New Regulations for Bitcoin and Digital Currencies

In the past few months, more domestic and foreign regulations of digital currencies are being proposed. However, New York is at the forefront of establishing new Bitcoin regulations, and California not far behind. By the end of May, it is likely that the updated BitLicense bill regulatory framework will be released and used as an example for other states.

What are the New York and California Proposed Regulations?

Benjamin Lawsky, New York’s first Superintendent of Financial Services, announced the parameters of the bill this year. The BitLicense bill will stipulate that businesses will need a license if they handle (i.e., store, transfer) Bitcoin for customers, cover or issue digital currency, exchange Bitcoin for other currency, or buy and sell digital currency to or from a customer. Merchants that only accept digital currency for purchases will not need a license. Any licensed company will have to maintain a certain amount of capital, which will be assessed using an assortment of factors. State officials say that feedback is still welcome and that the bill is a work in progress. The goal in the end, however, is that the new regulations would protect consumers who use digital currency by establishing rules and guidelines.

In California, Assemblyman Matt Dababneh, who is chairman of the Banking and Finance Committee, drafted AB-1326 in order to regulate digital currency. This law would require licensing for companies handling digital currency along with similar capital maintenance requirements. Also, included in the bill is the allowance of regular inspections to ensure businesses are being conducted lawfully, and proper accounting mechanisms for the digital currency. The businesses not in compliance will be subject to civil penalties. The bill will not likely affect companies that are already licensed to do business in California, which is better for California companies.

How can these regulations hurt startups?

In general, there is an increase in cost when companies using Bitcoin need licenses. This has caused concern of an overlap between federal and state regulations of digital currency that may lead to the failure of startups. There is also a concern that too much regulation and risk will dissuade new ventures and hurt growth of companies already established in the digital currency industry. The companies that are already established have a method of doing business, but the new regulations may dictate more stringent ways for businesses. If the New York bill is passed, companies will only have 45 days to secure a license, which if delayed can cause business interruptions. However, some see this concern as premature since it is unlikely to be large-scale and immediate implementation of new regulations in all 50 states.

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