Virtual Currency Regulation

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The regulation of virtual currencies, such as bitcoin, began after several key issues between 2013 and 2014, namely:

  • the October 2013 closure of the Silk Road drug trading website by law enforcement agencies;
  • the 2013 price spike that took bitcoin's value from less than one dollar to $1100 and back down to $100 in a matter of months;
  • the February 2014 trading halt and ultimate bankruptcy of bitcoin transaction and storage portal Mt. Gox.; and
  • the growing popularity in virtual currencies and the blockchain technology underpinning such currencies.

The first "regulated" U.S. exchange was opened in January of 2015. Although it is self regulated as it has no license from government authorities. [1], Several unregulated exchanges also exist. The New York State Department of Financial Services has proposed rules that would govern virtual currency trading. In Europe, the EBA has proposed a regulatory regime. ESMA has begun investigations into how to regulate virtual currencies as well. The agency sent out a call for evidence on April 22nd, 2015. However, as of April 22nd, 2015 has not yet issued any regulation. [2]

Existing and Planned Exchanges

As of April 2015, the only active regulated virtual currency exchange is Coinbase. However, it is self regulating as there is no state or federal regulations [3]. The start up was backed by the NYSE and others with Coinbase opened in January of 2015. In May of 2015, Itbit became the first licensed bitcoin exchange, operating under New York Law [4]. Planned regulated exchanges include Gemini, operated by Winklevoss Capital Management [5]. Several unregulated exchanges exist with the notable exchanges being Bitfinex, OKcoin, BTC-e, and Bitstamp.

Virtual Currency Regulation

The legality of virtual currencies varies between countries, with some issuing outright bans, while other seek to establish regulatory authority.

In November 2014, CFTC Commissioner Mark Wetjen claimed the commission has the authority under the market manipulation authority granted under the Dodd-Frank Act. “It has not been tested," said Wetjen, "but I do believe we have the authority because if you think of any reasonable reading of our statute, bitcoin classifies as a commodity.”[6]

In China, virtual currencies are banned from being used as payment [7]. Additionally, the European Union has discouraged financial institutions from engaging in virtual currency trading or holding virtual currency.[8]

Proposed Regulation

Proposed regulations include "Bit License" from the New York Department of Financial Services[9]. Under the proposed framework, companies that operate exchanges, store, control, sell, transfer or exchange virtual currencies operating in New York State would be required to be licensed by the state of New York [10]. Outside of the United States, the EBA and ESMA have begun to investigate a potential for regulatory framework for virtual currencies.[11] Additionally, The UK has begun to discuss Anti-Money Laundering regulations in regards to virtual currency transactions. [12]


In June of 2015, the NYDFS issued its final rules, commonly called BitLicense, on virtual currency. The regulations will impose all new requirements on bitcoin and other vitual currency fims. For more information click HERE


  1. First U.S. Bitcoin Exchange Set to Open. Wall Street Journal. Retrieved on April 22, 2015.
  2. EBA proposes potential regulatory regime for virtual currencies, but also advises that financial institutions should not buy, hold or sell them whilst no such regime is in place. EBA. Retrieved on April 22nd, 2015.
  3. Yes, regulation is coming to bitcoin. Fortune. Retrieved on April 22nd, 2015.
  4. New York Just Released Its Bitcoin License, And They're Going To Change The Face Of Digital Currencies In The US. Business Insider. Retrieved on May 13th, 2015.
  5. Winklevoss Twins Plan Regulated US Bitcoin Exchange. Retrieved on April 22, 2015.
  6. CFTC Commissioner Says Agency Has Authority Over Bitcoin Price Manipulation. Wall Street Journal. Retrieved on April 24, 2015.
  7. China Bans Financial Companies From Bitcoin Transactions. Bloomberg. Retrieved on April 22nd, 2015.
  8. Winklevoss Twins Plan Regulated US Bitcoin Exchange. Retrieved on April 22, 2015.
  9. Bitcoin: Lawsky softens 'BitLicense' requirements. CNBC. Retrieved on April 22nd, 2015.
  10. New York Proposes Bitcoin Regulations. Time. Retrieved on April 22nd, 2015.
  11. Winklevoss Twins Plan Regulated US Bitcoin Exchange. Retrieved on April 22nd, 2015.
  12. UK's Plans to Regulate Bitcoin Revealed in Treasury Report. Retrieved on April 22nd, 2015.

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