Testimony: Cryptocurrency resolution better than nothing, but needs a fix

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration April 5, 2022, by the House Committee on Consumer Protection and Commerce.

To: House Committee on Consumer Protection & Commerce
      Rep. Aaron Ling Johanson, Chair
      Rep. Lisa Kitagawa, Vice Chair

 From: Grassroot Institute of Hawaii
            Ted Kefalas, Director of Strategic Campaigns


Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on HCR115 and HR115, which urges the state Department of Commerce and Consumer Affairs to extend the Digital Currency Innovation Lab pilot project for two more years.

In 2020, Hawaii launched the “Digital Currency Innovation Lab,” a regulatory “sandbox” that allowed certain cryptocurrency companies to do business in Hawaii without being subject to the double-reserve requirement of the state’s Money Transmitter Act. 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, cryptocurrency will once again become inaccessible for Hawaii residents. Moreover, the state will lose access to the economic benefits of this rapidly expanding industry.

In 2017, Hawaii lawmakers in both chambers approved an exemption for cryptocurrency from the state’s Money Transmitters Act,[1] 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.[2]

Now that the issue has been studied via the Digital Currency Innovation Lab, lawmakers can feel confident about following the example of 20 other states by exempting cryptocurrency from the state’s Money Transmitters Act.[3] With this one change, 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. [4]

Cryptocurrency is a developing industry that moves as quickly as the technology involved. The delay caused by the Legislature’s inaction may cause Hawaii to fall further behind.

The best approach

The best approach would be to move forward with legislation that would simply exempt cryptocurrency companies from the state Money Transmitters Act.

However, since that appears to be no longer possible during the current legislative session, the second-best approach would be to extend the life of the Digital Currency Innovation Lab, and perhaps even encourage the state Department of Commerce to broaden the scope of the lab and allow greater participation. This would allow the Legislature to further observe the effect of the lab in action while settling on more ideal legislation.

One change recommended

There is just one change that we would suggest to improve the language of this resolution:

Currently, the resolution asks that the lab be extended for two years or “until legislation is enacted that provides for a digital currency licensure program, whichever occurs first.”

As noted above, a licensure program is only one of the ways in which the state could allow for the growth of cryptocurrency in the state. A better alternative would be to forgo a licensing program and simply exempt cryptocurrency companies from the state Money Transmitters Act.

Given that this topic is still under heavy discussion, that the landscape of cryptocurrency could change over the next several years, and that action at the federal level could override state law on the issue, it would be advisable to change the phrase, “until legislation is enacted that provides for a digital currency licensure program,” to, “until it is no longer necessary.”

Thank you for the opportunity to submit our comments.


Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii

[1] SB949 of 2017.

[2] 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.

[3] 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.

[4] 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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