Bitcoin sees light at end of regulatory tunnel A year ago, when the entire stock of Bitcoin was worth $150m, authorities were concerned most by the potential use of a new digital currency by drug dealers and petty criminals to hide their trades and launder profits. But now the Bitcoin system has swollen to $10bn, the world's regulators are confronting additional and bigger headaches. The result is diverging approaches from governments in different countries that have upset some previously-held expectations for the Bitcoin experiment, and in a reversal, China suddenly looks an unfriendlier place than the US. Adam Shapiro, director at Promontory Financial, a consulting firm, says the growth of interest in Bitcoin has alerted governments to the risk that it could be used to elude more than just drug enforcement agencies. "Many of the governments reacting most negatively to Bitcoin also impose currency controls, where the policy problems it poses are arguably more intractable than anti-money laundering," he says. Bitcoin, whose transactions are recorded not through the traditional banking system but across a decentralised peer-to-peer network, has created the ability to move large sums of money across borders instantly, cheaply and potentially anonymously. In Asia, where many countries have some form of currency or capital controls or have indicated a willingness to deploy them to fight financial turmoil, the climate has become more chilly for Bitcoin. In December, China - which has grown to become the world's biggest market for Bitcoin - banned financial institutions and payments companies from handling virtual currencies. That prompted retailers to stop accepting payment in Bitcoin and triggered a price crash. But Beijing authorities have said that individuals are free to trade the currency at their own risk, something that has given hope to those who provide services to the mainland. Ken Lo, chief executive of ANX, a Hong Kong-based Bitcoin trading platform that caters to users from inside China, says: "Sometimes you have to read between the lines. If you're doing something illegal, regulators will tell you right away. In India - another potentially huge market - the central bank broke its silence on virtual currencies last month with a warning about the risk of hackers and Bitcoin's use in illegal activity. A series of raids of Bitcoin exchanges followed that have put the local market on pause. "The regulators definitely have shown a fairly unambiguous aversion to the Bitcoin saga," says Shubhada Rao, chief economist at Yes Bank. Last week Taiwanese authorities blocked the planned installation of a Bitcoin ATM, and said financial institutions and individuals should not use Bitcoin for payment. South Korean officials have also said they do not recognise Bitcoin as a legal currency. However, Hong Kong's monetary authority has said Bitcoin does not fall within its jurisdiction. The European Central Bank was one of the first agencies to consider the economic consequences of virtual currencies should they grow in size and popularity. In a 2012 white paper it suggested central banks would have to guard against losing control over monetary policy. In Europe, though, regulators have largely let Bitcoin develop untouched, preferring to say they were watching developments and looking out for consumers. The Bank of England says "the current levels of economic activity and payments involving Bitcoin" are too light to have any impact on financial stability. "A lot of regulators are taking a pragmatic approach and they are getting as much information and education as they can," says Jordan Kelly, chief executive of Robocoin, which manufactures and sells Bitcoin ATMs. Once each individual jurisdiction has a better understanding, I think things will move a bit faster. In the US, where Bitcoin start-ups have attracted the largest sums of venture capital investment, the next few months will be pivotal. The country's patchwork of state and national regulators and political overseers have all claimed the need to balance potential benefits of innovation against the risks. Benjamin Lawsky, superintendent of financial services in New York, has floated the idea of a "BitLicence" for Bitcoin exchanges and money transmitters, at the same time as he has subpoenaed start-ups to investigate their money laundering procedures. His department is holding two days of hearings later this month with Bitcoin entrepreneurs and academics to discuss the plan. For Mr Shapiro, it is an example of the breathing space that Bitcoin is being given in developed economies, even amid intense scrutiny and the growing scale of the virtual currency phenomenon. "In a large chunk of the world - the EU, Canada and US, for example - governments appear inclined to give the industry a chance to show that these innovations have public policy benefits," he says.