The drumbeat for regulation of bitcoin after Mt. Gox’s failure has begun, with an op-ed in the Wall Street Journal by Ezra Galston claiming that
In the near term, the bitcoin community must embrace external regulation to ensure that credible vendors may participate in payment processing. A “BitLicense,” proposed by the New York State Department of Financial Services, is a good start, but transmitter laws that differ by state may leave payment processors just as hesitant.
This is reminiscent of the call by Ben Lawsky for “smart” regulation by New York State. He takes it for granted that U.S. citizens would be better off dealing with a U.S. exchange – Lawsky hopes in New York state – instead of using an exchange in a foreign country.
Mt. Gox and similar exchanges are a remarkable development. At Mt. Gox, a customer could transmit an order to the exchange to trade bitcoins for currencies or currencies for bitcoins. The order could be submitted 24/7 and it could be executed 24/7. Mt. Gox did not limit trading by hour of the day or day of the week. No broker received a payment when the order was submitted; the trade was submitted online by the owner of bitcoins or currency.
I have found no evidence in Mt. Gox’s trade data of any lull in trading at any regular hours or any regular days of the week. To some extent, this probably is true because many holders of bitcoins are hackers (in the good sense) and they famously keep irregular hours. It also probably is true because Mt. Gox’s customers were located in many different time zones. Indeed, my purchase of a bitcoin might be a purchase from someone living on the other side of the planet.
None of this is true of regulated exchanges in the United States. Hours are limited. Orders are submitted through a firm that is a member of the exchange and a payment is made to the member for submitting the order. Some trades cannot occur without human intervention because of exchange rules. At least for American citizens, it is no small thing to open an account at established exchanges in other parts of the world. (We have the U.S. government to thank for that.)
Regulation to make bitcoin exchanges more similar to U.S. exchanges will not make trading better from customers’ point of view.