On 9th February, a group of Republican and Democrat representatives and senators, put forward a bill that may end the ban on Bitcoin and other cryptocurrency exchanges in the US state of Wyoming.
Despite the growing acceptance of Bitcoin as a legitimate means of transaction and the increased usage of the cryptocurrency by businesses and customers alike, in Wyoming, as of mid-2014, nearly all trading of not only Bitcoin, but all cryptocurrencies, has almost completely ceased.
This is due to the Wyoming Money Transmitters Act that was introduced in Chapter 22 of Title 40 - Trade and Commerce, one of the Wyoming Statutes of 2011. Despite the act’s introduction in 2011, Bitcoin and other cryptocurrency exchanges only began to be affected in 2014/15 as the Wyoming Division of Banking communicated the regulatory policies’ effects on cryptocurrency exchanges.
Coinbase ceases operations
On 13th October 2015, Coinbase, one of the most popular Bitcoin exchanges in the US and the world, if not the most popular, released the following statement on its website, having already ceased operations in Wyoming in July 2014, saying that they were indefinitely suspending their business in Wyoming:
“Although we strive to provide continuous access to Coinbase services, Coinbase is indefinitely suspending its business in Wyoming.
The Wyoming Division of Banking has recently communicated regulatory policies which we believe will render continued Coinbase operations there impractical. In particular, we understand that the Wyoming Division of Banking interprets the Wyoming Money Transmitter Act to require licensure of entities which offer hosted bitcoin wallet services, and that as a condition of such licensure, licensees must maintain dedicated fiat currency reserves in amount equal to the aggregate face value of all bitcoin held on behalf of customers. Although Coinbase securely maintains 100% of all customer bitcoin, it is impractical, costly, and inefficient for us to establish a redundant reserve of fiat currency in equivalent value.
We understand this suspension will inconvenience our Wyoming customers and we apologize that we cannot currently project if or when our services may be restored.”
Despite the fact that Coinbase had already developed an insurance plan that would recover any lost or stolen coins that were in a user’s online wallet, in the event that something unexpected happened, this did not satisfy the Wyoming Money Transmitters Act’s requirement that exchanges had dedicated fiat currency reserves amounting to the value of Bitcoin held on their servers.
Coinbase was forced to comply with these regulations most predominantly because of an obvious wish not to break the law, but it is important to keep in mind that Coinbase deliberately took a swift and strong stance in order to aid the legitimization efforts of the Bitcoin community. For digital currencies to be seen as a legitimate payment system, it is incredibly important that exchanges observe state and federal law strictly.
Only one exchange stays in business
Although other exchanges were operating in Wyoming, Coinbase had the biggest share of the market by a fairly wide margin. However, as these other exchanges try to compete with Coinbase, they employ the same types of rules to legitimize their company, and as result, many more exchanges followed suit and ceased their operations in Wyoming, the most recent of which being a company similar to Coinbase, called Glidera.
As further competition between exchanges occurs, more and more of them will stop doing business in Wyoming. As of 13th February 2016, there is only one exchange company, that allows you to sell Bitcoin, still operating in Wyoming - an Australia-based company called Circle. However, it is likely that it will only be a matter of time before they stop doing business too.
Although it is possible for Wyomingites to travel to Denver, Colorado to buy goods from the handful of merchants that accept Bitcoin there, this is obviously not the optimal solution.
A new bill, Wyoming House Bill 26, hopes to change the current situation for the better. The bill, introduced on 9th February 2016, is “A BILL for AN ACT relating to the Wyoming Money Transmitter Act; amending definitions to include digital currency as a permissive investment; and providing for an effective date.” It is being sponsored by Republicans, Rep. Tyler Lindholm, Rep. David Miller, and Sen. Cale Case, and Democrats, Rep. Charles Pelkey and Sen. Chris Rothfuss.
How Wyoming House Bill 26 hopes to change things
To understand the implications of this bill, you must understand the three relevant sections of the Wyoming Money Transmitters Act that impact cryptocurrency exchanges; § 40-22-102. Definitions., § 40-22-103. License required., and § 4-22-107. Permissible investments and statutory trust.
The first outlines the definitions relevant to the bill, but the important one to us is the definition of “permissible investments”. The current definition lists cash, certificates of deposit, investment securities, and bank savings, among other definitions, as permissible investments, but currently, ‘digital currencies’ is not on this list.
The second states that, “no person shall engage in the business of money transmission without a license,” and the last states that, “Each licensee shall at all times possess permissible investments having an aggregate market value calculated in accordance with generally accepted accounting principles, of not less than the aggregate face amount of all outstanding payment instruments and stored value issued or sold by the licensee in the United States.”
Together, this essentially means that every money transmitter, i.e. Coinbase, Glidera, Circle etc., must have a license to do business. This license requires licensees to have dedicated permissible investment reserves amounting to the aggregate market value of users’ stored money, i.e. the value of the Bitcoin stored on their servers. However, the issue is that digital currencies are not recognised as permissible investments in Wyoming. This makes it nearly impossible for these companies to fulfil the license requirements as it is just not economically feasible to store that amount of money in fiat currency or otherwise.
If Wyoming decides to pass House Bill 26, digital currencies will be recognised as permissible investments, allowing these exchanges to resume their operations, businesses to continue easily accepting Bitcoin, and Wyomingites to pay for their goods and services via Bitcoin, should they choose to do so. It will also allow for the growth of new Blockchain utilizations, as well as new Bitcoin-related businesses.
Cointelegraph and the Wyoming Bitcoin community eagerly await the outcome of the vote on the bill.