Analysis: EBA Bitcoin Warning is Meaningless - Either Embrace it or Ban It

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By Alistair Charlton | December 13, 2013 11:55 PM EST

Alistair Charlton says the European Banking Authority's statement on bitcoin is meaningless without real changes to law and financial regulation.

As investors see value in bitcoin, regulators need to act. (Reuters)

It has been eight months since bitcoin first made headlines in the mainstream press and it has remained there pretty much ever since, yet it has taken until now for the European Banking Authority to merely recognise the currency's existence - yet alone attempt to regulate it.

While entrepreneurs from the US, UK, Far East, and everywhere inbetween work to earn a living from bitcoin and other virtual currencies - by honest means, or otherwise - the banking regulators and watchdogs are keeping quiet in the hope this will all blow over.

Reading like The Dummy's Guide to Bitcoin, the ERA's warning explains how these currencies are not protected by any EU law or regulatory protection, and concludes that consumers shouldn't invest any real money - pounds, dollars and the like - which they cannot afford to lose.

Sound advice, perhaps, but the bigger issue here is how it seems regulators and watchdogs are scared to react to something which prominent and respected investors describe as Gold 2.0, and one which is gaining legitimate uses by the day.

Bitcoin's previous boom and bust in April appeared to prove the naysayers right, and that its interest was a 21st century equivalent of Denmark's Tulip Mania of the 1600s - but a second wave of interest in recent months has driven the price four times higher, over a much longer timeframe, and with no major crash.

Just this week, the Coinbase wallet service received $25 million of investment from the same backers who saw value in Skype, Twitter and Instagram - and yet the regulators continue to bite their tongue.

A bad image

From online drug dealing and assassination funding, to Birmingham escort agencies, bitcoin might not have the cleanest of images - and multimillion-dollar heists remind us the world in which it operates can be closer to Grand Theft Auto's Los Santos than regulators feel comfortable with - but 'real' money also shares these traits.

The EBA does a good job of listing bitcoin's negatives - its association with money laundering; the purchasing of illegal goods; its anonymity; the risk of it being stolen - and yet real world cash is susceptible to exactly the same problems.

The Authority at least suggests bitcoin "may have tax implications" and urges owners to think about whether their ownership of the currency should be declared to the tax man, but without a hard and fast set of rules and regulations its owners are left in the dark.

Lawyers speaking to IBTimes UK believe the theft of £100 worth of bitcoins is the same as five £20 notes being taken from your wallet, but one suggested getting your stolen coins back would be impossible without a legal budget "in the millions".

So where does that leave bitcoin and its users? Consumers and merchants alike want to use the currency for legitimate purchases - Richard Branson's a fan - brave traders fancy a punt on its value increasing; investors see promise in the technology behind bitcoin, if not the currency itself, and citizens in struggling countries like Cyprus see it as a safer option for life savings than their own bank.

Sitting on the sidelines

The above, added to the shuttering of Silk Road increasing bitcoin's price, prove bitcoin and the technology behind it has value which investors are keen to capitalise on - all it needs is lawmakers and regulators to show their hand and either impose an outright ban, lowering its value and kicking it back to the Dark Web from where it came, or draw up regulation to make its use more acceptable.

The message to lawmakers and financial regulators is simple: bitcoin isn't going away as quickly as you might have hoped and you can no longer sit on the sidelines saying 'I told you so' every time some coins go missing.

Technology and financial entrepreneurs alike are investing in bitcoin in a big way because they see real potential. These people aren't interested in selling cocaine or funding an assassination, they want to drive innovation and realise the potential of a new global currency.

Yes, it might be a flash in the pan, and yes, bitcoin's value could crash spectacularly before the year is out - but why hide away when updated currency regulation could see a real change in the way online money operates.

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