This week in bitcoin: FinCEN guidelines label exchanges, payments processors as money transmitters

This week’s bitcoin review recaps FinCEN’s new guidelines.

Another regulatory hurdle

Despite bitcoin’s anti-establishment origins, cryptocurrency companies are coming to terms with the fact that they will have to play nice with some level of federal rules and regulation, lest they be shut out entirely.

One example of that is the big news this week of ex-Securities and Exchange Commission chairman Arthur Levitt taking an interest in bitcoin. Levitt announced he was joining the advisory boards of two crypto-companies: BitPay, the Atlanta-based payments processor, and Vaurum, a California-based exchange. In an interview with the Wall Street Journal, Levitt hinted at the need for bitcoin to grow into regulation.

“The intellectual firepower behind [bitcoin] enterprises is astonishing,” Levitt told the WSJ. “But I think in terms of compliance and regulations, they are relatively immature.”

However it’s hard to remain compliant or even aspire to be when a lot of the regulation is still up in the air — just use New York’s extended BitLicense talks as one example. Not to mention, it’s a slow, slow process.

This week, the Financial Crimes Enforcement Network (or FinCEN) issued guidelines to an unnamed bitcoin company that was seeking advice on whether or not the company would be considered a money transmitter. Some bitcoin companies are already registered with FinCEN, like BitPay for example, and the bureau has also previously issued some guidance related to virtual currency companies before.

The latest set of FinCEN guidelines are in response to two letters, one sent in late 2013 and the other in January 2014, meaning that there was a turnaround period of about 10 months. In that same time, the price of bitcoin has fallen from north of $1,000 to about $350. While the price has nothing to do with the ruling, it also goes to show how much has changed in the bitcoin space since these first letters were written.

In response, though, FinCEN’s latest guidelines suggest that bitcoin exchanges and payment processors fall under money transmitter regulations — even if they are operating like a more traditional securities exchange with no money transferring between the company and a counterparty. It could mean a lot of challenges for bitcoin companies going forward, as pointed out by payments consultant Faisal Khan. However, a FinCEN spokesperson told CoinDesk that this opinion doesn’t mean it’s a blanket industry regulation since it’s only in response to the inquiring unnamed companies. It just means there IS one more regulation thorn in a bitcoin company’s side as they have to sort out whether or not they fit into these definitions. These are all just thorns bitcoin companies have to deal with if they want to blossom into a rose.

The market this week

The market stayed in the mid-300s this week as it continues its slow slide downhill. We’re creeping up on the turning point in November when 1 bitcoin will be worth less than it was a year ago. Whether that moves the market one way or the other, we’ll have to see. The bitcoin price was hovering around $337 at 4p.m. PST.

bitcoin price oct 30
For background on why we’re using Coindesk’s Bitcoin Price Index, see the note at the bottom of the post. 

Here are some of the best reads from around the web from the past two weeks:

  • Bitcoin’s been used for blackmail before, but this time it’s been connected to Ebola. Vice and the AFP reported that the Czech Republic government claims it’s being blackmailed by someone who threatens to spread Ebola in the country unless he or she is paid in bitcoin.
  • Is bitcoin a bit con? Jeffrey Robinson seems to think so. The author of a new book, Bit Con: The Naked Truth about Bitcoin, spoke with Fortune about his time spent researching bitcoin and why he thinks it will end up being worthless.
  • “It’s not that banks have a bad relationship with bitcoin. It’s just that they have no relationship at all.” ReadWrite’s Lauren Orsini explained why bitcoin and banks have yet to hit it off.
  • In the latest bitcoin company collapse, Moolah CEO Ryan Kennedy (who was going by the name Alex Green) told the Guardian he’s not running from authorities and is working to return all of the missing money after his firm declared bankruptcy in mid-October.
  • The Bitcoin Foundation’s executive director Jon Matonis stepped down from leading the organization, according to the New York Times.
  • Millennials don’t use bitcoin, but could see a future in it, according to one report.

Bitcoin in 2014

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The history of bitcoin’s price

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A note on our data: We use CoinDesk’s Bitcoin Price Index to obtain both a historical and current reflection of the Bitcoin market. The BPI is an average of the four Bitcoin exchanges which meet their criteria: Bitstamp, BTC-e, LakeBTC and Bitfinex. To see the criteria for inclusion or for price updates by the minute, visit CoinDesk. Since the market never closes, the “closing price” as noted in the graphics is based on end of day Greenwich Mean Time (GMT) or British Summer Time (BST). 

Disclosure: I currently own a very small amount of bitcoin for product testing purposes.