Let’s say I own some Bitcoins. I want to sell them to a friend. Do I need a license to do that? This question came up after I was informed that a Missouri man pleaded guilty to operating an illegal money transmitting business.
First, a disclaimer: I am not an attorney. For legal advice, go speak to an attorney specializing in money transmittal law. I am not that person.
If you are in the business of exchanging currency for currency, you need a money transmittal license. Let’s say you open a check cashing store; you may need that license. These licenses are generally on the state level and possibly also from FINCEN (the Financial Crimes Enforcement Network). So clearly Bitcoins, which are property for tax purposes, aren’t a currency, right?
Not so fast. Bitcoins are property in the world of the IRS, but in the view of FINCEN they’re a currency. Bitcoin advocates consider Bitcoins to be a digital currency (or a cyrptocurrency). So two different units of the same government agency (the IRS and FINCEN both fall under the Department of the Treasury) treat the same thing quite differently.
So let’s say I have lots of Bitcoins, and I trade them with a US Bitcoin exchange such as Coinbase. Do I need a money transmittal license? My thinking is no: Coinbase is a licensed money transmittal business, so my selling to them is part of their business.
Let’s say my Aunt Rose gave me five Bitcoins and I sell them to my friend Scott. It’s the only transaction I have in Bitcoins. It’s hard to see how I’m in the business of selling Bitcoins.
On the other hand, suppose I’m a poker player who does quite well on a poker site such as Ignition, and every month I receive some Bitcoins. Rather than selling them to an Exchange I decide to start selling them to others and make more money. That sounds like a business to me, and it might to the US government, too. In that case you should consider speaking with an attorney immediately to determine if what you’re thinking of doing complies with federal, state, and local laws.
Back in the days when Neteller was serving US poker players one of my clients considered going into business facilitating other poker players being able to move money from poker site to poker site. He had a lot of money on Neteller so he was able to deposit money onto (say) Absolute Poker and, in exchange, take money from PokerStars. When he spoke with me I mentioned to him that this might run afoul of the money transmittal laws and strongly suggested he speak with an attorney. The attorney he consulted advised him that my instincts were accurate. I suspect if someone were facilitating such Bitcoin transfers today this, too, would also run afoul of the money transmittal laws.
Getting back to my original question: Do I need a license to sell Bitcoins to a friend? The answer is likely no. But if I go into the business of selling Bitcoins the answer appears to be yes.
Tags: Bitcoins