Bitcoin compliant: Mt. Gox registers as money service, seeks federal blessing to continue operations
The last six weeks have been rough ones for Bitcoin exchange Mt. Gox. On May 15, federal agents seized its account with Wells Fargo. It cut relations with online payment processors like Dwolla and OKPay, which left expensive wire transfers as the only way to move USD funds into or out of the system. 11 days ago, Mt Gox announced that it would no longer process withdrawals in US dollars for the next two weeks. Then, on Saturday, news broke that Mt. Gox has registered as a money services business with the Treasury Department’s Financial Crimes Enforcement Network. The move requires that Mt. Gox follows stricter accounting laws, and log transactions of over $ 10,000, but it also brings the service into compliance with directives issued by FinCEN earlier this spring.
The bigger question is, what happens now? In theory, this move could unlock the seized Wells Fargo account that Homeland Security shut down in May. Mt. Gox was never charged with any crime; it’s not clear if the account closure and asset seizure was permanent or a way of getting the company’s attention. Typically, the asset lockout isn’t instant — the Wells Fargo account may go into lockdown, but the money in it isn’t actually transferred until a period of time has passed. Whether that’s the case here or not, I can’t say.
So in theory, this could be the beginning of a turnaround for Mt. Gox, at least as far as moving money in and out of the exchange. But I hesitate to use that term because the impact on BTC prices as a result of all this activity has been decidedly small.
At first glance, Bitcoin prices have remained quite volatile, as the graph below shows.
But think about this: Since May 1, the BTC exchange that supposedly handles the majority of the world’s BTC volume has had its account seized by DHS, lost its cheapest method of moving money back and forth between US bank accounts and BTC (Dwolla), lost secondary partners, and had to suspend transfers to US bank accounts. With a product as volatile as Bitcoin, you might reasonably expect any of those occurrences to create major uncertainty in the market. They haven’t.
Much is made of BitCoin as a “virtual currency,” but in reality, Bitcoin doesn’t behave like a currency at all. I’ve been working with Dr. Justin Gash of Franklin College to gather more information on how Bitcoin prices and volumes move (and what moves them). Traditional currency markets behave a certain way with respect to volume of trades and market pressures. Bitcoin, put simply, doesn’t. It might function like a digital currency, but it doesn’t act like one.
So what will a stabilized Mt. Gox mean for the greater BTC community? On the small, individual scale, hey, it’s a good thing. As someone who has been mining for several years, having Mt. Gox back online is all well and good. But the fact that the loss of Mt Gox’s ability to move cash out to bank accounts in USD had so little impact on price is proof that BTC prices aren’t being driven by short-term users whose only goal is to inflate the price, dump coins, and buy again on the downswing. Or, rather, if that is the primary goal of the individuals driving market volume, US dollars aren’t their currency of choice.
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