On January 30, 2019, a Florida appellate court reversed the trial court’s dismissal of State v. Espinoza, instead holding that a Bitcoin business was both a money transmitter and a payment instrument seller, subject to Florida’s statutes governing money services businesses. The decision contrasts with recent guidance in Texas and Pennsylvania regarding cryptocurrencies, where virtual currencies in those states were not deemed money under applicable state statutes and businesses that conduct transactions exchanging virtual and sovereign currencies do not generally require a currency exchange license.
Not only do operators of virtual currency businesses face a growing body of overlapping federal regulations, but they must also contend with a patchwork of state laws as well. Compliance with state money transmitter laws, which typically provide for licensure and supervision of various non-bank financial services companies that handle cash on behalf of consumers, has become a hot-button issue for members of the crypto community. A few states, such as New York with its BitLicense regime, have developed very specific regulations for cryptocurrency businesses. Other states are silent on the issue and have not issued any specific regulations or interpretive guidance, leaving the industry to speculate as to the proper interpretation of the law in those states. Texas falls into a third category of states that have issued interpretive guidance (but not formal regulations) to apply their existing money transmitter statutes to operators of virtual currencies. Recent guidance from the Texas Department of Banking provides a thoughtful discussion of the virtual currency industry and interprets the Texas Money Services Act (the “Act”) for operators of virtual currency businesses doing business in the state.
The year 2018 was a busy one for the SEC in the digital asset space, with the agency cementing its role as the primary de facto regulator of crypto finance in the United States. The SEC’s enforcement division was operating at full speed, bringing a series of enforcement cases in the crypto space with an emphasis on fraud and scams involving digital assets. Notably, the SEC brought first of its kind cases involving digital securities against an unregistered broker-dealer, an unregistered investment company and an unregistered token exchange. The SEC also took action against an airdrop of securities, while at the same time providing general guidance on when the federal securities laws apply in the first place.
Congressmen Darren Soto (D-FL) and Ted Budd (R-NC) recently introduced two bipartisan bills to address virtual currency price manipulation and maintain the United States’ leadership in the cryptocurrency industry. In a joint statement citing the New York Attorney General’s recent report on crypto exchanges and other recent media reports, the members announced that:
“Virtual currencies and the underlying blockchain technology has a profound potential to be a driver of economic growth. That’s why we must ensure that the United States is at the forefront of protecting consumers and the financial well-being of virtual currency investors, while also promoting an environment of innovation to maximize the potential of these technological advances. This bill [sic] will provide data on how Congress can best mitigate these risks while propelling development that benefits our economy.” Continue Reading Congress Considers Bipartisan Bills to Prevent Virtual Currency Manipulation
Ohio is the first state in the United States to accept tax payments in cryptocurrency. Starting today, December 3, 2018, companies operating in Ohio can elect to pay certain Ohio state taxes in Bitcoin. Many Ohio state taxes are eligible for payment in cryptocurrency, including (among others) sales tax, withholding tax, pass-thru entity tax, and public utilities tax. As long as an entity operates in the state of Ohio and pays Ohio state taxes, the entity is eligible to pay such taxes in Bitcoin.
The acting general counsel of the Federal Election Commission (“FEC”) recently published for public comment a draft advisory opinion under the Federal Election Campaign Act and related FEC regulations regarding mining cryptocurrencies for the benefit of political committees. According to draft Advisory Opinion 2018-13, a service provider has proposed to provide services to political committees to enable individuals to use the processing power of internet-enabled devices to mine cryptocurrencies, with the political committees receiving the mined cryptocurrency. A “political committee” is broadly defined under FEC regulations to include a wide variety of groups that have paid money or provided anything else of value to influence a federal election. Continue Reading Mining Cryptocurrency Under Federal Election Law
As we have previously blogged, state and provincial securities regulators across the U.S. and Canada have been actively policing the marketplace for ICOs and security token offerings, supplementing efforts at the federal level in the United States undertaken by the SEC. Texas and Massachusetts have been particularly active on this front, and New York recently issued a blistering report on the status of crypto exchanges. Colorado and North Dakota are among the latest states to announce enforcement actions against crypto businesses. Continue Reading Colorado and North Dakota Announce ICO Enforcement Actions
On November 8, 2018, the SEC announced settled charges against an unlicensed digital token exchange (the “Platform”). It represents the SEC’s first enforcement action based on findings that such a platform operated as an unregistered national securities exchange. This action follows first-of-their kind enforcement actions that the SEC brought in September against an unregistered broker-dealer and an unregistered investment company that each transacted in digital securities. Continue Reading SEC Brings First Enforcement Action Against Unregistered Token Exchange
On November 1, 2018, the New York Department of Financial Services (“DFS”) announced its approval of the first virtual currency license for an operator of Bitcoin teller machines (“BTM”). According to DFS, to date it has now approved 12 charters or licenses for companies in the virtual currency space. Continue Reading New York DFS Licenses First Bitcoin Teller Machine Operator
The SEC’s Division of Enforcement (Division) released its latest Annual Report (Report) on November 2, 2018. The fiscal year that ended September 30, 2018, was a busy one for the SEC in the crypto and distributed ledger technology space, and the Report includes a discussion of the SEC’s initiatives on this front.