Ben Lawsky Speaks with CNBC on Bitcoin Outlook Following MtGox Collapse

Ben Lawsky, Superintendent of the Department Financial Services (DFS) for the State of New York, has been highly active in

Ben Lawsky, Superintendent of the Department Financial Services (DFS) for the State of New York, has been highly active in taking up the cause of virtual currency, reaching out to its community and exploring ways of bringing it into a regulatory framework to protect consumers. Last month, he held hearings on the future of virtual currency, and more recently held an AMA session on reddit.

Yesterday, he shared his views on virtual currency with CNBC following the shocking news of MtGox going MIA:

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Lawsky: I think that the question is: is this a continuing of the shaking out of a fledgeling industry? And my gut is that’s part of what you’re seeing here. It’s a new industry. It’s obviously not regulated in any significant way yet, and thus to the extent there are those who are not doing what they’re supposed to be doing, or that might get involved in the industry for the wrong reasons, I think as the industry grows and becomes more ubiquitous and I think as regulators get more involved, you will see those who want to do this right thriving, and those who don’t, falling away. And I think you may be seeing that.

So it may be a significant bump in the road for the development of bitcoin and virtual currencies, but I don’t think it means they’re going away or it’s any kind of death knell. I think underlying Bitcoin is a really interesting, powerful new technology, that we don’t know what it will look like a year from now, five years from now. But I think that powerful technology is likely going to survive and have significant implications for our entire system.

CNBC: OK, so talk specifically about what the regulators, like yourself, can do to prevent this sort of thing, because MtGox was one of the major exchanges of Bitcoin, and when as a consumer, or if you’re looking to get into this, you might be thinking, “How on earth would I know that my money is safe in Bitcoin?”

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Lawsky: Well, two thoughts on that. First of all, MtGox is obviously offshore and not regulated, really, by anyone. And I think it underscores the fact that if we had, for example, exchanges that are onshore and that had some regulatory oversight and scrutiny, you would have, potentially, a lot more consumer confidence over the long haul, and people would feel a lot better about the fact that their money couldn’t just disappear, potentially, overnight.

I think that the heart of what we do as regulators is ensure the safety and soundness of the institutions we regulate. And doing that for an exchange that’s onshore, especially as the virtual currency market continues to grow, I think will be essential, and will potentially not be a bad thing for Bitcoin and virtual currencies. It’ll actually be a very good thing because it will create a lot more consumer confidence.

CNBC: What would you tell an investor right now? You know, the price is down 54% since the peak, one of the major exchanges is offline. Why not issue a warning like a state regulator in Alabama did, a consumer alert, saying, “You know what, you better watch this because your funds could be at risk”?

Lawsky: Well, again, two thoughts on that: One is, I think we’re still trying to get our hands around exactly what’s happening at MtGox and what happened at MtGox, and it again underscores the problems with an offshore, unregulated exchange. Normally when we regulate an institution and it has problems, we can go, we can look at their books, we can look at their records, we can figure out the situation and we can alert people to that.

CNBC: But why not alert people now? You can look at the price, you can see it’s fallen significantly, why not tell them, “while we’re looking at this, this is still a very early stage technology, currency- whatever you want to call it, and you should be careful about investing in it.”

Lawsky: It came up at our hearings about two weeks ago. Obviously, there is huge price volatility right now when it comes to Bitcoin, and I think typically, really it’s only sophisticated investors, who know that they’re buying into that very significant price volatility, that are involved with Bitcoin in any major way.

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