BYBiT

2024/03/08 09:32

States, not Washington, will lead crypto regulatio

States, not Washington, will lead crypto regulation in 2024

Blockchain enthusiasts focusing only on what’s happening around Washington are missing the forest for the trees

While Presidential candidates tour the country, hoping to court the crypto community with federal policy frameworks and tax proposals, it’s governors and legislatures at the state level that are taking decisive action on meaningful digital asset regulations. 

Blockchain enthusiasts focusing only on what’s happening around Washington are missing the forest for the trees. 2023 was a pivotal year for state digital asset policy, and 2024 promises even bigger implications for both businesses and consumers. 

This year was dominated by California Governor Gavin Newsom’s signing of Assembly Bill 39 into law. The bill, the Digital Financial Assets Law (DFAL), establishes comprehensive rules of the road for digital financial asset businesses operating in the state. 

Starting in 2025, digital financial asset businesses in California will be subject to a licensing and supervisory regulatory regime, including capital and liquidity requirements, regular disclosures and stablecoin approval standards. 

The state legislature modeled the law on New York’s Virtual Currency Business Activity regulations, better known as the “BitLicense” regulation and the limited purpose trust company provisions of New York banking law. However, they also adopted important provisions meant to improve on New York’s process, which has received considerable criticism from industry. These provisions include an expedited licensing pathway for businesses already subject to similar state licensing standards. 

Despite these promising advancements, DFAL also has some serious setbacks. Overly broad and imprecise definitions could unintentionally pigeonhole a wide range of unrelated activity, technology and individuals into the bill’s purview, creating operational challenges for both licensees and regulators. Exemptions for smaller digital financial asset businesses, including early stage digital asset startups, are also insufficient to preserve the state’s competitive edge.

DFAL also stands to command significant attention in 2024, as the legislature is expected to take up legislation aimed at cleaning up unaddressed issues in the statute. 

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