Bitcoin futures exchange

Post date: Category:(Updates with Mt. Gox bankruptcy filing starting in first paragraph.)

Feb. 28 (Bloomberg) — The bankruptcy of a major Bitcoin exchange in Japan not only focused attention on the digital currency’s risks, it also rattled a still-newer market that regulators are just starting to monitor: Bitcoin derivatives.

George Samman, a former Wall Street investment adviser who in May helped start a platform for betting on Bitcoin’s price swings, saw trading on his BTC.sx website grow to more than $35 million by Jan. 21. After the shutdown at Mt. Gox, the Tokyo- based exchange for buying Bitcoins, BTC.sx suspended trading — because it had to find another exchange partner for its customers.

“It is semi-Wild West, but that’s only because it’s new, ” Samman said before the Mt. Gox shutdown.

The regulation of Bitcoin, let alone derivatives of it, is an unresolved question in many parts of the world. Even as regulators and investors struggle to grasp Bitcoin’s many uses – - including investment vehicle, payment-processing system and money-laundering tool — they are now confronted with the additional complexities of an emerging derivatives market where entrepreneurs say current rules don’t apply.

Russia has said Bitcoin is illegal under current law, while China has stopped financial institutions from dealing in it, even as trading continues.

CFTC Looking

In the U.S.. states are wrestling with how digital-currency businesses could be regulated, including as money transmitters. In Europe, the European Banking Authority said today that it would set up a task force to review options for regulating Bitcoin and its derivatives.

At the top U.S. derivatives regulator, the Commodity Futures Trading Commission, lawyers are considering if and how to oversee derivatives linked to Bitcoin and other digital currencies, according to two people briefed on its work. The agency has been preparing an internal memo that examines CFTC’s authority over digital currencies and how it might exercise those powers to regulate the markets, the people said.

Steve Adamske, CFTC spokesman, declined to comment.

Mt. Gox, which had revenue of 135 million yen ($1.33 million) in the year ended March, applied in Tokyo District Court today with debt exceeding its assets by 2.7 billion yen, the exchange said in a statement. The company said it had lost 750, 000 Bitcoins belonging to users and 100, 000 of its own.