A road map for regulation of virtual currency is beginning to emerge as more states appear willing to issue licenses for entities offering exchange and other services.

While immediate action at the federal level is still unclear, several states are expected to be acting on new regulations soon. Most importantly, Bitcoin and virtual currencies businesses can start the process of getting a license to serve customers in New York, one of the most desirable markets in the country.

The New York Department of Financial Services (NYDFS) recently issued an order that said it would start accepting applications and proposals for the establishment of virtual currency exchanges.

Benjamin Lawsky, NYDFS' superintendent, said recent problems at serveral Bitcoin exchanges "further demonstrate the need for stronger oversight of virtual currency exchanges, including robust standards for consumer protection, cyber security and anti-money laundering compliance."

Lawsky gave notice that a regulatory framework would be proposed by the end of the second quarter of 2014 and approved exchanges would “ultimately” be expected to comply with such rules. The order states that “any appropriate framework should include strong legal and operational controls, including robust BSA/AML requirements.” The concept of a “BitLicense” still appears to be on the table as part of this initiative.

Regulations are also progressing in other states. The Texas Banking Department, for example, plans to issue virtual currency regulations within the next two months.

The federal government is also paying attention to virtual currencies, and Bitcoin in particular, though the path forward is less clear. The Financial Crimes Enforcement Network has issued guidelines on virtual currency, though elected officials are still taking different sides.

Sen. Joe Manchin (D-W.Va.), a key member of the Senate Banking Committee, recently proposed the United States issue a ban on Bitcoin. “This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy,” he wrote to Janet Yellen, Chair of the Federal Reserve Board, and  Jack Lew, Treasury Secretary, among others.

One lawmaker responded to Sen. Manchin’s with his own letter to regulators, tongue firmly in cheek. Rep. Jared Polis (D-Col.) suggested that banning cash would be just as effective as banning Bitcoins, writing that “[d]ollar bills are present in nearly all major drug busts in the United States and many abroad.” Cash allows for anonymous transactions perfect for illegal activity “from drug purchases, to hit men, to prostitutes,” Polis wrote, noting that digital currencies are also carbon neutral and more environmentally friendly than cash.

Testifying at a hearing of the Senate Banking Committee, Federal Reserve Chairman Janet Yellen said her agency has no plans—and no jurisdiction—to issue regulations.

Yellen told lawmakers that Bitcoin and other digital “payment innovations” are outside the Board’s purview. “To the best of my knowledge, there is no intersection in any way between Bitcoin and banks that the Fed has the ability to supervise and regulate.” Responding to a question from Sen. Manchin, Yellen said, “the Fed does not have authority with respect to Bitcoin.”

Instead, Yellen said virtual currency would fall under the purview of the Justice Department and/or the Financial Crimes Enforcement Network within the Treasury Department. “They have indicated that their money laundering statutes are adequate to meet their own enforcement needs,” she said.

The Chairwoman proposed another possible regulator: Congress. “It certainly would be appropriate, I think, for Congress to ask questions about what the right legal structure would be for virtual currencies that involve nontraditional players,” she told the Committee.

Carol Van Cleef is a co-chair in the Washington, DC office of Manatt, Phelps & Phillips.