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Crypto Law/Level I · What crypto is in law/1.3 Who's who/Lesson 6

State regulators and the BitLicense

Why a crypto business may need a licence state by state, how New York’s BitLicense works, and how California and others are following.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Living in a state with no personal income tax, such as Florida, Texas, Nevada, Wyoming or South Dakota, removes state tax on crypto gains; moving requires a genuine domicile change, and New York taxes as residents those keeping a home there and spending over 183 days.
  2. Check a platform’s state licences free in NMLS Consumer Access and the NYDFS list before depositing; a licensed operator offers a state complaint route, though a licence is no guarantee against loss.
  3. Wyoming LLCs, including DAO LLCs, cost a $100 filing fee plus a $60 minimum annual report and keep member names off the public filing; federal tax reporting and identity checks by banks and exchanges still apply.
  4. In California, licensed kiosk operators may not accept or dispense more than $1,000 a day per customer, so larger purchases must go through another channel, such as a licensed exchange; the DFAL licence requirement has applied since 1 July 2026.

MaterialsThe New York DFS page on virtual currency businesses and its list of regulated entitiesNew York’s BitLicense regulation, 23 NYCRR Part 200California DFPI’s Digital Financial Assets Law pageNMLS Consumer Access (nmlsconsumeraccess.org), which shows many state licences

Wonder

  1. Why do some crypto apps refuse customers from New York?
  2. Does a federal rule replace the state rules, or do both apply?
  3. What is different about crypto ATMs in California?

Explore

  1. The United States has two layers of financial regulation: federal agencies and the 50 states. Most states license ‘money transmitters’, businesses that move money for others, and many treat crypto exchanges and custodians as money transmitters too, so a platform serving people nationwide may need a separate licence in each state. State banking or financial departments supervise these licensees. State securities regulators enforce their own securities laws, and state attorneys general bring consumer-fraud cases. Federal registration with FinCEN (lesson 1.3.4) does not replace any of this.
  2. New York went furthest first. Its Department of Financial Services (DFS) adopted the ‘BitLicense’ regulation, 23 NYCRR Part 200, in June 2015. Anyone conducting virtual currency business activity involving New York or its residents needs a licence. The covered activities are transmitting virtual currency, holding it in custody for others, buying and selling it as a business, providing exchange services, and controlling, administering or issuing a virtual currency. People investing for themselves, merchants accepting crypto for goods, and software developers are among those exempt.
  3. A business may instead obtain a New York limited purpose trust company charter, which also allows fiduciary powers that a BitLicensee does not have. Licensees include large firms such as Coinbase, Gemini, Circle and PayPal. The DFS enforces its rules: on 4 January 2023 Coinbase agreed to pay a $50 million penalty and invest another $50 million in compliance after the DFS found failures in its anti-money-laundering programme, including a backlog of over 100,000 unreviewed transaction-monitoring alerts by late 2021. The cost of meeting these rules is one reason some services simply exclude New York residents.
  4. California has built its own regime, the Digital Financial Assets Law (DFAL), run by the Department of Financial Protection and Innovation (DFPI). A bill signed on 29 September 2024, AB 1934, moved the licensing date from 1 July 2025 to 1 July 2026. Since that date, companies doing digital financial asset business with Californians must hold a DFAL licence or have applied for one. Crypto ATM operators, called kiosk operators, have had separate rules since 1 January 2024, including a limit of $1,000 a day accepted from or dispensed to each customer.
  5. States are also trying to make their rules more alike. The Conference of State Bank Supervisors promotes the Money Transmission Modernization Act, a model law with common standards for capital, bonds and investments; it says 31 states have enacted it in full or in part. Federal law now builds on states in one area: under the GENIUS Act, a state-qualified stablecoin issuer with no more than $10 billion outstanding may choose a state regime if it is substantially similar to the federal one, and must move to federal oversight above that size (lesson 1.2.5).
  6. For an ordinary user, state law explains why access, limits and protections differ by address: the same app may offer a product in one state, refuse it in another, or cap kiosk withdrawals. A licence is not a guarantee against loss, but an unlicensed operator offers less recourse when things go wrong. A practical check: look up a platform’s legal name in NMLS Consumer Access to see which states license it, and for New York, check the DFS list of regulated virtual currency entities.

Key facts

  • New York’s DFS adopted the BitLicense regulation, 23 NYCRR Part 200, in June 2015.
  • The BitLicense covers transmitting, holding in custody, buying and selling as a business, exchanging, and controlling, administering or issuing virtual currency involving New York or its residents.
  • A New York limited purpose trust company charter is an alternative to a BitLicense and allows fiduciary powers.
  • On 4 January 2023 Coinbase agreed with the New York DFS to pay a $50 million penalty and invest $50 million in compliance.
  • California’s AB 1934 moved the Digital Financial Assets Law licensing date from 1 July 2025 to 1 July 2026.
  • Since 1 January 2024 California kiosk operators may not dispense or accept more than $1,000 a day to or from a customer.

Exercise nine, six, three, one

9CollectList up to 9 crypto services you use or know of and, for each, write down which state or states it says it is licensed in (some lists are shorter).
6ClusterSort them into 6 categories: licensed in New York, licensed in California, licensed in many states, licensed in only a few, chartered as a trust company, and no licence information found.
3DistillReduce the 6 to 3 groups: services licensed where you live, services not licensed where you live, and services whose licensing you could not confirm.
1CrystallizeWrite 1 sentence explaining, in your own words, why the same crypto app can behave differently depending on which US state you live in.

Fact check

Dates, figures and claims checked against the published sources listed below.

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