Japan considers regulation of bitcoins in wake of Mt Gox failure

After the failure of the Mt Gox exchange in the wake of a huge theft, authorities are struggling to find ways of regulating digital transactions

PUBLISHED : Tuesday, 04 March, 2014, 11:18pm
UPDATED : Wednesday, 05 March, 2014, 1:49am

Japan is looking at ways to tax bitcoin transactions, a report said yesterday, in the wake of the spectacular failure of the Tokyo-based Mt Gox exchange after a half-billion-dollar theft.

The finance ministry and the national tax agency are studying possible rules that could govern transactions using the digital currency, the Yomiuri newspaper reported.

Authorities believe purchases made with bitcoins can be subject to consumption and corporate taxes, even though the unit is not a legal currency, the Yomiuri said without citing sources.

"However, many countries including Japan do not have concrete frameworks to levy taxes [on bitcoin transactions]," the Yomiuri said, leaving officials basically stumped.

Japan's sales tax is set to rise from 5 per cent to 8 in April.

Mt Gox, which at one time reportedly processed 80 per cent of global bitcoin transactions, last week sought bankruptcy protection from the Tokyo District Court and admitted that it had lost half a billion US dollars worth of the digital currency.

A company lawyer said 750,000 bitcoins belonging to customers had gone missing, along with Mt Gox's own store of around 100,000 units. That number of bitcoins would be worth around US$575 million.

The Yomiuri report comes as regulators around the world grapple with the cryptocurrency, which is generated by complex chains of interaction among a huge network of computers.

Watch: Japan reportedly considers bitcoin regulation after MtGox theft


US Federal Reserve head Janet Yellen said the Fed had no powers over a currency that only existed virtually and had no central authority behind it.

Several countries, including Russia and China, have already heavily restricted how bitcoins can be used.

Japanese Finance Minister Taro Aso said yesterday that Tokyo was still studying what to make of Mt Gox's failure.

"It's difficult to know whether there was a crime or a simple corporate failure," the former Japanese prime minister said, while admitting that officials were still reviewing which government body should handle the case.

The global virtual currency community was shaken by the shuttering of Mt Gox, which had frozen withdrawals in early February because of what the firm said was a bug in the software underpinning bitcoin that allowed hackers to pilfer them.

Supporters rallied round, insisting bitcoin itself was sound and the problems were with Mt Gox, which they said was badly managed and unable to cope with the burgeoning popularity of the young currency.

Mt Gox's woes had depressed the global value of bitcoin but it has rebounded, and was trading at about US$677 yesterday.

New York's banking regulator said on Monday that he believed the collapse of Mt Gox could ultimately strengthen the virtual currency industry by weeding out weaker operators and prompting more supervision.

Benjamin Lawsky, superintendent of New York's Department of Financial Services, wants to attract healthy bitcoin operators to New York, and has floated the idea of launching a licence to regulate operators.

Additional reporting by Reuters

Bitcoin not money, says Buffett

The Oracle of Omaha is not a believer in bitcoin. Warren Buffett, chief executive of investment conglomerate Berkshire Hathaway and one of the world's most respected investors, said bitcoin "does not meet the test of a currency".

"I wouldn't be surprised if it's not around in 10 or 20 years," said the 83-year-old billionaire, whose nickname stems from his investment savvy and his home city of Omaha, in the US state of Nebraska. Buffett called the virtual currency, which has no central bank backing and is generated by an automated computer program, "very speculative, a Buck Rogers kind of thing" like the Dutch tulip mania in 1637.

Agence France-Presse