NY’s Crypto Law Saga: From Uptight BitLicense to Federal Copycats? 🚦💸

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The world, in its untamed and endless seeking, must eventually wind its weary pilgrim’s path through New York. One may scorn the state’s intransigence or adore its erratic genius, but let us not pretend it has been a mild shadow in the long twilight of crypto regulation. To reside, to hope, or merely to endure within its gates is to be an unwilling participant in its grand experiment.

It was a full decade ago—though for some it feels as though it were yesterday, for others, a hundred years in an iron lung—that New York erected the first grand cathedrals of rule for those peddling digital coin. They etched into cold stone the now-familiar liturgy: consumer safeguarding, the solemn banishment of dirty money, and an earnest, if futile, pursuit to outwit hackers both domestic and foreign (many of whom, presumably, operate from their mothers’ basements).

By the autumn of 2015, fate’s wheel stopped at Circle Internet Financial, bequeathing upon them the fabled BitLicense, that most coveted scarlet letter. Ripple swaggered in behind them, and together they began their slow ascent to prominence, like nervous minor counts at some great ball. Unbeknownst to them, they would one day feast atop the world’s cryptocurrency and stablecoin tables, slurping blockchain soup adjacent to Wall Street’s venerable fossils.

Now the New York Department of Financial Services presides like an indifferent old aunt over a vast holding pen of crypto hopefuls; “gold standard”, mutter the peasants, perhaps to comfort themselves. Amidst this illustrious gloom, Mr. Ken Coghill, deputy superintendent (and man apparently allergic to an easy life), found himself summoned to Cornell Tech’s hallowed blockchain conference, solemnly intoning the phrase, “A New Era of U.S. Innovation in Crypto”—which brought as much excitement to the room as rain at a picnic.

“We set the guardrails”

Coghill, perched upon his dais in the grand city, mused that the BitLicense-seekers are often themselves but naive children, unacquainted with the dour countenances of state regulators. Half the time, he lamented, they don’t even realize they hold the purse strings to other men’s fortunes. “If you wish to risk only yourself, by all means, race toward ruin unchecked! But the moment you take another’s treasure, the state grows interested—like a bear whose honey has been disturbed.”

If you want to start a business and the only person you’re putting at risk is your own business, that’s not really our concern. We only exist because you’re selling something to somebody else, and you’re maintaining control over that product for someone else.

“We set the guardrails,” he declared (again). The rest is up to industry: innovate or trip and tumble into the regulatory ditch, for the NYDFS delights not in prophecy. Prometheus himself would find it easier to outwit the gods than for the Department to foresee every mishap.

The old banks, those seasoned purveyors of fees and preposterously long wait times, now tiptoe into crypto’s halls, eyeing digital ledgers with the curiosity of cats at a cucumber convention. They try to soothe the public’s nerves—“Look, we too can safeguard your Bitcoin; after all, we’ve spent centuries safeguarding your pennies.” Coghill, perhaps recalling a distant vacation, observed this migration with wry amusement.

Still, New York isn’t exactly issuing BitLicenses like flyers for discount laundromats—just 22 to date (a collector’s item!). Yet even standing sentinel over thousands of banks and insurers, the NYDFS has mustered a small army to scrutinize crypto. Congratulations, applicants: more regulatory eyes upon you than pigeons in Central Park.

Dubai’s crypto regulator

Now, Coghill’s road to Albany was as straight as a sidewinder in mid-July. Once, in another life, the desert winds of Dubai lured him for three years—a “whim”—and kept him a dozen, like some expat Odysseus bound to foreign shores. He rose, as one does, to regulate global banks, designing cryptocurrency supervision models for men in white robes and sunglasses worth more than your rent.

The return to New York was inevitable—a bit like gravity or the end of a Russian winter. The city, he reminisced, is always watched, always emulated in the Gorgon’s mirror of regulation. “The world looks to New York—and the DFS—when regulation has to be both incomprehensible and intimidating.”

What then, does good regulation look like? Coghill kept a straight face but one suspects he was dying to wink. It should not throttle activity—business must wriggle about a bit—but should restrain reckless exuberance (and fleece-wearing fraudsters). Complete safety, he wryly reminded the panel, would mean no business at all, only the gentle snoring of the unemployed.

Regulation, he noted, swings ceaselessly on its melodramatic pendulum: first too generous, then stifling, like a provincial hostess unsure how much vodka to pour. Lately, he observed, the winds have shifted from overzealous crackdowns to a grudging tolerance of innovation.

And out in Washington, DC, the grand theatre rolls on, with politicians—half passionate, half confused—discovering crypto like it’s a new brand of breakfast cereal. DeSilva, moderator and ex-PayPal oracle, called it a “positive tailwind.” Some say “tailwind,” others say “hurricane”; it all depends on what’s left standing when the dust settles.

A pipeline to Washington

For the DFS, said Coghill, it’s “business as usual”—that is, conducting matters within a modern labyrinth of its own making. Many inside the Beltway now idly sketch what New York has already set in stone, sometimes borrowing, often mispronouncing. The DFS keeps a team semi-permanently in DC—one imagines them constantly on Zoom, trying to explain what a blockchain actually is to Congressional aides who stopped updating their phones in 2014.

Imitation is, at least, a form of flattery. California’s new crypto law, for instance, seems half-copied from the BitLicense, as if Sacramento peered over Albany’s shoulder during a particularly tedious exam.

But let’s not pretend the crypto world adores its New York custodians. The BitLicense is not a generous friend: $5,000 just for the privilege of being rebuffed, plus audits, paperwork, and perhaps Kafka reading your application aloud. It was enough to send Kraken scuttling away, convinced they would sooner find Satoshi Nakamoto’s house keys than an easy regulatory welcome in New York.

Comparing centralized institutions to decentralized protocols, Coghill wondered aloud about actual purpose—a question best pondered late at night in Dostoevskian gloom. Some innovations, he noted, only exist to siphon money from gullible souls. Filtering these out is, evidently, part of the job; “We’re paid to look at everything in a dark, dark way”—the rare civil servant who admits to pessimism as a lifestyle.

What happens next in Washington? Coghill shrugged, poetic as any Russian landowner faced with news of reform. “Six months, next week, never—the only certainty is that certainty has left the building.”

What’s going to ultimately happen [in Washington, DC]? Who knows? We could know six months from now. We could know things next week. Things have been changing very rapidly recently.

And so the DFS continues, sorting applications with a bureaucrat’s patient sigh, promising to protect consumers, foster innovation, and, when possible, find a way to sleep at night. It is, in a sense, the grand Russian novel all over again: full of schemes, grand pronouncements, sudden departures—and, if you listen closely, the faint but persistent laughter of New York’s old ghosts. 🗽💰📜

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2025-05-01 18:38