A Big Week for Bitcoin

Last week, FinCEN issued two administrative rulings clarifying that certain Bitcoin participants do not constitute money service businesses (MSBs) under the BSA.  The rulings furthered the guidance issued by FinCEN last March, which excluded from the definition of MSB users that obtain convertible virtual currency and use such convertible virtual currency to purchase real or virtual goods or services. In the Guidance, FinCEN established Users are not MSBs because they are not engaged in money transmission services.

First, FinCEN ruled that a Bitcoin miner does not constitute an MSB if it uses the Bitcoins it mines solely for its own purposes and not for the benefit of any other person. FinCEN also ruled that the Bitcoin miner can convert Bitcoin into a real currency or another convertible virtual currency if conversion is executed for the Bitcoin miner’s own purposes and not as a business service performed for the benefit of another. The FinCEN ruling is HERE.

Second, FinCEN ruled that an investor in convertible virtual currencies constitutes a User if such investor purchases and sells convertible virtual currency as investments for its own account. FinCEN also stated that the production and distribution of software, standing alone, do not constitute money transmission services even when the software is intended to facilitate the sale of virtual currencies. The FinCEN ruling is HERE.

This follows the New York Department of Financial Services hearings on Bitcoin and the restoration of BTC China, a popular Bitcoin exchange that was forced to close last December. The shutdown prompted a 50 percent drop in price over several weeks.

Braden Perry, partner in the Kansas City-based law firm of Kennyhertz Perry, LLC and former federal enforcement attorney and veteran in government compliance, has more than 10 years of experience in the areas of financial services compliance, internal investigations, enforcement matters and regulatory issues. He advises highly regulated firms on compliance and frequently speaks on compliance and regulatory topics. He was previously a Senior Trial Attorney for the CFTC and Chief Compliance Officer of a global financial firm. His virtual currency expertise has appeared in national publications, including thebitcoinchannel.com, bitcoineuphoria.com, openruby.com, cutimes.com and tradingacademy.com.

Kennyhertz Perry is a business and litigation law firm representing clients in regulated industries. The Kansas City-area firm was founded by John Kennyhertz and Braden Perry, both of whom have extensive experience in business law, litigation and financial services.