What You Need to Know About US Bitcoin Regulations

| Publish date: 07/21/2019 (Last updated: December 10, 2019 08:53 AM)

The world of cryptocurrency has been a growing part of the news cycle for the last few years, given the notable rise and fall of certain currency values. Bitcoin, the most common virtual currency discussed and used today, saw sharp increases over 2017 but subsequently declined in price shortly after. The volatility of virtual currencies combined with the increasing use for a variety of purposes has created ample buzz around regulation of cryptocurrencies like Bitcoin. Here’s where the United States currently stands when it comes to the virtual currency, as well as how states view and regulate businesses in the industry.

Where Virtual Currency Stands in the US

Bitcoin and other virtual currencies have been widely discussed throughout the world in terms of regulation needed from both an investment and trading perspective as well as a money transmitting viewpoint. However, the federal government in the US has recently provided guidance on Bitcoin regulation, stating clearly that it does not recognize the virtual currency as a legal tender but instead as a commodity which can be traded. Because of this categorization, businesses that help transact Bitcoin and other virtual currencies in the United States have certain requirements they must meet in order to stay compliant with the law.

The Financial Crimes Enforcement Network, or FinCEN, is one regulator that helps oversee the transaction of Bitcoin and virtual currencies among businesses. If a business is deemed a money transmitter in the virtual currency space, meaning it provides certain services like currency exchange or processing money transfers across fiat and virtual currencies, registration as a money service business is required. The registration process through FinCEN is relatively simple and completed online, but there may be other requirements Bitcoin businesses have to meet to operate legally.

In addition to registration as a money service business, virtual currency businesses may also be required to develop and implement an anti-money laundering policy. This is meant to help businesses comply with the Bank Secrecy Act by capturing and monitoring customer activity as it relates to virtual currency. Bitcoin businesses in the US face steeper challenges depending on where they are located, based on the state criteria detailed below.

State Requirements for Bitcoin Businesses

The complexities of the virtual currency space for businesses often circle around state regulations. All but two states have specific guidelines for money transmitters, but not all have clearly defined if virtual currencies are part of the mix. For states that do define virtual currency under current laws, a Bitcoin money transmitter license is likely to be required to conduct business. If a company is helping transact, exchange, or transfer Bitcoin as a money transmitter, the following may be required to obtain a valid license:

  • A detailed application spelling out what the business does and who it serves
  • Information on each of the business owners and shareholders
  • Detailed business and personal financial documents, including assets and liabilities
  • A background check of the business owner
  • Proof of minimum net worth requirements and a money transmitter bond

Upon receipt of this information, the state’s licensing department may also perform an inspection of the business. For those operating in the virtual currency space, it is crucial to understand where a state stands in terms of virtual currency and money transmitter licensing requirements before beginning operations.

Regulatory Changes Ahead

It is not yet clear where the virtual currency regulatory framework is headed, but many anticipate more regulation coming into play over the next several years. As more consumers become comfortable or intrigued by Bitcoin and other cryptocurrencies, regulators on both state and federal levels will need to review and possibly revise their policies and laws to ensure some level of consumer protection is provided. Until then, businesses operating in the virtual currency world need to take care to recognize what requirements they may need to meet in order to run a successful, legal business.

Editorial note:

This article was contributed by Eric Weisbrot.

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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