Tuesday, June 24, 2014

The Effect of Canada’s New Anti-Bitcoin Law

While traveling in Canada, I came across an article about bitcoins. It turns out while the U.S. has held hearings about bitcoins and other virtual currencies, Canada has recently (June 19, 2014) actually signed legislation. To be fair, the law affects all virtual currencies without mentioning bitcoins by name, but be sure they are the main reason the bill was passed.

Prior bitcoin posts

For those not familiar with bitcoins, I have two previous blogs. This one dealt with my skeptical view of bitcoins as a possible investment. The second one followed up with breaking news about a bitcoin depository going bankrupt, costing its customers a bundle.

Regulation as a bitcoin risk

I had not specifically mentioned it earlier, but regulation by various countries may be a significant risk to whether bitcoins or any other virtual currency becomes generally accepted as a payment mechanism.
The price of bitcoins over the long term will be negatively impacted to the extent they are not readily available in minimum-friction transactions and positively affected if they are usable with minimal transaction costs.

One purported advantage of bitcoins is that their value is determined by supply and demand, so they do not rely on any government to determine their value. That is not the same as saying governments are not able to affect its value, as I discuss below.

Canadian Law

In Canada, the main legislation dealing with money laundering is the Proceeds of Crime Money Laundering and Terrorist Financing Act (PCMLTF). The newly passed legislation brings bitcoin use under the jurisdiction of that Act. This means (and remember my usual caveats, I am not a lawyer and in no way should anything herein be considered legal advice):
1. Businesses utilizing bitcoins in Canada must now register under PCMLTF.
2. Businesses registered under PCMLTF must maintain extensive transaction records to prevent money laundering.
3. Canadian financial institutions are prohibited from establishing and maintaining bank accounts for customers involved with bitcoin businesses that are not registered under FINTRAC.
4. Foreign businesses that operate in Canada (including online) must comply with the Act.

Impact on Bitcoin Use

Although not sufficiently knowledgeable to perform a detailed analysis of the Canadian Act, I can foresee two major impacts on bitcoin use in Canada.

1. Once the Act is implemented, the costs of doing business using bitcoins in Canada will increase significantly. A business will need to register under PCMLTF and that will probably require consultating with expensive experts. Unless someone develops a boilerplate solution this will significantly increase transaction costs.

2. The Act eliminates one of bitcoins purported advantages: the ability to hide from the government transactions affecting Canadian entities (and to a lesser extent individuals).

Risk of More Countries Adding Similar Regulation

Because of the money laundering possibilities of bitcoin, I doubt Canada will be the last country to regulate their use by introducing expensive registration and reporting requirements. If (and when) more countries follow course, bitcoins will either (a) disappear, (b) become used primarily within countries with loose banking regulations (where gray money already collects), or (c) be driven underground and become controlled by criminal elements for whom the downside of breaking laws is less than the upside of hiding transactions.

One mitigating possibility is for countries to adopt uniform regulation, thereby diminishing the costs of worldwide compliance. Not likely in the near term.

Recent bitcoin prices

Since the Canadian bill’s signing, the price of bitcoins has dropped from $599 the day before passage to $585 on June 23. This follows soon after a nearly 11% drop earlier in the month after the U.S. announced it would sell 30,000 bitcoins seized from Silk Road.

Of course, if you had bought your bitcoins in January 2013 at $13.36, you would still have a tidy profit. If you had bought at the all-time high of $1,124.76 on November 29th of that year, you would have lost almost half your investment.

I’ve done neither and will continue to watch bitcoins from the sidelines, although there is a part of me that really would like to sell them short.

~ Jim

Monday, June 2, 2014

Spring Has Finally Arrived

“Spring has sprung.
The grass has ris’.
I wonder where the birdies is.”

Do you remember that little ditty from grade school? Do they even say such nonsense today? I don’t know, but I do know that Spring has finally arrived in the Northwoods. What the heck, it is June 1st. Technically, Summer is only three weeks away.

5/17/14 Notice the buds are just getting red.
Because Jan and I are migratory, we normally experience two complete comings of Spring: one in Savannah and the other in the Upper Peninsula of Michigan. By the time we leave Savannah, the weather is summer-like. Trees and bushes have leafed out; the first brood of baby birds are chirping to be fed; sand gnats are out in force; the frogs are mostly quiet.

Arriving in the U.P. we find that not only have leaves not appeared, buds are hardly even swollen. Black flies are not yet present. Frogs sing solos or duets, lonely precursors of the chorus to come.

Most mornings I still take the chill off the house with a fire in the woodstove. Unlike late Fall and Winter, one fire is sufficient for the day. In part that is because we get so much daylight this time of year and the glass wall overlooking the lake faces west.

When we first arrive, more than fourteen hours of daylight greets us—that’s almost an hour more than we had in Savannah. At the summer solstice we have fifteen and three-quarter hours of daylight here, an hour and a half more than Savannah experiences. With that extra daylight (and short growing seasons between the cold) plants and animals grow quickly.

This year I thought it would be interesting to photograph the growth of a red maple’s leaves. You can see the results below.


The tree has fully leafed out. At night I now fall asleep to the frog chorus (and the occasional Barred Owl hootfest). I awake to Ruby-throated Hummingbirds at their feeder. Black flies and mosquitoes have made their presence known. It is almost time for the snapping turtles to climb from the lake and dig their shallow nests to lay eggs.

5/31/14 Looking out from my desk

Yep, Spring has finally arrived.

~ Jim

[Originally Published on Writers Who Kill Blog 6/1/14]