If you are a bitcoin user living in New York and using the services of either Kraken or Bitfinex, you need to start considering an alternative arrangement as the two leading bitcoin exchanges have announced that they will not apply for licenses to operate in the state.
So much dust has been raised over the contentious Bitcoin regulation established in New York requiring exchanges to have BitLicense to operate in the state. Regulators had set an August 8 deadline for bitcoin businesses already operating in the state to apply for a license.
Well-capitalized exchanges such as Gemini, Bitstamp and itBit have applied for licenses to continue carrying out their businesses, but smaller ones are being forced to withdraw their services from New York residents due to the exorbitant costs associated. CoinDesk reports that merchant processor GoCoin and altcoin exchange Poloniex have already given up on reaching New Yorkers.
While acknowledging the good intention behind the BitLicense, San Francisco-based Kraken announced in a statement that the cost exceeds the benefits to it. Hong Kong-based Bitfinex was more direct in its own announcement by quoting from the BitLicense and then stating it will stop rendering services in New York from the given deadline.
Kraken, which has had previous issues with regulators in the US, likened the New York regulation to a “cruel” and “foul” monster that is more fearsome than the legendary sea creature it derives its name from. The exchange described the cost of applying for a BitLicense as an unjustifiable expense which does not add significant benefits like exemption from regular money service business (MSB) licensing, protection from unlicensed rivals or access to banking services. Exchanges in New York are required to acquire a state banking charter or be classified as an MSB.
The cost of applying for a BitLicense is $5,000 and that does not include extra charges such as those for document preparation or personnel allocation. However, Kraken thinks New York is too small a market to justify costs associated with licensing.
“We’ll spend our money on blue oceans and green pastures and maybe get back to New York when sanity has emerged and we’ve got a bigger bankroll,” said CEO Jesse Powell, according to CoinDesk.
With cessation of services to New York customers, Bitfinex has disclosed that it would modify its terms of services to allow affected customers to withdraw their funds by August 15. After that date, these customers will have any cryptocurrency left in their converted into US dollars, which they will be able to access at any time. The customers will then be unable to use any of Bitfinex services in the future.
The exchange gave an idea of how it intends to protect itself from liability that could arise from unlawful deposits by customers living in New York.
“We strongly encourage New York residents to specify ‘Locked Withdrawal Addresses’ that we will use to automatically sweep any funds that may be sent to one of your deposit addresses in the future,” Bitfinex stated. “Failure to set these Locked Withdrawal Addresses will result in the automatic liquidation of future deposits.”
Both Kraken and Bitfinex said they will continue to monitor New York’s regulatory situation to determine if they can re-commence provision of exchange services to customers there in the future.