UPDATE 2-Japan may tax bitcoin deals, stop banks, brokerages from handling

Wed Mar 5, 2014 2:54am EST
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* Japan cabinet will set bitcoin rules on Friday

* Bitcoin won't be treated as bank, securities business

* Virtual currency likely to be treated like a commodity

* Japan struggling to define its response after Mt. Gox collapse

By Noriyuki Hirata and Takaya Yamaguchi

TOKYO, March 5 (Reuters) - Japan will this week set out rules on how to handle bitcoins, the first sign that the government is taking action on regulating the virtual currency after the collapse last week of Tokyo-based Mt. Gox, once the world's dominant bitcoin exchange.

The cabinet will decide on Friday how to treat bitcoins under existing laws, said people familiar with the matter, adding that banks and securities firms will not be able to handle bitcoin as part of their main business, suggesting the crypto-currency will be treated more as a commodity, like gold.

Japan has struggled to define its approach to bitcoin since the collapse of Mt. Gox, which filed for bankruptcy protection in Tokyo on Friday, saying it had lost bitcoins and cash worth some half a billion dollars due to hacker attacks on what it said was its lax computer system security.

Bitcoin, a digital currency that is traded on a peer-to-peer network independent of central control, has engendered a wave of creative criminality - from bitcoin theft by hacking online platforms to potentially using the crypto-currency in money laundering, bribery and buying illicit products. Its value has soared in the past year, and the total worth of bitcoins minted is now about $7 billion.   Continued...