Your Money: Virtual money like Bitcoin legal - even in 19th century

Virtual currencies like Bitcoin, Ripple, and others are perfectly legal - and there is little Congress can do to change that. But are they good investments?

Mercedes Tunstall, a partner at the Philadelphia law firm Ballard Spahr L.L.P., testified Tuesday before federal lawmakers that until the 1870s, virtual currencies circulated in America, as individual states issued their own notes.

"The Supreme Court then established the dollar as the money of the land. So virtual currencies are legal," Tunstall said, "but dollars have to be accepted."

That is why Congress has difficulty banning Bitcoin. Even today, some U.S. merchants on the Mexican and Canadian borders accept pesos and loonies.

Some firms such as Silk Road, which used Bitcoin as virtual currency, have shut down, "but that doesn't mean Bitcoin is dead in the water," Tunstall said. In October, federal criminal charges were unsealed against Silk Road, an online market that allowed users to buy and sell drugs and other illegal goods using Bitcoin.

The virtual money has "significant challenges, like failure to comply with anti-money- laundering and the volatility of the currency," Tunstall said. "A week ago, Bitcoin traded at $400 per unit, and it rose to $900 per unit during the hearings. You can't have those kinds of swings and still be useful to consumers."

Instead, virtual currencies could become mainstream - if they embrace U.S. banking and compliance regulations. Bitcoin investment funds, however, would likely fade out.

Each day in London, traders at five banks set the price of gold in what is known as a "fixing" - a measure of the spot price for the physical yellow metal.

Turns out, the five banks - Barclays P.L.C. (BARC), Bank of Nova Scotia (BNS), Deutsche Bank (DBK), HSBC Holdings, and Societe Generale (GLE) - might have been using the London gold fixing to help their bottom lines.

British regulators have opened a preliminary review, not a formal investigation yet, into how the gold benchmark is set, and, according to Bloomberg News, the Commodity Futures Trading Commission met this year to discuss it as well.

It is yet another example of how old-fashioned traditions in the markets haven't kept up with modern technology and trading. The London gold fixing started in 1919 and was conducted in person for 84 years at N.M. Rothschild & Sons' offices in London. In 2004, it started taking place over the telephone.

Watch this space on whether the gold inquiries could affect widely traded gold exchange-traded funds, such as SPDR Gold Shares (GLD and iShares Gold Trust (IAU).