There is a rift emerging in the crypto sector. California’s AB 1489 (the “CA Act”) which is modeled on the Uniform Law Commission’s (ULC’s) Uniform Regulation of Virtual Currency Businesses Act (the “Model Act”) seeks to regulate companies engaged in virtual currency business activity. Not everyone is on board. Notably, the CA Act includes a supplemental act which gave rise to an earlier rift between proponents of the ULC’s model legislation and those who advocated for Wyoming’s approach. I wrote about that extensively here and here.
By way of background, both the Supplemental Act and the Wyoming legislation create a regulatory framework for commercial transactions governed by Article 9 of the Uniform Commercial Code involving digital assets. The Supplemental Act provides for an indirect ownership regime involving only virtual currencies. Whereas, the Wyoming approach governs the full array of digital assets and enables direct ownership.
The current rift involving the CA Act extends to parties within the crypto industry.
Two beltway crypto trade associations, Coin Center and the Digital Chamber of Commerce support the Model Act or its incarnation in California, i.e., the CA Act. But a brand new advocacy group, Aquarian Advocacy Group (launched today), opposes the CA Act and promises to defeat it and other similar bills, wherever they are introduced.
Margaux Avedisian, Aquarian Advocacy Group Executive Director, says the CA Act is “completely crushing for start-up crypto companies,” and problematic for numerous reasons. Avedisian points out that the legislation does not provide an on ramp for existing businesses, which means that covered businesses cannot be compliant on the first day that the bill goes into effect. She notes that non-compliance comes with a whopping $50,000 per day penalty, and that covered crypto businesses pay for the cost of enforcement under the new regulations. “The big banks are pushing this legislation. They want to stop crypto innovation,” she states.
In contrast, Peter Van Valkenburgh, Research Director of Coin Center, not only supports the CA Act, he helped write the Model Act on which it is based. He explains that the CA Act is good for the crypto industry because it provides clarity and narrowly circumscribes those businesses that are subject to the bill’s licensing requirements. He elucidates that the bill only applies to those that have “the power to unilaterally execute or indefinitely prevent a virtual currency transaction” on behalf of their customers. He adds that “only people who hold bitcoin or other cryptocurrency for customers are regulated. Miners, full node or lightning node operators, software developers, and persons holding their own bitcoin in software wallets would never be regulated under this law.”
As to the Supplemental Act (which will become effective in California if the CA Act passes), Van Valkenburgh states that Coin Center will not take a position one way or another, noting that the “Coin Center’s priority is about the right people getting licensed or not.”
The Chamber of Digital Commerce President, Perianne Boring provided support for the Model Act, in a July 2017 letter, reporting that “we view the [M]odel Act to be an interim, practical endeavor to address the uneven nationwide patchwork of rules and requirements and we encourage adoption of the Act.” In a recent email in connection with this story, Boring expressed that the Chamber’s position is that these types of issues are better addressed by federal legislation.
Apparently, the CA Act has strong support in the State Assembly and among two leading beltway crypto organizations. But it may now also have strong opposition in the form of the Aquarian Advocacy Group.
To date, the Model Act has been introduced in five states, including California, and it has only succeeded so far in one state, Rhode Island, having stalled in the other three states. Wyoming refused to take up the Model Act, even after the ULC mounted a stealth campaign in the State to obtain support.
This rift demonstrates an emerging divergence of interests between industry groups and innovators in the crypto space. Like any industry, the crypto sector is not monolithic. There are differing factions that are propelled by their own unique needs, and the parties they represent. Here, it begins in California with the CA Act, with a new advocacy group seeking to fight a bill they find unduly burdensome. But I suspect, as regulations are introduced and enacted that disparately impact members of the crypto sector, we will see more fissures that prevent the crypto community from speaking with one voice.
by Andrea Tinianow