Yesterday, the U.S. Department of Homeland Security ordered Dwolla to cease all activities with Mt. Gox and has reportedly seized money from their holdings, ultimately stymying an important line for funding and withdrawals from bitcoin trading accounts. Despite the potential negative market implications, there is good reason not to sell positions in bitcoin.
This intervention by the U.S. government is notably different than the regulatory updates set forth in recent weeks, as it directly interferes with existing lines of bitcoin exchange – such a measure by the DHS was little more than an eventuality. Anti-money laundering (AML) guidelines and preventing illicit trades have been a centerpiece of governmental concern since bitcoin’s inception.
In order to justify the seizure warrant granted, the DHS would have had to convince Maryland courts there was reason to believe one or more parties were using bitcoin to facilitate some sort of illegal transactions. As a result, we are likely seeing the first of a long chain of governmental attacks on bitcoin companies and ultimately on bitcoin itself.
Market Implications
The inevitable panicked sell-off has already begun, with a drop from $119 to $104 and has since rebounded to $112 as of the writing of this article. News of a major governmental agency blocking an important line in and out of the primary exchange would inevitably cause this reaction. Additionally, Dwolla was one of the easier methods to fund a Gox account given that the full process could be handled from a computer if the user was patient enough to wait a few days for account verification.
Fortunately, USD exchange on Mt. Gox makes up less than 60% of daily global bitcoin trading volume across currencies and exchanges. Stopping a U.S. based payment processor from sending funds only affects the USD/BTC exchange flow, not the global exchange of bitcoin itself. Additionally, if people are concerned about not being able to withdraw funds via Dwolla, they may exchange their USD holdings at Gox to BTC before transferring that BTC to another exchange and converting to USD there for withdrawal. This would offer a short-term technical bid to absorb downward pressure.
Dwolla stated in their message to customers that they are “not party” to this matter, so the question remains as to what the implication will be for the rest of Gox’s accounts if the DHS finds that the exchange itself is facilitating illegal transactions. The fact that Gox is based in Japan may not matter as much as we’d like if the U.S. government deems their actions in violation of U.S. laws or interests. This has proven true even with the legendary Swiss banks suspected of housing funds for Americans looking to avoid taxes. Since 2009, information on thousands of confidential accounts has been turned over to the U.S. government by Swiss banks looking to avoid indictment and we can be sure all of those banks had better legal counsel than Gox.
Since the matter appears to be with the exchange itself rather than Dwolla, it would make sense to think all parties and businesses involved with the transfer of money to Gox will see similar efforts by the DHS.
Why I’m Not Selling
The probability of Mt. Gox explicitly and intentionally facilitating any sort of illegal transactions is low, so what exactly is the DHS after? Most likely, they want to track and stop monetary flow that goes against the strict guidelines set up by the U.S. government and Gox facilitates access to bitcoin, a potential tool for such transactions. The implication is that the DHS ultimately has a problem with bitcoin itself, and this is just the first of many such attacks on the market – and that is exactly why I’m not selling.
New currencies have the potential to be a major threat to the American government, yet one of the greatest protectors of American ideals since the country was founded. Bitcoin is incredible for its ease and security, but most of all it is revolutionary for its ability to exist outside of government control. Devoid of a central bank to print at will, holders of the currency do not have their worth tied to intentional currency manipulation. I refuse to let their attacks influence my position, even if that means a short- or even long-term loss.
My bitcoin holdings are not just a financial investment, they’re an investment in the dream of managing my property without intervention by usurping governments. I would rather die in our world than live bound by regulatory chains in theirs, so go ahead and sell, I’ll be sitting ready on the other side of the trade.
The post US Gov Fires Direct Attack on Bitcoin, But I’m Not Selling appeared first on The Genesis Block.