In 2015, the New York State Department of Financial Services (NYDFS) created a regulatory standard known as a BitLicense. Cryptocurrency businesses and traders need to have this state-issued license in order to operate within New York. Two of the biggest factors creating reluctance to acquire the BitLicense are the associated costs and privacy. Not only is the application to acquire this license thirty pages long, it costs $5,000 just to apply. Further, the process of gathering all of the information for the application can amount to $100,000.
A person (whether an individual or a company) that engages in Virtual Currency Business Activity requires a BitLicense. Virtual Currency Business Activity can fall into one of five types of activities involving New York or New Yorkers: (1) receiving Virtual Currency for transmission or transmitting Virtual Currency; (2) storing, holding, or maintaining custody or control of Virtual Currency on behalf of others; (3) buying and selling Virtual Currency as a customer business; (4) performing exchange services as a customer business; or (5) controlling, administering, or issuing a Virtual Currency.
Many people within the Cryptocurrency industry have criticized New York’s BitLicense as acting as a roadblock to the industry’s development. Thus, many people are wondering why the financial capital of the world is so reluctant to let crypto into its playground. The strict regulatory framework in New York can only be attributed to a lack of trust in cryptocurrency as a viable substitute for fiat. It seems that almost every week now there is another story in the news about some crypto exchange or business being hacked or turning out to be completely fraudulent. For example, the recent collapse of the popular cryptocurrency exchange FTX and the fraudulent activity of its CEO Sam-Bankman Fried has caused many to doubt the industry. Perhaps New York’s lack of trust is warranted. However, many will argue that it is still too harsh.
Cryptocurrency is still a new technology and will continue to grow and develop. Like every new technology, there will be growing pains. New York’s crippling BitLicense, however, does not give cryptocurrency the opportunity for growth. The crypto industry is not going anywhere anytime soon and it will continue to spread across the world whether New York chooses to be involved or not. If New York wishes to be a part of that growth, then its first order of business should be rethinking its BitLicense.
