Is Cryptocurrency Money? Depends on Your State

By Justin Wales and Arnaldo Rego

Is cryptocurrency money? In America, the question is largely decided by the regulators charged with overseeing their state’s money transmitter rules.

There was a time when it made a lot of sense for states to regulate money transmission, or the business of transferring funds, currency, or other substitutes of money. In a pre-digital economy, almost all money transmitter businesses had to be physically located in the state where they offered payment or financial services for its residents, such as facilitating the payment of electric bills or exchanging currencies before a trip.

But in the crypto era, state-by-state money transmitter rules just make things more complicated. There is no clarity about whether a company issuing a token, operating a wallet or facilitating crypto to crypto or crypto to fiat transactions needs a license in every state in which it could theoretically operate. This type of uncertainty, and the fear of unknowingly falling on the wrong side of state regulators, stifles innovation.

Today money transmitter businesses often have to apply for separate licenses within the states they operate, in addition to registering as a “Money Service Business” with the federal government’s Financial Crimes Enforcement Network (FinCEN).

This has made the cost of offering money transmission services across the country incredibly expensive and time-consuming. Though the cost and difficulty of obtaining a license varies by state, as of August 2018 every state except Montana requires at least some money service businesses to obtain a money transmitter license to lawfully operate.

This burden is impractical for most businesses that wish to offer nationwide services at launch. There are proposals by some, including the Conference of State Bank Supervisors, to implement license reciprocity among states. The Office of the Comptroller of the Currency, a government bureau that regulates national banks in the US, also recently decided to accept national bank charter applications from fintech companies. However, these are not immediate solutions.

The digital age has also complicated the definition of “money,” “transmission,” and “custody.” There is little consistency across different state regulators, and it’s not always clear how decentralized payment networks or the issuances of digital assets implicate existing regulations. Some states, for better (Wyoming) or worse (New York), have explicitly amended legislation to address digital assets, but for every clear piece of legislative guidance, there are many jurisdictions that leave entrepreneurs -- and in some cases, digital currency users -- in the dark.

Justin Wales and Arnaldo Rego are lawyers at Carlton Fields. 

The below map contains a summary of how each state (including Washington D.C. and Puerto Rico) applies its Money Transmission Laws (MTLs) or equivalent to the sale, transmission or transfer of digital assets, including cryptocurrencies. In the map below, we have characterized each state’s MTL and its applicability to the sale, transmission or transfer of cryptocurrencies as being:

  • Applicable only to intermediaries that hold fiat currency 

  • Specific applicable virtual currency regulations

  • Likely not applicable to cryptocurrencies

  • Not applicable to cryptocurrencies

  • Applicable to cryptocurrencies (requires a license)

  • Unclear 

  • No regulation



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