The Montreal Economic Institute Addresses Bitcoin
The Montreal Economic Institute (MEI) has released an economic note on the state of Bitcoin regulation in Canada and around the world. The MEI is an independent research and education organization which, according to their website, “stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.”
In the note, the MEI points to the recent collapse of Mt. Gox (and subsequent consumer fallout), as evidence of the need for governmental clarification of Bitcoin’s legal status. This is because “(R)etailers, consumers and investors…need to know that there exist clear rules indicating how Bitcoin is to be treated in terms of taxation and regulation.”
The note states three conditions that must be met for Bitcoin to expand its use as a currency: clear advantages to using BTC as opposed to traditional payment methods, explicit rules indicating how Bitcoin is supposed to be treated in terms of taxation and regulation, and the quality that those rules do not hamper the payment system with burdensome taxes or excessive administrative rules. They make certain to point out that, while the first condition is dependent on the mechanics behind Bitcoin, the other two conditions are dependent on “political decisions.”
They highlight the fact that Canada is the second most popular destination for Bitcoin-focused venture capital after the United States, garnering $10.5 million USD in investments. This is important to the MEI because it allows the Canadian economy to benefit from “the jobs and the economic spillover related to this new industry.” The paper overviews official statements from the Canadian government on Bitcoin, including communications from Revenue Canada, the Financial Transactions and Reports Analysis Centre of Canada, and the Canadian Finance Department. The overall conclusion is that “Canada’s regulatory situation regarding Bitcoin encourages its development, or at least allows it.”
This regulatory stance is then contrasted with comparable governmental actions in the United States and Germany. In the U.S. while the MEI disagrees with the tax status given to Bitcoin by the IRS which results in any profits from holding or transacting being subject to capital gains taxes, they applaud the development of BitLicensesin New York state that will improve “consumers’ confidence.” However they caution that it remains to be seen whether the rules behind such licenses will be excessive or not.
German regulation is viewed a bit more favorably, with the MEI complementing the clarity of their Bitcoin rules saying: “These clear rules, as well as a tax treatment that allows Bitcoin to be used as a currency, explain why the digital currency is popular in Germany and why this country was one of the first Bitcoin hubs.” Germany is labeled as the world leader in competent Bitcoin regulation, but the MEI concludes that Canada is not far behind. China and Russia are also discussed as “unamenable” towards Bitcoin.
While the overall message of the report is one that supports regulation of Bitcoin, there is particular emphasis put on making sure that government action is well designed. The MEI very much believes in Bitcoin’s ability to bolster the economy and they do not want clumsy regulatory action to harm this prospect. They conclude the report by stating: “Bitcoin is a technology that is constantly evolving, and that has multiple uses. The rules that regulate Bitcoin should ideally remain flexible and be adapted to this fluid character so as to give free rein to innovation.”
This economic note is another example of a worldwide trend in think-tanks and government agencies more experienced with the traditional economy turning their attention towards Bitcoin and the cryptocurrency environment. It also plays into one of the central debates in the crypto community today: whether or not the industry should seek regulation. In a response to the publication of the MEI’s report, the Bitcoin Foundation Canada weighed in, saying they welcomed the publication and that “Government intervention is not required for Bitcoin to develop and become accepted by the Canadian public. The Bitcoin network is completely decentralized and it simply cannot be subjected to government control.”
However the debate plays out, it is nonetheless clear from this note and other discussionsthat established interests are attentive towards what Bitcoin can do for them.