Is Bitcoin Regulated?

So, when you think about the question ‘is bitcoin regulated’, you might first wonder about the currency itself. Talking about bitcoin itself, as an independent, decentralized currency, it can be said that it is regulated and kept in check by its users. Transactions are recorded and checked against a ledger, called the blockchain, which keeps track of everything ever done with BTC. No one person or even a small group of users together can change the blockchain; the entire network of bitcoin holders must do it together to change that, which will never happen. Bitcoin has its own series of checks and balances to make sure that no one is cheating the system.

That being said, there are so many different ways to interpret the word regulated. Some people take it to mean legal, others think of it in a security aspect. So asking ‘is bitcoin regulated’ is a somewhat loaded question. As a digital currency that is used for more than purchasing goods or services, many people wonder if bitcoin investments are regulated, as well. To help clear up the confusion around the subject, this page will focus on answering the question ‘is bitcoin regulated’ as fully and best as possible. This bitcoin review goes over the regulations passed by the governing financial bodies in bitcoin countries. We’ll also briefly go over the security aspect of regulation, and what measures you need to take to keep your bitcoins safe. Finally, we’ll look into investing in bitcoin.

The biggest issue users might have with bitcoin is the security aspect of regulation. Because there is no government backing the currency, and no physical aspect that contributes to its value, bitcoin is volatile. The digital nature of the currency is also susceptible to hackers, spyware, and malware. Your bitcoins are only as secure as your passcodes, so if you have a weak password protecting your private key and someone hacks into your wallet and steals your bitcoins, you’re out of luck. There is no recovery process when it comes to investing or trading in bitcoins.

That’s why it’s smartest to use a full node desktop wallet, hardware wallet, or paper wallet. Full nodes download the entire blockchain and don’t require any third party participation, which means you don’t have to trust anyone with your bitcoin transactions. Hardware wallets don’t allow anything to be downloaded onto them, so there’s no chance for spy- or malware to hack your private key. Paper wallets are formed completely offline and are kept on a sheet of paper, as you could probably ascertain from the name of the wallet, so there’s no way a hacker can get to your account unless you give them the piece of paper.

Most countries have issued warnings to their residents regarding the volatility of purchasing and investing in bitcoin. But they have not sought to regulate the usage of it. Some countries have labeled and taxed it as a good or service rather than its own currency, while others have chosen to accept the fact that people are using it and leave it at that. Below are the main Bitcoin countries and their regulations.

Australia – In Australia, bitcoin is not considered a currency. It is actually classified as a piece of property. When it is used to purchase something, the government considers it a part of a barter. In Australia, bitcoin used to be subject to several property taxes, but that legislation has since been dropped. Parliament has indicated that stricter regulations will be coming in the future to prevent money laundering.

The UK – Great Britain has a three part regulation system when it comes to bitcoin – protection, taxation, and prevention. When it comes to protecting the consumer, the UK relies on the Financial Conduct Authority. The FCA has not actually come out with any regulations when it comes to bitcoin, which means that companies don’t have to follow their rules. But most of the companies located in the UK have self-imposed those rules, anyways.

The same lax position has been taken when it comes to money laundering prevention in the UK. While they have very strict regulations for almost every other form of transaction, there is nothing that prevents laundering money through bitcoin in the UK. This leaves one of the largest bitcoin markets open to shady dealings. Whether or not this will be addressed has yet to be determined.

Bitcoin in the UK used to be taxed when it was purchased, meaning that when you bought bitcoins at a UK exchange, sellers would have to tack on a VAT (value added tax) to the total price of the bitcoins you were purchasing. This form of taxation has since been removed and the HMRC is further determining how taxes can be put into place in a more effective manner. These are the main regulations in the UK when it comes to using bitcoin.

The United States – The Treasury of the United States declared bitcoin a legitimate virtual currency in 2013. That same year, the IRS developed tax guidelines for the ownership of bitcoins in the form of a property tax, and for the business of mining bitcoins in the form of a self-employment tax. Bitcoins became acceptable as campaign donations in 2014, stating that BTC isn’t a currency, but is “anything of value”.

The Commodity futures trading commission, CFTC, approved TeraExchange’s swap in 2015. A swap is the exchanging of two financial entities. TeraExchange had put together an index of bitcoin values based on six different exchanges. The CFTC approved it stating that it was not easily manipulated. After seeing that the dollar value of XBT was locked in the swap. This is the closest the trading of bitcoins has come in US markets.

As of 2015, US bitcoin businesses must follow FinCen’s anti-money-laundering regulations. Each state has their own financial regulations in place on top of this federal mandate. Currently, the SEC is hearing a case that proposes to make bitcoin an ETF, but it is expected to be denied.

At this time, the Winklevoss twins are attempting to create a bitcoin exchange-traded fund (ETF). The first of three rulings was handed down recently, denying the twins their request. The SEC is expected to deny the next two rulings, as well. This is in part because the Commission requires definitive proof that an asset has protected its investors from manipulation and fraud.

Bitcoin is traded mainly in overseas markets that are lax when it comes to the specific sort of regulations found in US and European markets. While many people have successfully invested in bitcoin and have not been subject to anything shady, there are still people out there who count on the almost unregulated markets in countries like China and face-to-face bitcoin to cash transactions to help them launder money.

Without the ability to bring bitcoin into a globally regulated environment, it is hard to tell what the future holds for bitcoin regulation. The SEC’s ruling sent the value of BTC dropping nearly $300 from $1,290 to just below $1,000 before it bounced back. XBT suffered a 15% drop in value overall and has balanced out around $1,100.

If the SEC were to approve the Winklevoss proposal, the value of a bitcoin is predicted to skyrocket. If they continue to deny the ETF, though, the value will fall, perhaps even more drastically than before. Bitcoin is a high risk, high reward sort of investment, and even the experts are stumped as to where the cost will be at the end of the day.

Bitcoin investments are not regulated in the traditional sense of the word. As previously stated, bitcoin itself is regulated by its users and a ledger that controls everything called the blockchain. When you choose to invest in bitcoin, you should be aware of the risks associated with it. The three main things to know before you purchase an interest in this digital currency are its volatility, the fact that it is not backed by a government, and the fact that it is not insured.

Brokerage firms will insure securities accounts through the SIPC, the securities investor protection corporation, while savings accounts will be backed by the FDIC, the federal deposit insurance corporation. Bitcoin doesn’t have these sorts of protection. So if something happens, like your account gets hacked or the exchange you’re using closes down, there’s nothing to help recover your investment.

One of the main selling points of bitcoin, its decentralization, is also one of its biggest risks when it comes to investing in the cryptocurrency. There is no government backing this product, like fiat currencies. So there’s nothing to lend it steadiness. Because of this, countries can ban the currency, and any regulations restricting the use of bitcoin will drive its value down.

The two aforementioned issues feed into the third one: volatility. Without insurance or some form of backing giving the currency a steady value, the exchange rate of bitcoin is constantly in flux. One piece of bad news can drive the value down, just like a piece of good news can drive the price up. The volatility of this digital currency lends to its reputation as a risky investment.

Bitcoin is the definition of a high risk, high reward investment. It is one of the hardest commodities to speculate on, and many countries and their financial authorities have issued warnings about investing in bitcoin. That doesn’t mean you can’t make a good profit if you can correctly figure out when to buy and sell your BTC. It just means that without guiding regulations, it will always be a volatile investment that can go either way in the blink of an eye. If you want to invest in bitcoin, make sure that it is a part of a very diversified investment portfolio. Don’t put all your eggs in one basket. But that’s just good investment advice for anything, not just bitcoin.