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Testimony: SB2697 provides best pathway for cryptocurrency in Hawaii

Photo by Charley Myers

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration on Feb. 7, 2022, by the Senate Committee on Energy, Economic Development and Tourism.
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To: Senate Committee on Energy, Economic Development/ and Tourism
      Senator Glenn Wakai, Chair
      Senator Bennette E. Misalucha, Vice Chair

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

RE: SB2697 — RELATING TO VIRTUAL CURRENCY

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on SB2697, 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 an additional $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 Innovation Lab 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 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.

It is clear that exempting digital currency companies from Hawaii’s Money Transmitters Act is the best way to allow cryptocurrency to grow and thrive in our state. For that reason, SB2697 deserves your support.

Thank you for the opportunity to submit our comments.

Sincerely,

Joe Kent
Executive Vice President
Grassroot Institute of Hawaii
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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.

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