NY regulator may crack down on Bitcoin

25 bitcoins
Rick Bowmer/AP

ALBANY, N.Y. New York financial regulators are investigating the "Wild West" atmosphere of virtual currency, such as Bitcoin.

Benjamin Lawsky, superintendent of the state's Department of Financial Services, said in a memo that the agency is considering new regulatory guidelines for virtual currencies.

Virtual currency is composed of digital bits and based on mathematical schemes that guard against counterfeiting. Bitcoin was started in 2009 as a currency free from government controls.

Like any money, virtual currency can be used for legal or illegitimate reasons. Lawsky's memo claims it has been used for narcotics, illegal guns and child pornography.

"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 said in the memo. "Indeed, 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. It is vital to put in place appropriate safeguards for consumers and law-abiding citizens."

A state official says 22 subpoenas were issued last week. They seek records of anti-money laundering measures, consumer protections, and investment and promotional materials.

Although the probe is in its early stages, the Department of Financial Services is concerned that virtual currency exchanges may be transmitting money, which is regulated by the agency.

"We believe that - for a number of reasons - putting in place appropriate regulatory safeguards for virtual currencies will be beneficial to the long-term strength of the virtual currency industry," Lawsky wrote.

The value of Bitcoin has steadily climbed in recent years. This spring, the price spiked from a little over $40 to a U.S. dollar to over $266, before suddenly crashing to as low as $40 the next day. The surge was said to be tied to limits on capital leaving Cyprus after the island nation in March clamped down on banks and confiscated deposits.