US Crypto Review: Top-5 States With Welcoming Regulations
Two U.S. states introduce regulation over crypto space. States regulate crypto differently, a question arises: What are the most friendly ones?
On Aug. 14, at least two American states introduced regulatory actions targeting the crypto space. First, Maryland’s attorney general announced that the state is participating in Operation Cryptosweep, a joint initiative of state and provincial securities regulators in the U.S. and Canada, wherein they launch probes into potentially fraudulent or noncompliant crypto investment programs.
Then, the state of Nevada unveiled new requirements for crypto ATM owners, obliging them to obtain a transmission license. The first location granted by the license will cost business owners as much as $10,000, while every additional kiosk requires an extra $5,000 (however, bond requirements cannot go higher than $250,000 in total).
So, how are other states doing, and what are the most crypto-friendly ones?
States take the crypto matter into their own hands, federal government remains absent
The regulatory landscape is actively changing throughout the U.S., as different states seem to be pushing in different directions in regard to crypto, while the federal government has yet to adopt a universal framework despite the calls from local actors. As a result, there is a widening regulatory gap between separate national units, says Cal Evans, founder of Gresham International, a compliance and strategy firm. He told Cointelegraph:
“As the Federal government's position remains more and more silent states will look to develop their own framework. When states are left to do their own thing, there is often a massive disparity within their rules. We can see the same thing with the Marijuana industry.”
Lindsay Danas Cohen, chief operating officer at Velocity Markets, a U.S.-based financial technology company providing solutions to investors in the digital asset markets, agrees that there is a varying approach among states regarding cryptocurrencies (although she explicitly refrains from calling it a “regulatory gap”), which is happening against the backdrop of federal inactivity:
“In the future, absent federal intervention, it is likely that these different interpretations will be cemented, reinforcing a state-level patchwork (much as we see with Blue Sky laws). Whether federal-level intervention actually materializes will depend on how D.C. views its role in mediating the space, and whether they deem it in the public interest for there to be a uniform set of laws applicable to cryptographic asset activity.”
Cointelegraph has picked out the five most crypto-friendly American states for different crypto actors, be it casual consumers or large businesses. Most cases involve having fair regulations in place (like allowing corporations to tokenize their shares) or, for instance, local authorities’ willingness to provide special electricity discounts for mining facilities. However, sometimes less is more: California is the most popular location for crypto firms, and unlike New York, it doesn’t oblige them to get any specific licenses.
Specialty: Custody services, crypto businesses (exchanges, wallet providers, etc.)
So far, Wyoming has proved to be the undisputed leader in terms of crypto-friendly areas of the U.S. Thus, the Cowboy State put itself on the crypto map in early 2018, when the Wyoming House of Representatives passed a bill defining “utility tokens,” and exempting those of them that are not marketed as an investment opportunity (and meet a number of additional requirements) from securities regulations.
The move aimed to solve the long-standing dilemma in the U.S. in which different agents view cryptocurrencies differently from the juridical standpoint, as co-founder of the Wyoming Blockchain Coalition Caitlin Long, the lobbyist behind most domestic crypto bills, remarked at the time, “The state of Wyoming is the first elected body in the world to define a utility token as a new type of asset class different from a security or commodity.”
A total of seven other pro-crypto bills remain active, which entail granting digital currencies the same legal status as money, authorizing banks to hold digital assets in custody, allowing corporations to tokenize their shares, and creating a regulatory fintech sandbox aimed at further diminishing any regulatory hurdles for industry startups, among other things.
By authorizing banks to administer digital assets, Wyoming enables them to comply with the Securities and Exchange Commission’s (SEC) regulations for “qualified custodians.” Moreover, it could prompt those who are not so tech savvy to enter the crypto market: If they can trust their bank with their money, why not add crypto into the mix?
Consequently, banks and other custodial services have a clear set of rules to follow, which could trigger a massive influx of financial institutions to Wyoming. The bill was signed by the governor in February 2019 and has been in effect since July 1.
Specialty: Crypto businesses, agriculture (potentially)
Colorado is no stranger to trailblazing adoption moves — after all, it was the first state to legalize recreational marijuana. Indeed, Bitcoin seems high on Colorado’s priority list: It was one of the hottest topics of its latest 2018 gubernatorial election, in which two of the candidates highlighted blockchain and cryptocurrencies’ importance for their state during the public debate. Although neither of those candidates were elected, the new governor, Jared Polis, is also vocally pro-crypto in his interviews, once saying:
"Similar to Wyoming, I will work alongside the legislature to create a statewide safe harbor designed to exempt cryptocurrencies from state money transmissions laws, and I will work to establish legislation that protects ‘open blockchain tokens’ or cryptocurrencies that are exchangeable for goods and services.”
Thus, Colorado has already started paving the way for the crypto industry. For instance, in May 2018, Polis signed Senate Bill 086, which requires the Governor’s Office of Information Technology (OIT), the Department of State and the Department of Regulatory Agencies to consider using blockchain in order to protect confidential state records from manipulation and theft.
The same month, Colorado Secretary of State Wayne Williams made the proposal for allowing donations in cryptocurrencies to political campaigns, thus following the state of New Hampshire, which made this move back in 2014.
Moreover, in March 2019 Colorado’s governor signed into law the Colorado Digital Token Act — a bill that attempts to exempt cryptocurrencies from some securities regulations, similar to the legislation in Wyoming. Thus, effective Aug. 2, certain digital assets designed for “consumptive purpose” now qualify for securities exemptions. Indeed, the bill could help Colorado’s state agencies regulate the market for initial coin offerings, or ICOs, as the Colorado Division of Securities has been picking out and banning bad actors.
Colorado has also applied blockchain to other fields. Thus, over the period starting on March 23 and finishing on May 7, overseas voters who normally relied on absentee paper ballots could partake in municipal elections in Denver via a blockchain-based mobile voting app called Voatz. However, as with the Digital Token Act, Colorado wasn’t the first — in March 2018, the mobile voting solution was deployed during the primary and then midterm elections in West Virginia.
Finally, in May 2019, Colorado’s governor signed the proposition to assemble an advisory group to study blockchain application in product tracking, inventory management, monitoring of in-field conditions, data verification and certification of organic products. Per the bill, the advisory group would have to report the feasibility of the applications and its recommendations by Jan. 15 next year — so the state’s burgeoning agriculture industry could soon be put on blockchain rails.
Specialty: Crypto businesses, taxes, real estate agents (potentially)
Ohio still has a long way to go to become a federal crypto hub in the U.S., but its ambitions are evident. After legally recognizing blockchain data in August 2018, lawmakers of the Buckeye State proposed using blockchain for birth certificates and marriage licenses, as well as to work with universities so that they can offer blockchain-related courses to their students.
Ohio House of Representatives Speaker Ryan Smith said, summarizing those initiatives, “Because this is so new and this is just beginning to take shape, we can position Ohio out front.”
Meanwhile, Ohio has already advanced in one particular field in which other states are still lagging: taxes paid in crypto. Since November 2018, local companies can pay everything from cigarette sales taxes to employee withholding taxes with Bitcoin (BTC) after registering on the website OhioCrypto.com. The state’s treasurer, Josh Mandel, told Cointelegraph soon after his initiative went live:
“Here in the United States, states are the laboratories for democracy, and I think this is a perfect illustration of this concept — where this idea is beginning at a state level in Ohio, but the ultimate goal is to inspire the federal government to follow suit.”
The first major business to take interest in that option was Overstock.com, a pro-crypto e-commerce firm. In January 2019, the company’s CEO and founder, Patrick Byrne, announced that his company was going to file its commercial activity taxes in the state via OhioCrypto.com.
The next unique realm in which Ohio could apply positive regulation is real estate. Earlier this year, the County Auditors’ Association of Ohio created a working group to study how blockchain can help to “more effectively” transfer real estate deeds at the state level.
Specialty: Crypto mining, consumer protection
Texas was the first state to publish a memorandum that declared that no money transmitter license is needed to sell Bitcoin or other digital currencies. However, it is definitely not the most crypto-friendly place on the list — after all, Texas was on the verge of passing a bill earlier this year that would have banned the usage of cryptocurrencies between unidentified parties.
Blockchain lobbyist Long and Wyoming House Rep. Tyler Lindholm even travelled to the Texas’ capitol to meet the lawmakers behind this document and to convince them to drop it, but failed to meet legislators. Regardless, the paper seems to be dead in the water at this point, much to Texas crypto enthusiasts’ relief.
Therefore, positive regulation isn’t exactly the Lone Star’s strong suit, but it is still one of the most popular places in the U.S. for crypto mining, despite its scorching hot climate. Last year, for instance, the town of Rockdale welcomed Bitmain’s plans to build what would be the world’s largest mining facility, while other states under consideration — Tennessee and New York — were reportedly much more reluctant.
According to Wired, Bitmain was negotiating to pay $0.03 to $0.04 per kilowatt-hour for electricity, “about half the average for an industrial client in the area and among the lowest in the country.” Additionally, the Chinese behemoth had been approved an 80% property tax discount for the first five years in exchange for creating 400 to 600 new jobs.
However, once the crypto winter hit, the company had to abandon its plans for U.S. expansion. The construction, which had already begun at that point, was eventually resurrected, but the center’s record-breaking scale had to be drastically downsized from 600 to just 40 new jobs.
Nevertheless, there are other crypto mining enterprises in the business-friendly state of Texas such as TMGCore, whose cooling technology allegedly allows it to run efficient mining rigs even during the summer heat. Meanwhile, other states where mining is cost-efficient — like New York and Washnigton — have intentionally been increasing electricity costs for crypto businesses and rolling out moratoriums, which makes Texas an overall safer bet.
On a side note, Texas is one of the most stringent actors when it comes to clearing the crypto space from noncompliant actors. Specifically, the Texas State Securities Board issued a total of 60 cease-and-desist orders against people and entities that reportedly sold unregistered securities in 2018, and continues to actively monitor the space this year.
Specialty: Crypto businesses, consumer protection
Back in 2014, California became one of the first states to roll out a form of crypto regulation, as its governor signed a bill ensuring that “various forms of alternative currency such as digital currency” are legal in purchasing goods and transmitting payments. Since then, the most populated state in the country has not necessarily been at the forefront of cryptocurrency governance, but it is by far the most popular place in the world for professionals working in the crypto industry — a quick search on the job recruitment site Indeed showed 327 jobs for the keyword “crypto” and 738 “blockchain” entries.
Consequently, the largest U.S. crypto companies — like Coinbase, Ripple and Kraken — are all headquartered in California. Therefore, the lack of certain regulations could be viewed as a blessing in disguise because local businesses are not hurdled with overly restrictive measures like New York’s BitLicense. Plus, the California Superior Court has shown its readiness to take resident crypto holders’ side in case of evidentiary fraud.
Moreover, California might soon start catching up with Wyoming and the rest of crypto-friendly states. Earlier this month, California Government Operations Agency Secretary Marybel Batjer announced the chair and members of the newly formed blockchain working group created by Assembly Bill 2658 back in 2018. Per the document, the task force is required to submit a report on blockchain’s potential uses, risks and benefits to the state government by July 1, 2020.