There have been acres of newsprint (and the digital equivalent) written in recent months about the long-term future of bitcoin in particular and cryptocurrencies in general. The value of bitcoin, for instance, is going through the roof, and then back down a bit, and experts are divided on whether it is a safe bet or not. But is seems that what could kill cryptocurrencies in the end is not public confidence or even criminal abuse, but AML. We had the first hint of this possibility earlier this month, when Metropolitan Bank in the US – which had previously been notably bitcoin-friendly – announced that it would no longer entertain cryptocurrency-related international wire transfers.
With the value of bitcoin skyrocketing over the past year – showing an increase of 1,500% over the twelve months – some investors have found themselves surprisingly well-off. And the sensible ones have thought that perhaps they should take the money and run, or – more prosaically – use it to buy a house. But when they try to get a mortgage, using their bitcoin hoards as a deposit, lenders are running scared. As well they might. Now, I have nothing against bitcoin or other cryptocurrencies in theory – I don’t really understand them, but then I don’t understand the scrummaging rules and that doesn’t stop me enjoying a game of rugby (watching, not playing). But from an AML perspective, they are real trouble. In short, cryptocurrencies have no central guaranteeing or overseeing authority, and they are not regulated in many jurisdictions at all. Those in charge of AML in the regulated sector are paid to be cautious, and cryptocurrencies frighten them. As reported by many news sources, the UK Building Societies Association has said recently,when asked about these refused mortgage applications: “There is currently no regulation of these electronic currencies, which puts them into the highest risk category in relation to money laundering. In addition, it is well known that such currencies are popular with criminals, who use them to launder the proceeds of crime.”
I know that finding a middle way is all the rage these days, but I don’t think that will work with cryptocurrencies. We’re in the middle at the moment – they work but they’re unregulated – and that’s about as dangerous as walking down the middle of the road. Very dangerous, in other words. We need to hop to one side or the other: either regulate them (and bring them into the AML family, so that we really know how they work and what’s going on and who’s buying them and where they’re getting the money from and all the rest), or outlaw them.