In September, California’s legislature passed a bill (A.B. 39) that will, for the first time, license the cryptocurrency industry. While the comprehensive regulations for this statute will not come into effect until July 2025, their impact is already causing shifts within the industry.
The state of California, home to nearly a quarter of North America’s blockchain companies, joins New York as one of the two major states implementing a cryptocurrency licensing regime. This move coincides with a period of unrest within the cryptocurrency market amidst a lack of federal action.
While California Governor Gavin Newsom expressed gratitude for the bill’s intent of creating a clear approach to regulating the digital assets market, he also indicated that there remains ambiguity within the licensing framework which may necessitate further legislation and regulatory clarity. The state Department of Financial Protection and Innovation is expected to pen regulations concerning licensing and enforcement, a development keenly observed by industry representatives.
The new cryptocurrency law sets forth a variety of requirements ranging from what information a licensing application must contain to how the state should evaluate applicants. However, the law also grants the department wide-ranging discretion over who should be regulated. The law’s prohibition on stablecoins allows the department to approve exceptions to the ban and more broadly exempts anyone from any or all licensing requirements if it is deemed “in the public interest”.
Coinbase Global Inc. and Gemini Trust Co., represented by the Crypto Council for Innovation, are lobbying for a broader set of exemptions for start-ups and smaller companies. The council asserts that some definitions within the law are too broad and are advocating for cleanup legislation.
Despite these requests for exemptions, consumer advocates urge the department to scrutinize them closely to ensure they don’t undermine the law. As replacing New York’s drawn-out licensing system roll out becomes a growing concern for industry groups, they stress the importance of communication and hope the department releases a public plan detailing the personnel and resources necessary for handling applications which may total in the thousands.
Early indications suggest that state officials are receptive to the industry’s concerns. Industry observers perceive this willingness to listen and understand the industry as a good sign for favourable outcomes not only for the crypto space, but also for consumers and taxpayers.