Digital Money: Bitcoin\u27s Financial and Tax Future Despite Regulatory Uncertainty

Bitcoin, a virtual currency created in 2009, has resulted in the unlikely pairing of the underworld criminals with the Harvard educated Winklevoss brothers. The online currency can be obtained by “mining” through solving complex equations, and can be bought and sold on Bitcoin Exchanges. It is primarily utilized for investment in Bitcoin financial products as well as speculating on the value of the currency. It is also used as a method of payment for legal and illegal goods and services. This comment addresses the regulatory issues Bitcoin faces, namely the regulation and taxation of financial products. After providing a fundamental definition of Bitcoin and how it operates, this Comment explores issues stemming from anonymity, price volatility, and use in criminal activity. It then provides an analysis of classifying and regulating Bitcoin as currency and examines how FinCEN and Treasury Regulations issued by the IRS will reduce criminal activity stemming from anonymity. Next, it discusses how SEC and CFTC regulations could stabilize Bitcoin’s volatile market value, and explains why the IRS was incorrect to classify Bitcoin as property. It concludes by addressing the policy implications of classifying Bitcoin as currency under various regulatory laws