Bitcoin Under Siege As Bug Halts Withdrawals, Russian Legal Woes

Bitcoin Under Siege As Bug Halts Withdrawals, Russian Legal Woes
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A technical glitch in a Bitcoin system, forcing one payment processing firm to halt withdrawals, is cited as a reason for a recent price drop in the digital currency.  This computer bug comes on the heels of news that Russia is preparing a crackdown on the digital currency and news from Florida of two men arrested in what is said to be the first criminal charges under state law for using the digital currency in a money laundering scheme.

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Bitcoin, which had been trading near $1,000 per coin in loftier days, was recently trading near $570, according to Bitcoin Market, losing as much as $43 in 30 minutes alone.

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The computer issue is limited to the largest payment processor, Japanese-based Mt. Gox, which on Friday announced in a press release that it was suspending withdrawals.  Early Monday the website said it was re-instating withdrawals as it was working to resolve technical issues.

Bitcoin’s latest technical problem centered around what is known as “transaction malleability,” or the ability for a hacker to make it appear as though a Bitcoin transaction didn’t take place when in fact it did.  The computer bug hit a major concern regarding the digital currency: computer security.  With hacking incidents impacting some of the largest U.S. and European firms, including Target Corporation (NYSE:TGT) and Barclays PLC (NYSE:BCS) (LON:BARC), the ability of hackers to alter the value of a currency holder’s account could send a chill to potential users of the currency. Unlike paper currency, Bitcoin has been lauded by some for its ability to track monetary transactions but this same benefit has caused consternation among privacy advocates.

Bitcoin use a violation of Russian law

As users were digesting news of the computer bug, the Russian government came out with a statement saying that users of cryptocurrencies is a violation with the law. In a statement on its website, Russian prosecutors said they were moving to implement joint steps to prevent “illegal acts in the sphere of money circulation in Russia and prevent the violation of property rights of citizens and legal persons associated with the use of ‘cryptocurrencies.’”

South Florida money laundering case

The money laundering charges stem from a South Florida case where two men were charged with money laundering and engaging in an unlicensed money services business.  The case involved undercover Miami police officers and the charges were the first in the U.S. to utilize state law.  Prosecutors in Miami have not revealed additional details regarding the case.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)
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