The Texas Department of Banking has released a supervisory memorandum outlining its regulatory stance on digital currencies within the guidelines set by the Texas Money Services Act.
The document draws a line of distinction between bitcoins and other digital currencies and sovereign currencies like the dollar. According to the memorandum, digital currencies are not recognized as legal tender in Texas because they lack backing from an institution like a central bank, do not have intrinsic value and do not carry any guarantees of redemption.
Overall, the statements clarify the statutes which govern the establishment of third-party bitcoin exchanges that handle sovereign currencies, providing a clearer path for those who might seek licensure in Texas.
As a result, the exchange of digital currency and sovereign currency does not qualify as a money transmission:
“Because cryptocurrency is not money under the Money Services Act, receiving it in exchange for a promise to make it available at a later time or different location is not money transmission. Consequently, absent the involvement of sovereign currency in a transaction, no money transmission can occur.”
The memorandum likens the purchase or sale of bitcoins or other digital currencies to a transaction involving a commodity or product, stating:
“Exchange of cryptocurrency for sovereign currency between two parties is not money transmission. This is essentially a sale of goods between two parties. The seller gives units of cryptocurrency to the buyer, who pays the seller directly with sovereign currency. The seller does not receive the sovereign currency in exchange for a promise to make it available at a later time or different location.”
The memorandum notably follows the 11th March news that New York would accept applications for bitcoin exchanges, and suggests that more states may be following its lead.
Implications for exchanges
Daniel Wood, assistant general counsel for the Texas Department of Banking, explained in an interview with CoinDesk that the regulations focus primarily on businesses that operate exchanges and handle sovereign currencies.
“Under the money transmission and currency exchange statutes, there is no direct regulation of cryptocurrencies. So for a company that wants to, say, start up an exchange site, the question for us will always be: what do you do with, and how do you handle sovereign currency?”
“Our statutes define money and currency very narrowly,” he added.
Steven Wilkinson, co-founder and treasurer of the Texas Bitcoin Association, said in an interview he sees the clarification of money transmission rules as a way to better govern the behavior of third-party exchanges.
“[Regulation] will keep third-party exchanges doing what should be proper and right, and we can avoid the Mt. Gox issue.”
He went on to state that he thinks of the rule clarification as one part of a broader regulatory evolution in regards to digital currencies, both in Texas and beyond.
“I think it’s more of a first step. Texas is a large player. It’s really gonna be who else comes along with this particular way of thinking, which I think is the proper way of holding new technology. But, I definitely see this as a step in the right direction instead of as just another step into the fog.”
US regulation taking shape
The Department’s release follows guidance from the Internal Revenue Service that bitcoin will be treated as property for tax purposes. The decision has prompted some to criticize the way in which these rules will impact small transactions of bitcoins.
Exchanges based in China are also beginning to feel pressure from state regulators, though in a more negative way.
For example, Huobi announced on 3rd April that it would halt voucher deposits. On 2nd April, BTC38 announced the suspension of fiat-to-digital currency trading while FXBTC and OKCoin both detailed complications involving their payment processors.