In June, New York’s top financial regulator released a first-of-its-kind framework for regulating digital currencies, mandating consumer safeguards and anti-money-laundering controls of bitcoin-related companies. But those rules, codified in the so-called BitLicense, apparently have proved too onerous for roughly 20 firms, which have chosen to cease doing business in the Empire State in the three months since the regulations were enacted.
That new total, tabulated by bitcoin trade publication CoinDesk, represents just a fraction of the overall digital currency business landscape. Digital Currency Group, an industry organization, counts more than 50 businesses in its network.
But the growing contingent of companies that would rather forgo New York profits than comply with stringent financial regulations highlights the tensions between a burgeoning digital currency community and established banking-sector consumer standards, Meltem Demirors, community director at Digital Currency Group, said.
“These tensions, at the core, stem from divergent visions of what bitcoin is and should be,” she said.
On one side are entrepreneurial firms eager to earn legitimacy by tapping into the growing interest in bitcoin technologies on Wall Street. These include bitcoin transaction companies like itBit and Circle, which were among the first to secure the BitLicense from New York’s Department of Financial Services.
The opposing philosophy comes from libertarian-minded outfits that prefer bitcoin’s revolutionary promise to profit potential. These firms, Demirors said, are “more focused on the socially and economically disruptive elements of bitcoin,” particularly breaking free of the national currency system.
Among those rejecting the BitLicense — and forgoing New York business — is ShapeShift, a digital currency exchange founded by bitcoin evangelist Erik Voorhees. In June, he told CNBC: “We either would have to do something we’re not comfortable with or leave New York. It’s a moral and ethical stand we’re going to take.”
Demirors estimates that about a third of the affected companies under Digital Currency Group’s umbrella have stepped out of the New York market. A number of the group’s members do not fall under the rules’ purview.
Even those willing to submit to the licensing requirements, which mandate that companies vet suspicious transactions and enact cybersecurity measures, have their qualms with the BitLicense. Circle, for instance, called the final rules “not perfect.” Digital Currency Group founder Barry Silbert has called the BitLicense “bad for bitcoin,” despite its potential to create “real competitive advantage for those with a license.”
But the opposition to the standards comes as mainstream financial institutions like Goldman Sachs and Nasdaq have poured more resources and energy into the technologies that undergird bitcoin. Acceptance from industry incumbents has helped fuel a recent rally in bitcoin’s price, which has shot up more than 20 percent in the past month.
Wall Street’s embrace of digital currency technologies also holds the promise of purging from bitcoin’s public image memories of its turbulent early days, marked by black-market sites like Silk Road and and a tremendous speculative bubble.
As more states move to treat bitcoin-related businesses as they would ordinary financial services companies, the tensions in the bitcoin community are likely to become more apparent — and the promise of digital currencies more clear.