California and New Mexico Issue Consumer Digital Currency Advisories
The California Department of Business Oversight (DBO) and the New Mexico Taxation and Revenue Department (TRD) have both issued new releases warning consumers in those states about the potential downsides of investing in digital currency.
The California DBO oversees a number of financial service and product providers in California, including banks and credit unions, money transmitters, investment planners and independent escrow agents, among other entities, while the New Mexico's TRD is responsible for collecting governmental revenue.
Overall, the releases take a broad look at digital currencies, with a particular focus on the risks associated with exchanging, investing in and otherwise holding such assets.
In an interview with CoinDesk, Mark Leyes, director of communications at the California DBO, spoke about how his organisation's release is part of its ongoing study of digital currencies:
"We're still deliberating on the approach we're going to be taking for digital currency, and in particular, digital currency exchanges and how those fit into state money transmitter regulations. In the meantime, we wanted to provide some information to consumers and investors who have expressed interest in the topic."
Leyes indicated that the DBO is exploring how different digital currency businesses can secure licensing under state laws and which existing regulations may be applicable in these instances.
According to a report by the New Mexico Telegram, the New Mexico TRD is also looking into digital currency as part of a broader fact-finding effort.
Alan Wilson, Director of the New Mexico Securities Division, told the media outlet:
"We are studying how virtual currency is used to pay for products or services and how consumers are invited to invest in virtual currency as a commodity."
Leyes indicated that this latest release was spurred in part by recent events.
For example, he noted that the Conference of State Banking Supervisors (CSBS) and the North American Securities Administrators Association (NASAA) recently released a model advisory and that this publication influenced the timing of his own organization's release. Leyes added that expects more states to follow suit.
The DBO's full document touches on topics such as the bankruptcy of Japan-based bitcoin exchange Mt. Gox, the volatility of digital currencies, the irreversibility of digital currency transactions and how digital currencies are not regulated by the US government, leaving consumers little recourse should they be the victim of fraud or theft.
New Mexico's issuance reportedly echoed many of the same topics, talking about the recent fluctuations in the price of bitcoin, the ongoing crackdown against bitcoin-friendly financial service providers in China and the threats users face from criminals who target digital currency owners.
Read the TDR's release:
“Investors must rely upon the strength of their own computer security systems, and third parties security systems, to protect their e-Wallets from theft.”
Leyes indicated that the DBO is currently speaking with local members of the bitcoin community as it seeks to refine its understanding of the subject:
"Several players have approached us in terms of licensing and they've been working with us on what their business models are."
Though he wouldn't say how long the department has been studying digital currencies, Leyes said it has been "considering the issue for quite a while". Further, his comments suggest more regulatory guidance could be forthcoming.
New Mexico's TDR could not be reached for comment as of press time, though the Telegram's report indicated that it is "evaluating the developing market for bitcoin and other forms of virtual currency".
Roles in the bitcoin economy
The guidance from California is particularly noteworthy given that San Francisco and Silicon Valley have become fertile areas for the development of bitcoin startups.
New Mexico's unique laws have also aided bitcoin's US expansion. For example, the state does not require its businesses to obtain money transmission licenses, which proved integral in the launch of what was widely regarded as the first bitcoin ATM in the US.
For more on how both states are contributing to the burgeoning bitcoin economy, read our latest report on the ongoing bitcoin job boom in the US, featuring a breakdown of current employment in key states.
California capitol building via Shutterstock
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