Since the New York Department of Financial Services (NYDFS) released its proposed regulations for bitcoin businesses on 17th July, the wider digital currency community has been locked in a heated debate over what the passage of the policies would mean for the future of the nascent industry.
As put forth by Bitcoin Foundation director Jon Matonis in a recent CoinDesk opinion piece, the growing consensus in the Western world, if one can be derived, is that the NYDFS framework goes too far, threatening to stifle innovation in its bid to protect consumers.
If true, the NYDFS proposal could be as troubling to the global bitcoin industry as the US market – a concern backed up by recent statements from US Congressman Steve Stockman. International bitcoin companies are also likely to be influenced by New York’s policies, especially as an increasing number of global players seek to expand their presence by tapping the lucrative US market and global regulators look to the US for guidance on how to shape their own policies.
One market that has been paying close attention to New York’s proposed rules is China, where major bitcoin exchanges OKCoin, Huobi and BTC China have all recently announced initiatives that aim to capture international US dollar market share, though they stop short of courting US buyers directly due to the lack of current regulatory clarity.
Speaking to CoinDesk, China’s major exchanges struck varied tones on the proposed regulation.
Robert Kuhne, a spokesperson for Huobi, summed up the more positive sentiment, noting that it is optimistic about the general discourse despite criticisms with the original proposal:
“The New York bitlicense decree was clearly a case of executive branch overreach, and there will be a lot of push-back from the public. The strong reaction that we have already seen from the bitcoin community gives us a lot of confidence in the future of bitcoin in the US.”
Its rival OKCoin, however, has adopted a vastly different outlook. Contrary to perception in the Western world that China’s regulatory environment has been problematic for the industry, the exchange asserted that it views the current proposals as far more troubling.
“China only seems ‘uncertain’ to the people who are not familiar with it,” the exchange said in official remarks. “We certainly hope China will not adopt regulations like the ones currently proposed in New York.”
Kuhne went on to suggest that, although he can’t predict how China will react to bitcoin long term, US policy on the matter will likely service as a “reference point” for decision-making.
Work in progress
On the whole, bitcoin’s China-based companies largely applauded New York for taking the first step toward a framework for the industry, acknowledging the difficulties inherent in implementing rules for what could be one of history’s most disruptive technologies.
A representative from BTC China, the country’s oldest bitcoin exchange, stopped short of criticising the proposal, but suggested that the company feels the document is still a work in progress, and therefore can be improved:
“We applaud the New York financial regulators for proactively laying the groundwork for bitcoin regulation. We think the best thing for the US market, and the broader bitcoin economy, would be to provide entrepreneurs with a smart, uniform framework in which to innovate, while keeping barriers to entry low and the market competitive.”
Kuhne suggested that regardless of New York’s final rules, the bitcoin community will simply adapt to the new regulatory terrain, adding:
“The US has better regulations than many countries but worse than others. The great thing about the Internet economy is that businesses are not limited by geography.”
‘Bad for business’
Still, others in China’s digital currency community are highly critical of the proposals.
Changpeng Zhao, chief technology officer at China’s largest bitcoin exchange, OKCoin, said he personally feels that the rules go too far, particularly the provisions that call for businesses to obtain photo IDs and addresses for all customers.
Cautioning that his views don’t necessarily reflect those of OKCoin, Zhao told CoinDesk:
“While knowing what the rules are in the bitcoin space generally helps, the New York proposed regulations is definitely not good for our business, or any bitcoin business for that matter. It is ‘big brother’ to the extreme.”
Furthermore, should the regulations be enacted, bitcoin businesses may choose not to service New York-based customers, a development that could have long-term implications, Zhao said.
He added: “It will likely impede innovation in New York when it comes to bitcoins, and will likely erode New York as a leading financial center over time.”
OKCoin’s manager of international operations Zane Tackett, offered a similarly broad critique.
“As an international exchange with the vast majority of our customers being non-American, forcing of us to disclose our entire user base, their identity, their address and general info to the US government is absurd, unreasonable and overreaching,” Tackett said, adding:
“Why should we have to give the US government personal information on someone who isn’t an American citizen, isn’t in America, has never been to America, nor will ever go to America?”
Long-term outlook positive
Although New York’s proposed regulation was met with criticism by the Chinese companies, most maintained optimism about the potential of the US market.
Huobi’s Kuhne emphasized that the US remains a primary target for Huobi as it looks abroad, saying:
“We are attracted by the US market for a lot of reasons. Not only its sheer size and purchasing power, but also its status as a technological, financial, and cultural leader in the world.”
OKCoin, in its official response, took a markedly different tone, stating:
“The proposed regulations definitely don’t instill confidence. There are certain sections of the proposed regulations, which as an international company are not favorable.”
In particular, the exchange cited stipulations that would require it to provide employee fingerprints and disclose personal information, as well as the limitations on maintaining profits in permissible investments.
Still, while China’s major exchanges are observing the situation, only one – OKCoin – is seeking to weigh in on the proposal during its current 45-day comment period.
The company told CoinDesk:
“The entire bitcoin community needs to participate in the comment period. We will do our share.”
While that exchange has confirmed it will be submitting comments on the regulation, BTC China and Huobi have told CoinDesk they will not do so, preferring to take a wait-and-see approach.
Betty Zhang, a correspondent for China-based bitcoin news source Bitell indicated that, while China’s businesses may be paying attention, the proposals have failed to impact China’s bitcoin discussion the way China’s regulatory uncertainty has hit home in the US.
“The NYDFS regulation didn’t arouse much interest or concern here,” Zhang told CoinDesk. “Few people discussed or expressed any comment regarding it on Chinese bitcoin forums. I guess this is because, firstly, it’s not happening in China, so many people are unconcerned; secondly even the draft is passed into law and imitated by China, it might not be bad news.”
Zhang, however, best summed up the wider optimism that the proposal would be amended, thus setting the tone for smart regulation internationally, stating:
“Hopefully in [the] 45-day public comment period, it can be revised and improved. Regulation at a reasonable extent is a good thing.”
Shanghai image via Shutterstock