States roll out the red carpet for crypto investors, businesses

Washington has failed to craft legislation for digital assets but many states are charging ahead to court crypto investors and blockchain businesses.

The latest: Joining a handful of states, Texas Gov. Greg Abbott recently formalized his state’s support for cryptocurrencies.

Virtual Currency Bill: Abbott signed a law that offers legal clarity for Texans by defining virtual currency, establishing when a person acquires a right in it, and when a person has control of it.

Cowboy up: Even before it was official, Texas’ new law attracted jobs and businesses that want clear guidelines and an affable regulatory environment.

“Texas may see a notable influx of investors and innovative businesses that are attracted to the legal certainty provided by the new law, in addition to the overall welcoming business environment in the state.” —National Law Review

Why it matters: The more states that pass or propose laws on digital assets, the more pressure is applied to Congress to step up. As cryptocurrencies grow in ubiquity and value — now worth more than $2T collectively — Washington hopes to avoid a patchwork of state laws that may conflict with its (tax) interests.

Growing momentum: A majority of U.S. states already have or are proposing legislation to address digital assets. 31 states have or are working to legally clarify how they view virtual currencies and blockchain businesses.

The taxman: The U.S. is creeping toward regulating crypto to thwart tax evasion. Under President Biden’s American Families Plan, crypto investors would have to report when they receive more than $10,000. The plan would also give $80 billion to the IRS to boost its oversight on crypto assets.

Congress wants in: A group of senators recently launched the Financial Innovation Caucus with the goal to support “responsible innovation” for the U.S. financial system, including digital assets. Part of the effort is to compete with China, which hosts some of the largest Bitcoin mining operations in the world.

Regulation station: The U.S. Office of the Comptroller of the Currency is also rallying federal agencies to increase their oversight of crypto. OCC Comptroller Michael Hsu told the Financial Times that he aims to coalesce a “regulatory perimeter” for cryptocurrencies.

Tracking state crypto laws: The National Conference of State Legislatures created a helpful guide to see what states have laws pertaining to crypto.

Crypto-friendly states

• Wyoming is arguably the most attractive state for crypto businesses and investors. Wyoming lawmakers are not only crypto investors but the state also recently became the first to recognize decentralized autonomous organizations as LLCs. CoinDesk reports the law paves “the way for online collectives governed by blockchain-based smart contracts to have the same legal status as companies.”

• South Carolina is mulling a bill that would establish it “as an incubator for tech industries seeking to develop innovation by using blockchain technology.” If made law, the bill would also allow companies to issue certificate tokens instead of stock certificates.

• Nebraska passed two laws — the Transactions in Digital Assets Act and the Nebraska Financial Innovation Act — that allow banks to hold digital assets and offer crypto services. Lawmakers hope the moves will attract finance jobs and establish the Cornhusker State as a crypto leader.

• Illinois is looking at similar legislation to Nebraska. A bill in the state legislature would establish a charter for digital assets that would offer clarity to banks and other financial institutions hoping to participate in crypto.