Why Bitcoin Startups Are Worried About BitLicense

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Why Bitcoin Startups Are Worried About BitLicense

Most bitcoin startups fear strict regulation from financial authorities these days, as a few have been aiming to limit cryptocurrency activity. For one, bitcoin has gained the reputation of being used for criminal activities such as drug dealing or money laundering, leading regulatory agencies to be skeptical about it’s usage.

In particular, bitcoin startups in the U.S. are worried about the implementation of New York’s BitLicense project next month, as this might wind up restricting growth in the industry. BitLicense is a regulatory framework designed to focus on digital currency businesses in the city and has been spearheaded by New York Department for Financial Services (NYDFS) superintendent Benjamin Lawsky.

Potential Implications of BitLicense

Although BitLicense has already undergone several revisions in the past months, bitcoin startups are still concerned that it does not favor their companies at all. Founder of venture capitalist group Union Square Ventures Fred Wilson says that BitLicense is equivalent to a “punch in the gut.”

“My first introduction to BitLicense was a subpoena from the NYDFS,” he narrated. Wilson added that other bitcoin startup companies like Coinbase, Circle, Xapo, BitPay, Genesis Trading, Digital Asset Holdings, and the Digital Currency Group also received a subpoena.

Once implemented, BitLicense may regulate bitcoin wallets, not just exchanges. It will also require money-transmitters to get two different licenses in each state and require licensed companies to get approval for new rounds of funding that substantively impact controlling interests. In a nutshell, it would require approval for every new bitcoin-related product that is launched.

For smaller bitcoin startups, this raises the very important issue of funding. Getting SEC approval is already costly enough and securing additional permits from NYDFS might prove to be even more expensive. According to Coin Center research director Peter van Valkenburgh, BitLicense might be a play to just brutally shutdown the viability of bitcoin.