Bitcoin Blockchain Business Investment Policy & Regulation Tech

While Washington dithers, Wyoming and other US states mine for crypto gold

img-ads

The United States is divided politically these days into red states and blue states, and increasingly, it seems to be fracturing into cryptocurrency-friendly and crypto-wary locales, too. On Feb. 21, it was revealed that San Francisco-based Ripple Labs had registered as a Wyoming business. Wyoming is arguably the most blockchain and cryptocurrency-welcoming state in the United States. 

Meanwhile, several days later, New York State’s attorney general announced a settlement of the office’s long-standing investigation into crypto trading platform Bitfinex for illegal activities. As a result, Bitfinex and affiliated Tether must pay $18.5 million for damages to the state of New York and submit to periodic reporting of their reserves.

Wyoming and New York — poles apart on the crypto regulatory spectrum — were both making industry headlines in the same week in other words. The irony wasn’t lost on Timothy Massad, former chairman of the U.S. Commodity Futures Trading Commission and now a senior fellow at Harvard University at Kennedy School, who told Cointelegraph:

“Federal regulation of crypto assets is like swiss cheese — full of holes — and that has meant a smorgasbord at the state level, with Wyoming actively luring crypto businesses and the New York attorney general bringing aggressive enforcement actions as we saw this week with Tether and Bitfinex.”

Whether this “smorgasbord” is a good thing is a matter of some debate. Crypto havens like Wyoming can be centers of innovation, pushing a potentially revolutionary technology further forward, as Wyoming’s recently elected U.S. Senator Cynthia Lummis emphasized this week in a Chamber of Digital Commerce panel discussion with Miami’s Mayor Francis Suarez, another crypto enthusiast.

A complex fabric

But it also leads to regulatory uncertainty that gives entrepreneurs a case of hypertension. As Stephen McKeon, an associate professor of finance at the University of Oregon, told Cointelegraph: “Our regulatory system is a complex fabric of multiple agencies at both the state and federal level.” He further emphasized that “they need to coordinate on the topic of crypto assets because this asset class doesn’t map cleanly to the existing regulatory structure.”

Asked if, from a business standpoint, Ripple and others were making a smart business move registering in crypto-warm states like Wyoming with a higher degree of regulatory certainty and freedom — as well as lower taxes — McKeon added: “Businesses strive to reduce regulatory uncertainty. If moving to Wyoming helps to achieve that objective, then it’s a smart move.”

Others could follow Ripple. Zachary Kelman, managing partner at Kelman Law, told Cointelegraph: “Many crypto projects fled New York after the introduction of the onerous BitLicense back in 2015. I expect more projects to relocate in Wyoming, as well as other crypto-friendly states like New Hampshire.”

Wyoming created a stir in 2019 when its legislature authorized the chartering of special purpose depository institutions, or SPDIs, that can receive both deposits and custody assets, including cryptocurrency. The state’s banking division itself acknowledged that “it is likely that many SPDIs will focus heavily on digital assets, such as virtual currencies, digital securities and utility tokens,” though they could also deal with traditional assets. SPDIs can’t make loans like traditional banks, however.

Kraken Bank was the first business to receive a Wyoming SPDI bank charter in September 2020, followed by Avanti Bank and Trust in October, and there are “three more [SPDIs] in the pipeline” said Lummis at the Chamber of Digital Commerce’s Feb. 25 event. Avanti founder and CEO Caitlin Long had earlier suggested that Wyoming’s SPDIs potentially were “a solution to the #BitLicense problem” faced by crypto companies because “New York law exempts national banks from the BitLicense.”

But even though the Wyoming SPDI’s are state-chartered institutions, not national banks, “federal law protects parity of national banks and state-chartered banks,” continued Long, and following that logic, she concluded that SPDIs represented “a passport into some 42 U.S. states without the need for additional state [crypto] licenses.”

An accident waiting to happen?

Not all are enthralled by Wyoming’s new special-purpose banks, though. The Bank Policy Institute suggested that Wyoming’s SPDIs could be an “accident waiting to happen.” The BPI noted in September that Kraken was “the first digital asset company in U.S. history to receive a bank charter recognized under federal and state law” but warned that its business model “is inherently unstable under stress” because the new bank is funded by uninsured, demandable retail deposits “and relies on a pool of assets such as corporate bonds, munis and longer-term Treasuries to fund redemptions under stress.”

David Kinitsky, CEO of Kraken Bank, in a conversation with Cointelegraph, said that he believes the BPI blog post “comes from a lobbyist group funded by, and working on behalf of, the world’s biggest banks” and rests “on a slew of faulty assumptions,” adding further:

“[It’s] comical and hypocritical that they think their fractional reserve model along with its total reliance on asset exposure and interest rate environment is somehow less risky than a full reserve custodian bank that won’t do any lending and has a diverse set of adjacent revenue streams.”

Others have opined that innovation centers like Wyoming were merely filling the void left by the federal government, which has yet to take a coherent stance vis-a-vis the burgeoning crypto market. Benjamin Sauter, a lawyer at Kobre & Kim LLP, told Cointelegraph: “Wyoming is showing that individual states can play a meaningful role in crafting a coherent legal framework for the crypto/blockchain industry — particularly when it comes to state taxation as well as commercial and some banking issues.”

By comparison, according to him, the U.S. federal government “hasn’t really made an effort to create such a framework, and this has led to a lot of regulatory inefficiencies and general confusion.”

Innovator or loophole?

So, what about the notion that Wyoming merely created a means for its new banks to lure firms and investors based in more regulated states like New York? Kelman told Cointelegraph on the matter: “Many institutions operate entities all over the world, not just the United States. New York has jurisdiction over New Yorkers — but not any company related to a company that has had operations there.”

“Wyoming can and is becoming a center for crypto business and innovation,” Kinitsky told Cointelegraph, adding: “Certainly, there are ready similar examples within financial services like the credit card industry in South Dakota and ILC banks in Utah….SPDI banks have similar frameworks for being able to operate across the country and indeed internationally.”

McKeon agreed that Wyoming was following the South Dakota playbook: “South Dakota created favorable legislation for banks around interest rates and fees in the 1980s and now has one of the highest concentrations of bank assets in the U.S.,” adding further:

“By creating an environment that allows crypto projects to operate with a higher degree of regulatory certainty and freedom, Wyoming is likely to attract similar relocation within crypto.”

Will others join in?

Of course, other states could follow Wyoming’s lead. Kelman said: “I also expect larger states, like Florida, to follow suit with more crypto-friendly guidance, especially after Miami Mayor Francis Suarez’s overtures to the crypto community.” However, he further stressed that “given Wyoming’s small size and relative obscurity, I don’t know if it will remain a haven for an entire industry in the way Delaware has been for incorporations and corporate governance.”

As reported, Mayor Suarez is looking to develop some of “the most progressive crypto laws” and proposing within his jurisdiction innovations like paying city workers’ wages in Bitcoin (BTC) and purchasing BTC for the municipality’s treasury. Senator Lummis applauded the mayor’s initiatives at the Chamber of Digital Commerce’s panel, inviting him to “look at Wyoming’s legislative framework as a template and then build on it” by developing new Bitcoin “components,” including a pension plan for Miami workers that includes Bitcoin — something Suarez is looking into.

Multiple innovative centers like Miami and Wyoming, among others, could advance technological progress generally, she suggested. Suarez, for his part, said: “One of the things that we want to do is imitate Wyoming’s very successful integration of crypto into their community.”

Meanwhile, Avanti’s Long remains an ardent booster for her state: “Why should crypto companies redomicile to Wyoming?” she asked rhetorically on Feb. 21 following the news that Ripple Labs had registered as a Wyoming limited liability company, adding:

“No state corp tax, no franchise tax, crypto exempt from property & sales tax, our commercial laws clarify crypto legal status, crypto-friendly banks opening soon, access to crypto-open gov/legislators/US senator — all laws open-source.”

Is Wyoming good for BTC adoption?

What exactly do these tech-friendly states and cities mean for cryptocurrency adoption? Sauter was cautiously optimistic: “It’s possible that Wyoming’s efforts will have some trickle-up effects, should the federal government ever get its act together.” He stated further that there is also a major risk as businesses may be “lulled into a false sense of security and potentially conflating Wyoming’s regime for compliance at the federal level.”

Kinitsky told Cointelegraph that the convergence between crypto and banking, as is happening in Wyoming, “portends an important step toward mainstream adoption,” while McKeon added that crypto users “are primarily concerned with access to products and features. Better products translate to increased adoption.” Therefore, if Wyoming-type legislation enables crypto projects “to provide new and desirable features by mitigating regulatory risk for the providers, then it will be a positive force for general public adoption.”

Many, though, still seem to be treading water until the federal government acts to provide some legislative/regulatory structure to the nascent blockchain and cryptocurrency industry. According to Sauter, “as great and encouraging Wyoming’s recent actions are, there is only so much one state can do.” Massad also told Cointelegraph:

“This regulatory confusion creates higher costs and uncertainty. There’s still plenty of money and talent in this country flowing into crypto innovation, but we need greater regulatory clarity to ensure investor protection, financial stability and responsible innovation.”

img-ads

Leave a Comment

Your email address will not be published.

You may also like

Blockchain Markets

NBA Top Shot leads NFT explosion with $230M in sales

Dapper Labs, the creator of the CryptoKitties game, is helping the National Basketball Association, or NBA, become a magnet for digital collectibles. 

NBA Top Shot, a marketplace for non-fungible tokens, or NFTs, has generated over $230 million in sales, according to Dapper Labs. NBA Top Shot is built on Dapper’s Flow blockchain, allowing users to purchase “packs” that feature in-game moments. With packs almost always sold out, a secondary marketplace is the only way for users to access specific moments.

Recently, a LeBron James highlight sold for $200,000. A Zion Williamson spotlight sold for around the same amount.

NFTs, which exist entirely on the blockchain, are revolutionizing the traditional model of trading cards. In the case of NFTs, the value of a particular moment is governed by the same laws of supply and demand, though ownership is entirely digital. The blockchain also…

View More Article
Bitcoin Business

OLB Group enables crypto payments for thousands of US merchants

OLB Group (OLB), a New York-based e-commerce merchant service provider, is making it easier for businesses to accept cryptocurrency payments.

OLB’s more than 8,500 merchants are now able to accept Bitcoin (BTC), Ethereum (ETH), USDC and DAI at the point-of-sale through the company’s OmniSoft business management platform. Customers wishing to pay with cryptocurrency in-store or through their mobile phones can simply elect to do so with their cryptocurrency wallets. All payments are processed through SecurePay, a payment gateway that authenticates the transaction, converts the cryptocurrency to U.S. dollars and approves the final sale.

The decision to integrate cryptocurrency payments was partly driven by the growth of contactless and online orders during the Covid-19 pandemic. With the OmniSoft platform already providing merchants with several options to facilitate payments, cryptocurrencies were the next logical step. 

Ronny Yakov, OLB Group’s CEO, says the payment gateway and point-of-sale architecture are “familiar territory for…

View More Article
Bitcoin Blockchain Opinion Policy & Regulation Tech

Transparent stablecoins? Conclusion of Tether vs. NYAG raises new questions

A long-standing legal drama finally found resolution on Feb. 23, with the New York Attorney General’s office announcing that it had come to a settlement with cryptocurrency exchange Bitfinex after a 22-month inquiry into whether the company had been trying to cover up its losses — touted to be worth $850 million — by misrepresenting the degree to which its Tether (USDT) reserves were backed by fiat collateral.

According to the terms of the announced settlement, which now marks an end to the inquiry that was initiated by the NYAG back in Q1 2019, Bitfinex and Tether will pay the government body a fixed sum of $18.5 million but will not be required to admit to any wrongdoing. That being said, the settlement clearly states that henceforth, Bitfinex and Tether can no longer service customers in the state of New York.

Furthermore, over the course of the…

View More Article
Bitcoin Business Investment Opinion Tech

Dogecoin hasn’t always been a ‘fun meme coin’

Dogecoin (DOGE) might look like a fun meme coin, particularly as its price has absolutely skyrocketed in 2021.

But behind the innocent Shiba Inu dog cartoon are some horrific stories. Those buying the cryptocurrency due to shilling and jokes from Tesla and SpaceX CEO Elon Musk, most likely have no idea of DOGE’s early days.

DOGE/USD 1-day candle chart (HitBTC). Source: Tradingview

The early days

Introduced by software engineers Billy Markus and Jackson Palmer in December 2013, Dogecoin’s protocol followed Luckycoin and Litecoin (LTC) proof-of-work algorithm using Scrypt technology.

It all started back on Christmas day, 2013, when Dogewallet announced that its webpage had been compromised, causing users to send funds to the hacker’s address. The $12,000 worth of users’ coins lost was fully reimbursed by Dogecoin Foundation Board Member Ben Doernberg, which included community-funded donations.

How many times have you heard about…

View More Article
Bitcoin Latest Markets

Bitcoin sell-off over? Strong ‘buy the dip’ signal flashes for the first time in 5 months

The price of Bitcoin (BTC) has dropped to the key $44,000-$45,000 support level on Feb. 28 for the third time in the past week.

BTC/USD 1-hour candle chart (Bitstamp). Source: Tradingview

The BTC/USD pair briefly dipped below $44,000 on Bitstamp before paring some of the losses, bouncing back above $45,000 at the time of writing. 

‘Full rest’ for SOPR, funding rates

Some analysts have pointed out an uptick in miners’ selling as the reason behind the latest drop in price. 

Fortunately, the third retest of this key support level may have a silver lining for…

View More Article
Bitcoin Blockchain Investment Markets Opinion Policy & Regulation Tech

Professional traders need a global crypto sea, not hundreds of lakes

Coinbase’s IPO announcement has been hailed as “a milestone for the crypto industry” by Fortune Magazine. Similar to the Netscape IPO announcement that signaled the legitimacy of the internet, Coinbase’s impending public offering signals to the public at large that cryptocurrency trading is legitimate, legal and secure in the eyes of the Securities and Exchange Commission. And now, investors have an opportunity to own stock on the largest crypto trading platform in the United States.

As a result, many see an investment in Coinbase as an investment in the future of crypto trading. It is the highest volume U.S. crypto exchange, with three times the volume of its next closest U.S. competitor. The largest of anything in the U.S. must be the world leader. Except, it’s not. And conventional wisdom and current market realities are very far apart.

In order to understand…

View More Article
%d bloggers like this: