The cryptocurrency community has long criticized BitLicense as a harmful law that destroyed bitcoin and related businesses in the state of New York. The New York Department of Financial Services (NYDFS) released the document in July 2015 to regulate crypto activity in the state, but its unveiling also meant that many startups moved their operations out of New York.
NYDFS Superintendent Hails BitLicense
Speaking at the Conference of State Bank Supervisors, NYDFS Superintendent, Maria Vullo claimed that the introduction of this regulation “stimulated the cryptocurrency industry in the state.” Naturally, her remarks were not received well by the cryptocurrency industry and subject to intense criticism.
Speaking at the CSBS Spring Meeting, on April 10, 2018, Vullo said, “DFS started looking into virtual currency in 2013, long before it was on the radar for most of the financial services world. At the time, Bitcoin was fluctuating around $100.”
The Superintendent said that it was the Mt. Gox exchange hack in Japan which forced the NYDFS to consider a law for regulating companies involved in managing investor money in the volatile cryptocurrency space.
“These startups (such as Mt Gox) were not prepared to protect customers, and had deficient operations that put customer funds at risk. Another concern was that these then unregulated small businesses were not respecting anti-money laundering laws,” she further added, “DFS recognized early on that standards needed to be set that would help improve operations and safety, and we therefore created a channel for growing in the right way, respecting legal obligations required of all financial services companies and protecting customers by developing a sound infrastructure.”
The NYDFS Superintendent commented that it was due to the BitLicense that investors could be sure that they wouldn’t possibly lose their money due to companies being incompetent.
Vullo added, “By setting standards, we have made it possible for both startups and traditional financial service providers to pursue innovation in this area – as well as in areas of traditional finance where innovation had slowed down.”
What is the BitLicense?
On July 17, 2015, the NYDFS released a 40-page draft proposal for a law to regulate cryptocurrency industry in the state of New York.
Companies involved in the commercial use of digital currency or engaged in related business activities operational in the state need this license to operate in New York. The law applies to all individuals irrespective of residency.
Furthermore, a company licensed under BitLicense must, by function of the license, report its finances on a consolidated and standalone basis to the NYDFS every quarter.
The Damage that BitLicense Did
Startups found it tough to adapt to these new set of regulations and started moving operations outside of New York. The rule had courted criticism as it required companies that stored or operated investor money in digital currency to obtain several licenses that were viewed as a potential hindrance for the industry.
George Frost, Chief Legal Officer, of Bitstamp was quoted by a renowned news-portal, “Applying for the BitLicense is an expensive and difficult process, as many have noted. Some other firms have chosen to abandon the New York market entirely, rather than comply. We do not fault them for doing so.”
Theo Chino, a local bitcoin operator, and entrepreneur, petitioned the New York Supreme Court to reconsider the BitLicense law but his appeal for a review of the Ben Lawsky drafted regulation was turned down on January 5, 2018.