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Bitfinex moves out of Washington State citing regulatory problems

Regulations, especially not well thought out might be a hindrance to innovation in any form. Such constricting regulations are hindering the development of fintech companies currently in US. The latest state to join this list is the State of Washington where regulations on digital currency startups have made significant impact on businesses. Owing to these regulations many companies have ceased to serve the residents of the respective region and Washington is no different. The latest to join the list of exchanges pulling out of the state would be the Honk Kong based exchange Bitfinex. After suffering a massive hack in August, Bitfinex has managed to reimburse the stolen money to their clients through redemption tokens and was able to re-establish client’s faith in the exchange. Though the strong reason behind this move is still unclear, let’s look into the details of the exit:

The Regulatory debacle:


A Washington based user has revealed on Reddit that Bitfinex has withdrawn from the State owing to a regulatory debacle which it eventually lost. The statement released by the exchange read as follows:-

“Over the past few months, we have been in discussion with representatives of the Washington State Department of Financial Institutions(DFI) about Bitfinex’s business and specifically to provide Washington customers with service. DFI representatives have made it clear that for offering the services, Bitfinex has to acquire a state money transmitter license.”

Bitfinex’s problem:

The exchange underwent a massive hack attack in August 2016, losing more than $70 Million after which there have been facing consistent trouble. The exchange issued blockchain debt tokens to its users in August as a way to pay them back for losses it incurred in a debilitating hack. The exchange announced that it would purchase the tokens at an above-market value of $1 each. This is roughly double the market value when the redemption took place. The exchange has been good on its promise so far but they have experienced a DDOS attack pretty recently which has been fended off.

Regulations and Bitcoin businesses:


Bitfinex notified that it wouldn’t be obtaining the money transmitter license in Washington and, accordingly, will no longer be doing business with verified Washington customers, effective immediately. Washington-based traders have only until Wednesday to withdraw their funds, Bitfinex added. Earlier last week Coinbase suspended its services for customers in Hawaii owing to authorities intervention. Early December last year, Bitstamp also left Washington State citing regulatory reasons. The problems with regulation for cryptocurrency startups started with BitLicense NewYork which saw the mass exodus of the startups from the state. Whether regulations and business would be able to find a middle ground in US where the innovation would get a push rather than hampering is to be seen.

Bitstamp exits Washington State: Regulation hampering innovation?

Tightening regulations are hindering the development of fintech companies currently in US. The latest state to join this list is the State of Washington where regulations on digital currency startups have made significant impact on businesses. Following regulations many companies have ceased to serve the residents of the respective region and Washington is no different. Following the same, Luxembourg-based bitcoin exchange Bitstamp has announced effective 20 December, it will stop serving residents of the state. The exchange operates out of U.K and U.S with good volumes and has been one of the leading exchanges in the market of cryptocurrencies. Though the strong reason behind this move is still unclear, let’s look into the details of the exit:

Regulation in the past:


Most notable step towards regulation took place in 2015 with the introduction of BitLicense in New York. While most people saw it as a ‘necessary evil’, this move saw a huge impact on various bitcoin based businesses.  Exchanges like Coinsetter, MonetaGo payed the licensing fee and decided to stay and serve the customers in the area. Many small businesses like Poloneix exchange and GoCoin ceased their operations in New York due to cost and many other factors. Many companies like ShapeShift stopped their operations after seeing that they would have to drive up their service charges.

Washington and Regulatory moves:


In the State of Washington, Nations capital Washington DC has been a very pleasant environment for the development of Bitcoin and Blockchain ecosystem. In September, Coin Center, a Washington D.C.-based non-profit and advocacy center focusing on public policy issues facing bitcoin started a Congressional caucus. The function of the caucus is to study bitcoin and blockchain technology deeply and resolve the issues. It also aims at making policy makers to understand open technologies like bitcoin and ethereum.

Is Bitstamp withdrawing proactively?

Bitstamp has launched the trading of the biggest traditional currency trading pair – Euro/Dollar in June. This marked the entry of the exchange into mainstream trading apart from cryptocurrency trading. After such a move, this move came out to be suspicious. There has been speculations around this that after federal Judge approving IRS summons, Bitstamp is protecting itself. In this recent incident, the Judge has instructed bitcoin wallet and exchange Coinbase to disclose transaction records of bitcoiners. Hence this can be seen as a preemptive move on part of Bitstamp.

New York is Gradually Losing its Shot at Becoming a Global Bitcoin Hub

Bitcoin is a modern cryptocurrency that evokes mixed reactions and feelings in the traditional monetary and financial sectors. However, while the rest of the world was struggling to understand Bitcoin and its potential for disrupting the global economic landscape, New York was setting up regulations that would make the city a global hub for Bitcoin.

In fact, in 2015 New York’s Department of Financial Services (DFS) created rules that made it easy for Bitcoin to thrive and flourish in the city. One of the rules made to enable Bitcoin in the city was the requirement that all virtual currency firms in the state get a “BitLicencse”. The BitLicense was a sort of regulatory approval for them to hold customers fund and for them to provide exchange services for dollars and other currencies for virtual currencies such as Bitcoin.

New York has only issued 2 Bitcoin Licenses in Almost 2 years

Interestingly, the BitLicense can be used as a gauge of how well New York has succeeded in its bid in to become the Bitcoin Hub of the world.  However, Reuters reports that New York seems to have lost its drive to champion the cause of Bitcoin; at least, based on inferences from the state’s issuance of BitLicenses.

Reuters reports that since 2015 when New York made the rules that would guide the operation of Bitcoin, the city has only issued two (2) BitLicenses. The more worrisome part is that the city has 15 pending BitLicense applications, four firms have withdrawn their applications, and four applications have been denied. One would think that New York would be crawling with firms dealing in virtual currency by now, but it appears that the city doesn’t have the momentum to stay the course of supporting Bitcoin.

However, in September, Deloitte said New York was in the third position behind London and Singapore as a fintech destination or hub. Of a truth, the fact that Bitcoin is a digital cryptocurrency that provides privacy in financial transactions has placed it in the black book for financial authorities. However, the fact that Bitcoin has many apparent advantages over fiat currencies makes it hard for financial regulators to dismiss or denounce it altogether. Hence, most financial hubs are choosing to group Bitcoin as a type of FinTech.

Why is New York losing momentum to champion Bitcoin?

One of the reasons behind New York’s lag in creating a Bitcoin hub is the exit of Benjamin Lawsky who headed the DFS last year when the rules were being created. Lawsky’s exit also led to the exodus of some key staffers who were knowledgeable about building regulatory framework for virtual currencies.

Patrick Murck, a lawyer and fellow at Harvard University’s Berkman Klein Center for Internet & Society observes that “by putting the regulations together and having key staff members leaving almost thereafter, they really put the industry behind the eight-ball in terms of competing with traditional service providers.”

The second reason New York has not been able to dominate the FinTech scene with a special emphasis on Bitcoin is that its regulatory process is cumbersome. The application fee costs a whooping $5000 and the documentation is reportedly about 500-pages long. It appears that the process for getting Bitlicenses is designed to ‘extract’ maximum information about users – a move which runs afoul to the founding principles of Bitcoin.

Bitcoin and the NY Bitlicence proposed regulations

What is happening with the Winklevoss’s Bitcoin ETF?

Winklevoss brothers are successful American rowers and Internet entrepreneurs. After their networking site ConnectU, they went to become venture capitalists for digital currencies. They raised the seed funding for bitcoin payment processor ‘BitInstant’ and claim to own 1% of Bitcoin in existence. Right from the onset, the brothers have always regarded Bitcoin as an equivalent to Gold. They have made conscious attempts to level Bitcoin Trading grounds by launching features that are prevalent in general asset trading. One such attempt recently is the launch of an ETF that has been doing rounds. Let’s look into the details of how this journey progressed and how is the ETF being handled.

Launch of Gemini Exchange:

The twins launched Gemini Exchange with safety and legality as flagship selling points. It was the world’s first fully regulated exchange based out of New York operating throughout North America, Asia and Europe. The exchange was few of the first to receive BitLicencse from city of New York making it completely legal. It later expanded the operations to Asia and Europe making it a successful venture across the globe.

Launch of Daily Auctions:



In an attempt to level the playing ground for Bitcoin and get it closer to adoption, they have planned to launch Bitcoin Auctions. Beginning at 5pm ET every day, Gemini will begin accepting two-sided bids in BTC/USD for the next day’s auction. After 22 hours and 50 minutes of bidding, Gemini will begin publishing “indicative auction prices” every minute. This gives the bidders a chance to pull out their bids until 3:59pm ET, after which the final bid closes. The closing price is the price at which the greatest aggregate buy and sell demand meets.

This methodology is generally present in currency and commodities market to determine closing and bidding prices. This is a conscious effort to bring Bitcoin to mainstream adoption.

Launch of the ETF:


The Brothers had moved for the request to launch an ETF and list it on Nasdaq in 2013. After number of trials, the US Securities and Exchange Commission (SEC) has put the request for review. SEC is seeking additional public feedback as it weighs whether to approve the bid to launch the bitcoin ETF. The brothers have later moved to make amends their proposed ETF. They are now backing ‘State Street’ as administrator, according to a filing with the Securities and Exchange Commission. Gemini’s daily auction price at 4 p.m. EDT will be the price the NAV of the ETF. While investors are backing the ETF, how SEC would approve this game changing move is yet to be seen.