Houman B Shadab is a professor of law at New York Law School. Here, he discusses what itBit’s recent banking law charter means for other digital currency exchanges operating in the US and beyond.
Since their inception, bitcoin exchanges have operated under a fog of legal uncertainty. Just one day after the New York-based exchange itBit announced it had obtained a banking law charter giving it the ability to operate in all 50 states, a California official called that into question.
Almost every state has its own licensing requirements for traditional money transmitters that include payment processors and money transfer firms like Western Union. The safe but costly route for bitcoin exchanges would be to obtain a license in each state that requires it for virtual currency businesses. But it’s unclear which do.
Texas, for example, stated that transmitting digital currencies like bitcoin doesn’t require a license in its state. Other states, like New York and California, are still in the midst of passing virtual currency-specific licensing requirements, making it a question of what bitcoin exchanges should do until those licensing laws are finalized. Prominent bitcoin exchange Coinbase, for example, at least for some time operated in New York and California without a license in either state – and probably didn’t need one.
A trust charter
ItBit was able to