January 07, 2019
by Katherine Cooper

On January 2, 2019, the Texas Department of Banking issued revised guidance on the application of the Texas Money Services Act to virtual currency transactions.[1]  This guidance revises and supersedes the Department’s 2014 guidance offering new perspectives on certain stablecoins and so-called "Bitcoin ATMs."  Like its 2014 guidance, the Department’s 2019 guidance states that a person’s exchange of one decentralized virtual currency for another is not money transmission.  Also, like its earlier guidance, the exchange of a decentralized virtual currency for sovereign currency between two parties is also not money transmission, but a person’s transmission of fiat currency to or from a third-party exchange for the purchase or sale of virtual currency is money transmission.

The Department’s 2019 guidance breaks new ground in offering a view of the application of Texas law and regulations to stablecoins backed by sovereign currency.  For these stablecoins, the Department reasons that “because a sovereign-backed stablecoin may be considered money or monetary value under the [Texas] Money Services Act, receiving it in exchange for a promise to make it available at a later time or different location may be money transmission.”[2]   It explains that the question of whether dealing in stablecoins requires a money transmitter license

will turn on whether the stablecoin provides the holder with a redemption right for sovereign currency thus creating a claim that can be converted into money or monetary value. This is true regardless whether the redemption right is expressly granted or implied by the issuer.[3]

The guidance does not define what an implied redemption right might consist of.  For instance, is a stablecoin issuer’s statement that it intends to make markets in the coin to help it track the underlying sovereign currency’s value an implied redemption right?  In addition, although the guidance acknowledges that there are other types of stablecoins, such as coins backed by precious metals,[4] the Department did not offer an interpretation regarding how Texas law and regulations may apply to stablecoins not pegged to a sovereign currency.

Finally, the guidance states that generally the exchange of virtual currency for sovereign currency through so-called “Bitcoin ATMs” is money transmission because such machines’ “default mode [of operation is to act as] an intermediary between buyers and sellers.”[5]  However, if instead, the machine is merely facilitating the purchase or sale of virtual currency for sovereign currency in a transaction involving only the owner of the machine and a customer, that is not money transmission.


[1] Supervisory Memorandum 1037, Regulatory Treatment of Virtual Currencies Under the Texas Money Services Act (Tx Dept Banking Jan 2, 2019) available at: https://www.dob.texas.gov/public/uploads/files/consumer-information/sm1037.pdf

[2] Id. at 5.

[3] Id.

[4] Id. at 2.

[5] Id. at 5.

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Blockchain technology utilizes a distributed digital ledger to record and track information, and can be leveraged to gain transparency and certainty in transactions ranging from cryptocurrency to supply chain tracking.  This blog provides information on the legal developments surrounding implementation of blockchain technology, with an initial focus on the financial services sector.