The folks at Bitcoin have taken a very aggressive stance with regulators, who are eyeing the digital currency with suspicion. It’s following a path blazed by another upstart industry that operated in a grey zone of regulation – online gaming. That ended in a flurry of arrests and indictments. Will Bitcoin meet the same fate?
Bitcoin might live in the shadows but it isn’t hiding. It’s challenging U.S. financial regulators head-on. Here’s what Jim Harper of the Bitcoin Foundation, told Politico yesterday:
“Regulators who actually want to provide a balanced approach should be careful about their public communications,” Harper said. “Some regulators come out and they instill uncertainty and doubt. They associate Bitcoin with other currencies that don’t have any relation to it. They talk about terrorism and money laundering without any factual basis. Even if they’re trying to be balanced, that kind of press release poisons the environment.”
Wow. It’s rare to hear an industry executive warn regulators to watch their step. The titans of Wall Street can only dream of saying such things.
Bitcoin is making the rounds on Capitol Hill, too, meeting Congressional aides, policy wonks and reporters in an effort to blunt a crackdown on the fast-growing currency.
This approach is very similar to what the online gaming industry attempted nearly ten years ago. At that time, the industry was riding a wave of popularity fueled by easy access to customers via the internet and supportive regulatory jurisdictions, often in sunny offshore locales like Costa Rica.
Like Bitcoin, the online gaming industry was eager to engage with regulators, and took the unusual step of calling for formal regulation of the industry. Leading the charge was David Carruthers, CEO of BetOnSports, one of the largest online gaming groups. (Disclosure: BetOnSports was a client of Gavin Anderson & Co, where I worked in 2006.)
Here’s what Carruthers told the New York Times:
”I am very, very, very keen on hearing views on how we might swing towards regulation and recognition in North America,” said David Carruthers, the chief executive of BetOnSports.com, a site that took some 33 million bets last year, 97 percent of them from the United States. Mr. Carruthers said he wanted to begin forging alliances to improve the industry’s lobbying efforts in the United States.
“Mr. Carruthers, who is British, said he traveled frequently to the United States and was not worried about being arrested. In fact, he is scheduled to speak to a gathering of the National Council of Legislators from Gaming States in New Mexico in June.”
The industry got further help from the World Trade Organization, which said U.S. laws prohibiting online gaming violated international commerce rules. It seemed like momentum was building toward legalization or at least greater legitimacy for online gaming.
And then the roof fell in.
Federal agents arrested Carruthers as he changed planes at a Texas airport. Within weeks, gaming websites were shuttered, and share prices of publicly listed gaming companies plunged. Wall Street firms that had raised capital for many of the companies were subpoenaed in a wide-ranging probe.
And just months later, Congress passed legislation prohibiting the use of credit cards or online payment systems for internet gambling, effectively shutting down the industry in the U.S. BetOnSports declared bankruptcy, and its executives pleaded guilty to charges of conspiracy and racketeering.
The feds were clearly sending a message by putting the collar on Carruthers, the most outspoken gaming executive.
Bitcoin executives might do well to measure their public comments very carefully.