On February 22nd, 2023, the state capitol was more energized than usual as two influential lawmakers, Assembly member Tim Grayson and Senator Monique Limón, convened to discuss cryptocurrency regulation legislation.
As the Chair of the Assembly Committee on Banking and Finance, Grayson has emerged as a key figure in the ongoing effort to shape California’s approach to regulating digital assets. Meanwhile, Limón, the Chair of the Senate Committee on Banking and Financial Institutions, has been a vocal advocate for consumer protection in the crypto space, an important compliance point of emphasis that we here at BitAML have championed for years.
With both leaders in attendance, the discussion promised to shed light on the latest developments in cryptocurrency regulation and what the future holds for this rapidly-evolving industry. In this blog post, we’ll provide an overview of the key takeaways from the event and what they could mean for the future of cryptocurrency in California.
As the wind blew storm debris around the capitol grounds, legislators and cryptocurrency experts assembled to address the aftermath of the FTX collapse at the end of last year. The collapse had left many consumers and investors reeling, and raised serious concerns about the need for greater regulation of the cryptocurrency market. In response, consumers and lawmakers came together to find a solution that would protect the next generation of digital currency investors while also preserving room for innovation.
The focus of the hearing was to evaluate the state’s approach to regulating the provision of digital financial asset products and services around “crypto.” As Chair of the Assembly Committee on Banking and Finance, Grayson introduced CA bill AB 2269 in June of 2022. The bill was robust but some in the crypto startup space felt it was far too restrictive.
We at BitAML were not shy in our analysis that this would create a line a mile long with thousands of individuals and entities based on the number of current participants in the marketplace, and could hamstring the DFPI, the greatest ally of consumers in the Golden State. Notwithstanding, the bill found broad support with the Senate passing the bill 31-6, and the Assembly supporting 71-0.
Vetoed, with a new Executive Order that sets the stage for the future of California DFPI
However, it was vetoed by Governor Newsom with a commitment to defining and implementing regulation but waiting for some direction on the federal level. At the same time, the governor introduced a new crypto bill, Executive Order N-9-22. That stated goal of which is to establish a transparent regulatory and business environment at a state level for web3 companies that incorporates California values such as equity, inclusivity, and environmental protection.
Since the Governor’s veto, however, the crypto industry has experienced extreme volatility, with the collapse of FTX and BlockFi. And on a federal level, policy has stalled or become more muddy with the Biden Administration becoming more focused on ramping up restrictions on the crypto industry and taxation of crypto transactional activities.
At the hearing, Assembly member Grayson introduced AB 39, a modified version of AB 2269. Not to be left out, Senator Limón introduced SB 401, which seeks to establish rules specific to cryptocurrency kiosks and ATMs.
With upcoming discussions on legislative proposals and strategies to safeguard California consumers, the Committees were open to receiving input and feedback from witnesses. Our Founder & President, Joe Ciccolo, had the chance to speak to the committees and legislators. “While I applauded the consensus among the speakers and their commitment to making the crypto space safer and more transparent for consumers, I warned how too much oversight and regulation could demotivate innovation in California like it did (and continues to do) in the state of New York.”
“I’m concerned about the practical application of a one size fits all bill to the crypto space.” – Joe Ciccolo
Throughout the hearing, speakers discussed the challenges and opportunities presented by the cryptocurrency market, and offered insights into how best to address the issues at hand. The discussions covered a range of topics, including the need for greater transparency, security, and accountability in cryptocurrency transactions, as well as the role of regulators in ensuring that consumers are protected from fraud and other abuses.
The current actions of the Biden Administration and how Federal laws can impact California’s regulation of the crypto industry cannot be ignored. And Governor Newsom’s executive order suggests aligning California’s approach with the federal approach, which the Committees and legislators will continue to inquire about to determine the way forward.
As the hearing came to a close, it was clear that there was much work to be done to ensure that the cryptocurrency market was safe, secure, and accessible to all. However, with the guidance of lawmakers like Grayson and Limón, and Cryptocurrency companies already doing business in the state, there’s hope that the state could find a way to regulate the industry in a way that balances consumers and innovators alike.
We here at BitAML will continue to stay on top of California regulatory developments right here in our backyard of Sacramento. If you’d like to learn more or discuss the regulatory goings-on in California, signup for a free consultation.