New details have emerged in what can be described as Bitcoin’s uphill battle to gain footing in the state of Wyoming.
Last month, leading Bitcoin wallet and merchant service provider Coinbase announced its cessation of services in the state. It cited its understanding of a recent regulatory policy decision by the Wyoming Division of Banking, which effectively subjects bitcoin wallet service providers to the Wyoming Money Transmitter Act.
Coinbase said that it would therefore be required to maintain dedicated fiat reserves equal to the entire value of bitcoin held on behalf of customers. It would be “impractical, costly, and inefficient” to establish a redundant reserve, and therefore deemed that it had no choice but to close shop in the state.
A recent report by Wyoming news site Casper Star Tribune sheds additional light on the matter, and from the perspective of local regulators. Wyoming Banking Commissioner Albert Forkner said that the division received an application for a money transmitter license from Coinbase on September 25. The division requested additional information, and the application was completed on February 5.
As the application was being processed, discussions were held with Coinbase on how the Wyoming Money Transmitters Act applies to the company. Coinbase withdrew its application on June 1.
Coinbase wasn’t the only company to face the issue. Circle Internet Financial, also a provider of wallet services and racing against Coinbase to become fully compliant throughout the US, withdrew its application for a license on May 5.
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Forkner and Wyoming Banking Deputy Commissioner Joe Mulberry said the Money Transmitters Act is designed to protect consumers, and is especially pertinent to bitcoin wallet providers due to the large number of hackings in the industry. Unlike with banks, consumers have no deposit protection with money transmitters, hence the reserve requirements.
Robert Godby, an economics and finance professor at the University of Wyoming, criticized the policy as being unduly stringent for Bitcoin businesses like Coinbase. Banks are only required to maintain fractional reserves, as it is not expected that all account holders will withdraw their savings at the same time. While money transmitters like Western Union are required to maintain full reserves, the requirement should not be applied to Coinbase, which isn’t dedicated entirely to money transmission. The current policy, he argues, makes it impossible for companies to stay in business.
One local bitcoin user acknowledged that the policy is not necessarily aimed at shutting down cryptocurrency in the state, but the case is a good example of how over-regulation can snuff out an industry.
Rep. Tyler Lindholm, representing the city of Sundance in the state legislature, said he is looking into the issue after a constituent brought it to his attention. He doesn’t want the state to send a message that it is closed for business to certain companies. He indicated that in certain cases, it definitely makes more sense not to require full reserves.
While Wyoming is the least populous state, with a population of roughly 585,000, it has served as a valuable sample to illustrate the potential challenges faced by Bitcoin companies in the US. As each state can put its own spin on regulation, the effort needed to become fully compliant can be compounded several-fold relative to other countries.