The effects of MtGox's alleged insolvency may be as long lasting for cryptocurrencies as the fallout at Chernobyl. While short term outcomes, like price instability, will most likely rebound with time, regulators and critics see this unfolding story as a leveraging post, pushing for stronger regulation to mitigate risks inherent with the digital currency.
Senator Tom Carper, D-Del., Chairman of the Senate Homeland Security and Governmental Affairs Committee, released a statement today condemning the news from MtGox and expressing concerns about the unregulated environment. “The disturbing news today from Japan is a reminder of the damage potentially ill-equipped and unregulated financial actors can wreak on unsuspecting consumers,” Sen. Carper stated. “U.S. policymakers and regulators can and should learn from this incident to protect consumers.”
Protecting customers means regulating bitcoin and other cryptocurrencies to prevent failures like that of MtGox in the future. “For months, our committee has been calling on law enforcement, industry and relevant regulators to come to the table and engage in meaningful dialogue to provide clear rules of the roads for entrepreneurs, investors and consumers,” Sen. Carper said. “Without these rules, businesses can’t be successful and consumers can’t be protected.”
He’s not the only policymaker who's been following this case. Ben Lawsky, superintendent of the New York Department of Financial Services, sees this as an example of why regulation is so important. “While all the facts surrounding the situation at MtGox in Japan are not yet clear, these developments underscore that smart, tailored regulation could play an important role in protecting consumers and the security of the money that they entrust to virtual currency firms.”
While Lawsky and Sen. Carper have consumers in mind, some bitcoin innovators think harsher regulation would stunt entrepreneurialism. For example, Eric Stromberg, owner of Enchanted Bitcoins, moved to Albuquerque, N.M., from San Francisco to install and operate his Lamassu bitcoin vending machines, citing burdensome regulations in California.
Erik Voorhees, outspoken bitcoin proponent and founder and CEO of Coinapult, a bitcoin payment processor, spoke out last night on the popular website Reddit, calling for his “brothers” to see the fall of MtGox as a bump in the road, not the end of times. “The proper lesson, if I may suggest, is this: We are building a new financial order, and those of us building it, investing in it, and growing it will pay the price of bringing it to the world. This is the harsh truth. We are building the channels, the bridges, and the towers of tomorrow's finance, and we put ourselves at risk in doing so,” Voorhees said. He also stated that he lost 550 bitcoins on the MtGox exchange.
Senator Carper closed by saying that regulators have a role to play, but it should be limited. “When it comes to policy, it is the responsibility of the federal government to steer the boat, not row the boat,” Sen. Carper said. “Our committee will continue to work closely with relevant U.S. government entities to steer the boat away from nefarious actors -- and it’s up to legitimate, law-abiding industry partners to row the boat into law-abiding waters.”