On Thursday, New York State's top financial regulator, Benjamin Lawsky, hosted a two-hour "Ask Me Anything" chat on Reddit to provide "a window" into some of his thinking on Bitcoin and other cryptocurrencies. Last month, Lawsky hosted a two-day fact-finding hearing on the topic, and New York State will likely come out with new regulations later this year. "Right now, the regulation of the virtual currency industry is still akin to the Wild West," Lawsky said in his opening remarks at the January 28th hearing. "That lack of regulation is simply not tenable for the long-term."
In Thursday's Reddit chat, Lawsky reiterated his view that the government needs to step in to combat illegal uses of cryptocurrencies. He also expressed an appreciation for Bitcoin's potential to drive innovation. For example, when asked what Bitcoin could mean for banking in the developing world, Lawsky replied:
I think this is an extremely exciting aspect of Bitcoin that holds huge potential. Many people don't realize how so many parts of our world do not have modern banking systems. Separately, Bitcoin holds the potential to bring the costs of international transactions way down. That could be huge for the thousands and thousands of New Yorkers who today send money back to their families in their home countries at great expense.
The best questions came from Bruce Fenton, the founder of the investment firm Atlantic Financial and a self-described "Bitcoin fanatic." Fenton asked Lawsky to clarify one of his more controversial statements at the regulatory hearing in January:
[Y]ou said "The choice for the regulators is: permit money laundering on the one hand, or permit innovation on the other, and we’re always going to choose squelching the money laundering first. It’s not worth it to society to allow money laundering and all of the things it facilitates to persist in order to permit 1000 flowers to bloom on the innovation side.” To be honest this statement is rather concerning .....do you really mean this?...Couldn't you stop a great deal of money laundering tomorrow by simply regulating all the existing Wall Street banks out of existence?
Lawsky responded by backing away from his statement: "I was giving a hypothetical at the hearing that used a very stark choice in order to underscore how important it is for all of us that we get the balance right and ensure that we have appropriate bsa-aml protections in place while at the same time not stifling innovation."
Then Fenton asked:
The UN states that over a trillion dollars per year is laundered through mainstream financial systems....over 100 times the size of all Bitcoin in existence....is it worth so much effort to regulate a new fledging technology which could create jobs compared to focus[ing] on existing banking systems?
Lawsky responded that "the two aren't mutually exclusive."
When "TeamCoinMKT" asked: "How do you plan on balancing the need for [a] regulatory framework with allowing entrepreneurship within the digital currency space to flourish?" Lawsky responded: "That's the million dollar question we wrestle with everyday."
How he plans to strike that balance? I guess we'll have to wait and see.