Governor urged to ‘take a pass’ on proposed ‘crypto crackdown’

by Grassroot Institute of Hawaii, May 22, 2023

Now is not the time for state lawmakers to be piling more regulations on Hawaii’s cryptocurrency market, and Gov. Josh Green should “take a pass” on two bills that would do just that, according to Joe Kent, executive vice president of the Grassroot Institute of Hawaii.

Speaking on Sunday with host Johnny Miro of  the H. Hawaii Media radio network, Kent said “there’s nothing wrong right now with Hawaii’s cryptocurrency market, except that it’s overly restrictive,” and “adding more regulations on top isn’t the answer.” 

Furthermore, he said, “the feds are trying to create their own regulations and measures around cryptocurrency, [so] it doesn’t make sense to set up a new scheme in Hawaii that might be out of step with what they’re doing.”

Kent said the two cryptocurrency bills now sitting on Gov. Josh Green’s desk are SB945 and HB525. The first, he said, is an 80-page bill that would give too much discretionary power to the state Division of Financial Institutions director to determine the rules by which cryptocurrency companies could operate in Hawaii. 

The second bill is 200 pages long and filled with so much legalese and technical, wonky language that “it’s questionable whether any lawmakers really understand what they just passed, let alone the governor who may sign it.”

Kent said, yes, cryptocurrency is a risky investment, “but whenever it comes to a new technology, we regulate those out of existence. If we’re trying to boost our economy and diversify it, we should make our business environment more friendly to things like cryptocurrencies.”

By Kent’s calculations, “billions of dollars have fled the state because of this crypto crackdown.”

TRANSCRIPT

5-21-23 Joe Kent with radio host Johnny Miro on H. Hawaii Media network

Johnny Miro: Good Sunday morning to you. This is Johnny Miro. It’s time for our Sunday morning public access programming here on our five Oahu radio stations within the family of H. Hawaii Media, heard on 101.1 FM, 101.5 FM, 97.1 FM, 107.5 FM and 96.7 FM.

A discussion of something that will start to become very relevant has so far been kept kind of under the radar. We are going to be discussing the topic of cryptocurrency and some couple of bills that have been put forward with a team member of the great Grassroot Institute, Joe Kent, the executive vice president. 

Joe, happy Sunday morning to you, and once again, thanks for joining us.

Joe Kent: Good morning, Johnny. Always a pleasure.

Miro: Cryptocurrencies have been all the rage the past several years. But, Joe, now lawmakers are pushing to regulate them. In Hawaii, there’s a couple of bills on the governor’s desk — one from the Senate, one from the House — that deal with cryptocurrencies. So can you tell our audience about these?

Kent: Sure. For those that don’t know cryptocurrency, it’s a fancy word for digital money. And if you talk to anyone who’s an enthusiast about cryptocurrency, they’ll go through a long explanation about more details beyond that. But really, it’s digital money, and there are many, many different types of cryptocurrency. 

This has all sprung forth in the recent years, you know, in the past decade. It’s a new technology that lawmakers are scratching their heads about what they should do. Should they regulate it? Should they let it be free?

And so, in Hawaii, they have chosen to regulate it now with the passage of these two bills in the Senate and the House, and that bodes poorly for cryptocurrency in Hawaii. And that’s because cryptocurrency in Hawaii already has a bad rap. And this just makes that worse in a lot of different ways. It’s a little complicated, and I can explain more about it.

Miro: The current status of it, you just mentioned that it is legal, isn’t it? It’s legal to buy and sell here locally, right?

Kent: That’s right. That’s right. You can buy it, you can sell it, that’s fine. But the legislation right now is concerning companies that want to serve as an exchange. 

So if you want to come into Hawaii as a company, like Coinbase, which is one of the main companies that does this — although there’s many others — and if you want to, you know, serve as an exchange in Hawaii for anyone who wants to buy and sell, then you are subject to a host of regulations, and many of which have seen exchanges like this flee the islands. And so that’s why we probably have the fewest number of exchanges that operate here locally.

And so, I mean, it’s less than 20 or so that are even allowed to operate here. And they’re handpicked by the state to do so. And others, you know, have said, “That’s it, we’re out of here. We can’t operate because of these heavy-handed restrictions.”

Miro: Hmm. It sounds kind of like a little bit like what they’re going through with the recreational marijuana and what they do with medicinal. But isn’t cryptocurrency itself … at least people on the outside might think it’s a risky thing to invest in. Is that true?

Kent: Oh, absolutely, it is. So, you know, me talking about this, I’m trying to share information, but “Buyer beware” is the label that we should put for any conversation about this. Because at the end of the day, what you buy, whether it’s property or a piece of gold or a cryptocurrency, that’s your decision to make. And right now, cryptocurrency, most cryptocurrencies are extremely risky. In fact, I could say all of them are.

Miro: All right. What about folks who may have gotten burned by some scams, cryptocurrency scams, Joe?

Kent: Oh, yes. Well, there was the recent blowup of the FTX exchange, which was run by Sam Bankman-Fried. That was one of the biggest exchanges in the world, that went belly up, and it, you know, left a lot of people holding the bag unable to get their money.

And that is really a problem with these cryptocurrencies, is, at the end of the day, it’s hard to tell who owns what, especially if you trust, you know, some third party to hold those cryptocurrencies on your behalf.

So the cryptocurrency community has adopted this phrase, “Not your keys, not your coins.” In other words, if you have it on your own personal computer wallet with your own personal code, then you can access it. But as soon as you share that code with someone else, it’s not really your cryptocurrency anymore because they can take it. 

And that’s what happened in the FTX case, is that FTX was holding all of these cryptocurrencies. I guess all these people trusted them with it, and they ran away with the money. 

And so the lesson is: If you’re going to be, you know, trying to trade or buy cryptocurrencies, put it on your own wallet; don’t leave it on the exchange.

Miro: Hmm. All right. Joe Kent, executive vice president at the Grassroot Institute of Hawaii, discussing cryptocurrency and the potential of CBDC — central bank digital currency. 

You just mentioned some of the scam potential in this. In your opinion, what are some of the benefits? And then you mentioned some of the drawbacks, but maybe there’s some more of crypto for individuals, Joe.

Kent: Oh, yes. Well, if you read the code of some of these cryptocurrencies, like Bitcoin for example, they have a limit on how many of these coins can be produced. 

And so, if you look across the world, how many things actually have a limit? You know, if they drill all the oil, then they’ll just drill for more oil. If the price of housing goes up, they build more houses. If the price of, you know, tomatoes goes up, they grow more tomatoes. And so almost everything in the world, you can find more of it — gold, you can dig for more gold, and so on.

But cryptocurrency is one of the only things that I can think of, where there’s a limited supply, and the limited is hard-coded and it’s decentralized and distributed so that basically everyone in the world who’s part of this system would have to kind of agree to change it. And that’s kind of hard to do. 

And so, what’s protecting the limit of the supply of this is the distributed nature of it. And so that is the supposed benefit of these cryptocurrencies, is that it’s a rare asset that will supposedly continue to be rare in the future.

And if you’re trying to park your money somewhere, you know, the supposed benefit of a cryptocurrency is that, over time, it won’t inflate away like the dollar has done. 

You know, if you look at government currencies, you can make more of those, and that’s what’s been done over hundreds of years. If you look at the dollar over the past hundred years, it’s lost 99% of its value because of this printing and inflation. And so those wishing to fight inflation are sometimes attracted to cryptocurrency.

Miro: All right. The benefits of this, what benefits could cryptocurrency bring to Hawaii as a whole?

Kent: Well, it’s a new technology and Hawaii needs new technologies in its economy. After all, we always hear about Hawaii is, “Why don’t we make Hawaii the next new Silicon Valley? Why don’t we make Hawaii the new international market?” 

But whenever it comes to a new technology, we regulate those out of existence. And so it’s always hard for new markets to spring up here because of that regulation.

So, you know, I talk to business owners and entrepreneurs who were interested in the cryptocurrency space and actually left Hawaii because of too much regulation. And so that’s billions of dollars that has fled the state because of this crypto crackdown. 

And so, if we’re trying to boost our economy with something else and diversify it, then we should make our business environment more friendly to things like cryptocurrencies.

Miro: And I’m sure there’s some states out there much more friendly to cryptocurrency. So what states are the best when it comes to this cryptocurrency, and then what specifically is it that they do that makes them the best?

Kent: Oh, yes. Well, Wyoming is by far the best. They actually used to have laws that were really similar to Hawaii, and then they realized that they should do the opposite. And so they actually repealed their regulations and passed crypto-friendly regulations in their state, and that’s led to this influx of investment into Wyoming for cryptocurrencies. 

And there are many states, by the way, that, you know, barely have or don’t have any cryptocurrency laws at all. And so, you know, that includes Wisconsin and Texas and Tennessee and Pennsylvania, North Dakota, Kansas, Illinois, Idaho, Colorado. You don’t really need to have a lot to operate in those types of states.

Miro: Right. We’re talking with Joe Kent, and he would be the executive vice president at Grassroot Institute of Hawaii, grassrootinstitute.org for all their great information. 

A couple of bills on Gov. [Josh] Green’s desk that would change cryptocurrency regulations. So let’s start with SB945. What would that bill do?

Kent: OK, so this is the crypto law. And it’s basically a law that would grant the Division of Financial Institutions head broad powers to create rules around cryptocurrency to regulate it. And that person and, you know, the agency would be able to say which companies can operate in Hawaii to do cryptocurrency and which ones can’t, and it would basically set forth a list of requirements for these companies to abide by.

You know, we need to know, you know, the security aspects of your business, you have to have a reserve, you have to have a background check, and so on and so forth — a long list of requirements. And at the end of the day, if we don’t like you, we can kick you out. 

So this is a worrying aspect. It would be very worrying in any other industry with the state saying, “Hey, you want to open up a Burger King here, or you want to open up, you know, any other type of business, then you have to ask us for permission.” That’s basically what this bill does.

Miro: OK. Now, sounds like you do. Do you have any other concerns with this bill?

Kent: Yes. So this bill, you know, basically does a lot. It does too much. It’s overregulation, on the one hand, but the other piece of this bill, which might be a good thing, is it included an exemption for bitcoin — apparently, not expressly, by the way. If you search the law, it doesn’t really talk about bitcoin, but it says that any cryptocurrency that has been adopted as legal tender by a government is exempt. And it just so happens that bitcoin has been accepted as legal tender by El Salvador in 2021.

And so that’s an interesting loophole that they put into the law. That means that, I think, if a company were only exchanging bitcoin in Hawaii, then presumably they could operate in Hawaii, so long as they didn’t delve into other kinds of cryptocurrencies. 

So that’s kind of an interesting, you know, difference. It’s really a law that regulates cryptocurrency, but not bitcoin.

Miro: Can you define and make the difference, the distinction, between those two that listeners might not understand that? Because this might be new to a lot of people, forgot to ask about that at the top, the difference between cryptocurrency and the bitcoin, which you just spoke about.

Kent: Oh, sure. So the United States Securities Exchange Commission has basically made statements that bitcoin is a commodity and all other cryptocurrencies are securities. And so the federal government is basically saying that bitcoin’s different. And why is it different? 

Well, the difference is, it was the first. Bitcoin was created supposedly by this anonymous entity known as Satoshi Nakamoto. We don’t know if it was one person or a group of persons or what.

Nonetheless, this person created the technology and the open-source way — we can all read the code — and distributed bitcoin across the world. He apparently didn’t have, you know, some sort of intention of holding this like a stock or like an initial public offering or something like that. It wasn’t intended to be some sort of get-rich-quick scheme.

Miro: OK.

Kent: And so in that sense, bitcoin is seen kind of like gold, in a way. It’s just like this commodity. Whereas, every single cryptocurrency that has followed is kind of like a get-rich-quick scheme, if you look into it.

Miro: OK, OK.

Kent: And so that’s the difference.

Miro: Gotcha. Well done. OK, Joe, the other bill is HB525. Now, how would it regulate cryptocurrencies?

Kent: Well, so now the first bill I talked about was 80 pages long. This bill is 200 pages long, and that’s a really long bill. I doubt that most legislators have even read the whole bill. 

It’s a bill that was written by the Uniform Law Commission on the mainland and introduced in all 50 states and, basically, it would make a delineation about cryptocurrency into what’s known as the Uniform Commercial Code, which is basically this complicated code of laws that pertains to owing something in the commercial sense.

So, at the end of the day, though, what this does is it defines bitcoin and cryptocurrencies as not money, and it says that central bank digital currencies that would be created by a government are money. 

And so that’s a really confusing and interesting delineation. It’s a little mystifying why they would even make such a delineation. 

Now keep in mind, this doesn’t say, it doesn’t say that bitcoin isn’t money, it just says that bitcoin isn’t money for the purposes of this complicated law.

And so, you know, I’m trying not to get too into the weeds here, but we view this as too confusing and not a very good thing for freedom because, you know, things were working fine enough before. 

Adding more of this regulation doesn’t seem like it would be a good thing and it introduces this whole idea that, I don’t know, government cryptocurrencies are on a higher pedestal than non-government cryptocurrencies for some reason. So we don’t really feel that this law is needed at all.

Miro: All right. Joe Kent, the executive vice president for the Grassroot Institute of Hawaii. 

Now you just mentioned it, I mentioned at the top, the federal bank digital currency, a centralized bank digital currency. Is that in this HB525, in those 200 pages? If it is, what’s your take on this? Because we’re starting to hear more conversation about this.

Kent: Oh, yes. Yeah. So the central bank digital currency is basically a cryptocurrency that’s created by the government. And so, what’s concerning about that? Well, the government may have some ability to spy on you, spy on your financial transactions, if you use the central bank digital currency. 

And this is what the government is saying, is that they may have the ability to switch your currency on and off. 

If you buy something that they don’t like, maybe they could switch your currencies off. Maybe they could take them away from you. Maybe they could track you.

And so, you know, it’s questionable why anyone would want to use these, unless they were forced to for some reason. And so that’s why a lot of people have some hesitation about a law like this, which would define as money these government cryptos, but no other cryptos besides that. 

Now, I’m told that the Uniform Law Commission has more detailed explanations about why they’re doing this, and, you know, they view it as passing lots of regulations to help allow for the use of cryptocurrencies somehow. 

But one part of this, one aspect of all of this, is this 200-page bill is filled with so much legalese and technical wonky language that it makes the transparency and conversation about this law suspect.

Like I said, going back to the beginning, it’s questionable whether any lawmakers really understand what they just passed, let alone the governor who may sign it. And so that, you know, gives us pause about this bill.

Miro: Yeah, they just had the town hall in Pearl City/Aiea area, and he was asked about that. He said there will be more discussion on this. So at least that’s a good start to continue the conversation. 

Now that the bills that we just discussed, HB525 and the other one being SB945, are on Gov. Green’s desk, what do you think he should do?

Kent: Well, I’m glad that he said that, you know, more discussion is needed. I do think more discussion is needed on both of these bills. Besides, we already have a cryptocurrency experiment going on in the state that no one’s complaining about.

Miro: Good point.

Kent: And it’s called the sandbox. This is the cryptocurrency sandbox that they created and it was supposed to operate for two years. That sandbox supposedly expires in December of 2024. And so why not just take a pass on these bills? 

Besides, the feds are trying to create their own regulations and measures around cryptocurrency. It doesn’t make sense to set up a new scheme in Hawaii that might be out of step with what they’re doing. And now you’ve got two layers of regulation to deal with. 

And so, really, this all needs more conversation, especially in the name of transparency on both of these. We need to slow down this push.

Miro: All right, Joe, anything else to add to this conversation, which might be new to a lot of people? Might be, you know, like you said, too in the weeds, too wonky to understand, but it is the future, potentially, of the monetary system here locally and nationally. So anything else to add to this?

Kent: Well, ask yourself: Are lawmakers smarter than you or not as smart as you? Because if you have trouble understanding this, then what do you think lawmakers think about all of this? 

This needs more insight. It needs more feedback. It needs us to look at it closely. And in the meantime, there’s nothing wrong right now with Hawaii’s cryptocurrency market except that it’s overly restrictive. Adding more regulations on top isn’t the answer. 

So if you want to learn more about all of this stuff, you can visit our website, the grassrootinstitute.org, where there’s a lot of people talking to us about this, and you can join that conversation and learn more.

Miro: I hope so. Great conversation. A lot of great information, Joe. Appreciate it as usual, and we’ll talk to you soon. Have a great Sunday.

Kent: Great. Thanks. You too, Johnny.