Put into action by the New York Department of Financial Services on August 8, 2015, the BitLicense is a license that must be obtained in order to conduct business involving virtual currencies in the state of New York. While the expressed purpose of the BitLicense is to protect investors, prevent money laundering, and deter cybercrime, the regulation has faced a great deal of opposition – even from New York politicians.
This is The Ultimate Guide for New York BitLicense. In it, we’ll cover everything from the basics of what the BitLicense regulates and who needs it to the more nuanced topics, especially the controversy surrounding the BitLicense. So whether you are currently considering getting a BitLicense or simply wish to know more about it, you’re in the right place.
BitLicense is Exclusive to New York!
Before we go any further, one thing must be made absolutely clear: BitLicense is something that applies to business involving virtual currencies in the state of New York exclusively. As such, the BitLicense primarily affects businesses operating out of New York and New York residents interested in trading and dealing with cryptocurrency. The BitLicense also affects cryptocurrency businesses that service customers in New York.
Entities outside of New York that do not do business in New York are not affected by BitLicense.
Similarly, individuals not residing within New York and not conducting any virtual currency business in New York also remain unaffected by BitLicense.
We’ll only be able to discuss the finer points of the BitLicense if we establish a firm foundation of knowledge about it first. In order to do that, this section will present a full and clear timeline of the BitLicense.
As mentioned from the start of this guide, the BitLicense was implemented on August 8, 2015. It was first discussed much earlier, though. We’ll start from the very first rumblings about the legislature and work our way to the present.
- January, 2014: Public hearings held by NYDFS (New York Department of Financial Services) included early talks of virtual currency regulation.
- July 17, 2014: NYDFS released the BitLicense regulatory framework for a 45 day period of public reception and feedback.
- July 23, 2014: Detailed regulations laying out the BitLicense were published in the New York Register.
- February 25, 2015: Feedback taken into consideration, a revised version of the BitLicense regulations was published, again open to feedback.
- August 8, 2015: BitLicense officially came into effect.
- September 22, 2015: Circle, a Bitcoin payment business, obtained the first ever BitLicense.
- 2016 – Present: Various businesses, including Coinbase, Xapo, and NYDIG applied for and were granted BitLicenses.
No ultimate BitLicense guide would be complete without the actual specifics of BitLicense. For that reason, here is the verbatim text from the New York Department of Financial Services website that pertains to what and who is affected by BitLicense:
As stated in 23 NYCRR 200.3(a), “No Person shall, without a license obtained from the superintendent …, engage in any Virtual Currency Business Activity.”
23 NYCRR 200.2(q) provides, in part: “Virtual Currency Business Activity means the conduct of any one of the following types of activities involving New York or a New York Resident:
- receiving Virtual Currency for Transmission or Transmitting Virtual Currency, except where the transaction is undertaken for non-financial purposes and does not involve the transfer of more than a nominal amount of 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; or controlling, administering or issuing a Virtual Currency.”
How to Get a New York BitLicense
Now that we’ve covered what is contained in the purview of the BitLicense and who needs one, it’s time to delve into the details of actually obtaining a BitLicense. In the interest of making the process of getting a BitLicense as simple and clear as possible, we’ll present it in a step-by-step format.
- NMLS Account. The first step towards obtaining a BitLicense requires completing a Company Account Request Form on the NMLS website. NMLS is short for Nationwide Multistate Licensing System and Registry.
- “Within three days” of completing Step 1, you will receive login information that will provide you with full access to NMLS, including the privilege of applying for a BitLicense.
- The NMLS portal will allow you to submit an application for a BitLicense, which will require providing information on this checklist. For convenience, here are some of the most important items on the checklist:
- NY-DFS Application Fee of $5,000
- Credit Report for Control Persons: $15 per control person
- Submission of Company Form (MU1)
- Financial Statements
- Primary Contact Employees
- Approvals and Designations
- Bank Account Information
- Disclosure Questions
- Business Plan
- Certificate of Authority/Good Standing Certificate
- Company Staffing and Internal Policies
- Ownership Itemization
- Flow of Funds Structure
- Management Chart
- Organizational Chart
- Surety Bond
- Photo Identification
- Personal Finance Statement
- Verification of Experience
- Be sure to complete all forms and provide everything to the extent of your ability. The NYDFS website explicitly states that the failure to provide all required information is “the most common reason for delays in the application process.”
- After submission, you’ll be provided an NMLS identification number with which to track your application’s processing.
As you can see from the application process and all of its requirements, getting a BitLicense for activity in the state of New York is neither simple nor easy. Perhaps surprisingly, though, the real costs of applying for a BitLicense may be higher than they first appear.
The official process for applying for a BitLicense is quite clear in two costs, specifically. The application fee alone is $5,000. Additionally, there is a $15 per person cost for credit reports. In reality, however, several businesses that have gone through the process of applying and obtaining BitLicenses have reported real costs far beyond these two considerations.
BitStamp, which brands itself as “the original crypto exchange,” was granted a BitLicense on April 9, 2019. George Frost, executive VP at BitStamp, was quite vocal regarding the experience of obtaining said BitLicense. According to CoinDesk, “Frost estimated the application cost Bitstamp roughly $100,000, including time allocation, legal and compliance fees.”
The same CoinDesk article states that another business under the name Coinsetter spent around $50,000 in costs related to its BitLicense.
These figures are not necessarily meant to discourage anyone who may be considering getting a BitLicense. Instead, the main purpose is to set the stage for the BitLicense controversy.
New York BitLicense Controversy
As is the case with many regulations, especially in the cryptocurrency space, BitLicense has no shortage of both proponents and detractors. The two main arguments are:
For BitLicense: BitLicense legitimizes businesses, giving their customers confidence in operations.
Against BitLicense: BitLicense is far too cumbersome and costly, preventing growth for businesses in the state of New York.
Perhaps the most significant and noteworthy detractor of BitLicense is New York City’s mayor, Eric Adams. Earlier this year, Adams stated, “New York State is the only state to require a license for crypto companies. That’s a high barrier, and it just makes us less competitive. We have to continue to be competitive.”
The important idea that Adams spoke to is that New York’s BitLicense may actually harm New York’s business sector – both in the short term and the long term. While it’s true that the regulatory hurdles of BitLicense may deter less legitimate companies from operating in New York, it’s also true that cryptocurrency companies may simply avoid New York.
The entire question of the BitLicense controversy is this: Does the BitLicense offer enough benefits in terms of safety and consumer protection to justify its encumbrance? There’s no clear answer yet.
BitLicense Closing Thoughts
Conducting most cryptocurrency-related businesses in the state of New York requires a BitLicense. Fortunately or unfortunately, the New York BitLicense is one of the more stringent barriers to entry that cryptocurrency businesses have ever faced. In the end, there are both short-term, practical considerations regarding BitLicense as well as long-term philosophies. Let’s start with the latter.
Will other states, countries, and/or regions follow in New York’s steps, drafting and adopting regulations similar to BitLicense? And if they do, is this a good thing or a bad thing for the future of cryptocurrency?
The sad truth is that the cryptocurrency space has been rife with scams and illegitimate practices since its inception. In this light, regulations like BitLicense may seem welcome, especially to customers that may benefit from increased protection while not suffering from related encumbrances.
The other side of the coin, however, is that the cryptocurrency industry has often prided itself on its total lack of authority. Will stricter regulations kill innovation, creativity, and growth?
Short-Term, Practical Considerations
The loftier ideas of whether regulations are philosophically “good” or “bad” mean far less when we deal with the day-to-day realities of business and the world. The fact of the matter is that businesses conducting cryptocurrency-related transactions in the state of New York need BitLicenses to do so.
It seems fitting to end with this practical truth: If you are reading this article as someone either considering obtaining a BitLicense or already in the process, consulting a qualified attorney is in your best interest. New York’s BitLicense requires complicated compliance; a skilled and knowledgeable lawyer will ease you through the process.