Buying and selling Bitcoins could soon come under heavy regulation with steep penalties for those who fail to comply with government mandates. And we’re not just talking about exchanges. We’re talking about individual owners of Bitcoin working direct deals to sell their Bitcoin holdings.

That exchanging your wholly purchased and owned Bitcoins for a product, service or other cryptocurrency may soon be illegal sounds ridiculous, but that’s exactly what may result if the U.S. government wins its pending legal prosecution against long-time Bitcoin enthusiast and CEO of Bitcoin, Inc. Morgan Rockcoons.

The case centers around Rockcoons’ sale of Bitcoin to an individual who claimed he would use it to anonymously purchase a machine that extracts THC from marijuana to produce butane hash oil. The buyer, who turned out to be an undercover agent, worked a deal to purchase a little under $10,000 worth of Bitcoin, but when Rockcoons was given the money for the BTC purchase it turned out that the buyer gave him $14,500. To comply with Federal reporting laws for cash transfers, Rockcoons only sent the buyer 9.998 Bitcoins and took a $5,300 service fee, putting the transaction total under the federally mandated $10,000 USD reporting requirement.

But the government decided to prosecute anyway, claiming that Rockcoons’ sale of Bitcoin constituted a money laundering operation and that he was operating an unlicensed money transmitting business.

The law surrounding how bitcoin can be exchanged is found in guidance from the Financial Crimes Enforcement Network, the arm of the U.S. Treasury Department that works to combat money laundering with regulations.

In 2013, FinCEN announced that virtual currency was no different than standard currency when it comes to following the Bank Secrecy Act. The guidance requires people in the business of exchanging bitcoin for traditional or other type of currency to register with FinCEN and follow other anti-money laundering measures as banks do, including knowing the identity of the customer and reporting any transactions over $10,000. Many states also require money transmittal businesses to be licensed.

It is a general-intent crime, meaning it’s a felony for someone to run an unlicensed bitcoin business whether or not there is knowledge of the licensing requirement.

Source: LA Times

One might immediately jump to the conclusion that knowingly conspiring to purchase drug manufacturing equipment is grounds for prosecution, except in California, where Rockcoons engaged in this transaction, the production of hash oil and the machinery used to produce it is legal. While the government is using this against Rockcoons to suggest he is involved in criminal activity, the actual goods purchased are a moot point.

What isn’t moot is that should a jury find Rockcoons guilty of the charges, the sale, purchase and transfer of cryptocurrency by individuals could become a prosecutable crime.

Rockcoons himself took to Twitter to explain:

This case will basically make Bitcoin use a crime, something I will NOT allow as CEO of Bitcoin inc… It’s my fiduciary responsibility to protect all Bitcoin users, Bitcoin developers and Bitcoin companies using the Bitcoin network world wide, so I will fight these made up bogus charges all the way to the Supreme Court if I must.”

While common sense dictates that when an individual owns something they should have the right to sell it to someone else without fear of prosecution, government is not known for using a common sense approach.

The result of the case could have wide reaching consequences for anyone who owns not just Bitcoin, but cryptocurrencies in general.

Such a move would force any exchange of cryptocurrencies to soon-to-be government regulated exchanges, where anonymity will become a thing of the past because of Know-Your-Customer laws.

And anyone who decides to directly transfer crypto from one wallet to another without utilizing a government-approved intermediary will become a criminal.