Cryptocurrency Platform – Closed Loop Stored Value

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Department of Business Oversight

GOVERNOR Gavin Newsom ·   COMMISSIONER   Manuel P. Alvarez

IN REPLY REFER TO: __________

FILE NO:___________

June 25, 2019

Re:     Request for Interpretive Opinion

Dear Mr. ________________:                    :

Thank you for your letter to Stephen Lau, dated March 18, 2019, requesting an interpretive opinion from the Department of Business Oversight (“Department”) as to whether _______________ (”____”) is required to obtain a license under the Money Transmission Act (“MTA”).[1]



_______________, a Texas corporation with its principal place of business in California, is a wholly-owned subsidiary of _______________ (“__________”), a California corporation. _______________ is registered with the Financial Crimes Enforcement Network (“FinCEN”) as a money services business.
_______________ proposes to offer customers in California an online platform (“Platform”) to purchase, trade for, and store, blockchain-based digital assets. The platform will:

  • Allow customers to load U.S. Dollars from their external bank account (“External Bank Account”) into a custodial bank account maintained by _______________ and titled in the customer’s name (“Custodial Bank Account”) for the sole purposes of purchasing digital assets from, and paying fees to, _______________;
  • Allow customers to buy and sell digital assets in direct transactions with _______________ only; and
  • Allow customers to store their digital assets in a custodial wallet managed by _______________.


The Platform will initially support five different digital assets (Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, and Litecoin). However, _______________ anticipates adding other digital assets in the future.


Through the Platform, customers may load U.S. Dollars from their External Bank Account into a Custodial Bank Account maintained by _______________. The funds in the Custodial Bank Account will only be used to purchase digital assets from, or pay fees to, _______________. The funds in the Custodial Bank Account will be FDIC-insured, held in either a pooled omnibus account or a master-sub account structure, and titled in the customer’s name. When transferring U.S. Dollars out of the Custodial Bank Account, _______________ will deduct U.S. Dollars from the balance in the customer’s _______________ user interface and transfer this amount to the customer’s External Bank Account. _______________ may charge a fee for certain withdrawals of U.S. Dollars, especially when there is operationally intensive activity, such as same-day wires.


The Platform also enables a customer to buy digital assets from, or sell digital assets to, _______________ in exchange for U.S. Dollars or other digital assets. _______________ does not maintain a reserve of digital assets. Rather, once _______________ receives a request to acquire a digital asset, it will acquire the inventory at that time from one of its corporate affiliates or on the open market.

When a customer uses the Platform to purchase a digital asset from _______________ using U.S. Dollars, two transactions occur simultaneously. The virtual currency is taken from _______________’s inventory and added to the customer’s virtual currency balance while _______________ deducts U.S. Dollars from the customer’s U.S. Dollar balance in the Custodial Bank Account and adds these funds to its own account (“_______________ Bank Account”). At all times, _______________ will maintain a ledger reflecting the U.S. Dollar amount belonging to each customer and stored in the Custodial Bank Account.

When a customer uses the Platform to purchase a digital asset from _______________ using another form of virtual currency in the customer’s wallet, _______________ will transfer the customer’s virtual currency into its own inventory. Once _______________ confirms receipt, the amount of virtual currency requested by the customer will be taken from _______________’s inventory and transferred to the customer’s external wallet. Alternatively, customers may choose to have _______________ maintain custody of those digital assets on their behalf on an omnibus basis until the customer withdraws them through the Platform to the customer’s external wallet.




A person may not engage in the business of money transmission in California unless he or she is licensed or exempt from licensure under the MTA.[2] Money transmission includes, in applicable part, “selling or issuing stored value.”[3]

“Stored value” is “monetary value representing a claim against the issuer… stored on an electronic or digital medium… and… intended and accepted for use as a means of redemption for money or monetary value or payment for goods or services.”[4]However, stored value does not include “closed loop transactions,” where stored monetary value is only redeemable for goods or services provided by the issuer or its affiliate.[5]Therefore, closed loop transactions do not constitute regulated money transmission under the MTA.




Through the Platform, a customer can only redeem the value issued by _______________ and stored in the Custodial Bank Account for digital assets provided by _______________. Therefore, this stored monetary value is a closed loop transaction and does not constitute regulated money transmission under the MTA.

With respect to the transfer of virtual currency, the Department has been studying the cryptocurrency industry closely. Whether cryptocurrencies are a viable form of money or a non-monetary asset is widely debated. Given this ongoing debate, the Department has not concluded whether cryptocurrencies constitute a form of money or determined whether a business that purchases and sells cryptocurrencies triggers the application of California’s money transmission law.

Accordingly, the Department is not requiring _______________ to be licensed and supervised under the MTA at this time. However, this is subject to change. At any time, the Department may determine _______________’s activities are subject to regulatory supervision. The Department may also adopt regulations or issue interpretive opinions significantly restricting _______________’s business operations. If _______________ chooses to operate in California, it would do so subject to these risks.

Nothing in this letter should be interpreted to relieve _______________ from any obligations under the laws administered by FinCEN or any other agency of the federal government.

This opinion is based solely on the facts presented in your correspondence and how it relates to the Money Transmission Act. Any changes in the facts or circumstances, as we understand them, could lead to a different conclusion.

If you have any questions regarding this matter, please contact me at _________________.



Manuel P. Alvarez


Department of Business Oversight




[1] Fin. Code, § 2000 et. seq. All further statutory references in this letter are to the Financial Code unless otherwise indicated.

[2] Fin. Code, § 2030, subd. (a).

[3] Fin. Code, § 2003, subd. (q).

[4] Fin. Code, § 2003, subd. (x).

[5] Id.

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Last updated: Oct 14, 2019 @ 4:15 pm