The Great Currency Experiment: Looking Towards a United States Policy Framework for Bitcoin

Abstract

Over the past few years, Bitcoin’s popularity has risen as quickly and surely as its value. Bitcoin and other new cryptocurrencies have attracted avid followers, bright-eyed entrepreneurs, investors, skeptics, and a confused-but-interested larger population. Meanwhile, governments have watched the rise of these non-state-backed, technologically-advanced cryptocurrencies with growing trepidation. Many, including the United States, have not yet developed comprehensive policy frameworks to address the particular risks and benefits of the new technology. The question now is, what direction should US policy-makers take with this framework? Should it be strict to mitigate criminality and investor risk, or lenient in support of the new technology and its benefits? And what are these risks and benefits anyways? This paper will detail the technology and systems behind Bitcoin and other cryptocurrencies, then evaluate their risks and benefits. In a case studies chapter, it will describe and analyze the cryptocurrency policy frameworks of China and Japan, two countries with high stake in the Bitcoin market and developed policy frameworks. Drawing on the study analysis, risk and benefit analysis, and the European Banking Authority’s guidelines, the paper will present possible early steps the US Treasury Department could adopt in building a cryptocurrency policy framework. These soft recommendations will include; crafting a positive narrative, targeting exchanges for regulation, regulating ICOs, and remaining flexible and informed.