Fi­nanciers spooked by dig­i­tal cur­rency

Boston Herald - - NEWS -

Bit­coin, hailed in some quar­ters as the fu­ture of cur­rency, has had a rough week, with the bad news in­clud­ing a flurry of ru­mors that China will shut down ex­changes and the head of a ma­jor U.S bank call­ing bit­coin a “fraud.”

Plum­met­ing prices have again raised questions about the wis­dom of own­ing it, if not its le­git­i­macy.

The dig­i­tal, or cryp­tocur­rency, tum­bled 15 per­cent Thurs­day to about $3,300 against the dol­lar. Bit­coin, which has had bouts of volatil­ity in the past, has shed about a third of its value since Sept. 1. But it is still up about $600 com­pared with last year at this time.

Still get­ting up to speed on bit­coin? Here’s a quick run­down: What is bit­coin? Bit­coin is a dig­i­tal cur­rency cre­ated and ex­changed with­out the in­volve­ment of banks or gov­ern­ments. Trans­ac­tions al­low for anonymity, which has made it pop­u­lar with peo­ple who want to keep their fi­nan­cial ac­tiv­ity, and their iden­ti­ties, pri­vate. The dig­i­tal coins are cre­ated by so-called “min­ers,” who op­er­ate com­puter farms that ver­ify other users’ trans­ac­tions by solv­ing com­plex math­e­mat­i­cal puz­zles. These min­ers re­ceive bit­coin in ex­change. Bit­coin can be con­verted to cash when de­posited into ac­counts at prices set in on­line trad­ing. Is this bit­coin’s swan song? Not nec­es­sar­ily. Let’s take a look at re­cent data: In mid-July the value of bit­coin was around $1,900 per dol­lar, drop­ping from nearly $2,500 at the end of June. Users forced a change in the com­puter code, which was de­signed to im­prove ca­pac­ity on the in­creas­ingly clogged network. The ma­neu­ver worked, help­ing to avoid a split in bit­coin and driv­ing the value up to roughly $2,800 by the end of July.

Bit­coin’s value has fluc­tu­ated since then. At the be­gin­ning of Au­gust bit­coin’s value stood at

about $2,710, but it then shot up to more than $4,700 by month’s end. But there has been a steady de­cline this month, with the value slip­ping to ap­prox­i­mately $3,300 on Thurs­day, ac­cord­ing to What hap­pened last week?

One of China’s big­gest bit­coin ex­changes an­nounced that it will cease trades fol­low­ing re­ports that Bei­jing will or­der all Chi­nese ex­changes to close. And on Tuesday, JPMor­gan Chase CEO Jamie Di­mon called bit­coin a fraud, say­ing that if any of his traders were deal­ing in the cur­rency, he’d fire them.

Bit­coin tum­bled 6 per­cent be­tween Tuesday and Wed­nes­day.

How are sov­er­eign na­tions deal­ing with bit­coin?

In the U.S., the IRS has is­sued guide­lines on the cur­rency, call­ing it an “in­tan­gi­ble as­set” sub­ject to tax­a­tion. But in the end, cash talks. Ac­cord­ing to IRS guid­ance: “Vir­tual cur­rency that has an equiv­a­lent value in real cur­rency, or that acts as a sub­sti­tute for real cur­rency, is re­ferred to as ‘con­vert­ible’ vir­tual cur­rency. Bit­coin is one ex­am­ple of a con­vert­ible vir­tual cur­rency. Bit­coin can be dig­i­tally traded be­tween users and can be pur­chased for, or ex­changed into, U.S. dol­lars, eu­ros, and other real or vir­tual cur­ren­cies.”

And it is a hotly pur­sued as­set by U.S. in­tel­li­gence agen­cies, which see bit­coin as a fund­ing ve­hi­cle in some in­stances for groups or in­di­vid­u­als that intend to do harm.

China’s cen­tral bank has yet to re­spond to questions about bit­coin’s fu­ture, but it has warned in the past that the dig­i­tal cur­rency is be­ing traded with­out reg­u­la­tory over­sight and might be linked to fraud.

The bank banned ini­tial of­fer­ings of new dig­i­tal cur­ren­cies last week.

Af­ter the fail­ure of a bit­coin ex­change in Ja­pan called Mt. Gox, that coun­try en­acted new laws to reg­u­late bit­coins and other cryp­tocur­ren­cies. Mt. Gox shut down in Fe­bru­ary 2014, say­ing it lost about 850,000 bit­coins, pos­si­bly to hack­ers.

The Ja­panese gov­ern­ment has also spelled out reg­u­la­tions to help pre­vent mis­use of bit­coins and other vir­tual cur­ren­cies for ter­ror­ism or other il­le­gal ac­tiv­i­ties, in­clud­ing re­quir­ing banks and other busi­nesses to ver­ify iden­ti­ties, keep records and re­port sus­pi­cious trans­ac­tions.

The reg­u­la­tions im­ple­mented in April re­quire vir­tual cur­rency traders to keep cus­tomers’ as­sets sep­a­rate from their own, partly be­cause of the losses suf­fered in the Mt. Gox bank­ruptcy.

MAD MONEY: Users of bit­coin have had to deal with volatile price move­ments in re­cent weeks. AP FILE PHOTO

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.