Bitcoin faces calls for tougher regulation amid Igot scandal



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The digital currency industry is facing calls for proper regulation amid claims an Australian-founded bitcoin exchange is on the brink of collapse.

Igot, which was founded in South Australia by New York-based entrepreneur Rick Day, owes thousands of dollars to Australian customers, the ABC’s 7:30 program revealed on Monday

The company has denied it is insolvent and said it will return the money to customers.

Bitcoin exchanges are used like banks by many Australians, an industry expert says.

Bitcoin exchanges are used like banks by many Australians, an industry expert says. Photo: Chris Ratcliffe

The Australian Securities and Investments Commission, which is charged with regulating financial products and services under the Corporations Act, said it was powerless to act on the claims because bitcoin was not considered a financial product or service. 

The regulator said on Tuesday it would investigate the company if it collapsed. 

“As with any company, if it were to go into administration or liquidation and there was suspected wrongdoing or breaches of the law, it would be a matter we would look into,” a spokesperson said.

The industry is now facing calls for greater scrutiny, including from within the sector, to force companies to lift their game. 

David Temple, co-founder of Coin Loft, a bitcoin agency based in Melbourne, said greater regulation would bring Australia into line with plans in the United States and Europe.

“When you’re talking about money, which bitcoin is, governments have to regulate it as best as they can,” he said. 

“I’m sure no one is clear what form that will take, or how easy it will be to regulate. But we’re certainly keen for this to happen and hopefully we will be able to shape that.”

Adrian Przelozny, chief executive of bitcoin exchange group, Independent Reserve, said the case with Igot highlighted the lack of formal regulatory oversight in the industry. 

“There have been frequent reports of customers being unable to withdraw money from Igot for the past 12 months, so the recent news is not entirely unexpected,” he said. 

“What appears to have happened at Igot is very unfortunate and it illustrates the need for greater regulation in the industry.”

“The digital currency industry is currently largely unregulated, which means that there is a burden on the consumer to their own research on the companies that they deal with.”

According to documents filed with the corporate regulator, Igot was registered in Victoria in 2014.

Its principal place of business is registered as Seacombe Gardens, South Australia. 

Mr Day is listed as the company’s director and sole shareholder. 

Operators who buy and sell bitcoin and other crypto-currencies are not required to hold any sort of financial licence. 

A Senate inquiry into digital currencies last year recommended the government revise the definition of crypto-currencies to be treated as regular currencies for tax purposes.

The Australian Digital Currency and Commerce Association is preparing to release a code of conduct for the industry that it says will improve consumer protections. 

But it says it is opposed to greater government regulation. 

“Consumer protection is extremely important [but] letting it get too far and destroying the industry is not a smart move,” ADCCA chief executive Nicholas Giurietto said. 

Martin Davidson of bitcoin miner Bitcoin Group, which was forced to pull its float on the Australian Securities Exchange last month, said too many people were using bitcoin exchanges “like banks” and storing their money with companies rather than making simple exchanges. 

“Anyone can set up a website with pretty pictures, set up PO boxes around the world and call themselves a bitcoin exchange,” he said. 

“These bitcoin exchanges are not registered financial services companies, they do not have an [Australian Financial Services] licence.”

However, he said the case did not point to broader problems within in the industry.

“I don’t think it’s going to have any affect on the price [of bitcoin] or general confidence of the market.”

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TheBitcoinNews.com – leading Bitcoin News source since 2012

Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to consumer protections. The information does not constitute investment advice or an offer to invest.