The regulators are coming, the regulators are coming.
It was bound to happen sooner or later.
Since venture money keeps fueling the beast called bitcoin and the blockchain, regulators have decided to put their arms around that which is bitcoin in an effort to better control its every move.
So, to keep up with all the ebbs and flows of who is regulating what, we’ve gathered the recent news on regulation.
New York State’s Department of Financial Services granted its first official business license for a bitcoin exchange, itBit, in early May. The license will allow the bitcoin exchange to bring in customers across the country in a legal manner, which then puts the onus of regulation on the state. Allowing itBit to align itself in a similar manner to how banks are regulated is a first for the bitcoin exchange community, and a victory (of sorts – although most don’t necessarily characterize regulation as a victory) for the bitcoin community, as it marks the first fully regulated digital currency exchange in the U.S.
New Jersey seems to be following New York’s footsteps and giving bitcoin a regulatory framework. Now, the New Jersey Legislature is attempting to push through a bill that would help regulate digital currencies — and also offer tax breaks for companies that exchange bitcoins. That measure could potentially push more businesses to accept bitcoin.
“I want to encourage innovation here in New Jersey. I think there’s an opportunity for job creation,” said New Jersey Assemblyman Raj Mukherji, who is credited with spearheading the bill with Assemblyman Gordon Johnson.
As a major banking hub, North Carolina is also investigating how it can legislate bitcoin to help protect consumers and prevent the currency in being used in money laundering efforts. The state’s banking commissioner is trying to help push through legislation, which has passed the state house, and is making its way into the state’s senate.
“There’s two sides to the bitcoin. One side is the clear potential value of the innovation, and what that could portent for the payment system. Since we’re a business friendly state, we want to facilitate that,” North Carolina State Banking Commissioner Ray Grace said in an interview. “We wanted to mitigate the risk while facilitating the potential benefits down the road.”
While the East Coast looks to bulk up its bitcoin laws, the West Coast might soon want in, too. Reports indicate that California’s Department of Business Overnight will not look into how to regulate bitcoin itself, but will allow the state’s lawmaking body to weigh in on what to do. While no proposals have made their way to the legislative floor, it appears as though discussions are still in the works.
“We’re still in the process of how or if at all to regulate virtual currency business under our current statutory scheme,” Department of Business Oversight spokesman Tom Dresslar said in an interview.
Legislation that was introduced in March would require maintaining bank-style reserves against possible losses for bitcoin exchanges, but that law hasn’t moved forward. Licensees would have to pay a non-refundable $5,000 registration fee, provide identifying information, and keep enough capital in “investment-grade permissible investments” to cover customers’ deposits.
California is a particularly interesting state for regulation since it is home to bitcoin companies Coinbase, Ripple Labs and ChangeTip.
Outside of those listed above, reports from CEX.IO, the international bitcoin exchange that joined the U.S. market in April, announced that it was unable to work with businesses or consumers in the following states because they required additional money transmitter licenses for bitcoin companies. These states include: Alabama, Alaska, Arizona, Arkansas, Colorado, Florida, Georgia, Guam, Idaho, Iowa, Kansas, Louisiana, Maryland, Michigan, Mississippi, Nebraska, New Hampshire, North Dakota, Ohio, Oregon, Tennessee, Texas, Vermont, Virginia and Washington.
But as more states look to clarify bitcoin and digital currency legislative frameworks, it’s likely more of these states will join the ranks of the ones above which plan to put official bitcoin license regulations on the books as statewide measures help give the regulatory measures more clarity for bitcoin businesses looking to open shop.
While bitcoin seems to be moving rapidly in Europe, with places like the U.K. looking to be the hub for bitcoin, there are still plenty of regions around the world looking to heavily regulate — or hold outright ban bitcoin. Countries like China have a partial ban on the digital currency, and Thailand and Vietnam do not recognize bitcoin as an acceptable form of currency — in large part because the digital currency is not issued by the government. Particularly in regions like China and Russia, regulatory hurdles will always remain a struggle for bitcoin. India has also reportedly looked into banning bitcoin but hasn’t moved toward doing so. Bitcoin is also currently banned in Bangladesh, Bolivia, Ecuador, Iceland and Kyrgyzstan.
But on the bright side for bitcoin, Russian authorities just announced they were lifting the country’s ban on bitcoin. So it appears bitcoin will be back in Russia — at least for now.
While bitcoin regulation makes its way through the U.S. — and potentially across the rest of the world — there’s always plenty going on with new bitcoin products, services and exchanges. This week, BitGo CEO Mike Belshe shared some reasons as to why his customers’ bitcoins are safe, and a documentary was released about how to survive on bitcoin. But on the dark side, bitcoin is creating a cultural divide in the financial community.
Bitcoin was trading yesterday (May 28) at $237.33, which was up a whole $2.03 from last week’s $235.30
As always, if you have any news you’d like to share, please send it our way at contactus@pymnts.com.
A lot of the criticism related to bitcoin exchanges — particularly after the collapse of Mt. Gox — was the risk of bitcoins being lost if a company went under. But Belshe gave some relief to the bitcoin community this week about how his bitcoin exchange protects its users’ money. In an interview, the CEO claimed that “if we disappear, you will still have your money.” Because of the company’s multi-sig bitcoin wallet service provider, it ensures the company cannot transact bitcoins without the customer, but the customer does not need the company to transact bitcoins. Sounds like friction to us.
While bitcoin has gotten some Wall Street support, it’s also creating somewhat of a divide in the financial community. While New York’s state regulators look to tie up loose ends on bitcoin regulations, there’s also a crowd on the regulatory side who has been quite negative about allowing bitcoin to operate like any other currency. The bitcoin rules are expected to be fully announced in the next week — with clarifications on how bitcoin depositories will be handled under the law.
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