Fed Chairman Ben Bernanke, (Praises Bitcoin), "There Are Areas In Which Bitcoin May Hold Long-Term Promise, Promote A Faster, More Secure, And More Efficient Payment System."
Mr. Bernanke said the Fed has minimal authority to regulate virtual currencies unless they are issued or cleared by a large bank holding company that already falls under Fed supervision.
The hearing is set to begin at 3 p.m. EST Monday.
U.S. law-enforcement officials are set to outline the pitfalls and promises of virtual currencies such as bitcoin Monday at the first-ever Senate hearing on the matter.
In testimony prepared for the hearing before the Senate Homeland Security and Government Affairs Committee, federal law-enforcement agencies said that while the anonymity and decentralized nature of some virtual currencies can pave the way for fraud, they also hold potential benefits.
"The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce," Mythili Raman, acting assistant attorney general for the department's criminal division, said in her prepared testimony. "We have also seen, however, that certain aspects of virtual currencies appeal to criminals and present a host of new challenges to law enforcement."
Bitcoin’s price just keeps on zooming. The virtual currency again hit record highs Monday ahead of a U.S. Senate committee hearing on the potential risks and benefits of virtual currencies.
Bitcoin was recently trading at $525.62 on the CoinDesk price index, which represents an average of bitcoin prices across large global exchanges. The currency closed Sunday at $476.30 on the index, marking a new record.
Meanwhile, bitcoin recently touched a high of roughly $619 on the Tokyo-based Mt. Gox exchange.
Bitcoin is a four-year-old virtual currency that isn’t backed by a central bank and can be traded on a number of exchanges or swapped privately. A small but growing number of merchants also accept bitcoin as payment because the transaction costs associated with the currency are generally lower than those with credit or debit cards.
The letters precede a hearing on virtual currencies that will be held later Monday by the U.S. Senate Committee titled “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies.”
Bitcoin has been vaulting to new records in recent weeks fueled by growing views that the virtual currency can have a credible future as an alternative to traditional methods of payment.
The momentum is coming from around the world, as amateur investors, venture capitalists and technology enthusiasts pump money into businesses that are trying to figure out how to swap and use bitcoin to buy goods and services.
Bitcoin’s price has been highly volatile. The virtual currency jumped to a record of about $265 in April as interest in the currency grew. But in early October, in the wake of the bust of an online drug-trafficking website that used the currency, it plunged to around $90.
However Monday’s price moves extend a winning streak that bitcoin has logged of late. On Slovenia-based Bitstamp, bitcoin was up 5.6% in recent trading to $504.
The momentum behind bitcoin is coming from around the world, as amateur investors, venture capitalists and technology enthusiasts pump money into businesses that are trying to figure out how to use bitcoin to buy and sell goods and services. A growing number of merchants accept bitcoin, because the transaction costs associated with the currency are generally lower than those for using credit cards or debit cards.
"Our clients have seen an uptick in interest among a wider circle than just the types of people who were early adopters in the U.S.," said Adam Shapiro, a director at Promontory Financial Group LLC, a financial-services consulting firm that is advising clients on bitcoin ventures.
Bitcoin is a four-year-old virtual currency that isn't backed by a central bank and can be traded on a number of exchanges or swapped privately. Bitcoins are generated by solving complicated math problems, a process known as mining. That pursuit is getting increasingly complicated and expensive, as companies and technology fans race to build the powerful computers required for bitcoin production. There is a limited quantity of coins to be mined.
The move is likely to add credibility to fledgling Circle Internet Financial Inc., which last month received $9 million in financing from venture capitalists.
Circle, launched last month by technology entrepreneur Jeremy Allaire, aims to develop services that make it easier for businesses and consumers to use digital currencies. The Boston-based company has received financing from venture-capital firms Accel Partners and General Catalyst Partners.
Mr. Date "brings tremendous experience to the company, and a very deep understanding of critical regulator issues and how consumer-financial products interact with the government," Mr. Allaire said in a telephone interview.
A former executive with Deutsche Bank AG and Capital One Financial Corp., Mr. Date was hired by Elizabeth Warren, now a senator from Massachusetts, to set up the CFPB in fall 2010. He was the agency's No. 2 official until his departure at the start of this year. After leaving the CFPB, Mr. Date launched Fenway Summer LLC, a 12-person consumer-finance advisory and mortgage-lending firm based in Washington. He also serves on the board of Prosper Marketplace Inc., a company that helps people lend to one another.
Mr. Date, 42 years old, said he became interested in the bitcoin phenomenon after delving into the traditional money-transfer business while working at the CFPB, where he also helped set new mortgage rules that require lenders to ensure borrowers can repay loans.
"The underlying infrastructure of the payments industry is decades and decades old. There is a tremendous opportunity to change that and build better products for consumers," Mr. Date said.
Federal ethics rules prohibit Mr. Date from representing private companies before the CFPB or the Federal Reserve for two years after his departure. Mr. Date said he might advise Circle on compliance with regulations but has no plans to advocate for the company before any regulators.
Mr. Date's private-sector work has come under fire from Republicans in the House of Representatives, who say he is trying to profit from his expertise in rules the CFPB has written. But Mr. Date and his co-workers said there is no conflict of interest because they don't lobby on behalf of the companies they advise.
People who follow the industry attribute the rise in bitcoin prices in part to surging demand from China, where a local exchange is drawing trading from around the world. Elsewhere in China, a unit of Internet giant Baidu Inc. started accepting bitcoin for payment a few weeks ago.
Investors have poured $18 million since September into the BitCoin Investment Trust, a bitcoin-dedicated investment vehicle, surpassing the fund managers' goal of raising $10 million by the end of the year. The trust is a unit of SecondMarket, a New York company that facilitates the trading of stocks before their initial public offerings.
"There is a lot of demand, and it's coming from high-net-worth individuals and institutions," said Jaron Lukasiewicz, whose fledgling New York-based bitcoin exchange, Coinsetter, opened for business Wednesday.
Prices also are being supported by a crackdown on illegal activities that have been tied to the virtual currency and by increased regulatory scrutiny. Such measures help make bitcoin more legitimate, enthusiasts say.
Experts warned that bitcoin is thinly traded on the many exchanges that traffick in it, which can lead to big price swings.
A Senate subcommittee is scheduled to hold a hearing Monday on virtual currencies. That comes after a unit of the Treasury Department earlier this year issued guidelines that said virtual-currency exchanges are subject to the same anti-money-laundering requirements that apply to traditional money-transmission businesses, like Western Union Co.
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