Kent predicts greater usage of cryptocurrency in Hawaii
from Grassroot Institute of Hawaii, February 22, 2024
Making it easier for cryptocurrency firms to do business in Hawaii could mean “billions of dollars of investment” coming to the state, said Joe Kent, executive vice president of Grassroot Institute of Hawaii, this past Sunday morning to host Johnny Miro of the H. Hawaii Media radio network.
After the state Division of Financial Institutions started implementing stringent cryptocurrency regulations in 2014, crypto companies started fleeing the state. And so for years, the only way to buy bitcoin in Hawaii — or any other crypto, such as litecoin or monero or ethereum — was on the black market. As a result, residents of the state missed the bitcoin boom.
But, starting this July, Gov. Josh Green’s administration will allow all crypto firms to operate freely in Hawaii. And, Kent predicts, that means that crypto will increasingly become part of the lives of Hawaii’s residents.
In fact, he told Miro, he foresees the day when people can use a fraction of a bitcoin to buy a cup of coffee. Or a pizza.
And now that the federal Securities and Exchange Commission has approved a bitcoin exchange-traded fund as a vehicle for retirement accounts, Kent says that even “older-generational folks” might start socking some of their money into such funds.
But he has two words of advice: Buyer beware.
“There have been a lot of rags-to-riches stories in the bitcoin space,” Kent said. “But there have also been a lot of riches-to-rags stories, too.”
He also warned against a different type of cryptocurrency: Central Bank Digital Currency, which is controlled by the federal government.
“If the government controls it, then they presumably would want to control your use of it and maybe force your use of it too,” he said.
TRANSCRIPT
2-18-24 Joe Kent with host Johnny Miro of the H. Hawaii Media radio network
Johnny Miro: Happy Sunday morning to you. I’m Johnny Miro and our H. Hawaii Media family of radio stations broadcasting statewide at hawaiistream.fm covering Hawaii, Oahu and Maui.
We’re going to be discussing something that just took place a few days ago, in the announcement that Hawaii opens its doors to cryptocurrency, the trading and embracing the digital financial frontier.
There was an article at KITV4.com. Prior to that, there was an announcement from [Keli‘i Akina], the president and CEO of Grassroot Institute of Hawaii, that this was brought forward kind of under the radar.
Didn’t really make a lot of news, but KITV.com recently covered it with the individual we’re speaking with right now. And this would be Joe Kent, executive vice president of Grassroot Institute of Hawaii, who really has a good background, a solid understanding of this new form of finance.
Joe, good morning to you.
Joe Kent: Good morning to you, Johnny.
Miro: This kind of took me by surprise. I read Keli’i’s piece that he sent out to everybody in the email blast from the Grassroot Institute of Hawaii. I said, “Where did this come from? With the state Division of Financial Institutions making a ruling on cryptocurrency.”
Kent: Yeah, it took us by surprise too. We have been beating this drum for years. And then we finally got everything we wanted, which is that cryptocurrency is now open. It’s an open market in Hawaii.
Miro: Now, what are some of the forms of cryptocurrency that … This still is quite new, and a lot of people, since they haven’t been exposed to it, might not know what we’re really referring to.
It’s a different form of payment and you can invest in it. And there’s also worries about it. But some of the names like bitcoin, I’m familiar with. Some of the other ones, can you explain to the listeners?
Kent: Um-hm. Well, money, we all know, is dollars and cents, but now you can add bitcoin to that definition. And of course, gold is part of our money system too. But bitcoin and other cryptocurrencies have entered the market over the past decade.
You know, bitcoin was the first cryptocurrency that was created more than a decade ago by … actually nobody knows who created it. But the code, we can all see. And the code says that there can only be 21 million of these bitcoins produced, and that limits the supply.
So that means if you buy a bitcoin, then you have that, and no one else can create more bitcoins than 21 million. And so that makes it kind of a store of value.
These have been wildly popular amongst a niche audience for a while now. But now they’re hitting a mainstream stride, as they’ve been, you know, adopted by the SEC [federal Securities and Exchange Commission] as ETFs, you know, exchange-traded funds.
So at the federal level, there’s more sort of worldwide adoption of these cryptocurrencies. And that means that more and more consumers can get involved in using them as savings.
So basically, you can buy, you can get dollars, you can get cents, you can buy gold, or you can buy a bitcoin or other cryptocurrencies as just an asset.
Miro: And I saw the price was about $47,000, $48,000. It started way lower than that. Now it’s fluctuated, but it hasn’t gone down to the initial stages. But now it’s up in the high thousands, like $47,000 for a single purchase. Is that how it works?
Kent: Yeah, yeah. Actually, it’s up above $50,000 …
Miro: Ho!
Kent: … now so it’s going up. But the price of bitcoin at least fluctuates quite a bit, you know. Just this past summer it was down around $20,000.
And so, you know, there have been a lot of rags-to-riches stories in the bitcoin space. But there have also been a lot of riches-to-rags stories too. (laughs)
Miro: Yeah, yeah. That’s Sam Bankman-Fried, that would be the one everybody knows about.
Kent: That’s right. So Sam Bankman-Fried was a notable scam artist, crypto kingpin, who had a company called FTX that many people would use to trade cryptocurrencies in.
But the problem was, he was doing some monkey business behind the scenes with those funds. And then when people went to try to draw on their cryptocurrencies, they realized they weren’t there. Sam had taken them.
And finally, he got busted and now he’s in jail. But, you know, a lot of people lost money with that.
Miro: So getting back, I believe it’s Satoshi Nakamoto. Was he the brainchild behind this? And what was his philosophy behind this? ’Cause I think [U.S. Senator from Massachusetts and Special Adviser for the Consumer Financial Protection Bureau] Elizabeth Warren just recognized him — after being against this type of finance — by erecting some kind of flag in D.C., or something like that, a couple of days ago?
Kent: Yeah. So Satoshi Nakamoto is the supposed creator of bitcoin. That name, Satoshi Nakamoto, could have been a pseudonym. It could have been many people that just, you know, worked under that name, or it could have been someone else with a different name. We don’t know. But in any case, whoever this person was that created bitcoin seems to have created it and then just disappeared.
And, in any case, there are Washington, D.C., types like Elizabeth Warren, who’s a notable, you know, let’s see, policymaker in the banking space. And she recently signed some sort of favorable declaration to recognize Satoshi Nakamoto as a favorable citizen recently.
Which is ironic because, you know, basically, she has been very against cryptocurrency for a long time. So, but anyway, that’s some newsy stuff.
Miro: Well, just to bring this to, you know, clarify this and the credibility, I would say, is it El Salvador, I believe, that has this as legal tender now? And it’s doing quite well, and bringing in a lot of people from outside of El Salvador, not only to live, but also to invest and prop up the economy. Have you been following that?
Kent: Yes. So yeah, El Salvador did adopt bitcoin as legal tender in that country. And that’s significant because, you know, that just increases more worldwide adoption and trust in a money.
And at the end of the day, money is trust. And all money is — even dollars, by the way — hold a lot of trust in it. And if a citizenry loses trust in the money system, then that money loses value.
And so, for dollars and cents over time, if you hold that, it becomes inflated, because the government has eroded the trust of it. And it’s printed so many dollars over time, you know, a hundred trillions of dollars of increased money supply, and that’s made our money worth less.
And so that’s why when I go to McDonald’s and visit the Dollar Menu, it’s no longer the Dollar Menu anymore. It’s the $1, $2, $3 Dollar Menu. And there isn’t as much on there. So that’s why some people are trying to look for alternative forms of money, and that’s where crypto enters.
Miro: Joe Kent, executive vice president of Grassroot Institute of Hawaii, grassrootinstitute.org, grassrootinstitute.org. I’m Johnny Miro.
OK, back home. What was the situation before this change took place recently? Was cryptocurrency, Joe, hard to get in Hawaii?
Kent: Yes, it was very difficult to get. If you tried to download an app to get it, you might download the wrong app. A lot of companies were not recognized in Hawaii. They, you know, were not licensed in Hawaii or recognized by regulators here.
So, you know, for example, I tried to download an app called Coinbase and another app called Strike — neither app of which I’m affiliated with, by the way. But, you know, I download the app, I make an account, I try to buy a bitcoin, and then it cancels my account, because, it says, “Sorry, we see that you’re in Hawaii.”
And there were so many companies like this. And the reason that they don’t operate in Hawaii is because our regulations are just too strict.
In 2014, the Division of Financial Institutions at the state said that any cryptocurrency company that operates in the state needs a money transmitter license. And the rules for money transmission are very different than for cryptocurrency companies.
Money transmitters are things like Western Union. If you’re trying to send money overseas or send money to a relative or something, that’s the money transmission industry, and the regulations there may make sense for that industry.
But cryptocurrency is really different. And so for a while, the cryptocurrency companies fled the state. Coinbase famously said, “We can’t operate under these restrictions.”
And so, for years, the only way to buy a bitcoin — or any other crypto, like litecoin or monero or ethereum — was on the black market.
And there was a black market. You would put a hundred dollars in an envelope and lick a stamp and send it off, you know, to who knows where. And then a week later, hopefully, hope that someone might send you the bitcoin or crypto to your phone somehow.
So that’s how people were doing it for years, until 2020, [when] regulators started to change their mind.
Miro: Hey Joe, who makes up the state Division of Financial Institutions? Do you have any idea? This is the first I’ve heard of it, with this acceptance of cryptocurrency. Who makes that up?
Kent: So, that falls under the DCCA, the Department of Commerce and Consumer Affairs. And Iris Ikeda is the banking commissioner of the Division of Financial Institutions. They have oversight over banks and money transmitters and a host of other sort of financial agencies that have to be licensed in the state.
Miro: And she, these people, how long do you think they’ve been pondering this?
Kent: Oh, they’ve been pondering it since 2014. Well, I guess it was probably around 2013, there was a big explosion in the crypto space.
The world’s biggest [bitcoin] exchange, Mt. Gox, collapsed and all of the customers couldn’t get their cryptocurrency at the time, which was billions of dollars of, you know, money that they couldn’t get. And it sent alarm bells around the world.
And so that woke up the state Division of Financial Institutions in Hawaii to this issue. And so that’s why they cracked down at the time so stringently. But I think they cracked down a little too hard though.
Miro: OK, you brought up a term, I’ve seen the term “sandbox.” Cryptocurrency sandbox. What is that and who created it and what did it do?
Kent: So the sandbox was created, like I said, in 2020 by Iris Ikeda, the Division of Financial Institutions banking commissioner. And she said, “OK, let’s let some cryptocurrency into the state. And by some, I mean around 10 to 15 companies.
“And we will handpick them — we, regulators — and vet them and say who can get in and who can’t be in. And we’ll have these 10 to 15 or so companies play in the state for a couple years or so, and we’ll see how it goes.”
And so, in 2020, that was finally the state opened the door slightly to crypto, and they tracked it too, though. They wanted to see how many, you know, citizens in Hawaii were actually using this. And it turned out, a lot.
There were over a hundred thousand residents who used cryptocurrency. They bought millions and millions of dollars worth of it. Some, hundreds of millions, probably over a billion dollars of transactions just from Hawaii. And there were very few complaints over all of those years.
And so, the state Division of Financial Institutions now — four years later after the start of that sandbox — has issued a memo. And the memo says that we see that cryptocurrency is really different than money transmission and we are going to let it go without a license.
So now you don’t need a license anymore to start a cryptocurrency company in the state.
Miro: And be able to have like, double the amount of money that you’ve taken in, is that how it worked also?
Kent: Oh, right. Yeah. So there was this technical fluke that happened in the money transmission application to cryptocurrency, which is that the law says if you are a cryptocurrency company in Hawaii, and you want to have a money transmission license, you have to hold double the money that you actually say you have.
So if you have $1 million of bitcoin, then the law says you also have to have $1 million of dollars, too, for total assets of $2 million. And that double reserve requirement is the stringent law, basically, that sent so many companies fleeing from the state.
So now, that’s no longer an issue because those cryptocurrency companies don’t need a license anymore.
Miro: All right, we’re talking about Hawaii opening its doors to cryptocurrency, the trading and embracing the digital financial frontier.
KITV. com, if you want to see the smiling face of Joe Kent with Grassroot Institute of Hawaii, the [executive] vice president, whom we’re talking to right now, discussing this in detail. Also, you can go to their incredibly informative webpage at grassrootinstitute.org and find out more.
All right, looking forward to the conversation continuing here. I’m Johnny Miro. And let’s see, did legislators try to do anything also with this as far as cryptocurrency? Did they try to pass more laws?
Kent: Yeah. So for four years, during the sandbox, legislators were toying with the idea of starting a licensure scheme.
So, OK, we see this isn’t really a money transmission thing. So maybe let’s just make a new license for crypto companies. And it’ll be the crypto license.
And the problem, though, was that the bill for the license kept getting longer and longer. We saw bills that were 80 pages long, 90 pages long, 100 pages long. Why are these so long?
And the regulations in them were so stringent, so that it almost wouldn’t have made a difference. I’m not sure if any company could operate under them.
A lot of the regulations had to do with the regulatory snooping, so the state can see your crypto, they can see how much you have. And that was kind of uncomfortable for a lot of privacy issues, of course.
And the state also had a lot of, you know, money requirements as well. They had high fees for this and so on.
So, you know, it was just too much regulation. So that’s why we at Grassroot Institute opposed this for years.
And eventually, one of the laws passed. I believe it was last year that the law passed, the cryptocurrency law. But it didn’t pass the governor though. The governor vetoed it before it could become law, and so that killed the crypto license.
So the state Division of Financial Institutions in the end may have just sort of thrown up their hands and said, “Well, if we can’t get past the governor, then let’s just let it be free.”
And that’s OK, too, as long as you say. “Buyer beware, you know, there is no consumer protection here.” So if consumers want to try to trade this, they need to be responsible about the benefits as well as the cost.
Miro: All right, so what does this mean, Joe, for the average consumer who may not even have bitcoin or know what it is?
Kent: Well, more and more, crypto is becoming part of our lives. If you look at, again, the SEC, the Securities and Exchange Commission, they have just approved an exchange-traded fund, an ETF. That’s a vehicle for your retirement account, for example.
So, you know, a lot of people have retirement accounts. You can invest that in mutual funds or stocks or bonds. And now you can put that in a bitcoin ETF.
And so a lot of older-generational folks may consider putting a portion of their money in that. And that means that they’re going to be engaging more in this crypto market.
But, you know, cryptocurrency’s adoption — as it becomes more trusted and more a part of our lives, we might see more companies interacting in our lives with crypto as the years go on.
You might be able to buy a coffee with a fraction of a bitcoin one day. Or a pizza. In fact, people have bought coffee and pizzas — and I’ve bought plenty of things, by the way — with cryptocurrency. It’s not that out of the ordinary.
You can buy plenty of things online with cryptocurrency. And sometimes you can get a good discount too, if you do that.
So it may not be part of your life yet, but now that its doors have been opened in Hawaii, you might see a crypto company setting up shop near you.
Miro: So right now — just so I can clarify this — it’s over $50,000. You’re going to need that amount of money to get in on this? To get your initial …
Kent: Well, yeah.
Miro: OK, so it’s not like gold where you can get about $1,000, $2,000 — which is where it’s at right now, per ounce — to start that way. So you have to get about $50,000 to invest around to that?
Kent: Well, you can buy a fraction of a bitcoin.
Miro: OK.
Kent: So, you know, actually, I know a lot of people who have bought a fraction of a fraction of a bitcoin, such that, you know, you can even buy $1 worth of a bitcoin. That would be about, like, 0.00001 of a bitcoin.
But, you know, you can do that. And plenty of people do buy small fractions of bitcoin. Because even at small fractions, when the price goes up, even that value of that small fraction goes up too.
And so, if you buy $1 of a bitcoin, if the price doubles, well now you have $2. But just remember, if the price falls in half — which it has many times — then you might have less money.
Miro: And just before we talk about what this could mean for the local economy, I’m looking at the big picture. What do you think this means? Have you thought about this? How does this offset CBDC, Central Bank Digital Currency — which is being discussed, which, you know, frightens a lot of people, obviously — and to have your own different way of finance with the cryptocurrency?
Kent: Oh yeah, well, cryptocurrency generally is a free sort of tool that anyone can use and choose not to use. But CBDCs are a government tool that many seem to think will be imposed upon the public one day.
CBDC stands for Central Bank Digital Currency. And it would basically be a cryptocurrency that the government controls. And if the government controls it, then they presumably would want to control you, and control your use of it and maybe force your use of it too.
And so, now remember what the government has done already to our money — which is, you know, print[ed] so many more dollars and cents such that our money is worth less. They may do the same with cryptocurrency. And so, just, buyer beware of any crypto out there.
Miro: All right, what does this mean, Joe, for the economy here in the state? I mean, this could be a big change, potentially. So what does it mean, in your mind?
Kent: Well, it’s a very positive development for Hawaii’s economy. We’re talking about billions of dollars of investment that could come to the state. There already are billions that have left the state after that ruling. And even under the strict rules of Hawaii, during the strict days, there were still a billion dollars, at least, of transactions.
So we might see so much more activity in the state there. But also it’s a check and balance against inflation too.
We see, in Hawaii, lots of inflation, you know, prices rising. And crypto is another vehicle to help save and hopefully get ahead of some of that inflation.
But of course, you have to play your cards right. And you might get a losing hand one of these days. So, this is definitely not financial advice or anything out there. But there is an opportunity for people to make money here and that’s a good thing.
Miro: And so, being in digital currency means you never physically hold on to it. So you have — what do you call it — a pocket or something?
Kent: Yes, there’s a digital wallet.
Miro: Wallet. Wallet.
Kent: So instead of a physical wallet, you have a wallet on your phone instead. Or maybe you might have a little USB drive thing. So if you research this further, you know, there are plenty of places to go online where you can research bitcoin and digital wallets and things like that.
But, you know, try to find someone that you can trust, though, if you’re gonna get in this space. And do a lot of research because, like I said, there are plenty of scams out there, too.
Miro: How about the neighbor islands? Do you guys have numbers on that — getting close to wrap it up here — as far as what island is really into cryptocurrency?
Obviously, we have the biggest population here [on Oahu], but it could be surprising that Kauai or Maui or Hawaii Island has more people involved in this. Do you have those numbers?
Kent: Oh, yes. I don’t have the numbers per island, but I do know many friends on the neighbor islands. You know, Big Island absolutely has crypto groups. I think there is a little crypto group on Maui that meets periodically Upcountry. I’m not sure about Kauai, but yeah, certainly, crypto is all over the islands.
Miro: So, as far as where you think this is headed, it’s a positive outlook?
Kent: Yeah, absolutely. Anytime we can have something that competes with the government money, that’s a good thing.
And finally, you know, there’s only one time in — you know, this is, like, something that might happen only in a thousand years or maybe, you know, 10,000 years — that a new form of money has been created other than the government. And now it’s becoming popular and available for even you to try.
Miro: Where can they find your work at Grassroot Institute? Give them all the information, Joe.
Kent: You can go to grassrootinstitute.org, and we also have an email newsletter list; you can get there at grassrootinstitute.org as well. And we write about this crypto topic all the time, along with Hawaii’s cost of living, and housing, and regulations, taxation and all kinds of other things.
Miro: It’s gaining popularity, folks, more and more. Get the email letter, it’s free, it’s harmless and it gives you a lot of good solid background information on critical topics to the state.
I learned a lot today. I thought I knew something about cryptocurrency, but I learned a lot, Joe. Thanks so much and have yourself a fantastic Sunday, and hope to be talking to you soon again
Kent: OK. Thanks so much, Johnny