
Coinbase is indefinitely suspending its business in Wyoming - davidgerard
https://support.coinbase.com/customer/portal/articles/1999937-coinbase-accounts
======
tdees40
Slightly OT, but I have an amusing story about Montana-based regulation. I
work for an insurance company, and when you price life insurance or annuities,
you have two separate mortality tables: male and female. Montana decided that
that's discriminatory, so they mandate only using one table. So we use
whichever table is more onerous (i.e. male for life insurance, female for
annuities). So if Montanan women notice they pay more life insurance, or men
pay more for annuities, they can thank their local regulator.

~~~
mrgoldenbrown
I don't think you can blame the regulator for that. If you wanted you could
calculate tables for "people" regardless of gender. Those tables would more
accurately reflect the population than purposely choosing the wrong subset of
data to use.

~~~
tdees40
That leaves you open to anti-selection bias. It would make men's life
insurance cheaper than in any other state, and you'd likely get more men
buying in Montana.

~~~
pbreit
I do t think he's saying remove gender from the equation. Just don't have two
tables based solely on gender.

------
doragcoder
How does this even work? Meaning if I live in WY, but I bank at "Small Union
Bank of Delaware" Does that mean I'm using anything with in the realm of the
Wyoming Division of Banking? Would just using an ATM put me under their
jurisdiction? Because if I by something from Amazon, the transaction is
basically from my bank in DE to WA if there are no Physical Amazon locations
in WY. Correct?

~~~
jahewson
> if I by something from Amazon, the transaction is basically from my bank in
> DE to WA if there are no Physical Amazon locations in WY. Correct?

Incorrect. What matters is the state (or states) in which the company is
"doing business". The exact definition varies from state to state, but in
general having customers in WY means that you're doing business there and will
(usually) need to register with the state, follow its rules and pay its taxes
for your sales in that state.

Your bank is also doing business in DE and will need to follow their laws too,
as the other end of the transaction is there.

------
minimax
Wyoming has something like 0.2% of the US population. I wonder if the number
of Wyoming-based active accounts at Coinbase even reaches into the triple
digits.

~~~
at-fates-hands
They must have something substantial enough to warrant a press release. Makes
you wonder, doesn't it?

~~~
jegutman
I mean possibly yes. But they also might hope to someday have 4 digit numbers
of users and know they can shame states, especially reddish states, by
claiming they have too much regulation. Worked pretty successfully for
zenefits in Utah.

------
CPLX
Both people in Wyoming could not be reached for comment.

------
ademarre
What does this mean for Wyoming customers who already have bitcoin in
Coinbase-hosted wallets?

~~~
wrayjustin
Even on account suspension CB let's you remove your current funds. I'm
assuming the customers will have a time-period where they can remove those
funds.

------
ibejoeb
Huh. I'm about to go read the the books, but that sounds like a wild
interpretation. That sounds like some odd parity reserve, rather than the
fractional reserve system common in almost any other domain.

~~~
Animats
No, it's standard for "money transmitters" to have to maintain 100% reserves.
Coinbase isn't a bank. They're not a lender. "Fractional reserve" means that a
fraction of a bank's assets are in cash, and the rest are in loans owed them.
That's fine unless a lot of loans go bad all at once, as in 2008. Even then,
it eventually worked out when the economy came back.

Here's Wyoming's law:

 _" Each application shall be accompanied by a surety bond, irrevocable letter
of credit or other similar security device acceptable to the commissioner in
the amount of ten thousand dollars ($10,000.00) or two and one-half (2) times
the outstanding payment instruments, whichever is greater. The commissioner
may increase the required amount of the bond or security device to a maximum
of five hundred thousand dollars ($500,000.00) upon the basis of the impaired
financial condition of a licensee as evidenced by a reduction in net worth,
financial losses or other relevant criteria."_[1]

For most money transmitters, this isn't a big deal. They don't hold the money
for long. The whole point of the business is to get funds from A to B quickly.
So they don't have a large obligation to their customers at any one time.

Coinbase's "hosted wallet" service makes them a depository institution -
customers have funds on deposit with them. Given the track record of Bitcoin
"hosted wallet" companies, most of which have failed, requiring reserves as a
consumer protection measure makes good sense. Coinbase could post a bond from
an insurance/bonding company, but they'd have to convince the insurance
company of their financial soundness. That they can't easily do so is a bad
sign.

Coinbase should still be able to do their business of converting Bitcoins to
dollars for merchants. They only hold the money for a few hours, and should be
able to have reserves for that float.

If Coinbase became a bank or a broker, they'd be subject to US Federal
regulation and audits, but would no longer need state licenses. They're trying
to sleaze by as a "money transmitter", while acting as a depository
institution, and it's not working out for them.

[1]
[http://legisweb.state.wy.us/statutes/statutes.aspx?file=titl...](http://legisweb.state.wy.us/statutes/statutes.aspx?file=titles/Title40/T40CH22.htm)

~~~
thinkcomp
Untrue. It's standard for money transmitters to obtain surety bonds, but never
have I seen a 100% reserve requirement flat out.

That being said, given Bitcoin's history, I don't think Wyoming's
interpretation is unreasonable.

~~~
Animats
California requires 100% reserves up to $7 million.[1] For a real "money
transmitter", this isn't a big deal, because money stays in their system for
about a day, often less. For Coinbase, which is trying to be a broker on a
money transmitter license, it's a problem. They hold customer assets for long
periods.

Coinbase ought to register with the SEC as a broker/dealer. That would free
them from state regulation. Then their customers would have SIPC insurance. Of
course, Coinbase would have to accept FINRA audits and regulation. Right now,
they don't even publish financial statements.

[1] [http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin&gr...](http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin&group=01001-02000&file=2000-2003)

~~~
thinkcomp
That's not what it says, and that's not any of the sections where it says it.
§2037(e) says you need a surety bond.

[http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin&gr...](http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin&group=02001-03000&file=2030-2043)

Surety bonds are not 1:1 reserves.

~~~
Animats
CA Fin. Code sec. 2037(e): _" A licensee that engages in receiving money for
transmission shall maintain securities on deposit or a bond of a surety
company in an amount greater than the average daily outstanding obligations
for money received for transmission in California, provided that such amount
shall not be less than two hundred fifty thousand dollars ($250,000) nor more
than seven million dollars ($7,000,000)._"

A surety bond is an insurance policy good for the full amount of the bond. A
bonding company[2] will have a lot of questions to ask a Bitcoin business
before taking on that risk.

[1] [http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin&gr...](http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin&group=02001-03000&file=2030-2043) [2]
[https://suretygroup.com/surety-bond/money-transmitter-
bond](https://suretygroup.com/surety-bond/money-transmitter-bond)

------
gigq
This would only make sense if when you moved bitcoins into coinbase they
immediately converted them to USD. In that case, sure they would need to have
USD on hand to cover your funds.

In the case where you are storing the bitcoins with coinbase and not
converting it they just need to make sure they have the bitcoins on hand.
Forcing coinbase to both hold bitcoin and USD to cover the value of those
bitcoins makes no sense.

~~~
davidgerard
Explanation here:
[https://news.ycombinator.com/item?id=9661614](https://news.ycombinator.com/item?id=9661614)

> If Coinbase became a bank or a broker, they'd be subject to US Federal
> regulation and audits, but would no longer need state licenses. They're
> trying to sleaze by as a "money transmitter", while acting as a depository
> institution, and it's not working out for them.

------
oconnor663
> licensees must maintain dedicated fiat currency reserves in amount equal to
> the aggregate face value of all bitcoin held on behalf of customers

Does bitcoin have a "face value"? I'm not sure what the legal definition of
that term is, but I'd be surprised if it was the same as "market value".

~~~
dragonwriter
> Does bitcoin have a "face value"?

No, clearly not. Which is one thing that makes either the interpretation or
Coinbase's understanding of it ludicrous; given that we have no source for the
actual interpretation by the Division of Banking, its kind of hard to tell
_which_ , though.

------
startupfounder
Indefinitely is a very strong word and goes beyond the initial implications
for the (small) population of Wyoming.

Under this interpretation of Bitcoin companies like Coinbase need to hold the
equivalent value of their state holdings in a fiat currency (deriving it's
value from government regulation), but fiat currency, aka USD, is no longer on
the gold standard (a commodity currency) and thus only holds value because our
government tells us it does and our collective agreement that it does hold
value.

The interpretation of this law would be the equivalent of telling the native
americans they need to hold USD reserves to trade in shell money regardless if
all people collectively agree that shells hold value as a currency for trade.
It's an attempt to continually establish USD being the standard for global
currency value.

If more states follow suit set by this precedent than companies like Coinbase
can't do business and the US Government crushes legitimate bitcoin uses.

This requires Bitcoin to continually evolved into an increasingly
decentralized currency where both individual humans and computers agree on
it's value without the inefficiencies of marketplace or government middlemen.

~~~
Frondo
"... thus only holds value because ... our collective agreement that it does
hold value."

What exactly do you think the value of a given collection of bits is?

~~~
startupfounder
The value of a given collection of bits is whatever you and I agree the value
of those collection of bits is. It's a one to one relationship.

The value of USD is not what you and I agree the value is, it's what the
government tells us what the value should be. This is not a one to one
relationship.

One is based on a transparent mathematical equation between you and I and the
other is based on 7 non-elected and appointed board of governors between you
and I. That's the difference.

~~~
sanswork
How does the US government dictate how much value you assign to the USD? You
could trade me a piece of gum for $1 or a car for $1. In both cases you've
agreed with me on the value of $1 and in both cases that value is different.

You have no more control over the market price of Bitcoin than you do the
forex pricing for USD.

------
thinkcomp
Maybe now some will take my comments about the need for federal reform more
seriously.

[http://www.aarongreenspan.com/writing/20131118.hsgacstatemen...](http://www.aarongreenspan.com/writing/20131118.hsgacstatement.pdf)

