Bitcoin comes under scrutiny from New York regulators

The state's Department of Financial Services issues several subpoenas to companies and people associated with virtual currencies, including Marc Andreessen and the Winklevoss twins.

Dara Kerr Former senior reporter
Dara Kerr was a senior reporter for CNET covering the on-demand economy and tech culture. She grew up in Colorado, went to school in New York City and can never remember how to pronounce gif.
Dara Kerr
3 min read

New York state regulators are seeking more information on Bitcoin and other virtual currencies to both regulate and add extra safeguards to the nascent industry. The state's Department of Financial Services issued subpoenas to about 12 people and companies that have been associated with virtual currencies, according to The Wall Street Journal.

The subpoenas, which legally require people or companies to hand over information, were issued to venture capitalist Marc Andreessen, the Cameron and Tyler Winklevoss twins, Coinbase, BitInstant, Coinsetter, and others. According to the Journal, the DFS is especially looking for information on antimony-laundering programs, consumer-protection measures, and investment strategies.

Of all virtual currencies, Bitcoin is probably the most well-known. While it's been around since 2009, it didn't really get going until 2011 when it was worth $2 per coin. By 2013, the currency had climbed to $20 per coin, and then jumped to $266 in April. Now it's hovering around $100.

Digital currencies aren't regulated, which is what worries federal and state regulators. The virtual money can be manipulated or used to launder other types of money. Also, an all-digital currency allows people to evade various countries' currency controls with ease. It also, in at least some ways, is far more anonymous than moving cash through the legacy banking system.

In addition to the subpoenas, the DFS issued a public memo on Monday that detailed the state's concern with the growth of virtual currencies.

"We have also seen instances where the cloak of anonymity provided by virtual currencies has helped support dangerous criminal activity, such as drug smuggling, money laundering, gun running, and child pornography," department head Benjamin Lawsky wrote in the memo. "If virtual currencies remain a virtual Wild West for narcotraffickers and other criminals, that would not only threaten our country's national security, but also the very existence of the virtual currency industry as a legitimate business enterprise."

Lawsky says the DFS is considering the creation of new regulatory guidelines specifically for virtual currencies, which would include requiring safety and soundness for prompt transactions, taking measures to "root out illegal activity," and creating procedures for greater transparency and accountability.

When Bitcoin first began to gain traction, U.S. federal regulators issued their own set of guidelines for virtual currencies. Since then, several of the virtual currency exchanges have registered with the U.S. Treasury Department's Financial Crimes Enforcement Network. Giving even more legitimacy to the currencies, a federal judge ruled in a fraud case last week that Bitcoins are "a currency or form of money" and are subject to U.S. laws.

But it's a different process for virtual currencies to get a license in individual states, according to the Journal. So far, states are making different decisions on how they want to go about regulating Bitcoin and other virtual currencies. New York has been on the forefront of taking a closer look at the industry.

"It is in the common interest of both the public and the virtual currency industry to bring virtual currencies out of the darkness and into the light of day through enhanced transparency," Lawsky wrote. "It is vital to put in place appropriate safeguards for consumers and law-abiding citizens."