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Sen. Joe Manchin calls for a Bitcoin ban as regulators seek ‘accelerated push’

Sen. Joe Manchin (D-W.Va.) (AP Photo/Lauren Victoria Burke)
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The implosion of a once-popular Bitcoin exchange has some lawmakers calling for a ban on the virtual currency.

On Wednesday, Sen. Joe Manchin (D-W. Va) wrote a letter to regulatory agencies arguing that Bitcoin is "disruptive to our economy."

"The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me wary of its use," Manchin wrote. "I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans."

Mt. Gox, which is based in Tokyo but has become one of the most well-known exchanges around, was still inactive on Wednesday after an unverified document obtained by Bitcoin entrepreneur Ryan Selkis seemed to show that nearly $400 million in bitcoins was missing. Mt. Gox had already suspended withdrawals last month and on Monday, its CEO stepped down from the board of a major Bitcoin lobbying organization.

The latest incident raises new questions about Bitcoin's fate in Washington. The virtual currency grabbed headlines in November when Sen. Tom Carper (D-Del.), chair of the Senate Homeland Security and Governmental Affairs committee, held a hearing on it. On Tuesday, Carper called the news about Mt. Gox "unacceptable."

“My staff is working closely working with relevant federal agencies to determine what lessons can be learned from this failure to help ensure this does not happen here in the United States," Carper said in a statement.

According to a committee aide, regulators are now on heightened alert.

"What we'll see is an accelerated push to get information on the virtual currency space," said the aide, who was not authorized to speak publicly. "Whereas before there was some sense you could wait a little bit to let the space evolve, it now seems there's a stronger push to get smart."

Some agencies have been highly engaged on Bitcoin; the Treasury Department's Financial Crimes Enforcement Network (FinCEN) was the first to issue policy guidance on the currency last year. Others, such as the Consumer Financial Protection Bureau and the Federal Trade Commission, may have more learning to do, according to the aide.

Mt. Gox's collapse has regulators wondering what they'd do if the same thing ever happened in the United States. It's not an academic question; the country may soon see its first Bitcoin exchange thanks to SecondMarket CEO Barry Silbert.

Silbert says there's one key difference between the exchange he's setting up — the Bitcoin Investment Trust — and Mt. Gox: Where typical exchanges require that Bitcoin investors buy their own coins, the BIT involves regulated banks, investment firms and Bitcoin businesses that handle the money for you.

"The analogue would be for the New York Stock Exchange," said Silbert. "If you want to go buy Twitter stock, you don't go to the NYSE — you have an account at Fidelity or Ameritrade, and this is the exact same construct."

Silbert believes that the downfall of Mt. Gox was a good thing for the Bitcoin ecosystem. So do the Winklevoss brothers, who are still working with the federal government to set up a Bitcoin ETF.

"Although Mt. Gox was one of the earliest exchanges, its demise and the rumored problems associated with it further demonstrate the need for U.S. regulation of bitcoin exchanges," he said.

It's not clear what the federal government could have done to protect consumers from losing their money to Mt. Gox. But with the bloom of Bitcoin services here in the United States, federal officials will need to confront that question sooner rather than later.