Everything You Need to Know About US Bitcoin Regulations

May 30, 2019

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Few financial industry shifts have gained as much media attention and traction over the last decade than that of virtual currency. The most prominent form of cryptocurrency, Bitcoin, made waves in the news cycle in 2017 for its shocking increase in value and subsequent fall.

Despite the volatility of the virtual currency, it remains an intriguing topic of discussion – and investment – for millions around the world. However, with such hype and growing popularity comes a more scrutinized review from federal and state regulators alike.

Currently, the United States is lacking in its Bitcoin regulatory framework, but that may soon be changing.

Here’s where US Bitcoin regulations and laws stand today, and where they are likely headed in the future.

A Definition for Virtual Currency

Bitcoin, along with other varieties of virtual currencies, has been a topic of discussion since their debut several years ago, but it has not been until recently that the federal government has taken steps toward defining them.

Part of this change has to do with the fact that more consumers are viewing Bitcoin as viable currency, not just an investment opportunity. However, the government has provided little guidance on Bitcoin except to state that it is not a recognized currency.

Instead, it is defined as a commodity which can be traded in the open market. This definition has a significant impact on businesses that exchange or transact with Bitcoin and other virtual currencies.

Companies that operate in the Bitcoin market may be required to register with the Financial Crimes Enforcement Network, known as FinCEN, as a money service business. Registration is a relatively straightforward process, completed online, but other requirements follow.

Some Bitcoin businesses may also need to develop and implement an anti-money laundering program to help thwart illegal financial transactions among customers. Although these requirements for Bitcoin companies under current federal law seem minimal, individual states are taking charge of regulation on their own terms.

States Take the Lead

All but two states require certain businesses that operate as money transmitters to hold a valid license. A money transmitter is any organization that facilitates the transfer or exchange of money, or currency, for customers.

A money transmitter license allows businesses to operate legally in the state(s) where they interact with customers, and Bitcoin companies may fall under the definition of a money transmitter in certain instances. Not all states have clearly defined virtual currency in current laws, but for those that have, Bitcoin businesses face steep challenges in complying with regulations.

Obtaining a money transmitter license as a virtual currency business comes with many requirements, including the submission of a formal application that details the specifics of the business operations. The application also requires the business to provide data on the business owners and shareholders, as well as financial documentation for both company and personal assets and liabilities.

Bitcoin money transmitters may also be required to provide proof of net worth, meeting minimums set by the state. The net worth requirement is often the most challenging mandate to meet, leaving many virtual currency businesses unable to obtain a license.

States have also put bonding requirements on Bitcoin money transmitters. A money transmitter bond acts as a type of security for the public and the state, ensuring that the company will comply with all relevant regulations and laws while conducting business.

Bitcoin businesses may also be subjected to criminal background checks as well as an inspection by state regulators to ensure compliance with the law. It is crucial for businesses operating in states with specific money transmitter licensing guidelines to follow through with the requirements for obtaining a valid license, before opening their doors.

A Look Ahead for Bitcoin Regulation

In the years to come, many speculate that the federal government will take a stronger stance on virtual currencies like Bitcoin, creating further sweeping regulation to help monitor the market and protect consumers in the process. However, for now, Bitcoin laws remain mostly on the state level, leaving the burden of compliance on virtual currency businesses, depending on where they are located.

Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.

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