Talk about kicking someone while they’re down. Following a tumultuous week for Bitcoin, one of the US’s most vehemently anti-Bitcoin senators has taken the opportunity to call for an all-out ban on the world’s most popular digital currency.
Sen. Joe Manchin slammed Bitcoin for its potential to be used in illicit transactions, as well as its price volatility in relation to fiat currencies, in a letter addressed to Jack Lew of the US Treasury, Janet Yellen of the Federal Reserve and other financial regulators. Machin’s letter was sent just one day after MtGox, previously the world’s largest Bitcoin exchange by transaction volume, went offline with $350 million worth of Bitcoin unaccounted for, following weeks of uncertainty.
“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,” wrote Manchin.
The Senator said that Bitcoin was responsible for facilitating illicit trade on the now-closed online black market Silk Road, a site which “operated for years in supplying drugs and other black market items to criminals.” The Silk Road was shut down last October and its operator Ross Ulbricht arrested following an FBI investigation. It’s believed that the site saw more than $1.2 billion worth of illegal transactions during its two-and-a-half year tenure.
Aside from its use to facilitate criminal trade, Bitcoin’s price volatility is also an area of concern for Manchin. The Senator added that it was “disappointing” that the US had not followed the lead of countries like China and Thailand in banning Bitcoin – although he neglected to mention that in reality, people in both countries continue to use the cryptocurrency virtually unhindered.
“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,” wrote Manchin.
Forbes later contacted Senator Manchin’s office to clarify his comments – a spokesperson responded that the Senator’s call to ban Bitcoin doesn’t include other cryptocurrencies (such as Dogecoin or Litecoin).
Despite the Senator’s tough words, it remains to be seen how a ban could actually be enforced. The senator’s spokesperson admitted to Forbes that his is still gathering information on the mechanics of imposing a Bitcoin ban. It’s unlikely that the Federal Reserve or the US treasury alone could proceed with an outright ban, not without Congress enacting laws to ban it and these being signed by the US President, which means that Manchin’s letter is little more than a publicity stunt. Even so, financial regulators could impose restrictions on banks and payment processors as China did last year, which would make things more difficult for the Bitcoin community.
It’s quite unlikely they’ll take his advice anytime soon though. Senator Manchin has criticized Bitcoin before, and the arguments he presents here are nothing new. Meanwhile, a number of politicians have taken a more progressive stance on Bitcoin in recent months, and would be likely to oppose any ban. These include Senator Thomas Carper, who told Bloomberg last December that “virtual currencies are not going away, and if they are going to be a reality we need to figure out how to let them exist to do good, a lot more good than bad, and figure out how to deal with the bad.”
Here’s Senator Manchin’s letter in full:
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% inflation, while a recent media report indicated Bitcoin CPI has 98% 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