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Possible Regulated Exchange for Bitcoin

When the largest and first Bitcoin exchange, Mt. Gox, collapsed last year, I pondered in my blog whether Bitcoin exchanges would eventually embrace regulation and internal controls to ensure consumer protection. In the beginning of January, a security breach at a European Bitcoin exchange further dampened consumer confidence. The price of a Bitcoin plummeted from over $1200 (at the end of 2013) to below $200 recently.


With such wild fluctuations, how can consumers have confidence in Bitcoin currency? Cameron and Tyler Winklevoss (a.k.a. the Winklevoss Twins), who are perhaps most notorious for waging a legal battle with Facebook’s Mark Zuckerberg, are now hopeful they can change public sentiment by creating the first regulated Bitcoin exchange.  The exchange, named ‘Gemini’ for the twins, already has a test model running and is waiting for regulatory approval.

Even if the Winklevoss Twins succeed in creating the first regulated American exchange, is there really a need for another investment vehicle or currency?  What are the advantages/disadvantages of such an exchange?

In some circles, Bitcoin is being touted as the next ‘global’ currency. With the number of international ecommerce transactions sharply rising every year, a digital currency like Bitcoin might be the payment system of the future.  If regulation can instill consumer confidence in Bitcoin, the Winklevoss twins might be at the forefront of a historic event. Given the fact that they are financing the project themselves, you might say they are banking on it.

Marc Fogarty, Audit Partner and a member of EisnerAmper's Public Companies, Cleantech and International Services Groups. Marc is experienced in public accounting, serving public and private organizations and has presented on IFRS to professional groups.

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