The news that New York State Department of Financial Services (DFS) has approved the BitLicense application by Genesis Global Trading has been cautiously welcomed. But, will it be enough to stem the tide of crypto-related businesses avoiding New York as a base because of the DFS’s tough licensing procedure and regulations?
BitLicense stifles innovation
In the past, several financial industry leaders have criticised the DFS regulations that are enforced through the BitLicense. Stakeholders claimed that the regulatory requirements set by the DFS are “too burdensome for small companies to bear, and that it’s a one-size-fits-all regulation and ultimately that it stifles innovation.”
Brian Forde, Editor of MIT Media Lab Digital Currency Initiative, predicted prior to the launch of the BitLicense back in 2015, that only the largest firms with ample resources would be able to comply with the stringent regulations. He said: “If changes to the proposed BitLicense are not made, only a handful of the most well-funded companies will survive — not because they are providing the best product or service, but because they have access to the most money.”
What is BitLicense?
A BitLicense is issued by the DFS to companies engaged in the following activities:
Virtual currency transmission
Storing, holding, or maintaining custody or control of virtual currency on behalf of others
Buying and selling virtual currency as a customer business
Performing exchange services as a customer business
Controlling, administering, or issuing a virtual currency.
Companies must comply with regulations that include:
Background checks performed on all employees and fingerprints submitted to the FBI.
Companies must invest in New York bonds.
Records of transactions must be kept for 10 years.
Quarterly financial statements must be submitted within 45 days of the close of a quarter.
Company earnings can only be invested in US dollar markets, including US money market funds, and federal and state bonds.
To give you an idea of just how difficult it has been for startups to meet these regulations, only five New York companies have been awarded a BitLicense to since 2015. And, as Cointeegraph points out, if the regulations aren’t tough enough, there is a 31-page application form to fill out.
BitLicense drives firms out of New York
In short, the BitLicense has driven a significant number of crypto-related firms out of New York. Some call this the Bit-exodus. Jesse Powell, founder and CEO of Kraken, a Bitcoin exchange, explained why his company had moved out: “There were some things about it that were just untenable … having to disclose all the information about your global client base to the state of New York — we just couldn’t live with.”
Considering New York is a leading financial centre and the fact that the state as a whole is positive in its approach to crypto and blockchain, the BitLicense seems to go against the grain.
Although the approval of the Genesis BitLicense application is being seen as a step in the right direction, the general consensus is that the BitLicense has almost completely destroyed New York’s relationship with crypto and has been bad for innovation and business as a whole.