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US Begins Regulating BitCoin, Will Apply “Money Laundering” Rules To Virtual Transactions

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Zero Hedge
March 22, 2013

Last November, in an act of sheer monetary desperation, the ECB issued an exhaustive, and quite ridiculous, pamphlet titled “Virtual Currency Schemes” in which it mocked and warned about the “ponziness” of such electronic currencies as BitCoin. Why a central bank would stoop so “low” to even acknowledge what no “self-respecting” (sic) PhD-clad economist would even discuss, drunk and slurring, at cocktail parties, remains a mystery to this day. However, that it did so over fears the official artificial currency of the insolvent continent, the EUR, may be becoming even more “ponzi” than the BitCoins the ECB was warning about, was clear to everyone involved who saw right through the cheap propaganda attempt. Feel free to ask any Cypriot if they would now rather have their money in locked up Euros, or in “ponzi” yet freely transferable, unregulated BitCoins.

For the answer, we present the chart showing the price of BitCoin in EUR terms since the issuance of the ECB’s paper:

US Begins Regulating BitCoin, Will Apply Money Laundering Rules To Virtual Transactions BitCoin%20Nov%20Now 0

Therein, sadly, lies the rub.

As central banks have been able to manipulate the price of precious metals for decades, using a countless plethora of blatant and not so blatant trading techniques, whether involving “banging the close”, abusing the London AM fix, rehypothecating and leasing out claims on gold to short and re-short the underlying, creating paper gold exposure out of thin air with which to suppress deliverable prices, or simply engaging in any other heretofore unknown illegal activity, the parabolic surge in gold and silver has, at least for the time being – and especially since the infamous, and demoralizing May 1, 2011 silver smackdown – lost its mojo.

But while precious metals have been subject to price manipulation by the legacy establishment, even if ultimately the actual physical currency equivalent asset, its “value” naively expressed in some paper currency, may be in the possession of the beholder, to date no price suppression or regulation schemes of virtual currencies existed.

It was thus only a matter of time before the same establishment was forced to make sure that money leaving the traditional M0/M1/M2/M3 would not go into alternative electronic currency venues, but would instead be used to accelerate the velocity of the money used by the legacy, and quite terminal, monetary system.

After all, what if not pushing savers to spend, spend, spend and thus boost the money in circulation, was the fundamental purpose of the recent collapse in faith in savings held with European banks?

So, as we had long expected, the time when the global Keynesian status quo refocused its attention from paper gold and silver prices, to such “virtual” currencies as BitCoin has finally arrived.

The WSJ reports that, “the U.S. is applying money-laundering rules to “virtual currencies,” amid growing concern that new forms of cash bought on the Internet are being used to fund illicit activities. The move means that firms that issue or exchange the increasingly popular online cash will now be regulated in a similar manner as traditional money-order providers such as Western Union Co. They would have new bookkeeping requirements and mandatory reporting for transactions of more than $10,000. Moreover, firms that receive legal tender in exchange for online currencies or anyone conducting a transaction on someone else’s behalf would be subject to new scrutiny, said proponents of Internet currencies.

And just like that, there goes a major part of the allure of all those virtual currencies such as BitCoin that consumers had turned to, and away from such rapidly devaluing units of exchange as the dollar and euro. Because if there was one medium of exchange that was untouched, unregulated, and unmediated by the US government and other authoritarian, despotic regimes around the insolvent “developed world”, it was precisely transactions involving BitCoin.

That is no longer the case, as the bloodhound of the Federal Reserve has now turned its attention toward BitCoin, and will not stop until it crashes both its value to end-users, and its utility, in yet another attempt to force the USD, and other fiat, upon global consumers as the only forms ofallowed legal tender.

More from the WSJ:

The rising popularity of virtual currencies, while no more than a drop in the bucket of global liquidity, is being fueled by Internet merchants, as well as users’ concerns about privacy, jitters about traditional currencies in Europe and the age-old need to move money for illicit purposes.

 

The arm of the Treasury Department that fights money laundering said Monday that the standard federal banking rules aimed at suspicious dollar transfers also apply to firms that issue or exchange money that isn’t linked to any government and exists only online.

Naturally, the actual object of US monetary persecution, is BitCoin:

“We are beyond the stage where this was just funny money and a fun online thing. This is used as a currency,” said Nicolas Christin, associate director of Carnegie Mellon University’s Information Networking Institute.

 

Bitcoins can be used in a host of legitimate transactions—for example, website Reddit allows users to upgrade services using bitcoins and blog service WordPress.com’s store accepts them as a form of payment. Pizzaforcoins.com also lets bitcoin savers pay for deliveries through Domino’s and other pizzerias.

The problem with virtual currencies is that defining what is permitted in a narrow regulatory sense, is impossible, which is why any definition will be as broad as possible: after all what better way to spook users than to make virtually any transaction borderline illegal:

Creating clear-cut rules for virtual currencies is difficult. A FinCen official said that anti-money-laundering rules would apply depending on the “factors and circumstances” of each business. The rules don’t apply to individuals who simply use virtual currencies to purchase real or virtual goods.

 

The new guidance “clarifies definitions and expectations to ensure that businesses…are aware of their regulatory responsibilities,” said Jennifer Shasky Calvery, FinCen director.

 

The FBI report last year said Bitcoin attracts cybercriminals who want to move or steal funds. “Bitcoin might also logically attract money launderers and other criminals who avoid traditional financial systems by using the Internet to conduct global monetary transfers,” the report said. An FBI spokeswoman declined to comment when asked about the agency’s concerns regarding virtual currencies.

We were not the only ones to expect imminent intervention from Big Brother:

Some firms say they anticipated the rules. Charlie Sherm, chief executive of bitcoin payment processor BitInstant, said his company is already compliant.

 

Mr. Christin of Carnegie Mellon said that he believes Bitcoin’s dominant use right now is speculation.

 

“When you have a commodity or currency whose value has grown as rapidly as Bitcoin it makes sense to hold on to it as a speculative instrument,” he said. It also is commonly used for online black markets or gambling sites. “Whether used for money laundering…there is no smoking gun.”

As to the question of timing – why now – the answer is simple. Europe. After all, it was only yesterday that we wrote that “In Spain, The Bitcoin Run Has Started.” It is self-explanatory that if such an exodus away from legacy currencies and into BitCoin was left unchecked, more and more people would follow suit, which is why it had to be intercepted as early as possible.

The jump in the bitcoin exchange rate this week also coincides with concerns euros could be taken from retail bank accounts in Cyprus to fund a bailout. Internet blogs say speculators are looking toward currency alternatives.

Well, if internet blogs say… Of course, internet blogs also say that if and when the fascination with virtual currencies fizzles, all those who are disgusted with the abuse of fiat will not cease from seeking USD, EUR, JPY, GBP and CHF alternatives, but will merely go back to the safety of having hard assets as a currency, namely silver and gold, instead of electronic ones and zeroes, which the US government, in all its Orwellian benevolence may one day, for lack of a better word, hack right out of existence.

On the other hand, the regime’s desperation is reaching such a level that a Executive Order 6102-type confiscation of all hard asset currencies may not be far behind.

Because forewarned, is forearmed.

This article was posted: Friday, March 22, 2013 at 6:34 am





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