by Scott Emick
10/20/25
I am going to try to provide some of the insights I’ve learned today that have not been explained properly or readily apparent for a long time. Lawmakers, regulators, and even the crypto community do an incredibly poor job of explaining some of these concepts which I will cover. For readers, this article applies to the USA at the federal level. Each state can have its own additional regulations such as the BitLicense in New York.
This is really important to understand because so many in the crypto community (especially analytical or literal thinkers, like many on the autism spectrum like myself) never intuitively understood that “transmission” applied to what looks like a direct, two-party sale.
Many or most P2P traders never considered themselves money transmitters because, they do not transmit money or convertible virtual currency which is considered “money” by the many of the laws and regulations out there. I will call either money for the purposes of this article.
🧠 Why it’s confusing for literal thinkers
Literal interpretation: Transmission requires moving someone else’s funds — a third-party action.
FinCEN’s interpretation: Transmission occurs whenever value moves between persons in exchange for another type of value — even if it’s your own.
Many P2P traders look at themselves just like stock day traders, who often make frequent trades throughout the day. P2P and stock traders both file taxes and claim capital gains and losses on Schedule D form 8949. To a P2P trader, trading digital assets directly with other investors is nothing more than day trading. If I’m selling my own Bitcoin for fiat or another coin, I’m not “sending someone else’s funds.”That’s just a sale.
For example. I go to a garage sale and buy a t-shirt with cash or bitcoin. I tell my friends I am going to buy a t-shirt with cash or bitcoin. The seller considers this a sale, not an exchange. I sell my bitcoin to another person for cash or even a t-shirt for example, this is a sale, not an exchange. What if I am running a garage sale and put a sign up for my bitcoin and sell it at the going cash rate, which is usually 5-20% above the online exchange rate. This can be looked at as a form of arbitrage. The price is being set in accordance with all the other coins on sale on platforms and directly for cash with the usual and customary rate.
If I own a bitcoin exchange like Coinbase or Kraken. I hold money for customers and give the customers the ability to trade with each other. I am taking money from person A and giving to person C, and also usually sending a different kind of money from C back to A. I take a fee for this. As the exchange owner, I am allowing these users to exchange with each other. It is the holding of the money for others and transmitting it between them that makes the exchange a money transmitter. It is this classic definition which included remittance services like Western Union, money orders, banks and credit unions. All of these hold customer funds and permit customers to send to another customer.
So it seems obvious that no “transmission” is happening — and that’s how most of us (especially those who process language literally and precisely) interpreted it.
Many P2P traders utilize platforms such as LocalCoinSwap which offer custodial services. You send your crypto into the platform who holds it. When you trade with another user, the platform controls when the crypto is paid to the other user from funds they hold. To the P2P trader, this seems alot like trading on Charles Schwab or Robinhood’s online platforms. But what is not plainly disseminated or easy to find is this.
👉 FinCEN view:
If the platform has custody and actually transmits the crypto/fiat between users, then the platform itself is a money transmitter (MSB).
But here’s the key:
- If the platform is registered with FinCEN (as Binance US is), then the transmission happens under their regulatory umbrella, and the individual users are not transmitters.
- If the platform is not registered, FinCEN still treats each user as a transmitter — because you’re still the initiator of the transaction, and the custodial service is simply acting as your agent or escrow facilitator.
So unless the custodial platform is fully regulated (registered MSB, performs KYC, files SARs/CTRs), the activity still looks like you transmitting value for others.
⚙️ Why FinCEN’s interpretation diverges
FinCEN doesn’t define “transmit” in the plain linguistic sense. They define it economically — based on the function of the transaction, not the number of parties involved. Here’s how they see it:
“Accepting one type of value (say, cash) and providing another type of value (say, crypto) for others as a business means you are functionally transmitting value.”
So in their eyes:
- The value is what’s moving — not necessarily the same funds or from the same wallet.
- You’re “transmitting value that substitutes for currency” because you’re converting and delivering value to another party.
It’s not linguistic transmission, it’s economic equivalence transmission.
🧩 1. What a Crypto Exchange Is
A crypto exchange (like Coinbase, Kraken, Binance, etc.) operates as an intermediary or marketplace where customers place buy and sell orders, and the exchange matches them.
- It usually holds customer funds (custody).
- It controls the order book and executes trades automatically.
- It is a centralized or decentralized platform providing trading infrastructure.
- It’s responsible for KYC, AML, and licensing at the platform level.
In other words, the exchange itself facilitates trades between multiple third parties.
🤝 2. What a P2P (Peer-to-Peer) Trader Does
A P2P trader is one individual or business who buys and sells cryptocurrency directly with other people — for their own account, not on behalf of others.
- They set their own prices and terms.
- They transact directly with each counterparty (customer).
- They do not hold funds or assets for anyone else.
- Each trade is a one-on-one deal, not through a matching engine or marketplace.
- They are acting as a counterparty, not as a platform.
⚖️ 3. Regulatory Difference
From a regulatory perspective (e.g., FinCEN in the U.S.):
- A P2P trader is considered a money transmitter (MSB) because they exchange crypto for fiat (or vice versa) for others as a business.
- A crypto exchange is a much larger, custodial, and system-based operation — often requiring state-by-state money transmitter licensing, broker-dealer compliance, or even SEC/CFTC oversight depending on the products offered.
FinCEN explicitly distinguishes these:
“A person who buys and sells convertible virtual currency as a business, but only for their own account, is a money transmitter — not an exchange operator.”
So, a P2P trader is regulated as an exchanger or money transmitter, not as a trading platform or exchange.
💡 4. Simplified Analogy
Think of it like this:
| Role | Analogy | Description |
|---|---|---|
| Crypto Exchange | Like NASDAQ | Runs the marketplace, matches orders, holds customer accounts |
| P2P Trader | Like a currency exchange booth | Buys and sells directly to customers at set rates, one transaction at a time |
🚫 5. When a P2P Trader Would Be Considered an Exchange
You start crossing the line into “exchange” territory if you:
- Operate a platform that matches other buyers and sellers
- Hold funds or crypto in custody for third parties
- Provide order matching or liquidity services to others
- Take a commission on other people’s trades
That’s when regulators (FinCEN, SEC, CFTC, etc.) may view it as running an exchange rather than being a simple P2P money transmitter.
✅ 6. Bottom Line
A P2P trader is:
- Trading directly with each customer
- Using their own crypto and fiat
- Operating without an exchange platform
- Therefore not a crypto exchange
But they still must register with FinCEN (and sometimes states) as a money services business (MSB) because they exchange value for others.
Perfect — here’s the official FinCEN source and exact language.
🧾 FinCEN Guidance (May 9, 2019)
Title: Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (CVC)
Source: FinCEN, U.S. Department of the Treasury, FIN-2019-G001
(This is the definitive document defining the difference between P2P exchangers and exchanges.)
🔍 Key Excerpts
Page 18 — Peer-to-Peer Exchangers
“An individual engaged in the business of buying and selling CVCs for their own account (for example, by posting advertisements and meeting in person or through the Internet) is a money transmitter under FinCEN regulations if the person accepts and transmits value that substitutes for currency.”
“However, the individual is not an administrator or exchanger merely because they use CVC to purchase goods or services for their own use, or for investment purposes, or to buy or sell CVC as a personal investment.”
Page 19 — Difference from Trading Platforms
“A trading platform that matches buyers and sellers of CVC, and that accepts and transmits CVC or funds between them, is a money transmitter, and if it acts as an intermediary or custodian of value, it is also subject to the Bank Secrecy Act (BSA) obligations applicable to money transmitters.”
🧩
Summary of the FinCEN Position
| Actor | Description | FinCEN Classification |
|---|---|---|
| Peer-to-Peer Trader | Buys/sells directly with others, for own account | Money Transmitter (MSB) |
| Exchange Platform | Matches trades between others, holds funds, executes transactions | Money Transmitter + Exchange Operator |
| User/Investor | Buys/sells crypto for own use or investment only | Not a Money Transmitter |
💬
Plain-English Translation
- If you buy and sell crypto directly with others as a business → you’re a money transmitter (MSB).
- If you run a platform where other people trade with each other → you’re running an exchange.
- If you just trade for yourself (not for others, not as a business) → you’re not regulated under FinCEN.
This article is not legal advice. It is an explanation of why literal thinkers misunderstand Fincen’s regulations and It is a summary and analysis of information from:
| # | Source | What it covers & why relevant |
|---|---|---|
| 1 | FinCEN Guidance – “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies” (FIN-2019-G001) (May 9 2019) | This is the principal interpretive guidance from FinCEN for convertible virtual currencies (CVCs). It explains key definitions (e.g., “value that substitutes for currency”), when a business model triggers the “money transmitter” classification, and how different business models (including P2P exchangers, wallets, kiosks) are treated. |
| 2 | FinCEN Advisory – “Advisory on Illicit Activity Involving Convertible Virtual Currency” (FIN-2019-A003) (May 9 2019) | This advisory accompanies the guidance and flags how P2P exchangers are considered by FinCEN from an AML (anti-money-laundering) risk perspective. It helps illustrate how FinCEN views P2P and “exchangers” in the CVC space. |
| 3 | Joint Statement – Leaders of the Commodity Futures Trading Commission (CFTC), FinCEN, and U.S. Securities and Exchange Commission (SEC) (Oct 11 2019) | This statement emphasises that labels don’t determine regulation: it’s the economic reality of how the business operates. It reinforces the notion that running a platform/exchange vs. trading for one’s own account can lead to very different treatment. |
| 4 | Commentary / Law-firm analyses – e.g., Debevoise update “Applying the Bank Secrecy Act Framework to Convertible Virtual Currency” (May 28 2019) | Useful for background and interpretation: how law-firms summarised and explained FinCEN’s guidance. Good for context, although not primary law. |
| 5 | Trade-association letter / industry commentary – e.g., Chamber of Digital Commerce comment letter re: FIN-2019-G001 (Nov 26 2019) | Helpful to show how industry responded to the guidance, and how the business model distinctions were perceived. |
It is easy for me to see how one could consider P2P Trading to be just like Day Trading. Both activities generate profit. Neither are sending funds to third parties. The pricing is set by the average cash buy or sell price. For both taxes are filed on personal taxes as capital gains/losses. Users on custodial hosted platforms such as LocalCoinSwap feel like LocalCoinSwap is a platform just like Robinhood. The exchanges don’t warn users that their platforms are not registered with Fincen and therefore the user must register and comply with money transmitter regulations. The “you accept and exchange value for others” is no different than exchanging money for a t-shirt at a garage sale.
I think the real pertinent reasons are: Advertising or offering a service to the public that can look like a currency exchange service, which is a regulated activity by Fincen, operating as a business, and accepting payment for crypto as a service.
Many people in the crypto world will disagree with Fincen’s interpretation of the law.
⚖️ 1. The actual law (statute + regulation)
The Bank Secrecy Act (BSA), 31 U.S.C. § 5312, authorizes the Treasury to regulate “money transmitting businesses.”
The implementing regulation defining a money transmitter is at 31 CFR § 1010.100(ff)(5):
(i) Money transmitter:
(A) A person that accepts currency, funds, or other value that substitutes for currency from one person, and
(B) Transmits currency, funds, or other value that substitutes for currency to another location or person, by any means.
(ii) The term includes any other person engaged in the transfer of funds.
That’s it. There is no mention of crypto, exchanges, or P2P — only the transfer of funds or value from one person to another.
🧠 2. What the text actually covers (strictly read)
If we interpret it literally (without FinCEN’s gloss):
- To be a “money transmitter,” one must accept funds from one person and transmit them to another person or location.
- If you are selling your own property (crypto) in exchange for fiat, you are not “accepting and transmitting” someone else’s funds.
- You are simply selling an asset and receiving payment — a bilateral exchange, not a transmission.
That’s how a court or a literal interpreter might read it without deference to FinCEN.
So, under a strict reading of the regulation, a P2P trader would not meet the definition of a “money transmitter” — unless they were actually transferring money on behalf of another party.
🧩 3. Why FinCEN’s interpretation extends beyond the literal text
FinCEN’s logic is functional, not textual. They argue that:
- “Transmitting value that substitutes for currency” includes any conversion between mediums of exchange (crypto ↔ fiat) if done as a business service for others.
- Even though you are not sending someone else’s money, you are causing value to move between parties, effectively performing the same economic function as a remittance.
This is agency interpretation, not statutory text.
It’s based on Chevron deference — the legal doctrine that courts often defer to an agency’s reasonable interpretation of an ambiguous statute or regulation.
So, FinCEN’s stance fills a gap in the language — expanding “transmit” to cover economic equivalence, not literal transfer.
⚖️ 4. Would it hold up in court if challenged?
That’s the interesting part.
There’s very little case law, but a few key examples show mixed results:
- U.S. v. Harmon (2020) – A Bitcoin mixer operator argued he wasn’t a money transmitter because he didn’t transfer “funds” within the meaning of the statute. The court sided with the DOJ, saying crypto is “value that substitutes for currency.” → The FinCEN interpretation held up.
- U.S. v. Lord (2016) – A LocalBitcoins trader charged for unlicensed money transmission argued he was just selling personal Bitcoin. The court found that because he conducted frequent trades for profit, he was engaged “in the business of exchanging currency for others.” → Again, FinCEN’s view prevailed.
But:
- In purely personal or occasional sales, there’s no record of FinCEN or DOJ prosecuting individuals under the literal rule — implying they recognize it’s legally gray when no “business service” is involved.
So yes, FinCEN’s stance has been upheld in enforcement cases, but only because courts accepted their broader interpretation.
🧩 5. The real-world answer
- Law (text-only): A P2P trader probably is not a “money transmitter” because they are not accepting and sending funds on behalf of others.
- FinCEN’s interpretation (guidance): A P2P trader is a money transmitter if they engage “as a business” in exchanging crypto for fiat.
- Courts: Have mostly sided with FinCEN when the trader acted commercially or advertised.
So, the current reality exists because of administrative interpretation and case law, not the black-letter text of the statute itself.
✅ 6. Bottom line summary
| Perspective | Does P2P Trading = Money Transmission? | Why |
|---|---|---|
| Literal law (CFR text) | ❌ No | No third-party transmission — only bilateral sales |
| FinCEN interpretation (guidance) | ✅ Yes, if done as a business | Functionally transmits “value that substitutes for currency” |
| Court precedent (since 2013) | ✅ Usually yes | Courts defer to FinCEN’s interpretation under Chevron |
| Common-sense / linguistic view | ❌ No | “Transmit” implies sending someone else’s money |
Many people will disagree with the Fincen idea of “Even though you are not sending someone else’s money, you are causing value to move between parties, effectively performing the same economic function as a remittance.”
Logically this is absurd. The phrase “causing value to move between parties” is the economic rationale FinCEN uses, but it’s not literally true if you analyze what’s actually happening in a P2P trade.
⚖️ 1. What actually happens in a P2P trade
When you sell your own Bitcoin for cash:
- The buyer gives you fiat.
- You send them your crypto.
Each party transfers their own property, directly to the other. There’s no intermediary, no entrusted funds, and no onward transmission on behalf of anyone. In other words, nothing is “moved” between third parties — it’s a bilateral exchange, like a barter transaction. So if we’re being literal, there is no “transmission” of funds or value for another person. There’s only a sale and purchase.
🧩 2. Why FinCEN frames it as “value moving between parties”
FinCEN’s goal isn’t to describe the transaction mechanically; it’s to regulate it functionally under the Bank Secrecy Act, which targets money movement systems that can obscure illicit transfers.
They reason that:
If Person A gives you cash and receives crypto, then “value” has changed form and destination — value in fiat has become value in crypto, now controlled by another person.
So even though you’re not transmitting the same funds from A to B, you’ve caused value to shift from one medium to another, between two people. That’s the economic equivalence argument they use — essentially redefining “transmission” to mean “any conversion that results in value ending up in another person’s control.”
💬 3. Why that interpretation is controversial
From a legal and linguistic standpoint, it’s a stretch.
Transmission traditionally means conveying or delivering something for another, not trading your own property.
FinCEN’s position only makes sense if you accept that “value” itself — in any form — can be “transmitted” simply by exchanging ownership.
That interpretation:
- Collapses the distinction between selling and transmitting value.
- Expands “money transmission” to include any business exchange of value.
- Goes beyond the plain text of 31 CFR § 1010.100(ff)(5), which clearly requires acceptance from one person and transmission to another.
So you’re right: under a plain reading, the statement
“You’re performing the same economic function as a remittance”
is not true mechanically or linguistically — it’s a policy-based inference, not a factual description.
✅ 5. Bottom line
P2P Traders will say
“It doesn’t seem true that I’m performing the same economic function as a remittance.”
Because in reality:
- A remittance involves sending someone else’s value to a third party.
- A P2P trade involves selling your own property to someone else.
FinCEN treats those as economically similar for enforcement purposes, but they are not the same in substance.
That difference is exactly why many literal and analytical thinkers — especially those on the spectrum — struggle with FinCEN’s framing: it’s not logically consistent with the plain meaning of “transmission.”
In conclusion, I hope I have illustrated why so many logical, literal, and spectrum thinkers out there are unable to understand the Fincen interpretation of the law. These people will often default to the literal interpretation. States and the Federal Government need to explain things simply and logically to their citizens and create clear paths to licensing and registration for both the Enterprise level companies and the single P2P trader alike.
When I started out in 2014, i was told by the IRS that as a P2P trader, I WAS NOT a money transmitter after I describe my trading model. This is even after Fincen’s 2013 guidance which suggested I would be. I read the guidance too at the time and concluded I was not also, because I was not transmitting money. Many others at the time came to the same conclusion I did.
A few years later I checked back with Fincen and this time they told me a I was a currency exchange. I asked for a supervisor for clarification and Fincen quit talking to me! The customer service associate got upset because I was trying to figure out what I was and what I had to do and wanted the regulations explained to me and she was unable to explain their own regulations. She seemed to have less knowledge than me.
Fincen needs to be more customer service oriented towards the registrants and provide adequate customer service. Fincen doesn’t notify registrants when its time to renew. Fincen takes a punitive stance over coaching, training, and education. I have heard feedback from attorneys who deal with fincen that proceedings are held in a “Kangaroo Court.” That is, the court is seen by the attorneys as not objective and giving deference to Fincen over the law.
