RIP Bitcoin, I think

As predicted here last month, USG is killing Bitcoin—I’m pretty sure. FINCEN has just issued its guidance on virtual currencies.

TL;DR: every currently operating Bitcoin exchange is operating in violation of the law—or, if you prefer, “law.” (Obviously “laws” made in this way are a profound and utter mockery of the good old English word “law,” but there you go.) Here is the complete Bitcoin guidance:

A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.

IANAL, of course, but as I read this: here are the things it is now perfectly “legal” to do with Bitcoin. One, you can mine BTC and use them to buy alpaca socks. Two, you can accept BTC in exchange for your alpaca socks. Awfully generous of our wise masters, don’t you think?

Operating a BTC exchange anywhere in the world, however, is now “illegal” (as I read it). So, in a particularly ingenious touch, is mining BTC and selling it for money. I.e., mining BTC. I.e., it is quite plain that every player in the Bitcoin economy violates this grand ukase of the Holy Procurator—and, if prudent, will begin making plans to shut down permanently, tomorrow.

Unless, of course, it has a money transmitter license. Obviously, none of these has been or will be issued to any Bitcoiners. I have not of course seen the questionnaire (ha ha—the first question being, can you afford $2.5M in legal fees?), but I imagine it asks you how you know the monies you’re transmitting are not the product of illegal activity. Of course, Bitcoin provides no such assurance. By design. That’s because it’s well-designed—for a free country that doesn’t exist.

It does not matter whether or not USG would issue a BTC exchange an MTL under any circumstances—because BTC will “get dead,” as my daughter puts it, before even the friendliest of regimes could act on such an application. I’m not getting the feeling this is the friendliest of regimes.

Ergo, we can expect the BTC economy to segment rapidly into two groups: those who see the writing on the wall and cash out/cut losses as fast as possible, and those who for whatever reason want to play whack-a-mole with Washington. Washington will have great fun with the latter.

However, the essential problem is that BTC cannot maintain its exchange rate against USD, for reasons discussed in the prior post, without the present burgeoning white economy. The BTC black economy has many ways to fight USG—but it ceases to exist if the white economy ceases to maintain the BTC price above zero. Criminals don’t work for free.

But, of course, I could be wrong. There is certainly no investment advice here at UR…