I think its good news. NYC cannot control the btc protocol, but it should be a good thing to have controlled exchanges.
So people have a choice. Trade person to person or trade by a controlled exchange. Especially when you want to trade a big amount of btc to buy a house or a nice speedboat or so. Its safer to do that at a kind of post office, secured and controlled.
Other good point: at least NYC accept the btc as a currency. That's good.
It could be good, but there's three big points you're missing.
The first is the users of BTC. As of now, it's pretty much 3 groups:
1. Libertarians / people who want a non-government currency. To them, this could be a downside. They'll see BTC flowing through US regulated exchanges as a down side, and many will simply go back to dollars, as they'll take the convenient system vs. the inconvenient system if both are regulated. Not to mention that regulation = people will pay taxes on earnings.
2. People trying to get rich. To them, it will initially be a good side, as the chance of a Mt. Gox will drastically decrease. However, taxation may keep some people out of the regulated exchanges.
3. People using BTC for illegal purposes. These people will likely be forced to continue to use 3rd party exchanges that are not protected.
Basically, 2 of the 3 groups of users (though, likely the two smaller groups), will not be pleased by this.
The second issue is that there will still be a need for non-regulated markets. Many BTC users are not going to go through regulated exchanges, so there will necessarily be the need for unregulated exchanges. However, as normal BTC users will prefer to trade on regulated exchanges, there will be a price gap between the two exchanges (with the non-regulated exchanges buying and selling below the ask/bid of the regulated exchanges). This will cause one of the two to happen:
1. There will be plenty of investors willing to take on arbitrage risk between the two exchanges (i.e. buying lower at an unregulated exchange and selling higher on the regulated one), and the price difference between the exchanges will be small or non-existent. The risk with this is that the government may get involved if it sees that criminal elements (Silk Road, tax evaders, other criminal groups/sanctioned nations looking to transfer money) can easily dispose of BTC. Basically, they'll act to prohibit the transfer of BTC from the two exchanges, and potentially will start freezing assets of anyone who deals with the non-regulated exchange.
2. Investors will be afraid of the risk, and will not buy from non-regulated exchanges. If this happens, then the sole markets where BTC is more effective than cash/credit will move away from BTC.
The last issue is a combination of the above two. If you run out the people who actually want/need to use BTC as a currency, you're essentially left with just speculators...which would make BTC a very dangerous investment.
