Bitcoin Banking and Compliance

bitcoin banking

Bitcoin Banking and Compliance

Published Saturday, December 30th, 2017

Bitcoin banking and compliance are top of mind for regulators as we move into the New Year. At the end of 2017, CME started trading Bitcoin futures, further legitimizing the digital currency. Bitcoin started 2017 with a value of less than $1,000 per coin. After a high of roughly $20,000, Bitcoin stabilized around $14,000.  Individuals are clamoring to add Bitcoin to their portfolios and apps like Lawnmower are making it easier than ever before for people to enter the Bitcoin market.

Bitcoin Compliance

Bitcoin compliance involves processes to aid in the detection, prevention, and prosecution of financial crimes related to the cryptocurrency. Regulators are concerned with Bitcoin since it exists outside of the centrally regulated financial system. The decentralized system makes imposing and enforcing regulations difficult. The anonymous nature of Bitcoin exchanges and the blockchain technology that drives the currency make regulation even more elusive. As digital currencies prove they are here to stay, regulators are wrapping their heads around the relative financial newcomer and handing down rules and regulations.

The Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and the US Department of the Treasury (including the Financial Crimes Enforcement Network, or FinCEN) are handing down a slew of new rules relating to Bitcoin and its peers. The CFTC designated bitcoin as a commodity in 2017, which puts fraud or manipulation involving Bitcoin and the regulation of commodity futures tied to Bitcoin under its authority. FinCEN prosecuted a financial crime case across borders involving Bitcoin, showing their commitment and follow through when it comes to digital currency regulation. The SEC is still holding out on its involvement with bitcoin. The SEC has yet to approve any ETFs or other products holding cryptocurrencies. They also haven’t registered any initial coin offerings (ICO) on the exchange.

Countries around the world are grappling with the rise of Bitcoin in various ways. Canada is taking a “regulate and embrace” approach with very light digital currency regulation. The Central Bank of Brazil has issued a standard warning about the risk of digital currency. Bulgaria has determined that individual income resulting from the sale or exchange of bitcoin will be treated as taxable income from a financial asset. In Australia, digital currency exchanges will be subject to registration and regulation beginning in 2018. Digital currency transactions will remain subject to income and capital gains taxes.

Bitcoin Trends

Initial coin offerings (ICOs) are increasing in popularity, bringing their own compliance challenges with them. An ICO is an unregulated way to raise funds for a new cryptocurrency venture. The ICO or IPCO (Initial Public Coin Offering) is primarily used by startups to bypass the heavily regulated capital-raising process they would be subject to through a venture capitalist or bank. In an ICO, a percentage of the cryptocurrency is sold to early backers in exchange for legal tender or another cryptocurrency. Bitcoin is the most popular digital currency used in ICOs.

ICOs are more similar to a crowdfunding event than they are to an traditional investor-driven IPO. Ethereum, a smart contracts platform, is a great example of a successful and recent ICO. In 2014, Ethereum raised $18 million in Bitcoins through its ICO, or $0.40 per Ether. The project went live the following year and by 2016, the price per Ether went up as high as $14 with a market cap of over $1 billion. In the case of an unsuccessful ICO, the funds or units are returned to the individuals who backed the project. Regulators have a sharp eye on ICOs as they become more frequent.

Bitcoin Banking

One of the biggest pieces in the Bitcoin compliance puzzle is Bitcoin banking. Bitcoin-related businesses rely on a strong banking relationship and access to an operational bank account to provide services. This bank account enables Bitcoin ATM owners to accept and return cash for Bitcoin transactions. As regulators grapple with the digital currency, banking options are scarce. In the US, financial institutions are regulated by the Department of the Treasury, the SEC, and FinCEN, to name a few. As regulations change, banks are scrambling to comply, just like businesses.

One way for banks to manage ever-changing regulation and risk is to simply deny banking services to Bitcoin-related businesses. This phenomenon is known as derisking and is incredibly damaging to the alternative financial services and digital currency industries. When banks derisk, Bitcoin-related businesses are forced to find long-distance banking partners or even to shut down operations when a bank account can’t be secured.

Even if a Bitcoin kiosk operator secures a bank account in the next state, their troubles aren’t over. Managing a company is a 24 hour job and traveling hours to and from your bank is not feasible for most. As demand for Bitcoin continues to rise, many business owners are missing out on growth due to banking constraints.

Bitcoin-Friendly Banking Solutions

BankLine was founded to solve the Bitcoin banking crisis in the United States. We provide real, reliable Bitcoin bank accounts to compliant Bitcoin-related businesses. These accounts are backed by a network of Bitcoin-friendly banks, ensuring that you stay banked, even in the face of derisking. BankLine’s team of Bitcoin compliance experts works alongside every client to streamline and strengthen business processes while reducing fraud.

With BankLine, your Bitcoin ATM business can grow to meet increasing demand! As you build your business, additional supportive services will help you scale. This includes access to BankLine’s exclusive nationwide Bitcoin cash logistics program. BankLine forged a partnership with TransGuardian and Rapid Armor to create a coast-to-coast cash transportation system using the USPS. Every package is fully insured through TransGuardian’s Lloyd’s of London policy. You can track your package using TransGuardian’s cutting edge tracking system, RADAR. This service is available at any USPS-accessible location in the United States. The service is entirely bank agnostic, meaning you will no longer be confined by your bank’s cash logistics territory.

Cash logistics will transform your business, free up your time, and solve the Bitcoin banking puzzle. As regulations and compliance continue to change, choose a partner to help you build a lasting Bitcoin-related business.