At a time when several cities and nation-states of the world are warming up to regulating the blockchain and cryptocurrency ecosystem, Kraken, a pioneer bitcoin and altcoin exchange, have made it clear to New York regulators that it won’t respond to their irrelevant inquiries.
Mind Your Own Business
At current, several cities in the United States are tailoring their cryptocurrency regulatory frameworks as it best suits their stance on digital currencies. However, the New York Attorney General has run into a brick wall by entirely leaving his territory to send an inquiry document to the San Francisco-based exchange.
Its worthy of note that New York State Department of Financial Services proposed the BitLicense guideline in July 2014 and it came into effect in August 2015. The BitLicense requires all bitcoin-related businesses in New York to keep at least a ten-year record of their transactions and compulsorily invest in New York bonds, amongst other regulations.
At the time quite many fintech and bitcoin firms including Kraken exchange announced their exit from the state as they felt the BitLicense was too draconian for the survival of their businesses. The CEO of Kraken expressed his dissatisfaction with the law back in 2015 by stating that, “The BitLicense comes at a price that exceeds the market opportunity of servicing New York residents. Therefore, we have no option but to withdraw our service from the state.“
Fast forward to April 17, 2018, Kraken gets a letter from New York Attorney General, Eric Schneiderman as part of his new inquiry into the activities of cryptocurrency exchanges.
The questionnaire requires the exchanges to fill in details concerning their operations, internal controls, conflicts of interests amongst other information. Interestingly, a handful of exchanges have commended the move, and are very much interested in providing the necessary information to the AG. However, Kraken sees the entire scenario quite differently.
“Kraken’s BitLicense-prompted exit from New York in 2015 pays another dividend today,” said CEO Jesse Powell via email. He also reiterated that “I realized that we made the wise decision to get the hell out of New York three years ago and that we can dodge this bullet.”
Somebody has to say what everybody's actually thinking about the NYAG's inquiry. The placative kowtowing toward this kind of abuse sends the message that it's ok. It's not ok. It's insulting. https://t.co/sta9VuXPK1 pic.twitter.com/4Jg66bia1I
— Jesse Powell (@jespow) April 18, 2018
In response to Powell’s comments, the spokesperson for the New York Attorney General’s office told news sources via email that:
“Legitimate entities generally like to demonstrate to their investors that their money will be protected. This is basic information that credible platforms should all have on hand.”
Powell wasted no time at all in defending his actions. He reiterated that Kraken is open to regulation and collaboration with authorities, but he feels the Attorney General’s approach is not the right one. In his words, “Why don’t you try extracting this information from those businesses actually operating in your state?”
Trying to Be a Leader
As stated earlier, there are yet to be federal laws in the U.S. crypto ecosystem, the state of New York may just be trying to force itself into becoming a national regulatory watchdog in the United States.
On April 16, 2018, BTCManager reported that the head of the New York State Department of Financial Services, Maria Vullo, said that the introduction of BitLicense to the state had boosted business.
“The regulatory structure that we created for virtual currency has helped our licensed companies attract greater interest from customers, investors, and potential financial services partners seeking to pursue further innovation,” she said.
The digital currency ecosystem needs to be regulated. However, the New York style of regulation may stifle the growth of the industry as the state has a harsh stance toward the virtual currency ecosystem. Notably, since the state introduced its strict BitLicense law four years ago, only three firms have been granted the license.
Powell was right. New York authorities should leave the world alone and concentrate on the affairs of the state.