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Current Bitcoin Regulation is “Completely Sufficient”

By Ian Jackson Aug 18, 2014 4:17 PM EDT

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LONDON (InsideBitcoins) — Recent moves by Europe’s largest economy, Germany, to impose VAT on the trading and mining of bitcoin does not seem to have dampened growing enthusiasm for the currency with venture capital firm Point Nine, which announced last week a substantial investment in Berlin-based startup Bitbond.

Bitbond, which enables small business growth by offering peer-to-peer loans paid entirely in bitcoin, is just one of a number of European companies to move aggressively into the cryptocurrency market and whilst Point Nine’s individual contribution remains undisclosed, the total funding amounts to an impressive 200,000 Euro ($267,000 USD).

“The bitcoin companies of the future are being founded today,” Pawel Chudzinski, founder and managing partner of VC Point Nine capital told Inside Bitcoins. “And Bitbond has a very bold vision to create a global lending marketplace, enabled by the revolutionary bitcoin technology.”

An important milestone

The investment itself, according to Radoslav Albrecht, founder and CEO of Bitbond, represents an important step in the evolution of his company.

“It’s an important milestone,” he admitted. “So far we were self-funded and bootstrapped everything we built. The additional resources from the investment will enable us to increase our team and built additional features that our customers have been asking for.”

And he’s confident that the investment will have repercussions beyond the immediate boost it’s given to his company.

“More and more startups are helping to build the bitcoin ecosystem,” Albrecht explained. “So now is a good time to enter this exciting field; in one or two years there will be companies in most areas and it will be harder for VCs to find unique models where the competition is still low.”

More regulation is unnecessary

But what of the regulatory question mark that is hanging over Europe? For Albrecht, more regulation is unnecessary and whilst for Chudzinski it’s more about balance, both agree on this one central point.

“Speaking from a German standpoint, the way bitcoin is regulated at the moment is completely sufficient.” Albrecht explained. “In Germany, bitcoin is categorized as a financial instrument and all regulations that apply to other financial instruments apply to bitcoin in the same way. More regulatory burdens would increase market entry barriers for new startups and would ultimately lead to an undesirable situation. Incumbent banks are protected from competition by comprehensive regulatory burdens and are therefore non-innovative and too-big-to-fail. Let’s try to build a new system where innovation and best practices are driven by competition and market demand instead of regulation.”

“I believe the arguments for charging VAT on mining make more sense from the legal perspective than VAT on trading, but obviously it could harm the ecosystem; there should be no VAT.” Chudzinski agreed, dismissing notions of any immediate European consensus on the issue.

“There is no chance that all countries will regulate the same way in the foreseeable future, so negative tax treatment in one country will create a disadvantage and result in shifting the resources someplace else.”

That someplace else might well be the U.K. if Chancellor George Osborne has his way but for now Bitcoin falls squarely within the auspices of existing legislation — something that from Bitbond’s founder, can only be seen as a good thing.

“My main concern is that increasing bitcoin regulation achieves the opposite of its original intention which is usually customer protection and crime prevention. The intentions might be good but since most bitcoin businesses are small startups they don’t have the resources to meet expensive license requirements. Many of these startups would move their legal entities to offshore locations or operate under no legal framework whatsoever.”

And the VAT question is ultimately a no brainer. VAT is not and has never been attached to currency trading.

“In my view bitcoin should be treated as a currency from a tax perspective, just like the euro or dollar,” Albrecht said. “That means there should be no VAT on buying and selling bitcoins and also not on generating new bitcoins through mining. If bitcoin was treated as a good with VAT charges on trading this would basically kill it as a legal and innovative payment method. I cannot see who would benefit from that.”

Ian Jackson is an Inside Bitcoins correspondent based in the U.K.


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