Over the last 10 years, Bitcoin and other cryptocurrencies have become widely popular and crypto regulations in the US have slowly surfaced. From New York’s Bitlicense to upcoming legislation in Illinois, rules governing digital currencies are now moving rapidly

If your head is spinning from the number of state and federal rules surrounding crypto in the United States, don’t worry. We’ve got you covered. Here’s what you need to know. 

The United States’ relationship with crypto

The United States is currently undergoing a huge cryptocurrency legislation revolution and 31 out of 50 states have pending legislation around crypto and blockchain. 

According to the National Conference of State Legislature (NCSL), some prominent states making legislation or action around virtual currencies include Arizona, which is creating a blockchain and cryptocurrency study committee. Meanwhile, Illinois is trying to define what exactly is considered a cryptocurrency. On the east coast, New York still requires crypto companies to have a BitLicense (we’ll go over this in a bit). 

While some states are figuring out how to manage the growing demand for crypto, on a federal level, the Security and Exchange Commission (SEC) is also trying to determine if and how they should regulate crypto. 

Federal Regulation Plans

Crypto is currently a two trillion dollar market and SEC Chair Gary Gensler is aware of this. Gensler stated earlier in 2021 that “Right now, these exchanges do not have a regulatory framework at the SEC or at our sister agency, the Commodity Futures Trading Commission.” He also mentioned that “There’s not a market regulator around these crypto exchanges; thus, there’s really no protection around fraud or manipulation.” 

Gensler has suggested in the past that the US congress take a bigger role in creating the regulatory framework surrounding crypto and crypto exchanges.

While the US’ crypto regulations are currently in limbo, it seems to be leaning towards stricter regulations more so than a laissez-faire approach, which just means not having the government interfere in the free market.

New York’s Tough Regulations

New York, unlike other states, made strict regulations for crypto organizations in 2015. This was when New York started requiring companies that were engaged in virtual currency business activity to have a BitLicense.  But what exactly is a BitLicense? 

In a nutshell, a BitLicense is the license to operate as a crypto company in New York. According to the Department of Financial Services (DFS), companies that execute the following actions require one:

  • Receiving Virtual Currency for transmission or transmitting Virtual Currency
  • 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

In order to comply with BitLicense rules, companies are required to adhere to Know Your Customer (KYC)—a way to verify your customers’ identity to prevent fraud—and Anti-money Laundering (AML) rules.

Additionally, only certain types of cryptocurrencies are protected by New York’s regulation and only these “pre-approved” coins can be offered by said companies in New York. 

Due to these tight regulations and the high cost to get a BitLicense, many crypto companies and start-ups left New York in the early years of the BitLicense mandate. This point in crypto history is known as the Great Bitcoin Exodus

What is New York’s current relationship with crypto? 

New York still requires companies to obtain a BitLicense in order to operate crypto-specific start-ups. In the last couple of years, the DFS created a new division that is focusing on reviewing New York’s crypto regulations. Their current focus is to discuss the possibility of certain pre-approved companies to self-certify cryptocurrencies without the heavy hand of the New York state government. 

Keep in mind that New York most likely jumped on crypto regulations early, as New York City and Wall Street are considered to be the U.S.’ financial center.

Given that the United States as a whole is planning to regulate crypto, trading, and the companies behind it, it only makes sense that its financial epicenter did it first. New York is a guide for what the future of crypto regulation looks like not just in the US, but possibly for the rest of the world as well. 

While we’re unsure what the next steps will look like, only time will tell.