Bitlicense- A regulation that changed cryptocurrency ecosystem in NY
Regulations with respect to cryptocurrency are not a new thing. Since the first cryptocurrency was adopted at a considerable mass level, the traditional financial institutions and the legislative bodies have been trying to get their control over the trading of virtual currencies.
In the United States, this has been going on since 2013 and the government has modified numerous regulations to monitor the transfer and trade of virtual money. But this attempt was, to say the least, considered comprehensive only after the NY Department of Financial Services (NYDFS) officially passed its proposals relating to something called a Bitlicense required by companies operating within the jurisdiction of NY.
What is Bitlicense?
Bitlicense can be viewed as a business license that is an absolute must for people operating their business in the state of New York or the residents of NY who are operating their business elsewhere in relation to virtual currencies. Under these regulations, people residing or located, have a place of business, or conducting business in the state of NY are considered to be residents of NY.
Who needs a Bitlicense?
A business or company is required to obtain a Bitlicense from the NYDFS if it is involved in any or all of the following activities with respect to NY or an NY resident.
- Receiving virtual currency for transmission, or transmitting virtual currency except where the transaction is undertaken for non-financial purposes and does not involve the transfer of more than a nominal amount of digital currency.
- Storing, holding, or maintaining custody or control of virtual currency on other’s behalf.
- Performing exchange services as a customer business
- Buying and/or selling virtual currency as a customer business.
- Controlling, administering, or issuing a virtual currency.
How can a Bitlicense be obtained?
To obtain a Bitlicense from the NYDFS, an entity must ensure that they have all policies in place for customer complaints, issue transactional receipts for a potential audit, and have a designated officer to handle issues like AML vulnerabilities.
The application process costs approximately $5000 to file and includes compliance manuals, complete transparency of ownership, finances, insurance, and a solid long-term business plan.
It is interesting to note that the regulatory compliance does not cease once a Bitlicense has been issued. The organizations with a Bitlicense are required to produce periodic financial statements along with maintaining a financial reserve.
In addition, there are rules for cybersecurity safeguarding mentioning the steps a company would take in case of an external attack. Regulations for bookkeeping have also been specified. It is also mandatory for businesses to disclose all the risks to customers who wish to initiate a business relationship with the company.
How did the Bitlicense affect the crypto market in NY?
The Bitlicense proposal came into effect in August 2015 and the intention to regulate the trade was more or less achieved. But it also affected crypto-related operations in the state. In the aftermath, it was reported that as many as 10 major bitcoin companies withdrew their bitcoin operations in NY.
One reason behind this was the reluctance to apply but another major one was the cost. The application fee amount of $5000 is non-refundable. A majority of people hold the view that the regulation caused a considerable damage to the crypto market and the financial technology on the whole.
Over 15 crypto-based organizations vacated their operations in the state and so far, in 3 years, only 5 to 7 crypto-based organizations have been granted the license.
The first company to get the Bitlicense was Circle (in September 2015) followed by Ripple, Coinbase, bitFlyer, and Genesis Global Trading in July 2016, January 2017, November 2017, and May 2018 respectively.