Summary
- California has a long-term interest in the crypto and blockchain sectors, and its policy moves have the potential to set a benchmark for other jurisdictions.
- The state has a high proportion of crypto users so consumer protection and sectoral transparency have been legislative priorities.
- Alongside this, innovation in the sector remains important, and cognisant of this, California’s legislators have worked with the industry to ensure this isn’t dampened.
- For more stories about crypto activity among the US states as well as countries worldwide, visit our Crypto in Action pages.
How crypto friendly is California?
It should perhaps come as little surprise that California, the US’s largest economy, as well as the world’s fifth largest, has been interested in the crypto and blockchain sector for more than 10 years.
Figures suggest that 27% (8.2 million) of California’s adults own digital assets, 40% of whom are aged between 18 and 34. In a poll, 84% stated that they felt crypto and blockchain were important tools for future economies.
Since 2014, the state’s crypto landscape has steadily evolved. Policymakers in both the legislature and the executive branch are working to develop a strong regulatory framework for consumers and businesses operating in the state.
The most striking crypto policy development out of California is the Digital Financial Assets Law , which will establish a licensing and regulatory framework for digital assets. The bill went through different versions – each bringing greater clarity to areas like compliance – before being signed into law by Governor Gavin Newsom in October 2023, with most of its provisions set to come into effect during 2025.
Timeline of crypto developments and regulation in California
2014 – Assembly Bill 129, the Alternative Currencies Act, was introduced.
2015 – The Alternative Currencies Act came into effect on January 1. It was designed to ensure that forms of alternative currency, including digital, would not violate the law when used for purchasing goods and services, and transmitting payment.
2016 – Assembly Bill 1326 was withdrawn with its critics arguing that it would have created too heavy a burden on the state’s emerging cryptocurrency community. It was designed to enact a digital currency business enrolment program. Withdrawing his own bill, Assembly Member Matt Dababneh said: “Unfortunately, the current bill in print does not meet the objectives to create a lasting regulatory framework that protects consumers and allows this industry to thrive in our state. More time is needed and these conversations must continue in order for California to be at the forefront of this effort.”
February 2018 – Assembly Bill 2658 sought to create a blockchain working group to research the use of the technology. It was designed to ascertain the use cases and best practices for government and business, risks, benefits and legal implications.
2020 – The legislature passed Assembly Bill 1864, the California Consumer Financial Protection Law, designed to strengthen consumer protections. It replaced the Department of Business Oversight (DBO) with the Department of Financial Protection and Innovation (DFPI), giving it the authority to oversee emerging financial service areas. It came into effect on January 1, 2021.
May 2022 – Governor Newsom signed a blockchain executive order, the focus of which was to develop a transparent regulatory and business environment for Web3 companies. It was described as a move that would start the process of developing a regulatory approach to both protect customers and encourage innovation in this area.
October 2023 – The state enacted Assembly Bill 39, the Digital Financial Assets Law.
September 2024 – Governor Newsom signed amendments to this, in the form of Assembly Bill 1934, into law, extending the date of licensure from July 1, 2025 to July 1, 2026. Among its provisions, the bill ensures that those engaged in digital financial business activity with or on behalf of a resident of the state must have the requisite license.
Outlook
California’s approach recognizes the sector’s potential and supports its innovation while also seeking to both protect individual consumers and business through the creation of a transparent regulatory environment.
Commenting on the Digital Financial Assets Law, Newsom encapsulated California’s approach when he said: “Too often government lags behind technological advancements, so we’re getting ahead of the curve on this, laying the foundation to allow for consumers and business to thrive.” In doing so, California has set the blueprint for other states.
