America’s bitcoin and cryptocurrency laws make it hard to do business as a digital exchange. The reason lies in the different ways states regulate, or don’t regulate, what politicians call “virtual currency”.
This compilation of bitcoin and cryptocurrency laws in all 50 states (plus DC and Puerto Rico) will help you understand the fragmented landscape of American crypto regulation.
How States Regulate Cryptocurrency Companies
Some states are further along than others in the process of regulating what they call “virtual currency”. In every case, the bitcoin and cryptocurrency laws focus on protecting consumers and fighting money laundering.
States classify companies that handle virtual currency as “money transmitters” or “money services businesses”. This is the same category applied to Western Union, PayPal and remittance brokers. Money transmitters must adopt know-your-customer procedures and keep detailed records. Most states make money transmitters set aside reserves of cash, called permissible investments, to refund consumers when something goes wrong.
America’s Fragmented Landscape
When you go through each state’s laws, you will find three distinct groups: the crypto pioneers, the people’s defenders and everybody else.
A handful of states have decided to make operating a cryptocurrency business as easy as possible. The politicians in these states believe this approach will drive for economic growth and job creation.
First among these pioneers, Texas defined how virtual currency companies qualify as money transmitters.
More recently, Wyoming has exempted cryptocurrency dealers from its financial regulations — and even exempts crypto sales from property taxes.
Puerto Rico is hoping that a flexible approach to cryptocurrency regulation will create desperately-needed jobs and economic growth.
Other states are more concerned with the risks cryptocurrency firms pose than by the opportunities. For them, protecting consumers and investors comes before the business needs of crypto exchanges. Among the burdens placed on virtual currency firms:
- Provide more detailed documentation.
- Conduct regular security and financial audits.
- Reserve more permissible investments.
In crypto circles, New York is the most notorious of these states. New York’s regulators did not weave virtual currency into existing regulations. Instead, New York’s politicians created an entirely separate set of regulations — the BitLicense — just for crypto companies.
But New York isn’t alone. Washington and Wyoming have also implemented stricter policies than most states. Hawaii, Connecticut and California are trying, or tried and failed, to enact similar regulations.
Uniform Regulation of Virtual-Currency Businesses Act
The Uniform Regulation of Virtual-Currency Businesses Act (URVCBA) is a template that state governments can use to integrate cryptocurrency companies into the regulatory system. Created by the Uniform Law Commission (ULC), the URVCBA is an attempt to reduce state-by-state variation in virtual currency regulation.
The URVCBA process was started by New York’s appointees to the ULC. They based the uniform framework on their own BitLicense regulations. That should give you an idea of how little the crypto industry likes the proposal.
Some states have taken a middle path. They don’t embrace virtual currency and they don’t keep crypto companies on a tight leash. More than forty states simply treat crypto firms as possible money transmitters.
Forward-looking states have added “virtual currency” to their money transmission laws. Regulators in these states provide guidance on how the laws apply to companies that handle virtual currencies.
Other states know that cryptocurrency is trending. Their laws may not mention virtual currency, but regulators publish guidance for crypto companies.
Twenty-five states haven’t updated their laws and don’t publish formal guidance. Companies must contact regulators directly to find out if they must be licensed.
Crypto Regulations State by State
This guide to bitcoin and cryptocurrency laws in the United States is purely informational. It’s meant to help you understand why some crypto services are available in your state while others have walked away. Of course, politicians and regulators could change things at any time.
And if you run a crypto company, don’t make decisions based on this list. Quality legal advice can only come from lawyers who understand each state’s systems.
Alabama – Idaho
Alabama’s Monetary Transmission Act went into effect last year and formally defines virtual currency as an instrument for transmitting monetary value. However, the Alabama Securities Commission has not clarified whether companies that only handle cryptocurrency fall under the new money transmission regulations.
Alaska’s current money transmission law (PDF) does not mention virtual currency. The state’s Division of Banking and Services (DBS) interprets that to mean it does not have the authority to regulate virtual currency transmissions. Before a crypto company can get a money transmitter license, it must request a Limited License Agreement Order. The order documents the company’s acceptance that the DBS only regulates the company’s fiat transactions.
However, Alabama’s cryptocurrency regulations may be about to change. Alaska House Bill 180 is working its way through the state legislature. It updates the regulations with definitions of virtual currencies and classifies the handling of virtual currency, with or without fiat, as a form of regulated money transmission.
However, the DBO had been evaluating cryptocurrencies as early as 2014 when it issued an advisory warning to consumers and investors that the category was not regulated. The following year the DBO issued a statement clarifying that Coinbase was not regulated in California because the DBO “has not decided whether to regulate virtual currency transactions.” That was the last statement from the DBO on virtual currencies
The Virtual Currency Act, Assembly Bill 1123, used the URVCBA framework to define eligibility, application requirements, and reporting requirements for companies handling virtual currencies. The legislation failed to make it out of committee.
An attempt to address this lack of clarity, Colorado House Bill 18-1220, would have described when wallet providers, traders and exchanges fall under the definition of money transmitters as well as clarified when altcoins fall under securities regulations. The bill died in the Colorado Senate.
Public Act 15-53, passed in 2015, added virtual currencies to the criteria for regulation as a money transmitter in Connecticut. The state’s Department of Banking, which licenses money transmitters, has not published specific guidance for virtual currency businesses.
District of Columbia
In 2016, the Hawaii Division of Financial Institutions (DFI) ruled that the state’s Money Transmission Act does encompass cryptocurrency. In and of itself, that judgement didn’t make much of an impact. However, the DFI also made an additional decision that was the death knell to the state’s crypto community:
“A licensee, at all times, shall possess and hold in trust permissible investments having an aggregate market value of not less than the aggregate amount of its outstanding transmission obligations.”
In other words, for every bitcoin a Hawaiian crypto investor held, an exchange would have to put the equivalent amount of dollars into a reserve account.
That financial burden forced Coinbase to abandon Hawaii. “This policy is obviously untenable,” Coinbase declared. “We will require all Hawaii-resident customers to close their accounts… and we will implement controls to prevent Hawaii residents from establishing Coinbase accounts.”
Now, Hawaii is considering a version of the URVCBA. Senate Bill 3082 would eliminate the capital reserve requirements and make it easier for cryptocurrency businesses to set up shop in Hawaii. The bill is still making its way through committees, but could reach the full legislature later this year.
“If you act as a virtual/digital currency exchanger and accept legal tender (e.g., government backed/issued “fiat” currencies) for later delivery to a third party in association with the purchase of a virtual currency, then you must be licensed as a money transmitter.”
Furthermore, in response to inquiries regarding the licensing process (PDF), the state’s Securities Bureau has stated: “Idaho has provided guidance that a license is not required if an entity or individual is selling its own inventory. We have viewed this to apply to miners and to those entities/individuals who own virtual currency and wish to sell their own inventory.”
Illinois – Missouri
The Illinois Department of Financial and Professional Regulation (DFPR) released formal guidance (PDF) on virtual currencies in 2017. The department reviewed the nature of virtual currencies and the specific language of Illinois’ Transmitters of Money Act (TOMA). For the most part, virtual currencies “are not considered money for the purposes of TOMA” and anyone involved in purely cryptocurrency-based exchanges “would not be required to obtain a TOMA license.” The regulations may apply, however, if fiat currencies are involved at some point of the exchange. In that case, the DFPR recommends companies to request a determination.
The guidance document goes into much further detail to help companies understand when Illinois’ money transmitter regulations apply to virtual currencies.
When a company’s business model falls under the TOMA regulations, the DFPR has the flexibility to modify the capital reserve requirements.
“The Department understands dollar-denominated capital reserve requirements impose added burdens on digital currency companies and therefore will consider digital currency reserves a s form of permissible investment.”
In 2014 the Kansas Office of State Bank Commissioner issued a guidance document on virtual currencies (PDF) that states that the Kansas Money Transfer Act (KMTA) does not generally apply to two-party currency exchanges of any kind, virtual or fiat. In addition, “since the KMTA does not apply to transmission of decentralized cryptocurrencies, an entity engaged solely in the transmission of such currency would not be required to obtain a license in the State of Kansas”
Once a third party gets involved and/or fiat currency changes hands, licensing may be required. The guidance document gives examples when this would be the case, including:
“Exchange of cryptocurrency for sovereign currency through a third party exchanger is generally considered money transmission.”
“Exchange of cryptocurrency for sovereign currency through an automated machine may or may not be money transmission.”
If a company’s business model places it under the KMTA regulations, it will have to supply security audits and comply with the KMTA investment requirements of “not less than the aggregate amount of the outstanding payment liability held by the licensee in the United States.”
The Lousiana Sale of Checks and Money Transmitter Act (PDF) hasn’t been updated to specifically address virtual currencies. In 2014, the Louisiana Office of Financial Institutions issued guidance (PDF) for cryptocurrency consumers and investors that described the state’s regulatory approach. Any business exchanging virtual currency “may be subject to licensure as a money transmitter by this Office.”
In early 2018, the Maryland Financial Consumer Protection Commission delivered an interim report (PDF) on financial trends that could require additional regulation. The report simply outlines the state’s existing approach to virtual currency regulation:
“Maryland law does not currently require the licensing or registration of companies dealing with virtual currencies, though it does require the licensing of virtual currency companies whose activities are covered by the Maryland Money Transmission Act, an Act passed well before virtual currencies were even conceived.”
The report recommends that Maryland’s General Assembly update the existing law to reflect the rise of cryptocurrency and make companies dealing in crypto subject to money transmitter regulations.
“With cryptocurrencies valued over $560 billion as of January 19, 2018, it is now too large of a market to continue to leave transmitters of virtual currencies outside of the regulatory protections for the public when dealing with transmitters of traditional fiat currencies.”
The final version of the commission’s report is not due until the end of 2018. That means the earliest Maryland’s General Assembly could act on its recommendations is in 2019.
The Massachusetts regulations for money services businesses do not mention virtual currency. While the Division of Banks has not published any guidelines, it has published responses to individual companies.
In reply to crypto exchange CEX, the Massachusetts Division of Banks said: “Massachusetts does not presently have a domestic money transmission statute.” It explained that the “foreign transmittal agency” regulations are the only relevant regulations. However, since the exchange did not meet the definition of a foreign transmittal agency, CEX did not need a license from the Division of Banks.
The DoB said the same thing to CreditCoin, a company planning to enable credit card purchases of cryptocurrency. As far back as 2014, Coindeavors got a similar response for its bitcoin kiosk business.
Montana – Pennsylvania
Montana does not regulate money transmission, nor does it have cryptocurrency-specific legislation.
Nebraska lawmakers introduced several crypto-related bills in the current legislative session. Legislature Bill 987 would have adopted the Uniform Regulation of Virtual-Currency Businesses, but failed to pass the legislature.
Popular crypto exchange Poloniex pulled out of New Hampshire in 2016 when the state legislature inadvertently subjected crypto companies to the state’s banking laws. A year later, House Bill 436 exempted the conversion or transmission of cryptocurrencies from those laws.
After Governor Sununu signed the legislation, the Banking Department issued a statement (PDF) saying it would no longer regulate businesses solely engaged in virtual currency transactions. However, the statement pointed out that “those who transmit money in fiat and cryptocurrency are still required to be licensed.”
Shortly after the law went into effect, The Concord Monitor reported, crypto startup BitQuick announced that it would start selling bitcoins in New Hampshire branches of Bank of America and Citizens Bank.
New Jersey’s money transmitters act does not mention virtual currency. The state’s Department of Banking and Insurance does not publish formal guidance on whether crypto services must get a money transmitter license.
“…any entity engaged in the business of providing the exchange of virtual currency for money or any other form of monetary value or stored value to persons located in the State of New Mexico must be licensed by the FID as a money transmitter.”
The state of New York’s virtual currency regulations, the BitLicense, has become notorious in the crypto community. Developed over the course of two years, 23 NYCCR Part 200 Virtual Currencies (PDF) was published in 2015.
Within months, exchanges and other crypto services stopped doing business in New York. After 8 months of consideration, for example, Kraken exited New York. Other exchanges, such as Gemini and Coinbase, chose to go through the BitLicense process.
The rules apply to any company that transmits, stores, controls or issues cryptocurrencies. This includes exchanges and custodial wallets. Individuals and merchants are not subject to the regulation. Depending on the nature of the business model, a crypto service may have to get both a BitLicense and a money transmitter license.
One of the biggest criticisms of the BitLicense is the extensive documentation companies must submit — and the legal fees associated with compiling a complete submission. Bitstamp’s head lawyer, George Frost, told Coindesk that the exchange spent $100,000 to get its application together. Smaller companies like Bittrex and MonetaGo spent considerably less, but the costs were still significant for the startups.
In their analysis of BitLicense, the cryptocurrency advocates at Coin Center said that “the best-capitalized startups, which tend to have business models similar to traditional financial services, will be able to comply.” Small startups, on the other hand, will “take one look at what it takes to comply with the BitLicense and they won’t even try.”
North Carolina added virtual currency companies to its Money Transmitter Act in 2016. As a result, crypto companies received clear guidance from the North Carolina Commissioner of Banks. Transmitting virtual currencies, regardless of whether the company deals in fiat, qualifies as money transmission.
As explained on law firm Ward and Smith’s blog, things did not work out quite the way people hoped. Regulators interpreted the law to mean “exchanges would be required to match the value of their users’ coin investments and hold those coins in reserve.” As the price of cryptocurrencies skyrocketed last year, this became a huge burden.
The situation was fixed in late June 2018 when House Bill 86 (PDF) was signed into law with the unwieldy title Act to Make Clarifying Changes to Permissible Investments and Statutory Trust Under the Monetary Transmitters Act. The biggest change allows exchanges to count the virtual currencies they hold in custody towards the reserves.
North Dakota’s money transmission laws (PDF) do not mention virtual currency. The state’s Department of Financial Institutions says that it “does not consider the control or transmission of virtual currency to fall under the scope of NDCC 13-09.” Companies that also handle fiat currency, however, may require a license.
Senate Bill 2100, introduced this year, would direct North Dakota’s legislative staff to study the “feasibility and desirability of regulating virtual currency” and report their findings to the legislature when it reconvenes in 2019.
Pennsylvania’s Money Transmission Business Law (PDF) does not mention virtual currencies.
A 2014 newsletter issued by the Pennsylvania Department of Banking and Securities stated that, since virtual currencies are not legal tender, “virtual currencies like Bitcoin are not ‘money,’ and their transmittal is not subject to the licensing requirements of the MTA.” Subsequent newsletters do not change the interpretation, but companies should check with the department to confirm the most current attitudes towards crypto.
Puerto Rico – Wyoming
Puerto Rico’s Secretary of Economic Development Manuel Laboy Rivera recently announced the creation of a blockchain advisory council, Caribbean Business reported. The council will guide the development of regulations friendly to cryptocurrency companies and blockchain-based businesses in general.
The creation of the council comes on top of other efforts to bring businesses — and desperately needed jobs — to an island still reeling from Hurricane Maria’s devastation. The Puerto Rican government exempts businesses from US federal taxes, capital gains taxes and several other taxes for the next fifteen years
In early 2018, The New York Times kicked off a wave of “Puertopia” articles about the bitcoin billionaires flocking to Puerto Rico. Led by blockchain entrepreneur Brock Pierce, these people see Puerto Rico as the ideal place to create new businesses.
Rhode Island House Bill 7804 was an attempt in 2016 to include virtual currencies in the definition of electronic money transfers. It did not pass the legislature.
South Carolina’s regulations for money transmission do not mention virtual currencies.
The state’s Attorney General recently established a Money Services Division to license and regulate money transmitters and currency exchanges. In regards to regulating virtual currencies, the division’s FAQ only says that “further guidance will be provided in the future.”
“The Tennessee Department of Financial Institutions does not regulate virtual currency. Tennessee’s Money Transmitter License and the required surety bond do not cover the transmission of virtual currency. However, any company that offers to exchange, administer, or maintain virtual currencies for sovereign currency may be subject to state regulation and licensing as well as federal regulation.”
The Texas Department of Banking issued Supervisory Memorandum 1037 in 2014. The memo reviewed the development of cryptocurrency and ruled:
“…absent the involvement of sovereign currency in a transaction, no money transmission can occur. However, when a cryptocurrency transaction does include sovereign currency, it may be money transmission depending on how the sovereign currency is handled.”
This ruling made Texas an early mover in defining a regulatory stance to bitcoin and other virtual currencies. Speaking to The Texas Tribune at the time, the DoB’s assistant general counsel Daniel Wood said, “I would say this is the first memorandum to offer specific guidance on how Bitcoin and cryptocurrency fit into the current regulatory scheme from a state.”
In 2017, Vermont’s legislature passed House Bill 0182 which amended the state’s money services regulations to define virtual currencies and let crypto companies use their virtual currency holdings as permissible investments.
A state-commissioned study (PDF) in 2016 found that the risks of Vermont’s government adopting blockchain-based record keeping outweighed the potential benefits. It also found that recognizing blockchain-based records could give Vermont a “first-mover advantage”.
The Commonwealth of Virginia’s money transmitter laws do not mention virtual currency. The State Corporation Commission explained (PDF) that Virginia “does not currently regulate virtual currencies.” However, companies that also hand fiat currencies could be subject to Virginia’s money transmitter laws.
In mid-2017, Washington’s legislature passed SB 5031, which formally included virtual currency companies in the state’s money transmission regulations. A press release quoted several Washington Department of Financial Institutions (DFI) officials.
Director Gloria Papiez said, “With this new law, emerging companies offering virtual currency will have much greater clarity as to what the law requires.”
Director of Consumer Services Charlie Clark added, “This law strikes the right balance as to which activities involving virtual currency are truly money transmission, thereby requiring a license, and which activities should not be subject to our regulation.”
The DFI subsequently posted its guidance on virtual currency regulation. Transmission of virtual currencies could make a company subject to Washington’s money transmission regulations. This could happen even if the company doesn’t deal in fiat currency.
Washington-based tech site GeekWire reported on the mixed response from the crypto industry. Neil Bergquist, CEO of bitcoin ATM company CoinMe, told GeekWire that Washington is “a leader” in regulating cryptocurrency.
However, the leadership at four crypto exchanges disagreed with that view. Kraken, Poloniex, Bitstamp, Bitfinex and ShapeShift pulled out of the state. ShapeShift gave its reasons for leaving Washington:
“Under this interpretation of the law, we would now be required to ask permission from Washington before we buy and sell our own property for our own account. Moreover, we would be required to spend hundreds of thousands of dollars to maintain a license, only to extract our users’ personal information and store that information for hackers to steal.”
Wisconsin’s money transmission laws do not mention virtual currency. As a result, the Department of Financial Institutions says it is “unable to license or supervise companies whose business activities are limited to those involving virtual currency.” As with other states, companies that also handle fiat currency may be subject to regulation.
Earlier this year, the governor of Wyoming signed several pieces of crypto-related legislation into law. Among them, Wyoming House Bill 0019 exempts virtual currencies from the state’s money transmission regulations. In a first-in-the-nation move, Wyoming Senate File 111 exempts virtual currencies from the state’s property taxes.
“In just a few months,” the Casper Star Tribune reported, “Wyoming went from one of just a small handful of states that barred virtual currency trading to a playground for blockchain entrepreneurs.”