State financial regulators in the US have received several inquiries about licensing bitcoin businesses, but few applications, it has been claimed.
According to a report in Bloomberg BusinessWeek, the commissioner of banks in Massachusetts, David Cotney, claimed his state has only received one application to license a bitcoin business to date, with other states reporting similarly low figures.
This news comes after the Financial Crimes Enforcement Network (FinCEN) made a statement back in March that any company trading digital currencies would be regarded as a ‘money transmitter’.
In turn, it stated that these companies would be subject to the same compliance regulations as companies like Western Union and MoneyGram International.
Does this suggest a lack of enthusiasm for bitcoin-related startups, or are entrepreneurs simply deciding to worry about compliance issues later?
Maybe businesses think they’re too small to appear on the regulatory radar, or maybe they have dismissed US regulation as too complicated to deal with.
The regulatory ‘grey zone’
Back in August, Japanese exchange Mt. Gox grew too large within the USA’s regulatory ‘grey zone’. Consequently, the US government seized $5m from subsidiaries’ accounts.
Next was Liberty Reserve and e-gold, whose founder narrowly avoided a lengthy prison sentence after pleading guilty to running an unlicensed money transmitter business and aiding money laundering.
Bitcoin businesses were playing a dangerous game by neglecting their regulatory obligations, said the Financial Times. Not only were they risking the wrath of government bodies, but they also made banks and other companies wary of dealing with them.
Decentralized bitcoin may not have any physical premises to raid or servers to shut down, but many businesses that use the Bitcoin protocol as a foundation do.
These businesses also need bank accounts to interface with the commercial world as it exists today, which may be closed by the banks themselves or emptied by the authorities.
Cost of compliance
Compliance, however, is expensive. MarketWatch reported Western Union’s claim that it will spend 3.5 to 4.5% of its 2014 revenue simply following regulation.
The report also suggested that entrepreneurs might be unwilling to do bitcoin business in the United States, starting up in other countries instead.
Bloomberg BusinessWeek continued that other options for bitcoin businesses could open up in future, with New York’s superintendent of financial services considering something called a ‘BitLicense’ specifically for digital currency businesses.
Apart from FinCEN’s statements and last month’s Senate hearings, the US government has not made any public comments or rulings about bitcoin’s status.
Doing so could produce a flurry of license applications, or a potential bitcoin exodus.
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