Time for Smarter Rules on Digital Money

Let’s stipulate that Mt. Gox, the Bitcoin exchange that went offline on Feb. 25 and seems to have misplaced about 365 million of its customers’ dollars, might be “the worst-run business in the history of the world,” as one Bitcoin investor recently said. Smart regulation might have made a difference—and as digital currencies proliferate, getting that regulation right will only become more important.

So far, countries have taken three main approaches to regulating Bitcoin and other digital currencies. The first is to outlaw them or severely restrict their use, as Russia and China are doing. This isn’t irrational, but it could prevent needed innovation. The second is to do nothing, as Japan did. Mt. Gox, based in Tokyo, showcases the wisdom of that strategy. A third and better approach: The U.S. and others are seeking to encourage digital currencies as long as they follow the rules.