At itBit, we have a special appreciation for regulation. We believe that it’s in the best interest of Bitcoin and the related ecosystem’s long-term adoption for a sustainable regulatory framework to be established. There isn’t another Bitcoin-related company that is as obsessive about compliance.
So when the New York Department of Financial Services published the BitLicense guidelines, we viewed this as an important step toward fully regulated and sanctioned operations in New York, the United States and potentially globally. We believe clear guidelines are an absolute necessity to encourage consumer confidence and adoption while creating a transparent framework for the broader financial community.
The proposed guidelines, as Commissioner Lawsky mentioned last week, are likely the most restrictive version of the potential final guidelines. However, we think it’s a very promising start, one that shows a willingness to engage and examine new and complex issues. But as is always true with government regulation, there is a fine balance to be struck between consumer protection and support of a new economy still early in its life cycle.
We took the full comment period to carefully examine the proposal and design our response. Below, we summarize what we think are the most important sticking points:
We suggest exemption from BitLicense regulation for the following situations:
Companies that are conducting a volume of transactions below a certain threshold: It’s too much of a barrier to require all startups and small businesses to meet many of the very stringent requirements, and would stifle innovation.
Non-financial uses of the blockchain as a public ledger: There are many ways that the blockchain can be used as an information authentication system, such as for various contracts or ownership or rights transfers; in these cases, transmission of value is not the primary purpose, and therefore these use cases should not come under BitLicense regulation.
Exchange customers (businesses) trading with a regulated NY exchange: These transactions would already be regulated by the exchange, and therefore the non-NY businesses shouldn’t have to also go through full regulatory approval. This will help encourage economic activity in New York.
Here are a few ways we suggest changing policy:
Instead of pre-approval for new products, the DFS should just require notification: Pre-approval could result in undefined delays and seems like an unnecessary high barrier for what could be minor enhancements. A notification should suffice to make the DFS aware of any new products or services.
Remove investment limitations on retained earnings and profits: Since these funds are separate from the reserves required for serving customers, they should not be under strict regulation and firms should be able to invest according to their own discretion.
Lower requirements for record-keeping: As they stand, the record-keeping exceed those required by the analogous NYTMA and federal BSA regulations. They should be brought in line to match.
Co-Founder and CEO of itBit