The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Ways and Means on March 1, 2023.
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March 1, 2023
10:10 a.m.
Conference Room 211 and Videoconference
To: Senate Committee on Ways and Means
Sen. Donovan M. Dela Cruz, Chair
Sen. Gilbert S.C. Keith-Agaran, Vice Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
RE: SB945 SD1 — 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 SB945 SD1, 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 SB945 is the vast and nearly unlimited powers over the cryptocurrency market it would give to the commissioner of the state 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, it should adopt wording from HB1261.
Part II, Section 2, Subsection 9 of that bill 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 recognized at the federal level an avenue to more easily operate in Hawaii, and give the DFI commissioner a reasonable 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.
