I agree that this uncertain regulation is very unsettling
It's the crux of the issue. Fincen is destabilizing Bitcoin by wielding arbitrary authority. Taking down Liberty Reserve while allowing the larger banking players to continue with their criminal behavior for a fine/fee is a good example of such arbitrary power. It even undermines Fincen's own enforcement authority in the larger world such that future regulatory actions will likely focus on increasingly smaller players.
The worst part is that the "Money Transmitter" classification is a poison pill. Not at the federal level where the requirements are no different than any other MSB. The issue is that at the state level MT are very heavily regulated, licensed, and bonded. If FinCEN says virtual currency exchanges are money transmitters according to federal law will the states follow the same path. Remember each state has a byzantine set of different regulations, licenses, and requirements. Licensing even if a startup can meet the high cost, capital requirements, and can secure an expensive surety bond can take anywhere from 6 to 24 months. Now repeat that for every single state. There is a reason there are only roughly a dozen companies with MT licenses in all the states*, those companies employ an army of lawyers to keep compliant. There is no business with more regulatory overhead than money transmitters, except maybe banks. It may be cheaper for a well capitalized company to form a National Bank as that bypasses all state regulation.
Now I am not saying Bitcoin brokers/dealers/exchanges shouldn't have some regulation, that is likely inevitable in every country. The MT classification is a regulatory sledgehammer and it will stifle innovation and reduce the number of players to the few very well capitalized companies (i.e. PayPal 2.0) which can afford to play that game. Of course the cost of that regulatory overhead doesn't vanish. It is a perpetual costs which will be passed on to users in the form of higher fees. Higher fees will make Bitcoin less attractive (as least in the US) and that will slow adoption.
Just to give you an example:
Gold Dealer? Regulated? Yes. Money Transmitter? No.
VISA? Regulated? Yes. Money Transmitter? No.
Commodities Broker? Regulated? Yes. Money Transmitter? No.
Securities Broker? Regulated? Yes. Money Transmitter? No.
Currency Dealer/Broker? Regulated? Yes. Money Transmitter? No.
Tiny Bitcoin startup? Regulated? Yes.
Money Transmitter? Yes (if they exchange virtual currency for real currency)
All of those entities send and receive funds but they aren't considered money transmitters. That expensive definition has generally been reserved for the transmission of funds from one person to another one. Now FinCEN doesn't say that a MT at federal level makes one a MT at the state level but it leaves the door wide open. Using logic or common sense, the action of exchanging BTC for USD is far more similar to the action of exchanging EUR for USD than any other classification, yes FinCEN took the MT route in their guidance. FinCEN already has a classification for exchanging "real" currencies, it is called "Foreign Currency Dealer/Exchange". Now this is still a type of MSB and thus still regulated at the federal level but almost no state require licensing for that activity. Of the six categories of MSBs, FinCEN just happened (in a legal stretch) to put Bitcoin exchanges into the category which faces (by many magnitudes) the highest level of potential regulation at the state level.
As an example lets look at the actions of three theoretical companies:
BitBase accepts a certain amount of USD from a person and provides the
SAME person a certain amount of BTC based on a published exchange rate.
FiatBase accepts a certain amount of USD from a person and provides the
SAME person a certain amount of EUR based on a published exchange rate.
Western Union accepts a certain amount of USD from ONE PERSON and transmits it to a
DIFFERENT person for a fee.
Of these three which seems the most dissimilar?
Common sense says WU is the different one. FinCEN says no, FiatBase is the different one. The first and third examples are money transmitters and FiatBase is a Dealer in Foreign Currency.
Now I know the tone was gloomy but the actions of FinCEN won't kill Bitcoin, Bitcoin will route around the damaged parts of the system. The Canadian equivalent of FinCEN has indicated the action of exchanging virtual currency for real currency simply doesn't fit under any existing law and thus (for now) is unregulated. This doesn't mean Canada will need to pass NEW LAWS rather than take the "guidance" route that FinCEN did. You know that whole concept of "of the people, by the people, for the people". The situation in the US however is now open to uncertainty, risk, and additional cost. Coincidence?
* "all" = 47 states and 4 territories which require them.
