• Virtual Currency Update
  • January 17, 2014 | Author: Katharine F. Musso
  • Law Firm: Jones Walker LLP - Birmingham Office
  • The virtual currency, Bitcoin, has received considerable attention for its dizzying fluctuations in value. It has also gained the attention of regulators. 2014 promises to be an interesting year for Bitcoin investors and users.

    In March 2013, FinCEN issued guidance that certain intermediaries in virtual currencies must register as Money Service businesses. In so registering, the intermediaries, typically exchanges, subject themselves to all of the requirements of an anti-money laundering program in accordance with the USA PATRIOT Act.

    The Internal Revenue Service has announced that it has taken under advisement the U.S. tax implications of gains and losses on Bitcoin purchases. The New York Department of Financial Services announced on November 14, 2013, its intent to hold a hearing on virtual currencies. The hearing would review the advisability of regulatory virtual currencies through a "BitLicense." The Louisiana Office of Financial Institutions has recently stated that it is considering regulation of virtual currency intermediaries as well.

    These regulatory actions suggest, on the one hand, that virtual currency has reached the mainstream. On the other hand, it is also clear that the legal treatment of virtual currency is deeply unsettled. At present, the greatest risks to banks are the failure to recognize a client which is an intermediary, which should be registered as a MSB.

    Another potential issue is the business customer which accepts virtual currency and redeems it with an intermediary for deposit in a bank, creating uncertainty about the reliability of funding in the future.