What We Learned on Reddit: Will New York Squash Bitcoin?

On Thursday, New York State’s top financial regulator, Benjamin
Lawsky, hosted a two-hour
“Ask Me Anything” chat on Reddit to provide “a window” into
some of his thinking on Bitcoin and other cryptocurrencies. Last
month, Lawsky hosted
a two-day fact-finding hearing on the topic, and New York State
will likely come out with new regulations later this year. “Right
now, the regulation of the virtual currency industry is still akin
to the Wild West,” Lawsky said in his opening remarks at the
January 28th hearing. “That lack of regulation is simply not
tenable for the long-term.”

In Thursday’s Reddit chat, Lawsky reiterated his view that the
government needs to step in to combat illegal uses of
cryptocurrencies. He also expressed an appreciation for Bitcoin’s
potential to drive innovation. For example, when asked what Bitcoin
could mean for banking in the developing world, Lawsky replied:

I think this is an extremely exciting aspect of Bitcoin that
holds huge potential. Many people don’t realize how so many parts
of our world do not have modern banking systems. Separately,
Bitcoin holds the potential to bring the costs of international
transactions way down. That could be huge for the thousands and
thousands of New Yorkers who today send money back to their
families in their home countries at great expense.

The best questions came from Bruce Fenton, the founder of the
investment firm Atlantic Financial and a
self-described “Bitcoin fanatic.” Fenton asked Lawsky to
clarify one of his more controversial statements at the regulatory
hearing in January:

[Y]ou said “The choice for the regulators is: permit money
laundering on the one hand, or permit innovation on the other, and
we’re always going to choose squelching the money laundering first.
It’s not worth it to society to allow money laundering and all of
the things it facilitates to persist in order to permit 1000
flowers to bloom on the innovation side.” To be honest this
statement is rather concerning …..do you really mean
this?…Couldn’t you stop a great deal of money laundering tomorrow
by simply regulating all the existing Wall Street banks out of
existence?

Lawsky responded by backing away from his statement: “I was
giving a hypothetical at the hearing that used a very stark choice
in order to underscore how important it is for all of us that we
get the balance right and ensure that we have appropriate bsa-aml
protections in place while at the same time not stifling
innovation.”

Then Fenton asked:

The UN states that over a trillion dollars per year is laundered
through mainstream financial systems….over 100 times the size of
all Bitcoin in existence….is it worth so much effort to regulate
a new fledging technology which could create jobs compared to
focus[ing] on existing banking systems?

Lawsky responded that “the two aren’t mutually exclusive.”

When “TeamCoinMKT” asked: “How do you plan on balancing the need
for [a] regulatory framework with allowing entrepreneurship within
the digital currency space to flourish?” Lawsky responded: “That’s
the million dollar question we wrestle with everyday.”

How he plans to strike that balance? I guess we’ll have to wait
and see.