With the crypto industry’s dramatic loss of market capitalization in recent weeks, some of the shimmer and gravitational attraction has shaken off digital assets. Consequently, some of the impetus behind legislative efforts related to digital assets and technology may have been lost this year. But digital assets and the blockchain technology on which they reside are likely to continue to interest investors and consumers and to play an important, albeit sometimes disruptive, role in modern economies.
Therefore, state legislatures remain likely to pass several crypto-related bills that vary widely in their subject matter and scope, including proposals that clarify existing regulation, create new regulatory frameworks, and dedicate state resources to support or study the impact and use of digital assets. This month the National Conference of State Legislatures surveyed legislation pending in each of the U.S. states and territories. See Heather Morton (June 6, 2022), Cryptocurrency 2022 Legislation. This post synthesizes and summarizes the content of that publication, with a focus on identifying general trends in the subject matter of the pending bills.
Despite significant legislative interest in crypto, not all states have bills pending this year. The legislatures of Nevada, North Dakota, and Texas are at rest during this fiscal year, with no regular sessions scheduled. Others had no digital assets legislation introduced. At the time of the NCLS report, the following states and territories had not introduced digital assets legislation in 2022: Arkansas, Delaware, D.C., Puerto Rico, Guam, Maine, Maryland, Texas, Nevada, U.S. Virgin Islands, Wisconsin, and South Dakota.
New York, Hawaii, and Arizona are among the jurisdictions with the most bills pending related to crypto and digital assets. Filed bills in New York include one that would create a moratorium on cryptocurrency mining centers. Another would create new criminal offenses, including for token fraud, rug pulls, private key fraud, and fraudulent failure to disclose interests in virtual tokens. New York would also require certain disclosures in advertisements involving virtual tokens. California also has significant, substantive legislation pending.
Pending Legislative Proposals
Below is a list the subject matter addressed by the most common bills pending and the states in which they have been proposed. These proposals would:
(1) Allow or prohibit some or all political subdivisions or agencies to pay employees and others in virtual currency, to accept payment in virtual currency, or to use virtual currency as collateral in state financings.
(2) Organize or continue state efforts for the study and analysis of the use of digital assets on a widespread basis or for certain purposes.
- New York
(3) Define distinct digital assets and categorize them within the Uniform Commercial Code for various purposes, including the regulation of security interests in digital assets and mechanisms for control and priority.
(4) Establish a regulatory scheme and create or assign bureaucratic agencies to govern some or all business activity involving digital assets.
(5) Authorize certain entities to act as custodians of digital assets or otherwise regulate custody of digital assets.
(6) Establish a licensure or registration requirement for digital assets or virtual currency businesses, or for issuers of tokens.
(7) Exempt virtual currency or other digital assets from certain aspects of taxation.
(8) Update unclaimed property laws to include virtual currencies.
- West Virginia
- New York
(9) Create programs to educate the public regarding electronic commerce, cybersecurity, and virtual currency.
(10) Authorize private entities to accept virtual currency as payment for any good or service
- New York
(11) Prohibit or authorize the acceptance of crypto currency by political campaigns or public officials.
- New Jersey
(12) Provide or amend rules governing the formation and management of decentralized autonomous organizations.
Links to all of the bills and coverage of additional proposals is available at the NCSL article referenced above.
Additional Significant Bills
Additional proposals of significance are bills that would: (a) prohibit in Hawaii encumbrances on mediums of exchange (including crypto) in certain circumstances; (b) revise several Florida requirements related to money transmitter activity, including provisions directly related to virtual currency; (c) establish specific discovery procedures and rules to apply in Illinois litigation involving digital assets; and (d) in Minnesota, expressly allow the use of certificate tokens in place of stock and the use of electronic networks and databases to record stock ownership and other records. Finally, legislation in New Hampshire would exempt from certain restrictions persons involved in the issuance or trading of tokens from certain securities laws and a New Jersey bill would provide for the regulation of digital payment platforms.
For the most part, the fate or destiny of these bills are unknown. In Mississippi, however, many proposals similar to those on the above listed have already died in committee. Given the changing environment, investors and companies doing business involving digital assets should continue to diligently monitor legislative developments in the locations where they do business.