A bipartisan push by U.S. lawmakers in both the Senate and House of Representatives may soon see the implementation of new rules that could impose stricter federal oversight on Bitcoin, a type of cryptocurrency that, in recent months, has seen a surge in investor interest.
According to Reuters, the reason for this latest development is to address the risks posed by virtual currencies to investors as well as the financial system.
Republicans are advocates of the free market, but in this instance, they are preferring to have some level of government regulation on Bitcoin. In other words, they do not want cryptocurrencies to threaten in any way the U.S economy.
“There’s no question about the fact that there is a need for a regulatory framework,” said Republican Senator Mike Rounds, a Senate Banking Committee member.
As explained in the Reuters release, digital assets fall in a gray area. Specifically, they fall between the Securities and Exchange Commission (SEC), the Treasury Department, the Federal Reserve, and individual states.
The speculation and investor frenzy over Bitcoin have grown rapidly in recent months, but scams have also proliferated in the process.
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“Virtual currencies have existed for years but speculation in them has recently ballooned, along with scams promising investors returns of over 1,000 percent in weeks.”
Bitcoin at some point in time grew 1,300 percent, but eventually lost half of its value. What made this digital currency an attractive investment item could be attributed to the fact that Bitcoin, as well as most other cryptocurrencies, is decentralized, allows for direct transactions, and offers investors anonymity.
Users have no central authority to begin with. The actions of banks or the Federal Reserve will not have an impact of any kind. Everything is controlled by the users instead. In addition, there is no need for an intermediary or middleman. Bitcoin could be used to pay for a good or service, and transactions are completely anonymous.
However, New York Times economist and columnist Paul Krugman deems it to be a bubble more than anything else.
“In principle, you can use Bitcoin to pay for things electronically. But you can use debit cards, PayPal, Venmo, etc. to do that, too — and Bitcoin turns out to be a clunky, slow, costly means of payment. In fact, even Bitcoin conferences sometimes refuse to accept Bitcoins from attendees.”
Krugman goes on to add that Bitcoin transactions that are anonymous have no use if you hide what you are buying or selling. He concluded that Bitcoin has the potential to be used in the exchange of black-market goods and services, such as drugs and other illicit activities.