Taming the Wild West of Bitcoin

The digital currency has long been a Wild West. But after thefts and bankruptcy, some players argue for greater regulation and closer ties to Wall Street.

Institutional Investor

April 2014

By Robert Stowe England

No one can easily dismiss the significance of the spectacular bankruptcy of Tokyo-based Mt. Gox, once the world’s largest Bitcoin exchange and a company that helped build the virtual currency. Yet Mt. Gox’s half-billion-dollar loss had a remarkably small effect on the global Bitcoin economy. The collapse, for instance, did not seem to shake the Bitcoin faithful. “I think Bitcoin is interesting because it forces people to rethink what money is and how value moves around the world,” declares Barry Silbert, CEO of New York–based SecondMarket, which is planning to launch a Bitcoin exchange. “In its current iteration as digital currency and as a global transaction network, it has the potential to radically transform our financial system.”

In many ways, the evolution of Bitcoin continues. For example, Internet retailer Overstock.com reported that after accepting Bitcoin as payment in early January, it had clocked $1 million in sales via the currency by early March; Overstock projected that annual sales could rise to $15 million or more. The number of registered digital wallets at Blockchain.info rose from 1,297,394 on February 25, when Mt. Gox shut down, to 1,370,473 two weeks later, growing at the same rate as before the bankruptcy. Blockchain, based in Skelton, England, publishes online Bitcoin transactions on a real-time basis. Meanwhile, Bitcoin is moving into automated teller machines. Robocoin, a Las Vegas company that operates a network tied to some of the largest Bitcoin exchanges, has placed 14 Bitcoin ATMs around the world, 12 in March alone.

But the real action in Bitcoin may be taking place in New York. Entrepreneurs ranging from venture capitalists like Marc Andreessen to CEOs like Silbert and high-profile investors like Cameron and Tyler Winklevoss are beginning to envision a new generation of Bitcoin businesses that engage the U.S. regulatory system. They share a perspective that involves linking the Bitcoin community with Wall Street and investors — plugging Bitcoin into the financial system. And they describe a new era of regulation, particularly for Bitcoin as a global payment system, moving away from Bitcoin as a store of value and ultimate currency. Like so much about Bitcoin, their ideas are future-oriented and dizzyingly optimistic, though they also bring a realism to this emerging virtual currency that it hasn’t always had. But is Bitcoin still Bitcoin once it’s left the Wild West?

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Robert Stowe England is an author and financial journalist who has specialized in writing about financial institutions, financial markets, retirement income issues, and the financial impact of population aging.

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