Summary
- Over 80 bills spanning 26 states have been introduced in the past month.
- While California launched the Digital Financial Assets Law, New Jersey didn’t advance the Digital Asset & Blockchain Technology Act.
- Wyoming and New Hampshire are exploring DAO legal structures
- South Dakota, New Hampshire, and Maine are considering updates to their money transmitter statutes.
Introduction to State-Level Crypto Policy Developments in the US
January has seen a flurry of state-level activity shaping the landscape of crypto policies across the United States. In this edition of our US State Crypto Policy update, we delve into the latest developments influencing digital asset regulations in state houses nationwide.
California’s Regulatory Frontier: Launching the Digital Financial Assets Law
In its pursuit to establish a comprehensive regulatory framework for the digital asset industry in California, the Department of Financial Protection and Innovation (DFPI) recently sought public input on implementation of the recently-passed Digital Financial Assets Law (DFAL). As the Department considers how best to implement this law, it will be critical to create a regulatory environment that protects consumers while encouraging innovation in the digital assets space.
On the road ahead, DFPI must work to develop a level playing field, harmonize licensing standards with other states, and promote stablecoin approval pathways that are fit for purpose. Harmonizing licensing standards with other states by learning from models like New York’s virtual currency business activity regulations can enhance efficiency and bolster the role of state-based regulatory models.
California has a profound opportunity to strengthen the digital asset regulatory landscape. It’s one to watch. See CCI’s full comments here.
New Jersey’s Stance on Digital Asset and Blockchain Legislation
On the east coast, as New Jersey’s 2023 legislative session recently closed, lawmakers chose not to advance the Digital Asset & Blockchain Technology Act. CCI urged decisionmakers in the state to consider much-needed amendments for the benefit of the industry and consumers in recommendations we provided to Governor Murphy.
Digital assets and blockchain applications possess the potential to bring transparency, security, and efficiency to various sectors. Clear definitions, explicit exclusions for specific industries like Web3 gaming, and limitations on the scope of “digital asset business activities” must be advanced to prevent unintended consequences to businesses operating throughout the state and ensure responsible innovation can continue to thrive.
Our recommendations for amendments to the bill included addressing pending licenses, reciprocity, application contents, timelines, definitions, and guardrails on regulatory discretion.
Insights into New York State’s BitLicense Crypto Oversight
The New York State Comptroller’s office recently released a report pointing out deficiencies in the BitLicense application process and the Department of Financial Services’ (DFS) supervision of virtual currency business activities within the state.
The report outlines concerns about DFS’s oversight of crypto companies, stating that the department needs to take additional measures to affirm its licensees and charter holders exhibit financial stability.
The report also makes several recommendations the Comptroller’s office believes will help address its concerns and help safeguard application and supervisory processes.
The Impact of U.S.-Listed Bitcoin ETFs on State Crypto Legislation
Taking a step back and looking at the US as a whole, we see state legislatures rapidly introducing digital asset legislation. Over 80 bills spanning 26 states have been introduced in the past month. This coincides with the January 10 approval by the U.S. Securities and Exchange Commission (SEC) of several Bitcoin ETFs, marking a landmark moment for industry.
One to note is, Oklahoma. The state is capitalizing on the SEC’s approval with Senate Bill 1830, which explores the inclusion of digital assets in the state’s retirement investment portfolio.
A decade in the making, these ETFs are set to transform the cryptocurrency landscape, offering investors exposure to bitcoin without direct ownership. Industry analysts estimate substantial inflows, ranging from $50 billion to $100 billion this year. We are at the beginning of the road.
Exploring DAO Legal Structures in Wyoming and New Hampshire
Looking forward, Wyoming and New Hampshire are working to establish unique legal frameworks for decentralized autonomous organizations (DAO).
DAOs operate autonomously and are managed by transparent decision-making among its members. Utilizing existing legal structures to govern their operations often falls short due to their centralized focus and a lack of statutory clarity. Wyoming’s SF 50 and New Hampshire’s HB 645 take a novel approach by tailoring new legal structures to DAO operations. Texas & California had similar bills last session. Read CCI’s comments here.
Promoting Digital Asset Education and Blockchain Awareness
Education is also on the mind for many state legislatures. Several states are looking into efforts to bolster education specifically on digital assets. New York, Virginia, and New Jersey have all introduced legislation aimed at increasing awareness on the benefits and responsible utilization of blockchain technology through public-private task forces, commissions, and financial literacy initiatives. CCI supported New York’s effort last year, the New York State Cryptocurrency and Blockchain Study Task Force Act, and we are glad to see it reintroduced this session.
Efforts like the California Blockchain Working Group should serve as a collaborative model for states interested in leading on this front.
The Challenges and Opportunities of Navigating the State Crypto Regulatory Patchwork
South Dakota, New Hampshire, and Maine are considering updates to their money transmitter statutes, focusing on digital asset provisions. While money transmission regulations can be suitable for specific activities, applying these standards may also overlook the complexity inherent in the broader digital asset ecosystem.
A fragmented state crypto policy landscape presents challenges for both consumers and innovators. Despite the recognition of economic and technological opportunities in the digital asset space, the regulatory patchwork complicates matters.
Coordinated state-based regulatory frameworks can offer an efficient and effective model for the industry. As states continue to refine their frameworks, collaboration among them becomes crucial to navigate the evolving and intricate landscape of digital asset regulation.
