Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Friday, January 17, 2014
Bitcoin news January 17 , 2014 - Bitcoin is Not Legal Tender, Says Canada Government Official ........ Has the US Government just made Bitcoin legit ?US Government Announces it Will Sell $25m Worth of Silk Road Bitcoins .......... eBay UK to Allow Sale of Virtual Currency from 10th February ..... UK examining how to treat Bitcoin - might the UK Tax Authority reclassify Bitcoin as private currency ? UK’s Official Financial Compensation Fund ‘Doesn’t Cover Digital Currencies’ ...... Indonesia's Central Bank and Belgian Regulators issue Bitcoin warnings ........ China can't seem to make up its mind regarding Bitcoin....
A Canadian government official has said bitcoin is not considered legal tender in the country, according to a report in the Wall Street Journal.
“Only Canadian bank notes and coins are recognized as legal tender in Canada. Bitcoin digital ‘currency’ is not legal tender in Canada,” the official reportedly wrote in an email.
The official from the Department of Finance, who was not named in the article, went on to say the federal government and Canadian regulators would “continue to monitor developments involving virtual currencies” but would not say whether the government would officially license fiat-to-digital currency exchanges in future.
While we’ve seen plenty of comments recently from governments around the world that bitcoin is not a “currency”, this remark stands out in its use of the term “legal tender.” However, recognition that a currency is not legal tender does not make bitcoin or any other payment method “illegal” as such.
Some Canadian businesses, especially those in tourist locations and near the US border, accept US dollars. Additionally, businesses are generally free to choose for themselves which payment types they will accept, so long as the income is reported for taxation purposes.
The WSJ report also quoted a Bank of Canada official as saying regulators would take a greater interest in bitcoin if it became large enough to pose a risk to the stability of the Canadian financial system, but would be less concerned if it remained a smaller, stand-alone payment system.
Canada has so far appeared to present a more permissive environment for bitcoin startups than the US, where businesses often need to register as money transmitters in each state separately.
Vancouver, British Columbia, was the site of the world’s first two-way bitcoin ATMinstallation, which has been an enormous success for its US manufacturer Robocoin and Canadian partner Bitcoiniacs. A second machine opened for business in Toronto just this week. Further east, in Montreal, is the world’s first and only Bitcoin Embassy and information center.
In late 2013, there was even some hope that the Canadian government would bestow some kind of legal recognition on bitcoin. A November fact sheetpublished by the Canada Revenue Agency (CRA), Canada’s taxation agency, referred to bitcoin as “virtual money” and “digital currency.”
The paper did, however, point out that bitcoin should be considered distinct from “traditional currency.”
World government and central bank statements in the months since then have stressed that bitcoin is not a “currency” by any official definition, which usually includes only state-issued payment systems.
They have also shown a preference for the word “virtual” over “digital.” While similar in meaning, especially in the technology world, the former term carries a subtle nuance of unreality.
“Legal tender has a very narrow and technical meaning in the settlement of debts. It means that a debtor cannot successfully be sued for non-payment if he pays into court in legal tender.”
“It does not mean that any ordinary transaction has to take place in legal tender or only within the amount denominated by the legislation. Both parties are free to agree to accept any form of payment whether legal tender or otherwise according to their wishes.”
The UK’s Financial Services Compensation Scheme (FSCS) has warned it won’t provide compensation for lost digital currencies such as bitcoin and litecoin.
The FSCS pays compensation of up to £85,000 per account holder if their bank, building society or credit union is unable to pay claims against it.
This usually happens if the financial services firm in question has stopped trading. Mark Oakes, head of communications at FSCS said:
“FSCS protects up to £85,000 of depositors’ money in savings and current accounts with UK authorised banks, building societies and credit unions. However, virtual currencies are not regulated by the UK regulators, so FSCS does not provide protection in the event of any losses suffered by consumers.”
The FSCS highlighted the European Banking Authority’s (EBA) recent warning to consumers, which detailed the potential risks people are exposed to by using digital currency.
The warning largely focused on the possibility of fraud and theft.
“Consumers should be aware that exchange platforms tend to be unregulated and are not banks that hold their virtual currency as a deposit. Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business,” the EBA said in a statement.
The UK government is yet to reveal its official stance on bitcoin, but HM Revenue and Customs (HMRC – the UK customs and tax department) last month backtracked on its previous classification of bitcoins as vouchers.
Richard Asquith, head of tax at professional services firm TMF Global, recently voiced his belief that HMRC will reclassify bitcoin as a ‘private currency’, but the department avoided addressing these comments.
The 29,655 bitcoins seized by US law enforcement agents from defunct online black market Silk Road will be liquidated by the US government, a 16th January press release from the US Attorney’s Office of the Southern District of New York confirmed.
While no timetable for the sale was issued, the development brings the government one step closer to unloading its Silk Road holdings, estimated to be 1.5 percent of all bitcoins, onto the general market. The US Attorney’s Office also estimated the value of the stash a little higher.
Manhattan US Attorney Preet Bharara, whose agency is prosecuting the case against alleged Silk Road mastermind Ross Ulbricht, said:
“With today’s forfeiture of $28 million worth of bitcoins from the Silk Road website, a global cyber business designed to broker criminal transactions, we continue our efforts to take the profit out of crime and signal to those who would turn to the dark web for illicit activity that they have chosen the wrong path. These Bitcoins were forfeited not because they are Bitcoins, but because they were, as the court found, the proceeds of crimes.”
Ulbricht’s Stash Remains
Notably, the sale will not include the more than 144,000 bitcoins (worth $122m as of press time) seized from the personal wallet of Ross Ulbricht, the alleged ‘Dread Pirate Roberts’ who operated Silk Road. The release indicated Ulbricht and his legal team have formally moved to block the larger forfeiture, asserting that he is the owner of the bitcoins.
His filing halts, at least temporarily, efforts by the government to sell the contested coins and could help guard against the consequent price drop many market observers fear.
The 29-year-old was arrested this past October for “intentionally and knowingly” violating US narcotics law. The Pennsylvania State University graduate was also charged with possessing controlled substances and committing or conspiring to commit computer hacking offenses, among other charges.
Since the arrest, Silk Road’s notoriety has only grown. A copycat organizationcalled Silk Road 2.0 went live soon after its demise, and an as-yet-unscripted movie is in the works about Ulbricht and the murders-for-hire he is alleged to have plotted in the course of his business.
While the US government has announced its intention to sell its seized bitcoins, its path to the sale is less clear.
“We have not yet determined exactly how the bitcoins will be converted and liquidated,” Manhattan US Attorney Office spokesperson Jim Margolin told Forbes.
This hasn’t stopped speculation as to which exchange, if any, could profit from exposure to the high-profile sale. Forbes’ Kashmir Hill suggests the government could also choose to sell its bitcoin assets in a more familiar manner.
“It’s likely that the US Marshals will instead auction off the bitcoins as if they were Bernie Madoff’s penthouse or a drug dealer’s cars. The proceeds will go to the US Treasury,” Hill wrote in a January 26 commentary.
At press time the price of bitcoin remained stable, but previous Silk Road developments have had a significant effect on value. The initial announcement of the Silk Road shutdown in October caused bitcoin values to plummet from about $125 to below the $100 mark, before eventually recovering.
Fears of a large-scale decline in prices is rampant among Reddit users, who worry that a quick sell off would significantly reduce prices. Other observers are more optimistic, predicting a short dip in prices, followed by an influx of capital from investors purchasing undervalued bitcoin.
The Silk Road website was also forfeited, bringing the site’s short and turbulent life to an end.
eBay UK to Allow Sale of Virtual Currency from 10th February
eBay is launching a dedicated Virtual Currency category on eBay Classifieds in the UK on 10th February.
The Classified Ads category will allow for the sale of all types of digital currency, including bitcoin and litecoin, eBay representatives have confirmed.
eBay Classifieds, which lists posts throughout the site, serves as the site’s answer to Craigslist. eBay provides the free platform for local buyers and sellers to connect, but does not participate in the transactions.
Ryan Moore, Manager of Business Communications at eBay, said:
“To promote a trustworthy marketplace and ensure compliance with applicable regulations, eBay is currently updating its Currency Policy. The updated policy will clarify that listings for Bitcoin and other similar virtual currencies must be listed in the Virtual Currency Category in the Classified Ad format.
The Virtual Currency category is expected to be available on the UK site on February 10th.”
A Reddit post earlier today sparked rumours of the change in policy. The post included an email from eBay stating that the company does not currently permit listings of digital currencies, but that this will soon change.
“Please know that per our recent policy update, Virtual Currency (i.e. Bitcoin and Litecoin), whether digitally or physically delivered, cannot be listed in Auction-style or Buy-It-Now listing formats. eBay is opening a Virtual Currency category to allow the sale of virtual currency in Classified Ads format on February 10, 2014.
We request that you do not list these items until that date. Please be informed that repeated breach of the policy may further jeopardize your account status. To avoid any inconvenience in future, we’d appreciated it if you go through our help pages or contact us before listing any such items.”
At press time, the policy change only applies to eBay’s UK site. An eBay customer service representative said: “Our policies are different for different country sites, so to know more about other countries, you need to contact the respective eBay sites.”
In December, an eBay user found a loophole that enabled him to sell digital currency via the site. He confirmed via customer service employees from eBay that virtual currencies could be sold on the platform, provided they are housed in physical items (like USB sticks or hard drives).
Both eBay president John Donahoe and David Marcus, president of eBay-owned PayPal, have shared their positive views on bitcoin in recent months, with Donahoe stating that he believes digital currency is going to be a “very powerful thing” in the future.
Marcus has been much more vocal in his support of bitcoin, labelling digital currency “truly fascinating” in one interview and even going as far as to call it the future of money in another.
This week, Marcus pledged his support to bitcoin on Twitter, stating that those at PayPal are “believers in BTC”.
...for a host of regulatory issues. But we treat BTC and any FX txn the same way. We're believers in BTC though.
A small step
While today’s development isn’t quite the eBay-accepts-bitcoin-payments announcement that digital currency enthusiasts have been seeking, it should not be overlooked. The company has shown it is certainly not anti-bitcoin, and that it is prepared to adjust its policies to accommodate the fledgling currency and its alternatives.
The firm’s bosses have made it clear they are interested in virtual currency and they are sure to be watching closely as other large online retailers start to accept it as a form of payment.
Overstock – a company with revenue of $1.1bn for 2012 – started accepting bitcoin last week, using California-based online wallet and payment processing firm Coinbase to handle its transactions. The company subsequently enjoyed a huge surge in sales, as CEO Patrick Byrne revealed on Twitter.
“This forces the hand of Amazon and some other big players. They have to follow suit. You will see them follow suit, I’ll be stunned if you don’t, because they can’t just cede that part of the market to us, if we’re the only main, large retail site taking bitcoin. Either they have to start taking it, or they’re just giving away a piece of the market,” he said.
Whether eBay will start to accept bitcoin is unclear, but what is certain is that, with a global customer base of 233 million and revenue of $14.07bn in 2012, doing so would give digital currency a huge mainstream boost.
Will UK Tax Authority HMRC Reclassify Bitcoin as ‘Private Currency’?
A reclassification of bitcoin by the United Kingdom’s tax authority would put the nation in line with more liberal bitcoin tax rules initiated by Singapore, a professional services firm has claimed.
Richard Asquith, head of tax at TMF Global, said the UK’s tax authority HM Revenue and Customs (HMRC) is most likely to reclassify bitcoin as a ‘private currency’. This would significantly reduce the tax liability compared to its current classification as a ‘tradable voucher’.
If HMRC classifies bitcoin as private money, then bitcoin holders would not be liable for capital gains tax. Value-added tax is still charged, but only on fees incurred by trading on an exchange, Asquith said.
“The move would … eliminate the heavy [capital gains] tax uncertainties and leave a reduced VAT liability. This would give the UK bitcoin industry a significant competitive advantage.”
Singapore and Germany
According to Asquith, such a reclassification of bitcoin by HMRC would match Singapore’s tax authority and measures already adopted in Germany. In addition, it would bring the regulatory treatment of bitcoin closer to that of other ‘psuedo-currencies’ like gold.
“[Reclassifying bitcoin] means that it would become much more like gold, which is VAT exempt. Gold is treated like money but it’s not a currency; it’s a pseudo currency.”
Notably, no capital gains tax would be levied (assets that are not property are not liable for capital gains tax in Singapore anyway); income tax would be charged based on fees earned by a company from trading in bitcoin; sales tax is generally charged on an exchange’s commission fees.
Additionally, the Singapore position doesn’t mention the term ‘private money’, and it has explicitly stated that bitcoin is not a form of currency.
In Germany, regulatory authorities view bitcoin as ‘private money’ or a ‘unit of account’. Bitcoin transactions are exempt from capital gains tax after a year.
Assets like stocks and bonds are subject to a 25% capital gains tax and a state-dependent church tax. Bitcoin mining in Germany, however, is subject to income tax. Germany authorities haven’t clarified whether a full value-added tax liability applies to bitcoin transactions, Asquith noted.
Bitcoin taxed as vouchers
While Germany and Singapore offer relatively liberal approaches to bitcoin taxation, there are more onerous alternatives, according to Asquith.
The current HMRC treatment of bitcoin as a voucher, for example, results in a heavy sales tax burden, and in some cases, double-taxation. As Asquith noted:
“If you went to Mark’s and Spencers for example, and bought one of their gift vouchers, you pay 20% VAT on that. When the voucher is used, the buyer has to pay 20% VAT on what they’ve bought. So vouchers are a form of double taxation. So you should be [gifting] a £20 note rather than a voucher.”
The most liberal tax treatment of bitcoin would be if HMRC classified the cryptocurrency a “full currency”, according to Asquith. Currency transactions are exempt of sales tax.
But there’s no chance of that happening, in Asquith’s view: ”This is unlikely ever to be applied, as it would give bitcoin the status of a national currency.”
There are rumblings that HMRC may move to reclassify bitcoin officially soon. According to Asquith, HMRC officials have told TMF Group executives that a reclassification could come as early as February.
Tom Robinson, co-founder of bitcoin insurance firm Elliptic Vault, who has met with HMRC to discuss taxation issues in the past, said he knows of at least one individual who has been informed by the tax authority that it has withdrawn its previous advice that bitcoins are vouchers, upon inquiry.
HM Revenue and Customs’ official stand is that it is continuing to meet with individuals and companies dealing in bitcoin.
When asked to comment on whether HMRC will finalise its position on bitcoin and VAT next month, a spokesperson replied:
“There is a VAT exemption for currency transactions but the currency in question must be legal tender. We have held constructive meetings with stakeholders, but this is a complex issue, and we will continue to listen to arguments for alternative VAT treatments under existing VAT law.”
The deputy governor of Indonesia’s central bank has said using bitcoin breaks a number of the country’slaws, news portal Kontanreported (in Bahasa Indonesia). He urged Indonesians to be cautious when dealing with payments in general.
Ronald Waas, the deputy governor, said using bitcoin in Indonesia contravened rules set out by Bank Indonesia, information and electronic transactions laws and currency laws. Kontan’s piece also noted that Indonesia’s currency laws state only the rupiah is legal tender.
“Using bitcoin for payments breaks these laws,” Ronald was quoted as saying.
The Kontan piece also noted that Ronald strongly urged Indonesians not to use bitcoin as a mode of payment. Bitcoin is risky because the security of transactions using the digital currency is not guaranteed, the report continued.
On a positive note, Ronald admitted that Bank Indonesia did not have detailed policies in place to govern bitcoin and did not have any specific rule to bar bitcoin’s use as a mode of payment. Ronald also disclosed that the central bank had started working with the Ministry of Communications and Information to study the use of cryptocurrency in Indonesia.
Kontan is a respected business and economics news brand in Indonesia. It is published as a daily newspaper and a weekly journal. It is owned by Kompas Gramedia Group, the country’s largest media conglomerate. The daily paper had an expected circulation of 75,000 when it launched in 2009.
Indonesia and bitcoin
Bitcoin has had a slow start in Indonesia. A number of exchanges are on the scene there, but some are still in development and none offer market-based prices. The latest exchange, Bitcoin.co.id, for example, offers fixed prices for BTC in exchange for rupiah. At the time of publication, 1 BTC was selling for 10.74 million rupiah ($886.20) on the exchange.
According to Bitcoin.co.id founder Oscar Darmawan, the nascent exchange had a trading volume of just 5 BTC a day when CoinDesk interviewed him at the end of Dec.
Indonesia is the world’s fourth most populous country, with nearly 240 million people. One of the opportunities for Indonesian bitcoin services providers is in facilitating small amounts of international remittances among a large migrant worker population spread across Southeast Asia.
The National Bank of Belgium (NBB) and the Belgian Financial Services and Markets Authority (FSMA) have issued a joint statement, warning investors about the pitfalls of investing in digital currencies such as bitcoin and litecoin.
The statement points out that digital currencies are becoming relatively popular and attracting media attention, but they are also drawing in speculators looking to make a quick buck on bitcoin volatility.
Risks compounded by lack of regulation
The NBB and the FSMA stress that digital currencies are not issued by a central bank or a licensed issuer of electronic money. Therefore there is no regulation, supervision or oversight on virtual money, the regulators warn. The same, of course, applies to the issuers of virtual money, digital wallets and exchanges.
The statement outlines some examples of “serious risks attached to virtual money” such as:
The internet environment is open to various risks, including security breaches and attacks that could allow hackers to gain control of digital wallets.
The reliability of Internet-based systems has not been assessed by the regulators and there is a risk of fraud.
Fluctuations in the exchange rate can lead to substantial financial losses. There is no authority or government supervision over the exchange rate. There is no guarantee that virtual money can be exchanged at any time for the original value.
Furthermore, since digital currencies are not legal tender, no-one can be obliged to accept them. Unlike money held in savings accounts, digital currency deposits are not covered by government guarantees.
Belgian Bitcoin Association responds
In response, the Belgian Bitcoin Association issued a statement, saying that the latest warning issued by the NBB and FSMA is very similar to warnings issued by government agencies in other European countries.
“The Belgian Bitcoin Association believes that the current stance of the Belgian National Bank and the Financial Services and Markets Authority means that the bitcoin ecosystem is allowed to develop further in Belgium, which is very encouraging news for individuals and businesses,” the association told CoinDesk, adding:
“Belgium appears to be leading the way in Europe, demonstrating that larger businesses can integrate bitcoin into their payment methods with ease, as recently demonstrated by mobile telephone operator Mobile Vikings.”
The association also points out that smaller businesses and individuals now finally have some regulatory clarity, allowing them to experience bitcoin for themselves.
Prior to the regulatory warning, the Belgian Bitcoin Association held an informal meeting with the Belgian National Bank, attended by Belgian Bitcoin Association legal counsel Thomas Spaas and the association’s founding director and Secretary Chris D’Costa.
D’Costa said the meeting took place last week and the issues raised by the regulators in their latest statement are in line with what the Belgian Bitcoin Association was told to expect at the meeting.
Chinese Central Bank Official: We Don’t Want to Suppress Bitcoin
A representative from the People’s Bank of China claimed in a press conference yesterday his institution is not trying to prevent bitcoin use, just clarify its status, according to a report from BitcoinExaminer.
Questioned about the central bank’s recent actions limiting bitcoin use in China, its chief of the survey and statistics department Sheng Song Cheng answered:
“We don’t want to suppress or discriminate against bitcoin, we are simply saying it is not a currency.”
Sheng stressed that bitcoin’s status in China was that of a “virtual good”, and that the bank’s position was in line with other countries’ stances.
The claim might seem unusual on the surface, given that the Chinese authorities have forbidden both financial institutions and third-party payment processors from accessing bitcoin exchanges in recent months. Such moves seem clearly aimed at removing bitcoin from mainstream use and keeping it available only to determined enthusiasts.
Sheng is also not known to be a digital currency fan. He was quoted in an English translation of a previous Chinese media report as saying: “Bitcoin is merely a utopia for technology supremacists and absolute liberalists.”
The ever-optimistic bitcoin community appears to be taking the news as a positive sign, though, if posts on Reddit are a guide. China has not gone any further than stopping the institutions it mentioned specifically, allowing bitcoin exchanges to continue their business and even find alternate methods for their customers to move their official national currency in and out of the system.
Preventing financial institutions from becoming involved in bitcoin exchange could be a genuinely prudent measure if the People’s Bank thought price volatility presented a risk to the country’s financial stability.
Or is the central bank simply trying to maintain an illusion of choice while guiding investors’ actions? Blocking third-party payment processors from exchanges as well as banks could be a sign.
Even other government-related agencies around the world, while seeming to remain open to greater bitcoin acceptance, choose to highlight its negative points in public statements as much as possible. A series of central bank statements around the end of 2013 and first week of this year made very similar warnings about lack of currency status, investment risk, and money laundering.
Recent updates from China have not caused much movement in the bitcoin price there. As of the time of writing, 1 BTC was trading for 5,147.49 CNY ($850.35) onBTC China and 5,137.4 CNY ($848.68) on Huobi.com.