Cryptocurrency Exchange Platform

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IN REPLY REFER TO: ________

        FILE NO: ________

October 9, 2018

Re:       Opinion Request –                                

 

Dear Mr.                   :

Thank you for your email dated July 24, 2018, to Stephen Lau, Assistant General Counsel in the Department of Business Oversight (“Department”).  As Senior Counsel for the Legal Division, I have been asked to respond to this matter.  Your letter requests confirmation that  (“        ”), is not currently required to obtain a license under the California Money Transmission Act in connection with its business activities. 

According to your email,         is a Delaware limited liability company headquartered in Chicago, Illinois.          is a wholly-owned subsidiary of     , which in turn, is a wholly-owned subsidiary of .             is a designated contract market regulated by the U.S. Commodity Futures Trading Commission.

 intends to operate an online cryptocurrency exchange platform (“Exchange”) through which ’ clients can trade certain cryptocurrencies with other      clients in exchange for fiat currency or another permitted cryptocurrency.  Currently,       plans to support the exchange of Bitcoin and Ethereum, and such other cryptocurrencies that  may add in the future.

In connection with the operation of the Exchange,             will provide each client with (1) a custodial virtual currency wallet associated with the client’s user account on the Exchange, and (2) a dollar-denominated account associated with the client’s user account on the Exchange.

The Department has been studying the cryptocurrency industry closely.  Whether Bitcoin and other cryptocurrencies are a viable form of money or a speculative non-money asset is widely debated.  Given this ongoing debate, the Department has not concluded whether Bitcoin and other cryptocurrencies are a form of money.  Likewise, the Department has not determined whether exchange and wallet services like your client’s trigger the application of California’s banking laws or money transmission laws.

Accordingly, the Department is not requiring         to be licensed and supervised under the aforementioned laws at this time.  Please be aware, however, that this is subject to change.  At any time, the Department may determine that           ’ activities are subject to regulatory supervision.  The Department may also adopt regulations or issue interpretive opinions that significantly restrict      ’ business operations.  If          chooses to operate in California, it would do so subject to these risks.  

While not the subject of your inquiry, we note that            has indicated that it may in the future support the trading of cryptocurrencies other than Bitcoin and Ethereum. To the extent that any of those other cryptocurrencies are securities,       may have obligations under California’s broker-dealer laws.  The Department reserves the right to take administrative action against      if it is later determined that      is trading securities in violation of California law.  Therefore, by operating its trading platform in California,        proceeds at its own risk.

Nothing in this letter should be interpreted to relieve       from any obligations under the laws administered by FinCEN or any other agency of the federal government.

 

Sincerely,

 

Jan Lynn Owen

Commissioner

Department of Business Oversight 

 

                By

                                           /s/

 

                                Jennifer L.W. Rumberger

                                Senior Counsel

 

JLWR:acp

 

Last updated: Oct 11, 2019 @ 9:50 pm