Bitstamp, which has obtained Luxembourg trading license, still has a bumpy road ahead in Europe

Rage Comment : Bitstamp's acquisition of a bitcoin exchange license from Luxembourg has sparked people's endless expectations, and they all believe that bitcoin exchanges can obtain legal status throughout Europe; however, not everyone is so optimistic. Some people believe that regulators in EU countries will conduct their own license evaluations, and the pace of innovation in various markets is inconsistent. Moreover, the current global anti-terrorism situation is extremely severe, so it is impossible for the license to be recognized by the whole of Europe so easily. And from Bitstamp's objective performance in the foreign exchange market, it can also be seen that it does not have such great potential.

Translation: Annie_Xu

Bitstamp has always been one of the most famous Bitcoin exchanges in the world. It was once sought after after it obtained a digital currency payment license issued by Luxembourg.

Bitstamp claims the license makes it the first “fully licensed” bitcoin exchange in Europe.

Rumors surrounding the news have been swirling for weeks, polarizing market observers; some see the license as a boon to the crime-fighting industry, while others believe Bitstamp’s path to expanding business in the EU remains bumpy.

Chris Skinner, founder of a new blockchain venture capital firm, expressed optimism that the license is a testament to the growing acceptance of digital currencies.

“Bitstamp is a company with security issues, but the fact that the EU has granted it a license is a testament to the growing credibility of the Bitcoin community and something we need to take note of.”

Michael Jackson of Mangrove Capital Partner echoed this sentiment, arguing that the license should be seen as an endorsement of the Bitstamp team.

However, some remain skeptical about whether the Luxembourg-issued payment institution license for Bitstamp will be accepted by other EU countries.

Adam Vaziri, founder of Diacle, a legal consulting firm in the fintech sector, pointed out that other EU countries may consider the license incompatible with Bitstamp’s business activities and require further negotiation.

News of the license comes as the Bitstamp exchange is set to launch bitcoin/euro trading, with the license reportedly not set to go into effect until July 1.

What it means to businesses

Many related comments compared this license with the e-money license of another payment service company Circle, arguing that both are traditional payment licenses regulated by the EU Payment Services Directive (PSD).

According to blockchain lawyer Jacek Czarnecki, the notable difference between the two is that Bitstamp cannot issue digital currencies like Circle does, but both can offer services in all countries in the European Economic Area as long as they notify regulators in advance.

And Czarnecki isn’t the only one who thinks EU countries will treat Bitcoin licenses differently, with Juan Llanos, head of blockchain compliance at Skry, arguing that the license does not guarantee approval in other jurisdictions.

Juan Llanos

He said:

“It would obviously be much simpler to apply the same license to all EU countries than to apply for a new license; however, each country’s payment regulator would still have to do its due diligence and risk assessment to determine whether to approve the license.”

Vaziri went on to elaborate on the differences in regional laws surrounding licensing.

“The main reason why the UK Financial Conduct Authority considers that virtual currency exchanges are outside the PSD is that the primary purpose of the exchange is not to provide payment services. Germany’s Federal Financial Supervisory Authority BaFin considers that virtual currency exchanges provide financial instrument transactions.”

However, Bitstamp remains confident that it has permission to operate in Europe.

A company spokesperson said:

"EU passporting rules automatically make the permit legal in all EU countries."

However, the exchange did not provide detailed passport application procedures.

Differences between continents

Circle’s report also prompted market observers to highlight regulatory differences between Europe and the US, with many respondents believing this meant innovators were avoiding the North American market.

Peter Van Valkenburg

Peter Van Valkenburg, research director at nonprofit industry advocacy group Coin Center, said the legal complexity of existing U.S. regulation puts it at risk of losing “the smartest innovators.”

“Bitstamp’s news stands in stark contrast to the U.S. government’s current policy, which requires exchanges to apply for licenses more than 50 times in various states.”

European commentators, however, disagree.

Instead, Vaziri believes that the fragmentation of the European market is as bad as in the United States, as different jurisdictions have different attitudes towards different licenses, even though measures such as PSD have lowered the barriers for companies to enter the payment market.

“The individual markets for financial services are incomplete and out of step with the pace of innovation.”

And both Vaziri and Llanos noted that the license comes at a sensitive time following last year's terrorist attacks in Paris, which have increased pressure on regional regulators.

Llanos said:

"The road ahead is long and arduous. Especially the current severe terrorist attacks will surely increase Europe's efforts to combat terrorist finance."

A major shake-up in the foreign exchange market

The news of Bitstamp’s license may have the biggest impact on the European exchange market, as it will soon have a competitor for the Bitcoin/Euro trading pair.

The US exchange Kraken has long dominated the market and is still the market leader, with a daily Bitcoin trading volume of 6,400 (about 3 million US dollars); the total trading volume of other market participants itBit and Coinbase is less than half of Kraken's.

Representatives of bitcoin trading network Whale Club said the license may not bring back attention to Bitstamp because the exchange does not offer more robust features.

Although Bitstamp ranks fourth in the world in terms of Bitcoin/USD trading volume, its attention has been limited to its 2014 funding event and the collapse of Japanese exchange Mt Gox.

Bitstamp’s rise to industry leadership came after the collapse of the world’s largest exchange; however, its daily trading volume currently lags behind Bitfinex, BTC-e and Coinbase.

In early 2015, Bitstamp made headlines after losing $5 million in Bitcoin in a cyber attack.