Prominent venture capitalist Fred Wilson says that the New York Department of Financial Services introduced itself to him by way of a “punch in the gut.”

Wilson, a founder of Union Square Ventures, was speaking at an intimate roundtable discussion last week over breakfast at Aquavit restaurant in Manhattan. The topic? BitLicense, the forthcoming regulatory policy from New York State that will govern digital currency businesses deemed “money transmitters.” Spearheaded by NYDFS superintendent Benjamin Lawsky, the policy has gone through multiple revisions, but will be finalized by the end of May. And it has bitcoin businesspeople and policy pundits very concerned.

“You have to remember,” Wilson said early on in the discussion, “My first introduction to BitLicense was a subpoena from the NYDFS. Usually you don’t introduce yourself with a punch in the gut.” He added that other bitcoin businesses and venture capitalists, too, were subpoenaed by Lawsky and the NYDFS without any sort of warning ahead of time. Wilson was just one of the high-profile names present from the bitcoin community. The other people in the room included executives from Coinbase, Circle, Xapo, BitPay, Genesis Trading, Digital Asset Holdings, and the Digital Currency Group. There were also policy folks from Coin Center and MIT Media Lab, plus six reporters.

The four biggest “pain points” these people have with the most current version of the BitLicense—the version that most in the room feared will remain intact and become final—are: that the BitLicense may regulate bitcoin wallets, not just exchanges; that the BitLicense will require money-transmitters to get two different licenses in each state; that it will require licensed companies to get approval for new rounds of funding that substantively impact controlling interests; and that it appears to also require approval for every new product they launch.

That latter point is of the utmost concern to bitcoin companies, which, like any tech companies, need to move rapidly to compete in the growing market. If approval is required for every new product—for example, Coinbase began as a bitcoin wallet provider, but is now more primarily associated with its newest product, a bitcoin exchange—it could hamper innovation, especially since no one can predict whether the NYDFS will be in any hurry to complete the approval process in these situations.

Fred Ehrsam, cofounder of Coinbase, framed the ongoing discussion of BitLicense as a battle. “In my mind we are fighting for the little guy here,” he said. And in the still-burgeoning bitcoin world, “the little guy doesn’t even exist yet.” Still, nearly everyone in the room agreed that some form of regulation is necessary for the legitimacy of the industry.

There is big pressure on New York because it is the first state to launch its own set of regulations specific to digital currency. The only other states even working on such policy right now, said Jerry Brito of Coin Center, are California, Pennsylvania, and New Jersey. Most other states are expected to simply copy what New York does, and so, if New York comes out the gate with something too strict, it runs the risk of losing innovative bitcoin companies to other states that are less tough. Wilson went so far as to say that New York could lose “the next Wall Street” to Silicon Valley, or Estonia, or North Carolina. (That state introduced last month a new version of its Money Transmitters Act that has looser guidelines and, most notably, does not create a whole second set of rules for digital currency businesses to follow; companies like Coinbase have praised the legislation.)

Much of the discussion centered on Lawsky himself. Most in the room have not met him personally, but had much to say about what his intentions may be. As Coin Center’s research director Peter van Valkenburgh recently pointed out to Fortune, there are some in the bitcoin community who feel BitLicense is, “all a play to try and brutally shut down the viability of bitcoin.” For its part, a spokesperson for the NYDFS told Fortune that it has read all of the official “comments” that have come in during the revision process and takes them seriously.

Tim Byun, a former global head of credit settlement risk at Visa, now chief compliance officer for BitPay, defended Lawsky. “I give them the benefit of the doubt,” he said. “But even though they had good intentions and they created something sexy called the BitLicense, they ended up with a pound of soup where they threw in all the different bank rules and AML [anti-money laundering] rules and a pound of this and a pound of that, and they ended up with something very…. salty.”