States, not Washington, will lead crypto regulation in 2024

Blockchain enthusiasts focusing only on what’s happening around Washington are missing the forest for the trees

OPINION
article-image

Midjourney modified by Blockworks

share

While Presidential candidates tour the country, hoping to court the crypto community with federal policy frameworks and tax proposals, it’s governors and legislatures at the state level that are taking decisive action on meaningful digital asset regulations. 

Blockchain enthusiasts focusing only on what’s happening around Washington are missing the forest for the trees. 2023 was a pivotal year for state digital asset policy, and 2024 promises even bigger implications for both businesses and consumers. 

This year was dominated by California Governor Gavin Newsom’s signing of Assembly Bill 39 into law. The bill, the Digital Financial Assets Law (DFAL), establishes comprehensive rules of the road for digital financial asset businesses operating in the state. 

Starting in 2025, digital financial asset businesses in California will be subject to a licensing and supervisory regulatory regime, including capital and liquidity requirements, regular disclosures and stablecoin approval standards. 

The state legislature modeled the law on New York’s Virtual Currency Business Activity regulations, better known as the “BitLicense” regulation and the limited purpose trust company provisions of New York banking law. However, they also adopted important provisions meant to improve on New York’s process, which has received considerable criticism from industry. These provisions include an expedited licensing pathway for businesses already subject to similar state licensing standards. 

Despite these promising advancements, DFAL also has some serious setbacks. Overly broad and imprecise definitions could unintentionally pigeonhole a wide range of unrelated activity, technology and individuals into the bill’s purview, creating operational challenges for both licensees and regulators. Exemptions for smaller digital financial asset businesses, including early stage digital asset startups, are also insufficient to preserve the state’s competitive edge.

DFAL also stands to command significant attention in 2024, as the legislature is expected to take up legislation aimed at cleaning up unaddressed issues in the statute. 

Another remaining issue from 2023 will also command the attention of state crypto policymakers in 2024: The New York Attorney General’s Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act. Attorney General Letitia James originally proposed the legislation in May, with only a month left in New York’s legislative session. If passed, the bill would have had devastating consequences for the digital asset industry throughout the state. 

Read more from our opinion section: The crypto industry is better positioned than ever in Washington

New York’s existing digital asset regulations and the industry’s current regulator, the Department of Financial Services, would have been subsumed by a new, largely duplicative regulatory regime with the Attorney General’s office at the helm. The bill’s requirement for licensees to be monoline would have been the most disruptive, leading almost every business currently licensed to conduct virtual currency business activity in New York to be out of compliance on day 1. The legislature ultimately declined to introduce the bill this session, but it will most certainly be a topic of discussion in 2024. 

Another Attorney General who is hoping to extend their reach over digital assets is New Jersey AG Matt Platkin. The industry is currently holding its breath to see if the NJ State Legislature will pass legislation that would house crypto regulations under the AG’s Department of Law and Public Safety. 

Louisiana will hopefully serve as an opportunity for the industry to make some progress next year. The state government is widely expected to take up legislation to modify its digital asset regulations, which were established in 2022. 

Certain provisions of its rules governing “virtual currency business activity” are set to expire in 2025, requiring some action from the legislature. The state’s Governor-elect, Jeff Landry, could also introduce some interesting dynamics. He oversaw several cases related to the digital asset industry when he served as the state attorney general. Landry will have the final say over anything the legislature might pass through his authority to veto or sign legislation into law. 

A lot remains uncertain for the prospects of digital asset regulation in 2024. However, if trends from 2023 continue, there’s no doubt that states will continue to lead in this space. 



Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

AERODROME TEMPLATE.png

Research

Aerodrome is a "MetaDEX" that combines elements of various DEX primitives such as Uniswap V2 and V3, Curve, Convex, and Votium. Since its launch on Base, it has become the largest protocol by TVL with more than $495M in value locked, doubling Uniswap's Base deployment.

article-image

Plus, Imran Khan’s intriguing experiment on the speeds of crypto onramps

article-image

The SEC has signaled a timeline to issuers that could lead to a July 23 launch for the ETH funds, people close to the process told Blockworks

article-image

PayPal has unequivocally made a name for itself as a crypto adopter among fintech giants

article-image

Also, a look into how the highly-debated SAB 121 could end up shaking out for crypto custodians

article-image

Vance, an Ohio Republican, is largely seen as crypto-friendly

article-image

Plus, all the world is green as prices across the crypto space rally, with solana reaching a nearly two-week high