Regulating cryptocurrencies under banking laws

Abstract

This chapter relates how federal regulators struggled with the issue of determining whether cryptocurrencies are “real” money or are they just another tradable asset. FinCen and state financial services regulators concluded that, while cryptocurrencies are not “real” money, they would be regulated as a “currency” anyway. This meant that crypto dealers are subject to state and FinCen regulation as “money transmitters,” which imposes anti-money laundering and other regulatory requirements on those entities. Federal bank regulators were slow to react to the development of cryptocurrencies but eventually launched a policy initiative to determine whether, and to what extent, banks should be allowed to engage in such activities. In the meantime, federally regulated banks were allowed to engage in some cryptocurrency related business. At the state level, New York and Wyoming created special banking licenses for cryptocurrency dealers.