Looking back on virtual currencies and how regulation is catching up!
Digital currencies are fast becoming attractive to investors owing to their high degree of volatility, relative anonymity and tax benefits. But behind the scenes, various regulatory authorities have been burning the candle at both ends to find ways of protecting
everyday traders from unscrupulous traders, implementing means of tracking payments for tax purposes and providing a degree of oversight in the process. Leading the charge in terms of regulation is the Department of Financial Services (DFS) in New York state.
When the original regulatory proposal was released, it tended towards over-inclusion and amendments were needed to clarify how the regulation would affect businesses using digital currencies. In summary, these are the most important amendments to the BitLicense
- Previously, digital currency assets were not included in the minimum capitalization requirements. There is more latitude on the nature of assets that can be held to cover the digital currency requirements. Now a feasible ratio has been put into place making
it easier for companies to comply. The premise of the old requirements was faulty since exchange companies simply could not match dollar for dollar every Bitcoin that was held in users’ accounts.
- Bitcoin 2.0 applications, i.e. those companies involved in virtual currency exchanges for non-financial reasons are also excluded from licensing.
- Virtual currency businesses can now apply for conditional licensing for a period of two years. This is being offered for companies that fail to meet the requirements of BitLicense stipulations.
- Businesses controlling, administering, exchanging, holding, issuing or storing digital currency must have a license. The key terms that are not included here are those companies ‘securing digital currencies’, ‘disseminating software’, or ‘developing software’
of digital currencies – those companies are excluded from licensure requirements.
- There is no longer a need to identify both parties in digital currency transactions. Now, the only requirement is that non-customer identities be submitted - as best as possible. This obtuse requirement makes compliance unclear, but the Department of Financial
Services is open to comment.
What Does this Mean to Cryptocurrency Traders and Providers?
Everything that takes place in New York affects Bitcoin and other cryptocurrency regulation around the world. Just recently Quebec province in Canada implemented its own digital currency regulation too. Now licenses need to be applied for from the AMF (Autorite’
des Marches Financiers) and this pertains to all businesses that trade digital currencies such as Bitcoin. However, it should be noted that the AMF is not actually involved in regulating businesses. This brings us to the central issue of Bitcoin and related
digital currency trading: It is inherently volatile, unregulated and there are no real safeguards to protect against total loss of your principal. There are no insurance mechanisms in place to guarantee any Bitcoin holdings in digital Wallets, online accounts
or your hard drive. In Canada alone, the aforementioned caveat does not appear to worry Bitcoin traders – there are in excess of 60 ATMs catering to digital currency traders and a third of them are in Quebec. We have clearly entered a new age of currency trading
and Bitcoin is leading the charge!