Bitcoin gets the FBI, Homeland treatment

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Virtual currency bitcoin is to be investigated by both the Federal Bureau of Investigation (FBI) and the U.S. Senate Committee that oversees the Department of Homeland Security (DHS).

The DHS was sent a letter on Monday from the U.S. Senate Committee on Homeland Security and Governmental Affairs asking for any information, plans or strategies on how it currently or plans to treat virtual currencies, including bitcoin.

The letter, posted on the Committee's website, explains the attractiveness of the currency for investors and entrepreneurs with its potential for profit and quick payment solutions. But it also warns that its "near anonymous and decentralized nature has also attracted criminals who value few things more than being allowed to operate in the shadows".

(Read More: NY regulator investigating bitcoin practices )

The Committee indicates that it has initiated an inquiry into virtual currencies because they are an important emerging area and urges the DHS to reply with information before the end of the month.

"As with all emerging technologies; the federal government must make sure that potential threats and risks are dealt with swiftly; however, we must also ensure that rash or uninformed actions don't stifle a potentially valuable technology," Committee Chairman Thomas Carper and Ranking Member Tom Coburn said in the letter addressed to the Secretary of Homeland Security Janet Napolitano.

Meanwhile, a commerce, justice and science bill from July requests an FBI briefing on the subject of bitcoins and money laundering.

"The Committee directs the FBI, in consultation with the Department and other Federal partners, to provide a briefing no later 120 days after the enactment of this Act on the nature and scale of the risk posed by such ersatz currency, both in financing illegal enterprises and in undermining financial institutions," said the bill, which was posted on the Committee's website, and reported Tuesday by several industry blogs.

Jon Matonis, executive director of the Bitcoin Foundation, which aims to promote and protect the cryptocurrency, told CNBC that the wording of the bill is the type that encourages innovative startups to seek out more acceptable international jurisdictions.

"It is difficult to see how this could be favorable for the U.S. in trying to attract bitcoin technology startups," he said.

(Read more: Beware of bitcoin-related Ponzi schemes, says SEC )

Bitcoin is a virtual currency that allows users to exchange online credits for goods and services. While there is no central bank that issues them, bitcoins can be created online by using a computer to complete difficult tasks, a process known as mining. Currently one bitcoin is worth just over $111.

A leaked internal document from April 2012 revealed the FBI had concerns that the digital payment system was helping criminals hide from authorities and anticipated increased money laundering activities for bitcoin.

(Read More: What Is Bitcoin? )

'Pushing the envelope'

More recently it has attracted attention from regulators from around the globe. The New York Department of Financial Services (DFS) issued subpoenas on Monday to several companies associated with bitcoin as part of an inquiry into business practices of the virtual currency industry. In July, U.S. securities regulators charged a Texas man with running a virtual currency Ponzi scheme, through which he raised about $60 million worth of bitcoin.

In May, major currency exchange Mt. Gox from Japan made moves to placate regulators by altering its code of conduct after the U.S. government seized two accounts associated with the firm.

(Read More: 'Cease and Desist': Bitcoin Foundation Receives Jail Threat )

In the same month, an indictment was filed by U.S. prosecutors against a fellow alternative currency exchange called Liberty Reserve that accused the Costa Rica-based company of helping criminals around the world to launder illicit funds.

Some investors are nevertheless attracted to the virtual currency because of the lack of regulation surrounding it. Speaking at an industry event in London in July, Nick Shalek from venture capitalist group Ribbit Capital which invests in bitcoin firms, said that we should not be surprised that bitcoin is creating a lot of regulatory questions and turmoil.

"What makes it so interesting is that it's pushing the envelope," he said. Long term he believes the currency should not be exempt from regulation.

"Being a bitcoin company doesn't prevent you from being regulated but in our case we think the proper choice for building value long term is engaging with regulators."

By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81

Correction: An earlier version of this story reported an incorrect figure for the virtual currency Ponzi scheme run by a Texas man. The correct figure is $60 million.



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