The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the House Committee on Finance on Feb. 27, 2023.
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Feb. 27, 2023
11:30 a.m.
Conference Room 308 and Videoconference
To: House Committee on Finance
Rep. Kyle T. Yamashita, Chair
Rep. Lisa Kitagawa, Vice Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
RE: SB1261 HD1 — RELATING TO SPECIAL PURPOSE DIGITAL CURRENCY LICENSURE
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on HB1261 HD1, an 80-page tome that would establish a program for the licensure, regulation and oversight of digital currency companies.
In general, this bill is a response to the proliferation of cryptocurrencies worldwide, and seeks to impose a wide array of regulations on cryptocurrency businesses operating in Hawaii.
One of the main problems with HB1261 is the vast and nearly unlimited powers over the cryptocurrency market it gives to the commissioner of the Division of Financial Institutions.
Nearly every regulation in the bill has a caveat that would allow the commissioner to rewrite the law according to his or her will, which could centralize too much power in the hands of the commissioner and burden cryptocurrency companies with a high level of regulatory uncertainty.
Crypto companies would not be the only ones facing regulatory uncertainty, should this bill become law. Federal law and regulations governing cryptocurrencies are unclear and constantly in flux. For example, the Board of Governors of the Federal Reserve issued new rules on Feb. 6 that directed how cryptocurrencies could be used in the U.S. banking system.[1]
Ironically, this bill could itself create significant uncertainty for the commissioner too, as he or she attempts to implement it without contradicting federal rules. Meanwhile, the combination of state and federal uncertainty would serve to chill the cryptocurrency market in Hawaii, harming both operators and consumers.
The division’s regulatory sandbox, on the other hand, provides crypto businesses with some degree of certainty. Extending the sandbox while waiting on clearer federal guidance might be the best bet.
However, should this bill move forward, Part I, Section 2, Subsection 9 should be retained. It provides that the proposed regulation would not apply to:
(9) Non-custodial digital currency business activity by a person using a digital currency:
(A) Acknowledged as legal tender by the United States or a government recognized by the United States; or
(B) That has been determined to not be a security by a United States regulatory agency;
This language would give cryptocurrencies an avenue to become recognized at the federal level and give the DFI commissioner a standard for determining which cryptocurrencies should be exempt from this licensure regime.
Thank you for the opportunity to submit our comments.
Sincerely,
Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[1] Alexandra Kelley, “Federal Reserve Issues New Restrictions on Crypto Banking,” Nextgov, Feb. 7, 2023.
