Update on LocalBitcoins Trading

Video transcript:

Hey, everybody, this is a very sick Adam Tracy. I wanted to do a follow-up on an earlier video I did regarding LocalBitcoins and it seems your bigger issue in terms of what are the legalities of being a high-volume buyer and seller on sites like LocalBitcoins, right? Do you need a money exchanger or money transmitter license? And there’s two cases that I found that I think bear some importance. One is the Wagner case and the other is the Lord case. And in both cases, there were criminal indictments related to parties’ buying and selling of Bitcoins on LocalBitcoins. And high-volume. Very, very high volume. And the problem is there’s no set limit that I could point to that would say, “If you’re over this limit, get a license. If you’re under this limit, you don’t need a license.” But there’s two commonalities between both of those scenarios that I think bear explaining and are probably worth the time to consider if you think you really need to get one of these licenses.

One, in both instances, these individuals were buying and selling Bitcoin, right? They weren’t simply liquidating a Bitcoin position for their own investment. They were speculating on Bitcoin, and so their Bitcoin involved both purchasing through LocalBitcoins and selling through LocalBitcoins…and other sources, for that matter. So definitely something to consider, because really they were almost acting as a money exchanger. Because on one end, they were accepting currency for Bitcoin, and then on another end they were selling the same Bitcoin and accepting other currency. Second, they were involved in large-scale cash transactions, especially the Lord case. The Lord case involved someone who was using a credit card processor under the guise of a chiropractor’s office when it certainly wasn’t a chiropractor’s office. But they were handling large amounts of cash. And when you handle large amounts of cash, that’s obviously gonna catch attention. Also, if you receive cash in excess of $10,000, you have an IRS reporting requirement on Form 8820, if my memory serves me.

So, it’s very important to note that if you’re gonna do these one-on-one transactions, especially if you’re gonna accept cash, whether it’s in person or through, like, a bank deposit or something like that, you start to look like a money service business. You bear the indicia of a money exchanger, and that, under state law, would require a license. And under federal law, under FinCEN, you’d have to register as a money service business. So, you know, while there is no definite, you know, limit in terms of how much money, you know, you can transact or a dollar amount of Bitcoin that you can transact on LocalBitcoins and evade having to register as a money service business, it does bear…you know, note that one if you are gonna be involved in speculation where you’re buying and selling, and you’re buying and selling solely through private means, mostly through like places like LocalBitcoins and you’re involved in cash and cash transactions, it’s definitely something to consider. I would expect that the language of the law is gonna get much tighter with respect to these deals and, you know, the ability to operate without a license, a money transmitter license, at the state level, and then the mandatory registration as a money service business with FinCEN at the federal level. So, something to consider. I wanted to follow up on a previous video because I didn’t think I went all the way. But hopefully that had some clarifications. And many of you have reached out to me about that vide, so I appreciate the feedback ,as I always do. So feel free to check me out. Tracyfirm.com, T-R-A-C-Y-F-I-R-M.com. Thanks.

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Adam S. Tracy, J.D., M.B.A. Attorney At Law
Adam S. Tracy, J.D., M.B.A.

Bitcoin attorney, Adam S. Tracy , J.D., M.B.A. is an authority in the law of blockchain technology with keen understanding of the regulatory issues facing crypto currency industries and can help you navigate regulatory waters in the field where innovation collide with the law and taxation issues. Located in Chicago, Adam has built his career in one of the world's great financial hubs while helping clients locally and around the world managing the complex process of cryptocurrency compliance.

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