The New York State Bitlicense was drafted with the intent to enforce multiple restrictions and regulatory control on Bitcoin and cryptocurrency businesses that operate in NY. New York's former Superintendent of Financial Services Benjamin Lawsky is responsible for the drafting of the Bitlicense, which was put into effect in June. It is already driving some Bitcoin startups out of New York.
Poloniex, Shapeshift, Kraken and Bitfinex are among several Bitcoin startups that have announced the discontinuation of service to customers in the state of New York. These companies have stated that the high cost of obtaining a Bitlicense to legally operate in NY as the reason for leaving the state. Lack of financial and regulatory support from banks and other financial institutions has been reason to leave as well.
Bitstamp, ItBit, and Gemini have announced plans to obtain a Bitlicense and continue operations in NY. The application process costs a $5000 fee, a hefty sum for startups that are tight on operational costs. Additionally, legal and compliance costs can raise the entire price tag to around $40k just to be compliant in operating within NY.
While the Bitlicense only affects companies that are servicing customers in New York, other states may use it as a framework for drafting their own regulatory structure over digital currency. This could stifle innovation in the cryptocurrency space in certain states if the legal and compliance costs prevent startups from participating in this fledgling market. Entrepreneurs will be forced to limit their business in regions where the barrier to entry is much lower.
However, California passed a more Bitcoin-friendly regulatory bill that requires companies to obtain a $5000 license only if they are completely holding users' funds. With protocol innovations such as multi-sig, startups could operate in California without being subject to onerous regulation. A more progressive regulatory framework will allow startups to innovate without the heavy weight of regulation.