What is cryptocurrency?
Digital or virtual currency is an electronic medium of exchange that is not a representation of U.S. or foreign currency. Cryptocurrency is a type of digital currency that utilizes cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain. According to the IRS: “Units of cryptocurrency are generally referred to as coins or tokens. Distributed ledger technology uses independent digital systems to record, share, and synchronize transactions, the details of which are recorded in multiple places at the same time with no central data store or administration functionality.”
Are transactions of cryptocurrency covered by the Bank Secrecy Act and anti-money-laundering laws?
Yes. The Anti-Money Laundering Act of 2020 codifies prior Financial Crimes Enforcement Network (FinCEN) guidance by making all transactions in “value that substitutes for currency” subject to reporting requirements and money transmitter registration; this definition includes digital currency.
Lisa Zarlenga, a partner at Steptoe & Johnson who specializes in tax policy and cryptocurrency, lays out the types of taxes crypto owners must pay and how crypto income is taxed based on when you cash it out. [ 3:31 ]
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Is there federal legislation related to cryptocurrency?
So far, Congress has left the task of addressing issues created by digital assets to regulatory agencies. A Congressional Blockchain Caucus formed in 2016. House and Senate members introduced few bills addressing digital assets until 2018, but interest appears to be growing.
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What are the cryptocurrency laws by state?
While many states regulate virtual currency under existing money transmitter rules, specific cryptocurrency laws and regulations vary state-by-state.
Alabama
A license is required for selling or issuing payment instruments, stored value, or receiving money or monetary value for transmission. “Monetary value” means a medium of exchange, including virtual or fiat currencies, whether or not redeemable in money. (Ala. Code § 8-7A-2; Ala. Code § 8-7A-5)
Alaska
Alaska Stat. § 06.55.990(15) defines money services as, “selling or issuing payment instruments or stored value, or receiving money or monetary value for transmission.” The Alaska Division of Banking and Securities states, “[c]ompanies dealing with fiat and virtual currencies (cryptocurrencies) must apply for a money transmitter license, then enter into a Limited Licensing Agreement (LLA) with the State of Alaska.”
Arizona
The definition of a money transmitter is found at Ariz. Rev. Stat. § 6-1201(). While the definition does not specifically apply to digital currency, exchanges Coinbase and Binance interpret it to require them to acquire Arizona money transmitter licenses.
Arkansas
Arkansas’s definition of money transmission expressly includes virtual currency; A.C.A. § 23-55-102(12)(A), and allows investment in virtual currency by money transmitters; A.C.A. § 23-55-701(b).
However, Arkansas has provided “no-action” letters to digital asset-issuing businesses freeing them from money transmission licensing requirements, e.g., In re Mythical, Inc. (June 22, 2020) (video game internal currency) ; In re River Financial, Inc. (May 21, 2020) (selling own reserves of Bitcoin)
California
The Department of Financial Protection and Innovation has not decided whether to regulate digital currency transmission under California’s Money Transmission Act, see DFPI Statement re: Coinbase (Jan. 27, 2015) ; DFPI Opinion Request (Oct. 4, 2019) .
The DFPI regularly provides no-action letters regarding digital currency businesses on its website . Digital currency ATMs are often exempted, and a May 27, 2021 opinion letter exempted a peer-to-peer digital currency transaction platform from money transmission licensing.
Delaware
5 Del. C. § 2303 requires a license for the undefined phrase “engage in the business of receiving money for transmission or transmitting the same.” Virtual currency exchanges Coinbase and Binance maintain Delaware money transmitter licenses.
District of Columbia
Dealing in digital currency is money transmission requiring a license under D.C. law. See United States v. Harmon, 474 F. Supp. 3d 76, 89 (D.D.C. 2020).
Florida
A “money transmitter” under Fla. Stat. §560.103(23) “receives currency, monetary value, or payment instruments for the purpose of transmitting the same by any means”; a Florida appellate court found that this includes trade in digital currency. State v. Espinoza, 264 So. 3d 1055 (Fla. Dist. Ct. App. 2019). See also Fla. Stat. §896.101(f) (the Florida Money Laundering Act). Florida’s amnesty period to comply with the Espinoza decision ends Dec. 31, 2021. See “Industry Alert: Amnesty Period for Virtual Currency Sellers“
Even before Espinoza, Florida considered the sale of a digital token tied to the ownership of a gram of gold to be governed by money transmitter laws. See In re G-Wallet Corp. (June 5, 2019). Florida has not yet considered whether money transmitter laws apply to digital tokens tied to less fungible objects of value.
The Florida Financial Technology Sandbox allows for the sandbox permission to substitute for a money transmitter license during the license period and relaxes a few other money transmitter requirements. Fla. Stat. §559.952(4)(a)(3) through (14)
Hawaii
Haw. Rev. Stat. § 489D-4 defines money transmission with the broad “receiving money or monetary value for transmission,” but digital currency businesses are, through June 30, 2022, instead given permission through the Digital Currency Innovation Lab in order to determine what licensing is necessary. See “DCIL FAQs“ (Aug. 26, 2021)
Idaho
Idaho considers virtual currency exchanges to fall under the definition of money transmission requiring a license. See Idaho Department of Finance .
The Department of Finance regularly issues no-action letters to businesses such as digital currency ATMs freeing them from licensing requirements. Redacted no-action letters can be found on the Department of Finance’s web site.
Illinois
The definition of “money transmitter” in 205 ILCS 657/5 does not expressly mention digital assets; however, the Department of Financial and Professional Regulation released guidance as to when a digital currency business must register as a money transmitter. See Digital Currency Regulatory Guidance (June 13, 2017) .
The Division of Financial Institutions regularly issues “non-binding statements” to virtual currency businesses ruling on whether the businesses must be licensed. These statements can be found on the Department of Finance’s web site.
Indiana
The definition of money transmission in Ind. Code § 28-8-4-13 does not expressly mention virtual assets and may exclude virtual assets, including virtual currency, if sold for any purpose other than immediately facilitating a payment.
According to the Indiana money transmitter licensing FAQ on NMLS , a virtual currency exchange does not generally require a money transmitter license.
Iowa
There is no exclusion for digital currency businesses from Iowa’s Uniform Money Services Act in Iowa Code § 533C.103. Digital currency dealers such as Coinbase have obtained money services licenses from the Iowa Department of Banking.
Kansas
K.S.A. § 9-508(h)‘s definition of money transmission is broad enough to include digital currency.
However, under current administrative guidance a money transmitter license is not required when transmitting a decentralized digital currency; should the transmission of digital currency include the involvement of sovereign currency, a money transmitter license may be required. See Office of the State Bank Commissioner, “Regulatory Treatment of Virtual Currencies Under the Kansas Money Transmitter Act“ (May 18, 2021).
Kentucky
KRS 286.11-003 defines money transmission as “receiving money or monetary value to transmit…money or monetary value to another location inside or outside the United States by any and all means” which does not expressly include or exclude digital currency. Digital currency dealers such as Coinbase have obtained money services licenses from the Department of Financial Institutions.
Louisiana
The Louisiana Virtual Currency Businesses Act, La. Rev. Stat. §§ 6:1381 to 6:1394, provides a licensing scheme for virtual currency businesses. There is a long list of exceptions to licensing in La. Rev. Stat. § 6:1383(B) and (C), including all virtual currency regulated by Louisiana securities law and personal or academic use of virtual currency to buy goods and services.
Some exceptions may fall under the broad definition of money transmission under La. Rev. Stat. § 6:1032(13); Louisiana’s Office of Financial Institutions still maintains its 2014 guidance stating that virtual currency exchangers require a money transmitter license.
Maine
As of Oct. 18, 2021, “virtual currency” is explicitly included in Maine’s definition of money transmission, 32 MRSA §6102(10).
Maryland
As of October 1, 2021, the definition of “money transmission” in Md. Code, Fin. Inst. § 12-401(n)(1) includes “receiving…other value that substitutes for currency” (“currency” having the definition under 31 C.F.R. § 1010.100(m) as fiat currency) and transmitting it.
According to guidance on the Maryland Office of the Commissioner of Financial Regulation website , “an administrator or exchanger that accepts and transmits a convertible virtual currency or buys or sells convertible virtual currency for any reason is a money transmitter under federal regulations.” The Office also states on its regulated industries page that its regulation of money transmission is “including transmission of virtual currency.”
Digital currency businesses such as Binance and Coinbase currently maintain Maryland money transmitter licenses.
Massachusetts
Massachusetts’s regulation of money transmission is only money transmission to foreign countries. See 209 CMR 45.02; Mass.gov, “Apply for a Money Transmitter License“ .
In a 2020 opinion letter, the Massachusetts Department of Banking found that transactions where fiat currency was exchanged for virtual currency between two parties across international borders, without more, was not money transmission requiring licensure. See Division of Banks, Opinion 19-008 (Jan. 17, 2020). A digital wallet service was also found, on its facts, not to require a license. See Division of Banks, Opinion 20-003 (May 22, 2020).
Selected Department of Banking opinion letters on virtual currency can be found on the Department’s website.
Michigan
MCL 487.1003(c) defines “money transmission” as “selling or issuing payment instruments or stored value devices or receiving money or monetary value for transmission.” Michigan’s Department of Insurance and Financial Services FAQs states that holding funds in an “e-wallet” is money transmission requiring a license. 2019 guidance for consumers and industry states that if federal regulators would require an “administrator or exchanger” to get a money transmission license, one is required under Michigan law.
Virtual currency exchanges such as Binance and Coinbase maintain Michigan money transmission licenses.
Minnesota
Money transmission under Minn. Stat. § 53B.03 is defined as, “selling or issuing payment instruments or engaging in the business of receiving money for transmission or transmitting money .” Licenses are required for “businesses that cash checks, transmit money, own and operate ATMs, and provide electronic funds transfers,” according to the Minnesota Commerce Department .
Some virtual currency exchanges such as Binance and Coinbase maintain Minnesota money transmission licenses.
Mississippi
Miss. Code § 75-15-3(f) defines “monetary value” as “a medium of exchange, whether or not redeemable in money,” and Miss. Code § 75-15-3(g) defines “money transmission” to include receiving monetary value for transmission.
Some virtual currency exchanges such as Binance and Coinbase maintain Mississippi money transmission licenses.
Missouri
Missouri’s “Sale of Checks” law defines a “check” as “any electronic means of transmitting or paying money.” Mo. Rev. Stat. § 361.700(2)(1).
Some virtual currency exchanges such as Binance maintain Missouri Sale of Checks licenses.
Nebraska
Nebraska’s money transmission law defines “monetary value” as “a medium of exchange, whether or not redeemable in money,” Neb. Rev. Stat. § 8-2715, and therefore encompasses digital currency.
Effective Oct. 1, 2022, state-chartered “digital asset depository institutions” have the same exemption from money transmission registration as other banks. Neb. Rev. Stat. § 8-2724.
Slot machines and other “mechanical amusement cash devices” may only accept fiat currency or vouchers for same; virtual currency is specifically prohibited. 316 NAC 54-102.05B(5).
New Jersey
The definition of “payment instrument” in N.J.S.A. 17:15C-2 is broad enough to include virtual currency in New Jeresy’s money transmission licensing scheme. Virtual currency exchanges Binance and Coinbase both maintain New Jersey money transmitter licenses.
Oklahoma
The definition of “money transmitter” in 6 O.S. § 1512(7) includes any transmission of funds across an electronic network. Many virtual currency exchanges maintain Oklahoma money transmission licenses.
Oregon
In the Oregon money transmitter laws, ORS 717.200(10)(b) defines “money” as a medium of exchange that “represents value that substitutes for currency.” Oregon licenses digital currency exchanges as money transmitters.
Pennsylvania
Although 7 P.S. § 6101 defines “money” as a “product that is generally recognized as a medium of exchange” and a “transmittal instrument” to include “electronic transfer,” the Pennsylvania Department of Banking and Securities issued guidance holding that only fiat currency is “money” and virtual currency trading platforms are exempt.
South Carolina
The South Carolina Attorney General’s Money Services Division “views virtual currencies as lacking the characteristics necessary to be a medium of exchange” and therefore virtual currency businesses do not need to be licensed. See “Money Services FAQs“ ; interpretive letter of Dec. 5, 2018 .
Virtual currency ATMs are specifically exempt as per an administrative order. Order no. MSD-19003 (Sept. 6, 2109).
Texas
The Texas Department of Banking finds that exchange or transfer of most virtual currencies, standing alone, is not money transmission requiring a license. However, trade in stablecoins, or use of a third-party exchanger (including virtual currency “ATMs”), must be licensed as money transmission. See Supervisory Memorandum 1037, “Regulatory Treatment of Virtual Currencies Under the Texas Money Services Act,” Apr. 1, 2019.
West Virginia
- Va. Code § 32A-2-1(6)considers “currency transmission” and “money transmission” synonymous, and both include the transfer of “value that substitutes for money.”
However, a licensee under the West Virginia Fintech Regulatory Sandbox does not need to apply for a separate money transmitter license. W. Va. Code § 31A-8G-4(d), (e).
Wisconsin
The Wisconsin Department of Financial Institutions interprets its authority under Wis. Stat. § 217.03 as not extending to the transmission of virtual currency, although dealers in virtual and fiat currency likely need a license for the latter. See “Sellers of Checks.”
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