According to the statutes and regulations released by FinCEN on March 18, 2013 regarding virtual currencies, administrators and exchangers of Bitcoin will be treated as money transmitters.
An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations, unless a limitation to or exemption from the definition applies to the person.
The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA.
What does it mean to be classified as a money transmitter in respect to surety bonds?
Although money transmitters are regulated at the federal level, surety bond requirements are set by each individual state. The majority of US states require a company licensed as a money transmitter to post a surety bond as part of the state licensing process. Bond amounts range from $25,000 to $2,000,000+ based on a statutory or variable amount set by the state’s regulators.
A nationally licensed money transmitter is required to post approximately $7,000,000 in total surety bonds. At a premium cost of 1-2% of the aggregate total, Bitcoin administrators and exchangers with clients on a national scale will pay $70,000 – $140,000 for their surety bonds and the opportunity to be in business.
Since Bitcoin is a virtual currency, it would be extremely difficult to operate on anything other than a national scale. Therefore, any administrator or exchanger that is unable to qualify or pay for the $7,000,000 in surety bonds will be forced to close their doors or face legal action.
The question is, what will the impact be on the Bitcoin market as the number of administrators and exchangers decrease due to new regulations?
Please share your thoughts in the comments section.