China's three largest Bitcoin exchanges have joined forces to warn New York regulators of the potential damage if proposed regulations for cryptocurrency are implemented.
In a letter signed by the chief executives of BTC China, Huobi and OKCoin, the companies said the proposed "BitLicencses" by New York State authorities – which will apply to all Bitcoin-related businesses doing business in New York and their affiliates – are far too broad in their scope. They added that new regulations should only apply to businesses with a "meaningful connection" to the region.
"While we are companies organised under the laws of the People's Republic of China, we believe that it is not only appropriate, but also necessary for us to express our thoughts on certain aspects of the BitLicense proposal because the block chain protocol is decentralised, because regulations in New York have long been given great deference and are modeled after by regulators around the world," the letter said.
The peer-to-peer digital currency has its payments recorded on a public ledger called the block chain.
Fans of cryptocurrency across the world are watching carefully to see whether New York's plans for a tougher regulatory regime will be replicated elsewhere.
Bitcoin companies are highly sceptical about a license that would allow the New York Department of Financial Services (NYDFS) to access information about them and their affiliates, even if affiliates' business has no connection to New York or cryptocurrency.
The three major Chinese exchanges argued that the license holder's affiliates should only disclose relevant information to the authorities. The new rules also suggest the agency will require a series of checks and enhanced due diligence on non-US customers. If they are implemented as is, the move could drive business away from New York and towards more relaxed jurisdictions.
A BTC China spokesperson told digital currency news site Coin Desk: “It is extremely difficult to comply with the regulation as written, and may force us to avoid doing business with ‘New York persons’ or avoid the US entirely. The greatest concern is that other regulators in the US and around the world will follow New York state, which would be very damaging to the industry.”
The NYDFS proposed issuing Bitlicense back in July on the grounds of consumer protection, prevention of money laundering and enforcement of cyber security.
James Smith, CEO of London-based digital currency storage company Elliptic, told CNBC he thought the measures were "very heavy-handed."
The letter echoes the criticisms of academics from George Mason University's Mercatus Centre. On Monday, Jerry Brito and Eli Dourado released a 14-page response to the proposal.
They argued BitLicense regulations are often more strict than incumbent money transmitting licenses, making a mockery the NYDPS's promise to be accommodating to the “unique characteristics” of Bitcoin.
“The obligations faced by BitLicensees should not be any more burdensome than those faced by traditional money transmitters. Otherwise, the new regulatory framework will have the opposite effect of the one intended […] If it is more costly and difficult to acquire a BitLicense than a money transmission license, we should expect less innovation,” they said in their response.