Testimony: SB2967 SD1 is the best of the cryptocurrency bills

by Grassroot Institute of Hawaii, February 23, 2022

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration Feb. 24, 2022, by the House Committees on Commerce and Consumer Protection and Ways and Means.
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To: Committee on Commerce and Consumer Protection
      Senator Rosalyn H. Baker, Chair
      Senator Stanley Chang, Vice Chair

     Committee on Ways and Means
      Senator Donovan M. Dela Cruz, Chair
      Senator Gilbert S.C. Keith-Agaran, Vice Chair

From: Grassroot Institute of Hawaii
            Joe Kent, Executive Vice President

RE: SB2697 SD1 — RELATING TO VIRTUAL CURRENCY

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on SB2697 SD1 which would exclude the electronic transfer of virtual currency through virtual cryptocurrency companies from the Money Transmitters Act.

This bill provides the best, simplest and most comprehensive policy option to a problem that has stymied the growth of cryptocurrency in Hawaii: the “double reserve” requirement in the state Money Transmitters Act, which has been applied to companies that deal in digital currency.

Currently, the Money Transmitters Act requires digital currency companies to hold cash assets equal to the amount of their virtual assets. Thus, a company that holds $1 billion in Bitcoin and Etherium also must have a $1 billion in cash reserves.

This requirement has made it nearly impossible for cryptocurrency companies to do business in Hawaii. Coinbase and Binance — the two largest cryptocurrency exchanges — do not operate in Hawaii. Nor do RobinHood Crypto, KuCoin, PayPal’s “Cryptocurrency Hub,” eToro, Bitstamp or any number of other popular and successful crypto companies. As a result, Hawaii has been largely left out of the cryptocurrency revolution.

In 2019, Gov. David Ige authorized a temporary “Digital Currency Innovation Lab,” a regulatory “sandbox” that allowed certain cryptocurrency companies to do business in Hawaii without being subject to the money-transmitter law’s double-reserve requirement. Since the lab’s inception, 61,000 Hawaii customers have been able to access digital currency and complete more than $611 million in transactions.

Unfortunately, the sandbox experiment  will end at the close of 2022. Without further action from the Legislature, cryptocurrency will once again become inaccessible for Hawaii residents. Moreover, the state will lose access to the economic benefits of this rapidly expanding industry.

SB2687 SD1  provides the best and most efficient pathway for the future of cryptocurrency in Hawaii. Currently, 20 states do not require a money-transmitter license for digital currency transactions.[1] By excluding digital currency companies from the state’s Money Transmitters Act,[2] Hawaii would go from one of the most burdensome states for cryptocurrency to one of the best.

After Wyoming exempted cryptocurrency companies from its double-reserve requirement in 2018, it was dubbed one of the country’s “most crypto-friendly” jurisdictions. [3]

Cryptocurrency is a developing industry that moves as quickly as the technology involved. While federal and state governments may eventually promulgate rules regarding cryptocurrency, now is not the time to handicap the industry with heavy state regulations.

This bill would avoid the problem of enacting restrictions on cryptocurrency that could quickly become outdated or overly burdensome. Instead, it focuses on the main barrier that has prevented Hawaii residents and businesses from profiting from the cryptocurrency boom: the state’s Money Transmitters Act.

Finally, this bill embraces an approach that the Hawaii Legislature has favored in the past.

In 2017, Hawaii lawmakers approved at the full Senate and full House an exemption for cryptocurrency from the state’s Money Transmitters Act,[4] but the exemption was deleted in conference committee before the bill was enacted. Iris Ikeda, commissioner of the state Division of Financial Institutions , stated at the time that lawmakers should first study the issue via a “Decentralized Virtual Currency Working Group.”

“DFI believes that the most prudent approach would be to allow the DVC Working Group the opportunity to perform its review and to provide the Legislature with findings and recommendations prior to the creation of an exemption for decentralized virtual currency,” she said.[5]

Now that the issue has been studied via the Digital Currency Innovation Lab, lawmakers can feel confident about enacting SB2697, which would follow the example of 20 other states by exempting cryptocurrency from the state’s Money Transmitters Act.[6]

It is clear that the exemption contemplated here is necessary to allow cryptocurrency to grow and thrive in our state. For that reason, SB2697 SD1 deserves your support.

Thank you for the opportunity to submit our comments.

Sincerely,

Joe Kent
Executive Vice President
Grassroot Institute of Hawaii

RELATED: HB2108: This cryptocurrency bill should-be-shelved
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[1] Those states are: Arizona, Arkansas, California, Colorado, Idaho, Illinois, Kansas, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, North Dakota, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and Wisconsin

[2] “Money Transmitters Act,” HRS 489D.

[3] Chris Matthews, “How Wyoming became the promised land for bitcoin investors,” MarketWatch, April 24, 2021; “What do Wyoming’s 13 new blockchain laws mean?” Forbes.com, March 4, 2019; HB0019 of 2018 Wyoming Legislature; and Erik Kuebler, “Wyoming House unanimously approves two pro-blockchain bills.” Bitcoin Magazine, Feb. 20, 2018.

[4] SB949 of 2017.

[5] Iris Ikeda, Division of Financial Institutions commissioner, “Testimony on SB949, SD1 HD1,” Hawaii State Legislature, March 31, 2017. See also, “Conference Committee Rep. No. 78,” Hawaii State Legislature, April 27, 2017.

[6] States that do not require a money-transmitter license for virtual currency transactions include Arizona, Arkansas, California, Colorado, Idaho, Illinois, Kansas, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, North Dakota, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and Wisconsin. See “Cryptocurrency laws by state,” Shipkevich Attorneys at Law, 2020.