Bitcoin Regulatory Update- 01/29/14
Regulatory developments over the past two weeks are indicative of a widening gap in treatment of Bitcoin among developed nations. The various American regulatory bodies seem to be receptive to Bitcoin, if not overtly supportive. However, many other countries, especially European Union member states and Asian countries, have taken the opposite tack. US authorities seem primarily concerned with detection and prevention of money laundering, while European authorities are staking out positions likely to increase tax revenue as Bitcoin acceptance grows. Developing countries in general and Asian countries specifically, seem to be gravitating toward positions that defend and strengthen state control of the money supply.
Bitcoin is not legal tender in Canada. According to the Canadian Treasury, as outlined by an unnamed “official” in an emailed message, only Canadian bank notes are considered legal tender in Canada. This echoes the sentiments of a number of other countries recently, though it is not clear what this means (if anything) for consumers who wish to spend their Bitcoins with Canadian vendors at this time. Canadian Bitcoiners remain free to enter into contracts for payment in any manner that is mutually agreeable to both buyer and seller, but transactions denominated in a medium that is not “legal tender” may be subject to additional taxes beyond what would normally apply to the same transaction when paid in Canadian Dollars. According to Spendbitcoins, more than one thousand Canadian vendors currently accept Bitcoin.
Finland’s central bank classifies Bitcoin as a “commodity,” according to Bloomberg News Service. Paevi Heikkinen, the head of oversight at the Bank of Finland said that, since Bitcoin doesn’t have a central issuer responsible for its operation, it does not meet the definition of currency as specified by Finnish law. He went on to state “at this stage it’s more comparable to a commodity.” As a commodity, Bitcoin will likely be subject to capital gains taxes or their Finnish equivalent. US tax law does not recognize a separate class of asset for commodities. However, the Commodities Futures Trading Commission has hinted on at least one occasion that it might attempt to regulate Bitcoin trading in the future based on such a definition.
Sweden’s tax agency announced last week that Bitcoin will be treated as an “other asset”, putting it in the same category as art and antiques and subjecting Bitcoin denominated transactions to capital gains taxes. Sweden is also considering whether to treat miners as businesses, which would allow them to deduct ordinary expenses from mining revenues. This position is the same as that taken by Norway in an announcement last December. The US Internal Revenue Code, by contrast, already provides a framework for writing off ordinary business expenses related to Bitcoin, to include mining expenses.
On Monday, Russia’s central bank published a statement on its website warning that Bitcoin users that they could be unintentionally breaking the law. Without providing additional examples, the statement pointed out that issuing “alternative currencies” is against Russian law. On a semi-related note, Zero Hedge is reporting that Russian bank “MyBank” announced Tuesday that it is suspending all cash withdrawals until at least next week in response to fears of a spreading “global bank run.”
Following the success of its private “summit” held in San Francisco last week, Wells Fargo announced that it will hold a public event to discuss Bitcoin. According to Coindesk.com, five speakers will each make a fifteen minute presentation. The speakers include Bitcoin industry insiders, a Department of Justice official and an attorney from a firm that specializes in money laundering cases. Wells Fargo also announced that it will lead an industry based effort to develop anti-money laundering rules for Bitcoin startups. Anecdotal reports suggest that the event was not quite public, as the sixty places reserved for the “public” were filled by Wells Fargo’s clients and other industry stakeholders.
“The US government needs more time to assess the bitcoin ‘phenomenon’ to ensure the virtual currency isn’t used for unlawful purposes,” Treasury Secretary Jacob J. Lew told CNBC during an interview at the World Economic Forum in Davos, Switzerland. Though, without mentioning “who” he though needed to grant the US government more time. He went on to state that “we have to make sure it does not become an avenue to funding illegal activities that have malignant purposes like terrorist activities.” Lew seems to be the irony of his comments in that they apply as well to the venerable US greenback as to Bitcoin or any other anonymous or semi-anonymous payment technology. Meanwhile, in the absence of restrictive regulations, Bitcoin supporters, including a growing number of tech startups, are charging ahead.