Hire of Raj Date Boosts Bitcoin Credibility

Source: http://online.wsj.com/news/articles/SB10001424052702303559504579196301325588672

HIRE OF RAJ DATE BOOSTS BITCOIN CREDIBILITY

Former No. 2 at CFPB Joins Board of Company Focused on Digital Currencies

By Robin Sidel
Nov. 14, 2013 12:07 a.m. ET

A former top official of the federal Consumer Financial Protection Bureau is jumping on the bitcoin bandwagon.

Raj Date, a banking-industry veteran who has pushed for tighter regulation of the financial system, has joined the board of a new company developing ways to get merchants and consumers to use the virtual currency.

The move is likely to add credibility to fledgling Circle Internet Financial Inc., which last month received $9 million in financing from venture capitalists.

The price of a bitcoin rose to a record Wednesday, fueled by rising expectations the virtual currency will continue to gain traction as an alternative to traditional methods of payment. The currency fetched $441 on the Toyko-based Mt. Gox exchange and $394 on the Slovenia-based Bitstamp Exchange, nearly doubling since the start of November.

The momentum behind bitcoin is coming from around the world, as amateur investors, venture capitalists and technology enthusiasts pump money into businesses that are trying to figure out how to use bitcoin to buy and sell goods and services. A growing number of merchants accept bitcoin, because the transaction costs associated with the currency are generally lower than those for using credit cards or debit cards.

"Our clients have seen an uptick in interest among a wider circle than just the types of people who were early adopters in the U.S.," said Adam Shapiro, a director at Promontory Financial Group LLC, a financial-services consulting firm that is advising clients on bitcoin ventures.

Bitcoin is a four-year-old virtual currency that isn't backed by a central bank and can be traded on a number of exchanges or swapped privately. Bitcoins are generated by solving complicated math problems, a process known as mining. That pursuit is getting increasingly complicated and expensive, as companies and technology fans race to build the powerful computers required for bitcoin production. There is a limited quantity of coins to be mined.

Circle, launched last month by technology entrepreneur Jeremy Allaire, aims to develop services that make it easier for businesses and consumers to use digital currencies. The Boston-based company has received financing from venture-capital firms Accel Partners and General Catalyst Partners.

Mr. Date "brings tremendous experience to the company, and a very deep understanding of critical regulator issues and how consumer-financial products interact with the government," Mr. Allaire said in a telephone interview.

A former executive with Deutsche Bank AG and Capital One Financial Corp., Mr. Date was hired by Elizabeth Warren, now a senator from Massachusetts, to set up the CFPB in fall 2010. He was the agency's No. 2 official until his departure at the start of this year. After leaving the CFPB, Mr. Date launched Fenway Summer LLC, a 12-person consumer-finance advisory and mortgage-lending firm based in Washington. He also serves on the board of Prosper Marketplace Inc., a company that helps people lend to one another.

Mr. Date, 42 years old, said he became interested in the bitcoin phenomenon after delving into the traditional money-transfer business while working at the CFPB, where he also helped set new mortgage rules that require lenders to ensure borrowers can repay loans.

"The underlying infrastructure of the payments industry is decades and decades old. There is a tremendous opportunity to change that and build better products for consumers," Mr. Date said.

Federal ethics rules prohibit Mr. Date from representing private companies before the CFPB or the Federal Reserve for two years after his departure. Mr. Date said he might advise Circle on compliance with regulations but has no plans to advocate for the company before any regulators.

Mr. Date's private-sector work has come under fire from Republicans in the House of Representatives, who say he is trying to profit from his expertise in rules the CFPB has written. But Mr. Date and his co-workers said there is no conflict of interest because they don't lobby on behalf of the companies they advise.

People who follow the industry attribute the rise in bitcoin prices in part to surging demand from China, where a local exchange is drawing trading from around the world. Elsewhere in China, a unit of Internet giant Baidu Inc. started accepting bitcoin for payment a few weeks ago.

Investors have poured $18 million since September into the BitCoin Investment Trust, a bitcoin-dedicated investment vehicle, surpassing the fund managers' goal of raising $10 million by the end of the year. The trust is a unit of SecondMarket, a New York company that facilitates the trading of stocks before their initial public offerings.

"There is a lot of demand, and it's coming from high-net-worth individuals and institutions," said Jaron Lukasiewicz, whose fledgling New York-based bitcoin exchange, Coinsetter, opened for business Wednesday.

Prices also are being supported by a crackdown on illegal activities that have been tied to the virtual currency and by increased regulatory scrutiny. Such measures help make bitcoin more legitimate, enthusiasts say.

Experts warned that bitcoin is thinly traded on the many exchanges that traffick in it, which can lead to big price swings.

A Senate subcommittee is scheduled to hold a hearing Monday on virtual currencies. That comes after a unit of the Treasury Department earlier this year issued guidelines that said virtual-currency exchanges are subject to the same anti-money-laundering requirements that apply to traditional money-transmission businesses, like Western Union Co.

- Alan Zibel and Saabira Chaudhuri contributed to this article.