Bitcoin Price 2013: Mt. Gox, World's Largest Bitcoin Exchange, Seized By Federal Government

It what could be the first move in a wider attempt by the federal government to clamp down on the online currency Bitcoin, on Tuesday the Department of Homeland Security (not the first agency I would have picked) issued an order restricting the transfer of funds in and out of Mt. Gox, the world's largest Bitcoin exchange, which is based in Japan.

Although launched back in 2009, the electronic currency first came to mainstream attention in 2011 when a Gawker article explained how to use Bitcoins to buy drugs. More recently, the value of Bitcoins experienced a massive spike before their value then plummeted. To find out more about Bitcoins, check out this handy little video which explains how they work with the help of Super Mario Bros clips.

The legal status of Bitcoins is unclear. As Adam Serwer and Dana Liebelson of Mother Jones note, they are "probably" legal in the U.S., "but it could depend on what state you're in. Doing something illegal with Bitcoins — like bribing someone or buying drugs — is still illegal." But despite the unclear legal status of the currency, and the moves by the federal government, it appears Bitcoins are not going anywhere just yet.

The Department of Homeland Security is "focusing on Dwolla, an online payment system (sort of like PayPal) that has become a popular way for Bitcoin users to transfer money to and from Mt. Gox." A spokesman for Dwolla confirmed the order: 

“The Department of Homeland Security and U.S. District Court for the District of Maryland issued a ‘Seizure Warrant’ for the funds associated with Mutum Sigillium’s Dwolla account (a.k.a. Mt. Gox) ... In light of the court order, procured by the Department of Homeland Security, Dwolla has ceased all account activities associated with Dwolla services for Mutum Sigillum while Dwolla’s holding partner transferred Mutum Sigillium’s balance, per the warrant.”

While some reports have said the reason for the seizure is not entirely clear, Kashmir Hill of Forbes says it is a result of "Mt. Gox’s failure to partner with a FinCEN-approved U.S. agent." FinCEN is the Financial Crimes Enforcement Network, "the bureau of the Treasury Department that seeks to prevent money laundering, terrorism financing, and other financial no-nos."

Recent FinCEN guidelines for virtual currencies state that "exchangers of virtual currency are money transmitters for the purpose of FinCEN regulations" according to James Freis, counsel at the law firm Cleary Gottlieb. But apparently Mutum Sigillum, a U.S. intermediary that Mt. Gox has been using to exchange the virtual currency for U.S. dollars, is "not registered as a money transmitter with the Treasury Department."

Hill argues that it is "important to note here that Homeland Security is not cracking down on Bitcoin itself, just on how it’s being exchanged by Mt. Gox," and that "Mt. Gox’s legal troubles don’t seem to be affecting the value of Bitcoin." Moreover, the Department of Homeland Security order is good news for Mt. Gox's U.S.-based competitors. 

It is hard to tell at this stage whether the federal government will eventually target Bitcoin itself or just seek to regulate it like any other currency. But while the federal government may not be trying to shut down Bitcoin just yet, it is keeping an eye on it.