenberg, Chairwoman White:
I write today to express my concerns about Bitcoin. This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy. For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.
By way of background, Bitcoin is a crypto-currency that has gained notoriety in recent months due to its rising exchange value and relation to illegal transactions. Each Bitcoin is defined by a public address and a private key, thus Bitcoin is not only a token of value but also a method for transferring that value. It also means that Bitcoin provides a unique digital fingerprint, which allows for anonymous and irreversible transactions.
The very features that make Bitcoin attractive to some also attract criminals who are able to disguise their actions from law enforcement. Due to Bitcoin’s anonymity, the virtual market has been extremely susceptible to hackers and scam artists stealing millions from Bitcoins users. Anonymity combined with Bitcoin’s ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions.
Bitcoin has also become a haven for individuals to buy black market items. Individuals are able to anonymously purchase items such as drugs and weapons illegally. I have already written to regulators once on the now-closed Silkroad, which operated for years in supplying drugs and other black market items to criminals, thanks in large part to the creation of Bitcoin.
That is why more than a handful of countries, and their banking systems, have cautioned against the use of Bitcoin. Indeed, it has been banned in two different countries—Thailand and China—and South Korea stated that it will not recognize Bitcoin as a legitimate currency. Several other countries, including the European Union, have issued warnings to Bitcoin users as their respective governments consider options for regulating or banning its use entirely. While it is disappointing that the world leader and epicenter of the banking industry will only follow suit instead of making policy, it is high time that the United States heed our allies’ warnings. I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.
Our foreign counterparts have already understood the wide range of problems even with Bitcoin’s legitimate uses – from its significant price fluctuations to its deflationary nature. Just last week, Bitcoin prices plunged after the currency’s major exchange, Mt. Gox, experienced technical issues. Two days ago, this exchange took its website down and is no longer even accessible. This was not a unique event; news of plummeting or skyrocketing Bitcoin prices is almost a weekly occurrence. In addition, its deflationary trends ensure that only speculators, such as so-called “Bitcoin miners,” will benefit from possessing the virtual currency. There is no doubt average American consumers stand to lose by transacting in Bitcoin. As of December 2013, the Consumer Price Index (CPI) shows 1.3 percent inflation, while a recent media report indicated Bitcoin CPI has 98 percent deflation. In other words, spending Bitcoin now will cost you many orders of wealth in the future. This flaw makes Bitcoin’s value to the U.S. economy suspect, if not outright detrimental.
The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use. The Senate Homeland Security and Governmental Affairs Committee issued a report just this month stating, “There is widespread concern about the Bitcoin system’s possible impact on national currencies, its potential for criminal misuse, and the implications of its use for taxation.” Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.
U.S. Joe Manchin III
United States Senator
Updated at 6:20pm ET with additional, contradictory statements from Manchin’s office regarding a ban on Bitcoin alternatives.