Senate pressing regulators on Bitcoin risks and oversight

A Senate homeland security committee seeks explanations from federal regulators and law enforcement officials as to how they plan to oversee digital currencies.

This follows months of climbs in value for Bitcoin, which started the year trading at $15 and has since surpassed $200.

Governments now are on notice and concerned about how digital markets and decentralized, unregulated currencies will affect commerce.

And crime.

The Bitcoin marketplace is now four years old and valued at more than $1 billion. Startups in this space are trying to figure out nebulous government regulations while governments sweat issues such as money laundering and tax evasion.

The Senate Homeland Security and Government Affairs Committee sent letters to the Department of Justice, the Department of Homeland Security, the Federal Reserve, the Treasury Department, the SEC, the Commodity Futures Trading Commission and the Office of Management and Budget.

A committee aide is on record as saying that a balance must be struck between dealing with threats and risks and not stifling “a potentially valuable technology.”

Thus far, no hearings are schedules, nor is any draft legislation in the works.

Politico reports a key concern to the committee is quick action to make sure threats do not spiral beyond their control. The threat would then become an overreaction on the part of agencies as they scrambled to triage any perceived threats.

The committee aide admitted Washington’s reputation as “not being ahead of the curve” on innovation and tech issues.

Of interest to the committee and law enforcement is the anonymity — or at least pseudonymity — that Bitcoin provides. Without identities behind transactions, criminal moves and fraud would be harder to track.

Some hardline Bitcoin supporters question whether any oversight is welcome or even compatible with an international currency without a central regulating body.

Others, Patrick Murck of the Bitcoin Foundation, have said regulators need to make these kinds of moves and do a better job of reaching out.

“Regulatory uncertainty right now is the bottleneck for innovation in this space,” he said.